Don’t touch those defects

It is often a vexed question whether a contractor should be entitled to rectify defects in its works when an employer has lost confidence in its abilities. There is often a clash between the desire for contractors to seek to minimise their losses by rectifying their own defects and the desire of employers (in some circumstances) for the defaulting party not to darken their door again.

Restraining a replacement contractor from rectifying defects

The recent case of Flexidig Ltd vs A Coupland (Surfacing) Ltd concerned a novel question in this context: could the original subcontractor (Flexidig) obtain an injunction preventing a replacement subcontractor (Coupland) from repairing defects in Flexidig’s works?

The court acknowledged it was arguable M&M could have been acting in breach of contract by engaging a third party without giving Flexidig the opportunity to rectify its defects.

The main contractor, M&M, and Flexidig had entered into a subcontract for civil engineering works connected with the installation of fibre optic cable in Louth for the employer, Virgin Media Ltd, and Lincolnshire county council.

Under the subcontract, Flexidig was required to make good any defects during the progress of the works and the defects liability period. If Flexidig failed to do this, M&M could engage another party to do so, or complete the works itself, and recover the costs from Flexidig. M&M was also entitled to terminate the contract for breach, or for convenience on one week’s notice.

M&M and Flexidig fell out. Both obtained adjudication awards against the other. Flexidig was awarded £185,000 for works undertaken and M&M was awarded £462,000 as an on-account sum for defects. Enforcement proceedings were commenced for both sums but were subsequently adjourned to allow Flexidig an opportunity to return to site and correct the defects.

Flexidig returned to site but M&M was unhappy with the remedial works and stopped the work on two separate occasions. M&M then contracted with Coupland as a new  subcontractor to complete the rectification works on a call-off basis.

Claims by the parties

Somewhat unusually, Flexidig then applied for an injunction against Coupland to stop it carrying out these rectification works. Surprisingly, it did not claim against M&M.

Flexidig argued M&M had engaged Coupland in breach of contract to remedy the defects, when Flexidig had the right to perform those works under its subcontract. Flexidig claimed that in continuing to comply with call-off instructions from M&M to  undertake work while aware of this alleged breach, Coupland’s actions constituted the tort of procuring a breach of contract.

The court’s decision

The court rejected the application on the basis that:

(i) there was no inducement of a breach of contract by Coupland;

(ii) while it was possible M&M could have breached the contract by appointing Coupland to complete the remedial works, the court was unconvinced by this argument; and

(iii) injunctive relief was not an appropriate remedy in these circumstances. If it were granted, M&M could simply terminate its contract with Flexidig under the termination-at-will clause and then engage another subcontractor.

Procuring a breach of contract

A key part of the tort of procuring a breach of contract is an intention by the defendant to induce the third party to breach its contract with the claimant.
The court found that while Coupland may have facilitated a breach by accepting the works, this was not the same as procuring a breach. Facilitating and inducing did not mean the same thing. The defendant would only be liable if the claimant could demonstrate the requisite mental ingredient to a claim for inducing breach of contract – namely an intention by Coupland to induce a third party (M&M) to breach its contract
with Flexidig. All Coupland knew was that Flexidig alleged M&M was acting in breach of contract, to which M&M told it otherwise. The court rejected the suggestion that Coupland should have assessed the correctness of such competing arguments before accepting its engagement.

The court acknowledged it was arguable M&M could have been acting in breach of contract by engaging a third party without giving Flexidig the opportunity to rectify its defects. However, it was not persuaded that this was a breach of contract in this case, as Flexidig’s subcontract did not necessarily require M&M to allow it to return to remedy
defects in all circumstances. It did not expressly provide that M&M could not engage a third party to remedy defects should it so desire. However, the court did suggest that it was implicit in the subcontract that M&M should request Flexidig remedy defects if it wished to subsequently claim the costs of engaging another.

Requirements of an injunction

Anyone seeking injunctive relief needs to satisfy the American Cyanamid test, that:
(i) there is a serious issue to be tried,

(ii) damages would not be an adequate remedy, and

(iii) the balance of convenience favours granting an injunction. The court’s finding that there was no inducement meant there was no serious question to be tried. In any event, damages would have been an adequate remedy, especially as granting an injunction would not necessarily result in Flexidig resuming and completing the works. As such, the balance of convenience was against granting an injunction.

Engaging a replacement contractor to rectify?

While unusual, this case is an interesting illustration of the issues that may arise in the rectification of defects. The more interesting question is: in what circumstances could an employer, despite there being a provision in the contract entitling the defaulting party to
come back to rectify its own defective works, be entitled to deny that party that opportunity?

This may depend upon the nature and extent of the defects found or if that party had already gone back to rectify defects and the employer still remained unsatisfied with the quality of the remedial works.

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This article was written by Steven Carey. For more information, please contact Steven on +44 (0)20 7427 1062 or at steven.carey@crsblaw.com.