1. Where before frustration a party has received part but not all of what was promised to him, the value of the performance which he has received may be reduced or destroyed by the fact that, the contract having been frustrated, he is not entitled to the remainder of what was promised. This reduction in value is caused by thefrustration. Our scheme calls for an adjustment for such a reduction in or destruction of value.

2. The English Act makes provision for the effect upon the value of the received performance of the circumstances giving rise to the frustration of the contract. ¹ This is a different concept. Take this case. An Australian company agrees to buy cases of canned fish from a company resident in country X. The Australian company receives some of the cases but the contract is frustrated by the outbreak of war between Australia and country X. Assume that the value of the cases received before frustration is not reduced by reason that the Australian company no longer has a contractual right to delivery of the remaining cases.

3. On this assumption, there is no reduction, by reason of the frustration, in the value of the cases received. There is, therefore, no reduction in value to which our scheme applies. But the frustrating circumstance, namely the outbreak of war between Australia and country X, may affect the value of the cases received. The outbreak of war may raise the value of them, because the goods are available only from country X and hence, on war breaking out, are in short supply on the Australian market. On the other hand, the outbreak of war may reduce the value, because of consumer resistance to buying produce of the enemy country. Should this increase or reduction in the value of the received cases, caused by the outbreak of war, be taken into account in adjusting the amount to be paid for them? We do not think so.

4. We think that a statutory scheme of adjustment ought to be a scheme on which the parties might reasonably have agreed if they had thought of the question when framing their contract. We can visualize a party to a contract agreeing that if the contract is frustrated while partly performed by him so that, since performance cannot be completed, the value of the part performance is reduced, some financial adjustment shall be made.

5. But we cannot visualize the same party agreeing to bear part of any reduction in value from any of a multitude of conceivable frustrating events, the existence and magnitude of that reduction possibly affected by all sorts of circumstances otherwise of no concern to him. Nor can we visualize the other party to the contract agreeing to pay more for the value of what he received, before frustration, as augmented by any of a multitude of such conceivable events.

6. We give another illustration. An electrician agrees to rewire a house. He has done only some of the rewiring when the house is destroyed by fire and the contract is thus frustrated. The rewiring, so far as done, is destroyed. Surely what he should be paid for the rewiring, so far as done, should not be reduced because of the effect of the fire.

7. It does not follow that if, as we recommend, the only reduction in the value of a received performance which is to be taken into account is the reduction caused by the frustration, there are no cases in which the frustrating circumstances are relevant.

8. The frustrating circumstances may be relevant to the magnitude of the reduction in value caused by the frustration. The reduction in the value of the received performance must be assessed in the light of all the circumstances which exist upon the contract being frustrated and which affect the extent to which that value is reduced by reason that the party who received the perf ormance is no longer entitled to further performance under the contract of what was promised to him. The events which gave rise to the frustration of the contract may themselves be such circumstances. The f act that they are the circumstances which gave rise to the frustration does not make them less relevant, or more relevant, for that purpose than if the contract had been frustrated by other circumstances.

9. Consider this case. A German company agrees to build in Sydney, for an Australian company, a plant for the manufacture of petrol from coal. Operation of the plant requires knowledge of a secret process known only to a number of companies in Germany, of which the particular German company is one. The contract provides that the German company will supply the necessary information of the process. The Germany company builds the plant but the contract is frustrated before it has supplied the information. It is frustrated because Germany bans disclosure to non-German companies of the information.

10. The German ban renders the Australian company unable to obtain the promised information from any source. Clearly this inability is relevant to the extent of reduction in value of the plant caused by the incapacity of the German company to perform by supplying the promised information.