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BCL Law Notes Restitution of Unjust Enrichment BCL Notes

Bp Exploration V. Hunt Notes

Updated Bp Exploration V. Hunt Notes

Restitution of Unjust Enrichment BCL Notes

Restitution of Unjust Enrichment BCL

Approximately 620 pages

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BP Exploration v. Hunt

Facts

In December 1957 the Libyan government granted the defendant a concession to explore for, and extract, oil in a specified area in the Libyan desert. In June 1960 the defendant, who did not have the knowledge, equipment or resources to develop the concession himself, entered into a contract with the plaintiff, a major oil company. The contract, known in the oil industry as a farm-in agreement, was contained in two documents, namely a 'letter agreement' and an operating agreement, whereby the defendant agreed to assign to the plaintiff a half share in the oil concession in consideration for which the plaintiff undertook to explore, develop and operate the whole of the concession entirely from its own resources and at its own expense and to make down payments in cash and oil to the defendant as 'farm-in' contributions. Under the agreement, if and when oil was discovered in commercial quantities the operating expenses were thereafter to be shared and (by section 9(e) of the operating agreement) the plaintiff was to be entitled to take and receive as reimbursement for the defendant's share of the development expenses and its farm-in contributions three-eighths of the defendant's half share of the oil produced until the plaintiff had received a quantity equal to 125% in value of its farm-in contributions and half its initial investment in the oil field. Clause 6 of the letter agreement provided that the defendant would not be personally liable to repay the sums advanced to his account in accordance with section 9(e) of the operating agreement and that the plaintiff was to look for reimbursement solely from the defendant's share of the oil. The main risk of failure in the combined venture was therefore to be borne by the plaintiff and not the defendant. The plaintiff spent considerable sums of money in exploration and development of the concession which proved extremely successful in that recoverable oil in commercially worthwhile quantities was found and from July 1967 production increased considerably. However, on 7 December 1971, following a revolution in Libya, the Libyan government expropriated the plaintiff's half share in the concession and on 11 June 1973 it also expropriated the defendant's half share. Both parties received inadequate compensation. The plaintiff brought an action against the defendant alleging that the agreement had been frustrated on 7 December 1971 as a result of the expropriation by the Libyan government of the plaintiff's half share in the concession and claiming, inter alia, such sums as the court considered just under s 1(3) of the Law Reform (Frustrated Contracts) Act 1943 in respect of the benefit obtained by the defendant by reason of the plaintiff's performance of the contract prior to its frustration.

Holding

Robert Goff LJ

General Principles of the 1943 Act

The Act isnotdesigned to do certain things. (i) It is not designed to apportion the loss between the parties. There is no general power under either s 1(2) or s 1(3) to make any allowance for expenses incurred by the plaintiff (except, under the proviso to s 1(2), to enable him to enforce pro tanto payment of a sum payable but unpaid before frustration); and expenses incurred by the defendant are only relevant in so far as they go to reduce the net benefit obtained by him and thereby limit any award to the plaintiff. (ii) It is not concerned to put the parties in the position in which they would have been if the contract had been performed. (iii) It is not concerned to restore the parties to the position they were in before the contract was made.

Plaintiff may escape from an unprofitable bargain: An award under the Act may have the effect of rescuing the plaintiff from an unprofitable bargain. This may certainly be true under s 1(2), if the plaintiff has paid the price in advance for an expected return which, if furnished, would have proved unprofitable; if the contract is frustrated before any part of that expected return is received, and before any expenditure is incurred by the defendant, the plaintiff is entitled to the return of the price he has paid, irrespective of the consideration he would have recovered had the contract been performed. Consistently with s 1(2), there is nothing in s 1(3) which necessarily limits an award to the contract consideration. But the contract consideration may nevertheless be highly relevant to the assessment of the just sum to be awarded under s 1(3).

Section 1(2) of the Act – Benefits in Money

It is not necessary that the consideration for the payment should have wholly failed: claims under s 1(2) are not limited to cases of total failure of consideration, and cases of partial failure of consideration can be catered for by a cross-claim by the defendant under s 1(2) or (3) or both. There is no discretion in the court in respect of a claim under s 1(2), except in respect of the allowance for expenses; subject to such an allowance (and, of course, a cross-claim) the plaintiff is entitled to repayment of the money he has paid. The allowance for expenses is probably best rationalised as a statutory recognition of the defence of change of position. True, the expenses need not have been incurred by reason of the plaintiff's payment; but they must have been incurred in, or for the purpose of, the performance of the contract under which the plaintiff's payment has been made, and for that reason it is just that they should be brought into account. No provision is made in the subsection for any increase in the sum recoverable by the plaintiff, or in the amount of expenses to be allowed to the defendant, to allow for the time value of money.

Section 1(3) of the Act – Benefits in Kind

General: In contract, where an award is made under s 1(3), the process is more complicated. First, it has to be shown that the defendant has, by reason of something done by the plaintiff in, or for the purpose of, the performance of the contract, obtained a...

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