Richard Hildrick's Case notes: Leander Construction

10 February 2012

Leander Construction v Mullaley & Company

Technology and Construction Court, 21 December 2011

Leander was the groundwork and concrete frame subcontractor on a residential project in the London Borough of Lewisham. Mullaley sought to hold back payments due to Leander on the basis of its withholding notices, which were in turn related to an allegation concerning Leander’s failure to work to programme dates set in the subcontract activity schedule.

Leander challenged the validity in principle of these withholding notices. In the resulting court proceedings, Mullaley accepted that the programme dates set out in the activity schedule were not contractually binding, but it sought instead to rely on an implied obligation which required Leander to proceed regularly and diligently with its works.

Mullaley argued that this implied term was necessary in order to give business sense to the contract, and also because the contract permitted termination of Leander’s employment on the grounds that it had failed to proceed regularly and diligently with its subcontract works.

Mullaley’s case was therefore based upon a perceived obligation on Leander to proceed regularly and diligently with its works.

The judge said that from previous court rulings it was clear that the courts had been very reluctant to imply additional terms as to the timing or regularity of the contractor’s performance prior to the contract completion date.

In particular, the Court of Appeal’s decision in GLC v Cleveland Bridge rejected the concept of an implied obligation to proceed regularly and diligently, even though these terms were present in the specific wording of the termination clause.

In addition, it was considered clear that where there was a contractual obligation to complete by a certain date, it was unnecessary and inappropriate to establish implied terms which imposed other interim progress obligations on the subcontractor. The subcontract did not require the implication of such terms as it was effective without such unwritten terms.

In this case, there was a single date for completion, and the extension of time and delay damages provisions were, not unusually, related to this date. Thus the finding of an implied obligation on the subcontractor to proceed regularly and diligently would potentially bring with it additional contractual dates, and thereby change the express contractual mechanism relating to delay and extensions of time. Mullaley’s withholding notice was therefore held as invalid.

Richard Hildrick's analysis

This case reinforces the principle that obligations to work to specific programme requirements will normally only be found where expressly set out within the contractual provisions. Here, the contractor was under the impression that it had done this by including programme dates within the activity schedule. However, the subcontract included only a single contractual completion date, rather than different sectional completion dates.

It should also be noted that a provision permitting termination due to a failure to proceed regularly and diligently does not of itself create an associated implied obligation to work in this manner.

In addition, general provisions requiring a subcontractor to proceed “reasonably in accordance with the progress of the main contract works” do not impose an obligation on a sub-contractor to work to a main contractor’s programme, or to complete parts of the works by specific dates.

The moral is that, where the achievement of interim progress milestones is of key importance to the programme, the contract should provide for more than one completion date.

Specific programme requirements should be expressed through sectional completion dates and via relevant sectional completion provisions in the contract, rather than via milestone dates listed in the activity schedule or elsewhere.

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