The TCC in England recently considered whether a term requiring a subcontractor to proceed regularly and diligently with their contract works could be implied into a construction contract (Leander Construction Limited v Mulalley & Company Limited, December 2011).

The Facts

Leander was the groundworks subcontractor at a site in Lewisham. Mulalley, the main contractor, issued two withholding notices meaning that no sums were due to Leander for work carried out. 

The contract itself identified a commencement date, a subcontract period and a completion date. There were no contractual terms regarding interim performance, milestones or sectional completion dates. 

The basis on which the notices was issued was a claim that Leander were obliged, but failed, to carry out the sub-contract works in accordance with the programme dates and periods set out in the Activity Schedule. This was a subcontract document, but the dates within it were accepted not to be contractually binding because of a note in the Schedule which said "all of the dates below are indicative dates only and are subject to change..."  However, Mulalley argued that Leander had an implied obligation to proceed regularly and diligently with the works and the Activity Schedule was the best way to measure whether or not they had complied with that term. 

Leander challenged the validity of the withholding notices, arguing that there was no such implied term.

The Law

The Judge recapped on the tests for implying a term into a contract, namely that, to be implied, a term must be:

  • reasonable and equitable
  • necessary to give business efficacy to the contract
  • so obvious that it goes without saying
  • capable of clear expression, and
  • not contradictory to any express term of the contract.

The Decision

The Judge refused to imply the term into the contract, which was in line with the Courts' usual reluctance to imply additional terms as to timing of the contractor's performance prior to the contract completion date.  It was said that Mulalley's attempt to demonstrate the need for the alleged implied term as a matter of business efficacy was an "ambitious undertaking". The contract worked perfectly well without the term.

The Court recognised that failure to proceed regularly and diligently was a ground for termination in the contract. The consequences of failing to proceed regularly and diligently were, in terms of the contract, the potential for a notice of termination, followed by termination in the absence of action to improve progress. There was no separate and stand alone obligation to proceed in that manner which could result in damages for breach of contract in the event of failure.

Further, the contract had detailed delay and extension of time provisions. These were all linked to the contract completion date and not to any interim dates or progress. If the term was implied as suggested, it would introduce damages for delay linked to numerous completion dates for individual activities and cut across the express terms, totally changing Leander's contractual obligations.

It was reiterated that, in general, the Courts are slow to imply terms into a contract, particularly where there are already detailed terms and conditions.

Commentary

It is clear then that if terms as to interim progress are to form part of a contract they have to be expressed as a positive obligation, either in the form of sectional completion or contractually binding milestone dates.

The more general point is that if a term is desired in a contract, it should be expressly stated, since establishing an implied term to plug the gap later will be difficult.

© MacRoberts 2012

Disclaimer

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.