Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd

In a detailed construction contract, an obligation to proceed with due diligence is assessed objectively by reference to the contractual objectives, programme and surrounding contractual provisions. It requires industrious, assiduous, efficient and expeditious performance, and may require accelerative measures where delay threatens those objectives. Delay is evidence of possible lack of diligence but is not conclusive. A contractual completion date does not cease to matter merely because achievement has become difficult or apparently impossible.

An implied cooperation or non-hindrance term will not readily be added to a detailed commercial contract containing express provisions governing cooperation, prevention and delay. Termination provisions must be construed according to their wording. A warning of failure to proceed with due diligence need identify the obligation and nature of the failure, but need not prescribe every remedial step.

SABIC engaged Simon Carves Ltd to design and construct a polyethylene plant. Punj Lloyd Ltd guaranteed Simon Carves’s performance. The contract was varied by SSA2, which fixed an Ethylene In Date of 5 December 2008 and incorporated a Completion Plan.

Simon Carves experienced substantial delay, reduced resources and financial deterioration. SABIC issued a warning on 3 October 2008 under clause 27.2.10 and terminated on 3 November 2008. Punj Lloyd and Simon Carves disputed the validity of the termination, claimed that SABIC had hindered performance, and sought repayment of sums paid under performance and advance payment guarantees. SABIC claimed completion costs, delay-related losses and other sums.

The central issues were whether the warning was effective, whether Simon Carves had failed to proceed with due diligence, whether its financial position justified termination, how the contractual limitations operated, and how the guarantees were to be accounted for.

1. Termination upheld. The court held that Simon Carves had persistently and substantially failed to proceed with the works with due diligence. By 3 October 2008 it was materially behind the Completion Plan and had taken no effective steps to recover the slippage. During the warning period, further delay occurred, particularly in PFP, insulation and cleaning and blowing. The failure persisted until 3 November 2008 and justified termination under clause 27.2.10.
2. Meaning of due diligence. The obligation was objective and contractual. It required the contractor to work industriously, assiduously, efficiently and expeditiously towards the agreed contractual objectives, including the 5 December 2008 EID. It did not impose an absolute obligation to achieve the date, but the date remained relevant to the diligence obligation. The obligation could require additional or accelerative measures. It did not become less onerous merely because achievement had become difficult. Delay was evidence calling for explanation, including consideration of any breach by SABIC, but was not conclusive by itself.
3. Completion Plan and subcontractors. SSA2 imposed an absolute obligation to procure the subcontractor services necessary to ensure EID. The Completion Plan created a separate obligation to achieve EID substantially in accordance with the planned route, allowing for ordinary imprecision. Substantial failure to follow it could constitute, or evidence, breach.
4. Implied terms. The proposed broad terms requiring SABIC to cooperate or not hinder performance were rejected. The detailed contract expressly dealt with collaboration, prevention, delay and the consequences of SABIC’s acts. The court nevertheless took SABIC’s conduct and other external circumstances into account when assessing diligence. SABIC’s handling of quality documentation had caused some unjustified hindrance, but it did not account for the overall delay.
5. Warning. The warning letter plainly invoked clause 27.2.10, identified failure to exercise due diligence and gave sufficiently precise examples. It was unnecessary to prescribe the precise remedial measures. The seven-day period did not invalidate the warning, particularly as SABIC allowed a month before termination.
6. Financial deterioration and other claims. Simon Carves’s financial deterioration substantially jeopardised its ability to perform, independently justifying termination under clause 27.2.5. Its conduct came close to repudiation but did not amount to an absolute refusal to perform. The lost-revenue claims were excluded by clause 35.1. Clause 35.2.4.2 did not automatically cap the clause 30.9 completion-cost claim at 20%. The counterclaim failed. Judgment was entered for SABIC for £11,797,514, with statutory interest to be determined separately.