Leander vs Mulalley: Getting contracts right first time

While you would be forgiven for being “utterly flummoxed” by the contractual analysis served up in Leander vs Mulalley, it is a fascinating case that provides some useful practical points that are worth remembering when drafting contract terms on a project. Also, if a dispute rears its ugly head, this case shows that you can make good use of the court’s “alternative procedure for claims” in order to avoid an otherwise costly adjudication process.

Mulalley engaged Leander as subcontractor to carry out various works on a project in London. The subcontract works commenced on 27 September 2010 and by May 2011 it was clear that the works were in delay. Mulalley withheld sums on the basis of delay-related matters and alleged that Leander had breached an implied obligation to proceed regularly and diligently with the works. The court ordered Mulalley to pay up the withheld sums as there was no implied term as to progress so the withholding notices were invalid.

What then are the important practical points to take from the Leander case when setting up your contract terms?

The points below address specifically issues at subcontract level, but also apply to main contracts and consultants’ appointments.

• Given the absence of an implied term, if you want your subcontractor to progress his works regularly and diligently, spell it out in the subcontract by drafting an express obligation to that effect - ie as well as any right to terminate for failure to do so.

This is because, in the absence of such an express obligation, a subcontractor could progress his works as he sees fit, if needs be waiting until the final day prior to completion before carrying out his works! This could hinder the progress of any of your “follow-up subcontractors” and more importantly the main contract works.

• If you want your subcontractor to achieve specific interim dates, such as key dates under the main contract or dates that are essential to allow other subcontractors to achieve their programmes, then those dates should be included as express sectional completion, or as separate “key date” obligations in the subcontract. For example, you could include a sectional completion supplement so that you can take possession of each section of the site at the appropriate times required by your main contract, or include “key dates” requiring parts of the works to be completed (although not necessarily handed over) in addition to an overall completion date.
• It is, however, not enough only to draft express terms requiring regular and diligent progress or key dates. You must also include a workable extension of time mechanism that allows for the adjustment of the section and/or key dates, rather than merely an adjustment of the overall completion date of the project.
• In the absence of such a mechanism, there is a risk that if the subcontractor fails to achieve the section and/or key dates then any withholding of sums on that basis would be invalid.
• At dispute stage, is there a cost-effective alternative to adjudication for swift recovery of money owed?
• In the Leander case, the subcontract contained a Tolent clause which on its face required the referring party to pay both parties’ costs in adjudication regardless of who wins. In order to side-step any arguments over the enforceability of that clause and any delay that having to enforce an adjudicator’s decision would entail to secure a judgment, Leander used the court’s “alternative procedure for claims” under CPR Part 8.

This procedure can be used by a party to obtain a declaration on a point of law (or, in this case, a judgment for payment of money) where the decision will resolve a significant element of the dispute or save costs and there is no substantial dispute as to the facts. Its major advantage is that, unlike adjudication where usually each party bears their own costs of the procedure, the court’s general rule on costs applies. This means that the unsuccessful party will usually be ordered to pay the costs of the successful party, so it is a “cost reimbursable” procedure.

So this case shows how the courts can assist via their Part 8 procedure, to avoid arguments over liability for the other side’s costs in adjudication and to obtain swift recovery of money owed. As the saying goes, “there is more than one way to skin a cat” … three cheers for Part 8!

Andy Green is a solicitor at Pinsent Masons and acted for Leander