Failing to proceed with due diligence: Can this constitute a repudiatory breach of a building contract?

Failing to proceed with due diligence: Can this constitute a repudiatory breach of a building contract?

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Author: Andrew Outram

The Technology and Construction Court examined this issue in Sabic UK Petrochemicals Limited v Punj Lloyd Ltd and Vivergo Fuels Ltd v Redhall Engineering Solutions Ltd, and found in each case that it was not a repudiatory breach on the facts of the case.

The cases involved a similar set of facts; namely a contractor was appointed under a contract to construct certain works on a project. In each case, but for different reasons, the contractor fell into substantial delay and the relevant employer invoked the contractual termination provisions of the contract to terminate it.

In both cases, the contractor challenged the contractual termination and the employer resisted the challenge on the basis that the contracts had been validly terminated or, if they had not, that the failure to proceed diligently constituted a repudiatory breach of contract.

In both cases, the court considered that a repudiatory breach must:

  • go to the root of the contract, and/orĀ 
  • show an intention not to perform or that the party has expressed that it is or will be unable to perform the obligations under the contract in some essential respect.

In Sabic, the employer contended that the sheer scale of the delay and the contractor's deliberate failures to mitigate delay, its conscious over-reporting of progress, and its partial demobilisation constituted a repudiatory breach of contract.

However, the court considered that, although there were deliberate decisions made by the contractor not to comply with some of its contractual obligations, when viewed in its context the actions did not show "an absolute refusal by [the contractor] to perform its side of the contract". It was also stated that "mere delay - even when substantial - is not necessarily to be equated with a renunciation of the defaulting party's side of the contract".

In Vivergo, the employer argued that the contractor's failure to commit adequate resource during the project and the prolonged delay that arose as consequence of the contractor's performance, coupled with the cap on the amount of liquidated damages, constituted a repudiatory breach of contract. However, the court found that the contractor's failure to proceed diligently with the works did not satisfy the criteria for a repudiatory breach.

The court's finding in Sabic did not influence the outcome of the case as it had already found that the employer had validly terminated the contract. Whereas in Vivergo, as the court had found that the employer had not validly terminated the contract using the contractual mechanism, the court's decision failed to save the employer's purported termination of the contract and led to the employer itself being in repudiatory breach.

Both cases show that a failure to proceed diligently with works may contractually entitle the employer to terminate the contract, but it is only in more extreme circumstances where a court may find such a failure to be a repudiatory breach of contract - such as, potentially, a full unlawful demobilisation that materially affects the progress of the works.