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BP Exploration Co (Libya) Ltd v Hunt (No. 2) [1979] 1 WLR 783

Frustrated agreement to develop oil concession; principles applied when awarding just sum

Facts

BP entered an agreement with Hunt, under which BP would explore and develop his oil concession in Libya at their own expense. This expenditure would be recoverable from Hunt’s share of the profits when the field produced oil. After oil production began, the parties would share both production and development costs. Oil came on stream in 1967 but in 1971 the Libyan government seized BP’s interest. BP had not received all its initial expenditure from Hunt’s share, and claimed a just sum under s1 Law Reform (Frustrated Contracts) Act 1943.

Issues

BP contended the contract had been frustrated because of the seizure and, as such, they were entitled to recover the sums due under s1 of the 1943 Act. Hunt contended the contract was not governed by English law, had not been frustrated, and, therefore, the 1943 Act was of no application. Hunt also argued that BP had received compensation from the Libyan government, and BP’s acceptance of this payment was in breach of their contract. Hunt argued BP had agreed to bear the risks of the commercial enterprise, and that Hunt had fulfilled his obligations respecting the pre-production expenses. Even if the contract was frustrated, Hunt contended that BP had received valuable benefits from the contract and he counterclaimed for a just sum under the 1943 Act.

Held

The contract was held to be frustrated in 1971. At the date of frustration, Hunt had received a benefit under the contract because of BP’s contractual performance, and this sum was to be taken into account. The reimbursements already paid by Hunt would also be taken into consideration when the court calculated the just sum to be awarded to BP. BP could, therefore, recover $35 Million.


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