UK: The Meaning Of "Mutual Trust And Cooperation" In NEC

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 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, for 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 under s.9(1) of the 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 endorsed (for the most part) the commentary in one of the leading textbooks on NEC (Keating on NEC3), in his reasoning in granting Tarmac's application. He 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 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 courts, when interpreting a contract are not generally concerned with the question of whether the parties have struck a fair bargain.

As can be seen from the judgments in Costain and Healthy Building, the interpretation of the mutual trust and cooperation obligation in clause 10.1 is becoming increasingly wide and despite Coulson J seeking to set limits on its scope, the clause clearly has teeth.  The willingness of the judges to use it in their reasoning when interpreting other NEC terms demonstrates how widely this obligation can operate within the context of an NEC contract as a whole. 

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.  

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, 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 Meaning Of "Mutual Trust And Cooperation" In NEC

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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.