Some standard form contracts include the express obligation that the contractor must proceed “regularly and diligently” with the works. What does this obligation entail?
How quickly or otherwise a contractor must carry out his works. For example can he start slowly, provided he catches up towards the end of the project and completes by the date for practical completion? This is important, particularly in the current economic climate, when both parties to a contract will keep a close eye on performance and cost, with some employers quick to allege delay.
Many standard form contracts get round this by including an express obligation that the contractor must proceed “regularly and diligently” with his works. But in the absence of such an express clause, can the employer say one should be implied? If such a term is implied, it enables the employer to allege delay if he thinks the contractor is not proceeding quickly enough (and so claim damages).
The court's decision
This issue came before the courts just before Christmas 2011 in the case of Leander Construction Limited v Mulalley and Company Ltd [2011] EWHC 3449 (TCC). The contract in question was based on the contractor’s own standard terms (the contractor here being effectively the employer to the subcontractor). Those standard terms included a clause which enabled the contractor to terminate the subcontractor’s employment under the contract if he failed to proceed regularly and diligently with his works.
The contractor withheld about £131,000 from the monies otherwise due to the subcontractor – a large sum to a subcontractor. The ground for withholding was that the subcontractor had failed to proceed regularly and diligently with his works. The date for practical completion had not yet been reached, so it could not be argued that the subcontractor had failed to achieve practical completion (and so LADs were not in issue). The assumption was that there was an implied term of the contract by which the subcontractor had to proceed regularly and diligently with his works, which if breached would entitle the contractor to damages for that breach of contract.
The subcontractor cried foul, stating that there was no such implied term in the contract. Unsurprisingly the matter ended up in court. The subcontractor sought a declaration from the judge that there was no implied term in his contract such that he had to proceed regularly and diligently with his works.
The judge reviewed the case law on this issue, and looked at the terms of the contract between the parties. Despite there being an express clause in the contract that the contractor could terminate for a failure by the subcontractor to proceed regularly and diligently, the judge held this did not give rise to an implied clause that the contractor could claim damages (and therefore withhold payment) if the subcontractor failed to proceed regularly and diligently. Nor was there any need to imply such a term to make the contract work. As a result, the court found that the monies had been unlawfully withheld from the subcontractor, and had to be released. The contractor could still terminate for a failure to proceed regularly and diligently, but he could not withhold money because of it.
The impact of this case for contractors
This decision will be welcome news for those contracting on another’s terms and conditions in relation to how they are meant to proceed with their works, where there is no such express clause. From the employer’s perspective, it highlights the importance of making sure your terms and conditions are carefully drafted so they have the effect you want them to have. Relying on implied terms is a risky business, as this case showed.
