HOW MIGHT AN EMPLOYERS EXPRESSED OBLIGATION TO CO-OPERATE WITH THE CONTRACTOR OPERATE IN A PUBLIC WORKS CONTRACT

HOW MIGHT AN EMPLOYERS EXPRESSED OBLIGATION TO CO-OPERATE WITH THE CONTRACTOR OPERATE IN A PUBLIC WORKS CONTRACT

Sub-clause 4.1.1 of an Employer Design Public Works Contract (PWC) states that

The Employer [subject to restraints as a public authority] and the Contractor shall support reciprocal co-operation for the Contract purposes, including co-operation with and between Contractors Personnel and Employers Personnel. [Emphasis added]

Pre COVID 19, this clause was rarely considered. However, due to the impact COVID 19 has on construction projects, the Office of Government Procurement (OGP) has repeatedly asked in its COVID 19 guidance notes(1) that the parties make every effort to co-operate with each other by making specific reference to sub-clause 4.1.1 of the PWC. This guidance from the OGP is welcome, but what does an obligation to co-operate with the Contractor mean?

This article aims to answer this question by defining what an obligation to co-operate means and what the scope of a co-operation clause might be. The impact an obligation to co-operate may have on an Employers other rights and obligations in a PWC is also considered.

An obligation to co-operate, what does it mean?

Many academic papers that examine co-operation clauses refer to them as collaboration clauses and deem them to be an expressed obligation to act in good faith. Mason(2) when examining these collaboration clauses, says that

Although the standard form construction contracts […] do not typically use the phrase ‘‘good faith’’ and instead utilise language such as ‘‘mutual trust and co-operation’’, ‘‘fairness’’, ‘‘fair dealing’’ and ‘‘trust and respect’’, for convenience these clauses shall be collectively described as good faith clauses.

In Costain Ltd v Tarmac Holdings Ltd(3) Coulson J in determining the meaning of the NEC3 collaboration clause 10.1, which uses the term ‘work together in a spirit of mutual trust and co-operation’, agreed with the views reached by Keating on the NEC3(4) . Coulson noted that Keating drew a parallel between ‘mutual trust and co-operation’ and obligations of ‘good faith’.

It is clear from the findings in Costain that a collaboration clause does not have to contain the words ‘good faith’ for it to be deemed a good faith obligation. It appears that the use of words such as ‘mutual trust’, ‘co-operation’, ‘collaborative manner’, ‘fairness’, ‘fair dealing and trust’ and ‘respect’ are all sufficient to mean that the parties will have an expressed obligation to act in good faith with one another.

What is the scope of an Employers expressed obligation to act in good faith?

The scope and application of a good faith provision will depend on the clause wording and rules of interpretation.

The rules of interpretation were summarised in Costain Ltd v Tarmac Holdings where Justice Coulson affirmed that the starting point for the interpretation of a contract provision is the language the parties have chosen.

That is how the courts interpreted the good faith provision in Mid Essex Hospital Services NHS Trust v. Compass Group UK and Ireland Ltd(6) which said

The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or […] any Beneficiary to derive the full benefit of the Contract.

The court of appeal interpreted the scope of this good faith narrowly. It said it was limited by the second part of the clause where the good faith obligation only applied to two specific areas of the contract, i.e. the efficient transmission of information and to enable the parties to derive the benefit of the Contract.

On the other hand, Keating on NEC 3(7) and other commentators viewed clause 10.1 of the NEC 3 Contract (see above) and similarly worded clauses as being such an overarching good faith clause(8). Keating regarded that this widely drafted clause as providing a ‘portmanteau general obligation’ having different aspects or applications to different circumstances that encompass the obligation to act independently in a fair and unbiased manner when say the Project Manager is exercising his decision-making functions.

Mason suggests that where ‘overarching’ obligations of good faith exist in contracts, then something more may be required than the mere performance of a parties obligation in good faith(9) . He says that enforceable rights may be created by ‘overarching’ obligations which impose obligations in addition to the proper performance of the parties other contractual duties. However, in Mason (a firm) v WD King Ltd(10) the courts seemed to take the view that there was only a remote possibility that overarching obligations would carry more weight than other more specifically drafted provisions.

Sub-clause 4.1.1 of the PWC is widely drafted like clause 10.1 of NEC 3 and could be regarded as being an overarching obligation to act in good faith. This clause could impose obligations in addition to the Employers other obligations, especially when the Employer and its Representative is exercising its decision making functions.

The impact an obligation to co-operate may have on an Employers other rights and obligations in a Public Works Contract.

Review of current case law

As the law of good faith is relatively new in Irish and UK common law jurisdictions, the body of law dealing with this topic is relatively limited. However, the consensus is that an express obligation of good faith will have little or no impact on an Employers other expressed terms.

In Costain v Tarmac(11) , the judge found that an expressed term of good faith was no more than a duty to co-operate. However, the court did accept that the good faith provision had the effect of preventing a party exploiting the other party.

In TSG v South Anglia(12) the courts found that an expressed obligation to act in good faith did not restrict a parties other expressed rights. The judge said that other express terms could not be fettered by an obligation to act in good faith.

In Portsmouth v Ensign(13) where an expressed obligation of good faith was found to exist, the court said it is to be read alongside other contract provisions and those other provisions will be deemed to exclude the good faith obligation where they are clear in what is required or where a different value is given to inform the nature of those other obligations(14).

However, in Healthy Buildings(15) , the courts when considering the interpretation of clause 61.3 of the NEC PSC form of contract, which sets out the time bar for notified claims, suggested that consideration should be given to the overarching obligation of good faith under clause 10.1. To unfairly time bar claims which would otherwise defeat the parties reasonable expectations may be seen as a breach of a parties obligation to act in good faith.

So, after reviewing the above case law, one might ask what would be the reason for including and expressed obligation of good faith if it has little or no effect. However, as found in Healthy Buildings(16) , obligations of good faith may have an impact where an Employer has to use his discretionary powers.

What impact does an ‘overarching’ obligation of good faith have on contractual discretion?

Riley(17) says that in a relational contract, the overarching obligation of good faith will assist in the interpretation of other obligations, especially those obligations which involves the exercise of some discretion. Construction contracts could be regarded as being a relational type contract(18) . Riley says that ‘Good Faith requires that discretions be exercised for the purposes intended by the mutual agreement of the parties, and not opportunistically or arbitrarily…’

McKendrick(19) says that an obligation of good faith will impose some different standard on a person when using its discretionary powers. First, the discretion must be exercised honestly. Secondly, it must be exercised for the purpose for which it is given, and it must not be exercised improperly. Thirdly, the discretion must not be exercised arbitrarily, and fourthly it must not be exercised unreasonably.

In a recent high court case of Mid Essex v Compass Group(20), it was decided that if a relational contract contained an overarching obligation to act in good faith, then it could impact on how the Employer used his discretionary powers. The facts of this case are as follows:

• The contract contained a mechanism which enabled deductions to be made by the Employer from service payments in the event of performance failures by the Contractor.
• The Employer made these deductions because performance failures occurred, where for example, chocolate mousse was found out of date by one day. The total value of deductions came to £716,197 due to service failures.

The findings of the High Court were as follows:

• The contract contained an overarching good faith obligation.
• This obligation imposed a broad obligation on the Employer to act reasonably in conducting the contract by not taking unreasonable actions.
• The Employers contractual entitlement to make deductions from service payment due to the Contractor were regarded as discretionary.
• The court found that the way the deductions were calculated was absurd.
• This behaviour was deemed in breach of the Employers obligation to act in good faith.

Conclusion

UK law as it currently stands suggests that an ‘overarching’ obligation of good faith will have little or no impact on the parties other expressed terms which are clearly written. Irish law will likely follow its common law cousins. However, where the expressed terms give discretionary powers to an Employer, an ‘overarching’ obligation of good faith may impose a higher standard of fairness to be achieved by the Employer. This good faith obligation may oblige the Employer to take into account the interests of the other party in line with the parties agreed intentions when interpreting these other provisions and when using these discretionary powers.

Irish and UK common law is regarded as being restrictive(21) when interpreting a good faith provision when compared with the remaining European civil law countries. It will, therefore, be interesting to see how the law of good faith develops in Ireland as it is now the only common law jurisdiction in the EU after Brexit.

References

(1) https://constructionprocurement.gov.ie/wp-content/uploads/CWMF-Update-2-to-Note-on-Covid-19-08-05-2020.docx.pdf

(2) Brian Mason, ‘Good Faith Clause in Construction Contracts: Fine Sentiments in search of substance’ [2011] ICLR 5.

(3) [2017] EWHC 319 (TCC), [2017] 2 All ER (Comm) 645.

(4) David Thomas, Keating on NEC 3, [1st Ed, 2012].

(5) [2017] EWHC 319 (TCC), [2017] 2 All E.R. (Comm) 645.

(6) [2013] EWCA Civ 200, [2013] BLR 265.

(7) David Thomas Keating on NEC 3, 1st Edition 2012, chapter 2.

(8) Anthony Albertini of Clyde & Co ‘The Meaning of “Mutual trust and cooperation” in NEC’, 25 Aug 2017.

(9) Brian Mason, ‘Good Faith Clause in Construction Contracts: Fine Sentiments in search of substance’ [2011] ICLR 5, page 12.

(10) [2003] EWHC 3124 (TCC) [65], 92 Con. L.R. 144.

(11) [2017] EWHC 319 (TCC)

(12) [2013] EWHC 1151 (TCC)

(13) [2015] EWHC 1969 (TCC).

(14) Ibid [83] and [93].

(15) Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2014] NICA 27

(16) Ibid

(17) Joellen Riley ‘Siblings but not twins: Making sense of ‘mutual trust’ and ‘good faith’ in Employment Contracts’, 36 Melb. U.L. Rev 521 [2012].

(18) David Christie, ‘How can the use of “Mutual trust and cooperation’ in the NEC 3 suite of contracts help collaboration?’, [2017] ICLR, page 99.

(19) Larry A Dimatteo and Martin Hogg Ewan McKendrick, Comparative Contract Law, Ch 10, [2016].

(20) [2012] EWHC 781 (QB).

(21) Leggat J in his decision in Yam Seng Pte Ltd v International Trade Corp Ltd [2013] said that the UK legal system was swimming against the tide when it came to the law of good faith.

 

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