Contract Wording Leads to $12.5 Million Payout

Millions can hang on the precise wording of a contract. Just how important this can be was illustrated in a recent case in which an agreement in respect of a major oil pipeline project brought bitter discord after grave flaws in its drafting led to a dispute that necessitated costly High Court litigation.

A company which specialised in providing engineering, construction and other services to the oil industry had subcontracted to a second company the performance of work on an oil pipeline being constructed in the challenging environment of southern Iraq.

The deal, which was worth around $75 million, was recorded in a ‘very badly drafted’ memorandum of agreement (MOA), which the company that commissioned the work had initially argued was so vague and uncertain that it was incapable of having any contractual effect. The contractor launched proceedings after the first company withdrew from the agreement.

In ruling on the dispute, the Court noted that the proceedings were probably due, in large part, to the uncertainty caused by the poor drafting of the MOA. The contractor’s claim for $40 million in liquidated damages under the MOA was dismissed. However, the Court upheld its straightforward debt claim and also ruled that it was entitled to $5.8 million in damages for lost profits.


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