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Implied terms in construction contracts
Implied terms are rarely thought about when
contracts are formed, but they may have a
significant effect on the parties' rights and
obligations. This article concentrates on the
2 more common types of implied term: those
imposed by statute and those implied by
case law1.
Some of these may be familiar – for example the Housing
Grants Construction and Regeneration Act 1996 imposes
some minimum requirements for construction contracts
which cannot be excluded. These include a right to
adjudicate, the right to payment by instalments, notices of
payment and suspension for non-payment, and making
"pay when paid" clauses unenforceable except on
insolvency.
Terms implied at common law include that the building
owner will give possession of a site within a reasonable
amount of time2. Likewise the employer will co-operate to
allow the contractor to carry out the works in a regular and
orderly way and must not hinder or prevent the contractor
from doing so3. Also, the contractor will carry out work in a
'good and workmanlike manner'4 (this is now reflected in
the requirement in the Sale of Goods and Services Act
1983 that services are to be provided with 'reasonable skill
and care').
Others may be more of a surprise, particularly in the case
of those which are not implied but which one might expect
to be.
For example, is it an implied term of a construction subcontract that the sub-contractor will execute the works so
as to meet the contractor's programme? Yes? Well
actually, no5. It is the sub-contractor's obligation to finish
by the completion date and it is up to him to organise his
work as he sees fit. If the sub-contractor feels that he can
leave all the work to the last month and complete on time
then, despite the concern of the anxiously watching
contractor, he may do so. If the contractor wants to impose
some other obligation, there needs to be an express term.
How about the site conditions – does the employer have to
ensure that the site is free from rubbish and debris so that
the works can proceed? Again, no.6 How about the right
to extend the time for completion of later phases where an
earlier phase was delayed and an extension granted? Yet
again, no.7 Well, surely a builder of a school should have
uninterrupted possession of and access to the site?
You've guessed it, no8. To top it all, in a contract for
construction to a given specification, the contractor does
not have to warrant that the works will be fit for purpose
upon completion9.
The courts may imply terms into a contract when the
parties have not expressed every material term, either in
writing or orally. However, it is difficult to persuade a court
that a term should be implied. Evidence is needed both
that a term should be implied, and also the precise content
of the term. Additionally where a contract has been
expressly drafted it is difficult to imply a term as the
contract is more likely to be exhaustive of the parties'
agreement. A term may not be implied which conflicts with
any of the express terms of the contract, although it is not
impossible for such a term to deal with the same subject
matter as the express term.10
Nevertheless, the courts are willing to imply terms when
necessary to give business efficacy to the contract and
where it would be so obvious that it 'goes without saying',
provided the term is reasonable and equitable, capable of
clear expression and does not contradict any express
term.11 But it must be necessary, not just commercially
reasonable. More recently the courts have taken a more
purposive approach to implying terms, asking what the
instrument, when read as a whole against the background,
would reasonably be understood to mean12 and whether
the proposed implied term is necessary to make to contract
work.13
6
Allridge (Builders) Ltd v Grandactual Ltd (1996) 55 Con LR 51
Trollope & Colls Ltd v North West Regional Health Board [1973] 1 WLR
601, HL. See also Liberty Mercian Ltd v Dean & Dyball [2008] EWHC
2617.
8
Porter v Tottenham U.D.C [1915] 1 K.B. 776
9
Lynch v Thorne [1956] 1 WLR 303
10
Scottish Power plc v Kvaemer Construction (Regions) Ltd 1999 SLT
721
11
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR
266, 282-283 per Lord Simon of Glaisdale
12
Attorney General of Belize v Belize Telecom [2009] UKPC 10
13
Mediterranean Salvage [2009] EWCA CIV531
7
1
The other type of implied term is a term implied by custom or practice
LB Merton v Leach (1985) 32 BLR 51
3
Allridge (Builders) Ltd v Grandactual Ltd (1996) 55 Con LR 51
4
Duncan v Blundell (1820) 171 ER 749
5
Multiplex Constructions UC Ltd v Cleveland Bridge UK Ltd [2006]
EWHC 1341 (TCC)
2
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Publication number 10941368
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Implied terms in construction contracts
Clearly then there can be surprises in store, and terms and
obligations should not be assumed to exist if not
specifically stated in the contract. So what can be done?
There are two methods of escaping terms implied by the
common law. The first method is by preparing and using
contracts which deal with all the eventualities that will arise
on the construction project. Unfortunately, as the multiple
examples show, dealing with every eventuality is an almost
impossible task, but those that can be foreseen should be
dealt with explicitly.
Secondly, contracting parties can use an exclusive
remedies or entire agreement clause. This seeks to
exclude any other excludable terms and to prevent the
parties bringing claims based in tort. The clauses set out
are intended to be the whole of the bargain between the
parties, so that they can only rely on rights, obligations and
liabilities explicitly expressed in the contract. This can
cause difficulties. For example, late completion or loss and
expense could leave the other party with no remedy.
However, even exclusive remedies or entire agreement
clauses will not suffice to exclude implied terms which are
fundamental to any building contract14.
The approach should be clear – if you definitely want
something in, or out, then say so explicitly and do not leave
it to chance. Try to provide for all foreseeable
eventualities, especially those peculiar to the site, and
remember there are certain obligations, particularly those
imposed by statute, that cannot be excluded and will be
implied regardless. Also you should consider the effect of
deleting terms from a draft contract and what the fall back
position will be if no term is included. Will an implied term
exist? Not even the use of an unamended standard form
will necessarily avoid the implication of an implied term15.
Contact
Jonathan Brooks
Partner
jonathan.brooks@osborneclarke.com
T +44 117 9173462
Contact
Emma Gonzalez
Lawyer
emma.gonzalez@osborneclarke.com
T +44 117 9174326
These materials are written and provided for general information
purposes only. They are not intended and should not be used as a
substitute for taking legal advice. Specific legal advice should be taken
before acting on any of the topics covered.
Finally, if any doubt exists as to the importance of implied
terms, remember the case of Mowlem plc v Phi Group
Ltd16, where an arbitrator declined to imply a term for
payment. That cost the contractor millions.
14
For example, an implied term that the contractor should have a
sufficient degree of uninterrupted and exclusive possession of the site to
permit it to carry out its work unimpeded and in the manner of its choice –
Queen in Right of Canada, The v Walter Cabott Construction Ltd 21 BLR
42, Federal Court of Appeal, Canada.
15
E.g. Blackford & Sons (Calne) Ltd v Christchurch Corp [1962] 1
Lloyd's Rep. 349 which considered the ICE conditions of Contract (4th
ed., 1955).
16
[2004] BLR 421
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© Osborne Clarke January 2011
Publication number 10941368