Braspetro Oil Services Company & Anor v FPSO Construction Inc & Anor

A contractual repayment clause is construed according to its natural meaning in the agreement’s commercial and factual context. Where the wording is clear, extensive background evidence cannot be used to impose a narrower meaning. A provision stating that payments made by one contracting party to a supplier may be recovered from another creates a repayment obligation, subject to the stated limit. A reservation of “all claims, costs and expenses due to either party” is broad and includes contractual cross-claims, unless clear words exclude set-off. Prior settlements cannot be reopened where the reserved wording concerns claims that are still due.

The claimants funded direct payments by Brasoil to suppliers of FPSO and FSO conversion works after the defendants failed to pay suppliers. The payments were made under tripartite Side Letter Agreements. Brasoil sought repayment from the defendants under those agreements.

The defendants argued that the Side Letter Agreements merely preserved the parties’ claims for later reconciliation, and that the wording prevented them from advancing contractual and other cross-claims. They also relied on a settlement agreement concerning Jurong Shipyard. The court determined preliminary issues concerning the construction and effect of those documents.

1. Side Letter Agreements. Each duly concluded Side Letter Agreement created a contract between Brasoil, FCI and the relevant supplier. FCI’s liability under the supplier’s Purchase Order remained its liability. Brasoil assumed an irrevocable obligation to pay the supplier on a conforming written request, subject to the aggregate limit stated in the Side Letter.
2. Where Brasoil made such a payment, the second paragraph of the Side Letter treated it, as between Brasoil and FCI, as a payment by Brasoil to FCI which Brasoil might recover from FCI. The court therefore held that FCI incurred an obligation to repay the sums paid, subject to the aggregate limit. The issue of when that obligation arose was left for determination after interlocutory or final judgment.
3. The words reserving “all claims, costs and expenses due to either party” were wide. They covered claims relating to the relevant P38 or P40 project, including FCI’s contractual claims under clauses 6 and 8 of the Supervision Agreement and quasi-contractual claims. They did not include claims which had already been settled by agreement, and did not extend to claims FCI might have against Petrobras or FEI might have against Brasoil or Petrobras.
4. Clear words are required to exclude set-off or abatement. The Side Letter Agreements contained no such clear restriction. FCI could therefore set off claims it had against Brasoil in relation to the relevant project, including claims under clauses 6 and 8 and in quasi-contract.
5. The Jurong Settlement Agreement did not prevent FCI from advancing those cross-claims. The court answered preliminary issue (1) yes and issue (2) no.

First-instance determination of preliminary issues in the High Court (Commercial Court). No appellate history is stated in the judgment.