Samsung Heavy Industries recently released a statement that the US Court of Appeals for the Fifth Circuit has dismissed the damages lawsuit filed by Petrobras America, a US subsidiary of Petrobras, against Samsung Heavy Industries, and has decided to uphold the final decision of the US District Court for the Federal District of Texas, which means that Samsung Heavy Industries has once again won the long-running legal dispute. According to the ruling, Samsung Heavy Industries will not be required to pay $250 million in damages to Petrobras America.
It is understood that the litigation dispute between Samsung Heavy Industries and Petrobras America concerns the ultra-deepwater drillship “Ensco DS-5”. The drillship was originally ordered from Samsung Heavy Industries by Pride International, an American drillship owner, in 2007 and delivered in 2011 at a cost of about $720 million, and was originally named the Deep Ocean Mendocino. Subsequently, Pride International entered into a five-year charter agreement with Petrobras America for the drillship, which was acquired by Ensco (now reorganized and renamed Valaris) in 2011. And the drillship was renamed “Ensco DS-5”.
In March 2019, Petrobras America filed a $250 million claim for damages against Samsung Heavy Industries for the drillship Ensco DS-5, alleging that Petrobras America entered into the Ensco DS-5 at an unnecessarily high cost due to the improper use of a portion of brokerage commissions by Samsung Heavy Industries during the construction contract for the Ensco DS-5 with Pride International. Thus, Petrobras America entered into a five-year charter of the Ensco DS-5 at an unnecessarily high cost and incurred a loss of $250 million to Petrobras America.
Subsequently, Samsung Heavy Industries filed a motion to dismiss the lawsuit on the grounds that the statute of limitations had expired, which was granted by the US District Court for the Federal District of Texas in June 2020, meaning that Petrobras America’s indemnification claim was dismissed.
However, Petrobras America did not recognize this ruling and appealed. More than a year after the parties’ first trial decision, the US Court of Appeals for the Fifth Circuit granted Petrobras America’s claim against the US District Court for the Federal District of Texas’ dismissal in August 2021 and decided to return to the first trial for a new trial.
After two years of litigation, in August 2023, the US District Court for the Federal District of Texas once again dismissed Petrobras America’s claim, finding that “there is no reasonable causal connection between the damages and Samsung Heavy Industries’ conduct”.
Petrobras America then appealed the outcome of this decision again, but it was ultimately rejected by the US Court of Appeals for the Fifth Circuit, with Samsung Heavy Industries again prevailing.
Samsung Heavy Industries is known to have been involved in a number of complex legal disputes over the order for the drillship Ensco DS-5. In addition to Petrobras America, the charterer, the shipowner, Ensco, and the Brazilian government have also filed claims for compensation against Samsung Heavy Industries.
In April 2016, Ensco filed a lawsuit against Samsung Heavy Industries through the Arbitration Court of the U.K., requesting it to compensate for the losses caused by the cancellation of the charter contract for the drillship Ensco DS-5. At the beginning of 2019, the UK Court of Arbitration ruled against Samsung Heavy Industries and ordered it to pay $180 million in damages. Although Samsung Heavy Industries contested the decision and filed a petition, the dispute was ultimately resolved through the payment of compensation to Ship East.
In February 2021, Samsung Heavy Industries announced that it had reached a settlement with the Brazilian government over alleged violations by shipbrokers in connection with the contract for the drillship Ensco DS-5. The Brazilian authorities decided to drop all administrative and judicial proceedings on the condition that Samsung Heavy Industries pay a settlement of R$812 million.
Regarding the outcome of the latest litigation with Petrobras America, Samsung Heavy Industries said, “If Petrobras America appeals the decision of the US Court of Appeals for the Fifth Circuit again, Samsung Heavy Industries will re-disclose the relevant information.”