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SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC)

Meaning and application of “due diligence” in construction disputes

Facts

The legal relationship in this case was between SABIC and a company owned by Punj Lloyd Ltd – namely, Simon Carves Ltd. The latter had been contracted by SABIC in 2006 to develop a plant which could produce 400 kilotonnes of low density polyethylene per annum. However, in 2011 Simon Carves went into administration. The problems had started much before then, as in November 2008 SABIC decided to end its relationship with Simon Carves, due to a cited poor progress with the works on the plant. This caused disagreements as to how the legal relationship would be resolved (in terms of what was owned, by whom and to whom). The key term which was disputed in the case was “due diligence” and namely whether Simon Carves had carried out its works on the plant with due diligence.

Issues

The issue in this case was the proper interpretation of the term “due diligence” in this context. SABIC asserted that this had to be assessed in relation to the defendant’s contractual obligations, and that the failure to request time extensions meant that the subsequent failure to profess appropriately with the plant, amounted to a lack of due diligence. The defendants on the other hand argued that both the contractual requirements and the realistic date of completion must be taken into account when considering “due diligence”.

Held

The judge, citing Ampurius Nu Homes Holdings v Telford Homes [2012] Ch 1820 (Ch) among others, Stuart-Smith J held that due diligence must be assessed by reference to the aims of the contract so that for instance a greater pace of work may be required to meet the due diligence standard if the contract imposed specific deadlines which could not otherwise be met.

“the obligation of due diligence imports (but is not limited to) an obligation to carry out and to complete the Engineering Works industriously, assiduously, efficiently and expeditiously. What would satisfy the obligation to act with due diligence would depend upon what was required in order to achieve the contractual objects and might include the adoption of accelerative measures if delay occurred which threatened those contractual objects. There is no reason to think that the obligation of due diligence would become less onerous if it was or became impossible for a particular contractual object to be achieved.” (Stuart-Smith J)


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