§ Order of the Day for the Third Reading read.
§ THE LORD CHANCELLOR (VISCOUNT SIMON)
My Lords, in moving the Third Reading of this Bill it may be convenient if I make two observations. Your Lordships may have noticed that by Clause 2 (2) of the Bill it is intended that the Bill, when it is passed, shall apply "to contracts to which the Crown is a party in like manner as the contracts beween subjects," and therefore the reform of the law which we propose is to be extended to Crown contracts. According to our custom, and according to the Constitution, that change requires the formal consent of His Majesty, and after the Third Reading I shall communicate that consent, as I am authorized to do, to the House.
The other point which it may be convenient to mention now, in case some noble Lords interested in the Bill have not observed it, is that two small changes—little more than changes in form—are proposed to be made after the Third Reading. They both have to do with the topic of insurance. I do not think that a contract of insurance would be regarded as a contract which is ordinarily susceptible to the law of frustration, and I do not think that recent decisions on the subject would apply to it, for as soon as the premium has been paid and the risk attaches it is well established in law and custom that the premium is not returnable; but we had better make it quite clear that this Bill does not apply to contracts of insurance, and I propose to move for the insertion of words for that purpose.
The other change which I should like to indicate—and if necessary develop more fully when I move my Amendment—is to meet a difficulty which was pointed 368 out by my noble friend Lord Nathan when he spoke on the Second Reading. I do not think that subsection (5) of Clause 1 is very happily expressed, and I have had it recast in what I think is a clearer and more logical form. I will explain the change, if I may, after the Third Reading. I beg to move that the Bill be now read a third time.
§ Moved, That the Bill be now read 3a.— (The Lord Chancellor.)
§ On Question, Bill read 3a.
§ Clause 1:
§ Adjustment of rights and liabilities of parties to frustrated contracts.
§ (5) In considering whether any sum ought to be recovered or retained under the foregoing provisions of this section by any party to the contract, the court shall not take into account any sums which have, by reason of the circumstances giving rise to the frustration of the contract, become payable to that party under any contract of insurance:
§ Provided that this subsection shall not be taken as preventing the court, in considering under subsection (3) of this section the effect of the said circumstances in relation to any valuable benefit, from taking into account any sum payable to the benefited party, in respect of the loss of or damage to the said benefit, under any contract of insurance.
§ THE LORD CHANCELLOR moved, in subsection (5), after "insurance," where that word first occurs, to insert "unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment," and to omit the proviso. The noble and learned Viscount said: My Lords, I should like in a sentence or two to explain what is the purpose and effect of this change. Ordinarily speaking, I think, in deciding what prepayment should be retained or what the other party should pay for a valuable benefit received, a contract of insurance is irrelevant; it is purely collateral. In certain cases it will give rise to subrogation to the insurance company, but all that works out naturally. There is, however, one case where we ought to make express provision, and that is where the contract which is frustrated itself calls for a policy of insurance to be taken out by one of the parties, or when the law requires it. For example, it may be the case, and often is, that when a contract is entered into by which A is going to do work on the premises of B, it is a term of the contract that there is to be a policy of insurance taken out to protect those premises against fire and the like while 369 that work is going on. If it is part of the bargain between the parties that there should be a policy of insurance taken out, then it seems to me—and I hope it will appear to your Lordships also—right that if the contract becomes frustrated the effect of the policy of insurance should be taken into account.
§ There is another instance which will be familiar to your Lordships. In Part II of the War Damage Act there is a provision requiring the taking out of a policy of insurance in respect of business goods. It is actually so provided by law, and therefore it has to be done. If those goods happen to be destroyed by enemy action, that will probably, in many cases, frustrate a contract dealing with them; but it would be quite wrong, I think, for the party who is now going to receive money instead of the goods not to be treated as being in much the same position as if he really had the goods. That is the meaning of the Amendment, and I think that it is an improvement not only in the language of the Bill but in its logical basis. I am very much obliged to certain experts outside the House and to the Board of Trade for calling my attention to the point.
Page 2, line 25, at end insert ("unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment,") and leave out lines 26 to 31.—(The Lord Chancellor.)
§ LORD NATHAN
My Lords, since the noble and learned Lord Chancellor has been good enough to refer to me—and I appreciate his having done so—in regard to an argument which I put before your Lordships on the Second Reading of this Bill, I rise merely to say that this Amendment seems to me to be a real advantage and to add to the usefulness of the Bill and also to clarify a point which might otherwise have been obscure. On behalf of my noble friends and myself, therefore, I express the hope that your Lordships will agree to this Amendment.
§ LORD WRIGHT
My Lords, I also wish to support the Amendment moved by the Lord Chancellor. I think that it is very valuable indeed, and a substantial improvement. Where a party affected by frustration of a contract has insured, that may ordinarily be quite irrelevant as between the parties, but, if that has been done in pursuance of a term of the contract or under any enactment such as the 370 War Damage Act, then the position is changed, and it is no longer irrelevant as between the parties but is an essential part of the contractual relationship; and the man who has, at his own trouble and expense, effected the insurance, ought to be entitled to enjoy such benefit as comes from that insurance. I support the Amendment.
§ On Question, Amendment agreed to.
§ Clause 2:
§ Provision as to application of this Act.
§ (5) This Act shall not apply to any charterparty, except a time charterparty or a charterparty by way of demise, or to any contract (other than a charterparty) for the carriage of goods by sea.
§ (6) This Act shall not apply to any contract to which Section seven of the Sale of Goods Act, 1893 (which avoids contracts for the sale of specific goods which perish before the risk has passed to the buyer) applies, or to any other contract for the' sale, or for the sale and delivery, of specific goods, where the contract is frustrated by reason of the fact that the goods have perished.
THE LORD CHANCELLOR moved in Clause 2 to leave out subsections (5) and (6) and insert:
(5) This Act shall not apply—
The noble and learned Viscount said: My Lords, I have taken subsections (5) and (6) of Clause 2 of the Bill and have substituted for them a single subsection (5), which has exactly the same effect as what I wish to remove from the Bill, except that it includes the provision that the Act shall not apply to any contract of insurance, save-to the extent that we have just decided that it shall.
Page 3, line 19, leave out subsections (5) and (6) and insert the said new subsection.—(The Lord Chancellor.)
§ On Question, Amendment agreed to.371
§ THE LORD CHANCELLOR
My Lords, I have it in command from His Majesty to signify to the House that His Majesty, having been informed of the purport of the Law Reform (Frustrated Contracts) Bill, gives his consent, so far as His Majesty's interest is concerned on behalf of the Crown, that the House may do therein as they shall think fit. I move that the Bill be now passed.
§ Moved, That the Bill do now pass.—(The Lord Chancellor.)
§ On Question, Bill passed, and sent to the Commons.