6. c. 40) is an act of the Parliament of the United Kingdom which establishes the rights and liabilities of parties involved in frustrated contracts.

It amends previous common law rules on the complete or partial return of pre-payments, where a contract is deemed to be frustrated.

This common law position was not improved upon until Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd,[3] where the House of Lords, overruling Chandler v Webster, decided that pre-payments could be recoverable where that had been a 'total failure' of consideration from the recipient of such a payment (where nothing had been given in return for the payment, prior to the frustrating event).

[5] This principle is exemplified in Whincup v Hughes,[6] where Brett J explained the common law position: By the contract a specific sum is paid to the testator in respect of a continuing consideration, viz., a personal duty to be performed for six years if both parties should live so long.

Now the case cannot be brought within the rule of law relating to total failure of consideration, or mutual rescission of a contract.

[9] The suggestions of the Committee are reflected in the construction and ambit of the Act: A less arbitrary rule should be adopted, whereby the payer should be entitled to return of all monies paid under the contract less the whole of any direct losses incurred by the payee.

[5] The provision differs from the previous system of reimbursement established in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, where pre-payments could only be recovered where that had been a total lack of consideration.

[10] With regard to the second situation, any financial obligation due (as in Chandler v Webster) is excused, subject to where expenses have been incurred by the payee.

[12] Here, a large pre-payment of $412,500 was returned to Gamerco SA, where they had incurred expenses prior to a frustrated contract for a series of concerts, despite both sides having begun performance (in the form of advertising).

Section 1(3) covers instances where one party has obtained a "valuable benefit", other than a payment of money, prior to a frustrating event.

Noting that Hunt had gained valuable benefits, from the farmed oil, Goff LJ identified several steps to be taken in applying the section.