Technip-Coflexip SA & Ors v Tube Tech International Ltd [2005] EWCA Civ 1369

Case No A1/2005/0150[2005] EWCA Civ 1369
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
HIS HONOUR JUDGE RICHARD HAVERY Q.C.
HT 02 413
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Tuesday, 22 nd November 2005
Before
THE RT. HON. LORD JUSTICE BROOKETHE RT. HON. LORD JUSTICE CARNWATHTHE RT. HON. LORD JUSTICE MOSES
Between
(1) TECHNIP-COFLEXIP SAAppellants(2) SNAMPROGETTI SpAAppellant(3) KELLOGG BROWN AND ROOT INCORPORATEDAppellant(4) JGC CORPORATIONAppellant(5) LNG-SERVICOS e GESTÃ de PROJECTOS LIMITADAAppellantTUBE TECH INTERNATIONAL LIMITEDRespondent
(Transcript of the Handed Down Judgment ofSmith Bernal WordWave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7421 4040 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
John Leighton Williams QC & Huw Davies (instructed by Messrs Turner & Debenhams) for AppellantsChristopher Aylwin (instructed by Messrs Bond Pearce LLP) for Respondent
JudgmentLord Justice Moses :Introduction

Total estimated price £875,000.00

[1]Tube Tech International Limited (“Tube Tech”) specialises in cleaning industrial pipework. Between 22 October, 1999 and 19 January, 2000 Tube Tech supplied equipment and personnel to clean pipes in condensers and heating exchangers in plant for the production of liquefied natural gas on Bonny Island in Nigeria. Bonny Island is in the Niger delta. The plant is owned by Nigeria LNG Limited (“NLNG”). The four first named defendants, appellants in this appeal, are engineering companies which formed a consortium. The consortium formed three Madeiran companies for the purposes of entering into an engineering, procurement and construction contract in December 1995, for the construction of a 2-train gas liquification plant. The three Madeiran companies entered into a contract for an expansion project for a third plant in March 1999. Before the judge and, initially, before this court, there was a considerable dispute, involving much time and energy, to resolve the question whether the work performed by Tube Tech was work performed under a contract with one of the Madeiran companies or with the consortium. Sadly, it is now no longer necessary to resolve that issue. I shall, therefore, refer to the four first named defendants as “the consortium”. The fifth named appellant (5D) is the only appellant concerned in the issues which remain to be determined in this appeal. It is one of the three Madeiran companies formed by the consortium.[2]Tube Tech performed the work under what it alleged were four contracts known as contract 1, contract 2, contract 2A and contract 3. 5D contends that contract 2 was a variation of contract 1 and it was not a party to contract 2A. Tube Tech submitted invoices during the course of the work, most of which were paid. It sued in respect of unpaid invoices and the consortium and 5D counter-claimed, raising not only the issue as to the correct identification of the parties to the contract but also seeking a refund of sums overpaid under the invoices.[3]Many of the issues which arose before the judge, in a hearing which ran over a period of two months, do not fall for determination in this appeal.[4]All that now remains to be resolved are two issues:- i) The correct meaning and effect of what became known as contracts 1 and 2 (I shall continue to call them contracts 1 and 2 with no intention of pre-judging the issue as to whether contract 2 was merely a variation of contract 1) ii) Whether contract 2A was an agreement which Tube Tech can enforce against 5D.[5]Many of the detailed facts, therefore, referred to by the judge, need no repetition in this judgment. The principal issue which must be determined is whether the contracts into which Tube Tech entered were contracts merely for the hire of men and equipment or whether they were contracts for services. Tube Tech charged, under contracts 1 and 2, a daily rate of £35,000 for men and equipment. It continued to charge at that rate during a period over Christmas 1999 when the men had returned to the United Kingdom and, thereafter, in January 2000, when the number of men was substantially diminished. 5D contends it was not entitled to do so. After the initial period, when it is agreed that the work was undertaken by a full complement of workers, Tube Tech was only entitled to charge pro-rata according to the number of men who remained on site.

The Facts

[6]The consortium first contacted Mr Watson, managing director of Tube Tech, in early October 1999. Mr Cavan MacDonald of M.W. Kellogg Limited, a subsidiary of the third defendant, said that he thought that Tube Tech might be able to help in cleaning about 8,000 fouled condenser tubes. There followed discussions between Mr Dimmock, a principal buyer employed by M.W. Kellogg Limited, and Mr Demar, a construction manager. On 18 October 1999 Mr Dimmock gave a written instruction to proceed with supply of equipment and services. The instruction agreed to pay reasonable costs and expenses until a formal contract was in place.[7]On 20 October a meeting took place between Mr Watson and Mr Byford, general manager of Tube Tech, attended by a representative of NLNG and of M.W. Kellogg Limited. The same day Mr Dimmock addressed an email to Mr Watson saying that a full quotation was needed “with manhour rates, pdq”. After a technical briefing on 21 October 1999 Mr Watson and Mr Byford flew to Nigeria, returning on 24 October 1999.[8]Following a request from Mr Dimmock for a formal quotation, on 27 October 1999 Tube Tech sent him what was known as proposal 1 and a confidentiality agreement. The terms of proposal 1 became contract 1. It was signed on behalf of 5D on 4 November 1999.[9]On 2 November Mr Dimmock sought a breakdown of costs associated with the price of £735,000 under the first contract. That request was repeated on 5 November. On that day the specialist equipment arrived in Nigeria. Work was due to begin on 6 November 1999 and by that time there were thirty-two men on site.[10]Once the work had started in Nigeria, it became apparent that the deposit in the pipework of the three condensers was far worse than that seen during the initial site inspection in October 1999. The system for cleaning these condensers which had initially been planned, was not suitable. Meetings took place on site at which alternative methods were suggested amongst which was the method ultimately used, with rigid lances and ultra-high pressure pumps. On 12 November 1999, at a meeting on site, Mr Edwards, a technical manager, told Mr Byford that he was being chased for a breakdown of costs. Mr Byford said that he agreed to provide a breakdown although his evidence was that it was only for insurance purposes.[11]On 13 November 1999, in order to meet the problems caused by the more intractable deposit, Mr Watson and Mr Byford, on behalf of Tube Tech, produced a second proposal 1407A which became the subject matter of contract 2.[12]Work under contract 1 continued to 27 November, overrunning the specified period by some eight days. In the meantime work under contract 2 began, in parallel.[13]On or about 5 December 1999, Mr Kemper of NLNG proposed an incentive scheme (dealt with in greater detail in paragraph 60 below) to persuade Tube Tech’s personnel to work even faster. Tube Tech alleged that that scheme became a contract to which 5D was a party. On 15 December 1999 that scheme, described as contract 2A, was signed on behalf of Tube Tech and NLNG. One of the issues in this appeal is whether contract 2A was an agreement enforceable by Tube Tech against 5D.[14]Mr Dimmock continued to request substantiation in December 1999. As a result of his requests Mr Bathurst, Tube Tech’s accounting adviser, provided a breakdown between the cost of machinery and equipment and labour on 23 December 1999. The following day, 24 December 1999, the last man left the site for a Christmas break and a breakdown between labour and machinery was provided in respect of the second contract.[15]Tube Tech’s men were off site between 24 December and 5 January 2000. By 5 January 2000 fifteen men were on site; they remained until 11 January. Work on the last condenser was completed on 8 January 2000. Save for Mr Watson and Mr Byford, all Tube Tech’s employees returned on 12 January 2000. Mr Watson returned on 16 January and Mr Byford on 22 January 2000. The equipment arrived back on 24 January 2000.

The Terms of the First and Second Contracts

[16]5D contends that both contracts were contracts for the hire of men and equipment. Under contract 1 Tube Tech was obliged to provide about 30 men and under contract 2 24 men. The parties entered into contract 2 on or about 13 November 1999. Contract 2 was expressed to commence on 17 November 1999, two days before Contract 1 was intended to finish. As I have recorded Contract 1 overran and Contract 2 ran in parallel for a period of about ten days.[17]5D contends that, since both contracts were contracts for the hire of men or equipment Tube Tech was not entitled to charge irrespective of the number of men on site. To the extent that men working under Contract 1 were applied to work under Contract 2 the amounts due under Contract 1 were diminished and Tube Tech was only entitled to be paid under Contract 1 for men actually on site, working on that contract. There was no issue as to the equipment, which had to stay in Nigeria throughout.[18]Under Contract 2 Tube Tech was only entitled to be paid for the men working on site. Between 21 and 23 December, 1999 only 13 men were on site. There were no personnel on site between 24 December 1999 and 5 January 2000. Thereafter, for seven days 15 men were on site but from 12 January there were either only two or one man left. The contracts, contend the appellants, do not require payment as if the site was fully manned.[19]Allied to this submission was the contention that there were implied terms that all the invoices submitted, even if they were paid, would be subject to documentary justification. 5D was entitled to what was described as “substantiation” of what was provided by way of labour and equipment.[20]The judge concluded that the contracts were for the supply of services. The sums due to Tube Tech were not to be determined by reference to the number of men supplied. Nor was Tube Tech obliged to substantiate the charges by reference to the number of men it provided.[21]Contract 1 provided:- “APPLICATION DESCRIPTION Internal cleaning of items as listed OBJECTIVE: To remove as much deposit as possible from internal bore from as many tubes/pipelines as possible within the time allowed on the following units:” There then followed a list of units identified by the letter E and a number. Internal cleaning of items as listed

OBJECTIVE:

[22]The total price was stated to be £735,000.00. The payment terms were set out in a box as follows:- 1. 30% payment of estimated total price with order (£125,000.00 part payment received 27th October 1999 plus £35,000.00 due 29th October 1999). £60,500.00 balance due immediately. 2. 40% payment of estimated total price prior to departure from UK before or by the 2nd November 1999. 3. Balance of total estimated price of £735,000.00 will be payable by confirmed irrevocable letter of credit payable 14 days from date of invoice on production of a certificate of declaration…. 4. Balance of final invoice for all costs relating to this project will be payable within 14 days from final invoice.[23]The second page of the first contract set out 24 terms and conditions. The following are relevant to resolution of this issue:- 1. Above price excludes all costs associated with flights/freight/export packaging/ mobilization/demobilization/insurances/accommodation and subsistence costs/ minor consumables unspecified/consultancy rates of M.Watson/and other charges not otherwise mentioned….. 3. As requested by E. Demar all equipment has been made available for a 21 day period: Committing materials and equipment on 30th October 99 and returning to our premises on the 19th Nov. 99. 4. As requested by E. Demar, manning will be provided from departure from the UK on the 2nd Nov. and departure from Nigeria on the 17th Nov. 99. 5. In the event of either all equipment or all personnel not returning to Tube Tech International premises by the 19th Nov. 99, an additional charge of £35,000 per day will apply. 6.If equipment is not returned by latest 3rd December 99, all equipment will be charged at full new replacement cost. The hire charges as specified in 5 will continue until all replacement equipment has been delivered and commissioned at Tube Tech International premises. 7. In the event that part of the equipment does not return, pro-rata charges will be levied based on the equipment list evaluation schedule provided of each item. 8. In the event of part of the work force not returning, pro-rata charges of £35,000 will be levied based on the percentage of the work force unable to return to the UK. ….. 10. Any additional work required outside the original planned 5 day/5 night scope of works will be charged on a pro rata basis i.e. (£735/21 = £35,000.00). 23. Full medivac facilities to be made available for immediate evacuation of personnel for the duration of tube tech international’s (sic) contractual obligation. 24. These conditions are supplemental to our Standard Terms and Conditions and override those points covering the same topic.” No standard terms and conditions were ever provided.[24]On the third page it was provided that the fly-out date would be 2 November 1999 and the fly back date 17 November 1999. The contract continued:- “Work will be carried out utilising: ca 30 men Working period planned: working 5 x 24 hour shifts within a 7 x 24 hr. Shut down window only. (6 Nov. 1999 to 12 Nov. 1999 inclusive) Hours per shift (excluding maximum of 1 hour induction): 12. Method of inspection (to ensure standard of cleanliness): majority will be visually inspected…” There then followed provisions in relation to inspection of the cleaning and a list of equipment per man and facilities supplied by Tube Tech and then a list of facilities and information to be supplied by the appellants.

Hours per shift (excluding maximum of 1 hour induction):

[25]The fourth page was headed:- “If in the event of customer delays/performance restrictions and variations to contract, the following rates will apply b) change in the severity/thickness of deposits/coating e) standing down: £32,000 per day or part thereof”.[26]When the condition of the tubes was found to be substantially worse than expected the parties entered into contract 2. 5D says that contract 2 was a mere variation of contract 1, the letter A indicates an amendment. The front page of contract 2 provided under the heading:- “application and customer code/description: E1431A/B/C”. Those were three condensers originally identified on the front page of contract 1. 27. The objective was stated to be:
“To unblock and clean as much deposit from as many tubes as possible from the internal bore of above condensers in the shortest time period i.e. production standard defined as a good flow of water through the tube.”
It continued:
“(This quotation is subject to physical hands on assessment of deposit characteristics) Total estimated price £875,000.00 (Minimum charge for 25 days period from 17th November 1999 including mobilization of equipment from the Tube Tech International UK premises and return to the same) At the bottom of the first page five payment terms were set out as follows: Total estimated price £875,000.00 At the bottom of the first page five payment terms were set out as follows: 1. 70% payment of total estimated price of £875,000 prior to equipment departure from UK. 2. 30% balance of total estimated price of £875,000.00 will be payable by confirmed irrevocable letter of credit, payable within 14 days from the 11th December 1999 (the 25th day) 3. Any subsequent days beyond the 11th December will be charged pro-rata at £35,000.00 per day payable by immediate Telegraphic Transfer against invoices raised on a weekly basis. 4. Balance of final invoice for all costs relating to this project will be payable by Telegraphic Transfer 14 days from date of invoice. 5. All charges exclude VAT at current rate unless exempt. All overdue accounts will incur interest of 2.5% per month.”
[27]On page 2 of the second contract the fly out and fly back dates were not specified; they were to be arranged. The contract continued:- “Work will be carried out utilising: ca 24 personnel Working period planned 24 hr shifts until completion Work is based on: 24 hr working.”[28]There then followed references to methods of inspection equipment to be provided by Tube Tech and equipment to be provided by the defendants. The third page made provision :- “In the event of customer delays/performance for variation rates which would apply to:- “pounds pro rata of contracted shift rate” in the event of for example a change in the severity or thickness of the deposit. ”[29]The terms and conditions bear a superficial similarity to the first contract but were, in the relevant parts, different. Clause 3 provided:- “3. The rate of £35,000 per day will commence on 17th November 1999 and will be ongoing until all UHP pumps tracks and associated equipment and personnel are returned to Tube Tech International premises. 4. In the event that part of the equipment does not return, pro-rata charges will be levied based on the equipment list evaluation schedule or market value provided of each item, which ever is the greater. 5. In the event of only part of the workforce returning, pro-rata charges of £35,000 per day will be levied based on the percentage of the work force unable to return to the UK. 7. Whilst all reasonable and practical endeavours will be made to complete the work scope within the time frame given, no guarantees are implied or given. 15. If duration extends to Xmas period – TSKJ to arrange all staff to be returned no later than 17th of December and to re-mobilize on 5th January 2000.”[30]Before this court the defendants challenged the judge’s conclusion on two essential bases. Firstly, that to interpret Tube Tech’s contractual obligation as satisfied by the provision of substantially fewer men than stated is so unreasonable as to lead to the conclusion that it could not have been intended by the parties. 5D argues that the wording is unclear but can be interpreted as requiring the provision of the numbers of men specified (about 30 under the first contract and about 24 under the second). Once the numbers provided under either the first or second contract fell below the number specified, Tube Tech was entitled only to a sum calculated by reference to the number of men actually provided.[31]The second essential plank of the defendant’s argument was that the parties recognised there would have to be a final account taken at the end of the contract at which time Tube Tech was required to substantiate the cost it had charged by reference to the number of men who had not returned to Tube Tech’s premises. The evidence, so it was contended, showed that 5D repeatedly required a breakdown of the costs and that, finally, such breakdown was provided on 23 December (contract 1) and on 24 December, 1999, and 6 January, 2000 (contract 2). Provision of that information, so it was contended, showed that Tube Tech accepted that it was required to substantiate the charges it had levied by reference to the number of men remaining on site.[32]As part of these submissions relating to the proper interpretation of the contract, 5D contended that the second contract was merely a variation of the first. It accepted that the wording of the first contract led more readily to the interpretation for which it contended than the second contract. It was, as I understand it, for that reason it contended for a variation. Otherwise, it seems to me, it did not matter whether the second contract was regarded as a variation of the first or a separate agreement.[33]It is necessary to identify what the parties must reasonably be understood to have meant by the words contained in the contracts against the relevant background. (See e.g. Lord Hoffmann in ICS Ltd v West Bromwich B.S. [1998] 1WLR 896 at 913C.). The background, as Lord Hoffmann emphasised, is important not merely to enable a reasonable man to choose between possible meanings but also to allow of the conclusion that the wrong words were used to express the parties’ intention. Mere semantic analysis might flout what Lord Diplock described as “business common sense”.[34]Save in relation to the question whether Tube Tech accepted that it was obliged to substantiate its costs by reference to the number of men provided, the background to the formation of the two contracts was not in dispute. The need to clean about 8,000 fouled condenser tubes was urgent. The plant had to be shut down to effect the cleaning and the longer it remained shut down the greater the loss. There was a dispute as to whether that urgency was merely a problem for NLNG or whether it was also of concern to the consortium. That does not seem to me to matter. The close run of events speaks for itself. The first approach to Tube Tech came in early October 1999. But three weeks later Tube Tech’s managing director was flying out to Nigeria with Mr Byford, the general manager. Although, in his written statement, Mr Dimmock disputed that the urgency created pressure on the consortium, his own words in November 1999 amply support the judge’s conclusion that Tube Tech was in a strong bargaining position in relation to the consortium. On 8 November 1999, in an email expressed to be of high importance:- “We - BPMCO/TSKJ – have been forced to accept almost all of Tube Tech’s terms and conditions up until now and have paid them GBP 514,500. I have not received any substantiation of any of the costs to date and, due to the urgency, have not been in the position to negotiate at all.” 41. He then proposed substantiation as a condition written into the letter of credit for presentation to the bank, before money was released, and continued:- “As it stands at the moment, Tube Tech can charge for virtually any reason GBP 32,000 per day over and above the current total price, up to a limit of GBP 1 million.” He then suggests “the field” (by which he means Nigeria) as the only place to be able to make a considered decision. On 2 November 1999 Mr Dimmock wrote concerning contract 1 that:- “We do not have any choice but to accept them (the terms andconditions)”[35]It is plain, therefore, that the work was urgent. The contracts themselves required either as much deposit to be removed within the time allowed (contract 1) or within the shortest time period (contract 2). Nor was there any dispute but that skilled men and sophisticated equipment were required (see the judgment at paragraph 93). In that paragraph the judge referred to the need to avoid danger inherent in the use of high pressures. Mr Watson gave evidence as to the danger arising from the use of high-pressure hoses. The court was spared a CD showing one of the lances, used for clearing the deposit, cutting up the carcass of a pig (see Day 9, page 31 in the evidence of Mr Watson). Tube Tech was using rigid lances in a manner in which it had not previously used them, requiring safety zones to be maintained between operators (see for example Day 10, page 25).[36]It seems to me that in the light of that background, there is no foundation for the suggestion that it made no commercial sense to enter into a contract for services, the price for which was not dependant upon the number of men present on site. I accept that the mere fact that the work was highly skilled and dangerous does not lead to the conclusion that the contract was for services rather than for the hire of men or equipment. The importance of the background is more limited. The urgency, coupled with exposure to danger and the exercise of skill, all demonstrate that a contract for services cannot be said to produce a result which lacks any reasonable business sense. But those considerations do not, by themselves, resolve the dichotomy between a contract for services and the contract for hire.[37]Nor does it seem to me that the issue of substantiation assists 5D. True it is that Mr Dimmock had, from the outset, made repeated requests for a breakdown of costs starting with the email from Mr Dimmock to Mr Watson on 20 October 1999.[38]The email Mr Dimmock wrote on 8 November 1999, to which I have already referred, was addressed to Mr Edwards, the project manager who was in Nigeria. His meeting with Mr Watson and Mr Byford in Nigeria on 12 November 1999 is referred to at paragraph 111 of the judgment. Following the meeting, Mr Edwards sent an email to Mr Demar in which he said that Mr Byford had confirmed that Tube Tech would provide a breakdown of costs, material and labour but not rates and not what was described as “full substantiation”.[39]Finally, after to-ing and fro-ing to which the judge drew attention, a breakdown of costs was prepared by Miss Whitford and sent to Mr Bathurst, on 23 December 1999 (see paragraph 102(3) of the judgment). A breakdown showing labour costs at £7,750 per day and machinery and equipment hire at £11,000 per day was sent by Mr Bathurst to Mr Dimmock on 24 December 1999.[40]5D sought to argue before the judge that the acceptance by Mr Byford, on 12 November 1999 in Nigeria, to provide a breakdown demonstrated that Tube Tech regarded itself as obliged to substantiate its costs by reference to labour and equipment. The agreement to substantiate demonstrates that the contract was for hire and services. These contentions led to a dispute as to whether the disclosure had been for insurance purposes as Tube Tech contended.[41]The judge was criticised for not resolving the issue as to whether the disclosure was merely for insurance purposes (see judgment at paragraph 104). I share his view that it does not matter. The facts showed that 5D was continually pressing for a breakdown. They also show that it was only after both contracts were signed and work under contract 2 was well under way, that a breakdown was provided. Again, I do not believe that the detail matters. The striking feature of the evidence is that there is no reference whatever to the provision of a breakdown of the costs between men and equipment in either contract 1 or contract 2. This point is of particular note in relation to the second contract. The meeting with Mr Edwards, whose reliability and credit was noted by the judge, took place on 12 November 1999. That is but one day before the second proposal which became the second contract. If it was intended that there should be a breakdown of the costs of men and equipment, for the purposes of a final account to be prepared, after the work was completed, it is astonishing that there is no reference to it in the second contract.[42]There is, in my view, nothing in the history of 5D’s request for a breakdown which suggests that it was the intention of the parties that the price to be paid for Tube Tech’s work was dependant upon the number of men on the site. On the contrary the history in relation to substantiation lends force to Tube Tech’s contention that the contracts were not contracts of hire. If they had been contracts for hire one would, indeed, have expected that there would be provision as to how the rates of hire were to be calculated.[43]I return to the terms of contracts 1 and 2. Clause 3 of contract 1 imposes an obligation on Tube Tech to make available “all equipment” for a 21 day period between 30 October 1999 and 19 November 1999. Clause 4 imposes an obligation to provide men between 2 November and 17 November 1999. Clause 5 imposes what is described as “an additional charge of £35,000 per day:- “In the event of either all equipment or all personnel not returning to Tube Tech international premises by 19 November 1999.” 5D contended that the meaning and effect of clause 5 can only be appreciated in the context of clauses 7 and 8. Clause 7 entitles pro-rata charges to be levied based on the equipment list evaluation schedule provided for each item (it never was):- “In the event that part of the equipment does not return” (my emphasis). Clause 8 imposes what are described as pro-rata charges of £35,000 based on the percentage of the workforce “unable” to return to the UK:- “in the event of part of the workforce not returning” (my emphasis). The important contrast, so it is said, is between the reference to all equipment and all personnel in clause 5 and the reference to part of the equipment and part of the workforce not returning in clauses 7 and 8. In those circumstances Tube Tech was only entitled to an additional charge of £35,000 per day after 19 November 1999 if all equipment and all personnel had not returned to Tube Tech’s premises. If some of the equipment and some of the personnel had returned then Tube Tech was only entitled to pro-rata charges on the basis of the value of the equipment which had not returned and pro-rata charges of £35,000 in respect of that proportion of the workforce which had not returned.[44]The difficulty with that analysis lies in clause 10 which it is convenient to repeat:- “Any additional work required outside the original planned 5 day/5 night scope of works will be charged on a pro-rata basis i.e. (£735/21 = £35,000)”. 5D contends that that merely provides the charging basis of £35,000 per day and does not undermine the essential provision that Tube Tech is only entitled to charge after 19 November according to the percentage of equipment or personnel which had not returned.[45]Allied to those submissions was the contention that the reference to about 30 men imposed an obligation to do so. The judge’s conclusion that that was merely descriptive was wrong.[46]I reject those submissions. The contract is not drafted well. However, it is, in my view, not possible to make any sense of the clauses to which I have referred if they are to be regarded as merely entitling Tube Tech to charge on a pro-rata basis according to how much equipment and how many men remained on site after 19 November 1999. The submissions fail to give adequate meaning to clause 10. Clauses 3 and 4 impose the primary obligation in relation to men and equipment. Clauses 5, 6, 7 and 8 relate not to work at all but rather, as they state, to consequences if either equipment or personnel do not return to Tube Tech’s premises. It is important to focus in clauses 5-8 on the reference to “return”. If none of the equipment or personnel returns by 19 November 1999 Tube Tech is entitled to charge £35,000 per day (see clause 5). Under clause 6 the equipment is written off at 5D’s expense if it is not returned by 3 December 1999:- “All equipment will be charged at full new replacement cost. The hire charges specified in 5 will continue until all replacement equipment has been delivered and commissioned at be Tech International premises.” Thus if the equipment is not returned at the latest by 3 December 1999 the consortium is obliged to pay not only the cost of purchasing new equipment but also the cost, expressed as a hire charge, of the loss of use of that equipment. Clauses 7 and 8 refer to the circumstance that some of the equipment and some of the workforce do return but a proportion do not.[47]It is in those, and only in those, circumstances that Tube Tech is entitled to charge for that proportion of the equipment which does not return and according to the proportion of the workforce which is “unable” to return. The judge referred to that clause as “a kidnapping” clause (paragraph 153). There was evidence about the risks which Tube Tech feared in sending its men to Nigeria. It is important to focus on the word “unable”. Clause 8 refers to a situation in which the workforce are not working, it is everybody’s wish that they should return to the United Kingdom, but they cannot do so. In those circumstances, it is fair that 5D should only be charged in respect of those men caught in that situation. If the failure to return is any fault of Tube Tech then, it is clear that it would not be entitled to charge either the full amount under clause 5 or a proportion of the £35,000 under clause 8.[48]All of those clauses between 5-8 are to be contrasted with clause 10. Clause 10 refers to:- “Any additional work required outside (the original planned period).” It is only possible to make sense of clause 10 if the focus is directed to the reference to additional work. Clauses 5 and 8 deal with a situation where equipment or the workforce are not being employed but have not returned to Tube Tech’s premises. By way of contrast Clause 10 identifies the charge to be levied where equipment or men are employed on additional work. In that circumstance Tube Tech imposes a charge based on the calculation which leads to the contract price of £735,000, namely £35,000 a day. It is only if the contract terms are read that way that they can make any sense. The judge was right to reject the submission that under contract 1 Tube Tech was only entitled to charge after the initial 21 day period according to the proportion of men or equipment which remained working on site.[49]Read in that way there is, in my view, no room for the suggestion that the contract was for hire of men and equipment. That is not what the contract says and not what it means. The judge was right to regard the front page of the proposal referring to the objective and identifying the units concerned, as imposing a contractual obligation on Tube Tech. Those words were not, contrary to Mr Leighton Williams QC’s contention, merely descriptive. The contract only makes sense if those words are to be regarded as imposing the primary obligation on Tube Tech.[50]The payment terms refer to an estimated total price. Reference to the total price being estimated can only be a reference to the fact that until the men and equipment were out in Nigeria and employed on site no one could say whether the 21 days referred to in clause 3 would be sufficient to complete the task. The type, thickness and consistency of the deposit found in the units on site were, inevitably, going to lead to the impracticality of foreseeing how long the job would take.[51]I accept that the third page of the contract imposes certain obligations, for example in relation to the equipment and facilities to be supplied by both Tube Tech and 5D. But I agree with the judge that the reference to the number of men used, when read in the context of the contract as a whole, is merely descriptive and imposes no obligation. Given the background of an inability to foresee precisely what was involved in removing the deposit and how many men would be needed at any particular moment, it is unreasonable to suggest that the contract imposed any such obligation.[52]Contract 2 is clearer than contract 1. The price of £875,000, referred to as an estimated price, is described as the minimum charge for 25 days from 17 November 1999. Clause 3 provides that the rate starts on 17 November 1999 and continues:- “until all UHP pumps tracks and associated equipment and personnel are returned to Tube Tech International premises (sic)”. Clause 4 entitles Tube Tech to charge pro-rata charges if some but not all of the equipment is not returned. In the event, none of the equipment was returned until 24 January 2000. As in the first contract, clause 5 relates only to the circumstance that some of the men have returned but the others are unable to return. Only by focussing on the word “unable” is it possible to make clauses 3 and 5 consistent. Clause 6 like clause 6 in the first contract permits Tube Tech to write off equipment which is not returned within 30 days of completion of the work.[53]Clause 15 relates to the Christmas period. It formed the basis of a separate submission and also illustrated, so Mr Leighton Williams QC contended on behalf of 5D, the unreasonableness of Tube Tech’s interpretation of the contract. In the event of Tube Tech’s interpretation being correct the question of the Christmas period does not arise. There were no men on site over the Christmas period as they had returned to the United Kingdom. But the contract imposes an obligation to continue to pay over a period when men were committed to the project and to nothing else.[54]I conclude that there was an obligation imposed on 5D to pay at the rate of £35,000 per day from 17 November 1999; it was not dependant on the amount of equipment and the number of personnel used on the project. The reference to 24 men on page 2 was, as in the first contract, no more than descriptive. The reference to an estimated price refers to the fact that the length of time needed to complete the work was, even by 13 November 1999, impossible to ascertain.[55]For the reasons I have already given, there is nothing in the background which demonstrates that that conclusion leads to a result which is so commercially unreasonable that it cannot have been intended by the parties. It is true that there were never 54 men on site. It appears that men who had been working upon units the subject matter of contract 1 were re-deployed on the condensers referred to in the second contract. I can detect nothing uncommercial in imposing the full charge in respect of those periods when only a few men were working or remained on site. Tube Tech was committed to cleaning the units of the deposit which obstructed or prevented a free flow in as short a time as possible. The extent of its commitment could not be ascertained at the outset of the project either at the time the first contract was entered into or the second. In those circumstances it is not surprising that a charge based upon a daily amount was imposed. It becomes even less surprising when it is appreciated that an important feature of the work was the use of sophisticated equipment, which was fundamental to the service provided by Tube Tech.[56]In the light of those conclusions, it does not seem to me to matter whether the second contract was a variation of the first or not. If, indeed, contract 1 was a contract for the hire of equipment and services, entitling Tube Tech only to charge in proportion to the equipment and men used, then it might have been important for 5D to establish that those terms were intended to continue under the contract 2. But since that was not the meaning and effect of contract 1, to contend for a variation carries 5D no further. If it had been necessary I would have thought that contract 2 casts light upon the meaning and effect of the first contract. It is, as I have said, more easy to identify the nature of Tube Tech’s basis of charge under the second than under the first contract. There is no reason why contract 2 should not be used as an aid to identifying the meaning and effect of the first contract; it was between the same parties, entered into a short time after the first contract and concerned the same subject matter. But it is unnecessary to use the terms of the second contract in that way; it is sufficiently clear to me what both parties intended under both contracts. They did not intend to enter into a contract for the hire of men and equipment. Tube Tech provided a service for which it imposed a charge based upon the daily rate of £35,000. The judge’s conclusion was correct. 5D is not entitled to deduct sums, under the counterclaim, based upon the number of men actually on site.

Contract 2A

[57]Tube Tech contend that it entered into a tripartite contract on 5 December 1999 with 5D and NLNG. Pursuant to that contract Tube Tech agreed to focus all its resources on finishing the cleaning of two exchangers earlier than the planned finishing date of 14 December 1999 at 6 am. In return for doing so, Tube Tech would be paid £35,000 per 12 hour shift saved on both the two exchangers. Tube Tech did complete work on those two exchangers, one shift ahead of the original programme. It invoiced 5D £35,000 but 5D has declined to pay. It contends that it was not a party to the agreement.[58]In a Re-Amendment to the Particulars of Claim Tube Tech contend that NLNG has paid 5D the sum of £35,000 under contract 2A and in those circumstances 5D holds that sum to Tube Tech’s account and Tube Tech is entitled to be paid it.[59]With his customary frankness Mr Leighton Williams QC has not objected to that Re-Amendment and told the court that 5D has, indeed, been paid that sum. In those circumstances it is unnecessary to expend the time and energy which it is plain the judge was forced to expend on this issue. But it may be necessary, for the purposes of any resolution as to costs, to express, as short as I may, my conclusions on the issue.[60]On about 5 December 1999, Mr Kemper from NLNG suggested a scheme to provide an incentive to Tube Tech’s personnel to work faster on site. His motive was to be able to announce at the Shell AGM, on 14 December 1999, that the cleaning of the first two exchangers had been completed and that that part of the plant was due to go back on line. Mr Byford, general manager of Tube Tech, drafted an agreement on 15 December 1999, to be signed by Mr Byford and Mr Fletcher of NLNG.[61]5D contended that it was not party to the agreement which was made between Tube Tech and NLNG. Tube Tech contended that the process for approval of the invoice, of which Mr Dimmock gave evidence, afforded evidence that 5D was a party (see paragraphs 123 and 125 of the judgment).[62]It seems to me there was a contract between NLNG and Tube Tech. In return for implementation of an early completion scheme NLNG promised Tube Tech £35,000 for each 12 hour shift saved on the two exchangers.[63]I am prepared to assume, without deciding, that there may be circumstances where a contract is entered into between A and B when C will also be party to that contract notwithstanding that the only consideration which passes is between A and B. But in the instant case it does not seem to me possible to say that 5D was a party to the agreement unless it can be shown that some benefit to 5D was conferred by Tube Tech. The judge identified consideration passing from Tube Tech in favour of NLNG. He continued that 5D:- “appears to have derived a benefit in that the work was completed one shift earlier than planned. Had it not been, TSKJ (the consortium) might have had a remedy for breach of contract, but there was a clear benefit in not having to enforce it.” (paragraph 127)[64]I am unable to identify any benefit passing from Tube Tech to 5D. Tube Tech was already under an obligation under contract 2 to clean as much deposit from as many tubes as possible in the shortest time period. The circumstances postulated are a failure by Tube Tech to honour its obligation to complete the work in the shortest time possible. Had that circumstance occurred, it is impossible to envisage 5D would not have sought to complain and then sue for breach of either contract 1 or contract 2. The addition of the incentive agreement brought, as I see it, no additional benefit to 5D whatever. Indeed, it did not seem that Mr Aylwin for Tube Tech was seeking to uphold the judge’s conclusion on the basis the judge advanced. Rather, he contended that there was a benefit to 5D in not being pressured for any delay by NLNG and for that reason not having to pursue Tube Tech itself.[65]I remain unpersuaded. It is impossible to identify any additional benefit to 5D as a result of the alleged agreement known as contract 2A. In those circumstances no consideration passed between Tube Tech and 5D and, for that reason, contract 2A did not amount to an enforceable agreement between Tube Tech and 5D. If 5D had not received the money, I would have rejected Tube Tech’s claim under contract 2A. But, as I have said, 5D has, fairly, accepted that it has had the money and will pay it over to Tube Tech.[66]I would dismiss the appeal in relation to the terms of contracts 1 and 2. They were for services. Tube Tech was not overpaid. I would dismiss the appeal in relation to contract 2A but not on the grounds for which the Respondent, Tube Tech, originally contended.

Lord Justice Carnwath:

[67]I agree.

Lord Justice Brooke:

[68]I also agree.

Cited in 1 later judgment