Challenging valuations in litigation: Imperial Chemical Industries Ltd. v Merit Merrell Technology Ltd. [2018] EWHC 1577 (TCC)

The judgment of the Hon. Mr Justice Fraser in ICI v MMT, dated the 21 June 2018, is (almost certainly) the end of an extraordinarily protracted case ...

…that has resulted in 6 judgments from the High Court and 4 adjudications – and dealt with the quantum issues arising from Fraser J.’s earlier decision on liability (See [2017] EWHC 1763 (TCC)).

Much of the long decision is devoted to an excoriating assessment of the credibility and honesty of the witnesses of fact who appeared for ICI at both the liability hearing and the quantum hearing as well as that party’s expert evidence. Overall, the judgment stands as a testament as to how not to conduct litigation before the TCC and should therefore be required reading for all litigators in the field and that any party wilfully choosing to ignore the findings of fact in a judgment on liability (as ICI did in this case) – to the extent that its principle witness’s approach to the previously determined facts was described as “reprehensible” [92] – have only got themselves to blame if the subsequent quantum hearing proves to be something of a challenge.

However, alongside the specific evidential issues the decision in ICI v MMT does bring into focus a number of important legal principles concerning the later revaluation of interim and final certificates / agreed sums. An issue that is of particular importance since the court clarified a party’s right to seek an adjudication on a “true value” basis of interim and final certificates: See Grove Developments Ltd. v S&T (UK) Ltd. [2018] EWHC 123 (TCC) and Henry Boot Construction Ltd. Alstom Combined Cycles Ltd. [2005] 1 WLR 3850. And, if an adjudicator can reopen such certificates then it is axiomatic that the Court cannot have less power than the adjudicator to do so.

ICI v MMT had contracted for various works at a paint production facility under the terms of an amended NEC3 contract – initially the works to be carried out were for the sum of £1.9 million. However, the scope of the works required rapidly expanded and MMT eventually sought payment of around £20 million. This liability to MMT inevitably pushed up the capital expenditure (CapEx) figure for the project far beyond that which AkzoNobel (ICI’s parent company) wished to pay for plant and as Fraser J. explained: “CapEx was what governed the AkzoNobel approach to MMT and its contract, and not MMT’s contractual entitlement, nor the other contract terms.” [6].

Consequently, it was clear from mid-2014 that AkzoNobel / ICI had not the slightest intention of paying the sums sought by MMT and the any valuation of MMT’s works were to be manipulated down, preferably to nothing, with the underlying intention of driving MMT into liquidation (something that was achieved – albeit not without the assistance of the Bank of Scotland).

In order to achieve its objective ICI (wrongfully) repudiated the contract by replacing the independent NEC3 project manager with a stooge from AkzoNobel, who was quite prepared to adjust down, quite arbitrarily, any sum that might be payable to MMT and was self-evidently not someone who could act as an independent project manager under an NEC3 contract. Once the matter become a subject of litigation the approach from ICI was to counterclaim for allegedly defective works – a counterclaim that was dismissed, almost to vanishing point, at the trial on liability (only 3.7% of a £5 million-pound claim was awarded) – as well as allege that MTT had been overpaid for the works by a little over £10 million pounds.

Having determined the question of liability in favour of MMT in the earlier proceedings the court then had to turn to the very thorny issue of quantum. One of the critical questions then for the court in the quantum hearing was to determine whether – and the extent to which – the sums previously determined to be payable to MMT could now be challenged: made up as they were of sums that had been specifically agreed (by ICI / MMT and the original project manager) to be paid for particular items of works (the PMIs – Project Manager Instructions),  together with sums certified for payment for works originally agreed to be carried out under the terms of the NEC3 contract. Sums that had formed the basis for the £9.7 million-pound adjudication award obtained by MMT, which ICI was seeking to reclaim by way of its allegation that MMT had been overpaid for the works by a little over £10 million pounds.

Fraser J. considered the right to challenge the sums certified by the independent project manager and the PMI sums as raising distinct issues legal / evidential issues.

The critical conclusions that Fraser J.’s then drew were as follows:

  1. Challenges to sums certified by an independent project manager for works actually carried out are subject to later review either in adjudication or by the court to determine the “true” value of the works – Grove Developments and Henry Boot [66] and s.108 of the HGCRA 1996 – there being nothing in the NEC3 contract making the project manager’s assessment final [67].
  2. The existence of such an independent valuation of the works in question will carry “…. powerful evidential weight” [69] when those sums are challenged in any later proceedings.
  3. Challenges to specific sums previously agreed by the employer and project manager to be paid to the contractor for particular item of work might, as a matter of legal principle, be subject to revaluation – but only in very limited legal / evidential circumstances (and certainly not in the circumstances of the present case).
  4. Whether sums agreed to be paid for particular items of works are reviewable does not arise out of the NEC3 contract but as a matter of first principles [72]. They stand as a binding agreement intended to determine finally the rights of the parties [73]. Even if that were not the case (on the facts) it would require good reason and evidence to justify any later revaluation of the “agreed” sum [74].
  5. Furthermore, the evidential burden of displacing the earlier agreed sum or valuation falls on the party seeking to challenge it – as opposed to any burden falling on the party who has had the benefit of the sum or valuation to justify why they should be entitled to retain it [75] to [84].

As such, whilst the option for revaluations of previously certified sums will always be available – any such claim will be only be successful where the party seeking to can displace the previously awarded / agreed sum. And that will be no easy task. Where the claim is for the valuation of a specifically agreed sum (i.e. agreed between employer and independent project manager) then the task will be close to impossible, without very cogent evidence that the parties did not intend the agreed sum to be final.

It is also worth reiterating Fraser J.’s closing comments – that reflect a degree of despair as to the sums spent on this litigation when compared to the overall effect the judicial proceedings had on the decisions reached in the earlier adjudications:

“….. This litigation also stands as something of an advertisement for adjudication. The amount of thee MMT account for the works, finally determined after the expenditure of legal and expert’s fees measured in millions of pounds, is barely 1% more than the amount awarded to MMT in the adjudications. The issue of who repudiated the contract was resolved in the litigation in the liability judgment with the same result as that given by the adjudicator in the 3rd adjudication. The only outstanding matters are now interest and costs. I will refrain from expressing the naïve hope that these matters might, perhaps, be agreed.” [428].


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