B.P. EXPLORATION CO. (LIBYA) LTD. RESPONDENTS AND HUNT (NO.

2) APPELLANT [HOUSE OF LORDS] [1983] 2 AC 352 HEARING-DATES: 3, 7, 8, 9, December 1981, 4 February 1982 4 February 1982 CATCHWORDS: Contract - Frustration - Remedy - Agreement to develop oil concession - Concessi on developed into oil field on stream - Agreement frustrated by Libyan governmen t expropriating parties' interests and excluding them from field - Whether contr actual losses recoverable - Principles to be applied in awarding just sum - Whet her interest payable on sum awarded - Law Reform (Miscellaneous Provisions) Act 1934 (24 & 25 Geo. 5, c. 41), s. 3 - Law Reform (Frustrated Contracts) Act 1943 (6 & 7 Geo. 6, c. 40), ss. 1 (2) (3), 2 (3) HEADNOTE: The defendant, who had been granted an oil concession in Libya, entered into a " farm-in" agreement with the plaintiffs, under which the plaintiffs received a ha lf share in the concession and agreed in return to transfer to the defendant cer tain "farm-in" contributions in cash and in oil, and to undertake the exploratio n of the concession and, if oil was found, the development of the field and prod uction of oil from it. Under the agreement, the plaintiffs were to provide all n ecessary finance until the field came on stream; but once the field came on stre am, the plaintiffs were to take and receive, inter alia, one-half of all oil pro duced from the field and "reimbursement oil" in the form of three-eighths of the defendant's share of the production until the plaintiffs had received in reimbu rsement 125 per cent. of their farm-in contributions. After the field came on st ream, the cost of production and development of the field was to be borne equall y by the two parties. The agreement between the parties was contained in two doc uments, the operating agreement and the letter agreement, and by clause 6 of the letter agreement it was agreed that the defendant should have no personal liabi lity to repay the sums required in the operating agreement. The plaintiffs spent many millions of pounds in exploration and, having found a large oil field, in its development. The field came on stream in 1967 and, there after, substantial quantities of oil were produced from the field until December 1971, when the Libyan government expropriated the plaintiffs' interest in the c oncession. The plaintiffs had by then received about one-third of the reimbursem ent oil to which they were entitled. The defendant's interest was expropriated i n July 1973. Both parties received compensation from the Libyan government but t he amount was inadequate. The plaintiffs claimed a declaration that the contract had been frustrated and a n award of a just sum under section 1 (3) of the Law Reform (Frustrated Contract s) Act 1943. n1 The

n1 Law Reform (Frustrated Contracts) Act 1943, s. 1 (1) (2) (3): see post, pp. 3 69E - 370C. S. 2 (3): see post, p. 370C-D. judge held that the contract, which was governed by English law, had been frustr ated in December 1971 and, since clause 6 of the letter agreement could not be c onstrued as being intended to apply in the event of frustration, the provisions of section 2 (3) of the Act did not apply to exclude an award under the Act. He further held that the plaintiffs were entitled to a just sum under section 1 of the Act of 1943 for the valuable benefit that the defendant had received as a re sult of their contractual performance. The judge made an award in dollars in res pect of the farm-in cash and oil received by the defendant and in sterling for t he services rendered by the plaintiffs. He ordered that interest under section 3 (1) of the Law Reform (Miscellaneous Provisions) Act 1934 n2 be paid on the awa rd from June 14, 1974, when the plaintiffs had made it clear that they intended to claim restitution. The Court of Appeal dismissed an appeal by the defendant. On appeal by the defendant:Held, dismissing the appeal, (1) that there was nothing in the terms of the cont ract or in the circumstances surrounding its making to indicate that the parties contemplated political risks like the expropriation of the concession by the Li byan government, frustrating the contract, or that any provision was included in the contract to have effect on such risks materialising and accordingly the cas e did not fall within section 2 (3) of the Act of 1943 (post, pp. 372F - 373A). (2) That the words "any debt or damages" in section 3 (1) of the Act of 1934 cov ered any sum recoverable from one party to another at common law, in equity or u nder such a statute as the Act of 1943 and the judge had power to order interest from any date after the frustration of the contract (here the date of the expro priation) as in the exercise of his discretion he considered just, a discretion which he exercised properly and with which an appellate court should not interfe re (post, pp. 373E-F, H - 374A, C-D). Per curiam. There is no general rule that whenever the amount of any debt or dam ages payable by one party to an action to the other cannot be ascertained until judgment is given, the court should never, in the exercise of its discretion, aw ard interest from a date earlier than the date of the judgment (post, p. 374B-C) . Decision of the Court of Appeal [1981] 1 W.L.R. 232 affirmed. INTRODUCTION: APPEAL from the Court of Appeal. This was an appeal by the appellant, Nelson Bunker Hunt, by leave of the House o f Lords granted on November 6, 1980, from a judgment and order of the Court of A ppeal (Lawton, Bridge and Shaw L.JJ.) dated respectively July 16, 1980, and Augu st 8, 1980, whereby the appeal of the appellant and the cross-appeal of the resp ondents, B.P. Exploration Co. (Libya) Ltd., were dismissed and the judgments dat ed June 30 and March 16 and 26, 1979, and the order dated March 26, 1979, of Rob ert Goff J. were affirmed. The action was begun in May 1975 following the nationalisation on December 7, 19 71, by the Libyan government of B.P.'s interest in the Sarir oilfield. This nati onalisation frustrated an agreement between Hunt and B.P. under which each party was entitled to a half share in the field. The concession had initially been gr anted by the Libyan government to Hunt in December 1957 for a period of 50 years . Pursuant to the agreement dated June 24, 1960, Hunt had assigned a 50 per cent

. interest in his concession to B.P. In consideration B.P. had agreed to make do wn payments in both money and oil and to advance Hunt's share of expenditure on exploration and development until, if oil was discovered in commercial quantitie s, the field came on stream. In this event B.P. were to be entitled to take as r eimbursement three-eighths of Hunt's half share in the oil if, as and when produ ced. The agreement provided that the down payments and advances (hereinafter cal led compendiously "the pre-production payments") were not to be recovered in any other manner than out of this specified part of Hunt's oil. The field came on s tream in January 1967. By an amending agreement in June 1967 in return for a con cession by Hunt on the price of "put" oil which he had the option to sell to B.P . the total amount of oil which B.P. were permitted to take from Hunt's oil in r eimbursement of the pre-production payments was fixed at a maximum of 50,000,000 barrels and the rate at which they were to receive it was not to exceed 18,750 barrels per day regardless of the daily production. At the time B.P. were nation alised they had received on this basis 33,000,000 barrels of reimbursement oil. The judge awarded B.P. the entire amount of the pre-production payments which th ey had failed to obtain in reimbursement oil before nationalisation. The facts are stated in the opinion of Lord Brandon of Oakbrook. COUNSEL: Robert Alexander Q.C., Nicholas Lyell Q.C. and Peregrin Simon for the appellant. On the terms of the contract and in the circumstances surrounding its making th e appellant should not be ordered to pay the respondents any principal sums unde r the Law Reform (Frustrated Contracts) Act 1943 and, in any event, should not b e ordered to pay interest on those sums. It must be decided whether on the true construction of the contract the appellan t had agreed to take the physical risks of failure of the venture and also the p olitical risk of expropriation. This must be decided on the terms of the particu lar contract as stated in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbo ur Ltd. [1943] A.C. 32, 42-43. All depends on the proper construction of the con tract. This is a commercial contract to be construed accordingly. B.P. took almost ever y risk of premature termination of their commercial adventure. It would be unrea listic to say that the parties excluded the risk of frustration. Clause 6 of the letter argreement is concerned with risks and this differentiates it from contr acts which do not provide for the incidence of risk. It is submitted: (1) The Act of 1943 empowers the court to make an award where m oney has been paid under a frustrated contract (section 1 (2)) or where a benefi t other than a payment of money has been received (section 1 (3)) by reason of s omething done by the other party. (2) Under section 1 (2) the court is, subject to any inconsistent provisions of the agreement, obliged to award the amount of any payment, less expenses. (3) Under section 1 (3) the court is entitled, subject to any inconsistent provi sions in the agreement, to award a "just" sum. The award has an upper limit of t he value of the benefit which the defendant has obtained by the date of the frus tration, but this formula requires, not only that the amount of the sum should b e fair; it also requires that the making of an award at all must be just between the parties. If the section created a statutory quasi-contractual right to reco very the law would imply a term that payment should be made, but such a term cou ld arise only where it was fair and just to both parties that the plaintiff shou ld recover. (4) The Act expressly contemplated that contractual provisions will continue to apply in the event of frustration and whether or not it occurs (section 2 (3)).

(5) If such provisions are inconsistent with the making of an award, then no awa rd can be made. The Act contemplates that the parties may contract in terms whic h provide for the incidence of risk in the event of premature termination of the adventure. If the effect of the agreement is that the plaintiff should bear the risk in such circumstances, then it is inconsistent with those terms for an awa rd to be made. (6) If the terms of the contract are not inconsistent with an award it does not necessarily follow that it is just for an award to be made under section 1 (2). Before making an award, the court must be satisfied that it is just to do so in all the circumstances, which include both the contractual matrix and the terms o f the agreement. (7) The agreement is a commercial document to be construed in accordance with co mmercial expectations. An award to B.P. is inconsistent with the terms of the agreement which were inte nded to place the risk on B.P. whether or not frustration occurred. It is common ground that the principal terms of the agreement, in particular clause 6 of the letter agreement and section 9 (e) of the operating agreement, operate so as to place the risk of non-recovery of pre-production expenditure on B.P. in all cir cumstances save frustration. But B.P. submitted that they did not take the risk of a political event such as nationalisation. The essential question is whether the risk is so limited as no longer to exist i n the event of frustration or whether the terms of the agreement in their ordina ry meaning apply whether or not frustration occurs. The language of the agreemen t places the risk on B.P. whether or not frustration occurs. This is a commercia l agreement and the incidence of risk does not change according to whether the c ircumstances causing termination of the adventure can be legally characterised a s frustration. The commercial consequences of termination may be radical, whethe r or not impossibility of further performance arises through a frustrating event . Nothing in clause 6 or section 9 (e) suggests that the parties intended that t he risk which B.P. accepted should be limited so as to cease on frustration. The wide and emphatic words of these provisions apply whether or not frustration oc curs. The present contract was full, detailed and precise. Most discussions of frustra tion and the harshness of its consequences turned on the termination of comparat ively simple agreements (e.g., the cancelled Coronation cases or the frustration of so-called entire building contracts where payment was to be made on completi on of the work). In such cases it was easy to say that it would be just for the plaintiff to recover either advance payments on the value of a benefit conferred according to whether the case fell within section 1 (2) or (3) of the Act, assu ming that there were no provisions in the agreement inconsistent with an award. But a detailed commercial agreement must be closely and carefully scrutinised to see whether its terms are applicable, whether or not frustration occurs and, if not, whether an award is just. This contract was carefully negotiated and balan ced. The parties might have agreed that as consideration for B.P. being granted a half-share in the concession they should have no right to recover preproductio n payments. But the parties negotiated a defined, circumscribed and precise righ t of recovery embodying certain safeguards for Hunt. Reimbursement was to be mad e only out of oil and only from a certain proportion of Hunt's share of the oil. Thus it was guaranteed that he should never have to make repayment in cash of t he pre-production payments. An award under the Act puts on him a personal obliga tion contrary to the intention of the agreement.

The Act contemplates that terms of the agreement may apply in the event of frust ration or whether or not frustration occurs. The question whether or not the agr eement places risk on B.P. whether or not frustration occurs must be decided by applying the ordinary principles of construction. If the contract contains a pro vision which on its true construction is intended to apply in the event of frust ration B.P. have taken the risk of non-recovery and no award should be made. In Bank Line Ltd. v. Arthur Capel & Co. [1919] A.C. 435, relied on in the Court of Appeal, the relevant issue was solely whether the terms of the charterparty prev ented frustration of the contract occurring at all. The case was not concerned a t all with the issue whether or not, granted that the contract was frustrated. a provision operated so as to govern the rights of the parties for the future (se e pp. 442, 444-445). The Court of Appeal also adopted the test set out in Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 505, as representing good law, but it was wrong in its application of the principle. The principle is not in dispute, but its existence should not lead to the approach adopted by the Court of Appeal: see also pp. 510-511. The Court of Appeal erred because they ignored the distinction between Hirji Mulji [1926] A.C. 497 and Hey man v. Darwins Ltd. [1942] A.C. 356. Before the provisions of section 2 (3) of t he Act of 1943 can apply there do not have to be words referring specifically to frustration by name or to circumstances which inevitably operate to frustrate. The issue is whether in their ordinary and natural meaning the words include fru stration. If they are sufficiently general they fall squarely within section 2 ( 3). One must consider the terms of the particular contract. In the Fibrosa case [1943] A.C. 32, 42-43, Viscount Simon L.C. cited the example of a "divisible" co ntract, where a sum is to be paid over in respect of completion of a defined por tion of the work. That indicates that it is unnecessary for the terms of a contr act to refer specifically to frustration by name or to events which fall within the legal doctrine of frustration. General words suffice. It is enough if on the terms of the contract as a whole they have the effect of placing the risk on on e party or the other. The relevant terms of the agreement must be considered in their entire contractu al context, including the background, object and matrix of the transaction. Hunt owned the concession, which both parties considered promising. At the date of t he agreement it was not known whether the concession would be oil bearing or cap able of commercial production or, if so, whether that would be in quantities whi ch would enable full reimbursement to be made under the agreement. There were ot her risks, natural disasters, expropriation and technical difficulties preventin g production, besides unforeseen risks, the possibility of which had to be asses sed. Neither party knew the extent to which the bargain was beneficial. In the e vent B.P.'s exploration benefited Hunt and his assignment to B.P. benefited them . B.P. agreed to undertake liabilities to Hunt as the price of their 50 per cent. interest. Under clause 1 (a) of the letter agreement two million dollars were pa yable within six days, i.e. before B.P. began exploration. Also the oil to be pr ovided under clause 4 was to be delivered over a four year period irrespective o f the extent to which the development of the field was successful. The obligatio n to make these payments was not linked with the likelihood of recovery of them through reimbursement oil. The payments were for the interest in the concession which gave B.P. the opportunity to explore, and, if the field proved commercial, a half share in the oil. The advances of expenditure under section 9 (d) of the operating agreement were to be made as work proceeded. B.P. could have evaluate d at each stage whether further development was prudent but the risk that, for s ome reason, the advances would not be recoverable could never have been eliminat ed. Section 9 (d) of the operating agreement distinguishes between expenditure incur red before the field came "on stream," for which B.P. were responsible, and expe

nditure incurred subsequently, in respect of which Hunt was to pay his share, he being then in receipt of income which he would apply for further development or deploy elsewhere, knowing that he would never be personally liable for reimburs ement of the pre-production payments. Section 9 (e) provided the only method of reimbursement. Clause 6 of t he letter agreement made it clear that Hunt was to be under no personal liabilit y for repayment of the sums advanced. It provided unequivocally that any recover y was to be solely out of a part of his production in the way specified in secti on 9 "if, as and when produced, saved and delivered at the Libyan sea terminal." These provisions, general, clear and powerful, put the risk of non-recovery in full through reimbursement oil on B.P. Since B.P. undertook the risk of such hazards as earthquakes it is necessarily t o be inferred that they undertook political risks such as nationalisation. The o bligations of Hunt were contingent. The cost of the adventure to him would be th e production and not the advances. Reimbursement would be made only when the inc ome covered the cost of production. It cannot be that he contracted to pay back this money under a personal liability. The contract is the best guide to what is just and it would be unjust to impose on him an outright liability for all thes e payments. The whole contract points the other way. It cannot be that the nationalisation brought into existence a large personal fi nancial liability never envisaged by the agreement and contrary to its contempla tion. An award would deprive Hunt of a benefit which was part of the considerati on given him for the grant of the concession. It would not be just to require hi m to meet an award reflecting his contractual obligation while disregarding the security and protection which were partial consideration for that obligation. Th is would impose on him, avowedly by reference to the contract, a different and m ore onerous obligation. Hunt has not been unjustly enriched at B.P.'s expense an d the law should not imply a right to payment. Hunt has been given the benefit, no more and no less, than the contract provides. The consideration given to him and by him should not be altered to his detriment. The consideration Hunt receiv ed was that B.P. were to do the work; Hunt was to get the down payments and a li mitation on the right of recovery, which did not extend to the making of full pa yment back. The whole of what Hunt was given was in exchange for the grant of th e half share of the concession. What he was given was an essential element of pr otection. The doctrine of frustration has the effect of discharging further performance in so far as further performance becomes impossible. But where there are clauses w hich, on their true construction, continue to apply because they do not call for further performance which has been rendered impossible they continue to apply, e.g. if a party has an accrued obligation to pay money. Then the frustration of the contract does not make performance of that obligation impossible. So where a clause like clause 6, a clause of limitation and protection, is not made imposs ible of further performance it can continue to apply. By section 2 (5) (b) the Act does not apply to contracts of insurance. So, when insurance is taken out, as soon as the event for which the premium is paid start s to run, the whole premium is treated as earned and the insurers, even if the c ontract is frustrated soon after they have gone on risk, can claim the whole pre mium or keep it if it has been paid. The premium is paid as an extra considerati on. By analogy, when Hunt transferred the concession, the consideration given to him, including the protection, was entire consideration for the transfer and should not be rewritte n. On the question of interest, if the appellant fails on the main point, it is acc

epted that unless section 1 (2) of the Act of 1943 applies the debt arose on Dec ember 7, 1971. But the structure of section 1 (3) is different. The legislation did not provide that the value of the benefit should be paid to the plaintiffs b ut that a just sum should be paid to them, so this is not simply a case where th e court must assess the value of the benefit. There is to be awarded such sum as the court considers just, so that a sum does not become due before the court ha s considered it to be just. The process is different from determining what is du e in debt or damages. Only if there is a debt can it be brought within the Act o f 1943 giving rise to an award of interest. This is fundamentally different from a claim on quantum meruit. Where there is a quantum meruit for work done there is also a plea indebitatus in relation to th e value of the work. But here the award is not related to the value of the benef it which only serves as a ceiling, a fundamental distinction. Soci t Franco Tuni sienne d'Armement v. Sidermar S.P.A. [1961] 2 Q.B. 278, 314 was really a straigh t quantum meruit case. The Aldora [1975] Q.B. 748, 751, has much more connection with an ordinary quantum meruit case than was the present case. In re Diplock[1 948] Ch. 485, 506-507, 517, has nothing to do with the present case. Nor has Bow ling v. Cox [1926] A.C. 751, 754. These authorities do not help in relation to t he Act of 1943. The structure of the benefit here is quite different from anything which has bee n through the courts before. It is unrealistic to say that a debt suddenly arose at midnight on December 7, 1971. As to the cases in which an appellate court can interfere with the discretion of a judge, see Evans v. Bartlam [1937] A.C. 473; Ward v. James [1966] 1 Q.B. 273, 298 and Charles Osenton & Co. v. Johnston [1942] A.C. 130. Here the trial judge should not have held that in effect Hunt should have paid the debt. In the circ umstances of this case it is unrealistic to treat Hunt as a wrongdoer. The trial judge did not rightly apply the principle set out in General Tire & Rubber Co. v. Firestone Tyre & Rubber Co. Ltd. [1975] 1 W.L.R. 819, 841. He was wrong in sa ying that Hunt, acting honestly and reasonably, should have paid on June 14, 197 4. In a claim in debt for goods sold and delivered one can find the market value of the goods; in a claim for damages one can assess the value, say, of the ship that has been damaged. But that is different from the present case. Interest ha s never been awarded in a defamation action, in contrast with the sort of contra ctual or commercial cases where it is intelligible to award interest on damages which can be assessed in firm monetary terms by reference to market value at the date of the breach or tort, i.e. where the defendant can know what he ought to pay, if he is liable, which in the present case he cannot know. In view of the d uration of the case and the way it developed Hunt could not have had the prescie nce of what to pay as an obligation to do so. [LORD WILBERFORCE: Their Lordships do not need to hear argument for the responde nts on the issue of interest.] K. S. Rokison Q.C., I. A. Milligan and R. G. Wood for the respondent company. Th e question is: What was a just sum? The respondents asked for that and the trial judge calculated it in a particular way. If the sum can b e justified or shown because of some other factor not to be unjust, it is proper to take that factor into account. The main question now is, not whether the aw!rd is consistent with the contract, but whether clause 6 of the letter of agreement was a provision which, on the t rue construction of the contract, was intended to have effect either in the even t of circumstances arising which operated to frustrate the contract or to have e ffect whether or not such circumstances arose. It was concerned with risk and th e question arose whether under the contract B.P. took the risk of the loss which

would arise from the frustration of the contract upon events which happened. Th e subsidiary question arose under section 2 (3) of the Act of 1943 whether, if c lause 6 was intended to apply, nevertheless the award was the just sum consisten t with giving effect to that provision. Clause 6 was not, on the true constructi on of the contract, intended to survive in those circumstances and, even if it w as, the just sum which the judge awarded was not inconsistent with giving effect to clause 6. The Act recognises (a) that the question whether a particular provision applies is one of construction and (b) that its construction is giving effect to the pre sumed intention of the parties. But that intention can only be derived from the terms of their agreement against its commercial background. One cannot assume th e intention and then construe the contract against the background of the assumpt ion. Section 2 (3) of the Act is a qualification of section 1 which adjusts the right s and liabilities of the parties if their contract is frustrated. Parliament leg islated to change what was then believed to be the law, viz., that on frustratio n the rights and liabilities of the parties rested where they were in that they were discharged from further obligation and the loss rested where it fell. Under section 1 (1) where the contract is frustrated the parties are discharged from its further obligations and the respective rights also go. Only in exceptional c ases will any clause survive the frustration. It is wrong to say that the partie s are only discharged from further performance of those obligations which have b ecome impossible of performance. It should not be assumed that if a provision in a contract such as clause 6 is on the face of it unqualified, i.e. if it does n ot provide that it should not apply in the event of frustration, that it does ap ply and that it is for the plaintiff suing under the Act to show that it should not survive frustration. When a contract is frustrated, like this one, the whole contract prima facie goes. A contract can be frustrated, not just because furth er performance has become impossible, but also because the circumstances in whic h it was made have so changed that further performance has become fundamentally different. That is recognised in section 1 (1) of the Act. The underlying basis of the contract would be destroyed. Section 2 (3) is intended to have effect, in ter alia, in the event of circumstances arising which frustrate. Bank Line Ltd. v. Arthur Capel & Co. [1919] A.C. 435, 461 is of considerable hel p in considering whether clause 6 was intended to apply on the true construction of the contract. The present is an a fortiori case. Clause 6 did not continue t o apply when none of the other provisions making up the package which was the co ntract survived. The principle in Hirji Mulji [1926] A.C. 497 is not disputed by the appellant and by it the rights and obligations under the contract came to a n end. An arbitration clause might survive if very clearly drafted to show that intention. An arbitrat ion clause might be so widely drafted that it might apply to the question of whe ther or not the contract is frustrated. Apart from an arbitration clause, it is hard to think of a clause which would ap ply whether or not circumstances arise which frustrates it, unless it was clear that that was intended. What was said in the Fibrosa case [1943] A.C. 32, 42-43, is an example of what is now catered for in section 2 (4) of the Act of 1943. T here need not be express words, but it must either be stipulated expressly or ar ise by proper implication; if it does not arise by implication it must arise fro m the terms of the contract. But there is nothing in the terms of this contract from which to imply that clause 6 was intended to survive frustration. On the co ntrary it was one of a number of interrelated clauses. Clause 6 says that Hunt i s not under any obligation to repay the money and B.P.'s right to recover is lim ited to recovery under clause 9. It thus presupposes the continued existence of clause 9. If the contract is frustrated and clause 9 goes, the negative part of

clause 6 does not survive where the quid pro quo envisaged goes. The appellant's fundamental fallacy is to suggest that this is just a question o f the ordinary construction of the words and that, if they are wide enough for c lause 6 to apply to the post-frustration circumstances, it does apply. But the q uestion is whether the terms are such that the court as a matter of construction holds that the mutual intention of the parties was that it should apply. Nothin g in the clause or the contract elsewhere leads to the conclusion that this clau se alone was to survive the contract and have an existence of its own. One must consider the contractual context, as a whole against its background. Local nationalisation requiring to be recognised by foreign governments was very different from what happened in the present case which was quite extraordinary and not of the sort seen in other parts of the world. It was not a question of t he Libyan government taking over the national oil industry. This was a totally u nprecedented discriminatory expropriation of B.P.'s share alone as an act of pol itical pique. Nothing in the commercial background indicated that such an event was in the contemplation of the parties or that clause 6 should continue to appl y if it occurred. The commercial risk which B.P. accepted was that insufficient oil would be found in recoverable amounts to make the adventure profitable for t hem. They did not take the totally different risk of discriminatory expropriatio n. Under the contract B.P. could reconsider its risk at various stages and only whe n there were indications that oil would be found in commercial quantities would they be required to advance all the expenditure for Hunt's account. By the time the expenditure was incurred the risk of not recovering any oil was minimal. Fro m the fact that B.P. took a limited risk under the contract it does not follow t hat they took the risk of their half of the contract being frustrated so as to r elieve Hunt of his contractual obligation to make payment of reimbursement oil. After B.P.'s expropriation he did not draw as much oil as he normally would, but between their expropriation and his own he did draw 74 million barrels and unde r an agreement with the Libyan government he received compensation for his share of the assets, which, had the contract continued, would have gone to B.P. Clause 6 was not contemplating premature termination of the adventure in the sense of the adventure coming to an end. The contract was to last as long as the concession existed. It was simply that the adventure might work itself o ut and be completed without sufficient oil being produced to provide for repayme nt. Premature determination by expropriation of B.P.'s share in the concession i s different from the adventure grinding to a halt while the contract still techn ically subsists. This contract was made against the background of the parties co ntemplating the continuance of the concession: see clauses 2, 3 and 4 of the ope rating agreement. If B.P. did not exercise the option of premature termination t here was to be a joint venture in the fullest sense, each party bearing his shar e of the expenditure and each being entitled to his share of the benefit. That w as the basis of the agreement. If, after the test wells had been drilled, the pa rties had agreed that there was no point in going ahead, that would not have bee n a frustrating event. Clause 6 was not contemplating any possibility other than that. The parties did not contemplate that the Libyan government might take awa y B.P.'s share of the concession. When a contract is frustrated further performa nce of obligations under it is no longer required. The expropriation did not stop the flow of oil. What it did was to destroy the f undamental principle of the agreement, viz. the continued enjoyment of the conce ssion by the parties jointly. Clause 6 must be construed in the context of the c ontract as a whole, a commercial document, according to the parties' commercial expectations. A discriminatory expropriation where B.P.'s interest is taken and Hunt's is not, at least not immediately, so that he continued to enjoy some bene

fits, is not like the drying up of the flow of oil. B.P.'s real contribution to the adventure was the provision of resources and expertise needed to explore and develop the concession. It is wrong to suggest that all Hunt had to do was to p ay back what had been advanced to him or its cash equivalent. The monies paid fo r his account, by far the greater proportion of the expenditure, were not regard ed as out and out payments but were advances that had to be repaid. Clause 6 was not intended to relieve Hunt from all obligations under the Act of 1943 notwithstanding the frustration of the contract, notwithstanding that oil w as discovered in ample quantities to make the adventure viable, notwithstanding that as a result of what B.P. had done under the contract he had received the be nefit of a substantial enhancement of the value of the concession, notwithstandi ng that he continued to receive oil under the concession after the expropriation of B.P.'s interest and notwithstanding that he received from the Libyan governm ent compensation for the net book value of his share of the assets. The words of clause 6 are not clear enough to produce that effect. What is excluded by it is (a) sums required to be advanced in Hunt's account and (b) sums paid to Hunt. C lause 6 draws a distinction between the two. It is not to be assumed that it was drafted in such a slovenly way that it was an unexpressed intention that Hunt s hould repay the sum paid or redeliver the oil delivered under the letter agreeme nt. Clause 6 has nothing to do with the award of a just sum under the Act of 1943, u nder which a just sum is awarded, not for the benefits Hunt had received by the payments and advances, but a just sum for all the benefits which B.P. had confer red on Hunt as a result of all that B.P. had done under the contract. Clause 6 w as not intended to negative a prima facie obligation to pay a just sum under the Act on the totality of the benefits recei ved. Clause 6 did not contemplate that the agreement might be frustrated, though it might become prematurely terminated. It did not refer to the Act. What claus e 6 is in effect saying is that Hunt shall not have to make any repayment in ter ms of money, but B.P.'s right to recover is under clause 9 (e). Once the contrac t has gone and clause 9 (e) has gone, the whole of clause 6 must go too, since t he two are inextricably tied up together. Clause 9 (e) is concerned only with oi l and does not contemplate the payment of money. Clause 6 cannot apply in isolat ion when clause 9 (e) and clause 21 go, because clause 6 is part of the package and one cannot unravel the carefully negotiated bargain. Hunt was enriched in circumstances which made it unjust for him to retain the be nefit of the whole of that enrichment. In his award the judge was not awarding a repayment of the sums which had been paid. Although the amount of the award was in the end calculated by reference to the sums advanced by B.P., in so far as t hey had not been reimbursed and to the oil which had been delivered, the judge d id not award that Hunt should repay that indebtedness. The judge made it clear t hat he was not seeking to enforce the contract or ordering payment of any sum wh ich would have been due under it. He was only assessing what, in the circumstanc es, would be a just sum, restricting the sum which would otherwise have been awa rded under the guidance of the contractual consideration because it would have b een too high. He was assessing the just sum and limiting it to certain aspects o f the benefit which B.P. had conferred on Hunt. B.P. are content with the sum th e judge has awarded and seek no more. The appellant suggests that even if clause 6 does not survive to negative an awa rd under the Act, the award was unjust in all the circumstances of the apportion ment of risk under the contract. Once it is accepted that clause 6 does not appl y as a matter of construction, it cannot be said that somehow its ghost still ha unts the case. If the contract is frustrated (as it is conceded that this was) t he Act of 1943 is designed to adjust the position of the parties and prevent unj ust enrichment. Hunt has been unjustly enriched and is seeking to keep all that

enrichment. The question what is a just sum is essentially one for the judge. Under section 1 (2) of the Act a discretion comes into play. The wording of section 1 (3) is t he classic language of a discretion being given to the court. The approach of th e Court of Appeal in relation to the question of a just sum was correct. The jud ge was right in principle. Even if clause 6 survived frustration, the just sum a warded by the judge is not inconsistent with its continued application. When the contract was frustrated Hunt had received enormous benefits as a result of what B.P. had done. After frustration he received oil and entered into a set tlement with the Libyan government under which he received substantial credit fo r the assets. It would be wrong to apply clause 6 without regard to the other pr ovisions of the contract against which clause 6 was to operate. Further, clause 6 was put in by Hunt and should be construed contra proferentem. The award of the sum which the judge considered just in all the circumstances wa s essentially a question for his discretion, unless he can be shown to have gone wrong. It would be for the appellant to show that the sum awarded was in all the circumstances unjust. In arriving at the just sum the re is no reason why post-frustration events should not be taken into account, es pecially if one is approaching the question of the just sum on the basis that cl ause 6 continues to apply after frustration. Otherwise one is applying it in vac uo. On its true construction clause 6 was not intended to operate on the contrac t being frustrated. But if it did apply or could be taken into account, its appl ication, against the background of the rest of the contract, did not make this a ward unjust. Alexander Q.C. in reply. To say that the question is whether clause 6 "survives" frustration may be convenient shorthand but it does not imply a higher than ord inary burden in construction. It is a straight question of natural terminology i n the Act of determining whether this clause was intended to have effect in the circumstances. Since the House have indicated that they reject the appellant's argument on inte rest, that means that they have decided that what became due in December 1971 wa s a debt. That raises the question whether it is consistent with the contract an d just that the nationalisation of B.P.'s interest should at a stroke place on H unt a totally unexpected obligation for a sum payable in cash. Till then Hunt wa s expecting that B.P. would only receive reimbursement in oil. The agreement nev er contemplated that Hunt would have to make any payment out of his own pocket i n respect of the preproduction payments. These cannot be described as small sums . No one knew that the contract was governed by English law; there was no expres s provision. The nationalisation was not anticipated and there was no reason why Hunt should have been making a reserve fund to make provision for the event. As to ignorance of English law in the context of commercial men, a lawyer's approa ch has an element of unreality about it. There is no evidence that anyone though t of the Act of 1943. One should look at the problem in the round, deciding whet her it is just to impose this sudden burden on Hunt, an immediate liability for the total amount. B.P.'s nationalisation was disastrous to Hunt and substantiall y led to his own nationalisation radically changing his position. Cesser clauses in charter parties do not provide an analogy to clause 6 in the p resent case and the principle relating to cesser clauses stated in Scrutton on C harterparties, 18th ed. (1974), article 89, pp. 174-175, has nothing to do with the present case. For the mischief with which the Act of 1943 was intended to deal, see the Fibros a case [1943] A.C. 32, 43, 49-50. The provisions of the Act must be looked at on

the ordinary principles of construction. Section 2 is the dominant section and this supports the view that the legislature never had in mind altering the posit ion if under the contract one party had taken a risk. The first of the three par ts of section 2 (3), covers the situation where there is either an express refer ence to frustration on an express provision for the consequences of something wh ich happens as a result of a specified event which does in fact frustrate, e.g. if it is provided that in the event of government prevention of performance of t he contract for a particular period of time and it is a frustrating event, the p arties shall be discharged. The words "or would but for the said provision opera te" (the second part) are designed to cover clauses which might prevent frustrat ion. That may, strictly speaking, be an illogical inclusion in the Act because the Act only applies where a contract has been frustrated. It might have been in tended to deal with a clause which has the effect of preventing frustration, i.e . with a successful argument along the lines of the Bank Linecase [1919] A.C. 41 5, 437, 438, 461. The words might be intended to cover the situation where a par ty was arguing that there was no frustration because to hold that the contract w as frustrated would be inconsistent with its express terms. As to the final part of section 3 (2), it must be remembered that the subsection is concerned with risk and that the legislature had already included a provisio n for events which operate to frustrate and, by the inclusion of the third categ ory, it was contemplating that the words were wide enough and general enough to cover both events which frustrate and events which do not frustrate. The ordinar y principles of construction apply. It is clear from section 2 (3), not only tha t general words covering risk can continue to apply, but also that they will be construed as continuing to apply unless there is some factor in the agreement li miting their application. There is nothing in the mischief of the Act to suggest that Parliament legislate d to change the law where the risk had been assumed by one party. Clause 6 is co ncerned with risk in wide general words. The legislature did not intend it to be cut down in some way by limitation by applying an over-stringent approach to co nstruction. The question is: what do the words in their ordinary and natural mea ning cover? On a fair reading, once a clause is concerned with risk, it is conce rned with risk without limitation; it covers all contingencies. B.P. took all ri sks, known and unknown, foreseeable and unforeseeable, real and remote possibili ties. If it is an all-risks clause, it is not to be construed by reference to th e size of the risk. It is unreal to suppose in a commercial context that the par ties intended to limit the risk clause to those commercial consequences which di d not frustrate, even though they might be just as drastic as those which did. As to the contra proferentem rule, that does not apply when two parties agree to a contract of this kind. Section 2 (3) of the Act contemplates that a party may take a risk as part of a bargain. If B.P. took the risk as part of this bargain the appellant is not seek ing to unravel the bargain but to implement it. Further, if B.P. took the risk o f not getting anything in the event of frustration, it cannot be just to make an award by reference to that in respect of which they took the risk. It would be unjust to put on Hunt a liability which he would never have been prepared to con tract for. Their Lordships took time for consideration. February 4, 1982. PANEL: Lord Wilberforce, Lord Diplock, Lord Keith of Kinkel, Lord Scarmanand Lor d Brandon of Oakbrook

JUDGMENTBY-1: LORD WILBERFORCE JUDGMENT-1: LORD WILBERFORCE: My Lords, I have had the benefit of reading in draft the speec h prepared by my noble and learned friend, Lord Brandon of Oakbrook. I agree wit h it and for the reasons he has given I too would dismiss the appeal. JUDGMENTBY-2: LORD DIPLOCK JUDGMENT-2: LORD DIPLOCK: My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Brandon of Oakbrook, with which I agree. I also would dismiss the appeal. JUDGMENTBY-3: LORD KEITH OF KINKEL JUDGMENT-3: LORD KEITH OF KINKEL: MY Lords, I have had the benefit of reading in draft the s peech to be delivered by my noble and learned friend, Lord Brandon of Oakbrook. I agree with it, and for the reasons which he gives I too would dismiss the appe al. JUDGMENTBY-4: LORD SCARMAN JUDGMENT-4: LORD SCARMAN: My Lords, I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend, Lord Brandon of Oakbrook. I agre e with it, and for the reasons he gives I would dismiss the appeal. JUDGMENTBY-5: LORD BRANDON OF OAKBROOK JUDGMENT-5: LORD BRANDON OF OAKBROOK: My Lords, the appellant in this appeal is Mr. Nelson B unker Hunt, a citizen of the United States of America. The respondent is B.P. Ex ploration (Libya) Ltd., a wholly owned subsidiary in the B.P. group of companies , which I shall call "B.P." In May 1975 B.P. began an action against Hunt in the Commercial Court. In that a ction B.P. alleged that a contract governed by English law, which had been made between Hunt and B.P. in 1960 for the sharing on a non-partnership basis of an o il concession granted to Hunt in Libya, had been frustrated as a result of the e xpropriation by the Libyan government of B.P.'s half share in the concession, an d claimed against Hunt, inter alia, such sum as the court might consider just un der section 1 (3) of the Law Reform (Frustrated Contracts) Act 1943, which I sha ll call "the Act of 1943." The question whether or not the contract was governed by English law was by Kerr J., as he then was, in proceedings relating to the propriety of on Hunt out of the jurisdiction. He held in favour of B.P., and against hat the contract was so governed, and there was no appeal from, or other ge to, that decision. decided service Hunt, t challen

The action itself was tried by Robert Goff J. over 57 days in 1977 and 1978. On June 30, 1978, and March 16, 1979, he gave two reserved judgments, on the basis of which he made an order for the payment by Hunt to B.P. of the following sums under section 1 (3) of the Act of 1943: first, a principal sum of U.S. $10,801,5 34, with interest thereon from June 14, 1974, of U.S. $4,774,289; and, secondly, a further principal sum of oe5,666,399, with interest thereon from the same dat e of oe3,060,219.

In June 1980 the Court of Appeal (Lawton L.J., Bridge L.J., as he then was, and Shaw L.J.) dismissed both Hunt's appeal and B.P.'s cross-appeal against the orde r of Robert Goff J., and refused Hunt leave to present a petition of appeal to y our Lordships' House. Leave for Hunt to do so was, however, given later by the A ppeal Committee, no doubt in part at least because this case appears to have bee n the first contested case under the Act of 1943 since that Act came into force more than 38 years ago. For the purpose of his present appeal to your Lordships' House, Hunt concedes a large number of matters which were in dispute and decided against him by one or both of the two courts below, and limits his case to the advancement, as grounds of appeal, of two points only. The first and major point is that, having regard to the terms of the contract between the parties, and the circumstances surroun ding the making of it, Robert Goff J. was wrong to order Hunt to pay B.P. under the Act of 1943 any principal sum or sums at all. The second and subsidiary point is tha t, assuming, contrary to Hunt's case on the first point, that Robert Goff J. was right to order Hunt to pay to B.P. under the Act of 1943 the principal sums whi ch Robert Goff J. did order him to pay, then he was wrong to order also the paym ent by Hunt to B.P. of interest on those sums, either at all or in any case from a date as early as June 14, 1974. It was not contended for Hunt on the present appeal, as it had been in the court s below, that, if Robert Goff J. was right to order him to pay to B.P. any princ ipal sums at all, the sums ordered to be paid were either in the wrong currency or excessive. This important concession relieves your Lordships of what might ot herwise have been the difficult task of examining and expounding the principles upon which sums recoverable under the Act Of 1943 should be assessed, or those u pon which an appellate court may review a trial judge's assessment under section 1 (3). My Lords, the facts Of this case have been set out at length in the judgments of Robert Goff J. [1979] 1 W.L.R. 783, and more concisely in the judgment of the C ourt of Appeal delivered by Lawton L.J. [1981] 1 W.L.R. 232. In what follows I s hall endeavour to give only such an account of the facts as appears to me to be necessary in order to enable the only two points raised by Hunt in your Lordship s' House to be determined. In December 1957 the Libyan government granted to Hunt a concession to explore f or oil in, and extract any oil found from, a specified area of the Libyan desert lying about 500 kilometres south of Tobruk and described as concession no. 65. The concession so granted was to be for a period of 50 years, and drilling for o il was required to be begun within three years. In June 1960 Hunt, who did not possess the resources, equipment or practical kno wledge and experience necessary to explore and develop the concession himself, c oncluded what is known in the oil industry as a farm-in agreement with B.P., who did. This was a written contract contained in two documents described as "the l etter agreement" and "the draft operating agreement" respectively. The second of these documents, though never signed by the parties, has been treated throughou t as if it has been so signed, and I shall accordingly refer to it simply as the operating agreement. The main terms of the contract between Hunt and B.P. can be summarised as follow s. First, Hunt was to assign to B.P., subject to the consent of the Libyan gover nment, a half share in the concession which had been granted to him. Secondly, B .P. was to explore, develop and operate the whole of the concession entirely fro m its own resources and at its own expense. Thirdly, B.P. was to make to Hunt by July 1, 1960, what is known in the oil industry as a "farm-in payment" of U.S.

$2,000,000. Fourthly, B.P. was to make available to Hunt over a period of four y ears from January 1, 1961, in the form of what is known in the oil industry as " farm-in oil," a quantity of 4,000,000 barrels of Iranian oil of a specified kind and quality. Fifthly, if and when the concession, following exploration and dev elopment by B.P., "came on stream," that is to say, produced oil available at a seaboard terminal in commercially worthwhile quantities, the operating expenses were thereafter to be shared equally by B.P. and Hunt. Sixthly, if and when the concession came on st ream, B.P. was to receive thereafter, in the form of three-eighths of the half s hare of the oil produced to which Hunt would be entitled, full reimbursement plu s 25 per cent., based on the current value of such oil, in respect of the benefi ts conferred by B.P. on Hunt under the second, third and fourth terms set out ab ove. I have used the expression "if and when" at the commencement of the fifth and si xth terms set out above for a good reason. The reason is that, at the time in 19 60 when the farm-in agreement was concluded, it was not known, and could not hav e been known with any degree of certainty, either by B.P. or Hunt, whether the e xploration and development of the concession would result in the production of o il in commercially worthwhile quantities or not. If they did so result, B.P. wou ld receive full reimbursement plus 25 per cent. in oil in respect of the benefit s conferred by it on Hunt under the second, third and fourth terms set out above . If they did not so result, B.P. would not receive any reimbursement in respect of those benefits at all. The main risk of failure in the combined adventure wa s accordingly borne by B.P. and not by Hunt. Following the conclusion of the farm-in agreement, Hunt duly assigned to B.P., w ith the consent of the Libyan government, a half share in his concession, and B. P. duly performed their three obligations of (a) exploring, developing and opera ting the concession, (b) making to Hunt by July 1, 1960, the farm-in payment of U.S. $2,000,000, and (c) making available to Hunt the 4,000,000 barrels of farmin Iranian oil. The exploration and development of the concession by B.P. proved to be extremely successful, in that recoverable oil in commercially worthwhile quantities was f ound in it. B.P. built a pipe line to carry oil from the concession to the Medit erranean coast near Tobruk and also a sea terminal at which tankers could load t he oil so carried. By January 11, 1967, about 61/2 years after the conclusion of the farm-in agreement, oil came on stream at that terminal. In June 1967 B.P. and Hunt agreed certain modifications to the terms of the orig inal farm-in agreement. First, Hunt's obligation to make to B.P. full reimbursem ent plus 25 per cent. in respect of the benefits conferred on Hunt by B.P. prior to the concession coming on stream was quantified at 50,000,000 barrels of oil. Secondly, Hunt's half share of the cost of operation after the coming on stream was to be paid to B.P. in the form of further quantities of oil from the half s hare of the oil produced to which he was in the first place entitled. Thirdly, a s from July 1, 1967, all reimbursements by Hunt out of his half share of the oil produced were to be at the rate of 18,750 barrels per day, or three-eighths of Hunt's half share of the daily production, whichever should be less. Production of oil increased substantially after July 1967, with the result that Hunt's liab ility to reimburse B.P. was always at the rate of 18,750 barrels per day. On December 7, 1971, the Libyan government, the political complexion of which ha d been radically changed as the result of a revolution, expropriated B.P.'s half share in what had originally been Hunt's concession. It appears that this was done as an act of political retaliation against the Briti sh government, and not on account of any complaints against B.P. itself. By that

date B.P. had received from Hunt, by way of reimbursement in respect of benefit s conferred by B.P. on him prior to the concession coming on stream, 33,101,811 barrels of oil. Following the expropriation of B.P.'s half share in the concession, the operatio n of the concession was taken over by a Libyan government agency, with such help as Hunt was able to provide. Production of oil continued but at a lower rate th an before the expropriation of B.P.'s half share. On June 11, 1973, the Libyan government expropriated Hunt's half share of the co ncession also. Between December 7, 1971, when B.P.'s half share was expropriated , and June 11, 1973, when Hunt's half share suffered the same fate, Hunt obtaine d 74,000,000 barrels of oil from the concession. Both B.P. and Hunt claimed compensation from the Libyan government for the expro priation of their respective shares in the concession. Such compensation was pai d, first to B.P., in November 1974, and later to Hunt in May 1975. The amount of such compensation was, however, unrealistically low in both cases. My Lords, it is not now in dispute, although it was at an earlier stage of the p roceedings, that the farm-in agreement made between Hunt and B.P. in July 1960 w as frustrated by the Libyan government's expropriation, on December 7, 1971, of B.P.'s half share in the concession. It follows, since the farm-in agreement was governed by English law, that the rights and liabilities of the parties to it f ollowing such frustration depended on the application of the relevant provisions of the Act of 1943 to the particular circumstances of the case. Section 1 (1) (2) and (3) of the Act provide: "(1) Where a contract governed by English law has become impossible of performan ce or been otherwise frustrated, and the parties thereto have for that reason be en discharged from the further performance of the contract, the following provis ions of this section shall, subject to the provisions of section 2 of this Act, have effect in relation thereto. (2) All sums paid or payable to any party in pu rsuance of the contract before the time when the parties were so discharged (in this Act referred to as the 'time of discharge') shall, in the case of sums so p aid, be recoverable from him as money received by him for the use of the party b y whom the sums were paid, and, in the case of sums so payable, cease to be so p ayable: Provided that, if the party to whom the sums were so paid or payable inc urred expenses before the time of discharge in, or for the purpose of, the perfo rmance of the contract, the court may, if it considers it just to do so having r egard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred. (3) Where any party to the cont ract has, by reason of anything done by any other party thereto in, or for the purpose of, the performance of the contract, obtained a v aluable benefit (other than a payment of money to which the last foregoing subse ction applies) before the time of discharge, there shall be recoverable from him by the said other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the court considers just, having regard to all the circumstances of the case and, in particular, - (a) the amount of any e xpenses incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract, including any sums paid or paya ble by him to any other party in pursuance of the contract and retained or recov erable by that party under the last foregoing subsection, and (b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustrati on of the contract." Section 2 (3) of the Act of 1943 further provides:

"Where any contract to which this Act applies contains any provision which, upon the true construction of the contract, is intended to have effect in the event of circumstances arising which operate, or would but for the said provision oper ate, to frustrate the contract, or is intended to have effect whether such circu mstances arise or not, the court shall give effect to the said provision and sha ll only give effect to the foregoing section of this Act to such extent, if any, as appears to the court to be consistent with the said provision." At the trial before Robert Goff J., B.P., in so far as it relied on the Act for a monetary judgment against Hunt, appears to have put its case for such judgment solely under section 1 (3) of the Act, and the learned judge appears to have ar rived at the sums which he ordered Hunt to pay to B.P. on that basis, including in the benefits received by Hunt the farmin payment of U.S. $2,000,000 made to h im by B.P. At the hearing in the Court of Appeal Bridge L.J., as he then was, ra ised the point that, if and in so far as B.P. was to be reimbursed in respect of such payment, the right to be so reimbursed arose, not under section 1 (3) of t he Act of 1943, but under section 1 (2). This was accepted by Mr. Rokison, as co unsel for B.P., and leave was given to make the necessary amendments to B.P.'s p leadings. My Lords, having set out the course of the proceedings until now, and given an a ccount of the facts which gave rise to them, I turn to examine the first and maj or point put forward on behalf of Hunt, namely, that, having regard to the expre ss terms of the contract between the parties, and to the circumstances surroundi ng the making of it, Robert Goff J. was wrong to order Hunt to pay to B.P. any p rincipal sums under section 1 of the Act at all. In order to examine that point it is necessary first of all to set out in full t he two key provisions of the contract between the parties on which Mr. Alexander Q.C., as counsel for Hunt, largely founded his submissions. These were clause 6 of the letter agreement and section 9 (e) of the operating agreement. Clause 6 of the letter agreement provided: "It is specifically understood and agreed that Mr. Hunt shall have no personal l iability to repay the sums required in the operating agreement and this letter a greement to be advanced by B.P. for Mr. Hunt's account or paid to Mr. Hunt, but B.P.'s right to recover any such sums which B.P. is required to pay or advance f or Mr. Hunt's account shall be limited to recovery solely out of three-eighths o f Mr. Hunt's half of the production, and in the manner specified under section 9 of the operating agreement, if, as and when produced, saved and delivered at th e Libyan sea terminal." Section 9 (e) of the operating agreement provided: "Reimbursement of Payments. B.P. shall be entitled to take and receive three-eig hths of Hunt's share of the oil production from the concession delivered f.o.b. Libyan seaboard until B.P. has received a quantity of crude oil equal to the sum of the following: (1) A quantity equal in value to 125 per cent. of all costs a nd expenses advanced by B.P. for Hunt's account on exploration, development or a ny other work performed in or in connection with the concession, then (2) A quan tity equal in value to U.S. $2,500,000, and then (3) 5,000,000 barrels." Mr. Alexander's argument on this part of the case can be stated in this way. Fir st, clause 6 of the letter agreement and section 9 (e) of the operating agreemen t contained two linked provisions, one negative and the other positive. The nega tive provision was that Hunt would never be obliged to reimburse B.P. in cash fo r either (a) the farm-in payment of U.S. $2,000,000 made to him by B.P. July 1, 1960, or (b) the value of the 4,000,000 barrels of Iranian crude delivered to hi

m by way of farm-in oil, or (c) his half share of the expenses incurred by B.P. in exploring and developing the concession prior to the field coming on stream. The positive provision was that, if and when the field came on stream, but not o therwise, B.P. were to have the right to full reimbursement plus 25 per cent. in respect of all three of those benefits conferred by it on Hunt in the form of t hree-eighths of the half share of the oil produced to which Hunt would thereafte r be entitled. Secondly, on the true construction of the contract between the parties as a whol e, the effect of the two provisions referred to above was to relieve Hunt of, an d saddle B.P. with, what can conveniently be called the physical risks of failur e of the combined venture. Such risks included (a) the exploration and developme nt of the concession proving unsuccessful in that they failed to lead to the pro duction of oil in commercially worthwhile quantities, or (b) natural events, suc h as floods or earthquakes, which, while sufficient to stop production of oil, m ight nevertheless not operate to frustrate the contract between the parties. Thirdly, on the basis that it was, on the true construction of the contract betw een the parties as a whole, the intention of the parties that Hunt should be rel ieved of, and B.P. saddled with, the physical risks of failure referred to above , it was necessarily to be inferred that it was also the intention of the partie s that Hunt should be relieved of, and B.P. saddled with, the political risk of failure which in fact materialised, namely, the risk of B.P.'s half share of the concession being expropriated by the Libyan gov ernment. The latter risk was no less foreseeable at the time when the contract w as made in 1960 than the former risks, and there was accordingly no reason to su ppose that it was the intention of the parties to differentiate between them. On the contrary, on the true construction of the contract, it was necessarily to b e inferred that it was the intention of the parties that Hunt should be relieved of, and B.P. saddled with, not only the former risks, but the latter risk as we ll. Fourthly, there were two alternative legal bases, on one or other of which effec t could properly be given to the intention of the parties not to differentiate b etween the first group of physical risks on the one hand, and the second politic al risk on the other. The first legal basis was to construe clause 6 of the lett er agreement as being one of those provisions of a contract which is expressly c ontemplated in section 2 (3) of the Act as being intended to have effect whether circumstances arise to frustrate the contract or not. On that basis, any order by the court that Hunt should reimburse B.P. in money for any of the benefits re ceived by him under the contract would be inconsistent with clause 6 of the lett er agreement and section 9 (e) of the operating agreement, and ought not therefo re to be made. The second legal basis was that, if clause 6 of the letter agreement was not to be construed as a provision intended to have effect whether circumstances arose to frustrate the contract or not, as contemplated in section 2 (3) of the Act, t here remained the requirement in section 1 (3) of the Act that, following the fr ustration of a contract, there should only be recoverable by one party, in respe ct of any benefit conferred on him prior to frustration by the other party, such sum as the court considers just having regard to all the circumstances of the c ase. In the present case the intention of the parties with regard to the inciden ce of risks, whether physical or political, led irresistibly to the conclusion t hat it would not be just for the court to order the recovery of any sum by the p arty who had conferred a benefit, namely B.P., from the other party who had rece ived such benefit, namely Hunt. My Lords, forcefully and attractively as this argument was put forward by Mr. Al exander for Hunt, there is, in my opinion, a fatal defect in it. That defect is

that there is nothing in the terms of the contract between the parties, or in th e circumstances surrounding the making of it as found by Robert Goff J., to indi cate, either expressly or by necessary implication, that the parties, when they made the contract in 1960, had in contemplation political risks, such as expropr iation of the concession in whole or in part by the Libyan government, which wou ld operate to frustrate the contract; or that, having had such risks in contempl ation, they included in the contract any provision which, expressly or by necess ary implication, was to take effect in the event of such risks materialising. I cannot read clause 6 of the letter agreement, or section 9 (e) of the operatin g agreement, as giving any such indication as I have referred to in the precedin g paragraph, so as to bring the case within the terms of section 2 (3) of the Ac t, and so as to make it inconsistent with those provisions to order Hunt to make any payment to B.P. in respect of the benefits received by him from B.P. prior to the frustration of the contract. Nor, with regard to the second legal basis r eferred to above, can I see any good reason why, on the footing that the parties are not shown to have had in contemp lation the frustration of the contract by the materialisation of the political r isks concerned, or to have provided in the contract for the consequences of such frustration, the other circumstances of the case should make it unjust, for the purposes of section 1 (2) or (3) of the Act, to make such an order. It follows, in my opinion, that the first and major point put forward on Hunt's behalf fails and must be rejected. My Lords, I pass now to the second and subsidiary point raised on the appeal, na mely, whether Robert Goff J. was right, first to order the payment of interest o n the principal sums awarded by him under the Act of 1943 at all; and, secondly, if so, whether he was right to order that such interest should run from a date as early as June 14, 1974. The power of the court to order the payment of interest on principal sums adjudg ed to be payable by a defendant to a plaintiff is conferred on it by section 3 ( 1) of the Law Reform (Miscellaneous Provisions) Act 1934. That subsection provid es: "In any proceedings tried in any court of record for the recovery of any debt or damages, the court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on t he whole or any part of the debt or damages for the whole or any part of the per iod between the date when the cause of action arose and the date of the judgment ..." There then follow three provisos which are not relevant to the present case. On the first question, whether Robert Goff J. had power to order the payment of interest on the principal sums awarded by him at all, it was submitted by Mr. Al exander that sums recoverable under the Act of 1943 were of a very special chara cter indeed, and because of that did not come within the expression "any debt or damages" as used in section 3 (1) of the Act of 1934 set out above. I do not accept that submission. In my opinion the words "any debt or damages," in the context in which they occur, are very wide, so that they cover any sum of money which is recoverable by one party from another, either at common law or i n equity or under a statute of the kind here concerned. In this connection I adh ere to the view with regard to the scope of section 3 (1) which I expressed in T he Aldora [1975] Q.B. 748, 751. I hold, therefore, that Robert Goff J. had power to order the payment of interest on the principal sums awarded by him.

On the second question, whether Robert Goff J., on the footing that he had power to order the payment of interest at all, was right to order the payment of it f rom a date as early as June 14, 1974, it was submitted by Mr. Alexander that, si nce Hunt could not know the amounts of the principal sums recoverable from him u ntil such amounts had been assessed and adjudged payable by the trial judge, the latter should not have awarded interest from any date earlier than June 30, 197 8, the date on which he delivered his first and main judgment. I find myself unable to accept that submission either. The date on which B.P.'s cause of action arose was the date when the contract between the parties was fru strated by the expropriation by the Libyan government of B.P.'s half share in the concession, that is to say December 7, 1971. It follows that, under section 3 (1) of the Act of 1934, the learned judge had power to aw ard interest on the principal sums which he ordered Hunt to pay to B.P. from any such date, from December 7, 1971, onwards, as he, in the exercise of his judici al discretion, considered just. The decision at which he arrived, in the exercise of that discretion, was that i nterest should be payable from June 14, 1974. The reason why he preferred that d ate to the different dates which had been suggested to him by counsel on either side was that, on his findings of fact, which are not challenged, it was on that date that Hunt first became fully aware of B.P.'s intention to bring a claim ag ainst him. It is, in my view, clear that there cannot be any general rule that, whenever th e amount of any debt or damages payable by one party to an action to the other c annot be ascertained until judgment is given, the court should never, in the exe rcise of its discretion, award interest from a date earlier than the date of suc h judgment. To apply such a rule would, in my opinion, be plainly inconsistent w ith the express terms of section 3 (1), and in many cases, for instance in the c ase of a claim on a quantum meruit, work serious injustice on a successful plain tiff. The reason given by Robert Goff J. for ordering interest on both principal sums to be paid from June 14, 1974, was, in my view, an entirely proper one. He havin g decided to exercise his discretion in that way, it would be contrary to well-e stablished principles for an appellate court to interfere with his decision. It follows that, in my opinion, the second and subsidiary point advanced on Hunt 's behalf also fails and must be rejected. My Lords, for the reasons which I have given, which are in substance, in relatio n to the only two points raised before your Lordships, the same as the reasons r elied on by Robert Goff J. and the Court of Appeal, I would dismiss the appeal. DISPOSITION: Appeal dismissed. SOLICITORS: Solicitors: Theodore Goddard & Co.: Linklaters & Paines. F.C. (c)2001 The Incorporated Council of Law Reporting for England & Wales