1 February 20212 minute read

Worked examples

Altera Voyageur Production Ltd v Premier Oil E&P UK Ltd [2020] EWHC 1891 (Comm)
Facts

The defendant, Premier Oil, an oil exploration company, chartered a vessel from the claimant, Altera Voyageur. The dispute between the parties concerned a question of construction of the terms of the charter party, in particular the correct interpretation of the Hire Adjustment Formula.

The agreement documented the formula using four steps in a narrative and worked examples which contained a further two steps.

Held

The worked examples prevailed: “…the operation of those “Worked Examples” cannot … be characterised as “arbitrary and irrational” or as an “obvious nonsense”…On the contrary, it seems to me to be inherently more probable that the parties’ true bargain is that to be found in the “Worked Examples”. Narrative explanations and formulae may disguise (or, at least, not make clear) their consequences when applied to various factual situations.”

The judge cited Blair J in Starbev Gp Ltd v Interbrew Central European Holdings BV [2014] EWHC 1311 (Comm): “…in the context of lengthy contracts .. illustrations or examples [may] deserve particular attention as something to which the parties particularly turned their minds...”.

Comment

Formulae and worked examples included in contracts can be complex. It is worth double checking that they do correctly document what the parties have agreed in negotiations and being clear whether it is the text or the example that is definitive.

Where the agreement includes both a narrative description and a worked example / formula, take into account what the agreement says about order of precedence, particularly where the worked example is in a schedule.

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