Petromec Inc v Petroleo Brasileiro S.A Petrobras & Ors

In construing a contractual loss-payment provision, the discounting date is determined by the contract’s wording and scheme. A total loss does not itself constitute a declaration that the loss payment is due where the contract provides for payment within a specified period after the loss. The future instalments must therefore be discounted to the contractual payment date. A separate termination regime, under which payment becomes immediately due upon notice, does not justify assimilating the two regimes. Where the contract does not address early payment, it is an obvious necessary implication that the discounting is to the date of actual payment.

A semi-submersible production platform was sold and chartered through a structured financing arrangement. The relevant Bareboat Charter Purchase Agreement required a Loss Payment following a Total Loss, comprising future hire and subsidy payments discounted to the date on which payment was declared due. Following an explosion, the platform became a total loss on 20 March 2001. The agreement required the Loss Payment to be made within 90 days, on 18 June 2001.

The parties disputed whether future payments should be discounted to the date of the total loss or to the contractual payment date 90 days later. The Preliminary Issue concerned the construction of the agreement between Petro-Deep Inc and Braspetro Oil Services Company. The court was also asked to make a corresponding declaration concerning the materially identical Bareboat Sub-Charter Agreement with Petrobras.

1. Construction of the Loss Payment provision. The ordinary meaning of discounting in this context is a reduction for accelerated payment, normally calculated by reference to the period of acceleration. The contractual definition referred to the date the payment was declared due, but a Total Loss under clause 11.1 automatically made the Loss Payment payable within 90 days. It did not make the payment immediately due on the date of loss.
2. Different contractual regimes. The Total Loss regime in clause 11 was distinct from the Termination Event regime in clause 13. Under clause 13, a notice expressly made the Termination Payment immediately due and payable. The definition of Termination Payment required calculation as if it were a Loss Payment calculated by reference to the date of the declaration notice. That did not alter the different due dates established by the two regimes.
3. The competing construction would require discounting an instalment falling due during the 90-day period and would generate overdue interest before the instalment was payable. That result was inconsistent with the definitions, clauses 11.1, 12.5, 12.6 and 17, and the scheme of Tables A and B in Declaration III. The reference to a declaration in the Loss Payment definition was a drafting error arising from the conflation of the clause 11 and clause 13 mechanisms.
4. The correct discounting date for a Loss Payment was 90 days after the occurrence of the Total Loss. If the Loss Payment were made before that date, the necessary implication was that discounting would be to the date of actual payment.
5. The court declared that the correct Loss Payment under both the Bareboat Charter and Purchase Agreement and the Bareboat Sub-Charter Agreement was US$334,557,499.34.