By way of brief background; ICI engaged MMT to carry out certain works to its new paint processing plant in Ashington, Northumberland pursuant to an amended NEC3 ECC form of contract. The contract sum was a relatively modest £1.9m, however, as we know the scope of works increased considerably during the course of the project, as the project manager instructed numerous new packages.
Unsurprisingly the project over-ran and costs escalated. Staff at ICI’s parent company, AkzoNobel were deployed to site to oversee the project with a view to reducing ICIs exposure. In doing so, Fraser J found that ICI had interfered with the project manager’s ability to administer the contract properly, causing the project manager to resign. The purported replacement of the project manager with an ICI employee constituted a repudiation of the contract.
At the date proceedings were issued, MMT had already been paid £20.9m on account and were seeking to recover the balance of sums which they alleged were due under the contract, based on interim assessments and agreements reached by the parties as to the final account. In contrast, and after having conducted a new valuation of the works on the basis of actual cost, ICI alleged that they had, in fact, overpaid MMT in the sum of £10.9m.
After hearing the parties’ submissions on the value of the final account, perhaps the most notable point to come out of this (very) lengthy judgment was the decision reached by Fraser, J on whether or not, as MMT put “it [was] open to ICI as a matter of contract to seek to re-open not just the items that have always been disputed, but items which were once agreed”.
The status of interim assessments
In considering this question it was MMTs case that an assessment of a compensation event could not be opened up in legal proceedings. This was, MMT argued, on the basis that the project manager reached assessments on the value of works in determining the sum due on interim assessments. Consequently; there was no legal ability for ICI to revisit those agreements.
However, Fraser, J concluded that there was, in fact, nothing in the NEC3 form which provided that the decision of the project manager was final.
Whilst clause 65.2 of the NEC3 ECC Form provides that “[the] assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong”, this did not preclude the court from revisiting a project manager’s decision. To argue otherwise would, as Fraser J put it; “ignore the dispute resolution clause” (Option W2).
Option W2, which applied to the contract, provides that “the adjudicator may:
- review and revise any action or inaction of the Project Manager or Supervisor related to the dispute and alter a quotation which has been treated as having been accepted
- take the initiative in ascertaining the facts and the law related to the dispute
- instruct a Party to provide further information related to the dispute within a stated period of time
- instruct a Party to take any other action which he considers necessary to reach his decision and to do so within the stated time.”
As such, by providing that an adjudicator has the power to “review and revise any action … of the project manager”, the court found that by implication an adjudicator is authorised to review and revise a project manager’s determination of a compensation event.
Whilst Fraser J noted that the scope and extent of an adjudicator’s powers were not determinative of the court’s jurisdiction, he stated that the court can certainly not have any less power than an adjudicator. This follows the recent decision in Grove Developments Lt dv. S & T (UK) Ltd and that of Dyson LJ in the case of Henry Boot Construction Limited v. Alstom Combined Cycles Limited where he said that “the decision of the engineer in relation to certification was not conclusive of the rights of the parties, unless they have clearly so provided. If the engineer’s decision is not binding, it can be reviewed by an arbitrator … or by the court.”
Whilst it was, therefore, open to ICI to challenge the project manager’s determination of the compensation events, the burden of proof was, nevertheless, on ICI to establish that anything other than the project manager’s assessment was correct.
Fraser J concluded that the many, minutely detailed, agreements reached between the parties as to the value of MMTs final account were legally binding. The parties had clearly intended that they would conclusively determine the rights of both ICI and MMT in relation to the project, but even if he was wrong, Fraser J concluded that the evidential value of these agreements was just as compelling as that of the project manager’s assessments.
Again, it was up to ICI to demonstrate that it had overpaid MMT.
As it was, Fraser J accepted MMTs figures in the main because, aside from a clear desire to reduce expenditure on the project, ICIs valuation was lacking for a number of reasons. For example it:
- ignored agreements which the parties had reached and also the Schedule of Rates which applied to the contract
- included nil valuations for some items of work which had in fact been done as well as unrealistically low valuations for other items
- lacked evidence to support contentions of duplication; but crucially
- it simply lacked any contemporaneous evidence from persons engaged on the Project at the time to challenge that anything other than what was agreed by the Project Manager was correct.
An advert for adjudication
However, after six separate judgments, millions spent in legal fees and given that “the amount of the MMT account for the works … is barely 1% more than the amount awarded to MMT in the adjudications …”. It is, perhaps, no wonder then that the court commented that the case was a clear advert for adjudication.
For further information, please contact Katrina Bretten in Birketts' Construction and Engineering Team.
This article is from the October 2018 issue of Cornerstone, our newsletter for those working in the construction industry. To download the latest issue, please visit the newsletter section of our website. Law covered as at October 2018.
To keep up-to-date with the latest news, legal updates and seminar information, please register and select the areas that are of interest to you.