Factual and Procedural Background
This trial follows a 2005 preliminary issues trial concerning two sets of proceedings, identified as the P38 and P40 proceedings, involving claims by the first claimant ("Plaintiff") against the first defendants ("Defendant Companies FCI"). The 2005 judgment established that Plaintiff was entitled in principle to recover sums paid to third party suppliers under numerous "Side Letter Agreements" with Defendant Companies FCI. Directions were given for a full trial to determine the actual sums due and other recoverable sums, including those outside the Side Letter Agreements.
Plaintiff's claims total approximately US$87 million in the P38 proceedings and US$185 million in the P40 proceedings, with substantial interest claimed. Defendant Companies FCI admitted claims of approximately US$36 million in P38 and US$68 million in P40. The trial concerns the remaining disputed claims, some of which are no longer pursued.
Defendant Companies FCI failed to comply with court directions to particularise and serve amended defences and counterclaims, resulting in their cross-claims being struck out. Defendant Companies also ceased active participation, withdrawing solicitors and failing to attend hearings or comply with disclosure obligations. Plaintiff alleges that related companies initiated proceedings in Brazil attempting to circumvent the jurisdiction of this Court.
The claims arise from two oil conversion projects involving conversion of vessels P38 and P40. Plaintiff, a subsidiary of Petrobras, seeks recovery of payments made to third party suppliers which Defendant Companies FCI failed to pay. The Side Letter Agreements were contracts between Plaintiff, Defendant Companies FCI, and suppliers, under which FCI agreed to reimburse Plaintiff for payments made to suppliers.
The projects were governed by complex contractual structures involving financing banks, special purpose companies, and a chain of contracts from financing companies to FEI and then to Defendant Companies FCI. FCI was responsible for procuring conversion work, engaging numerous subcontractors and suppliers worldwide, and managing the projects. Financial difficulties and delays occurred, prompting Plaintiff to pay suppliers directly under the Side Letter Agreement regime established in 2000.
The procedural history is lengthy and complex, with multiple hearings addressing inadequate pleadings and non-compliance by Defendant Companies FCI, culminating in strike-out orders against their cross-claims. Plaintiff has pursued only claims it considers valid, with extensive documentary and witness evidence presented at the trial.
Legal Issues Presented
The opinion addresses a procedural matter and does not frame distinct legal issues.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Braspetro Oil Services Company & Anr v FSO Construction Inc & Anr [2005] EWHC 1316 (Comm) |
Determination of Plaintiff's entitlement under Side Letter Agreements. |
Referenced as the judgment establishing the principle that Defendant Companies FCI owed repayment obligations under the Side Letter Agreements. |
| Habib Bank Ltd v Central Bank of Sudan [2006] EWHC 1767 (Comm) |
Approach to trial where a party fails to attend. |
Guided the Court's approach in proceeding with trial despite Defendant Companies FCI's non-attendance, ensuring fairness by requiring Plaintiff to identify points beneficial to Defendant Companies. |
| Owen v Tate [1976] 1 QB 402 |
Right of indemnity and reimbursement for payments made at the request of another. |
Applied to support Plaintiff's claim to recover sums paid to third parties at Defendant Companies FCI's express request. |
| General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 |
Principle for awarding interest to compensate for deprivation of use of money. |
Supported the Court's rationale for awarding interest on sums due to Plaintiff. |
| Baker v Black Sea and Baltic General Insurance Co [1996] LRLR 353 |
Assessment of interest rates and discretion in awarding interest. |
Informed the Court's discretion on interest rate and period for awarding interest in foreign currency commercial claims. |
| La Pintada Compania Navegacion S.A v President of India [1983] I Lloyd's Rep 37 |
Consideration of fair interest rates reflecting cost of borrowing. |
Referenced for the principle that interest awarded should reflect realistic borrowing costs of the claimant. |
| BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 |
Determination of appropriate interest rates for foreign currency claims. |
Guided the Court in assessing the appropriate benchmark interest rate for US dollar claims in commercial litigation. |
| Jaura v Ahmed [2002] EWCA Civ 210 |
Adjustment of interest rates based on claimant's borrowing circumstances. |
Supported the Court's consideration that interest rates may be increased above the customary 1% over base to reflect claimant's realistic borrowing costs. |
Court's Reasoning and Analysis
The Court carefully examined the factual matrix and contractual arrangements underpinning the claims. It confirmed that the Side Letter Agreements imposed a contractual obligation on Defendant Companies FCI to repay Plaintiff sums paid to third party suppliers upon conforming written requests. The Court rejected Defendant Companies FCI's contention that the Side Letter Agreements did not create such obligations.
The Court analysed the categories of claims, including admitted claims, disputed claims, and those relating to payments made without Requests for Payment (RFPs). It found that Plaintiff was entitled to recover the majority of disputed claims where documentation, including Side Letter Agreements or RFPs containing the requisite wording, was produced or could be inferred on a balance of probabilities.
Special attention was given to the large claims relating to the supplier Jurong, where the Court dissected the contractual and settlement arrangements, including the Jurong Settlement Agreement (JSA). The Court held that payments made by Plaintiff to Jurong were recoverable under the Side Letter Agreements, the JSA, or on alternative bases such as payments made at Defendant Companies FCI’s express request.
The Court further considered the awarding of interest under Section 35A of the Supreme Court Act 1981, discussing the principles and discretion involved. It evaluated expert evidence on appropriate interest rates, including the borrowing costs of Plaintiff and its parent company Petrobras, concluding that an interest rate of LIBOR plus 2.5% was appropriate. The Court awarded simple interest on the sums due from the date each cause of action accrued, i.e., when Plaintiff made each payment.
Holding and Implications
The Court held in favour of Plaintiff, granting judgment for the sums recoverable under the Side Letter Agreements and related claims as follows:
- In the P38 proceedings, judgment for approximately US$ 82.7 million plus interest of US$ 31.5 million.
- In the P40 proceedings, judgment for approximately US$ 171.2 million plus interest of US$ 65.7 million.
The Court's decision disposes of the disputed claims relating to payments made under the Side Letter Agreements and the Jurong claims, confirming Defendant Companies FCI's liability to repay Plaintiff.
The decision directly affects the parties by affirming Plaintiff's right to substantial recovery from Defendant Companies FCI. No broader precedent was set beyond the application of established contractual and restitutionary principles to the complex facts of this case.