ICI v Merit Merrell (2018)
Neutral citation: Imperial Chemical Industries v Merit Merrell Technology Ltd [2018] EWHC 1577 (TCC)
NEC contract topics: interim payment, project manager valuations/certificates, impartiality of the project manager
Form of contract: NEC3 Engineering and Construction Contract.
Main areas of law: repudiatory breach, binding nature of valuations under standard form contracts, evidential standards in construction disputes, the availability of remedies including damages and interest.
Background and the Dispute
This dispute arose from works undertaken by Merit Merrell Technology (MMT) for Imperial Chemical Industries Ltd (ICI) under an NEC3 Engineering and Construction Contract. The project, known as “Project Fresco”, involved the construction of a new paint manufacturing facility at Ashwood Business Park in Ashington, Northumberland.
Originally valued at approximately £1.9 million, the contract's scope was significantly expanded through Project Manager’s Instruction 03 (PMI03), issued in February 2013. This instruction added substantial pipework responsibilities to the contract, which was originally limited to steelworks. MMT eventually installed around 42,000 metres of pipework.
PROJEN were appointed by ICI to act in the role of the NEC project manager. Interim payments were made based on assessments issued by the project manager.
As the project progressed, AkzoNobel, ICI’s parent company, sought to bring the project within a constrained CapEx budget and became increasingly involved in day-to-day decision-making. In mid-2014, AkzoNobel took operational control of the project, with Mr Boerboom acting as its key representative. Following his arrival, MMT experienced payment delays, suspension of works, and eventually termination in February 2015. MMT argued that this termination constituted repudiatory breach by ICI.
Legal Issues
The key legal questions included:
- Whether ICI had overpaid MMT and could reclaim overpaid sums.
- Whether previous interim valuations and agreed sums under the NEC3 contract were subject to revaluation by the court.
- Whether MMT was entitled to damages for ICI’s repudiatory breach of contract, including loss of profit on uncompleted instructed works and other consequential losses.
- The burden of proof applicable when challenging interim certificates or previously agreed valuations.
- The evidential weight to be given to agreements made contemporaneously between MMT, ICI, and the project manager.
The court had to determine the enforceability and finality of various PMI valuations and whether ICI’s attempt to revisit and revise these valuations was legally and factually justified.
Judgment
The court found that interim valuations and assessments under the NEC3 contract were not contractually final and could be revisited in principle. However, Fraser J held that previously agreed sums between the contractor, the employer, and the project manager carried "powerful evidential weight". He emphasised that "even if… not contractually binding, those agreements would be of powerful evidential weight" and could only be displaced by cogent contrary evidence.
Fraser J found that ICI had failed to displace this evidential weight. The purported replacement of the independent Project Manager with Mr Boerboom, an AkzoNobel employee, was deemed invalid and improper. The judge held that Mr Boerboom “did not remotely at any stage attempt to do anything other than fulfil the AkzoNobel purpose, which was to reduce expenditure… the very opposite of independent.”
The court upheld MMT’s position on the vast majority of the disputed valuations and concluded that ICI’s counterclaim for overpayment was not substantiated.
On the counterclaim, the court awarded MMT damages for loss of profit on instructed but uncompleted work, as well as for certain professional costs incurred as a result of ICI’s breach. The claim for further loss of profit on uninstructed future work and for rebranding costs was rejected on the basis that it had not been adequately pleaded. Interest was awarded on a net basis.
Fraser J concluded that “this litigation also stands as something of an advertisement for adjudication,” noting that the final judicial valuation differed by only about 1% from the earlier adjudicated amount.
NEC contract learning points and implications for the construction industry
This decision provides critical clarity on the role and authority of the project manager under the NEC form of contract. Although NEC3 does not make the project manager’s valuations conclusive, they will carry substantial evidential weight if made contemporaneously and with participation from both parties.
The case also highlights the importance of procedural propriety. Efforts by the employer to unilaterally replace the independent project manager with an internal stakeholder were found to undermine the NEC3 structure and resulted in a repudiatory breach.
Parties using NEC contracts should ensure that any changes to the project management structure are made transparently and in compliance with the contract. Agreements reached on rates and valuations during the project are likely to be upheld unless compelling evidence is provided to justify their revision.
The judgment illustrates that attempts to suppress or retroactively discredit valuations previously agreed with the project manager may not succeed, particularly where contemporaneous documentation and professional process support the original valuations.
Furthermore, the case demonstrates the risks associated with failing to preserve project documentation. ICI’s inability to produce original valuation records undermined its claims and was expressly criticised by the court. This decision should serve as a cautionary note for employers seeking to exert commercial control over valuations in large-scale NEC contracts. It also reinforces the principle that the project manager must be, and be seen to be, impartial.