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Management, Procurement and Law Volume 170 Issue MP5

Discussion: Good faith obligations in NEC contracts and Construction Law Quarterly Davis, Thurlow, Dix and Jackson

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Proceedings of the Institution of Civil Engineers

Management, Procurement and Law 170 October 2017 Issue MP5 Pages 218219 http://dx.doi.org/10.1680/jmapl.17.00033 Paper 1700033

Received 17/07/2017

Accepted 17/07/2017

ICE Publishing: All rights reserved

Accepted 17/07/2017 ICE Publishing: All rights reserved Discussion: Good faith obligations in NEC contracts and
Accepted 17/07/2017 ICE Publishing: All rights reserved Discussion: Good faith obligations in NEC contracts and

Discussion: Good faith obligations in NEC contracts and Construction Law Quarterly

Terrence Davis BCom, LLB, HDip Tax, HDip Co Law (Wits)

Quali ed (The Law Society, England) Practising Attorney under the style LindsayKeller, Rosebank, Johannesburg, South Africa (corresponding author: tdavis@lindsaykeller.com)

Peter Newson Thurlow Pr Eng BSc (Eng) (Civil) Wits, MSAICE, MICE, MCMI, MAPM(SA), PMP(USA)

Construction Procurement and Delivery Consultant, Montgomery Park, Johannesburg, South Africa

Contribution by P. Dix

Peter Dix BSc, LLB, CEng, MICE, FCIArb, IMaPS

Director, Marsden ADR Ltd, Tyne and Wear, UK

Shy Jackson LLB, LLM, MSc, FCIArb, FInstCES

Partner, Pinsent Masons LLP, London, UK

It is interesting to compare and contrast two recent papers in Management, Procurement and Law: Davis and Thurlows brieng entitled Good faith obligations in NEC contracts(Davis and Thurlow, 2016) and Jacksons contribution to the Construction Law Quarterly(Higgs et al., 2016)

Whereas Davis and Thurlow assert in their introduction ‘… the duty of good faith is accepted by the parties in core clause 10.1 as governing their dealings concerning the project(Davis and Thurlow, 2016: p. 145), Jacksons review of case law suggests that the English courts are generally reluctant to imply a duty of good faith. Jackson

its concomitant duciary duties. This is what the words of 10.1 say: The Employer , the Contractor shall act intrust …’ (NEC3, 2013: core clause 10.1).

The laws of trust govern the manner in which a trustee may deal with the trust property held by the trustee for the benet of a bene ciary. The laws of trust prohibit a trustee from utilising the trust property for their own bene t, or acquiring any gain arising from the trust property for their own benet, or detracting in any manner from the trust property to the prejudice of the bene ciary.

notes that neither NEC3 (2013) nor the Framework Alliance

A

trustees duties exist only in respect of the trust property held

Contract (FAC-1 (ACA, 2016)) expressly use the term good faith.

by

the trustee for the benet of the beneciary. Because the parties

to

the NEC do not hold trust property for the benet of the other

In TSG Building Services PLC v. South Anglia Housing Ltd [2013] (a decision regarding a term partnering contract (ACA, 2008), referred to by Jackson), Mr Justice Akenhead stated in paragraph 51 I do not consider that there was as such an implied term of good faith in the Contract. The parties had gone as far as they wanted in expressing terms in Clause 1.1 about how they were to work together in a spirit of trust fairness and mutual cooperationand to act reasonably. Even if there was some implied term of good faith, it would not and could not circumscribe or restrict what the parties had expressly agreed…’ It would appear on the basis of this case that rather than unequivocally incorporating good faith obligations into the contract clause 1.1, and by extension NEC3 clause 10.1, serves to limit the relationship of the parties to the words expressly used.

party, core clause 10.1 obliges the parties to act in the spirit of trust. This obliges the parties to act as if they were each holding trust property for the benet of the other, and to comply with the legal principles underlying the law of trust. The trust property in this case is the contractual and accrued rights of the beneciary party in terms of the contract. These rights arise directly from the undertaking of the trustee party in core clause 10.1 to act as stated in this contract . It is in respect of these rights of the beneciary party that the trustee party is prevented by its duciary duties from diminishing, or changing in any manner not provided for in the contract. In so complying with its obligations, the trustee party is acting as a quasi-trustee in relation to the contractual and accrued rights of the beneciary party.

It is also interesting to note that although the word trustis used,

Author s reply (Terrence Davis)

Core clause 10.1 is the only clause in the contract that is structured

there is no suggestion in this decision that this implies a duty

as

a legal obligation: The Employer, the Contractorshall act

greater than that of good faith that is, of a quasi-trustee. Is there

intrust(own emphasis). To construe the word trustin this

such a judicial precedent or is the more likely interpretation going to rely on the context rather than on the literal interpretation of an isolated word? The leading cases on contractual interpretation

clause as a social science term is to relegate the legal obligation in clause 10.1 to mere window dressing, an expression of good intent and unenforceable. This was not the intention of Sir Michael Latham

would suggest that the courts would not interpret trustin a

in

his report Contracting the Team being the joint review of the UK

vacuum but would provide more weight to the context: perhaps the authors could shed some light.

government and construction industry of the procurement and contractual arrangements in UK construction (Latham, 1994). In this report, Sir Michael advocates that the wording of the then NEC core clause 1 be amended to include an obligation on the employee and

The use of the word of trust in core clause 10.1 imports into the contract the legal concept of trust (as a legal device) with

contractor to undertake the project in the spirit of mutual trust and co-operation(Latham, 1994: paragraph 5.20 (4)). The purpose being

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Management, Procurement and Law Volume 170 Issue MP5

Discussion: Good faith obligations in NEC contracts and Construction Law Quarterly Davis, Thurlow, Dix and Jackson

to change deep rooted cultural attitudespresent in the adversarial atmospherein the construction industry (Latham, 1994: paragraph

prevents the employer from detracting. This example illustrates the importance of the law of trust in the structure of the NEC.

5.20

(5)). This pervading amendment was introduced into core clause

10.1

in the second edition of NEC (November 1995). Sir Michael

Author s reply (Shy Jackson)

specically recommended the use of the word trustin the amendment; had he intended the word trustto mean a general duty of good faithhe would have used these exact words in his report. The term good faithor words with equivalent meaning would have been avoided precisely because they bring with them a lot of intellectual baggage, whereas the concept of a legal trust and its concomitant duciary duties are legally well established and certain.

There is still uncertainty about how the courts interpret good faithclauses (Jackson, 2014). The recent trend seems reluctant to accept that such clauses add much to what the contract expressly provides, although some court decisions do accept that clause 10.1 has an impact, most notably Northern Ireland Housing Executive v. Healthy Buildings (Ireland) Limited [2014] when looking at the time bar clause. Words like trustare difcult to apply and courts

Blacks Law Dictionary (5th edition) denes good faithas an intangible and abstract quality with no technical meaning or statutory denition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage, and an individuals personal good faith

may well be reluctant to hold they give rise to specic obligations. This author would be surprised if the English courts would nd that it gave rise to a duciary relationship or obliged a party to act as a trustee unless there were specic words to that effect, bearing in mind the reluctance to enforce a lower good faith obligation.

is concept of his own mind and inner spirit and, therefore, may not

conclusively be determined by his protestations alone(Black, 1981).

Obliging each party to work in trust with the other renders each party secure in the knowledge that the other party may not do anything to the prejudice of such partys rights. It is only once the parties are assured of this right that they can begin acting in co-operation with each other, and can fulll the goal of completing the project in partnership and in strict compliance with the terms of their contract.

The legal concept of trust in the NEC does not involve one party having to put the interests of the other party ahead of its own interests, but it does prohibit a party from detracting from the contractual and accrued rights of the other party as specied expressly in the contract, in the same way as a trustee is prohibited from detracting from the trust property to the prejudice of the beneciary.

In practice, this author has come across a number of cases where the project manager, or employer, or adjudicator has held that the assessment of a compensation event must be made as at the date of the assessment (no matter how late the assessment is made), and not as at the date of the compensation event rst coming into existence. This error has resulted in parties being obliged to wade through voluminous site diaries, minutes, reports and correspondence, in an attempt to establish what took place on site after the advent of the compensation event. These complex and costly investigations, which are required in other construction contracts, are obviated in the NEC.

In the NEC, the compensation event is assessed as the effect of the compensation event on the forecast Dened Cost of the work not yet done(NEC3, 2013: core clause 63.1). This is a right that accrues to the contractor in terms of the contract, on the advent of the compensation event, and the employer must not detract from this contractors right.

The NEC places the contractor, with regard to a compensation event, in

the same position that the contractor was when he or she rst forecast what the cost of completing the entire project would be and submitted

a tender. It is from this right of the contractor that core clause 10.1

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REFERENCES ACA (Association of Consultant Architects) (2008) ACA Standard Form of

Contract for Term Partnering . Association of Consultant Architects, Bromley, UK. ACA (2016) FAC-1: Framework Alliance Contract . Association of Consultant Architects, Bromley, UK. Black HC (1981) Blacks Law Dictionary , 5th edn. West Publishing, Eagan, MN, USA.

Davis T and Thurlow PN (2016) Good faith obligations in NEC contracts. Proceedings of the Institution of Civil Engineers Management, Procurement and Law 169(4): 145 146, https://doi.org/10.1680/jmapl.

Higgs N, Jackson S, Minogue A et al. (2016) Construction Law Quarterly.

Proceedings of the Institution of Civil Engineers Management, Procurement and Law 169(6): 258 265, https://doi.org/10.1680/jmapl.

Jackson S (2014) Good faith revisited. Construction Law Journal 30(8) :

379 389.

Latham M (1994) Constructing the Team. Her Majesty s Stationery Of ce, London, UK. NEC3 (2013) NEC3 Engineering and Construction Contract . ICE Publishing, London, UK.

Northern Ireland Housing Executive v. Healthy Buildings (Ireland) Limited

[2014] NICA 27.

TSG Building Services PLC v. South Anglia Housing Ltd [2014] EWHC

1151 (TCC).

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