Subcontractor gets paid despite dismissal before work started

A court has ruled that a subcontractor should be paid for its involvement in a large project despite being dismissed before work got under way.

The case involved an oil company that was hired to carry out development work in Iraq. It then decided to outsource some of the work to the subcontractor. The entire deal was worth $75m.

The Iraqi company made two non-refundable payments to the oil company, a 15% advance for the work and 7.5% for set-up costs.

The scale of the project was then reduced by the Iraqi company, meaning the overall fee went down to $55m. The oil company went ahead without using the subcontractor.

The subcontractor took legal action. It claimed the oil company had repudiated the agreement and was liable for the large sums of credit it had taken on in preparation for the project.

The High Court ruled that the subcontractor was entitled to the advance payment and set-up costs, totalling 12.5%. They had been agreed as non-refundable.

The court estimated that the $55m project budget would have generated a profit of $800,000 in construction work and $5m in services for the subcontractor. Therefore, a further $5.8m was awarded.

Please contact Simon Porter if you would like more information about the issues raised in this article, or any other aspect of contract law.