What does it mean to carry out works with ‘due diligence’?

The requirement to carry out work with ‘due diligence’ is often the subject of disputes. A recent case in the UK, Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC), has examined what it actually means to complete a work with due diligence.

The claimant, Sabic contracted with a subsidiary of Punj Lloyd (who had signed a parent company guarantee) to build a plant for the production of low density polyethylene. After the contract had been extended twice, further slippage to the programme occurred and the claimants terminated the contract because the contractor was failing to proceed with the works with due diligence. The contractor argued that it was not required to achieve the impossible, its progress should be assessed against what was feasible at the time, and it wasn’t required to take accelerative measures. The judge found that the contractor had breached the obligation to proceed with due diligence.

It was found that the obligation of due diligence will be linked to the parties’ obligations under the contract – i.e meeting a certain completion date. Here, due diligence meant an obligation to carry out and complete the contract works industriously, assiduously, efficiently and expediently. In some cases it may also require the contractor to put in place some accelerative measures to overcome delays that threaten these objectives.

Due diligence is an objective concept. What will satisfy the due diligence test depends on what the contractor is required to do under the contract and it isn’t less onerous if a particular contractual obligation, such as a completion date, becomes impossible to achieve. Where it is said that an obligation is impossible or incapable of being performed, there is likely to be scrutiny about the reasons for that and the due diligence obligation will be relevant to minimising any ongoing breach.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s