Petromec Inc v Petroleo Brasileiro SA Petrobras & Ors

A contractual claim for additional costs cannot be established merely by comparing the total cost of the completed works with the hypothetical cost of the original specification. The claimant must identify the relevant specification changes or instructions, the work required to implement them, the attributable costs, and the reasonableness of both work and expenditure. The causal nexus between the change and the claimed cost must be pleaded and proved. Case-management considerations cannot justify preventing a party from advancing a genuinely sufficient methodology, but they cannot cure a failure to establish contractual entitlement. Evidence under a contractual payment mechanism may require comparison of the costs before and after the relevant amendment.

The claimant sought additional costs under a Supervision Agreement concerning the upgrade of an oil rig. Earlier preliminary findings had established entitlement in principle to recover reasonable additional costs resulting from a change from the South Marlim specification to the Roncador specification, excluding additional profit. A further order required determination of how those costs were to be assessed.

The claimant advanced a global comparison between the final Roncador cost and the hypothetical South Marlim cost. The defendants contended that the claimant had to identify each relevant change, instruction, item of work and attributable cost. The court also considered whether separate assessment under clauses 12.1 and 12.2 was required, how the hypothetical original-specification cost should be assessed, and what evidence clause 12.3 required.

1. Construction and methodology. The claimant’s global comparison did not satisfy clauses 12.1–12.3. It assumed that all additional expenditure related to contractual specification changes and that the expenditure was reasonable and properly incurred. The claimant had to identify the work required to implement the clause 11 amended specification and the further alterations or changes instructed under clause 10, together with the cost attributable to that work and the reasonableness of the work and cost: [19]–[26], [38], [48].
2. Causation and burden of proof. The claimant bore the burden of establishing the relevant causal nexus between the change or instruction, the work performed and the cost claimed. It could not shift that burden to the defendants by presenting only the difference between aggregate costs. Difficulties in proving disruption, acceleration, remedial work or other consequential costs did not create a shortcut: [31]–[32], [38]–[40], [44].
3. Separate assessment. It was unnecessary to ascertain separately the sums due under clauses 12.1 and 12.2. The relevant exercise was to establish the total of the reasonable additional costs payable under both provisions, while identifying the components required by the contract: [49].
4. Original-specification cost. The question under issue 3 was fact-sensitive. The trial judge would have to determine what cost might reasonably have been incurred on the evidence, and the court declined to prescribe in the abstract whether the cheapest design, the most likely design or a weighted approach was required: [50].
5. Clause 12.3. Evidence of expenditure meant evidence of the additional costs under clauses 12.1 and 12.2, including the costs that would have been incurred before the amendment and those incurred afterwards, so that the additional and reasonable nature of the costs could be established: [22], [51]. Preliminary issue 1 was answered in favour of the defendants’ formulation in paragraph 1(b). The remaining issues were answered as stated above.

This was a first-instance determination of further preliminary issues arising from an earlier judgment of Moore-Bick J dated 2 February 2004 and an order of Gloster J dated 27 April 2007. No citation for either earlier decision was stated in the judgment.