Construction Contracts: No implied obligation to get on with it

Transcription

1 BuildLaw - Issue 13 - No Implied Obligation to get on with it 1 Construction Contracts: No implied obligation to get on with it An issue that regularly crops-up in practice, but rarely before the courts, is whether a contractor is subject to an obligation to progress its works in a regular and diligent or similar manner, and if so what this actually means. In a judgment handed down on 21 December 2011, the TCC decided that a subcontractor was not under any implied obligation to proceed with its works regularly and diligently. The same is likely to be true for main contractors and others involved in construction projects. The Facts The case concerned a groundworks subcontract. The main contractor initially claimed that the subcontractor was obliged to perform its works in accordance with an Activity Schedule that set out activities and by when they were to be completed. The subcontractor, it was claimed, was late in the performance of its works as against the Activity Schedule, and the main contractor alleged that it suffered a loss due to the subcontractor s delay. The main contractor sought to withhold damages for delay from amounts otherwise due to the subcontractor. In a judgment handed down on 21 December 2011, the TCC decided that a subcontractor was not under any implied obligation to proceed with its works regularly and diligently. The same is likely to be true for main contractors and others involved in construction projects Later on, and before the TCC, the main contractor accepted that the Activity Schedule was not binding on the subcontractor. Nevertheless, it maintained that the subcontractor was subject to an implied obligation to proceed regularly and diligently with its works, and in this context that meant following the Activity Schedule. Because the subcontractor had not followed the Activity Schedule the argument went it had breached its implied duty to proceed regularly and diligently, and therefore it was liable to pay damages to the main contractor for its tardy performance.

2 BuildLaw - Issue 13 - No Implied Obligation to get on with it 2 The Court s Decision Mr Justice Coulson rejected the main contractor s arguments. In order for a term such as an obligation to proceed regularly and diligently to be implied into a contract, it must (among other things) be necessary to imply that term to make the contract work, from a business point of view. Here, there was no need to imply such a term, as the contract could still operate in a workable manner without the subcontractor being required to work in a regular and diligent manner. If, for example, the subcontractor was so irregular and lacking in diligence that it failed to complete its works by the stipulated date in the subcontract, the main contractor would be entitled to claim damages for late completion. The court s conclusion was fortified by the termination provisions of the subcontract, which permitted the main contractor to terminate the subcontract if the subcontractor failed to proceed with the works in a regular and diligent manner. This suggested that the parties had turned their minds to the issue of whether the subcontractor should be required to proceed regularly and diligently, and what consequences (if any) should flow from a lack of regularity and diligence. Although there was an express power to terminate the subcontract should the subcontractor fail to proceed regularly and diligently, this did not mean that the subcontractor was subject to an implied obligation to work in a regular and diligent manner, so that it would be liable to pay damages to the main contractor if it failed to do so. The main contractor s primary remedy for lack of regularity and diligence was the right to terminate the subcontract. If, for example, the subcontractor was so irregular and lacking in diligence that it failed to complete its works by the stipulated date in the subcontract, the main contractor would be entitled to claim damages for late completion. Comment This case is consistent with earlier decisions of the English courts to the effect that there is no generally implied obligation on a contractor, subcontractor or even sub-subcontractor to proceed regularly and diligently with its works. It is for this reason that contracts, such as the JCT forms, state expressly that the contractor is under such an obligation, and it will be liable if it does not proceed in a regular and

3 BuildLaw - Issue 13 - No Implied Obligation to get on with it 3 diligent manner. A complementary or even separate measure is for a contract to require the contractor to work to a particular programme, so that if the contractor is running late in certain activities on its programme it may be obligated to pay damages to the employer for any loss occasioned by it being late, or it may be instructed to accelerate. Interestingly, despite the NEC3 form requiring the contractor to submit a programme for acceptance, NEC3 does not in terms require the contractor to perform its works in accordance with its accepted programme. Nor does NEC3 impose any general obligation on the contractor to work in a regular and diligent manner, or equivalent. This may necessitate amendments to the NEC3 form, when used. The message that this case delivers is clear. Unless a contract expressly requires a contractor to perform its works in a regular and diligent manner (or similar), or it requires the contractor to work to a particular programme, the contractor may perform its works in almost as spasmodic a manner as it chooses provided it completes those works by the particular date for completion. The message that this case delivers is clear. Unless a contract expressly requires a contractor to perform its works in a regular and diligent manner (or similar), or it requires the contractor to work to a particular programme, the contractor may perform its works in almost as spasmodic a manner as it chooses provided it completes those works by the particular date for completion. Reference: Leander Construction Ltd v Mulalley & Co Ltd [2011] EWHC 3449 (TCC) (for a copy of the decision go to the resources section of the Building Disputes Tribunal website)

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5 BuildLaw - Issue 13 - No Implied Obligation to get on with it 5 CONTRIBUTIONS: Contributions to BuildLaw are welcome. BuildLaw is published four times a year in March, June, September and December. Readers are invited to submit material to be considered for publication by to the editor at editor@buildingdisputestribunal.co.nz. Contributions may consist of articles, case notes, book reviews, news of forthcoming events and other matters of interest to readers. Contributors are entirely responsible for the accuracy of case names and citations, quotations and other references, spelling etc. All contributions should be in final form and in word format. DISCLAIMER: BuildLaw is published by Building Disputes Tribunal. BuildLaw is a newsletter and does not purport to provide a comprehensive analysis of the subjects covered or to constitute legal advice. BuildLaw is intended to promote and engender discussion, debate, and consideration of all matters in relation to the development and application of construction law, the resolution of building and construction disputes, and the processes that are used for the resolution of those disputes. Articles, commentaries and opinions are intended to raise questions rather than to be emphatic statements on the subjects covered and the views expressed are the views of the author and are not necessarily those of the directors, servants and agents of the Tribunal. Information published is not guaranteed to be correct, current or comprehensive and the Tribunal accepts no responsibility for the accuracy of any information published in BuildLaw and no person should act in reliance on any statement or information contained in BuildLaw. Readers are specifically advised that specialist legal advice should be sought in relation to all matters in relation to, or in connection with, the subjects covered and articles published in BuildLaw. COPYRIGHT: This issue of BuildLaw and all material and information contained herein are subject to the full protection given by the Copyright Act In many cases the copyright of individual articles remains the property of the author and articles and commentaries should not be reproduced without first obtaining the express authorisation of the relevant third party copyright owner concerned. If you are in any doubt as to whether a proposed use is covered by this licence please consult the Editor. Building Disputes Tribunal (NZ) Limited. All rights reserved BuildLaw : Reaches you first with the construction law news you need to know Gives you access to important judgments when they are delivered Gives you expert commentary and analysis of key legal developments and issues affecting your business Explains complex issues clearly and simply