Altera Voyageur Production Ltd v Premier Oil E&P UK Ltd

Contractual worked examples form part of the agreement and may determine the operation of a formula where they are integral to the contractual mechanism. They should be construed in context, alongside the narrative and the contract as a whole.

A court may correct drafting under the principle in Chartbrook Ltd v Persimmon Homes Ltd only where it is clear that something has gone wrong with the language and clear what a reasonable person would have understood the parties to mean. Commercial awkwardness or an apparently illogical result is insufficient. An inconsistency clause applies only where provisions contradict one another or cannot sensibly be read together.

Altera Voyageur Production Ltd claimed adjusted hire under a sub-bareboat charterparty for a floating production, storage and offloading vessel. Premier Oil E&P UK Ltd disputed the claim and counterclaimed for alleged overpayment.

The parties agreed that the dispute raised a pure question of construction concerning the Hire Adjustment Formula in section 5 of Appendix M. The narrative formula was followed by two worked examples containing an additional calculation step. The central issue was whether that step formed part of the agreed formula or should be disregarded as inconsistent with the charterparty’s narrative provisions and commercial purpose.

1. Claim succeeded. Judgment was entered for Altera for USD 12,108,072.50 plus contractual interest.

2. Contractual interpretation is an iterative process. The relevant provisions must be considered in their commercial context and against the instrument as a whole. The quality of drafting is relevant, particularly where the documents contain evident drafting infelicities.

3. The worked examples in section 5 of Appendix M were integral to the hire-adjustment mechanism. They each included the additional calculation step described as Step 6, under which the weighted total was divided by the 95 per cent Target Availability figure. Article 17.1 did not itself prescribe the detailed calculation. Instead, it required adjustment as provided in Appendix M. The definition of Daily Base Hire likewise referred to adjustment in accordance with Appendix M.

4. The apparent commercial problems relied upon by Premier, including the possibility of an upward adjustment during force majeure, did not establish that the drafting was an obvious nonsense or arbitrary and irrational. The examples were repeated and specifically demonstrated the consequences of the formula. It was therefore more probable that they represented the parties’ deliberate bargain. Disregarding Step 6 would rewrite the contract.

5. The inconsistency clause had no application. Article 17.1 and Appendix M could sensibly be read together. Article 17.1 stated the general entitlement to adjustment, while Appendix M supplied the detailed mechanism. The fact that the mechanism did not produce a simple 95 per cent pivot point did not create an inconsistency.

6. The court rejected Premier’s construction and held that all elements of the hire-adjustment mechanism, including Step 6, were to be applied.

First instance decision. The judgment records no prior appellate decision in the dispute.