Mulalley case rules in favour of subcontractor
A court has ruled that a subcontract did not contain an implied term requiring a subcontractor to proceed regularly and diligently. Its obligation was limited to completing on time.
The case, Leander Construction v Mulalley, is likely to have widespread application, according to Mark Clinton, a partner at law firm Thomas Eggar.
It was brought after Mulalley engaged Leander as subcontractor. The subcontract contained an activity schedule setting out various activities and dates for them to perform. They were stated to be subject to change and it was accepted that the subcontract did not require Leander to adhere to them.
Mulalley contended however that Leander were required to proceed regularly and diligently and that the activity schedule was the best tool to use to measure whether they were doing so. It also argued that the term was implied into the contract because it was necessary to make it work properly.
Mulalley said Leander was not keeping up with the schedule, and withheld money from payments because of it.
Court takes subcontractor's side
Leander disputed Mulalley's arguments, and the court agreed.
It said there was no implied term because it was not necessary in order to make the contract work. There were other terms in the contract which allowed Leander to exercise control over Mulalley’s performance and there was no need for anything further.
The court confirmed that, in the absence of express requirements it is up to the subcontractor how the completion date is met. A main contractor seeking to co-ordinate the work of several subcontractors will need to include appropriate express conditions in his subcontracts.
Problems for main contractors
“Drafting such clauses is a notoriously difficult exercise,” said Clinton. “Perhaps that is why so many contracts steer clear of doing so – look at the JCT forms and see how little reference is made to programmes.
“Simply making the programme a ‘subcontract document’ will not do. If the subcontractor is to be required to follow the programme, it will be necessary to have a mechanism for adjusting programme dates where delay is caused by the contractor – otherwise the obligations will not be enforced.
“Beefing up the contractor’s rights to dictate the pace of progress is one approach but not one likely to be popular with subcontractors.
“Including a general obligation to ‘proceed regularly and diligently’ is another option but the precise meaning of that expression is open to debate. An updated and fuller expression of the same idea would be preferable.”
The case may reignite the debate started 20 years ago by the NEC contract, Clinton feels – should building contracts concern themselves with project management or should they be limited to dealing with rights and liabilities? “Looking again to that form of contract for inspiration may pay dividends,” he says.
The Mulalley case is also notable as it is the first to comment on the amendments to the Construction Act since they came into force. Section 108A of the Act was intended to outlaw so called ‘Tolent clauses’, which require one party to pay the adjudication costs of the other regardless of who wins the adjudication.
“Many commentators consider that s108A does not work,” says Clinton. “In Leander, the court gave a clear indication that arguments to the effect that s108A does not prohibit Tolent clauses are likely to be given short shrift.”
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This article was published on 13/03/2012 (last updated on 13/03/2012).