Leander Construction Ltd v Mulalley & Company Ltd

A term requiring a construction contractor or subcontractor to proceed regularly and diligently will not ordinarily be implied merely because the contract contains interim programme information or a termination clause referring to lack of regular and diligent progress. The strict test of necessity applies. The contract must require the term to make the bargain work, and the term must not contradict or cut across the express contractual machinery.

Where the contract contains one completion date and an extension-of-time and delay regime directed to that date, implying separate interim obligations may substantially alter the parties’ rights. A withholding notice based on an alleged cross-claim fails where the cross-claim depends on a non-existent implied obligation.

Leander Construction Ltd was engaged by Mulalley & Company Ltd under a construction subcontract for groundworks, drainage, concrete framework and associated works. The subcontract identified a commencement date, a 46-week duration and one completion date, but the Activity Schedule expressly described its dates as indicative only.

Mulalley issued withholding notices seeking to retain sums otherwise due, alleging delay measured against the Activity Schedule. It accepted that the Schedule dates were not contractually binding, but argued that the subcontract contained an implied term requiring Leander to proceed regularly and diligently, with the Schedule serving as a means of measurement.

The central issue was whether that implied term existed and, if so, whether the withholding notices were valid.

1. The claim succeeded. Mulalley was not entitled to withhold the sum claimed because its notices depended on an implied term which the subcontract did not contain. Judgment was entered for Leander in the agreed sum of £123,330.34 plus £4,893.53 interest, payable by 4 pm on 4 January 2012.
2. The implication of terms is subject to strict constraints. The proposed term must be reasonable and equitable, necessary to give business efficacy, obvious, capable of clear expression and consistent with the express contract. The touchstone is necessity: the question is whether the contract fails to deliver the agreed bargain without the term. The approach in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1978] 52 ALJR 20, as considered in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 and [2009] 1 WLR 1988, was applied.
3. The authorities, particularly GLC v Cleveland Bridge and Engineering (1984) 34 BLR 50, showed reluctance to imply interim obligations concerning the rate or regularity of performance where the contractor was required to complete by a specified date. The subcontract’s termination provision did not itself create a free-standing obligation. It could provide a mechanism for a ‘hurry-up’ notice without creating a damages claim for interim delay.
4. The subcontract had one completion date and one contractual period. Its extension-of-time and set-off provisions operated by reference to that completion date. The proposed term would introduce obligations based on numerous activity dates and durations, require further implied terms, and cut across the express delay mechanism. The alleged two-phase structure and critical-path inferences were unsupported and inconsistent with the contract.
5. The withholding notices were not invalid merely because the Activity Schedule might have been an unsuitable measure of regular and diligent performance. If such an implied term had existed, the Schedule could pragmatically have been used as a measuring tool. The notices were invalid because the underlying implied term did not exist.