Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd, Court of Appeal - Technology and Construction Court, June 21, 2018, [2018] EWHC 1577 (TCC)

Resolution Date:June 21, 2018
Issuing Organization:Technology and Construction Court
Actores:Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd

Neutral Citation Number: [2018] EWHC 1577 (TCC)

Case No. HT-2015-000381




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 21 June 2018


The Honourable Mr Justice Fraser

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Martin Bowdery QC and Lucie Briggs (instructed by Clyde & Co. LLP) for the Claimant

Justin Mort QC and Robert Scrivener (instructed by Mills & Co.) for the Defendant

Hearing dates: 17, 18, 19, 23, 24, 25, 26 April 2018, 8 May 2018

Draft distributed to parties: 11 June 2018

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JUDGMENT (No. 2 QUANTUM)Mr Justice Fraser:

I Introduction

  1. This case concerns works performed by Merit Merrell Technology Ltd (``MMT'') for Imperial Chemical Industries Ltd (``ICI'') at a paint manufacturing facility in the North of England between the end of 2012 and into early 2015. MMT was a specialist engineering piping manufacturer, based in Cramlington in Northumberland. It is now in liquidation. On 18 December 2012 MMT and ICI entered into a contract, which was executed as a deed, for works associated with the construction of a new paint manufacturing facility for ICI at the manufacturing facility to which I have referred, which is located at Ashwood Business Park, Ashington, Northumberland (``the Plant''). The value of the works that it was intended, as at that date in 2012, that MMT would perform was quite modest, being only approximately £1.9 million in value. The works the subject of the contract to be performed by MMT were the manufacture, construction, installation, commissioning and handover of steelworks and free issue tank offloading and positioning works. These works were referred to informally during the trial as being those within the Steelworks Contract. No pipework was initially included in those works at all, although in the event 42,000m of such pipework was installed. ICI used to be a major FTSE100 company in its own right, and manufactured many items, including paint, with one of its most well-known brands being Dulux paints. In 2007 it was acquired by AkzoNobel, a Dutch multinational company, whose legal name is Akzo Nobel NV (``AkzoNobel''). ICI was absorbed into the AkzoNobel group as a result of the takeover, but remains a separate legal entity. It was ICI who contracted with MMT for the works. The project was called ``Project Fresco''. This judgment is in relation to the quantum disputes between the parties. My judgment on liability is at [2017] EWHC 1763 (TCC), and my judgment on costs in relation to that round of the proceedings is at [2017] EWHC 2269 (TCC). In addition to these judgments, there is one of Jefford J at [2016] EWHC 3082 (TCC) dealing with the adjournment of an earlier trial and the associated costs orders, together with another by the same judge on an adjudication enforcement at [2016] EWHC 3030 (TCC). The first judgment, however, in a long running series is a decision of Edwards-Stuart at [2015] EWHC 2915 (TCC), relating to an attempt by ICI to obtain an order for delivery up of documents. This judgment is therefore the sixth one in this long running series, and is in the following parts:

    Section Paragraph

    I Introduction 1

    II Disclosure 21

    III The issues 26

    IV The ability to revisit assessments under the 55

    NEC3 contract terms

    V The ability to revisit agreements reached with 70

    ICI personnel and the Project Manager

    VI The burden of proof 75

    VII The witnesses of fact 85

    VIII ICI's application to adduce new expert evidence 149

    and further points on disclosure

    IX The expert witnesses 165

    X Conclusion on expert evidence generally 233

    XI The Scott Schedule sub-issues 238

    XII Answer to Agreed Issue 1: The total value of MMT's works 352

    XIII The Counterclaim 357

    XIV Answer to Agreed Issue 2: The Counterclaim 422

    XV Answer to Agreed Issues 3 and 4: Interest 423

    XVI Conclusion 425

  2. ICI maintained in the application before Edwards-Stuart J in witness evidence from its solicitors that without those documents the Plant could not be operated, and further that the Health and Safety Executive would not permit ICI to operate the Plant. This latter point is dealt with at [61] and [62] of that judgment. The judge declined to make the order. The Plant did however operate thereafter. It can therefore be seen that this judgment is potentially the final element of some long running, and bitterly fought, litigation arising out of Project Fresco. In addition to the litigation, there have been four adjudications.

  3. For convenience I will provide a brief outline of the dispute in this introduction; however, for a detailed analysis of the liability issues and relevant findings the substantive judgment on liability should be read.

  4. The Plant was to produce almost 2 million litres of solvent borne, and water borne, paint products per week. Obviously, such works would require piping in very great quantities, and also in a variety of sizes, and these pipes are joined together by welds. This pipework was not however designed when the contract was agreed with MMT. These proceedings, so far as liability was concerned, essentially concerned the quality of the welds performed by MMT, together with a repudiation issue. The value of the works was also very much in issue, although for the purpose of resolving in the liability trial the legal issue about recovery of a potential overpayment I was asked to assume that ICI had overpaid MMT. All matters of quantum were to be dealt with at a later trial.

  5. By way of Project Manager's Instruction No.3 (``PMI03'') the works to be performed by MMT under the contract had been expanded very considerably. PMI03 was dated 5 February 2013, and predominantly concerned pipework, whereas the original contract was predominantly for steelwork. The PMI03 works were referred to informally as the works under the Pipeworks Contract, although that informal nomenclature does not mean that there were two entirely separate contracts. PMI03 instructed works under the existing contract and the NEC3 terms govern all of the works performed by MMT, whether those works were steelworks or pipework. There is a dispute about the total value of the works performed by MMT, but it is common ground that PMI03 increased their value very considerably, and as at the date of issue of the Claim Form in these proceedings MMT had been paid £20.9 million. Even on ICI's case MMT's works were worth approximately £10 million. Both of these sums are obviously far in excess of the originally contracted works of less than £2 million.

  6. Between 2012 and 2014 the works proceeded, with the only point of note for these purposes being that the project as a whole began to run substantially over the internal budget set by AkzoNobel, and to take longer than expected. Although ICI was a separate legal entity, all of the decisions that were made that are relevant to the period from the middle of 2014 onwards, were made by personnel at AkzoNobel, who controlled the funding, and who took over and ran the project. A committee within AkzoNobel called the Steering Committee or Steer Co had its own internally approved figure for total expenditure on Project Fresco, which was called CapEx (for Capital Expenditure). In the middle of 2014 the senior management of AkzoNobel decided that Project Fresco had to be finished, and overall expenditure had to be brought down below the approved CapEx figure. Accordingly, some AkzoNobel personnel were dispatched to the site for that sole purpose. By far the most important, and senior, of these for the purposes of this trial (and the earlier trial of liability issues in 2017) was Mr Boerboom. By December 2014 CapEx had been increased by AkzoNobel to £157.7 million, far higher than the figure initially approved by the board earlier in the life of the project. The fact that the cost was increasing so much was one of the main reasons (delay being the other) that the AkzoNobel team were sent to site, and became so involved. The AkzoNobel team were there to get the project back on track. CapEx formed no part of the contractual relations between ICI and MMT. However, given expenditure on the MMT contract (or more accurately, financial exposure by ICI to MMT) was very much higher than initially intended, something of a financial squeeze developed. The amount of CapEx still available to be spent overall, was not necessarily the same as the amount to which MMT was potentially entitled under its contract terms; nor was the amount of CapEx still available to be spent, necessarily sufficient for all the contractual liabilities ICI might have to MMT and the other contractors. These issues were addressed in the first judgment on liability. CapEx was what governed the AkzoNobel approach to MMT and its contract, and not MMT's contractual entitlement, nor the other contract terms.

  7. Mr Boerboom is a Director of Engineering Excellence for AkzoNobel Advanced Manufacturing Projects & Engineering based in Arnhem in the Netherlands. Project Fresco had commenced in January 2011 and was supposed to be fully operational by December 2014. Mr Boerboom was sent to the project in July 2014. The contract between ICI and MMT was on the NEC3 form as amended, which is a detailed standard form widely used in the industry and designed to have (as with so many contract forms) an independent third party involved. The Project Manager (the name in the NEC3 form for the entity that performs the independent third party certifier function under the contract) was a company called PROJEN. The relevant person at PROJEN was called Andy Barton. PROJEN was also involved in designing the works. In general terms, such an independent third party...

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