Oil & Gas: No contract, no payment 

England & Wales, Brazil

In Forum Services International Limited and Forum Mac Serviços De Petróleo Eireli v OOS International BV [2020] EWHC 170 (Comm) the Commercial Court rejected a claim for commissions, relating to two vessels chartered to Petrobras, by a commercial agent described as a ‘50% partner’ of the winning bidder, due to the absence of a contract. In these turbulent times, where the relationship between parties in the oil and gas industry is often evolving quickly, the decision of the Commercial Court is a reminder of the importance of properly documenting the evolving commercial relationship with appropriate amendments or new agreements.

Facts

Forum Services International Limited (“Forum”) is a company that provides consultancy, engineering, yard supervision and offshore drilling operations management services. OOS International BV (“OOS”) is a company that provides offshore accommodation, ship management, engineering, maintenance and operational services.

On or around September 2010, OOS approached Forum to discuss cooperation for its projects in Brazil. Forum would act as an agent for OOS and deal with bid and market enquiries received from Petrobras. The history of the parties’ relationship may be summarised as follows:

  1. Representation Agreement: On 20 September 2010, Petrobras launched a new bid (the “2010 Bid”) seeking supply of two vessels. In an email dated on or around 23 September 2010 Forum sent OOS a draft representation agreement which contained an Exhibit to identify the term “Asset” (a vessel to be named) (the “Representation Agreement”). The Representation Agreement stated that OOS would pay Forum a commission, amounting to 3% of the contract value, if a contract for the “Asset” was completed. On 18 October 2010, OOS returned a signed copy of the Representation Agreement, where it had identified the “Asset” as “Halani 1” (a vessel). OOS ultimately proposed the Halani 1 and another vessel called “Toisa Proteus” to Petrobras but it was unsuccessful in its tender.
  2. Other OOS Relationships: Later in the year, OOS formed a relationship with another agency named PHM Serviços de Comércio Internacional Ltda (“PHM”). PHM had been involved in selecting the vessels to be proposed by OOS for the 2010 Bid. PHM and OOS signed a representation agreement in February 2011. In or around March 2011 OOS considered involving a third agency named DRJ Projectos e Consultoria Ltda (“DRJ”).
  3. 2011 Market Inquiry: In May 2011, Petrobras launched a new market inquiry (the “2011 Market Inquiry”). Forum played an integral role in the preparation, presentation and promotion of OOS’ 2011 proposals to Petrobras. In August 2011, Petrobras invited the parties to attend negotiations. By this time OOS and Forum were considering transitioning into a partnership or joint venture and discussed the possibility of executing a “short and simple partnership agreement”. In October 2011 OOS terminated its agreement with PHM and suggested that DRJ should receive PHM’s commission. On 12 January 2012, Forum prepared a draft cooperation agreement between Forum and OOS, however, this document was never executed.
  4. 2012 Market Inquiry: Petrobras issued its next market inquiry on 13 September 2012 (the “2012 Market Inquiry”). Forum suggested to OOS that, acting as partners, they should propose a range of vessels to maximise chances of success. Forum also played an active role in acquiring vessels to present for the 2012 Market Inquiry. The parties executed a confidentiality agreement with Transocean Management Inc in relation to the purchase of the “ex-SEDCO 700” and made enquiries with Samsung Heavy Industries Co seeking quotations for semi-submersible vessels. Forum also liaised with Samsung to discuss adapting vessels to comply with Petrobras’ technical description. Thereafter, OOS entered into an agreement with Aspen Solutions Ltds (“Aspen”) whereby it was agreed that Aspen would act as its commercial agent and represent its offer to Petrobras. Forum and OOS proposed 13 vessels to Petrobras in response to the 2012 Market Inquiry. Each offer was made on behalf of OOS and Forum. On 9 December 2012 Forum and OOS attended meetings to negotiate the charter of the ex-SEDCO 700. The meeting minutes describe the parties’ representatives as acting for OOS/Forum. Forum continued negotiating the charter of the ex-SEDCO 700 and arranged for its inspection. Forum also corresponded with Petrobras about the charter of another vessel, the “DP3 SSCV”. In e-mail correspondence dated 29 December 2012, OOS stated in relation to Forum, “we are of course 50% partners”. A revised offer was proposed to Petrobras including the DP3 SSCV in which OOS stated that the offer, was on behalf of “We (OOS-International BV and Forum Services Brazil, FOROOS)”. On or about 18 March 2013, contracts were executed between OOS and Petrobras for the charter of the two vessels.

Dispute

Forum sought a share of the proceeds from OOS’ charter with Petrobras. In the absence of an executed ‘partnership’ agreement it claimed:

  1. Rectification of the Representation Agreement such that it would “include all those marine assets that Forum and OOS agreed from time to time that Forum would market and promote to potential oil and gas companies for the chartering out of those assets by OOS”;
  2. Variation of the Representation Agreement by conduct to the same effect; and
  3. Unjust enrichment.

OOS contended that Forum was rendering services in anticipation of a local services contract. The work done in relation to the 2012 Market Inquiry was in anticipation of a possible joint venture, not because the parties had agreed to apply the terms of the Representation Agreement in relation to other vessels. In addition, OOS argued that PHM, DRJ and Aspen had replaced Forum as agents.

Commercial Court Decision

The Commercial Court rejected each of Forum’s claims.

There was not sufficient evidential basis for the claim to rectification. The parties’ common intention and outward expression of accord was no more than that the Representation Agreement would extend to assets that were identified in Exhibit A from time to time. The Representation Agreement would only apply if the parties had expressly agreed to its terms applying to the vessels chartered. No reference was made to the Representation Agreement, or to 3% commission being payable to Forum pursuant to the 2012 Market Inquiry.

In addition, there was no sufficient evidential basis for the claim for variation by conduct so as to include the general, open-ended, wording advanced. This does not rule out the possibility that the parties might have varied the Representation Agreement so as to apply to a vessel other than the Halani 1 even though an Exhibit A had not been completed for that other vessel. However, this was not the case for the vessels “DP3 SSCV” and “ex-SEDCO 700”, and those are the vessels in respect of which commission was sought in these proceedings.

The Commercial Court agreed with the submissions on behalf of OOS, that the 2012 Market Inquiry was prepared in anticipation of a joint venture between Forum and OOS, not because the Parties had agreed that the terms of the Representation Agreement would apply. As the parties’ relationship developed it became less and less likely that they would agree to apply the terms of the Representation Agreement. They were working towards a joint venture or like agreement.

In relation to the unjust enrichment claim, Forum did not secure a concluded joint venture (or like) agreement. It took a commercial risk and the risk did not pay off. Forum and OOS knew where they stood. There was no default position. There was also no evidence to support an argument that Forum rendered services on the basis of an operative mistake in the Representation Agreement.

Forum argued that OOS had every opportunity to tell Forum to stop providing services on its behalf and that Mr Overdulve, for OOS, encouraged Mr Duhen’s participation, for Forum. This is correct, although it is equally correct that Forum had every opportunity to insist on a contract, or to withhold services until he had a contract, or to make clear that he was providing services on the basis of the Representation Agreement. Forum made no reference to the terms of the Representation Agreement or to commission.

In any event it does not follow (as Forum argues) that the only reasonable reaction to Forum’s marketing and promotion of the vessels is that he expected to be paid commissions, rather than that he hoped for reward in the form of a concluded joint venture (or like) agreement.

Comment

The Supreme Court has previously expressed the view, in other cases, that “The… arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story is to agree first and to start work later.” (RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2009] EWCA Civ 26).

Although the commercial realities sometimes make the foregoing advice difficult to follow, in the absence of a clear contractual relationship between the parties governing the work being carried out, disputes might well ensue concerning a multiplicity of issues.

It is apparent in the above case that the parties were working toward some sort of joint venture but did not get around to formalising that arrangement in a written contract. In the absence of a formal written contract governing the joint venture, one party was left seeking to, in some way, alter or rectify the terms of a pre-existing arrangement in order to be able to assert an English law claim in the English courts. Dealing with such situations is doubtless more complex where the parties are not domiciled in England and Wales, and performance is not in England and Wales – meaning that the options open to commencing an action in the English courts might be limited to those under existing agreements with English jurisdiction clauses.

Although it might sound obvious, the outcome of the case is a stark reminder that parties should formalise any negotiations, or terms discussed informally, in a written contract or amendment to existing contract. In the oil and gas industry, many existing contracts will contain no oral amendment clauses. The recent Supreme Court case in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 means that any absence of compliance with such clauses will often be fatal to any alleged amendment.

Disputes concerning the commission payable pursuant to agency agreements are just one key area in which such risk arises, especially where there is lack of transparency or openness in the negotiations between the parties. For our analysis of a dispute concerning payment of commission under another agency agreement for securing drilling contracts offshore Brazil, please read our article here.

In the current, fast evolving market, parties will be refining their existing commercial arrangements, or changing the scope of work, to reflect current needs. The decision of the Commercial Court reinforces the importance of properly documenting any evolution in the relationship between the parties.

Judge: Robin Knowles J