REUTERS | Tim Wimborne

When litigation “stands as something of an advertisement for adjudication”

Last summer I wrote about Fraser J’s “89-page opus” in Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd (or ICI v MMT). This week, my attention turns to his latest 95-page opus between the same parties. Last year the judgment was all about liability (which MMT won). This time, it was all about the numbers (which MMT won again). Jonathan also looked at the expert evidence points last time around, and may well do so again given some of the choice remarks, particularly about ICI’s quantum experts!

The judgment raises some interesting points, not least one of Fraser J’s final remarks (which you may notice I’ve borrowed for my title):

“This litigation also stands as something of an advertisement for adjudication.”

Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd

As I said last time, the parties’ dispute followed works at ICI’s new paint processing plant in Ashington, Northumberland. The issues included the correct contractual specification for pipework testing, the extent of alleged defects in the pipework, termination under an NEC3 Engineering and Construction Contract (ECC) and whether ICI or MMT was in repudiatory breach of contract.

Last summer, Fraser J decided that the employer (ICI) was in repudiatory breach of the contract when it dismissed the contractor (MMT) from the site alleging widespread defects in its work. This year, he determined that a balance of over £2.1 million is due to the contractor. One thing that Fraser J highlighted is how close to the earlier adjudicators’ decisions this finding was:

“… barely 1% more than the amount awarded to MMT in the adjudications.”

I did a rough calculation. If the adjudicators awarded MMT approximately £8.7 million between them (plus interest and VAT), the parties were fighting over something in the region of £87,000. Even if you add in interest and VAT, you barely get to six figures. I’ll leave you to decide whether it was worth it.

“Adjudication has a considerable number of advantages”

I’ve always thought that adjudication has a lot of advantages over court litigation and you can see why the industry has adopted it as the default forum for its disputes (and not just because Parliament told them they had to use it). Fraser J summed them up:

“… the decision on the dispute is made by someone who is impartial; the decision is reached very quickly; it is therefore far cheaper than complex litigation; and it is only binding in an interim way.”

 

Fraser J also explained what you aren’t supposed to do:

“That a party such as ICI can hold the commencement of adjudication proceedings by a contractor, against that contractor in the manner which occurred in this case, is highly regrettable. It is to penalise a company for taking advantage of its legal rights, those legal rights having been made specifically available to that company by Parliament, and made available in order to avoid the very kind of scenario that occurred in this case. It was also in this case a considerable penalty; MMT were ejected, without justification, from a significant and high profile project.”

However, he wasn’t prepared to go so far as to make a finding that this behaviour amounted to bad faith:

“I have made sufficient findings against ICI, both in the liability judgment and in this one, to make it clear that I take an extraordinarily dim view of its conduct of the project with MMT, and certain aspects of its conduct of the litigation. In my judgment, it paints the board members of both ICI and AkzoNobel in a dim light that such behaviour was not only tolerated, but so far as the Steer Co approach to MMT in 2014 and 2015 is concerned, positively initiated.”

Over the years, the parties experienced four adjudications:

  • The first adjudicator decided that the contractor was entitled to just under £8 million plus VAT on its interim application for payment 22 (IA 22) because no pay less notice was served. I discussed this one when it came before the court on enforcement, albeit my focus was on who the adjudicator nominating body (ANB) was.
  • In the second adjudication, the adjudicator dealt with documents that the employer was seeking from the contractor following termination of the contractor’s employment. The third adjudicator also addressed issues arising on the termination.
  • The fourth adjudicator addressed the sum due under IA 23, and awarded the contractor £816,000. Again, no pay less notice had been served and (again) the case ended up in court on enforcement.

The last adjudication was concluded in September 2016, which has left a period of over 18 months during which the parties have been preparing for and participating in the two trials before Fraser J. It’s no wonder the “expenditure of legal and experts’ fees” can be “measured in millions of pounds”. It has been an especially expensive affair for ICI too, as it was ordered to pay 95% of MMT’s costs of the liability trial on an indemnity basis. Given the tone of Fraser J’s quantum judgment, it wouldn’t surprise me if we see a similar outcome following this hearing.

It all raises the question of when it ceases to be worth fighting over a point of principle. Perhaps the real skill in all of this is knowing when to stop, to let something go. To realise that adjudication only works as part of an overall dispute resolution strategy if you are able to say no, enough is enough, I am going to draw a line in the sand and walk away.

 

 

MCMS Ltd Matt Molloy

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