Grasp the implications

Legal
You might think that the contract makes certain requirements obvious, but if they are not clearly and expressly stated you may not be able to rely on them, says Stacy Sinclair

Is a contractor legally obliged to proceed regularly and diligently with his works? If so, why should this have any impact on architects?

The recent case of Leander Construction Ltd v Mulalley and Company Ltd sets out the law in relation to implied terms requiring a party to proceed regularly and diligently. It is a reminder for all contract administrators to closely review the terms and conditions of the building contract – as failure to do so could result in a negligence claim.

Blame game
In this case, Mulalley (the main contractor) engaged Leander (the subcontractor) in September 2010 to carry out groundworks, drainage, the concrete framework and other associated works at a development known as Tigers Head in Lewisham. By May 2011 it was clear the sub-contract works were delayed and each party blamed the other. Mulalley served two withholding notices, claiming that Leander failed to carry out the subcontract works in accordance with the programme dates and period set out in the activity schedule. Ultimately, Leander began proceedings in the Technology and Construction Court.

Mulalley argued that, although the subcontract did not expressly state so, Leander had an implied obligation to proceed regularly and diligently with the works. It alleged that this implied term must be incorporated into the subcontract to give it business efficacy – or in other words, both parties must have intended this term to be part of the contract, as the contract simply would not work without it from a commercial perspective. Leander argued that there was no such implied term.

Mr Justice Coulson held that Mulalley failed to show that the implied term was necessary to give the sub-contract business efficacy. In other words, even though it had not been included, the sub-contract was still adequate and provided the parties with the deal that had been agreed. In addition, in no previous case had the courts found an implied term imposing such an obligation, particularly where there was already a contractual completion date in the contract – as there was here.

Of most interest to architects and contract administrators is Mr Justice Coulson’s reference to the 1994 case of West Faulkner Associates v London Borough of Newham. There, architect West Faulkner was found to be in breach of its contract administration duties by failing to give the contractor a notice that it was not proceeding regularly and diligently.

Termination rights
It was an express term of the JCT63 contract that, provided the contractor was served with the requisite notice under clause 25(1), the employer (Newham) could terminate the contract if the contractor failed to proceed regularly and diligently. West Faulkner failed to serve the notice and was sued by Newham. Though the architect argued that the meaning of the clause and indeed the term ‘regularly and diligently’ was obscure, the Court of Appeal held that in this situation no reasonably competent architect could have arrived at the conclusion it did.

When acting as the contract administrator, it is therefore important to fully understand the contractor’s obligations. In summary, though a contractor does not have an implied duty to proceed regularly and diligently with its works (Leander v Mulalley), a contract administrator must be aware of its obligations to serve the appropriate notices under a building contract (West Faulkner v Newham).

For example, a similar provision is included in the JCT 2011 Standard Building Contract. You must therefore recognise when to issue this ‘hurry-up notice’ – a term coined by Mr Justice Coulson – or to seek legal advice.

Stacy Sinclair is with Fenwick Elliott LLP

In plain English
You can’t spell out every thing in a contract, but a clear implication can be binding

Implied term
An implied term is one that forms part of a contract but has not been expressly agreed by the parties.

Previously, common law implied terms related to the quality of workmanship and materials into all construction contracts which did not deal with such matters expressly. Now, this is covered by the Supply of Goods and Services Act 1982, which implies terms that goods supplied under the contract are of satisfactory quality and are reasonably fit for the purpose for which they are being acquired. In addition, the Act implies that services are carried out with reasonable care and skill, within a reasonable time and for a reasonable payment – or shall be determined between the parties.

The Housing Grants, Construction and Regeneration Act 1996 implies terms such as giving parties a right to adjudicate, imposing a stage payment regime, limiting exercise of the right of set-off and prohibiting conditional payment provisions.

In addition terms can be implied in fact on an ad hoc basis. For example, a term may be implied into a contract for business efficacy.

There is no term implied in law that the site is fit for the works, or that the works are practicable. There is no implied term imposing a rate of progress if there is already a contractual completion date established.