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Delay, implied terms, sub-contracts in construction

Citation: Leander Construction Limited v Mulalley & Co Limited [2011] EWHC 3449 (TCC)

Keywords: Delay, Implied Terms, Sub-Contracts

The Facts

Leander was engaged to carry out groundworks, drainage, concrete framework and associated works for Mulalley at a development site in Lewisham.  Mulalley valued a sum due of £131,078.12 to Leander but withheld the amount as a result of issuing two withholding notices.  Leander challenged the validity of the withholding notices by Part 8 proceedings.  The withholding notices were predicated on the basis that Leander was obliged to carry out the works in accordance with the programme dates/periods set out in an Activity Schedule.  Leander’s position was that the Activity Schedule was not valid and had no contractual force.  The Activity Schedule was subsequently accepted as not binding by Mulalley.   Mulalley put forward an alternative argument that the Activity Schedule represented the best way to measure progress to assess whether or not Leander had complied with the implied obligation to proceed regularly and diligently with the works.

Held (Coulson J)

For a term to implied, Coulson J referred to the case of BP Refinery (Westernport) Pty Limited v Shire of Hastings [1978] 52 ALJR 20 which set out the following conditions as the courts are slow to imply terms into a contract:

  1. it must be reasonable and equitable;
  2. it must be necessary to give business efficacy to the contract, so that no term will be implied if  the contract is effective without it;
  3. it must be so obvious that ‘it goes without saying’;
  4. it must be capable of clear expression;
  5. it must not contradict any express term of the contract.

In relation to the term ‘proceeding regularly and diligently, Coulson J found solace in GLC v Cleveland Bridge(1984) 34 BLR 50 where the courts have been reluctant to imply additional terms as to the contractor’s performance prior to the contract completion date. A contractor is entitled to plan and perform the work as he pleases, notwithstanding express provisions to the contrary.  Mulalley failed to demonstrate the need for an implied term as a matter of business efficacy. A termination clause was provided in the contract, so the implied term if permitted would conflict with clauses relating to delay and extensions of time. The contract provided for one completion date and was not broken down into separate phases.  The completion date was still in the future when the withholding notices were issued.  Withholding notices were invalid as they were based on a non-existent implied term. Mulalley sought the implied term to claim unliquidated damages for interim delay. This was not necessary as the contract worked satisfactorily without it and would have been contrary to the general run of authorities.