Technip-Coflexip SA & Ors v Tube Tech International Ltd

Commercial contracts must be construed objectively as a whole and against their relevant factual and commercial background. That background may assist in identifying the parties’ intention, including where apparently wrong words were used. A semantic reading should not defeat business common sense.

A specialist service contract may require payment at a fixed daily rate even when fewer personnel are working or temporarily absent, where the contractual obligation is to achieve a result and the charge is not expressed as a hire rate. On the facts, an incentive agreement created no enforceable obligation against a party which received no additional benefit and provided no consideration.

Tube Tech supplied specialist equipment and personnel to clean industrial pipework at a liquefied natural gas plant. It claimed unpaid sums under contracts 1 and 2, while the appellants contended that those agreements were for the hire of men and equipment and that charges should be reduced according to the personnel actually present.

The Technology and Construction Court held that contracts 1 and 2 were contracts for services. A further incentive arrangement, contract 2A, was made between Tube Tech and Nigeria LNG Limited. The appellants disputed that the fifth appellant, 5D, was a party to it. The appeal concerned the proper construction of contracts 1 and 2, and whether contract 2A was enforceable against 5D.

Lord Justice Moses delivered the leading judgment. Lord Justice Carnwath and Lord Justice Brooke agreed.

1. Contracts 1 and 2. The appeal was dismissed. Applying the objective approach to contractual construction stated by Lord Hoffmann in ICS Ltd v West Bromwich B.S. [1998] 1 WLR 896, the contracts had to be read as a whole against the relevant background.
2. The contracts required Tube Tech to perform a defined cleaning service using specialist equipment and personnel. In contract 1, clauses 3 and 4 stated the primary obligations. Clauses 5 to 8 dealt with the consequences of equipment or personnel failing to return, while clause 10 dealt with additional work. They did not impose a pro-rata charge based on the number of men remaining on site. The reference to approximately 30 men was descriptive rather than a staffing obligation.
3. Contract 2 was clearer. Its estimated price was a minimum charge for 25 days, and the daily rate continued until the equipment and personnel were returned. The charge was not dependent on the amount of equipment or the number of personnel used. The Christmas provision was consistent with payment continuing while Tube Tech remained committed to the project. Tube Tech had therefore not been overpaid.
4. Contract 2A. The court assumed, without deciding, that a third party might in some circumstances be party to an agreement even though consideration passed only between two other parties. On the facts, however, Tube Tech conferred no additional benefit on 5D. 5D was already obliged under contract 2 to procure completion as quickly as possible, so the incentive arrangement supplied no consideration between Tube Tech and 5D and was not enforceable against it.
5. 5D had accepted that it received the £35,000 payment and would pay it to Tube Tech. The appeal concerning contract 2A was therefore dismissed, although not on Tube Tech’s original contractual basis.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 1369, dismissed the appeal concerning contracts 1 and 2 and contract 2A.
• Queen’s Bench Division, Technology and Construction Court: His Honour Judge Richard Havery QC held that contracts 1 and 2 were contracts for services and treated the incentive arrangement as conferring a benefit on 5D. The Court of Appeal upheld the result on contracts 1 and 2 but rejected that reasoning on contract 2A.