Imperial Chemical Industries Ltd v Merit Merrell Technology (liability)
Citation:  EWHC 1763 (TCC)
This case concerned the quality of welds performed by MMT at a paint manufacturing facility for ICI in Northumberland under a contract based on NEC3 terms. A split trial of liability and quantum was ordered and these proceedings concerned the question of liability. The initial contract was for approximately £1.9m. However, the works were expanded considerably and by the time the Claim Form had been issued ICI had paid MMT £20.9m. The relationship between the parties deteriorated considerably. This was mainly because of ICI’s insistence that MMT had contracted to provide radiography testing, a position that Fraser J described as “wholly unarguable”.
Fraser J was critical of the approach taken to the project by ICI, holding that the reason for ordering MMT from the site was nothing to do with the quality of the welds but rather a “commercial route” chosen to avoid having to pay MMT any more money. He held that there were no proper grounds for alleging repudiatory breach and this was used as a way of removing MMT from the site. The judge held that although ICI had a contractual right to terminate, they had not properly exercised it in this case. They were therefore themselves in repudiatory breach of contract which was accepted by MMT.
As this was a split trial, the judge had to consider the status of overpayments made to MMT, assuming they could be shown at the quantum trial, and whether such overpayments could be recovered by ICI. Fraser J held that such overpayments could, in principle, be recovered. He considered that the accrued rights which ICI had under the contract included the right to recover overpayments made to MMT during the course of the contract.
Fraser J held that an interim valuation under Clause 50 did not constitute the final valuation of the work. The Project Manager was entitled to recover any overpayment in the next interim payment. He held that the payment provisions of the NEC3 contract were not designed to work in such a way that an Employer had no accrued right to recover overpayments until the next interim payment date. ICI therefore had a right to recover any overpayments paid following interim applications, notwithstanding the fact that the contract had been terminated.
Fraser J also held that while ICI were not entitled to recover any sums to complete the work, it would be inappropriate for MMT to be paid in full given that some of the welds were defective. This is an issue that will be considered in a future trial to deal with quantum. Furthermore, Jacobs J held that there was no factual basis for the allegation that MMT had wrongfully removed project documentation from the plant.
Justin Mort QC acted for the Defendant.