BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 is the leading judicial exposition of the Law Reform (Frustrated Contracts) Act 1943 and the award of a “just sum” following frustration.

Facts of the Case

In 1960, Mr Nelson Bunker Hunt was granted an oil concession by the Libyan government but lacked the resources to develop it, so he entered a joint venture with BP. BP undertook exploration and development and provided “farm-in” contributions in cash and oil; in exchange, Hunt granted BP a half share of the concession and agreed to repay 125% of BP’s contributions and his share of development costs, exclusively from three-eighths of his share of the oil. Production began in 1967, and by 1971 BP had received about one-third of its reimbursement oil.

The Frustrating Event

The contract was terminated by the Libyan government: it expropriated BP’s interest in 1971 and Hunt’s interest in 1973. BP claimed these frustrated the contract and sought a “just sum” under section 1(3) of the 1943 Act.

Key Legal Principles and Judgment

Robert Goff J, at first instance, identified that the principle underlying the Act is the prevention of unjust enrichment. Under section 1(3), a two-stage process applies:

  1. Identification and valuation of the benefit: “benefit” is the “end product” of the services (the enhancement in value of the concession), not the services themselves.
  2. Assessment of the “just sum”: the court awards a sum that is just in all the circumstances, which cannot exceed the value of the identified benefit.

Despite the expropriations, Hunt had obtained a benefit through the oil received and his settlement with Libya. BP was awarded its costs and farm-in contributions, minus the value of the reimbursement oil already received. The Court of Appeal later noted that “what is just is what the trial judge thinks is just”, granting trial judges wide discretion.

Related Cases

  • Cutter v Powell (1795): a pre-Act illustration of the “all or nothing” common-law approach.
  • Appleby v Myers (1867): explains the “end product” rule — if a fire destroys the works, the valuable benefit may be nil.
  • Chandler v Webster (1904): the harsh rule that the “loss lies where it falls”, later overruled.
  • Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943): overruled Chandler, allowing recovery on a total failure of consideration; prompted the 1943 Act.
  • Gamerco SA v ICM/Fair Warning (Agency) Ltd (1995): a leading application of section 1(2) on recovery of money and retention of expenses.
  • National Carriers Ltd v Panalpina (Northern) Ltd (1981): debated the theoretical basis of frustration.
  • Lobb v Vasey Housing Auxiliary (1963): the onus lies on the party seeking to retain a prepayment to show retention is just.