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

In this action, the claimant (“Altera”) (Footnote: ¹) claims the sum of USD 12,108,072.50 plus contractual interest by way of adjusted hire for the floating production, storage and offloading vessel Voyageur Spirit (“the Vessel”). That sum is said to be due under the terms of a Sub-Bareboat Charter Party dated 9 November 2010 (“the Charterparty”). The defendant (“Premier”) disputes that claim and counterclaims for the sum of USD 3,837,580.91 by way of hire that it says that it has overpaid.

The dispute between the parties has resolved itself into a pure question of construction. The parties have agreed that there is no need for any disclosure or witness evidence and have agreed the financial consequences of their rival interpretations of the relevant terms. The sole question for the court to decide at this, the trial of the action, is the correct interpretation of the Hire Adjustment Formula in Section 5 of Appendix M.

That formula consists of a narrative and two worked examples. Those worked examples contain two steps which are not set out expressly in the preceding narrative. In summary, Altera contends that the formula should be applied precisely in the way set out in the worked examples. Premier says that Altera’s interpretation produces a result which is inconsistent, not only with the preceding narrative, but also with the other terms of the Charterparty and with commercial common sense. Premier says that the narrative ought therefore to be preferred to the worked examples, as giving effect to what a reasonable person would say was the intention of the parties as conveyed by the words which they have used in the Charterparty, taken as a whole.

The following summary of the factual background is taken from the Skeleton Arguments submitted by the parties.

Premier is an oil exploration company, which at the material time was engaged in developing and producing the Huntington Field oil reserves in the North Sea. For that purpose, Premier bareboat chartered the Vessel from Altera. Altera was the operator of the Vessel, under a charter from the Vessel’s owner, Altera’s parent company.

The parties entered into the Charterparty on 9 November 2010. On the same date, they entered into a separate “Service Agreement”, under which Altera agreed to operate the Vessel, but on the basis that it “will subcontract a significant part of the Services to a third-party manager”. Among other things, the Service Agreement required Altera to agree planned maintenance schedules with Premier and to obtain approval for the operating budget. The compensation for this was fixed but included an incentivisation bonus, the details of which I shall describe later in this judgment.

The parties also entered into an “Over-Arching Agreement” for the Charterparty and the Service Agreement. The Over-Arching Agreement recited that Altera was going to perform upgrade work (as specified by Premier) to the Vessel. It also identified the scope of the work, both for the upgrade and during operation. There was also a detailed functional specification and Altera’s “Execution Plan”. Otherwise, the Over-Arching Agreement was mainly concerned with the conditions precedent to the validity of the various agreements, and the warranties and undertakings to be given to each party by the other.

Importantly for present purposes, the Over-Arching Agreement had 11 Appendices. In Article 1.2.1 of the Charterparty, these Appendices were stated to “have effect for the purposes of” the Charterparty. These included “Appendix B – Compensation” and “Appendix M – Availability and Hire Adjustments”. Appendix D and Appendix H were stated in the Over-Arching Agreement to be “not used”. Article 1.2.2 of the Charterparty stated:

The Charterparty envisaged that, following completion of the upgrade work, the Vessel would be accepted by Premier and the “Secondary Charter Period” (defined in Article 3.2) would begin. The Secondary Charter Period commenced on 13 April 2013. After an initial dispute, the Daily Base Hire (without adjustment) was paid from 22 February 2014. The Charterparty came to an end (and was replaced with a different agreement) on 13 April 2018.

Article 27 of the Charterparty is headed “Compensation” (Footnote: ²). Article 27.1.1 (under the heading “Daily Base Hire”) provides that:

Section 3 of Appendix B states that:

Article 17 of the Charterparty is headed “Availability Adjustments and Off-Hire”. Article 17.1 (headed “Target Availability; Adjustments to Hire”) provides for the reduction or upward adjustment of the Daily Base Hire in the event that Altera or those for whom Altera is responsible cause a reduction or increase in the “Availability” of the Vessel. That Article states that:

“Target Availability” is defined in Article 1.1 of the Charterparty by reference to Appendix M. Section 1 of Appendix M defines “Target Availability” as meaning:

Article 17.2 (headed “Continuous Deficiency”) provides for the consequences of Altera failing continuously or regularly to achieve “Target Availability”. It states:

Appendix M overall is headed “Availability and Hire Adjustments”. It begins with a narrative section headed “Overview”, stating:

Section 1 of Appendix M contains a number of definitions. Importantly, it divides the work of the Vessel into two “Systems”. “System A” is defined as meaning the oil and gas process systems on the Vessel. “System B” is defined as meaning the water injection system on the Vessel. These Systems are then ascribed weighting factors (or “WF”) for the purposes of the calculations which follow:

Section 3 of Appendix M provides for the recording and categorisation of any underproduction. Section 3.1 states that:

Sections 3.6 and 3.7 provide for a Monthly Review and an Annual Review. As part of the Annual Review:

Section 4 (headed “Determining Actual Availability (%)”) provides as follows:

The two words used in the defined term “Actual Availability” in Appendix M are each potentially misleading. The word “availability” is potentially misleading, because what is really being talked about here (as explained in the “Overview” (Footnote: ³)) is production, measured in barrels. The word “actual” also has the potential to mislead, since the figure for “Actual Availability” is a notional, calculated one, produced by adding to the factual amount of actual production any shortfall in production that was not Altera’s responsibility (“Company Underproduction” (Footnote: ⁴)) and then expressing that total as a percentage of the Production Target.

So, in Example 1 for System A, actual production is assumed to be 524,090 barrels, and Company Underproduction is assumed to be 20,900 barrels, making a total of 544,990 barrels. Taking 544,990 as a percentage of the Production Target assumed for the example of 600,000 barrels produces the figure of 90.832% as the “Actual

The Hire Adjustment Formula itself is then contained in Section 5 of Appendix M:

It is common ground that the “Actual Availability” figures used in Fig 1 and Fig 2 in Section 5 are simply assumptions made for the purposes of the examples. Although Fig 1 in Section 5 states that it is “based on Example 1 of this Appendix M”, it does not in fact use the System A “Actual Availability” figure of 90.832% from Example 1 in Section 4: and there is no “Actual Availability” figure for System B in Example

As I have already indicated, it is also common ground that the “worked examples” in Fig 1 and Fig 2 in Section 5 contain two steps that are not expressly provided for in the narrative part of Section 5 which precedes them.

In the narrative section of Section 5:

In the two “Worked Examples” which follow, there are then two further steps:

In the “Worked Examples, therefore, the “Target Availability” figure of 95% comes in at two stages of the calculation: first, in the comparison with the figure for “Actual Availability” at Step 1 (described in paragraph 25.2 above); and secondly, in the comparison with the overall total percentage figure in Step 6 (described in paragraph 26.2 above).

It was common ground that the parties must be taken to have intended Step 5 – the adding together of the figures for the two systems. However, it was also common ground that the effect of Step 6 was to change the “pivot point” above which there would be an upwards adjustment in Daily Base Hire and to move it downwards. The very different weightings given to the two Systems by the “WF” employed at Step 4 complicate the effect of Step 6 in any particular case: but, in very simple terms:

Because the parties have relied on them as relevant context in their arguments concerning the correct interpretation of Appendix M, I should also refer to the provisions of the agreements dealing with force majeure, and with the incentivisation bonus payable under the Service Agreement.

I begin with the provisions relating to force majeure. Section 3.5 of Appendix M deems “Actual Production” for any period of force majeure affecting Altera to be shall be deemed to be “equal to ninety five (95%) percent of the Production Target”.

The Charterparty deals more generally with force majeure in Article 35, which defines “Force Majeure” as:

Article 35.2 then provides that:

Article 35.4 makes specific provision for “Force Majeure” during the Secondary Charter Period:

Clause 22.4 of the Service Agreement provides for Premier to pay Altera:

The provisions of Appendix B dealing with the calculation of the Incentivisation Bonus are set out in Section 15 and Schedule 5. If anything, they are even more complicated than the provisions of the Charterparty dealing with adjustments of hire, since the bonus is to be calculated by reference to an “Overall Performance Level” defined by reference to “key performance indicators of production, water injection, integrity and budget”.

Under Section 15.5:

This is to be calculated in accordance with the formulae set out in Schedule 5 clause 1.2, which states:

No similar formula is provided for the “Integrity” element of the calculation, which is stated as something “to be agreed by [Premier] and [Altera] no later than three (3) months prior to Sailaway”. A formula is however given for the “Budget” element of the bonus.

These formulae are then followed by pictorial representations of the “Production Incentivisation Curve” and the “Budget Incentivisation Graph” (both stated to be “included for illustrative purposes only”) and (in clause 13.) a detailed and lengthy

“Example calculation”.

Both parties referred me to the familiar decisions of the Supreme Court dealing with the principles of contractual interpretation, culminating (at least for the time being) in

There are, however, some particular aspects of those principles that I must mention, in deference to the parties’ arguments based upon them.

First, Mr Simon Colton QC, who appeared for Premier, drew attention to the “danger

Secondly, Mr Colton drew my attention in particular to the second of the seven factors identified by Lord Neuberger of Abbotsbury PSC in Arnold v Britton⁸, that:

Thirdly, Mr Colton also drew my attention to the principle that, where it is:

In response, however, Mr Sean O’Sullivan QC, who appeared for Altera, referred to the limits to this principle summarised in the Trillium case (Footnote: ⁹). The judgment of Lewison LJ (with which Leggatt LJ agreed) makes it clear that the kind of mistake which can be corrected by interpretation is a mistake in the language used. This principle cannot assist where the problem:

Mr O’Sullivan also relied on Honda Motor Europe v Powell (Footnote: ¹¹). In that case, Lewison LJ drew attention to the fact that it requires a strong case to persuade the court that something must have gone wrong with the language of a formal contract, and pointed out that, in Chartbrook, Lord Hoffmann had taken the view that:

Fourthly, both parties drew my attention to the principles which the court should apply in cases where, as here (Footnote: ¹²), the contract contains an “inconsistency clause” providing for what should happen in the event of any conflict between different parts of the contractual documents. It was common ground that those principles are conveniently summarised in the judgment of Hamblen LJ in Alexander v West Bromwich Mortgage Co (Footnote: ¹³):

Finally, both parties drew my attention to the judgment of Blair J in Starbev GP Ltd v Interbrew Central European Holdings BV (Footnote: ¹⁴). That case, in which Mr Colton appeared as junior counsel for the claimant, involved a number of disputes about the correct interpretation of the terms of a “Contingent Value Right” (“CVR”) agreement which was ancillary to a Sale and Purchase Agreement under which the defendant sold the shares in various companies to the claimant. One aspect of the dispute concerned the definition of “Excess Equity Return” in clause 1.1 of the CVR, which contained an “illustration” which did not fully replicate the preceding text.

Blair J had to consider the effect of the illustration, and to adjudicate on competing submissions, on one side that the illustration should be read literally and given effect accordingly, and on the other that it should be read subject to the preceding text.

Blair J’s judgment in Starbev contains the only judicial discussion that either party

Against that factual and legal background, I now turn to consider the arguments of the parties. On behalf of Altera, Mr O’Sullivan submitted that there is no need to go behind or to cut across what has been expressly agreed. In the “Worked Examples”, the parties have spelled-out, not once but twice, exactly how the “Actual Availability” inputs for each System are to be used to calculate the required adjustment to the Daily Base Hire. It is agreed that, if the formula as set out in the “Worked Examples” is applied to the actual inputs during the relevant period, it results in Altera being entitled to the adjusted hire of USD 12,108,072.50 claimed. Premier may wish that it had agreed to pay Altera less by way of bonus. But, unless it can show that the Charterparty falls to be rectified (and there is no claim for rectification) Premier cannot go behind what the parties have expressly agreed.

By contrast Mr Colton submitted on behalf of Premier that Altera’s approach produces a result which the parties plainly cannot have intended. He submitted that, as stated in Article 17.1 of the Charterparty, the objective of the formulae in Appendix M is to assess adjustments to Daily Base Hire if (but only if) there is either a reduction in productivity attributable to Altera such that Systems fall below “Target Availability”, or if there is an increase in productivity attributable to Altera so that Systems exceed “Target Availability”. Correctly applied, therefore, these provisions must have the effect that, where there is no deviation from “Target Availability”, there is no adjustment to Daily Base Hire. In other words, where “Actual Availability” equals “Target Availability”, there should be no adjustment.

It would be illogical, in Mr Colton’s submission, for there to be an upward adjustment to Daily Base Hire even when “Actual Availability” was at the 95% level deemed by Section 3.5 of Appendix M to exist during a period of Force Majeure (Footnote: ¹⁵). It would also, in Mr Colton’s submission, be illogical for Article 17.2 to provide for serious consequences in the event of Altera failing continuously or regularly to achieve “Target Availability” (Footnote: ¹⁶), if the other provisions of the Charterparty provided even in that event for an upward adjustment in Daily Base Hire. That would involve simultaneously rewarding and penalising failure to achieve “Target Availability”.

In Mr Colton’s submission, the definition of “Target Availability” in Section 1 of Appendix M (Footnote: ¹⁷) demonstrates that the “pivot point” above which there is an adjustment upwards, and below which there is an adjustment downwards, is an “Actual Availability” level of 95%. That, Mr Colton submits, is how the operative part of Section 5 works. It sets out two, mandatory formulae which “shall be applied”, using the agreed WF per System “to determine the required Hire Adjustment to the Daily Base Hire”. These formulae determine the required Hire Adjustment in a way which is entirely consistent with the contractual intention demonstrated by Article 17.1 of the Charterparty and the definition of “Target Availability”.

To the extent that the extra step (which I have labelled “Step 6”) in the “Worked Examples” which follow these mandatory formulae produces a different result, that step should, in Mr Colton’s submission, be disregarded as inconsistent with the parties’ obvious commercial intent, as demonstrated by the other provision of the Charterparty to which I have just referred.

In that regard, Mr Colton submitted that the provisions of Appendix M have to be read in the landscape of the instrument as a whole (Footnote: ¹⁸), and that the various infelicities of drafting (including, for example, the needless repetition of the statement of assumed “Actual Availability” for System B, and the erroneous reference back in Fig 1 to “Example 1” and in Fig 2 to the non-existent “Example 2” (Footnote: ¹⁹)) show that this is not an agreement where every word in Appendix M has been carefully considered. That means, Mr Colton submitted, that the court can be the more ready to depart from the natural meaning of the “Worked Examples” to the extent that they fail to reflect the obvious commercial intention apparent from the other provisions of the Charterparty (Footnote: ²⁰).

To the extent necessary, Mr Colton submitted that the various illogicalities to which he had drawn attention meant that it was clear that something had gone wrong with the language of the “Worked Examples”, and clear (inter alia from Article 17.1) what a reasonable person would have understood the parties to have meant to have achieved in Section 5 of Appendix M. This was therefore a problem of drafting which could properly be corrected by interpretation (Footnote: ²¹).

In the alternative, Mr Colton relied on the “inconsistency clause”²⁵, and submitted that, to the extent that the Appendix M – and, in particular, the “Worked Examples” in Section 5 – were inconsistent with Section 17.1 of the Charterparty, it is Article

that must prevail to set the “pivot point” for adjusting Daily Base Hire at the

“Target Availability” figure of 95% (Footnote: ²²).

In response, Mr O’Sullivan pointed out that the wording of Article 17.1 did not precisely track the method provided for in Appendix M of calculating “Actual

Mr O’Sullivan also pointed out that there is no inevitability about the figure of 95% as the “pivot point”. First of all, the differential weighting (or “WF”) of the two Systems means that would be perfectly possible, even on Premier’s interpretation of Appendix M, for there to be an upward adjustment in Daily Base Hire even though one or other System was below 95% if the other was significantly above that level. That fact also (in Mr O’Sullivan’s submission) provided the answer to Mr Colton’s point based on Article 17.2. Article 17.2 is engaged if any individual System continuously or regularly operates below the “Target Availability” level. It follows that, even on Premier’s interpretation, Article 17.2 could be engaged because System

Secondly, Mr O’Sullivan pointed out that the incentivisation bonus payable under the

As is well known, interpretation is an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. As Robert Walker LJ explained, in Morrells of Oxford Ltd v Oxford United FC Ltd²⁸:

I start by considering the quality of drafting of the relevant provisions. It is plain, in my judgment, that this suite of contractual documents has been the product of a negotiation in which elements have been added, other elements have been discarded (such as Appendix D and Appendix H to the Over-Arching Agreement), and changes have been made in the course of drafting, without the consequences always being followed through with rigorous consistency. Concentrating on Appendix M, the needless repetition of the statement of assumed “Actual Availability” for System B, and the erroneous reference back in Fig 1 to “Example 1” and in Fig 2 to the nonexistent “Example 2” are good illustrations of this process. This is therefore precisely the sort of contract in relation to which the court, in its attempt to ascertain the objective meaning of the language in which the parties have chosen to express their agreement, must be wary of focussing too narrowly on the dictionary meaning of individual words and phrases but must instead look at the terms of any particular provision in its commercial context and against the landscape of the instrument as a whole.

There is also, in my judgment, force in Mr Colton’s submissions, both that Article 17.1 of the Charterparty appears to contemplate that the “pivot point” for adjustment up or down of the Daily Base Hire should be the “Target Availability” figure of 95%, and that a “pivot point” at that level would make better commercial sense overall. It would sit more neatly with the Continuous Deficiency provisions of Article 17.2 and would make much more sense in the context of the provisions of Article 35 and Section 3.5 of Appendix M concerning force majeure. Simply as a matter of instinct, it also seems to me to make better commercial sense to reward performance only if it is above the specified target.

It is therefore tempting to accede to Mr Colton’s further submission that I should accordingly disregard “Step 6” (which appears only in the “Worked Examples”, and not in the narrative formulae which precede them) and should interpret Section 5 of

However, tempting though that course may be, I cannot ignore the fact that that is not the agreement that the parties have actually made. Article 1.1 of the Charterparty defines “Daily Base Hire” without reference to Article 17.1, as a sum “as may be adjusted from time to time in accordance with Appendix M”. Moreover, as Mr

The court can, of course, do just that where it is “clear” that something has gone wrong in the language which the parties have used. However, although I accept that it is undoubtedly possible that something has gone wrong here, given the various pointers to which I have already referred, it is not by any means clear to me that it has in fact done so.

As Mr O’Sullivan submits, the hire adjustment formula is a complicated one including many factors. The detail of the agreed adjustment is not to be found in Article 17.1 but in Appendix M. As Mr Colton accepted in his oral submissions, Article 17.1 “obviously leaves open for negotiation between the parties, when negotiating Appendix M, the finer details of the application of this clause”. It therefore does not logically follow that, because “Step 6” is not specifically provided for in Article 17.1, Appendix M must be interpreted in a way which excludes that step. The “inconsistency clause” accordingly has no part to play in the interpretation of these provisions, because there is no real inconsistency between them.

To take one example. As I have already said, Article 17.1, if read in isolation, appears to contemplate a simple “pivot point” for each System at the level of “Target Availability”. However, the “WF” element of the calculation (which appears in the narrative section of the formulae as well as in the “Worked Examples”) means that the hire adjustment formula does not have that sort of simple “pivot point” for either System. Performance by one System above “Target Availability” can compensate for performance below “Target Availability” by another, particularly if the higher performing System is System A, with its 0.9 “WF”. Yet Mr Colton has rightly not suggested that the “WF” aspect of the Appendix M calculation should be disregarded as inconsistent with Article 17.1.

In the circumstances, I accept Mr O’Sullivan’s argument that all of the elements in the hire adjustment mechanism, including what I have called “Step 6”, are simply aspects of the way in which the parties have agreed to adjust the hire.

As for the suggested “illogicalities” relied on by Mr Colton, I accept Mr O’Sullivan’s argument that the apparent commercial inconsistency between Appendix M and Article 17.2 could operate even on Premier’s interpretation of Appendix M. It therefore cannot assist Mr Colton’s case.

Mr Colton’s better argument seems to me to be that based on the fact that “Actual

However, even when combined with the other matters to which I have referred, that apparent commercial illogicality is not enough to persuade me that it is “clear” that the inclusion of “Step 6” in the “Worked Examples” means that something has gone wrong with the language of Appendix M. In my judgment, the operation of those

“Worked Examples” cannot, even in those circumstances, 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 whole point of the “Worked Examples” is to demonstrate with clarity the consequences of the formulae in Section 5 of Appendix

In the present case, there was not just one, but two “Worked Examples” in Section 5 of Appendix M. The inclusion of what I have called “Step 6” in each of them strongly suggests that that was a deliberate choice by the person who drafted those examples. It follows that, in my judgment, it is not possible to say that the two

“Worked Examples” including “Step 6” do not represent what a reasonable person with all the relevant knowledge would say that the parties intended should happen.

Altera’s claim accordingly succeeds. There will therefore be judgment in favour of Altera for the agreed sum of USD 12,108,072.50 plus contractual interest.

I invite the parties to attempt to agree the terms of a Minute of Order giving effect to this judgment and dealing with all consequential issues. In the event that agreement cannot be reached by 4pm on Friday 24 July 2020, the parties should so inform the court and should lodge written submissions in relation to the points of disagreement by 4pm on Wednesday 29 July 2020. I will then either give a ruling by email or direct a short further hearing by video conference. Pursuant to CPR PD 52A 4.1(a), I adjourn any application for permission to appeal together with all other consequential applications to be determined in that way and extend time under CPR 52.12(2)(a) until 21 days after that determination.

In accordance with the Covid-19 Protocol, this judgment will be handed down remotely by circulation to the parties’ representatives by email and release to BAILII. No attendance by the parties is necessary. I am grateful to both counsel and to the teams behind them for their assistance and for the clarity and quality of their submissions.