North Sea Ventilation Ltd v Consafe Engineering (UK) Ltd

1. LORD JUSTICE LONGMORE: This is a renewed application for permission to appeal in a building contract case and to quite a large extent it is an appeal on the facts on the basis that the judge did not appreciate fully, or indeed at all, the weight of the evidence. It is very unusual to be giving permission to appeal in such circumstances and I should just give a short judgment as to why.

2. The defendants, Consafe Engineering (UK) Ltd, who won in front of the judge on the preliminary issues that the judge decided, were the main contractor for a retrieval system for dealing with plutonium waste at Drigg in Cumbria and were responsible under a main contract ultimately to British Nuclear Fuels. They (Consafe) made a subcontract for heating, ventilation and air conditioning equipment for the retrieval system with the claimants, North Sea Ventilation Ltd, that contract being a fixed price contract for a sum of about £909,000.

3. The contract incorporated terms and conditions including GC35 - that I need not set out but is set out fully in the judge's judgment and is headed "Changes", and the dispute between the parties has arisen in connection with additional work. The defendants said at trial that clause GC35, with its fairly complicated procedure for agreeing and executing changes, was intended throughout to apply. The claimants alleged that that clause had been varied or that the defendants by their conduct indicated that they would not seek to rely on the strict terms of the clause - which I will call a Hughes v Metropolitan Railway estoppel.

4. The course of conduct relied on at trial appears to have been this: that either the claimants themselves would identify work which they considered was work additional to that which had been contracted for, or the defendants would identify additional work and ask that it be performed. There was then an oral discussion between personnel on the ground, which sometimes resulted in some written documentation, but not very often; but in the case of the claims made there was, say the claimants, an oral instruction to proceed. Often it was quite impossible, say the claimants, to put the detailed provisions of GC35 into effect because, among other reasons, it was difficult or impossible to identify the cost of the work to be done in advance.

5. What would then happen was that, either at the time of the work or (often) later, the claimants would themselves prepare a variation order which would identify the work proposed or sometimes even work after it had been completed. I have been shown one such variation order - number 48 - which is economical, to say the least, in respect of the description of the work that was to be or had been done; but once the variation order had been issued there would again be meetings to discuss the detail of the variation orders, but those discussions, and indeed sometimes arguments, went to quantum only and not to liability. They were followed by the raising of invoices by the claimants; and in a number of cases those invoices were in fact paid without any suggestion being made that the GC35 procedure had been complied with.

6. I am told that it is uncontroversial that by 6th January 2003 the defendants had in fact paid £400,000 pursuant to the variation orders additional to the contract sum. I am further told that it is uncontroversial that in August 2003 the defendants admitted openly that a further £424,000 was due pursuant to these variation orders and that the only reason why they were not paying was that they had claims by way of set-off for back charges and liquidated damages and other matters unassociated with the variation orders. I have been taken to a statement of a witness, Mr Heggie, who was an employee of Consafe at all material times, but gave evidence for the claimants. This statment appears to be consistent with the alleged course of conduct relied on by the claimants as dispensing with the formal requirements of GC35.

7. I am persuaded that in those circumstances, albeit that I have only heard one side of the argument, there is sufficient in the case to justify the grant of permission to appeal, rather unusually, since it is basically a question of fact.

8. Mr Wilby QC has in his written material made complaints about the judge's directions to himself about the law, and it is perhaps arguable that he has put the hurdle somewhat too high in the claimants' path, but that is largely, as it seems to me, a matter of vocabulary. On any view the claimants have a burden of proof on them, which may legitimately be described as heavy, to persuade the court that it was agreed that the terms of the written contract were not to apply by reason of a course of conduct, and they have the further burden of persuading the Court of Appeal that the judge came to a wrong conclusion.

9. I have been a bit troubled by the fact that there is a clear finding of fact on the part of the learned judge that after a meeting of 24th October 2001 Mr Sales on behalf of the defendants made it clear that he insisted that for the future from that date there should be written proposals. Mr Wilby assures me that it is not the intention of the appellants to seek to appeal that finding of fact, that not being a matter which is specifically appealed in the grounds of appeal, but he submits that the course of conduct dispensing with the need to comply strictly with GC35 nevertheless continued after that date; and that will be an argument that is open to him.

10. I say further that much too much appears to be made of the delay and disruption aspect of the matter in the grounds of appeal and the skeleton. The most that that could conceivably be gained from it is that it is some small additional evidential material to show that the parties were not intending to apply the strict requirements of GC35.

11. For those reasons I think it appropriate to grant permission to appeal. I have had the advantage of a much better presented documentary bundle than Tuckey LJ had, at whom it would not be unfair to say the papers were just thrown in order that he could sort them out. Tuckey LJ did also say that the procedural complaints which were made against the judge were without foundation and should not form the subject of permission to appeal. In the time allowed we have not got on to that aspect of the matter, but I will just say this. I am a little troubled by the material before me which appears - and I emphasise the word 'appears' - to show that the learned judge was persuaded to listen to an argument that at the end of the claimants' case there was no case to answer; he decided that there was a case to answer, but then, on what appears primarily to have been the claimants' own material, decided after all that he could not find in their favour. I would not therefore think it right to shut the appellants out from advancing an argument along those lines if they are so minded when the appeal is heard.

ORDER: Application granted; time estimate one-and-a-half to two days before a three judge court but which may include a High Court judge; fresh skeleton argument to be prepared within fourteen days; fresh grounds of appeal to be drafted, not adding to but clarifying the nature of the appellant's case; court to send a letter to the parties strongly urging them to take part in the Court of Appeal's Mediation System.