Drafting Formulae – the power of worked examples

This blog considers a recent decision in which the High Court interpreted that worked examples took priority over narrative drafting, where the two were inconsistent.

The recent decision in Altera Voyageur Production Limited v. Premier Oil E&P UK Ltd   highlights the power of using worked examples in contract drafting. One of my previous blogs discussed the issues which arose in the famous House of Lords case Chartbrook v. Persimmon in which the contract did not include a worked example and the court was left to interpret some very ambiguous narrative drafting.

By contrast, in Altera Voyageur the contract contained both narrative drafting that set out the amount to be paid under the contract and also two worked examples – however the narrative drafting on the one hand and the two worked examples on the other hand were inconsistent, producing a difference in payment of close to US$16m.  

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 (in which the narrative drafting was contained) took priority over the schedules (in which the worked examples were contained) – the court took the view that the worked examples provided a more detailed interpretation of the narrative clauses
• the worked examples produced a result which was generally accepted as being commercially unreasonable
•  the contract contained various drafting errors and redundancies which cast doubt on how much weight should be placed on any one provision (including the worked examples)

 It is a decision which appears to have turned on a knife-edge and could easily have been decided the other way.  As all contractual interpretation is highly fact specific it is difficult to draw out any general principle of worked examples taking priority over narrative drafting or a formula.  However, what the case does show is the crucial importance of worked examples and the power that they can have.

 In my earlier blog on Chartrook v. Persimmon one of my recommendations was to always include a worked example. What Altera Voyageur illustrates is the crucial importance of making sure that those worked examples are correct and are consistent with the operative provision of the contract that they are illustrating.