Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd

JurisdictionEngland & Wales
JudgeMr Justice Fraser,MR JUSTICE FRASER
Judgment Date12 July 2017
Neutral Citation[2017] EWHC 1763 (TCC)
Docket NumberCase No: HT-2015-000381
CourtQueen's Bench Division (Technology and Construction Court)
Date12 July 2017

[2017] EWHC 1763 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Fraser

Case No: HT-2015-000381

Between:
Imperial Chemical Industries Limited
Claimant
and
Merit Merrell Technology Limited
Defendant

Martin Bowdery QC (instructed by Clyde & Co.) for the Claimant

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

Hearing date: 2, 3, 4, 8, 10, 11, 15 & 24 May 2017

Draft Judgment provided to parties on 28 June 2017

JUDGMENT APPROVED

Mr Justice Fraser
1

The Claimant in these proceedings is Imperial Chemical Industries Ltd ("ICI"). ICI used to be a major FTSE100 plc in its own right, and during the twentieth century was involved in chemicals, paint, fabrics and associated businesses. One of its most well-known brands was Dulux paints. In 2007 it was acquired by AkzoNobel, a Dutch multinational company, whose legal name is Akzo Nobel NV. ICI was absorbed into the AkzoNobel group, and divested itself of certain of its operations to satisfy competition concerns. ICI however remains a separate legal entity and it was ICI who contracted with the Defendant, Merit Merrell Technology Ltd ("MMT") for the works that are the subject of these proceedings. This judgment is in the following parts.

Introduction

Paragraph number

Introduction

2

The Agreed Issues

9

Procedural background including history of adjudications

10

Disclosure

21

Evidence of fact

29

Expert evidence

60

Material Terms of the Contract

87

The concession on radiography

103

Relations between ICI and MMT

105

Project Manager including consideration of the legal principles

127

The autumn of 2014

141

Breaches alleged against MMT and defective work

161

Other findings relevant to Issue 4

170

Repudiation including consideration of the legal principles

181

Recovery by ICI of over-payments made to MMT including consideration of the legal principles

192

Cost of remedying defects

226

Supply of documents by MMT to ICI

231

Answers to Agreed Issues

260

2

This introduction is a high-level summary of the litigation. MMT is a specialist engineering piping manufacturer, based in Cramlington in Northumberland. 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 AshwoodBusinessPark, Ashington, Northumberland ("the Plant"). The value of the works that it was intended as at that date by the parties that MMT would perform was quite modest in relative terms, being approximately £1.9 million in value. The works the subject of the contract to be done by MMT were the manufacture, construction, installation, commissioning and handover of steelworks and free issue tank offloading and positioning works.

3

The Plant was to produce almost 2 million litres of solvent borne, and water borne, paint products per week. AkzoNobel referred to the project as "Fresco". 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. These proceedings essentially concern the quality of the welds performed by MMT. By way of Project Manager's Instruction No.3 ("PMI03") the works to be performed by MMT under the contract were expanded very considerably. PMI03 was dated 5 February 2013. 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.

4

PMI03 therefore was an instruction which had a dramatic effect upon the scope of the contract works. These works proceeded without any particularly notable problems throughout 2013 and until about August 2014. At about that time, the original personnel involved for ICI either left the project or were removed from it, and were replaced by personnel who came to the UK from AkzoNobel. I deal with this point further in the section below "Relations between ICI and MMT". This change of personnel came when the whole project was very substantially over budget and in delay. The AkzoNobel team took a very different approach to the project, and to MMT, than the ICI team that they replaced. Most of the major decisions concerning the project were taken by the AkzoNobel Steering Committee, a senior management decision making body including directors, which was given the short title "Steer Co". The steering committee relevant to this project is therefore sometimes referred to as "Fresco Steer Co". So far as Steer Co was concerned, there was a finite amount of funding available for the whole of Project Fresco and it would be completed within that figure. There was a mechanism available to Steer Co to have that figure increased by the board of AkzoNobel, but unless it was, that figure was a maximum upper limit for expenditure. The figure took account of expenditure on all the contracts which ICI had entered into in relation to the project. This figure was called Capex, short for Capital Expenditure. By December 2014 Capex had been increased to £157.7 million, far higher than the one initially approved by the board earlier in the life of the project. The fact that the figure had been increased was one of the main reasons (the 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 to put it another way, financial exposure by ICI to MMT) was very much higher than initially intended (predominantly due to PMI03) 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 might be entitled under its contract terms, nor was the amount of Capex still available necessarily sufficient for all the contractual liabilities ICI might have to MMT and other contractors. It is not necessary to make any precise findings about this, but it forms part of the background and puts everything that occurred in overall context.

5

MMT found that from October 2014 onwards no further payments were made to it. On 16 October 2014, an instruction to stop all welding was issued to MMT. Defects were alleged against MMT by the AkzoNobel team, and the senior management of MMT were involved with some senior personnel from AkzoNobel in attempting to agree a resolution. The independent Project Manager appointed under the contract, PROJEN, resigned. MMT's explanation – and this is supported to a certain extent by some of the documents obtained on disclosure – for everything that happened is that certain people at AkzoNobel decided to push MMT into insolvency. This was considered in order to achieve a more cost effective outcome for AkzoNobel than would otherwise be the case on this project. ICI's explanation for what occurred in the autumn of 2014, running into early 2015, is that the work MMT had performed was of quite dreadful quality – one witness spoke of "the worse welding I had ever seen" – and MMT were said to be unable and/or unwilling to resolve such issues. That analysis of the welding quality is advanced by ICI relying upon both evidence of fact and also expert evidence. The allegations by ICI of such widespread defects is challenged strenuously by MMT.

6

Although welding was restarted by MMT upon instruction from ICI in January 2015 for isolated parts of the works called the ammonia or pigging line, AkzoNobel remained unhappy. By a letter dated 17 February 2015, ICI on AkzoNobel branded notepaper wrote a letter to MMT accepting what was said in that letter to be the repudiation of the contract by MMT, and thereby terminated MMT's employment under the contract. MMT's solicitors, Mills & Co, in a letter of the same date, replied on MMT's behalf and disputed the factual and legal basis upon which that action had been based, and itself raised the issue of repudiation by ICI. It was also said in that letter of reply to be "ridiculous" to assert a repudiatory breach by MMT when the majority of welding work had been formally suspended months earlier. This is therefore a classic "who repudiated the contract?" scenario, although there are contractual complexities involved too, as ICI also rely upon what is said to be a valid contractual termination.

7

The effect upon MMT's business, and its commercial viability, of the events between August 2014 and February 2015 have been very profound. A number of adjudications have taken place between these parties on this contract, and in the first one a payment of approximately £7 million was ordered to be paid by the adjudicator to MMT, which was the amount of the interim payment applied for by MMT in November 2014. However, the delay in receipt between November 2014 and March 2015 (when, following the adjudicator's decision and issue of court proceedings by MMT, it was paid by ICI) of such a substantial sum meant that MMT's bank had lost confidence in it, and without notice removed all of its lending facilities the very day that the sum was received by MMT. In early 2017, MMT went into creditors' voluntary liquidation. The liquidator is funding the litigation and no issue arose as to whether the discretionary stay of proceedings should be imposed. Both parties wanted the litigation to continue to reach a resolution of what has been, thus far, an intractable...

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