31 December 2020

AND NOW SHOW YOUR WORKINGS: An assessment of the case of Altera Voyageur Production Limited v Premier Oil E&P UK Ltd [2020] EWHC 1891 (Comm)

Many of us will undoubtedly remember our maths teacher’s exhortations to “show your workings” on the premise that you could be awarded marks for the logic and process even if the actual answer was wrong. I can also recall at least one lawyer who would berate any junior who dared to use “for the avoidance of doubt” or inserted an example, on the basis that their drafting should be clear enough in the first place not to need such things.

The case of Altera Voyageur tells us that although getting the drafting 100% accurate should still be the quintessential goal, a worked example may help inform the parties (not to mention the Courts) of the intention of those involved.

The Facts

The case itself related to a charterparty between an oil company and a vessel operator relating to work in the North Sea. The contract provided that the oil company would pay a daily amount, which would be adjusted up or down if the availability of the vessel required was changed. The payment and adjustment were determined according to a calculation, which was set out in both word form and as a formula in the appendix to the contract. However, the worked examples that were given in the contract included two steps that were not spelt out in the drafting and which resulted in the worked examples having a more favourable financial result for the vessel operator.

The dispute centred on whether the drafting or the worked examples should be used to calculate the payments. The oil company argued that if the worked examples were used instead of the drafting then it would result in a commercially illogical outcome as it would give an uplift to the vessel operator even when they were below the availability target. On the other hand, the vessel operator argued that the worked examples should be used as otherwise, the outcome would be contrary to the parties’ intention.

The Judgment

The Court decided in favour of the vessel operator, allowing the interpretation to be based on the worked examples and consequently, also allowing the upward adjustment. In its judgment, the Court decided that the key was to look at the objective meaning of the language in the contract rather than the dictionary meaning of each individual word. Although there was an element of commercial illogicality in allowing an upward adjustment in the circumstances, the Court was of the view that it wasn’t so illogical as to interfere with the contractual terms reflected in the worked examples (the fact that there were two worked examples that resulted in the same outcome helped persuade the Court as to the parties’ intention).

The other core finding of the Court was that there was no actual inconsistency between the drafting in the contract and the worked examples and while the worked examples had two steps that the drafting didn’t reference, the Court felt that the use of worked examples which set out detailed steps probably gave more insight as to the parties’ intentions and were included to give clarity to the drafting.

Also of relevance was the fact that the contract referred to the worked examples and the adjustment “as provided in the Appendix” to the contract. As a result, the Court found the worked examples to be an integral part of both the contract and the adjustment calculation.

Takeaways

So, what are the key takeaways from this decision:

  • Having a worked example should not be considered a failure of drafting but:
    • can actually help bring the wording to life in the real commercial world that the contract will exist in; and
    • will ensure that the parties are clear and agreed as to the expected outcome.
  • Consider using and setting out a range of worked example scenarios so that the outcome in each scenario can be checked and tested to see if each possible scenario gives the expected (and commercially logical) outcome from a formula.
  • Ensure that your:
    • contract correctly incorporates and sets out clearly any order of priority and any inconsistency provisions; and
    • drafting correctly explains the calculation by working it through and testing it (possibly by inserting the figures used in the worked example scenarios) to reduce the risk of discrepancy between the drafting and the worked examples outcomes.

Remember that the Court found that there was no inconsistency between the drafting and the worked examples (despite the worked examples having two additional steps) and so the oil company failed in its attempt to say that the drafting in the contract overrode the worked examples in the appendix.

Stuart Hatcher is a Partner in the Corporate team.

Disclaimer

This note reflects our opinion and views as of 31 December 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

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