Petromec Inc v Petrobras

For security for costs, a claimant remains a claimant where its positive claim is pursued to reduce or extinguish an existing judgment debt, even if the practical effect is setoff. The court should not conduct a detailed merits assessment. Merits are relevant only where it is shown without detailed investigation that the claim is almost certain to succeed or fail. A stay of execution granted to permit the claim to be pursued does not create an indefinite stalemate. If the claimant voluntarily abandons the claim by failing to provide ordered security, the rationale for continuing the stay may disappear. The court may make a broad assessment of reasonable security, including appropriate disbursements.

Petromec pursued an additional-costs claim concerning the upgrade of a vessel to meet the amended Roncador specification. Petrobras had an existing judgment under the Deed of Payment and Indemnity, and execution of that judgment had been stayed while Petromec’s claims continued. Petrobras applied for security for the costs of defending the additional-costs claim.

Petromec argued that it was effectively a defendant because its claim operated as a setoff, that non-compliance with a security order would create a stalemate concerning the stay, and that the merits made recovery highly likely. The court also had to assess the amount of security and the costs of the application.

1. Application granted. Petrobras was entitled to security for the costs of defending the additional-costs claim. Petromec was substantively the claimant. Its claim was a positive claim for recovery of additional costs, notwithstanding that any recovery might set off or overtop Petrobras’s judgment debt.
2. The practical relationship between the claims did not convert Petromec into a defendant. The additional-costs issues required a detailed factual investigation distinct from the issues determined under the Deed of Payment and Indemnity.
3. The court rejected the alleged stalemate. There was no evidence that Petromec could not provide security or that an order would stifle its claim. If Petromec voluntarily ceased pursuing the claim by refusing to provide security, the rationale for the stay of execution would fall away. It would then have no justification for requiring the stay to continue indefinitely.
4. Detailed examination of the merits was inappropriate. The additional-costs claim was not shown, without detailed investigation, to be almost certain to succeed or fail. There were arguable issues concerning Petromec’s entitlement to additional costs and whether any recovery would exceed the judgment debt.
5. Security of £178,691.16 was reasonable and was ordered for costs incurred up to 11 April 2007, including counsel’s and experts’ fees in full.
6. The court reconsidered the security calculation for the detailed assessment costs because its earlier arithmetic approach had been mistaken. The revised figure was approximately £97,000. Permission to appeal was refused because the relevant matters involved an exercise of discretion and no determinative point of law had been decided.

First-instance decision. The judgment records earlier procedural and interlocutory decisions in the same litigation, but no appellate path for this decision.