Grain Communications Limited v Shepherd Groundworks Limited

By Freddy Ashe, Trainee

Grain Communications Limited (“GCL”) entered into a framework agreement with Shepherd Groundworks Limited (“SGL”) relating to the provision of underground duct laying, jointing chamber and toby box construction, as well as other associated works, in the Northeast of England.

This case is GCL’s application for various declarations that:

1. It was not in breach of the terms of the of the Blyth Work Order, or the framework agreement; and
2. To the extent it is in breach of either the Blyth Work Order or the framework agreement, it is not liable to SGL for the mobilisation and/or demobilisation costs or loss of profit allegedly suffered by SGL.

Under the terms of the framework agreement, GCL was the employer and SGL was the contractor. The framework agreement permitted GCL to instruct SGL to perform works and services in accordance with the terms of the framework agreement. Any works and services were to be performed by SGL in accordance with each Work Order provided by GCL. The Work Order which this dispute concerns was entered into by the parties on 7 September 2023.

In an email from GCL to SGL on 24 October 2023, GCL confirmed that the Work Order of 7 September 2023 would go ahead, but not before the end of the year. In February 2024, GCL sent a letter to SCL giving them a notice of the suspension of the works and followed this up with a letter terminating the work order of 7 September 2023. SGL responded by issuing its application for payment on 10 April 2024 and referred the dispute to adjudication on 16 April 2024.

The decision of the adjudicator was issued on 29 May 2024. In that decision, the adjudicator determined that the email of 24 October 2023 was not a variation as defined under the contract but rather a cancellation of the Work Order. GCL then commenced Part 8 proceedings to assert that the email in fact amounted to a variation of the contract, and did not place them in breach.

At the start of the judgment, the following points of law are summarised in relation to implied terms and variation of contracts:

1. A term can be implied into a contract provided the term which a party seeks to imply is not illegal or contrary to an express term of the contract.
2. A term can be implied if it is reasonable, is necessary to give business efficacy to the contract, is so obvious it goes without saying, is capable of clear expression and does not contradict any express terms of the contract.
3. The effect of a variation instruction depends on the substance of what is said in the instruction.
4. The variation must be evident from the document said to constitute a variation instruction.
5. An instruction need not contain the word postpone in postponing the works.
6. What is required is that any variation instruction complies with the requirements of the contractual clause for variations.

The judge disagreed with the adjudicator and found that the email of 24 October did amount to a variation, as GCL was entitled to vary the period in which the works could be carried out. Furthermore, GCL made clear that their intention was to continue with all the Work Orders which had been signed.

The judge also found that the wording of the contract clearly allowed GCL to postpone the works. Therefore, the judge ruled that any implied term that GCL would not postpone the start of the works would be contrary to the express terms of the contract. Significantly, the judge rejected arguments from SGL that the implication of any implied term would be required to give business efficacy to the framework agreement. If this was the case, a specific term to that effect should have been agreed between the parties. Because it wasn’t, GCL could not be in breach of a clause of the contract that did not exist.

Since the judge had found that there had been a variation under the contract, no term was to be implied as it was not expressly agreed between the parties, and therefore GCL were not in breach of any such term, they also found that SGL could not claim costs for any loss of profit, as well as mobilisation or demobilisation costs. This was in line with a clause in the contract, that the Employer could not be liable in the event of the termination of a Work Order for costs, loss of profits or any indirect or consequential losses.

This case demonstrates the importance of making sure that any terms are agreed expressly during pre-contract negotiations, and that they are drafted carefully into the contract. Where clauses are clear, a court will not deviate from their application. The judgement serves as a warning that parties cannot come to the court to complain about expressly drafted contractual provisions, the effects of which they have only realised after the fact.