Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [Part 1]

[2017] EWHC 1763 (TCC)

ICI engaged MMT to carry out the manufacture, construction, installation and commissioning of steelworks at a new paint factory. The contract was an amended NEC3.  The original contract value was £1.9 million; as at the date of issue of the Claim Form, MMT had been paid £20.9 million. A number of issues arose over the quality of the welding and whether it was defective or not.

What is a defect? Clause 11.2 (5) defined Defect as including:

“A part of the Works which is not in accordance with the Works Information…”

Clause 40.4 states:

“If a test of inspection shows that any work has a Defect, the Contractor corrects the Defect and the test or inspection is repeated.”

One of the key issues during the course of the litigation was the testing regime that MMT were required to comply with. The minutes of the post-tender meeting noted that visual inspection and 10% dye penetration were to be used and not radiography. Radiography was more expensive but was a more stringent testing regime. The experts agreed that a great many of what are described as “defects” in the welds can only be detected using radiography. The Judge was clear that this welding and inspection regime established by MMT prior to the commencement of the works was approved by ICI, and the Project Manager, before any physical welding commenced. However, ICI maintained until the end of the liability trial that MMT was in breach of its contractual obligation by failing to perform such radiography.

The agreed testing regime meant that it was not possible to identify all the types of defect listed in the relevant British Standard. However, that was a direct consequence of the express agreement of the parties. ICI suggested that MMT should be held liable for welds contrary to those listed in Table 5 of the British Standard, even though it was agreed that radiography should not be a part of the testing regime contracted for by the parties. The Judge disagreed, saying that to hold MMT to a higher standard in terms of the quality of work required when ICI had expressly declined to contract with MMT for the radiographic testing necessary to be able to detect and assess compliance would be to re-write entirely the bargain struck by the parties in 2013. The Judge said:

“It is illogical to consider something a defect for the purposes of the contract between ICI and MMT if the particular inspection method agreed between MMT and ICI is not fully effective for finding and assessing that flaw type. Defect is defined in the NEC3 contract terms as a part of the works not in accordance with the Works Information. Table 5 cannot, on any view, have formed part of the Works Information, Specification or any other contract document if the parties agreed that radiographic testing would not be done.”

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