Legal Case Summary
BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783
A frustrated oil-development agreement and the recovery of a just sum for benefits conferred before frustration.
Facts and background
In 1957 the Libyan government granted Nelson Bunker Hunt a concession to explore for and extract oil. Hunt lacked the resources and expertise to develop it himself. In 1960 he entered a farm-in agreement with BP, assigning BP a half share in the concession in return for its undertaking to explore, develop and operate it.
BP also agreed to make a US$2 million payment and supply Hunt with four million barrels of Iranian oil. BP initially funded the development. If the concession produced commercially worthwhile oil, operating expenses would then be shared, and BP would obtain reimbursement plus 25% through an agreed portion of Hunt’s share of the oil produced. The reimbursement mechanism concerned oil, rather than a simple share of cash profits. If exploration failed, BP bore the principal financial risk.
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The development succeeded and oil came on stream in January 1967. The parties subsequently modified their reimbursement arrangements. In December 1971 the Libyan government expropriated BP’s half share in the concession, before BP had received all its reimbursement oil. BP sought financial relief against Hunt under the Law Reform (Frustrated Contracts) Act 1943.
The issues
The dispute concerned whether the agreement had been frustrated and whether BP could recover a just sum for benefits already conferred on Hunt. An earlier jurisdiction decision by Kerr J had established that English law governed the contract. Hunt disputed BP’s entitlement to further payment, relying on the allocation of risk in their agreement and the benefits and reimbursements already exchanged.
Frustration and the statutory adjustment
Robert Goff J held that the agreement had been frustrated by the 1971 expropriation. The financial consequences fell to be considered under the 1943 Act, including section 1(3).
That subsection addressed a valuable non-money benefit obtained through another party’s contractual performance before discharge. It permitted recovery of whatever sum, if any, the court considered just in all the circumstances, subject to the value of the benefit to its recipient as a ceiling. The statute specifically required consideration of the recipient’s relevant expenses and of the effect of the frustrating event on the benefit.
The distinction mattered because BP’s claim was not simply for the unpaid balance of its expected reimbursement oil. The court had to consider the benefits Hunt had obtained from BP’s performance and the payments and other relevant contributions already made. Frustration did not automatically entitle BP to recover every item of expenditure or its anticipated contractual return.
Decision and award
Goff J ordered Hunt to pay principal sums of US$10,801,534 and £5,666,399. Interest was awarded separately: US$4,774,289 and £3,060,219. These were awards in two currencies, rather than a single US-dollar principal sum.
Interest ran from 14 June 1974, when BP had made its intention to claim clear to Hunt’s representatives. Goff J considered the circumstances unusual: Hunt knew the relevant facts, but could not reasonably have been expected to anticipate this restitutionary claim before notification. The judge declined to postpone interest further to allow time for Hunt to investigate.
Report: [1979] 1 WLR 783, Queen’s Bench Division (Commercial Court), Robert Goff J. See also the House of Lords appeal record, which sets out the contractual terms and the sums awarded below, and section 1 of the 1943 Act as enacted.
