Links In The Chain: Recent Trends In Sub-Contracting

Is a sub-contractor required to proceed 'regularly and diligently' with sub-contract works?

The case of Leander Construction Ltd v Mulalley & Company Ltd [2011] EWHC 3449, heard before the Technology and Construction Court in the United Kingdom, recently considered the question as to whether a sub-contractor is under an implied obligation to a main contractor to proceed 'regularly and diligently' with the sub-contract works. The case provides useful guidance as to when a sub-contractor may be liable to a main contractor for losses suffered as a result of the sub-contractor's delay.

Background

Leander was a sub-contractor engaged by main contractor, Mulalley, to carry out various groundworks at a development site in London. The sub-contract entered into between the parties stated a commencement and completion date, but did not otherwise contain any contractual programme dates or provisions relating to the progress of the sub-contract works. Within approximately eight months it became clear that the sub-contract works were not being progressed in accordance with an activity schedule, which formed part of the sub-contract documents attached to the terms and conditions of the sub-contract.

Mulalley sought to rely upon the activity schedule and argued that Leander was failing to progress the sub-contract works so as to meet the dates within the activity schedule and was thereby allegedly causing delay to the main contract works. Mulalley attempted to set-off from interim payments due to Leander an amount as damages for delay in failing to meet the activity schedule dates. Mulalley issued withholding notices to Leander and Leander subsequently commenced proceedings to challenge the validity of the withholding notices.

Mulalley accepted that the activity schedule was not contractually binding, but maintained that Leander was under an implied obligation to proceed regularly and diligently with the sub-contract works; insofar as Leander was under such an obligation, the activity schedule represented the best way of demonstrating that Leander had failed to proceed with the subcontract works regularly (i.e. it failed to progress the works by the various dates indicated in the activity schedule). Leander denied that there was any such implied term in the subcontract and that it was only under an obligation to complete the sub-contract works by the contractual completion date. Leander further denied that the dates set out in the activity schedule had...