The Honourable Mr Justice Coulson:
1. INTRODUCTION
- Pursuant to a sub-contract (which, for these purposes, is agreed to have been made in September 2010), the claimant ("Leander") was engaged to carry out groundworks, drainage, concrete framework and associated works for the defendant ("Mulalley") at a development site known as Tigers Head, Bromley Road, Lewisham. According to Mulalley's own valuations, the sum of £131,078.12 is otherwise due to Leander but has not been paid as a result of two withholding notices, respectively dated 29 June and 3 August 2011. By these CPR Part 8 proceedings, Leander challenges the validity of those withholding notices.
- The withholding notices are predicated on the basis that Leander was obliged, but failed, to carry out the sub-contract works in accordance with the programme dates/periods set out in the Activity Schedule, which was one of the sub-contract documents. Leander denies that the dates set out in that Schedule had any contractual force or validity at all. In these proceedings, Mulalley now accepts that the Activity Schedule does not set out dates or periods which are contractually binding, but maintains that Leander had an implied obligation to proceed regularly and diligently with the works, and that the Activity Schedule represents the best way to measure whether or not Leander complied with that term.
- In response to that undoubted refinement of Mulalley's case, Leander argue that there was no implied term of this sub-contract which required them to proceed regularly and diligently with the works. That is an issue on which there are a number of authorities, analysed below. The agreed position, therefore, is that if I concluded that there was no such term, then the withholding notices would be invalid and Mulalley would not have been entitled to withhold the sum of £131,078.12. If, on the other hand, I concluded that there was such a term, then (subject to one minor point as to the form of the notices) Mulalley would be able to withhold their arguable entitlement to the £131,078.12.
- At Section 2 below, I set out the relevant terms of the contract. At Section 3 below, I briefly outline the relevant facts. Although there was a good deal of factual material before the court, the vast majority of it seemed to me to be wholly irrelevant to the dispute between the parties. At Section 4 below, I set out and analyse the authorities on the issue as to whether or not a subcontract of this kind contains an implied term that the sub-contractor will proceed regularly and diligently with the works. My answer to that issue is set out in Section 5 below. In Section 6 I deal with the issue about the form of the notices. There is a short summary of my conclusions at Section 7 below. I am grateful to both counsel for their clear and concise submissions.
2. THE SUB-CONTRACT
- There is apparently a dispute as to the formation of the sub-contract. However, the effect of this difference remains obscure, because all the important matters, such as the extent of the sub-contract documents, are agreed. It was on that express basis that I agreed to hear this CPR Part 8 claim at all.
- The sub-contract order identified a commencement date of 27 September 2010, a sub-contract period (called the "duration of work") of 46 weeks, and a completion date of 8 August 2011. There were no contractual terms as to interim performance, no milestone dates or sectional completion provisions.
- The principal terms of the contract were in the form of Mulalley's standard terms and conditions. My attention was drawn to the following general obligations:
"GENERAL
The Sub-Contractor will execute and complete with the best workmanship and materials the Sub-Contractor works strictly in accordance with the listed documents and Conditions in the Order and instructions of the Main Contractor and to the full satisfaction of the Main Contractor, the Employer, or it's Architects/Contract Administrator and subject to and with the benefit of the General conditions set out below…
3.2 The terms of the Main Contract shall be deemed to be incorporated in the Order without any modification thereto insofar as they are not repugnant to or inconsistent with that from which is stated herein and the Sub-Contractor shall observe perform and comply with such of the provisions of the Main Contract as are applicable to the Sub-Contractor and/or shall observe/perform and comply with those additional provisions as the Main Contractor shall request at no additional cost.
3.3 The Sub-Contractor shall indemnify the Main Contractor from and against any breach, non-observance or non-performance by the Sub-Contractor or his servants of the provisions of the Main Contract…
THE WORKS
…
5.2 If not previously submitted, within 7 days from the date hereof the Sub-Contractor shall submit to the Main Contractor for approval a programme showing the Sub-Contractor's proposals for the sequence and timing of all activities within the scope of the Sub-Contract Works with full details of its proposals for the supervision and manning of the Sub-Contract Works. Such proposals may be incorporated within the Main Contractor's programme but the Main Contractor reserves the right at its absolute discretion to vary the same to meet the requirements of the Main Contract."
- It is common ground that Mulalley did not require Leander to produce a programme in accordance with clause 5.2. Instead, the parties agreed to use the Activity Schedule, referred to in the later parts of clause 5. These terms included the following:
"5.4 The Sub-Contractor shall upon and subject to the provisions of the Order carry out and complete the Sub-Contract Works shown upon and described by or referred to in the Order by the time or times stated in therein or as varied from time to time by the Main Contractor (who expressly reserves the right to do so), or, if not so stated in such manner as the Main Contractor or its agent may direct in conjunction with other Sub-Trades to the satisfaction of the Architect/Contract Administrator (whichever applicable) and the Main Contractor or its agent in accordance with the conditions contained within the Order and any drawings, specifications and other conditions annexed and instructions which may be supplied to the Sub-Contractor from time to time.
5.5 The Sub-Contractor must apply to the main Contractor for all drawings, details or information necessary to enable him to perform the Sub-Contract Works in accordance with the subcontract Activity schedule/agreed programme and duties. Such application to be made to the Main Contractor within a reasonable time prior to the carrying out of the particular subcontract works in order that the progress of the main contract works is not delayed or disrupted in any way…
- Clause 10 was concerned with Set Off. Amongst those provisions were the following:
"10.1 Should the Sub-Contractor fail to comply with the conditions of this Agreement or, by any act, omission or default, interfere with the regular progress of the Main Contract Works, or completion of the same the amount any loss or expense thereby suffered by the Main Contractor as bona fide assessed by the Main Contractor shall be regarded as a debt which the Main Contractor may set-off in accordance with the provisions herein contained.
10.2 If the Sub-Contractor shall cause the Main Contractor expense, damage, loss or other costs or liability whatsoever by reason of any breach of this or any other contract between the Parties or by any tortious act under this or any other contract between the Parties…then without prejudice to and pending the final determination or agreement between the Parties as to the amount of such expense, damage, loss or other liability, indemnity or contribution or payment the Main Contractor shall be entitled to deduct from any monies payable to the Sub-Contractor now or in the future under this or any other contract and/or the Sub-Contractor shall pay such sum as the Main Contractor shall bona fide estimate (if not already ascertained or agreed) to be the amount of such expense, damage, loss or liability such estimate to be binding and conclusive upon the Sub-Contractor until such final determination or agreement…"
- The termination provisions are important because they are the foundation of the alleged implied term to carry out the works regularly and diligently. The relevant provisions were as follows:
12.1 If the Sub-Contractor shall make default in any of the following respects:
.1 Fails to provide the Main Contractor with a duly completed Insurance Details, Competency Assessment and Acknowledgment Slip acceptable to the Main Contractor in his sole absolute opinion in accordance with Clause 2.
.2 or without reasonable cause suspends the Sub-Contract works before completion;
.3 or fails to proceed with the Sub-Contract Works regularly and diligently,
.4 or refuses or neglects after notice in writing from the Main Contractor or his agents to remove defective work goods or improper materials,
.5 or becomes insolvent,
.6 or fails to comply with instructions properly given by the Main Contractor or fails to co-operate reasonably in the general progress or with the Main Contractor,
then the Main Contractor may issue a notice to the Sub-Contractor defining the defaults and giving it 48 hours to comply. If in the opinion of the Main Contractor the Sub-Contractor does not remedy the default(s) then it will be deemed that a breach of the Order has occurred. This breach will expressly allow the Main Contractor the right to terminate the employment of the Sub-Contractor under the Order and the following rules shall apply…"
- Clause 14 was concerned with extensions of time. It provided:
"14.1 If the Sub-Contractor is delayed in completing the Sub-Contract works due to the default or actions of the Main Contractor or any other Sub-Contractor for any reason, then the Sub-Contractor must notify the Main Contractor in writing of the reasons why progress has been materially affected. The Sub-Contractor shall at the same time also submit a detailed forecast of the consequences of those reasons. If the Main Contractor considers that an extension of time may be due then it shall inform the Sub-Contractor within 12 weeks after the issue of Practical Completion of the Main Contract.
14.2 The Sub-Contractor shall constantly use his best endeavours to prevent or minimise any delay in the progress of the whole or any part of the Sub-Contract works."
- I note in passing that Clause 13 of the sub-contract terms set out detailed provisions relating to adjudication. Clause 13.9 required the claiming party in any adjudication to "bear all of the costs and expenses incurred by both parties". Although it has been held that such a clause is valid (see Bridgeway Construction Limited v Tolent Construction Limtied [2000] CILL 1662), in the more recent case of Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC), Edwards-Stuart J noted that such a clause would discourage a party from exercising its right to refer disputes to adjudication and that, in consequence, the clause was contrary to the Housing Grants (Construction and Regeneration) Act 1996. Now, such a clause would automatically be invalid pursuant to section 141 of the Local Democracy, Economic Development and Construction Act 2009. Mr Coplin submitted that, because of the uncertainties created by the clause, Leander had chosen to come to court to resolve the contractual issue rather than have it dealt with in an adjudication for which Leander might have to pay the costs, regardless of whether they won or lost.
- The Activity Schedule, referred to in clause 5.5 of the sub-contract, identified various elements of the sub-contract works and, for each element, gave a commencement date, a period in which the activity should be carried out, and a completion date. It was expressly noted that "all of the dates below are indicative dates only and are subject to change as required by MCL management to suit the main contract programme". Doubtless because of that caveat, and the terms of clause 5.5 above, Mr Stafford properly conceded that the sub-contract did not impose an obligation upon Leander to carry out each element of the sub-contract works in accordance with the dates set out in the Activity Schedule. As noted above, his submission was that the Activity Schedule provided the best tool by which Leander's performance of the alleged implied term could be measured.
- The bulk of the works were noted on the Activity Schedule as starting with the enabling works on 27 September 2010. The individual elements of the work, such as piling attendance, ground works and drainage, the capping beam, the basement slab and so on, were each identified with a commencement and a completion date, and a duration stated in weeks. These elements of the works included the superstructure, with the reinforced concrete frame going up five levels, with each level taking about 3 weeks. The dates on the Activity Schedule were contradictory and confused, in that they appeared to indicate that the superstructure would start on 17 January and take 10 weeks and 4 days. Yet the completion date was stated to be 3 May 2011, which suggested a longer duration of about 15 weeks. Moreover, the last completion date of an individual level of the superstructure was 18 March 2011, which was less than 10 weeks 4 days after the commencement date. 10 weeks and 4 days after 17 January 2011 would have been about 7 April 2011, which is not a date included in the Activity Schedule.
- These discrepancies may matter because, during his submissions, Mr Stafford pointed to the interval, which he said was 4 months, between the alleged end of the superstructure works on 18 March 2011, and the commencement and completion of the external works, the last element of the subcontract works, to be carried out over a 4 week period in July and August 2011. He made a number of submissions about this 4 month interval between what he called "the two phases" of the work. He submitted that this was not a period of float and was a period during which Leander would know that, whilst they would not be on site, other contractors would. He submitted that, if Leander had delayed on phase 1, those later contractors would themselves be delayed. Despite this submission, the four month interval to which he referred was, of course, included within the stated 46 weeks sub-contract "duration of work".
- The minutes of the pre-contract meeting were also sub-contract documents. They referred to the sub-contract sum of £1,102,944. They also referred to the sub-structure, ground works, superstructure and stairs, each with durations broadly similar to (but not always the same as) those set out in the Activity Schedule, with a latest completion date of 18 March 2011. That also showed the external works being carried out in a later 4 week period.
- In addition, my attention was drawn to a sub-contract document entitled 'Schedule of Qualifications for Sub-Contractors' which included, at item (a), a reference to the contract being 'Lump Sum All Risk Price'. This made plain that the sub-contract works would not be subject to re-measure following further analysis of soil conditions on site and 'is inclusive of required breaking out any obstructions discovered during the course of your contract works…' Item (t) in the same Schedule provided that:
"Once other trades commence with their works on site, there would be no guaranteed use of the tower crane and a coordinated crane booking in system will be implemented by Mulalley for use of the crane by all required sub contractors."
The document detailing the provisions of the main contract showed that the main contract work started on 27 September 2010 with a completion date of 24 April 2012, and a main contract period of 78 weeks.
3. OUTLINE CHRONOLOGY
- Leander carried out the principal elements of the sub-contract works in 2010 and 2011. By May 2011, it was clear that those works were not being completed in accordance with the periods and dates anticipated in the Activity Schedule. There is a dispute between the parties as to who was responsible for that. It is not a dispute that I need to or can resolve for the purposes of this Part 8 claim.
- In accordance with the sub-contract valuation process, Mulalley valued the sub-contract works done to 20 May 2011 in the gross sum of £850,110.54, which gave rise to a net sum due to Leander of £113,695.75. By a withholding notice dated 29 June 2011, Mulalley sought to withhold the entirety of the sum due, claiming that they were entitled to the sum of £131,078.12 as a result of Leander's delay. There is no dispute that, if the withholding notice was itself valid, it was served in time.
- The claim for delay set out in the withholding notice was relatively detailed. It was principally made up of Mulalley's claim for additional preliminary costs for a period of delay on site said to be 12 weeks. The details of the complaints about delay were set out by reference to the elements of the sub-contract works identified in the Activity Schedule, and a comparison was done between the dates set out in the Schedule and the actual dates achieved. The unspoken assumption in the withholding notice was that Leander was contractually obliged to achieve the dates in the Activity Schedule.
- The following month, for the work done down to 17 June 2011, Mulalley valued the sub-contract works in the gross sum of £972,613.80 with a net sum due of £230,073.85. By withholding notice dated 3 August 2011, Mulalley sought to withhold the remainder of the £131,078.12 against the new sum, although the remaining sums were paid. The withholding notice was in the same form, and contained the same material, as the previous notice. Accordingly, the amount otherwise due to Leander which has been withheld by Mulalley on the basis of the two withholding notices is £131,078.12.
- The parties are properly proceeding on the assumption that a withholding notice which, as here, purports to withhold money because of the existence of a cross-claim, has to set out the detail of that cross-claim: see Letchworth Roofing Company v Sterling Building Company [2009] EWHC 1119 (TCC). Such a withholding notice will stand or fall on its contents and cannot be subsequently improved or amended. That said, the court will take a practical view of the contents of a withholding notice and will not allow complaints as to form which might be described as artificial or contrived: see Thomas Vale Construction PLC v Brookside Cyston Limited [2006] EWHC 3637 (TCC); Windglass Windows Limited v Capital Skyline Limited & Another [2009] EWHC 2022 (TCC).
- It is, of course, important to note that these withholding notices, and the alleged delays to which they refer, all arose before the sub-contract completion date of 8 August 2011 (and long before the main contract completion date of 24 April 2012). That was the only express sub-contract completion date. Thus there is force in Mr Coplin's observation that Mulalley's claim for damages is based on an anticipatory breach of contract, and that the damages – preliminary costs for a longer period on site than envisaged - had not yet been incurred by Mulalley, and would not be until after the main contract completion date of April 2012 (because, up until then, Mulalley would have been on site anyway). The issue is, therefore, whether or not Leander owed Mulalley any interim obligation as to progress and performance that would give rise to a claim for damages in advance of the sub-contract completion date. The withholding notices expressly operate on the assumption that they do. If there was no such obligation, Leander are not otherwise said to be in breach of contract in June or July 2011 and the withholding notices are invalid.
4. THE LAW
4.1 The Relevant Test On Implication
- The relevant test for implying a term into a contract for business efficacy has been dealt with in a number of cases. Perhaps the most comprehensive statement (certainly until recently) can be found in the formulation of Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Limited v Shire of Hastings [1978] 52 ALJR 20 at 26:
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
That formulation was expressly approved by Sir Thomas Bingham MR in Philips Electronique Grand Public SA & Another v BSkyB Limited [1995] EMLR 472. Sir Thomas Bingham went on to describe the implication of contract terms as "a different and altogether more ambitious undertaking" than simple interpretation, because it involved "the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is potentially so intrusive that the law imposes strict constraints on the exercise of this extraordinary power."
- In Attorney General of Belize & Others v Belize Telecom Limited & Another [2009] UKPC 10, [2009] 1 WLR 1988, Lord Hoffmann considered Lord Simon's list, describing it as "a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so." In the subsequent case of Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2009] EWCA Civ 531, Sir Anthony Clarke MR said at paragraph 15 that, although in Attorney General of Belize, Lord Hoffmann was emphasising that the process of implication was part of the process of construction of the contract, "he is not in any way resiling from the often stated proposition that it must be necessary to imply the proposed term. It is never sufficient that it must be reasonable." He stressed Lord Wilberforce's well-known dicta in Liverpool City Council v Irwin [1977] AC 239 that ultimately the test was one of necessity: is the implied term necessary to make the contract work?
4.2 'Regularly and Diligently'
- The authorities as to what is meant by this phrase are somewhat sparse. In GLC v Cleveland Bridge and Engineering (1984) 34 BLR 50, Parker LJ noted that counsel put the obligation in colloquial terms ("get on with it") because it was difficult to see how any specified obligation could be spelt out. He went on:
"What is said in the notice of motion is that there should be an obligation to proceed 'with due diligence and expedition', but what is due diligence and expedition depends, of course, on the object which is sought to be achieved. If one is obliged to achieve a certain object within 12 weeks, it may be necessary to exercise much more speed than if your only obligation is to produce it in 24 weeks or indeed in 4 years. The same applies to diligence. You cannot have diligence in the abstract. It must be related to the objective."
- The issue also arose in West Faulkner Associates v London Borough of Newham [1994] 71 BLR 1. In that case, West Faulkner were architects who were found by Judge Newey QC to have been in breach of their duty by failing to give the contractor a notice that he was failing to proceed regularly and diligently with the work. In the Court of Appeal, the precise definition of that term became an issue, and Simon Brown LJ (as he then was) said:
"Taken together the obligation upon the contractor is essentially to proceed continuously, industriously and efficiently with appropriate physical resources so as to progress the work steadily towards completion substantially in accordance with the contractual requirements as to time, sequence and quality of work. Beyond that I think it impossible to give useful guidance. These are after all plain English words and in reality the failure of which clause 25(1)(b) speaks, is, like the elephant, far easier to recognise than to describe."
Indeed, even this highly qualified definition has not been entirely free from controversy. It is often argued that an obligation which requires the contractor to proceed 'continuously' may be contrary to the general principle that it is open to the contractor to carry out his works in whichever way he want provided he meets the completion date.
- In his post-hearing note, Mr Stafford drew my attention to Judge Newey's view that 'regularly and diligently' simply meant that contractors must go about their work in such a way as to achieve their contractual obligations. Simon Brown LJ endorsed the link between the requirement to proceed regularly and diligently and 'the attainment of contractual objectives'. These observations do not address the particular point in issue in the present case, because if Mulalley's delay claim could be put by reference to express contractual obligations, the withholding notices would have been set out by reference to those other obligations, and the implied term would have added nothing. Instead, on the present case, the implied term is the only basis for Mulalley's claim.
- It does not appear that GLC v Cleveland Bridge (or Piggott, also referred to in Section 4.4 below) were referred to the Court of Appeal in West Faulkner. This was not important for the resolution of the issue in that case, where there was no argument about an implied term, but may be of some significance in the present case (see paragraph 51 below).
4.3 The Implied Term To Proceed Regularly and Diligently/The Textbooks
- There has long been a difference of approach to this topic in the two leading textbooks on construction law. At paragraph 8-040 of Keating on Construction Contracts (8th edition, 2006) the learned editors write:
"Going slow. Interim slowness not resulting in a failure to complete on time may not be a breach of contract at all. If it is, damages solely following from a failure of the contractor to perform the works at the contract rate will, if any, ordinarily be small."
The case cited in support of the first proposition is GLC v Cleveland Bridge and Engineering. The same case is also referred to in a footnote to paragraph 3-049 as authority for the proposition that there is "no implied term of due diligence beyond contractor's express obligation to comply with key dates."
- The learned editors of Hudson's Building and Engineering Contracts (12th edition, 2011) take a different view. At paragraph 6-021, they submit that "even in the absence of an express term for due diligence and of any linked express termination clause, both such terms may in some cases be implied by law, in construction contracts as a matter of business efficacy." No authority is cited in support of that proposition. The learned editors go on to test their submission by reference to a hypothetical example. However, they note that in Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited [2006] 107 Con LR 1, Jackson J (as he then was) rejected the submission that the subcontract in question was subject to an implied term that Cleveland Bridge would execute the works with due diligence and expedition as were reasonably required to meet the dates of the programme.
4.4 The Implied Term To Proceed Regularly and Diligently/The Cases
- GLC v Cleveland Bridge was a slightly unusual case in a number of respects. First, there was no doubt that Cleveland Bridge met the key dates set out in the contract. However, it was alleged that they were bound by an additional obligation, by way of an implied term, that they must proceed with the manufacture of the gates and gate arms for the Thames Barrier regularly and diligently. The argument was relevant not to delay as such, but to an adjustment of price clause. It was contended that the term should be implied because clause 19 of the contract contained a termination provision very similar to the one set out in clause 12.1.3 of this sub-contract. It was by reference to that provision that the GLC maintained that there was an implied term to proceed regularly and diligently.
- At first instance, Staughton J (as he then was) noted the same difference of view between Keating and Hudson which I have already noted, albeit by reference to earlier editions of those books. He went on to say:
"One's first impression, on reading clause 19, is that the contract does, as a matter of construction or by implication, provide that the contractor shall carry out the contract works with due diligence and expedition. But, on further consideration, I do not think that that is the right conclusion. The point is very nicely balanced and, for reasons which will presently appear, the result in this case does not depend upon it. However, in point of form I do have to decide it, as I must affirm or vary the answers which the arbitrator gave to the preliminary questions which were argued. I see no sufficient reason to disagree with the answers that he gave. Accordingly, I conclude that although neglect by the contractors to execute the works with due diligence and expedition would entitle the employers to discharge them, under clause 19, it would not by itself be a breach of contract on the part of the contractors.
If I had not reached that conclusion, I would have held, without hesitation, that due diligence and expedition must be interpreted in the light of the other obligations as to time in the contract."
It appears that the central element in his conclusion was what the judge described as "a general principle applicable to building and engineering contracts" to the effect that, "in the absence of any indication to the contrary, a contractor is entitled to plan and perform the work as he pleases, provided always that he finishes it by the time fixed in the contract."
- The decision of Staughton J was upheld by the Court of Appeal. Parker LJ noted that:
"The plain fact is that if there is no obligation to do more than complete by a certain date, a contractor is not subject to the operation of the proviso to clause 51 if he chooses to conduct his programme in a manner which suits him. It may or may not be that in the end he will get a price increase benefit from so doing."
- In Piggott Foundations Limited v Shepheard Construction Limited [1993] 67 BLR 48, HHJ Gilliland QC held that the obligation to carry out and complete the sub-contract works 'reasonably in accordance with the progress of the Works' did not require the sub-contractor to comply with the main contractor's programme of works or to complete a particular part of the sub-contract works by a particular date. He said:
"The words 'the progress of the works' are in my judgment directed to requiring the sub-contractor to carry out his sub-contract works in such a manner as would not unreasonably interfere with the actual carrying out of any other works which can conveniently be carried out at the same time. The words do not however in my judgment require the sub-contractor to plan his sub-contract work so as to fit in with either any scheme of work of the main contractor or to finish any part of the sub-contract works by a particular date so as to enable the main contractor to proceed with other parts of the work…In my judgment clause 11.8 does not exclude or modify the general principle applicable to building and engineering contracts, that in the absence of any indication to the contrary, a contractor is entitled to plan and perform the work as he pleases provided that he finishes it by the time fixed in the contracts."
- The same provision, namely 'carrying out and completing the sub-contract works in accordance with the progress of the Works' was the subject of the subsequent case of Ascon Contracting Limited v Alfred McAlpine Construction Isle of Man Limited [1999] 66 Con LR 119. HHJ Hicks QC referred to Piggott and then went on to say:
"88 I respectfully agree that clause 11.1 does not require the sub-contractor to comply with the detail of the main contractor's programme, either generally or in relation to the work of other specific sub-contractors. My own view, however, is that the words 'reasonably in accordance with the progress of the Works' goes somewhat beyond the negative duty 'not unreasonably to interfere with the actual carrying out' of other works. The sub-contractor knows the nature of the main contract works and the place of the sub-contract works in them. As Keating suggests in the passage referred to by Judge Gilliland this obligation presupposes that the main contract works are proceeding regularly and diligently. The 'progress' referred to is therefore, I think, that expected and observed in the light of those facts, although the obligation is only to proceed 'reasonably' in accordance with that progress."
- The decision of HHJ Humphrey Lloyd QC in Masons (a firm) v WD King Limited & Another [2003] EWHC 3124 (TCC) was concerned with allegations of negligence against a firm of solicitors in connection with the drafting of a construction contract. In particular, there was an argument about whether, under that bespoke contract, the employer could recover unliquidated damages for delay in the event that the contractor was in breach of an acceleration instruction. Judge Lloyd found that the obligation in respect of compliance with an acceleration instruction was "preliminary, ancillary or subservient" to the primary obligation to complete by the contract completion date. Failure to comply with it meant only that the contractor had not remedied non-compliance with its general obligation to execute the works with diligence or with the programme. There was no right to recover unliquidated damages for delay, in addition to liquidated damages, merely because of a failure to comply with an acceleration instruction.
- Finally in this brief review of the cases, there is Multiplex, referred to in paragraph 31 above, in which Jackson J rejected the implication of a similar term into a steelwork supply sub-contract.
- In short, therefore, all the authorities point the same way: the courts have 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 the case most in point, namely GLC v Cleveland Bridge, both Staughton J and the Court of Appeal refused to imply an obligation to proceed regularly and diligently, notwithstanding the express words of the termination clause.
5. ANALYSIS
5.1 The Answer
- In my judgment, Mulalley has failed in the "ambitious undertaking" of demonstrating the need for the alleged implied term as a matter of business efficacy. I have reached that view partly for general reasons (Section 5.2 below); partly as a result of the construction of the sub-contract itself (Section 5.3 below); and partly because of my rejection of Mulalley's specific submissions as to the inferences to be drawn in this case (Section 5.4 below).
5.2 General Reasons
- The cases set out in Section 4.1 above demonstrate that the courts are generally slow to imply terms into a contract, particularly where, as here, there are already detailed terms and conditions. The touchstone remains the test of necessity, as Lord Clarke emphasised in Mediterranean Salvage and Towage: is the proposed implied term necessary to make the contract work? Or to put the question another way: in the absence of the implied term, does the contract fail to deliver the bargain which the parties had agreed? In my view, Mulalley have not come close to demonstrating that the alleged term is necessary to make the contract work. It operates perfectly satisfactorily without the implied term, and there was really no suggestion to the contrary.
- The second general reason for my conclusion is based on the review of the authorities set out in Section 4.4 above. In all of those cases, in one way or another, the courts declined to imply a term that would have imposed upon the contractor or sub-contractor interim obligations as to rate of progress and detailed performance. In those cases, the court repeatedly gave priority to the principle that, provided that the main contractual obligation was an obligation to complete by a certain date, it was unnecessary and unhelpful to impose other interim progress obligations upon the contractor.
- Obviously the decision in GLC v Cleveland Bridge is most in point, because, as is the case here, the alleged implication was founded on the termination provisions. Both Staughton J and the Court of Appeal rejected that argument. Whilst that decision is not binding on me, because the terms of the contract under review are different, it seems to me that, unless there is a good reason to distinguish between the relevant terms of the respective contracts, I should follow that decision. In my view, there is no good reason to distinguish between the contracts; indeed, the respective termination provisions are, to all intents and purposes, the same. Therefore I consider that it would be wrong for me to reach a conclusion different to that of the Court of Appeal in GLC v Cleveland Bridge.
- Those general reasons for concluding that no term should be implied are, of course, consistent with the passage in Keating cited in Section 4.3 above. It means that I take a different view to that expressed by the learned editors of Hudson, but, as the judgment of Staughton J in GLC v Cleveland Bridge makes plain, Hudson has always taken a singular approach to this issue. As yet, although their argument is entirely understandable, and gives rise to what Staughton J called a "nicely balanced" point, the editors have been unable to found their view on any reported authority.
5.3 The Points of Construction
- There are a number of points of construction of the sub-contract which also lead me to the conclusion that there is no necessity for the implied term.
- First, the mere fact that the failure to proceed regularly and diligently can trigger Mulalley's entitlement, under clause 12.1, to serve a notice which, if not complied with, could lead to termination, does not automatically mean that there was a separate, free-standing implied term to proceed regularly and diligently. Not every one of the matters identified in clause 12.1 anticipates a breach of an existing term of the sub-contract. Some undoubtedly do, like the failure to comply with instructions. But others, such as the situation where the sub-contractor becomes insolvent (clause 12.1.5), do not mirror any express contractual obligation: there was no term by which Leander promised not to become insolvent. Accordingly, as a matter of construction of clause 12.1, it cannot be said that the inclusion of the failure to proceed regularly and diligently as one of the circumstances requiring a notice automatically equates to a freestanding contractual obligation to that effect.
- Indeed, in my view, the inclusion of the provision at clause 12.1.3 actually points away from the alleged implied term. This is not a case in which the implied term arises because the parties omitted to consider and allow for the specific default that has allegedly arisen. On the contrary, clause 12.1.3 makes plain that the parties expressly considered what might happen if, in the opinion of Mulalley, Leander were not progressing regularly and diligently with the works. The parties' agreement was not that there would be a separate, positive obligation on the part of Leander to proceed regularly and diligently with the works, giving rise to a separate entitlement on the part of Mulalley, in the event of a breach, to claim unliquidated damages. Instead, the parties considered that this was a situation best dealt with by the service of a 'hurry-up' notice of the sort that the architects failed to serve in West Faulkner. In my view, it is impossible to argue that the alleged term is necessary, in circumstances where the parties must be taken to have considered this eventuality and instead decided to deal with the potential problem in an entirely different way.
- Thirdly, it is important to pay particular regard to the contractual mechanism in relation to delay. There was one completion date. If Leander failed to meet that contractual completion date then, subject to the extension of time provision in clause 14, they would face a set-off and cross claim as provided for by clauses 10.1 and 10.2. The extension of time provisions are all in relation to the contractual completion date; there were no other dates to which the extension of time mechanism could relate. Thus, the alleged implied term – bringing with it the start dates, completion dates and durations for more than a dozen individual sub-contract activities - would cut across the express contractual mechanism in relation to delay and extensions of time. Clause 14 would become impossible to operate; further 'implied' terms would be needed for Mulalley to say that the extension of time provision in Clause 14 related, not to the subcontract works, but to each 'phase' or even to each sub-contract activity. The nature of Leander's rights and duties would change completely.
- Finally, it seems to me that there were already a number of express and implied terms of the sub-contract pursuant to which Mulalley could exercise considerable control over Leander's performance of the sub-contract works. Not least amongst these was Leander's obligation to comply with their instructions and generally to cooperate with Mulalley. Again, the existence of such terms seems to me to militate against any need for yet further (implied) terms to allow Mulalley to exercise even greater control over them.
- The answer to Mr Stafford's post-hearing submission, that the term should be implied because it is doing no more than requiring Leander to carry out their other contractual obligations properly (see West Faulkner in Section 4.2), is foreshadowed in paragraph 28 above. If that was all this term was doing, it would be completely unnecessary, and the withholding notices would be based on those other obligations, not this implied term. The problem for Mulalley is that, on its own case, there are no such other obligations on which it can rely, and it needs the implied term as a hook on which to hang the entire claim set out in the withholding notices. It is the only way it can give contractual status to the dates in the Activity Schedule which, without the implied term, are accepted as being of no contractual force at all.
- Finally on this point, I should say that, if it mattered, I would be reluctant to attach too much weight to the observations in West Faulkner in the context of the present case, given that it was not a case in which an implied term was alleged, so that GLC v Cleveland Bridge was not referred to.
5.4 The Alleged Inferences
- The bulk of Mr Stafford's oral submissions were based on the premise that this was a contract in two phases, with the bulk of the work being in the first phase, due to be completed by 18 March, with a short second phase some four months later, in July/August. He then went on to submit that, in relation to phase 1, it could be inferred that Leander knew that they would be the only sub-contractor on site, and that therefore their work would be on the critical path. Thus, he said, Leander would know that, if they delayed in carrying out the phase 1 works, they would automatically cause delays to the following trades. He said that Leander must also be taken to have known that, following the end of the phase 1 works, there would be other sub-contractors on site who would themselves have been delayed by any delays on the part of Leander on phase 1, and that the 4 month interval between phases 1 and 2 could not be regarded as float.
- As I made plain during the course of argument, I consider that there are fundamental difficulties with this analysis. First, it was not agreed by Leander that these matters were inferences properly to be drawn from the sub-contract, and many were wrong as a matter of fact. For instance, there were always going to be other sub-contractors on site during the phase 1 works. Whilst Leander were carrying out the groundworks, which are often first in time, they were also attending on a piling sub-contractor, so it was not intended that they would be the only sub-contractor on site, even in the early days. And by the time that they began work on the superstructure, which was also part of the alleged phase 1 works, they were manifestly not the only sub-contractor on site, because they were simply erecting the reinforced concrete structure of the building, and there would have been numerous other trades on site completing that shell. Furthermore, no inferences as to the critical path can be drawn from the contractual information; in the absence of any agreed and binding programme, the critical path might lie anywhere.
- Secondly, Mr Stafford's analysis contained unwarranted assumptions: for example, in accordance with the Activity Schedule, 18 March 2011 was not the end date of the so-called phase 1 works. The last stated date was 3 May 2011. So, on that basis, the gap between phases 1 and 2 was not 4 months.
- Thirdly, and most importantly of all, the assumption that this was a contract in two phases, with separate completion dates and potentially separate obligations relating to the two different phases, was wholly contrary to the sub-contract itself. The contract had one completion date. It had one contractual period of 46 weeks (which included the alleged gap or interval between the so-called phase 1 and phase 2 works). Thus the argument that there were two phases, with two completion dates, was contrary to a proper construction of the sub-contract.
- In my view, this argument was revealing of Mulalley's real case, and the fundamental difficulties with it. It is quite clear that, if the sub-contract had divided the works up into two separate phases, and if the sub-contract had provided for two different completion dates, one for each phase, then Mulalley's withholding notices would have made much more sense. They would have been able to say that, whatever the position in relation to the subsequent phase 2, Leander were arguably in breach of their obligation to complete the phase 1 works by the phase 1 completion date (whether that was the date in March, April or May). In that way, the breach relied on in the withholding notices of June and July would no longer have been an anticipatory breach of contract. But of course the sub-contract did not divide the work into phases, and did not contain separate phased or sectional completion dates. There was one completion date which was still in the future by the time of the withholding notices. Therefore, in my judgment, this critical alleged inference cannot be drawn from the contractual arrangements. In essence, Mulalley's withholding notices were based on what they would now want the sub-contract to say, rather than what it did say.
- Accordingly, despite the clear way in which the submissions were put, I cannot accept Mr Stafford's basic premise that these inferences can safely be drawn from the sub-contract. I am also doubtful that, even if they could, they point unequivocally towards the implication of the term in any event. I consider that all the other matters noted in Sections 5.2 and 5.3 above lead to the clear conclusion that there was no implied term as alleged.
6. THE FORM OF THE WITHHOLDING NOTICE
- In the light of my decision in Leander's favour as to the implied term, it is unnecessary for me to consider in any detail their fall-back argument as to the form of the withholding notices. I do however deal with it briefly. Mr Coplin's submission was that the withholding notices were based expressly on the Activity Schedule and that, because it could not be said that the dates in the Schedule necessarily correlated with the regular and diligent progress of the works, the withholding notices were invalid because they operated on that false assumption.
- I have set out at paragraph 22 above the authorities dealing with the form of a withholding notice. The court has to take a pragmatic view. Whilst it is clear that the withholding notices were based on the untenable assumption that the Activity Schedule provided contractually binding dates, that does not mean to say that the same Schedule could not be a tool to measure the regular and diligent performance of the sub-contract works, if there had been such a free-standing obligation. Arguably, the Schedule, having been agreed by the parties at the outset, could have been regarded as the way in which such performance could have been measured. Thus, if there had been such an implied term, I would not have ruled that the withholding notices were invalid. What makes the withholding notices invalid in this case was not their form, but the fact that they were based on a non-existent implied term.
7. CONCLUSIONS
- For the reasons set out above I have concluded that Mulalley cannot demonstrate that the implied term in this case was necessary to give the contract business efficacy. The sub-contract works satisfactorily without it. The only reason that the implication is sought at all is to allow Mulalley to claim unliquidated damages for interim delay. To imply such a term would be contrary to the general run of authorities noted above, and would be contrary to the proper construction of the sub-contract itself.
- For those reasons, I conclude that Mulalley was not entitled to withhold the £131,078.14 otherwise due to Leander. The parties have agreed that, due to a small amount of the sum withheld being released in later payments, the effect of a judgment in the above terms is that Mulalley should pay Leander £123,330.34 plus £4,893.53 in interest (a total of £128,223.87). I further Order that this sum should be paid by 4.p.m. on 4 January 2012.
