Adjudication Matters – August 2018

3rd August 2018

Worth the risk? Imperial v Merit, “An advertisement for adjudication” highlights the risks of resisting settlement in favour of having your day in court.

Summary

The case of Imperial Chemical Industries Limited v Merit Merrell Technology Limited [2018] EWHC 1577 highlights the risks which can often befall parties who continue to pursue lengthy disputes through the courts following an undesirable adjudication.

In deciding the quantum aspects in Imperial, the Contractor recovered barely 1% more than the amount it was awarded at adjudication relating to a long running dispute concerning a repudiatory breach.

We consider the court’s decision and the manner in which the assessed amount was arrived at below.

Background

Merit Merrell Technology Limited (MMT) is a specialist engineering piping manufacturer which entered into an NEC3 contract with Imperial Chemical Industries Limited (ICI) to perform works in relation to the construction of a new paint manufacturing facility for ICI (the Project).

The initial contract sum for the works was approximately £1.9 million. However, this increased following an instruction for additional works resulting in an amount of £20.9 million having been paid to MMT by the time the dispute was brought before the court.

The initial dispute concerned a purported repudiation of the contract by ICI. ICI itself claimed first that MMT had repudiated the contract as a result of alleged defective works.

In the liability judgement (considered by Fraser J in 2017), the court held that MMT had not repudiated the contract and ICI’s termination was itself a repudiation of the contract meaning ICI was liable for the damages resulting from that repudiation.

This most recent case concerned the quantum element of the dispute and as part of his judgement, Fraser J was asked to determine the final account and specifically: whether the £20.9 million paid to MMT represented the true value of MMT’s final account (or whether, as claimed by ICI, MMT had been overpaid).

Decision

 In reaching his conclusion, Fraser J considered whether:

• interim assessments issued by the Project Manager during the works were binding or whether they could be opened up and reviewed by an adjudicator (and the court)
• if they were not binding, what weight such assessments should be given in subsequent valuations including the final account.

Accounting for (1) the contractual wording of the NEC which allowed an adjudicator (and thereby the court) the right to “review and revise any action or inaction of the Project Manager or Supervisor related to the dispute”, together with (2) the courts conclusions in Grove Developments (which we discussed here), the court concluded that interim assessments were not binding and could be opened up and reviewed by an adjudicator (and the court).

Furthermore, those assessments were to be given “powerful evidential weight” in consideration of subsequent valuations (such as the final account) given that the interim assessments would be carried out by people, at the time, with “detailed and in depth knowledge of the project.”

Accordingly, Fraser J considered that the contemporaneous documents forming the interim assessments (which assessed the works at £20.9 million) provided the most accurate picture of the value of the works carried out by MMT up to the date that the contract was repudiated.

On that basis, Fraser J favoured MMT’s findings on quantum and found that the value of the works carried out by MMT as at the point of the repudiation equated to £22,018,083.66.

However, in spite of several adjudications and a timely (and costly) pursuit of the dispute through litigation, this resulted in only a marginal increase on the £20.9 million that MMT had been paid following the adjudication. As a result, Fraser J raised the following criticisms:

“This judgment may not be the final act in this long-running and bitter dispute. It is, however, the sixth first-instance judgment concerning this matter, and, one hopes, the last. This litigation also stands as something of an advertisement for adjudication. The amount of the MMT account for the works, finally determined after the expenditure of legal and experts’ fees measured in millions of pounds, is barely 1% more than the amount awarded to MMT in the adjudications.”

Summary

 Whilst the case usefully highlights the importance of interim assessments to consideration of subsequent valuations, it is a timely reminder of the need for parties to take careful consideration as to the merits of issuing court proceedings following an undesirable adjudication result which can lead to significant costs without corresponding gain.