J U D G M E N T

1. LORD JUSTICE WALLER: This is an appeal from the judgment of His Honour Judge Mitchell given on 14 December 2004 brought by permission of Brooke LJ. Before the judge the respondents claimed that they were entitled to be paid on the basis of a quantum merit for certain work relating to the cleaning out of tanks on the premises of the appellants. The appellants' case was that the respondents had agreed a fixed price contract which covered the work to be done. The respondents' case was that, on the true construction of the contract for which they had agreed a price, it covered only a small proportion of work they did. Indeed they allege that the appellants agreed to pay for extra work. The judge found in favour of the respondents on both points.

2. I can take the findings of fact from the judge's judgment in that there is no dispute as to the facts that he found. There is one area in the notice of appeal which challenges a possible conclusion that could be drawn from the facts and I will indicate where that is when I get to that point. He says:

"The defendants [that is the appellants] are in the business of the manufacture and sale of treated timber products. In 2003 the process which they were employing for the treatment of that timber was to impregnate it with a mixture of water and chemicals, those being chrome, copper and arsenic. By European Directive which was due to come into force during the latter part of 2004 the use of such materials was to be phased out and prohibited.

The [appellants] at this time had a plant which comprised three vacuum pressure treatment vessels, together with four holding tanks for the diluted mixture that were to be used and reused in the vacuum pressure tanks, and a concentrate tank to hold the undiluted mixture. The total amount of liquid which might be held in these tanks at any one time would be in the order of 200,000 litres, depending upon the amount in use and the amount of timber which had been treated. The whole area of that plant was surrounded by a bund, and in order to change over the production process from the prohibited chemicals to the new process it was necessary for the appellants to secure the thorough cleansing of that entire area of the old chemicals.

At the end of 2003 they were seeking quotations for the necessary cleaning and removing of the residues, and they approached a number of contractors who were asked to estimate to carry out those works. One of those contractors were the respondents, who are contractors in waste removal and disposal but who had no previous specific experience of handling this type of waste.

All the contractors who were approached, other than the [respondents], quoted on the basis of a price which would include a fixed sum for labour and then a price to be calculated at so much per litre of the materials removed, depending on the nature of material, that is to say whether it was waste or whether it was re-usable material.

The [respondents], however, quoted for a fixed price by means of a written quotation dated 31 October 2003 which incorporated the following:

'We have pleasure in enclosing our quotation for the cleaning and disposal of your treatment plant. To supply all necessary trained personnel to high pressure steam clean the pressure vessels, tanks and gullies as shown to us and remove all Celcure contaminated waste material to a licensed incinerator plant and issue all appropriate paperwork. For the sum of £4,845...'

- which, as the judge commented, was a VAT inclusive figure.

3. The judge then made this finding:

"It was obvious to the director of the appellants, a Mr Walters, who was principally concerned with the contractual arrangements, when he received the claimants' estimate, that it was possible that there might have been some misunderstanding, having regard to the discrepancy between the price which was quoted by the claimants and the price which he had been quoted by other contractors.

On 3 November Mr Walters telephoned the respondents' director, Mr Adrian Rawlins, to confirm the price and then wrote on that day as follows:

'The contract will require (as described) several visits to clear and clean the various holding tanks, bund area, and finish clearing of the unused CCA solution, ie concentrate tank, 3 pressure vessels, 2 holding tanks in bund area, 2 holding tanks above ground, and the mixing tank, also to include to bund and surrounding areas.'"

Then there is a new paragraph in that letter, which commences as follows:

"All arising sludge and 3% residual liquid to be removed from site in specialised tankers to a disposal site of your choosing for disposal, all in the accordance with the Environmental Protection Act 1990 sections 34 and section 62 Special Waste Regulations 1996."

The judge continued:

"Those letters were the only original contractual documents. It transpires that there was indeed a misunderstanding. Mr Rawlins' estimate was prepared on the basis that the removal would be of [the liquid used for] the cleansing of the plant by the claimants, together with what would be possibly a small residue of around 3% of the original contents of the tank, all of which he estimated for the purpose of his price could be removed as one part load in one tanker, the maximum load to be carried by a road tanker of this kind being apparently between 20,000 and 22,000 litres, and it was on that basis that he concluded the price."

The judge continued:

"He did not anticipate that the defendants would leave full or partially full holding tanks of the unused but mixed material. On the other hand, the [appellants'] director, Mr Walters, says that he was asking for a price on the basis that anything that was left in the holding tanks, including all unused material which might be there at the time and of which there might be an uncertain quantity, because no-one would know until the day arrived how much might still be there, was to be cleared by the [respondents]; and that the reference to 3% residual liquid in his letter of 3rd November was a reference to the chemical concentration of the liquid in the tanks which so he says consists of 3% chemicals and 97% water.

Following the [appellants'] acceptance of the [respondents'] estimate, plans for the appellants' overall scheme proceeded. In January there was a meeting conducted at the appellants' premises between the engineer responsible for the works, [a] Mr Berryman, the defendants and the contractors, to agree the schedule of works, and it was important that the timings should be specified so that there should be an agreed programme to secure the smooth transfer of the plant to the new process.

Mr Rowlands up to that stage still thought that he had estimated and would be providing for one tanker to visit only and take away a part load. During the course of the discussions in January, however, it became clear to him that three to four tankers would be required because what was being required by the engineer and the defendants was that there should be a serial emptying and transfer of the respective pressure vessels and accompanying tanks so as to secure a smooth transfer of the process; and that a tanker would have to visit at approximately one-week intervals to clear each of the three tanks.

Mr Rawlins still continued to labour under the misapprehension that he was dealing with cleansing and residues only and that the defendants would be disposing of the unused mixture which they then had in the holding tanks. That seems to be a view which was also obtained by Mr Berryman. He has told me [said the judge] during the course of his evidence that he, from his perspective, thought that the defendants would make arrangement either to use or otherwise deal with the remaining mixed liquid in the tanks."

The judge continues:

"That impression was further reinforced so far as Mr Rawlins was concerned by Mr Berryman's schedule of the programme of works which, when detailing the ready-mixed chemicals to be removed, in each case detailed the party as responsible for that as the defendants themselves rather than the claimants. The claimants' works of cleansing and so forth are specifically and clearly specified separately.

Although he had originally estimated on the basis of one tanker only, Mr Rawlins was prepared to bite on the bullet and to accept the additional cost of the three to four tankers in total, notwithstanding that this had now become, so far as he was concerned, a wholly unprofitable contract.

When work started on the first tank on 13th February it became apparent to Mr Rawlins that what he was being required to remove was not simply the washings from the cleansing of the tank but also a considerable quantity of unused liquid in the holding tank, and he immediately faxed to the defendants to raise the issue. By fax dated 13th February he said this:

'Further to my conversations with my men on the site and the tanker driver this morning, we have established approximately 70,000 litres of material to come out of tank 2. It is also expected there will be a similar quantity in the final tank. When we first visited the site and at our meeting it was estimated there would be a total of approximately 60,000 to 70,000 litres. This is what our original quotation was based on. We are now in a situation where we estimate that a further 5 tanker loads will be required over and above the original 3, therefore there will be an extra charge to cover these extra costs involved. We would also point out that at our programme meeting it was decided that the first tanker would arrive today and the next tanker Thursday of the following week.'.

4. Mr Walters responded to that fax also by fax on the same day:

'Further to your fax regarding the quantities of solution to be removed, we do not wish to spend time on the question of how much liquid is remaining. We note that you now require 5 tankers over and above the original 3 stated in your consignment note... which clearly says "4 off tankers", therefore an extra one tanker is required over and above your estimate. Please advise of the costs to enable us to consider this extra figure. We confirm that you are bringing 2 (two) tankers on Thursday next, 19th February, so that your employees can complete the cleaning of this vessel. We also confirm your disposal of the sludge that is at present in the tanks.'"

The judge continues:

"Mr Walters had in fact got his figures wrong. The figures were three to four originally, or at least as from January, so far as Mr Rawlins was concerned, and what was required was significantly more than that, as it was to prove. But perhaps most significantly, at that point there was no suggestion by Mr Walters that this was simply a lump sum contract under which Mr Rawlins was to remove the entirety of the contents of the tanks, whatever they were, at the fixed price. There is, in my judgment, a clear indication there that the defendants were accepting that there would be an extra sum to pay.

The work proceeded. It was substantially completed by 25 February. As it proved in all there was a total of nine tankers which had to attend and to remove in total something over or in the region of 200,000 litres of material. All that then remained was a final residue of the final sludge from the final cleaning up process.

On 25th February, the final day of the main body of work, Mr Rawlins submitted an interim invoice which was simply in a sum of £4,000 for 'Part works completed against your order'. He followed that up within a few days, and on 29th February, with an invoice in the sum of £14,750 exclusive of VAT for what was stated to be extra cost incurred in the removal and disposal of 185,000 tonnes of CCA waste, including all necessary legal costs.

Again, in his response to that Mr Walters did not deny the liability to pay an extra sum. He simply queried the amount. His response was:

'We are in receipt of the above invoice showing 185,000 tonnes of CCA waste. We acknowledge this is not a correct figure. May we request confirmation? What is the correct measurement referred to, also, can you clarify what the "legal costs" refer to? As soon as these points are clarified we will pass for payment.'

Mr Rawlins duly responded on 16th March pointing out there was an error. What was referred to was not tonnes but kilograms, and on that day there was an immediate response from Mr Walters:

'We however wish to advise that contained in your original quotation ... total of £4,845 included all residues in this price. You subsequently stated that you required extra capacity, our letter dated 13th February requested to advise what this extra would amount to. On your invoice ... you have charged for all residues whereas your quotation included 4 tankers... The first four tankers removed 102,280 tonnes, the remaining 5 removed 108,840 tons. [The judge remarks that that should be a reference to kilos]. To attempt to resolve this issue we calculate ... [then there is a calculation done and the calculation is for a price in addition of £5,159.02.]'"

The communication continues:

"'We would like to settle this account as soon as possible and welcome your earliest response so that we may issue a cheque in settlement during the next week.'"

The judge then goes on to deal with the submissions.

5. One point to emphasise is that the judge finds in paragraph 7, which I have quoted, that there was a misunderstanding, and a point taken by the appellants in their notice of appeal is that there was, in fact, no suggestion in this case that there was some mutual mistake which might have rendered the contract void. They say it was never put on that basis at the trial. That is right and indeed it has not been put on that basis here. So although there was, as the judge found, some misunderstanding, it does not give rise to any relief in the form of avoidance of the contract. The basic question for the judge was was there a lump sum contract for a certain quantity of work and were the respondents then asked to do additional work? Or was there some agreement which varied the original contract under which it was agreed that the original contract covered only certain work and an agreement that the extra work would be paid for? Or was this a lump sum contract under which the respondents agreed to do all the work that they in fact did?

6. What did the original contract cover? The judge quoted and I have thus quoted the relevant paragraphs. They are the paragraphs in the quotation itself and it refers to the removal of "all Celcure contaminated waste material", and the two paragraphs of the responding letter, ie the paragraph starting with "the contract will require" and the paragraph beginning "all arising sludge and 3% residual liquid" (see paragraph 3 above).

7. On behalf of the appellants emphasis is placed on the word "all" in that phrase in the quotation, and emphasis is placed on the words in the letter of 3 November that the contract required several visits to clear and clean - and I emphasise these words - "the tanks". So it is said that that clearly relates to a total clearance of any liquid that might be in the tanks. The assertion, then, is that when there is a reference in the next paragraph to having to clear "all arising sludge and 3% residual liquid" the reference to "3% residual liquid" was a reference to the chemical concentration of the liquid in the tanks which were said to consist of 3% chemical and 97% water.

8. On behalf of the respondents emphasis is placed on the word "waste" in the quotation. What is asserted is that the key to the letter of 3 November 2003 are the words "all arising sludge and 3% of residual liquid", which would naturally be understood to be referring to the quantity of residual liquid left in the tanks after the appellants had used the CCA solution. In the course of argument by Miss Williams was asked what she would need to write in in order to make clear the 3% residual liquid referred to the concentration of chemical to water, and she had some difficulty in writing the correct words in. She also had to accept that if the 3% residual liquid referred to the concentration of chemical to water, then it really had no practical effect in relation to this contract because she accepted it simply did not matter to Industrial Services, the respondents, what the concentration of chemical to water was. She also had to accept that if it was understood to mean the quantity of residual liquid left in the tanks after use of the solution by the appellants, then it would have a real meaning for the respondents.

9. The judge preferred the interpretation of the letters suggested by the respondents and, in my view, he was clearly right to do so. It seems to me clear that the quotation was intended to recover removal of "waste", and the contemplation must have been, and indeed was, that the appellants would be using up the liquid that was in the tanks. The contemplation clearly of the respondents was that there would only be some residue of that liquid left. The further contemplation would be that there would be some waste produced by the cleaning exercise and what the respondents were quoting to remove was the residue of liquid plus the sludge. The appellants have to suggest that what the respondents were doing was quoting a fixed price for removal of an indeterminate quantity of liquid which could be 70,000 litres, but which could also, at the appellants' option, be 200,000 litres. That makes very little commercial sense.

10. So far as the letter of 3 November is concerned, far from making it clear, as Miss Williams would suggest, that the contract would require something different from that which the quote appeared to cover, it leaves the position in exactly where it was. The fact that it refers to clearing and cleaning the various holding tanks simply does not take the matter any further, because the question is how much and what is going to be in the tanks which have to be cleared and cleaned. The most natural meaning of the words "all arising sludge and 3% residual liquid" is that there will be something in the region of 3% of liquid left in the tank, and that is what the contract is intended to cover. Once again I make the point that it makes very little commercial sense to think that the respondents were quoting a fixed price for something as indeterminate as removing liquid - 70,000 litres or 200,000 litres, depending on what the appellants chose to clear.

11. Once the above conclusion is reached there is no necessity to go into the question whether there was a variation as the judge found. I would simply however say this. The findings of the judge, as it seems to me, support the view that the appellants, even after the exchange of these contractual documents, did agree that the original price should only cover a limited amount of work and that work beyond that limit should be paid for. By their fax dated 13 February, the respondents stated that the original quote covered only three tankers and that it now appeared they were going to be asked to do work which would require a further five. They stated that the extra would be charged for.

12. The response to that was not to say the contract is a fixed price contract, it was to ask for costings to enable the appellants to consider "this extra figure". When an invoice is sent for the extra work the response is:

"We are in receipt of the above invoice showing 185000 tonnes of CCA waste. We acknowledge this is not a correct figure. May we request confirmation what is the correct measurement referred to, also can you clarify what the 'legal costs', refer to. As soon as these points are clarified we will pass for payment."

Again apparently accepting that extra costs should be paid.

13. In my view, the judge's finding that it was agreed that the extra work would be paid for was amply justified. Essentially for reasons which do not differ from those given by the judge I would dismiss this appeal.

14. SIR WILLIAM ALDOUS: I agree.

(Appeal dismissed; Appellants do pay Respondents' costs summarily assessed at £6,500).