BP v Hunt [1979] 1 WLR 783

Facts

  • Hunt held an oil concession in Libya and agreed with BP that BP would finance prospecting and development in exchange for a share of future profits.
  • Before Hunt received any profits, the Libyan government nationalized the concession, frustrating the contract.
  • BP sought to recover its expenditure under Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943, arguing a benefit had been conferred on Hunt.

Issues

  1. Whether BP was entitled to restitution for expenditure incurred prior to frustration under Section 1(3) of the 1943 Act.
  2. How the 'just sum' recoverable should be determined when a contract is frustrated, especially considering changes in the value of the benefit conferred.

Decision

  • The House of Lords held BP was entitled to restitution, but not for the full value of its expenditure.
  • A two-stage approach was applied: first, identifying and valuing the benefit conferred prior to frustration; second, determining the 'just sum' to be recovered, accounting for the impact of the frustrating event on that benefit.
  • The benefit to Hunt was the increased value of his concession from BP's work, but the nationalization and resulting loss reduced the value of that benefit and the sum repayable to BP.
  • The court exercised discretion under Section 1(3) to achieve a fair result, awarding BP less than its total expenditure.

Legal Principles

  • Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943 grants courts discretion to order repayment or compensation for benefits conferred prior to frustration.
  • The court must first identify and value the benefit, and then assess the just sum recoverable in light of the impact of frustration on that benefit.
  • The principles in BP v Hunt have influenced how courts deal with partial performance and benefits received when contracts are frustrated, ensuring awards reflect losses caused by the frustrating event rather than full incurred expenditures.
  • The case emphasizes the importance of contractual provisions addressing frustration and the limitations of statutory discretion under Section 1(3).

Conclusion

BP v Hunt [1979] established a structured approach for restitutionary claims following frustration, focusing on the identification and valuation of benefits and the just reduction of awards based on post-frustration circumstances. The case remains central for interpreting Section 1(3) and shaping remedies in frustrated contracts.

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