A recent UK High Court decision examined the circumstances where it is appropriate to imply a term into a sub-contract requiring a sub-contractor to proceed with its works regularly and diligently.
In this instance, the sub-contract contained an activity schedule setting out a programme with interim completion dates. Concerned at the sub-contractor’s failure to reach these interim target dates, and the potential for future delays and loss, the contractor served two withholding notices against sums to the sub-contractor.
According to the sub-contract, a failure to “proceed with the Sub-Contract Works regularly and diligently” constituted grounds for termination of the sub-contract. However, there was no express obligation on the sub-contractor to so proceed.
The contractor sought damages for the interim delays arguing that there was an implied term in the sub-contract obliging the claimant to proceed “regularly and diligently”, and that this term had been breached.
The Court referred to a well-established body of law in relation to implied contractual terms. It noted, that in order to imply a term, it must be “necessary to give business efficacy to the (sub-)contract”.
It was decided that the contractor had “not come close to demonstrating that the alleged term [was] necessary to make the contract work”. In addition, it was noted that historically, the courts had been reluctant to impose such implied terms upon contractors or sub-contractors where there is an overall obligation to complete the works by a certain date.
The Court refused to imply the term and the contractor’s withholding notices were deemed to be invalid. The contractor was ordered to pay the outstanding sum to the sub-contractor.
Whilst not binding in Ireland, this case is of persuasive authority in cases where performance-related issues arise. As in the UK, the law in Ireland in relation to implied terms in contracts is well-established. This case serves to highlight the importance of making sure that all parties are satisfied that appropriate performance requirements and obligations are expressly noted in the contract to reflect their intentions.