If You Want To Crack The Whip, Make Sure Your Construction Contract Allows You To Do So

In a recent case the Technology and Construction Court declined to imply into a construction contract an obligation to proceed regularly and diligently with the works, despite the fact that failure to do so gave an express right to terminate the contract.

Facts

The case concerned a bespoke groundworks subcontract, which placed an obligation on the subcontractor to complete the works by the contractual completion date. The subcontract included an Activity Schedule containing timescales within which the subcontract works were to be undertaken. There were no milestone dates or sectional completion provisions. It was claimed that the subcontractor was late in the performance of the works against the Activity Schedule. The contractor alleged that the subcontractor's delays caused it loss and sought to withhold amounts otherwise due to the subcontractor. Although the parties had accepted that the Activity Schedule did not establish contractually binding timescales, the contractor nevertheless maintained that there was an implied obligation to proceed "regularly and diligently" with the works. In support, it referred to a clause in the contract that provided an express right to terminate the contract on these grounds.

Decision

For the contractor, it was necessary to imply the term in order to allow it to claim damages for interim delay. This, however, was not an adequate test of whether the term should be implied and the court decided there was no such implied obligation. The proper enquiry in determining whether to imply a term is to ask whether it is necessary to make the contract work. Whilst the subcontractor's failure to execute the works regularly and diligently entitled the contractor to terminate the contract, without a separate, positive obligation, it would not be a breach of the contract which entitled the contractor to a claim for unliquidated damages. Accordingly, the court considered that the parties "must be taken to have considered this eventuality and instead decided to deal with the potential problem in an entirely different way." Further, there was already a contractual completion date. If the subcontractor failed to complete by the completion date the contractor would be entitled to claim...