HPOR Servicos De Consultoria Ltda v Dryships Inc.
| Jurisdiction | England & Wales |
| Judge | Cockerill J,Mrs Justice Cockerill DBE |
| Judgment Date | 13 December 2018 |
| Neutral Citation | [2018] EWHC 3451 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | CaseNo:CL-2018-00212 |
| Date | 13 December 2018 |
[2018] EWHC 3451 (Comm)
Mrs Justice Cockerill
CaseNo:CL-2018-00212
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Ali Malek QC and Sophia Dzwig (instructed by Michelet & Co Ltd) for the Claimant
David Joseph QC and Adam Board (instructed by Wikborg Rein LLP) for the Defendants
Hearin —date: 30 October 2018
Approved Judgment
The application before me, brought by the Claimant (“HPOR”) is an appeal under the Arbitration Act 1996 on a point of law. By this application HPOR seeks to set aside or vary the passages of two arbitral awards dated 7 March 2018 published by the distinguished Tribunal of Sir Bernard Eder, Sir Jeremy Cooke and Mr Richard Siberry QC (“the Awards”).
The passages in question concern the majority of the Tribunal's decision that HPOR must forfeit pre—and post-termination remuneration. Mr Siberry QC dissented on this issue. The question of law defined in the application is this: “ [i]n what circumstances is it appropriate to order that an agent should forfeit and/or become liable to account for its own contractually earned/accrued remuneration by way of remedy for its breach of fiduciary duty”.
The question arises in very particular circumstances which require to be explained in some detail.
Factual Background
HPOR is a special purpose vehicle incorporated in Brazil and owned and controlled by Mr Hamylton Pinheiro Padilha Junior (‘Mr Padilha’). Mr Padilha has worked in oil and gas for over 35 years and since 2002 has acted as a local agent and consultant for drilling companies in Brazil. His relationship with the Defendants began in September 2010.
The Defendants are companies incorporated in the Marshall Islands. The Second Defendant is the second-largest drilling contractor by market capitalisation, and is managed from Greece. It provides services for offshore oil and gas exploration, specialising in ultra-deepwater and harsh-environment offshore drilling. The First Defendant was a shareholder of the Second Defendant. which at the time of the contracts in question in the arbitration had ‘a number of drilling units under construction’. I shall refer to the Defendants compendiously as “OR”.
On 8 February 2011, OR entered into an agency agreement with a company called “URCA Offshore Ltda” (“URCA”) to assist with two tenders by OR for the Drillships contracts for the rigs ‘Corcovado’ and ‘Mykonos’ with Petrobras. URCA was owned and controlled by a third party, but acted at all material times at the behest of Mr Padilha. In those circumstances, the Tribunal concluded that Mr Padilha owed fiduciary duties to OR from the outset of the URCA agreement.
The URCA Contract was agreed because at that time Mr Padilha had a conflict with another client (the conflict was disclosed to OR and the other client). Mr Carvalho, under Mr Padilha's direction, was therefore to be OR's main contact liaison in respect of that tender. At this time, HPOR was not involved in the tender process, as it had not yet been incorporated as a legal entity. The drilling contracts were therefore obtained without any involvement of HPOR.
Under the URCA agreement, a 2% commission was to be paid by OR to URCA in the event that a drilling contract was obtained for each rig. URCA had a contract with another company of Mr Padilha's whereby it would pass on its 2% commission to Mr Padilha, less a fixed fee.
From February 2011, Mr Padilha and Mr Carvalho assisted with the tender for the Drillships. By an email dated 11 May 2011, Petrobras confirmed the award of the Drilling Contracts to the Drillships. Mr Padilha's potential conflict of interest ceased to be a problem in the summer of 2011 and thus the parties entered into the Agency Contracts with the URCA Contracts being terminated at the same time by agreement.
In October 2011, the agency between OR and URCA was ‘re-structured’ to involve a company newly incorporated by Mr Padilha for his business with OR. To that end, HPOR was incorporated as a SPV, owned and controlled by Mr Padilha, and to which it was accepted by HPOR that Mr Padilha's knowledge and actions are to be attributed.
By contracts backdated to 1 October 2011, the existing agency agreement with URCA was terminated and two new Agency Contracts in respect of Corcovado and Mykonos were concluded between HPOR and OR (“the Agency Contracts”). Pursuant to the new agreements, HPOR was appointed as OR's agent and owed fiduciary duties in that capacity, in relation to two charter contracts and two services agreements between OR and Petrobras. The four contracts are referred to as ‘the Drilling Contracts’. In return, under section 2 of the Agency Contracts, HPOR would receive 2% of the day rate Petrobras paid by way of hire, which entitlement would survive the termination of the Agency Contracts. HPOR was also to provide services to assist OR in their future dealings with Petrobras in relation to the two drilling contracts.
At the time the Agency Contracts were agreed, OR were aware that HPOR's alter ego, Mr Padilha, was concurrently acting for other drilling companies who were OR's industry competitors. OR were prepared to agree to this.
However, HPOR did not inform OR (as it should have done) that Mr Padilha had previously paid bribes to Petrobras executives and that these bribes were paid to advance the commercial interests of two of OR's competitors (i.e. Vantage and Pride).
Section 1 of the Agency Contracts set out the services to be provided by HPOR in the following terms:
‘AGENT shall provide the following services on a continuing basis during the term of this Agreement (“the SERVICES”):
AGENT will provide advisory and consulting services in order to assist OWNER secure [sic] a contract for the RIG including the preparation of proposals and any future negotiations to be held during the TENDER process.
AGENT will contact and liaise with PETROBRAS as necessary in connection with the TENDER, at all time to be done in cooperation with the OWNER and CUSTOMER.
AGENT will provide such other assistance as may reasonably be requested by CUSTOMER and OWNER, including but not limited to (i) preparing the offer on behalf of the owner, (ii) handling the follow up and any enquiries after submission of the offer, (iii) assisting in any contract negotiations, seeking to achieve the best terms possible for OWNER; (iv) keeping CUSTOMER and OWNER well informed and advised of any developments relating to the TENDER.
In the event that a contract for the RIG is concluded as a result of the TENDER, AGENT shall continue to provide such assistance as may reasonably be requested by CUSTOMER and OWNER in relation to ongoing contractual or operational matters and use its reasonable endeavours to resolve any and all potential disputes between the OWNER and PETROBRAS including but not limited to any disputes over payments due from PETROBRAS to the OWNER.’
The Drillships entered into service under the Drilling Contracts in early 2012. From early 2012 until about March or April 2015 the Defendants paid HPOR the Fee. The total amount OR paid to HPOR was USD 7,994,611.04 for the Ocean Rig Corcovado and USD 8,671,418.46 for the Ocean Rig Mykonos. The Defendants made no payments thereafter and terminated the contract by a letter dated 25 September 2015 from Ince & Co LLP.
The Drilling Contracts and the Agency Contracts were all long-term contracts. The initial term of the Drilling Contracts was three years from the date the Drillships began operating (approximately March 2012) but Petrobras subsequently extended that term by a further three years to 2018.
As set out in the Reasons, for the four years after the conclusion of the Agency Contracts Mr Padilha continued to assist with the extension of the Drilling Contracts, operational incidents and price negotiations.
Since 2014 Petrobras has been the subject of a major investigation into corruption known as ‘Operation Car Wash’. One Petrobras executive whom the Brazilian Federal Police have arrested as part of Operation Car Wash is Jorge Zelada, Director of Petrobras’ International Division from 2008 to 2012.
By late 2014 or early 2015 the Defendants were concerned about the impact Operation Car Wash could have on them, initially because of the inadvertent rental of an apartment from a relative of a disgraced Petrobras official convicted of corruption in Brazil, and were in discussions with Mr Padilha about, in his words, the ‘possible media crisis for OR’.
On 18 October 2014, Mr Padilha stated to OR that any involvement in ‘Operation Car Wash’ had the potential to “ jeopardise al the work we have done… in Brazil [i]n the past three years (including the contracts extensions … not yet signed).” Despite this, HPOR did not reveal and deliberately concealed Mr Padilha's own involvement in establishing a corrupt relationship with Petrobras, which was subsequently revealed during the investigation.
In March 2015, Operation Car Wash resurfaced because the Brazilian authorities were investigating negotiations for the ‘Sete Brasil’ project in which Mr Padilha had assisted the Defendants. At the same time, OR asked HPOR to confirm whether Mr Padilha was involved in any acts of corruption under investigation in Operation Car Wash. HPOR's response, given by Mr Padilha, was emphatically: “no”. That denial was a lie, as subsequent events ultimately demonstrated.
In June 2015, OR forwarded a press article identifying Mr Padilha as a lobbyist implicated in an overpriced contracts scandal involving Petrobras. HPOR was, once again, asked to comment. Mr Padilha, untruthfully, reassured OR that there was “ nothing to worry about”.
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