Blog: Compensation events - the final word?



The recent decision in ICI v Merit Merrell Technology is the latest in a series of decisions in the dispute – described by Mr Justice Fraser as ‘long-running, and bitterly fought’ – relating to steelworks to be carried out by MMT at a new paint manufacturing facility for ICI in Northumberland, write David Arnott and Sara Lannigan.

The contract between the parties was an NEC3 (Option A) with additional Z clauses.

In this latest judgment the court looked at the legal status of a project manager’s assessment of a compensation event and of agreements reached between the contractor and a project manager regarding the value of compensation events.

The question for the court was: is it competent for the employer to challenge assessments or agreements?

MMT argued that, under the contract terms, the court does not have power to revisit assessments made by the project manager. Where the project manager has reached an agreement with the contractor he has done so in his role as agent for the employer, and it is not then open to the employer to renege on that agreement.

With regards to the opening up of assessments or agreements MMT argued on the basis that the contract states that an assessment of a CE is not revised if a forecast on which it is based is later shown to be wrong, and therefore this had the effect that a compensation event which has been assessed cannot be revisited. MMT also argued that, where an assessment had been agreed, ICI were “estopped” or personally barred from challenging that position.

Regarding the project manager’s assessments, the court rejected this analysis and pointed to the terms of the dispute resolution provisions in the contract which empower an adjudicator to “review and revise any action or inaction of the project manager”. The court found that although the scope and extent of an adjudicator’s powers are not determinative of jurisdiction the court certainly cannot have less power than an adjudicator’s.

Regarding agreements reached between the contractor and the project manager, the court found that this was a question not only of law but of evidence. The court required to consider each agreement to determine whether the parties had intended the agreed position between them to be the final position or an interim position meantime.

This case offers some useful guidance for challenging compensation events, providing assurances that a project manager’s assessment can be revisited by dispute resolution. There is also a note of caution; where a compensation event has been resolved by agreement between the parties and the agreement is intended to be the final position on the matter; the court is likely to uphold that agreement.

David Arnott is a partner and Sara Lannigan an associate at Brodies LLP

Tags: Brodies



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