Recently, Singaporean offshore vessel manufacturer Seatrium has been embroiled in arbitration proceedings involving a floating production storage and offloading (FPSO) conversion contract.
On February 10, Seatrium issued a statement on its official website, stating that its wholly-owned subsidiary, Jurong Shipyards Pte Ltd (JSPL), had initiated arbitration proceedings against Petrobras Netherlands B.V. (“PNBV”).
The arbitration relates to a legacy contract for the conversion of the P-54 FPSO (the “P-54 Contract”), which was entered into between JSPL and PNBV in June 2004. Subsequently, JSPL and PNBV entered into various amendments to the P-54 Contract in 2006 and 2007 to adjust the contract price to reflect cost increases arising from foreign exchange movements and market overheating conditions. In 2007, the Brazilian Federal Court of Accounts, the Tribunal de Contas da União (“TCU”), commenced an audit process in relation to the P-54 Contract and the amendments thereto.
In 2008, JSPL and PNBV entered into a settlement agreement (the “Settlement Agreement”) to fully resolve all issues under the P-54 Contract and to mutually release each other from all past claims arising under the P-54 Contract. Under the Settlement Agreement, PNBV agreed to pay JSPL a close-out sum of US$152.3 million (the “Close-out Payment”). US$55.7 million of this amount was withheld pending TCU’s final decision (the “Withheld Amount”). JSPL expressly reserved its right to claim the Withheld Amount through arbitration under the Settlement Agreement.
Current DisputeThe TCU issued its final decision relating to the P-54 Contract in November 2023, and the basis for withholding the Withheld Amount is no longer applicable. However, PNBV has continued to retain the Withheld Amount. Petróleo Brasileiro S.A. (“Petrobras”), PNBV’s parent company, issued a demand letter to Jurong claiming US$135.3 million in alleged overpayments under the P-54 Contract. After deducting the US$55.7 million withheld under the Settlement Agreement, Petrobras demanded a net payment of US$79.6 million.
JSPL is therefore commencing arbitration to claim payment of the Withheld Amount under the Settlement Agreement. JSPL is asserting that PNBV is in breach of the Settlement Agreement by failing to pay the Close-out Payment in full. The arbitration is also to prevent any further recovery attempts by PNBV in connection with the P-54 Contract.
The P-54 Contract provides for London-seated arbitration under the UNCITRAL Rules and is governed by English law.