KNOW YOUR TERMS
This being the time of year to reflect on how to spend less next Christmas, a good resolution is to make sure you know what you are agreeing to pay for, a theme that crops up frequently in the copy of Mr Thrifty's How to Save Money on Absolutely Everything that I found under my tree. It is, it seems, particularly useful to avoid agreeing to pay for a service over the Christmas period, at a time when everyone has packed up and gone home.
LNG-Servicos might do well to get hold of a copy of Mr Thrifty, having had to spend a considerable time in court arguing over whether, during the 1999/2000 festive season, they had agreed to pay Tube Tec International to provide a service, or just for the hire of labour and equipment (TechnipCoflexip & Others v Tube Tec International, Court of Appeal, 22 November 2005).
Tube Tec was employed to clean out condenser pipes at a liquefied natural-gas plant in Nigeria. The work was urgent, and because the plant had to shut to enable it to be carried out, speed was very important.
Work started in early November 1999. Tube Tec quickly found that the deposits in the pipes were worse than had been thought, and the cleaning method was changed.
The works carried on for longer than originally envisaged. From 24 December to 5 January, all of Tube Tec's personnel left site for their Christmas holiday.
Some of them returned in January, and finished off the work by 8 January 2000.
LNG said that the contract was for the hire of people and equipment, so Tube Tec was only entitled to be paid for the labour working on the site.
LNG also said there should be a final account agreed at the end of the day, at which stage Tube Tec had to substantiate the cost charged.
Tube Tec, on the other hand, argued it had been employed to provide the service of cleaning the pipes, and payment was not determined by the number of people on site.
Its obligation was initially to remove as much deposit as possible in the time allowed and, after the cleaning method was changed, to clean the pipes within the shortest time it could.
The Court of Appeal ruled that Tube Tec had provided a service for which it was entitled to charge on the basis of a daily rate of £35,000. LNG was not entitled to deduct sums against this to reflect the number of people on site. In reaching this conclusion, the court considered in detail - and criticised the drafting of - the written terms the parties had agreed. It also took into account the factual background to ascertain what the parties had understood the wording of the agreement to actually mean.
It is a valuable lesson for all of us that sophisticated commercial organisations can agree detailed written terms that are ambiguous about something as basic as what is being supplied and how it is to be charged. That ambiguity cost the parties an expensive two months in court, and then three days in the Court of Appeal. Mr Thrifty would not be impressed.
Kim Franklin is a barrister and chartered arbitrator at Crown Office Chambers in London.
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