Petrofac - Case Update

The Court of Appeal has released a decision on costs on the Petrofac appeal, ordering Petrofac to pay £2 million to dissenting creditors Saipem and Samsung.

Last month, we wrote about how the Court of Appeal overturned the High Court’s sanction of Petrofac’s restructuring plan, finding in favour of Saipem and Samsung on the basis that plan benefits were not fairly allocated between creditors.

When it came time to argue the issue of costs, Saipem and Samsung claimed over £6.4 million in costs for the convening hearing, the sanction hearing and the appeal, broken down as follows:

• Mayer Brown: £3,156,152

• Counsel: £1,026,120

• Alvarez & Marsal (expert evidence): £840,158

• Alvarez & Marsal (financial advice): £1,383,494

An interim payment of about 60% was sought, amounting to approximately £3.84 million.

Petrofac argued that £6.4 million in claimed costs was excessive and wholly disproportionate for litigation that involved only eight days in court (five for the convening hearing and the sanction hearing at first instance, and a further three on appeal). Petrofac pointed out that Saipem and Samsung did not adduce any substantial evidence of fact or any expert evidence to challenge Petrofac's evidence of the post-restructuring value of the Petrofac Group or the return to creditors in the relevant alternative. Finally, Petrofac argued that the information provided by Saipem and Samsung was wholly inadequate to enable the Court to make a determination of an appropriate payment on account. As a result, it took the position that the Court should not make an order for an interim payment of account, or that any interim payment should be limited to £500,000.

Saipem and Samsung asserted that their claimed costs were entirely reasonable and proportionate given the size of their claims that the plan sought to extinguish (US$1 billion) and in comparison to the “extraordinary US$111 million” on professional fees that Petrofac had already spent on formulating the restructuring plan by January 2025. Saipem and Samsung contended that this case was "restructuring litigation on a very significant scale", and relied on a quotation from Petrofac saying the plan was "bigger and more complicated than Thames Water".

The Court rejected this argument, finding that the reasonableness and proportionality of Saipem and Samsung’s costs did not depend on the quantum of Petrofac’s costs, stating: “the possibility that a paying party may have paid its own lawyers and advisers disproportionately high fees does not make the fees claimed by a receiving party reasonable and proportionate.”

The Court agreed with Petrofac that the information provided by Saipem and Samsung was inadequate to enable it to conclude, with any degree of confidence, that they were likely to recover anything approaching £6.4 million on a detailed assessment. The Court pointed out that a non-privileged summary identifying the types of work done by Mayer Brown and Saipem and Samsung’s counsel had not been provided.

The recoverability of the fees of Alvarez & Marsal was equally uncertain, since there was nothing apart from a “bare strapline” on its invoices to identify the nature of the financial advisory work that it performed for Saipem and Samsung, or to explain how the charges for that work were calculated.

Pulling these factors together, the Court did not consider that it could make an order for a payment on account of anything like 60% of the £6.4 million claimed by Saipem and Samsung. Nevertheless, and notwithstanding the “manifest deficiencies” in the information provided, the Court thought it was likely that Saipem and Samsung would recover materially more than the £500,000 offered by Petrofac. Considering the substantial level of uncertainty identified, the Court ordered Petrofac to pay £2 million to Saipem and Samsung.

Read the decision HERE.

Professionals involved:

• Andrew Thornton KC of Erskine Chambers and Jon Colclough of South Square (instructed by Mayer Brown) for Saipem and Samsung

• Henry Phillips, Ryan Perkins and Stefanie Wilkins of South Square (instructed by Linklaters) for Petrofac