Worked examples
Altera Voyageur v. Premier Oil (High Court) [2020]
Contracts often include very complex financial formulae. Sometimes they include worked, numerical examples alongside a description in words. The question to be determined is what happens when the numerical example is different from the description in words?
Facts:
This case involved a boat charterparty. The contract contained both drafting that set out the amount to be paid under the contract and also two worked examples. However, the drafting and the worked examples were inconsistent, producing a difference in payment of almost US$16m.
Decision:
The High Court gave priority to the two worked examples. It did so even though:
- there was a clause which said that the main body of the contract took priority over the Appendices (in which the worked examples were contained) – the court took the view that the worked examples simply provided a more detailed interpretation of the narrative clauses. The judge, somewhat surprisingly, said that there was no inconsistency between the drafting and the worked examples (despite the fact that they produced two different results that were millions of pounds apart!).
- the worked examples produced a result which when applied in the context of a force majeure situation made ‘little or no commercial sense’. This ‘apparent commercial illogicality’ was not sufficient to persuade the judge that something had gone wrong with the worked examples.
- The decision could easily have gone the other way. It cannot be said that as a matter of principle worked examples will generally take priority over narrative drafting but this case at least suggests that they may be preferred in the event of a conflict. The case demonstrates how important it is to ensure that the drafting and any worked examples are consistent. It still remains the case that worked examples are incredibly valuable and are generally to be welcomed as providing a degree of clarity on any matter involving calculations. Interestingly, there was no discussion as to whether the worked examples had been produced independently, (perhaps by accountants or other professional advisors), from the lawyers who had worked on the narrative drafting.
The judge expressed the view that this was a contract where “changes have been made in the course of drafting, without the consequences always being followed through with rigorous consistency”. In his view this therefore meant it was unwise to focus too heavily on individual pieces of drafting but instead one should “look at the terms of any particular provision in its commercial context and against the landscape of the instrument as a whole”.
The judge felt that the worked examples were not ‘optional extras’ but integral parts of the contract terms and couldn’t just be ignored as that would amount to rewriting the contract.
The judge quoted a comment from an earlier case “... in the context of lengthy contracts … illustrations or examples [may] deserve particular attention as something to which the parties particularly turned their minds …”