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

A claimant seeking judgment at an undefended trial must identify matters which may assist the absent defendant, and the court must scrutinise and test the claim.

Money paid to a third party at a defendant’s express or implied request is recoverable under an indemnity. Recovery does not depend on the payment discharging the defendant’s legal liability or satisfying the requirements for restitution based on legal compulsion.

Under section 35A of the Supreme Court Act 1981, the High Court may award only simple pre-judgment interest. The rate should fairly compensate for being kept out of money. A claimant seeking more than the customary commercial rate must establish the borrowing rate applicable to a person with its general attributes. Interest ordinarily runs from accrual of the cause of action.

Brasoil financed the conversion of two offshore oil units, P38 and P40. When the contractor, FCI, failed to pay numerous suppliers, Brasoil paid them under tripartite Side Letter Agreements, requests for payment and a settlement with Jurong Shipyard. Brasoil sought reimbursement from FCI.

A preliminary judgment, Braspetro Oil Services Company & Anr v FSO Construction Inc & Anr [2005] EWHC 1316 (Comm), had established Brasoil’s entitlement in principle under the Side Letter Agreements. This trial determined the amounts actually recoverable, contractual and alternative bases for particular payments, and pre-judgment interest.

FCI admitted part of the claims but ceased participating. Its counterclaims were struck out after repeated non-compliance with court orders. The court therefore examined the documentary and witness evidence in FCI’s absence, including points which might have assisted it.

1. Judgment was given for Brasoil. The court awarded US$82,720,346.61 in the P38 proceedings and US$171,192,386.04 in the P40 proceedings, together with pre-judgment interest of US$31,525,289.48 and US$65,734,021.50 respectively. Some individual claims were disallowed or reduced.

2. Because FCI did not attend, Brasoil was required to identify factual and legal points potentially favourable to it. The court carefully tested the claims and accepted only those established by the evidence, applying the approach in Habib Bank Ltd v Central Bank of Sudan [2006] EWHC 1767 (Comm).

3. The Side Letter Agreements obliged FCI to reimburse Brasoil for payments made to suppliers following conforming written requests, subject to their aggregate limits. Purchase orders and requests for payment containing equivalent wording had the same contractual effect. A missing signed document did not defeat recovery where the contemporaneous controls, database and other evidence established on the balance of probabilities that the agreement had been executed.

4. The Jurong Settlement Agreement required Brasoil, at FCI’s request, to discharge liabilities owed by FCI to Jurong. Its express terms, or alternatively an implied term necessary to implement the parties’ evident intention, entitled Brasoil to indemnification. The existing Side Letter Agreements continued to operate alongside that settlement. Amounts notionally attributable to delay and overtime caused by Brasoil’s changes were deducted from the relevant settlement claims.

5. Alternatively, payments made to Jurong at FCI’s express request were recoverable under the established principle governing payment to a third party at another’s request. The right is an indemnity and does not require proof that the defendant received a benefit or was relieved of legal liability. Legal compulsion is relevant where there was no antecedent request; it was unnecessary here.

6. Section 35A of the Supreme Court Act 1981 conferred a broad discretion to award simple interest as compensation for being deprived of money. Having considered Brasoil’s general borrowing attributes, inter-company funding, available markets and the group’s mix of borrowing, the fair rate was three-month US dollar LIBOR plus 2.5%, simple. Interest ran from each payment, when the corresponding cause of action accrued.

• High Court (Commercial Court), present trial: quantified the sums recoverable following the preliminary determination and awarded contractual sums, an indemnity and simple interest.

• High Court (Commercial Court), preliminary issues: Braspetro Oil Services Company & Anr v FSO Construction Inc & Anr [2005] EWHC 1316 (Comm) held that Brasoil was in principle entitled to reimbursement under the Side Letter Agreements. No appeal was brought.

• Intervening procedure: FCI’s counterclaims were struck out after non-compliance with unless orders and disclosure obligations. Its defences remained, but it did not attend the trial.