Petromec Inc & Anor v Petroleo Brasileiro SA & Ors

In construing a contractual cost-allocation provision, the court must read the agreement as a whole and give its words their natural and ordinary meaning in the context of the transaction and facts reasonably available to the parties. A specification may allocate responsibility not only for specified equipment but also for associated costs required by a party’s later requirements. Where a contract compares the actual cost of one project with the cost of a defined alternative project, the counterfactual must be based on that contractual specification, not on a different design that might have been agreed. Contractual approval obligations may be subject to an implied restriction against unreasonable refusal where the agreement contemplates collaborative design development.

The claimant sought further payment under a Supervision Agreement governing the upgrade of an oil production platform. The contractual scheme originally contemplated use in the South Marlim oil field, but the platform was instead upgraded for the Roncador field. The claim concerned the additional cost of the Roncador upgrade over the cost that would reasonably have been incurred for the contractual South Marlim specification.

The court determined preliminary issues concerning gas compression, riser attachment, deck space and cooling arrangements. It declined to determine the issue concerning the appropriate notional South Marlim design and left the issues concerning payment dates and interest open.

The court determined the preliminary issues in part.

1. Contractual construction. Applying the approach stated in BCCI v Ali [2001] 1 AC 251, incorporating the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, the contractual documents were construed as a whole, in their commercial and factual context.
2. Gas compression. The compression deviation operated principally as a cost-allocation provision. Petromec had to supply the existing compressor and one new 2,000,000 m³/d compression train. Petrobras was responsible for the cost of any additional compression systems specified to meet the overall 6,000,000 m³/d requirement, including associated acquisition, installation, deck-space and processing-equipment costs. The original 3 x 50% compression specification did not revive when Petrobras later reverted to that configuration.
3. Risers. The counterfactual required by clause 12.1 was confined to the Original Specification and could not be based on a spider-deck design outside that specification. The riser deviation required Petrobras to accept a feasible design making maximum use of the central caisson unless there were reasonable grounds for refusal. Petrobras could not reasonably refuse a design using the central caisson for 52 risers and wet attachment to the pontoons for the remaining 46. Petromec therefore could not reasonably have been required to install a spider deck.
4. Deck space and cooling. The South Marlim upgrade would have required approximately 600 m² of additional deck space on the evidence preferred by the court, and the transverse piperack would not have required relocation. The agreed position was that additional seawater lift-pump capacity would not have been required for one new 2,000,000 m³/d train plus the existing compressor, although each new compressor would require three discharge coolers.
5. Issue 5 was left for the trial judge or a further pre-trial hearing because the evidence did not show how the question concerning the cheapest compliant design or most likely design arose in practice. Issues 6 and 7 concerning payment dates and recoverability of interest were also left open.

The judgment records earlier decisions in the same litigation, including preliminary rulings by Moore-Bick J, Gloster J and Cooke J, and decisions of the Court of Appeal upholding or dismissing appeals from those rulings. This was a further first-instance determination of preliminary issues.