South Africa: NEC: Mutual Trust And Cooperation

The NEC3 form had the (widely publicised) aim of encouraging cooperation, collaborative working and a fair allocation of risk between the parties to the contract. This was typified by clause 10.1, which appeared in each contract in the NEC3 suite and imposed an obligation on the parties to act in "a spirit of mutual trust and co- operation".

This clause created a great deal of debate amongst lawyers and those working under the contract which, until recently, had been left largely unresolved due to the lack of judicial comment on the clause. However, there have been two court judgments in the United Kingdom  this year which have drawn on clause 10.1 in support of their respective decisions and in doing so have shed light on what it means in practice for parties to act "in a spirit of mutual trust and co- operation."

Costain Limited v Tarmac Holdings [2017] EWHC 319 TCC was a dispute about which form of tribunal should hear the underlying dispute between the parties, based on the contractual agreements between them. One contract incorporated the NEC3 Supply (Short) Conditions. These conditions provided, at clause 93, adjudication and then arbitration, with strict time limits applying in each instance. However, another contract provided for adjudication, followed by litigation. Costain had attempted to adjudicate the dispute but the adjudication claim was rejected as it had been commenced beyond the contractual time limits to refer.

Understandably, fearing that an arbitrator would reach the same conclusion and find an arbitration claim was time-barred, Costain launched court proceedings to resolve the dispute. However, Tarmac applied to the court to have the court proceedings stayed to arbitration under s.9(1) of the UK Arbitration Act 1996, on the basis that the parties had entered into an arbitration agreement, and that the correct tribunal to hear the dispute was an arbitral tribunal, and not the court. Tarmac made this application, knowing that Costain would be time-barred from commencing an arbitration. Costain raised a number of counter-arguments, including that, as the contracts together provided for adjudication, arbitration and litigation, the "mutual trust" provision must mean that it was open to the parties to decide which tribunal was most appropriate for the dispute.

Coulson J interpreted the contractual dispute resolution provisions agreed by the parties and rejected Costain's arguments. He held that the parties had clearly intended to arbitrate their disputes, and a stay of the court action would be ordered accordingly.  . Coulson J further considered whether clause 10 (the 'mutual trust' provision) made any difference to his analysis. He endorsed (for the most part) the commentary in one of the leading textbooks on NEC (Keating on NEC3)and held that for parties to act with "mutual trust and co- operation" they must be prohibited from attempting to "improperly exploit" or mislead each other. In his view, this could extend to imposing certain positive obligations upon them and the example he gave was that a party would have to correct an "obvious false assumption" in light of this provision. He made it clear, however, that the obligation does not extend to a requirement for the parties to act against their own self-interest.

Applying this interpretation of clause 10.1 to the facts, Coulson J decided that Tarmac had not misled Costain, as its actions did not suggest that it would forego reliance on clause 93 or that it had waived its right to arbitrate. Simply participating in the first stage of a pre-action protocol procedure (which is a process which applies in the UK before court proceedings are instigated) was not enough to mislead Costain. He also held, on the facts, that Tarmac had no reason to believe that Costain was acting under a false assumption. As such, Tarmac had not infringed clause 10.1 and it was not estopped from relying on the arbitration agreement in clause 93.

In Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2017] NIQB 43, Deeny J went further than Coulson J in his interpretation of clause 10.1. This case involved the question of whether, when assessing compensation for a compensation event after the event, the prospective method of assessment set out in the NEC conditions was the correct method to adopt, or whether, due to clause 10.1, actual evidence of the cost impact of the event should be heard. Relying on clause 10.1, he required the consultant to disclose to the employer the records that it held of the actual time and costs incurred relating to a compensation event. In Deeny J's view, to not do so would be "entirely antipathetic to a spirit of mutual trust and co-operation".

Although the mutual trust and co-operation obligation was not crucial to the ultimate decision in the case, which was decided by determining the commercial reality of the circumstances, it is nevertheless noteworthy that Deeny J's decision that the consultant ought to disclose its records of actual cost coincided with a broad interpretation of clause 10.1. This is particularly so, if one considers hypothetically that, imposing this obligation could have required the consultant to act contrary to its own self-interest (if the actual costs incurred were lower than the costs which the consultant would have projected if it had submitted a prospective forecast before the works were commenced). Such an approach would be inconsistent with Coulson J's view in Costain, that the obligation could not be interpreted so as to require a party to act against its own interests.

Putting this interpretation point to one side, it is also arguable that the employer itself failed to act in "a spirt of mutual trust and cooperation" in the Healthy Buildings case. The question of whether the assessment of the consultant's costs ought to be made on the basis of forecast or actual costs only arose due to the employer's breaches – (first, the failure of its project manager to submit an instruction of the change of the works as a compensation event under the contract, and secondly, its project manager's failure to then request the consultant to provide a quotation for this change).

Returning to Costain, there was one aspect of the interpretation in Keating with which Coulson J disagreed, namely that the obligation went so far as to require the parties to act "fairly", which Coulson J felt would be too subjective. This makes both legal and commercial common sense. What would be considered fair by one party might not be considered fair by the other. This can be clearly illustrated by the decision in Healthy Buildings, where both parties would have had a strong argument for claiming that the other party had not acted fairly. In addition, the UK courts, when interpreting a contract are not generally concerned with the question of whether the parties have struck a fair bargain.

This is in contrast to the view taken by the Constitutional Court in South Africa, where in Botha and another v Rich N.O and others 2014 CCt89/13, the court considered whether a provision dealing with the cancellation of the contract was fair, in an attempt to develop the concept of good faith and fairness in the law of contract. It remains to be seen how far the South African court will go in sacrificing the requirement of certainty in the law of contracts for the concept of good faith and acting fairly, as "fairness" is not an independent substantive rule allowing the courts to interfere in contractual relations. At the very least, the notion of fairness should not be used to set aside clear contractual terms negotiated and agreed by sophisticated parties – and it can be seen from the judgments in Costain and Healthy Building that the interpretation of the mutual trust and cooperation obligation in clause 10.1 is becoming increasingly wide in the UK, despite Coulson J seeking to set limits on its scope  The clause clearly has teeth as  the willingness of the judges to use it in their reasoning when interpreting other NEC terms demonstrates.

Of course the caveat to the principles discussed in these cases is that how the mutual trust and cooperation obligation is interpreted and how much weight it is given will probably depend on the specific facts of each case but it is not likely that the clause could be used to escape express provisions such as those considered in Costain.

The cases above concern the "mutual trust and cooperation" wording in clause 10.1 of NEC3, when that obligation was combined with a duty to act as stated in the contract. In June 2017, NEC4 was released in the UK, and that link was broken. Clause 10.1 of NEC4 requires the parties (and the project manager and supervisor too) to act as stated in the contract. Clause 10.2 of NEC4 contains the mutual trust and cooperation provision. This amendment (which simply divides one clause into two) seems purely cosmetic. However, the relegation of the mutual trust and cooperation obligation from the very first clause in the NEC form, may suggest an intention by its drafters to lessen the importance of the mutual trust and cooperation obligation, and it remains to be seen whether the courts will so decide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions