This is an appeal by the first and second defendants against a judgment of Tomlinson J in the Commercial Court on 28^th February 2003 on a preliminary issue in this action when he declared that the correct amount of the Loss Payment required pursuant to Clause 11 of the Bareboat Charter and Purchase Agreement dated 20 June 1997 between Petro-Deep Inc (“Petro-Deep”) and the second defendants and of the Bareboat Sub-Charter Agreement dated 20 June 1997 between the second defendants and the first defendants was US$334,557,499.34. In essence the judge accepted the submissions of the present respondents on the matters in issue between the parties, which are now the subject of this appeal.

The factual background to this dispute is clearly set out in the judgment. The third defendants Societa Armamento Navi Appoggio SpA ("SANA") were the owners of a large semi-submersible production platform called "Spirit of Columbus". In June 1997 they encountered financial difficulties. A complex set of sale and charter contracts and associated financial arrangements were then put in place whereby the platform was sold, resold and then finally chartered. The ultimate sub-bareboat charterer was the first defendant company Petroleo Brasileiro S.A Petrobras ("Petrobras"), the state oil company of Brazil.

Under these arrangements SANA sold the platform to Petro-Deep on terms whereby Petro-Deep were to pay the purchase price of the platform over a 12-year period. Petro-Deep in turn concluded a "Bareboat Charter Purchase Agreement" with the second defendants Braspetro Oil Services Company ("Brasoil"). This contract, whereby title in the platform would pass to Brasoil on payment of all the sums due under this head Bareboat Charter, also had a 12-year term. Brasoil in turn concluded a "Bareboat Sub-Charter" Agreement with Petrobras which had a similar 12-year term.

The platform was to be upgraded before it was put into operation by Petrobras. This was to be done pursuant to a contract concluded between Petro-Deep and the claimants Petromec Inc (“Petromec”). The cost of the upgrade was reflected in the quarterly hire due from the two bareboat charterers.

SANA, Petro-Deep and Brasoil assigned their entitlement to receive payment pursuant to these various arrangements to a "Security Agent". The Security Agent, now Den Norske Bank ASA, the fourth defendants, then acted as trustee on behalf of various interested parties, including SANA and Petromec, whose interests derived from their role as seller and upgrading contractor respectively. This accounted for the appearance of Petromec as claimants in this action despite the fact that they were not a party to the agreement which gave rise to the dispute the judge had to resolve.

On 15th March 2001 there was an explosion on board the platform. It sank five days later.

Each of the sale or charter contracts made provision for a "Loss Payment" to be made by the purchaser or the charterer, as the case might be, in the event that the platform became a total loss (as defined in the relevant contract). The Loss Payment included an amount in respect of future payments which would have fallen due under the contracts had they been performed according to their tenor over their intended 12-year duration. These payments were to be discounted pursuant to an agreed formula. The parties’ dispute related to the date to which the future payments should be discounted. Because of a movement in LIBOR between the rival dates this makes a difference of about US$2.5million on a payment which it is agreed was in any event in excess of US$330million. If the rates had moved in the opposite direction it would have been in each of the protagonists' interests to adopt a position diametrically opposed to that which they respectively adopted in argument before the judge.

There were other disputes between the parties which related to the manner in which matters were resolved consequent upon the total loss of the platform, but in the first instance the court was invited to resolve a short point of construction concerning the date to which the discounting should be made. The point which the judge had to decide on the trial of a preliminary issue was whether the discounting should be to 20^th March 2001 (the date on which the platform became a total loss) or 18^th June 2001 (90 days after 20^th March) which was the date by which the Loss Payment had to be paid.

For the purpose of the preliminary issue the judge was invited to consider only the position between Petro-Deep and Brasoil pursuant to the Bareboat Charter and Purchase Agreement dated 20^th June 1997. The parties, agreed, however, that in the light of his determination of the position under that contract he should also make a declaration in relation to the position as between Brasoil and Petrobras where the relevant provisions were identical.

At the hearing before the judge Petromec and SANA made common cause, as did Petrobras and Brasoil. Den Norske Bank ASA were present at the hearing, although not represented by counsel, and they made no submissions to the judge. Nor were they represented on the appeal to this court.

Like the judge, I must set out the bare minimum of the contractual provisions necessary to render this judgment intelligible. The relevant provisions of the Bareboat Charter and Purchase Agreement dated 20^th June 1997 between Petro-Deep and Brasoil included the following:

Part of the difficulty that has arisen in this case can be attributed to the fact that on occasion the draftsman has sought to equate the procedures following a total loss (Clause 11) with the procedures following a termination event (Clause 13). In the latter case things are quite straightforward. Once Petro-Deep elects to treat one of the 22 occurrences listed in Clause 13.1 as a termination event, it will issue a declaration to Brasoil identifying “the Termination Payment and All Other Indebtedness to be immediately due and payable”. It is understandable that if payment is not made forthwith, Petro-Deep is entitled to recover “overdue interest” from the date the termination payment is declared due until full payment of the termination payment and other indebtedness is made. In the context of the Clause 13 scenario it is also understandable that the termination payment is expressed to be an amount payable as liquidated damages. If payment of subsequent hire charges is made pursuant to Clause 12.6, these can be readily set off when the precise amount of the termination payment is computed, if paid later than the date of the declaration.

Clause 11, however, is concerned with a quite different scenario. The vessel is a total loss, or for some other reason Brasoil is permanently deprived of her use for the whole of the rest of the charter period, and there is no question of a need for any declaration, to be issued or not at Petro-Deep’s election, before the “Loss Payment and All Other Indebtedness” becomes payable. Instead, Clause 11(1) provides that these sums become payable within 90 days of the triggering event (in other words, they are legally due on the last day of that period at the very latest), and it is not surprising that this sub-clause envisages that this payment might be made by Brasoil out of the proceeds of an insurance claim and/or compensation for the requisition of the vessel. For obvious reasons, it is highly unlikely that these sources of payment would be available to Brasoil at the very start of the 90 days, and understandable that the parties agreed that Brasoil should be allowed 90 days within which to pay.

Clause 17 provides for the payment of over-due interest if the loss payment is not paid on its “due date”, which must mean, on the proper interpretation of Clause 11(1), the end of the 90 day period. It is difficult to understand the purpose of Clause 11(2), because the Clause 11 procedure does not provide for any declaration that the loss payment is due, and it may be that the draftsman mistakenly thought that some declaration or other triggered off the Clause 11 procedure when of course it does not. The fact that the Clause 11 arrangements were infelicitously drafted is also evident from the description of the “Loss Payment” in Clause 1 as “liquidated damages” when it was common ground that this description was inept. Mr Hancock QC, who appeared for the appellants, made a valiant effort to persuade us that the making of some kind of declaration was implicit in Clause 11(1), but I remained unconvinced: the procedure makes no provision for such a declaration, and does not require one in order to make it work effectively.

The confusion about the difference between the Clause 11 and Clause 13 regimes was carried over into Declaration III which formed part of Annex A to the Participation Deed and Security Assignment. This deed was executed on the same occasion as the bareboat charters. Sloppy drafting is again evident on the first page of that declaration where there is a mistaken cross-reference in item (x). The purpose of this Annex is to enable a clearcut statement of the amounts due under a loss payment or a termination payment to be prepared. If, for instance, the loss event is the requisition of the vessel by a government, then the definition of Total Loss in Clause 1 provides that if the vessel is released from requisition within 90 days there will not be a total loss after all. If it is not so released, the loss payment is due at the end of the 90 days, and it is hardly surprising to find that Table A in Declaration III provides for overdue interest on any unpaid hire payments which fall due during the 90 days. It is not at all easy to see why the parties should ever have agreed to overdue interest being payable on the “loss payment” of the vessel (see the definition of “Total Loss” in Clause 1) when payment of the loss payment was not definitively due for a further 90 days and might not be due at all if the vessel was released from the constraint in question within that period. (Incidentally, there is further evidence of sloppy drafting in this definition of “Total Loss”, where the words “such … arrest” appear in the fifth line without any prior reference to an arrest).

Mr Hancock’s submissions were firmly rooted in his contention that the “termination payment” and “loss payment” provisions were identical, and that in each case the right to the single capital sum accrued at the time that the relevant event occurred. As I have shown, this is simply not the case under Clause 11. The right to the single capital sum is definitively crystallised at the end of the 90 day period following the total loss, even though Brasoil may, at its option, pay this sum earlier. During the 90 days Brasoil is obliged to continue to pay the hire charges notwithstanding that the vessel is a total loss (Clause 12.5). This obligation comes to an end as soon as it pays all the sums due under Clause 11.1, which will of course include overdue interest on any unpaid hire charges accruing due during the 90 days, as Table A to Declaration III (which continues the inept reference to a declaration of loss) demonstrates.

Mr Hancock suggested that his clients’ interpretation was supported by various commercial and purposive considerations. Whether the parties agreed that the final capital payment should replace the income stream under the charter agreement on Day 1 (as it does if a declaration is made under Clause 13) or at the end of Day 90 (when it is conclusively evident that the total loss has occurred and when payment of the loss payment is definitively due) does not appear to me to make any difference in commercial terms provided that liability for the income stream, together with overdue interest on unpaid hire payments, remains in being until the capital payment becomes definitively due, incorporating as it does the appropriate agreed calculation for the accelerated receipt of income payments due after that date. In this electronic age I am entirely unpersuaded by the consideration that the LIBOR rate on the day when payment is due will only become known in London five hours before payment is actually due in New York.

In his careful judgment the judge pointed out one aspect of the agreement which would make no sense at all, commercial or otherwise, if the agreement was interpreted in the manner suggested by Mr Hancock. If he was right, the effect of discounting back to the date of total loss would in virtually every case involve discounting the fixed hire payments falling due in the 90 days between the date of the total loss and the date prescribed for payment on the basis that (i) they were outstanding; (ii) they were (almost by definition) not paid as at the date when payment was declared due, on this hypothesis the date of loss, and (iii) they therefore had to be discounted. However, since on this hypothesis the instalment would not have been paid on what according to Mr Hancock was now the due date (namely the date of loss), the discounted instalment would also pursuant to Clause 17 carry overdue interest at the default rate of interest which was fixed at at least 9%.

I see no reason to lengthen this judgment by repeating any of the further reasons the judge gave for rejecting Mr Hancock’s submissions. It is sufficient to say that I agree with the judge. It is also unnecessary to lengthen this judgment by expressly citing any of the well-known cases which Mr Gee QC, who appeared for SANA, cited to us in support of his proposition that where there are obvious drafting errors in an agreement it is the duty of the court to do its best to identify the parties’ true intention. I am quite satisfied for the reasons expressed in this judgment that the appellants’ submissions are not well founded and that this appeal should be dismissed.

I agree with the entirety of Lord Justice Brooke’s reasoning and therefore with his and Mr Justice Tomlinson’s conclusion. I take the liberty of adding a word about the construction of contracts like this one.

We were told in the course of argument that a number of the most prestigious firms of solicitors in the City of London had had a hand in drafting this charterparty. That perhaps begins to explain why its parts do not fit together. It also explains why the court’s assumed task of identifying the parties’ true intentions has been, as so often, a search for a mare’s nest. What we have had to do, in effect, is scrap an element that makes no sense because of the way it is drafted.

It has been said that poets ought to be involved in the writing of constitutions. Is it too much to suggest that editors ought to be involved in the drafting of contracts? No doubt the function would be practically uninsurable and so would have to be carried out without legal liability, but a careful professional eye cast over this document when the parties’ lawyers had had their say and departed would probably have picked up the anomalies and discontinuities which have led to this costly litigation. It might even have earned the lawyers some additional fees for sorting out the date to which future payments should be discounted.

I agree with the judgment of Lord Justice Brooke.