Petromec Inc. v Petroleo Brasileiro S.A. Petrobras and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Brooke,Lord Justice Sedley,Lord Justice Jacob,Lord Justice Mance,Lord Justice Longmore,Lord Justice Pill,Lord Justice Laws,Lord Justice Ward,Lord Justice Rix,Lord Justice May,Sir Anthony Clarke MR |
| Judgment Date | 23 January 2008 |
| Neutral Citation | [2008] EWCA Civ 68,[2007] EWCA Civ 1027,[2007] EWCA Civ 1371,[2004] EWCA Civ 156,[2005] EWCA Civ 891,[2006] EWCA Civ 1038 |
| Docket Number | Case Nos: (1) A3/2007/1341,Case No: A3/2007/1639,Case Nos: 2005 2568 A3 & 2005 2568(A) A3,Case No: A3/2003/0579,Case Nos: 2004 1912 A3 2004 1915 A3 2004 1917 A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 January 2008 |
[2004] EWCA Civ 156
Lord Justice Brooke
(Vice-President of The Court of Appeal (Civil Division))
Lord Justice Sedley and
Lord Justice Jacob
Case No: A3/2003/0579
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
Mr Justice Tomlinson
Royal Courts of Justice
Strand,
London, WC2A 2LL
Christopher Hancock QC and Malcolm Jarvis (instructed by Linklaters & Paines) for the Appellants
Susan Prevezer QC (instructed by Curtis Davis & Garrard) for the First Respondent
Steven Gee QC (instructed by Watson Farley and Williams) for the Second Respondents
This is an appeal by the first and second defendants against a judgment of Tomlinson J in the Commercial Court on 28 th February 2003 on a preliminary issue in this action when he declared that the correct amount of the Loss Payment required pursuant to Clause 11 of the Bareboat Charter and Purchase Agreement dated 20 June 1997 between Petro-Deep Inc ("Petro-Deep") and the second defendants and of the Bareboat Sub-Charter Agreement dated 20 June 1997 between the second defendants and the first defendants was US334,557,499.34. In essence the judge accepted the submissions of the present respondents on the matters in issue between the parties, which are now the subject of this appeal.
The factual background to this dispute is clearly set out in the judgment. The third defendants Societa Armamento Navi Appoggio SpA ("SANA") were the owners of a large semi-submersible production platform called "Spirit of Columbus". In June 1997 they encountered financial difficulties. A complex set of sale and charter contracts and associated financial arrangements were then put in place whereby the platform was sold, resold and then finally chartered. The ultimate sub-bareboat charterer was the first defendant company Petroleo Brasileiro S.A Petrobras ("Petrobras"), the state oil company of Brazil.
Under these arrangements SANA sold the platform to Petro-Deep on terms whereby Petro-Deep were to pay the purchase price of the platform over a 12-year period. Petro-Deep in turn concluded a "Bareboat Charter Purchase Agreement" with the second defendants Braspetro Oil Services Company ("Brasoil") . This contract, whereby title in the platform would pass to Brasoil on payment of all the sums due under this head Bareboat Charter, also had a 12-year term. Brasoil in turn concluded a "Bareboat Sub-Charter" Agreement with Petrobras which had a similar 12-year term.
The platform was to be upgraded before it was put into operation by Petrobras. This was to be done pursuant to a contract concluded between Petro-Deep and the claimants Petromec Inc ("Petromec") . The cost of the upgrade was reflected in the quarterly hire due from the two bareboat charterers.
SANA, Petro-Deep and Brasoil assigned their entitlement to receive payment pursuant to these various arrangements to a "Security Agent". The Security Agent, now Den Norske Bank ASA, the fourth defendants, then acted as trustee on behalf of various interested parties, including SANA and Petromec, whose interests derived from their role as seller and upgrading contractor respectively. This accounted for the appearance of Petromec as claimants in this action despite the fact that they were not a party to the agreement which gave rise to the dispute the judge had to resolve.
On 15th March 2001 there was an explosion on board the platform. It sank five days later.
Each of the sale or charter contracts made provision for a "Loss Payment" to be made by the purchaser or the charterer, as the case might be, in the event that the platform became a total loss (as defined in the relevant contract) . The Loss Payment included an amount in respect of future payments which would have fallen due under the contracts had they been performed according to their tenor over their intended 12-year duration. These payments were to be discounted pursuant to an agreed formula. The parties' dispute related to the date to which the future payments should be discounted. Because of a movement in LIBOR between the rival dates this makes a difference of about US2.5million on a payment which it is agreed was in any event in excess of US330million. If the rates had moved in the opposite direction it would have been in each of the protagonists' interests to adopt a position diametrically opposed to that which they respectively adopted in argument before the judge.
There were other disputes between the parties which related to the manner in which matters were resolved consequent upon the total loss of the platform, but in the first instance the court was invited to resolve a short point of construction concerning the date to which the discounting should be made. The point which the judge had to decide on the trial of a preliminary issue was whether the discounting should be to 20 th March 2001 (the date on which the platform became a total loss) or 18 th June 2001 (90 days after 20 th March) which was the date by which the Loss Payment had to be paid.
For the purpose of the preliminary issue the judge was invited to consider only the position between Petro-Deep and Brasoil pursuant to the Bareboat Charter and Purchase Agreement dated 20 th June 1997. The parties, agreed, however, that in the light of his determination of the position under that contract he should also make a declaration in relation to the position as between Brasoil and Petrobras where the relevant provisions were identical.
At the hearing before the judge Petromec and SANA made common cause, as did Petrobras and Brasoil. Den Norske Bank ASA were present at the hearing, although not represented by counsel, and they made no submissions to the judge. Nor were they represented on the appeal to this court.
Like the judge, I must set out the bare minimum of the contractual provisions necessary to render this judgment intelligible. The relevant provisions of the Bareboat Charter and Purchase Agreement dated 20 th June 1997 between Petro-Deep and Brasoil included the following:
"1. DEFINITIONS
"Final Payment" means the sum payable to Petro-Deep, in order to effect transfer of title to the Vessel to Brasoil, equal to that amount of the Outstanding Indebtedness under the ABC Loan which Brasoil acquires from ABC pursuant to the Debt Purchase Agreement.
"Loss Payment" means a sum payable to Petro-Deep by Brasoil as liquidated damages in the case of any event described in Clause 11.1 hereof, in the amount equal to the aggregate of (i) all the outstanding instalments of Fixed Hire falling due under this Agreement and not paid, discounted to the date the payment is declared due, for amounts that fall due after such date, at the lower of nine per cent (9%) per annum and LIBOR plus three per cent (LIBOR + 3%) compounded annually, and (ii) all the Subsidy not yet paid, discounted to the date the payment is declared due, for amounts of Subsidy that fall after such date, at the then prevailing ABI Rate compounded annually, and (iii) all Over-due Interest that remains unpaid on all payments that fell due prior to the date payment is declared due.
"Other Indebtedness" means the aggregate sums of moneys owing by Brasoil to Petro-Deep hereunder and outstanding at any relevant time other than (i) Fixed Hires, (ii) Supplemental Hires, (iii) Loss Payment and (iv) Termination Payment.
"Termination Payment" means an amount equal to the Loss Payment payable by Brasoil to Petro-Deep as liquidated damages upon declaration by Petro-Deep pursuant to Clause 13 hereof in the event of the happening of any Termination Event.
"Total Loss" means an actual, constructive, compromised or arranged total loss of the Vessel; or Compulsory Acquisition; or capture, seizure, detention, confiscation or requisition for hire of the Vessel by any government or any person acting or purporting to act on behalf of any government or by pirates, whether such capture, seizure, detention, confiscation or requisition is lawful or wrongful, unless the Vessel is released from such capture, seizure, arrest, detention, confiscation or requisition within 90 days of after the occurrence of thereof.
3. AGREEMENT TO LET AND HIRE BY BAREBOAT CHARTERING
3.1 Bareboat Chartering of Vessel
Subject to the terms and conditions hereinafter set forth, (i) Petro-Deep hereby agrees to charter the Vessel to Brasoil and Brasoil hereby agrees to charter the Vessel from Petro-Deep on a bareboat basis for the Charter Period, and (ii) Petro-Deep agrees, upon the expiry of the Charter Period by effluxion of time or earlier termination, to transfer or procure the transfer of title to and ownership of the Vessel to Brasoil and Brasoil agrees to accept such transfer.
7. RISKS AND INSURANCES ON VESSEL AND BELONGINGS
7.1 Risks of Vessel and Belongings
The Vessel and Belongings shall, throughout the Post-Delivery period, be in every respect the risk of Brasoil…..
7.2 The Insurance
Brasoil shall, not later than the Pre-Delivery Date, either take out and effect or procure that Petrobras takes out and effects the following insurances at Brasoil's or Petrobras' expense on and in respect of the Vessel and shall throughout the Post-Delivery Period maintain the said insurances effective with such Insurer or insurers as are acceptable to SANA, at Brasoil's or Petrobras's own expense;
1. Hull and Machinery Insurance shall be taken out and maintained...
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