BP v Hunt [1979] 1 WLR 783

Key Points

  • Under s1(3) Law Reform (Frustrated Contracts) Act 1943 (‘1943 Act’), the value of the benefit conferred is assessed based on the outcome, not the service itself, unless it is a contract for long-term repeated service
  • The just sum is the quantum meruit or quantum valebant of the goods or services provided

Facts

  • Hunt (D) entered contract with BP (C) to extract the oil from the oil concession in Libya he owned
  • Gaddafi seized power and expropriated BP’s share in the concession in 1971, 2 years later Hunt’s share was expropriated
  • BP claimed that contract had been frustrated by expropriation in 1971 and sought the award of a just sum under s1(3) 1943 Act

Held (High Court)

The contract had been frustrated in 1971, BP was awarded $35.4 million for the benefits it conferred on Hunt under s1(3) 1943 Act.

Robert Goff J

There are two stages to the inquiry under s1(3) 1943 Act:

  • (1) Determine the actual value of the benefit to D
  • (2) Determine the just sum

(1) Actual value of benefit

  • The actual value of benefit is the ceiling amount of total award
    • If just sum – set off < actual value of benefit, award = just sum
    • If actual value of benefit < just sum – set off, award = actual value of benefit
  • Identifying the benefit
    • In the case of services, it is to be determined by the outcome, outside of cases where there is no outcome, such as a contract for transport
    • If the service was to build a house and the house was burnt down in the frustrating event, the value of the benefit is 0 and thus the just sum is reduced to 0
  • Apportionment for contribution by D
    • If D contributed to the benefit as well, the court will apportion the benefit to determine which proportion is attributable to C
  • Value is subjective to the defendant
    • A small service may confer a big benefit and a large service may confer a small benefit
    • Even when the outcome has no objective value, such as an eccentric redecoration of a home, such that the objective property value is reduced, it may still be of benefit to D
  • Date of valuation
    • The value is determined at the date of the frustrating event
    • Time value of money is not taken into account

(2) Just sum

  • The basic measure of recovery in restitution is the reasonable value of C’s performance, i.e., in the case of services, the quantum meruit and in the case of goods, the quantum valebant
  • The terms of the contract are relevant to determining the just sum:
    • If the contract makes a large award when completed but nothing if it is not performed, the risk taken by the claimant might enhance the just sum
    • The consideration under the contract provides evidence of what is a reasonable sum
    • If for example the consideration is below market rate as the defendant could not afford to pay more, it can act as a limit on the just sum

Current case

  • Value of benefit Hunt obtained = oil from the oil field + financial settlement with Libyan government for expropriation = $84 million
  • Just sum (quantum meruit for BP’s services) = costs and expenses BP had incurred – oil BP received = $98 million
  • Set off (benefit BP received) = 33 million barrels of oil received by BP = $62 million
  • BP’s entitlement = $98 million – $62 million = $36 million < $84 million