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Employer and Project Manager One and the Same – a Breach of Contract

26 July 2018

A project manager’s independence is often a sensitive subject for contractors and even more so where an employer appoints a project manager from within its organization (including from either its subsidiaries or its parent company).

In the case of Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd[1] the Technology and Construction Court of England and Wales provides some guidance on the legitimacy of doing so.

Imperial Chemical Industries LTD (“ICI”) and Merit Merrell Technology Ltd (“MMT”) entered into a NEC3 Engineering and Construction Contract for works associated with the construction of a new paint manufacturing facility for ICI. The independent Project Manager appointed under the contract was Projen, who subsequently resigned. Thereafter, ICI appointed Mr Boerboom, an employee of its parent company AkzoNobel, as Project Manager. Mr Boerboom came into the project towards the end of its completion with the obvious task of reducing the cost.[2] Mr Boerboom chose to achieve this outcome by revisiting almost everything that MMT had done and paying no attention to the contract and legal rights of MMT.[3] At about the same time Mr Boerboom was appointed, ICI simply stopped paying MMT.[4] It became clear that Mr Boerboom had made the decision that no more payments would be made to MMT and the reasons to justify this were then searched for.[5] MMT challenged the validity of the replacement Project Manager.

NEC3 makes provision for a third-party entity to act as Project Manager. One of the duties of the Project Manager is to act as decision-maker on matters where the contractor and the employer have opposing interests.[6]

In determining the validity of the replacement Project Manager, Justice Fraser considered the cases of Balfour Beatty Civil Engineering Ltd. v. Docklands Light Railway Ltd[7] and Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd.[8]

It is extremely unusual and rare for the employer under any construction contract to also be the decision-maker. In the Balfour Beatty case, the contract contained an express term that the employer should be the certifier. The Court of Appeal clearly had misgivings about the contract but gave effect to its express terms.

Relying on the Scheldebouw case, Justice Fraser held, “It is contrary to the whole way in which the contractual mechanism is structured, and intended to work, to have the employer seek to appoint itself (or one of its employees, or an employee of its parent) as the decision maker…the whole structure of the contract is built upon the premise that the employer and the decision maker are separate entities and endless anomalies arise if the employer and the decision maker become one and the same….Such a situation is so unusual that an express term is required.”[9]

Justice Fraser held further that although Mr Boerboom was formally employed by AkzoNobel and not ICI, AkzoNobel is the parent company of ICI and thus he was the very opposite of independent.[10]

Justice Fraser concluded that no proper appointment was made of a replacement Project Manager and that the purported appointment of Mr Boerboom as the replacement was a breach of contract.[11]

The matter between ICI and MMT is very specific in that the Project Manager started off independent at the time of entering into the contract and towards completion of the works, ICI purported to replace the independent Project Manager with one of its own. The more familiar situation faced by contractors in South Africa is where the contractor is aware from the outset that the Project Manager is employed by the employer or one of its associated entities. The Scheldebouw case indicates that where the Project Manager is a direct employee of the employer and this circumstance was known to the contractor at the outset and the contractor went into such contract with “his eyes open”, the contractor cannot then challenge the independence of the Project Manager on the basis that he/she is an employee of the employer.[12]

  1. [2017] EWHC 1763 (TCC) (12 July 2017).
  2. Para 41.
  3. Para 41.
  4. Para 110.
  5. Para 113.
  6. Para 128.
  7. [1996] 78 B.L.R. 42.
  8. [2006] EWHC 89 (TCC) (16 January 2006).
  9. Para 134-135.
  10. Para 135.
  11. Para 139.
  12. Para 45.

Author: Kelly Stannard, Associate