Chapter 3 - Contracts

Part 3.2 - Frustrated contracts

Division 2 - Consequences of frustrated contract

36. Adjustment of amounts paid or payable to parties to discharged contracts

(1) All amounts paid to any party under a discharged contract before the time of discharge are recoverable.

(2) All amounts payable to any party under a discharged contract before the time of discharge cease to be payable.

37. Court may allow amounts paid or payable to be recovered or paid

Despite section 36, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow a party to a discharged contract -

(a) to whom amounts were paid or are payable under that contract before the time of discharge; and

(b) who has incurred expenses before the time of discharge in or for the purpose of the performance of that contract -

to retain or recover (as the case may be) the whole or any part of the amounts paid or payable to that party under the contract in an amount not exceeding the expenses incurred.

38. Parties to pay an amount for valuable benefits obtained

(1) This section applies if a party to a discharged contract obtained a valuable benefit (other than a payment of money to which section 36 or 37 applies) before the time of discharge because of anything done by another party in or for the purpose of the performance of the contract.

(2) Despite section 36, the benefited party is liable to pay to that other party any amount (not exceeding the value of the benefit obtained) that the court considers just having regard to all the circumstances of the case.

(3) For the purpose of subsection (2), the court may have regard to -

(a) the amount of any expenses the benefited party incurred before the time of discharge in or for the purpose of the performance of the contract, including any amount paid or payable by the benefited party to any other party under the contract and retained or recoverable by that party under section 36 or 37; or

(b) the effect, in relation to the benefit obtained, of the circumstances giving rise to the frustration or avoidance of the contract.

(4) For the purpose of this section, if a party to the contract has assumed obligations under the contract in consideration of the conferral of a benefit by another party to the contract on any other person (whether or not that person is a party to the contract), the court may, if in all the circumstances of the case it considers it just to do so, treat any benefit conferred on that other person as a benefit obtained by the party who has assumed those obligations.

39. Calculation of expenses incurred

In estimating, for the purposes of this Division, the amount of any expenses incurred by any party to a discharged contract, the court may include an amount that appears reasonable for-

(a) overhead expenses; and

(b) work or services performed personally by the party.

40. Circumstances in which amounts payable under contract of insurance excluded

In considering whether any amount is to be retained or recovered by any party to a discharged contract, the court must not take into account any amounts payable to a party under a contract of insurance because of the circumstances giving rise to the frustration or avoidance of the contract unless an obligation to insure is imposed-

(a) by an express provision in the frustrated or avoided contract; or

(b) by or under any enactment.

Division 3 - General

41. Circumstances in which contract provisions continue to have effect despite frustration

If any contract to which this Part applies contains a provision that on the true construction of the contract -

(a) is intended to continue to have effect in circumstances that operate or would, but for that provision, operate to frustrate or avoid the contract; or

(b) is intended to have effect whether or not circumstances that operate or would, but for that provision, operate to frustrate or avoid the contract arise-

the court must give effect to that provision and must only give effect to Division 2 to the extent that the court is satisfied that it is consistent with the provision of the contract.

42. Performed part of contract not frustrated

If it appears to the court that part of a contract to which this Part applies -

(a) is wholly performed before the time of discharge; or

(b) is wholly performed before the time of discharge except for payment in respect of that part of the contract of amounts that are or can be ascertained under the contract -

the court must treat that part of the contract as if it were a separate contract that had not been frustrated or avoided and Division 2 will only apply to the remainder of that contract.

43. Nature of action

All actions and proceedings to recover amounts under this Part are taken to be founded on simple contract.

44. Limitation period

Subject to Part II of the Limitation of Actions Act 1958, a cause of action under this Part is taken to have first accrued at the time of discharge.

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