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Case law: Sub-contractors taking over existing work beware claims from previous sub-contractors

Sub-contractors brought in to complete existing works should consider asking the main contractor to disclose the terms of contracts with previous sub-contractors, or risk a claim that by agreeing to finish the existing work, the new sub-contractor induced the main contractor to breach those contracts. If necessary, consider asking for indemnities from the main contractor in case a claim is made.

December 2019

This update was published in Legal Alert - December 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A contractor took on a sub-contractor to provide engineering works on a project. The contract provided:

‘The sub-contractor shall maintain and protect the sub-contract Works and shall make good at the sub-contractor's own expense and at such times to be decided by the Contractor, any defects in or damage to the sub-contract Works… Where the sub-contractor does not make good any sub-contract Works to the satisfaction of the Contractor and Client, the Contractor may engage another contractor.’

The contractor was not happy with the sub-contractor’s work and served a stop notice on it. The sub-contractor asked for, and was given, an opportunity to put the problems right but the contractor was still not satisfied. It served another stop notice on the original sub-contractor and brought in a new sub-contractor instead.

The original sub-contractor sued the new sub-contractor for ‘inducing a breach of contract’ – that by taking over the work after it had been notified of the original sub-contractor’s contractual right to remedy any problems, the new one had caused the main contractor to be in breach of that contract.

To succeed, the original sub-contractor had to show ‘intentional causative participation’ - that the new sub-contractor:

  • acted in a way that induced the main contractor to breach its contract with the original sub-contractor;
  • knew that, or was reckless as to whether the act it had induced the main contractor to carry out was a breach of that contract;
  • had intended (not necessarily maliciously) either to induce the main contractor to breach the contract with the original sub-contractor or had intended the consequences of that breach.

The High Court found that the contract did not in fact say the main contractor had to give the original sub-contractor an opportunity to put right any works, so there had been no breach of contract by the main contractor. The new sub-contractor could not therefore have induced a breach - because there was no breach.

However, the court then considered what the new sub-contractor’s position would have been if there had been a breach.

First, at the time the new sub-contractor took on the work, it had not known the previous contract even existed, so it could not have known or intended that taking on the work could be inducing a breach of contract.

It later found out about the previous contract - when it started the work the original sub-contractor told it there was a contract, and that the contract said the main contractor was legally required to allow the original sub-contractor to carry on with the work. But when the new sub-contractor queried this with the main contractor it was told that the did not contain the alleged provisions. The Court was satisfied, saying there was no duty on the new sub-contractor to investigate further so it had not acted with ‘reckless indifference’ either.

The High Court concluded that the new sub-contractor had done nothing more than agree with the main contractor to carry out the work. At worst the new sub-contractor had merely ‘facilitated’ a breach by the main contractor but this could not amount to inducing a breach of contract.

The fact the new sub-contractor ended up in court at all shows the risks that can arise when taking over uncompleted work from a previous sub-contractor.

Operative date

  • Now

Recommendation

  • Sub-contractors brought in to complete works should consider whether to ask the main contractor about their contracts with previous sub-contractors, to avoid the risk of a claim that they induced the contractor’s breach of those contracts - and, if necessary consider requesting indemnities from the main contractor in case of a claim.

Case ref: Flexidig Ltd v A Coupland (Surfacing) Ltd [2019] EWHC 2578

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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