Petromec Inc v Petroleo Brasileiro SA Petrobras & Anor

A framework agreement may create legal relations without imposing enforceable obligations where essential terms, including specification and price, remain unresolved. Contractual liability depends on the proper construction of the transaction documents as a whole. An obligation to complete works may be performed by entering into approved subcontracts where the agreement so provides.

Additional costs caused by a contractual change may include reasonable overheads and financing costs, but not profit unless the contract provides for it. An agreement to negotiate in good faith remains unenforceable where the negotiations cannot produce a sufficiently certain outcome. Estoppel cannot ordinarily create a new cause of action where no pre-existing legal right supports the claim.

Petromec sought payment from Petrobras and Braspetro Oil Services Company in respect of additional costs arising from the conversion of an oil-platform project from the South Marlim field to the Roncador field. Petrobras and Brasoil brought claims for delay, defective or incomplete work and repayment of advances. The parties agreed that preliminary contractual issues should be tried first.

The court considered the effect of the Memorandum of Agreement, the South Marlim agreements, the Supervision Agreement, variation-order settlements, the Deeds of Payment and Indemnity and Confirmation and Indemnity, the Keepwell Agreement, and subsequent negotiations for a global settlement.

1. Memorandum of Agreement. The MOA was not legally enforceable because essential matters, including the work specification, price and detailed contractual structure, remained to be agreed. It was intended to provide a framework for the transaction and did not govern the parties’ relationship after execution of the transaction documents.
2. Upgrade liability. Under the Upgrade Agreement, Petromec could perform its obligation by entering into approved subcontracts. Clause 9.1.4 of the Supervision Agreement restated that obligation and did not impose an independent liability for delay, defective work or incomplete work. In any event, the parties’ common assumption that Petromec did not bear that construction risk gave rise to an estoppel by convention.
3. Additional costs. Clause 12.1 entitled Petromec to reasonable additional costs caused by the change to the Roncador specification. Those costs included additional overheads and financing costs, but excluded profit. The procedure in clauses 12.3 and 12.4 required evidence of expenditure. The parties’ global quotations and settlement discussions were not negotiations within that contractual procedure.
4. Good faith negotiations. Applying Walford v Miles [1992] 2 A.C. 128, the court held that an obligation to negotiate in good faith could not provide an enforceable remedy where the outcome remained uncertain. The first variation-order letter was binding and final. The second settlement was final except for Variation Order 13.
5. Estoppel and authority. The assurances relied on were not binding commitments by persons with actual or apparent authority. Estoppel could not be used to create a separate cause of action for an agreed settlement where the underlying contractual claim required proof of actual additional costs.
6. Other agreements and claims. The DCI did not cover Roncador-only costs. Brasoil was entitled to recover US$56,447,788.08 advanced under the DPI, with contractual interest. The advances were not penalties. Maritima was liable under the Keepwell Agreement. Claims for delay, unfinished work and the performance bond failed.

First-instance determination of agreed preliminary contractual issues. No appellate history was stated in the judgment.