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What is NEC3’s clause 10.1 for?

Whether core clause 10.1 of the NEC3 suite of contracts serves any practical purpose or is merely aspirational is a debate many enjoy having. The latest decision of Northern Ireland’s Court of Appeal in Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd suggests one possible use is as an aid to interpretation.

Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd

Matt Molloy discussed this decision in April, noting that the Housing Executive had, effectively, twice sought to challenge an adjudicator’s decision. As Matt pointed out, this decision raised some interesting issues about the operation of NEC3’s time bar provision in clause 61.3.

Clause 61.3 of the Professional Services Contract, 2005 edition (PSC) provides that:

“The Consultant notifies the Employer of an event which has happened or which he expects to happen as a compensation event…

If the Consultant does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in Prices, the Completion Date or a Key Date unless the Employer should have notified the event to the Consultant but did not.”

In short, minutes of a meeting in January 2013 recorded what was held to be an employer’s instruction, but this was not notified until May 2013, well after the eight-week period for notifying compensation events. The issue was whether the employer’s instruction fell within the proviso in clause 61.3 to the effect that the time bar did not apply if

“…the Employer should have notified the event to the Consultant but did not.”

What does clause 61.3 mean?

Girvan LJ held that the relevant meeting minute was in fact an employer’s instruction for additional works. He then went on to consider how the time bar in clause 61.3 should apply in this situation. He applied clause 10.1 to the language of clause 61.1, considering the employer’s obligation to issue an instruction.

Clause 10.1 appears in the whole of the NEC3 suite of contracts (both 2005 and 2013 editions) and provides that:

“The Employer and the Consultant shall act as stated in this contract and in a spirit of mutual trust and co-operation.”

This approach is of course consistent with the principle of interpreting the contract as a whole. It also suggests that when interpreting the operation of various NEC3 provisions, it is possible to consider what interpretation would be consistent with the aims of clause 10.1.

In Girvan LJ’s view:

“The overall time bar provision in Clause 61.3 is an exclusion clause in favour of the Executive and falls to be construed contra proferentem.”

Did clause 10.1 make a difference?

On a narrow reading, perhaps not, as there is a clear obligation on the employer in clause 61.1 to notify compensation events. But the reference to clause 10.1, coupled with the observation that the time bar provision should be interpreted against the employer, suggests that the courts will be looking critically at such clauses where there is employer default. Clause 10.1 certainly seems to have been one of the factors affecting the decision.

Interestingly, Jonathan Cope recently identified a similar approach to the time bar in a FIDIC contract where there is no similar good faith provision.

Where are we in the good faith debate?

Last year we had a flurry of cases but there is still no conclusive answer. The judgments in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) and TSG Building Services plc v South Anglia Housing Ltd  both took a narrow approach to such clauses.

But it is all about the facts.

In Willmott Dixon Housing Ltd v Newlon Housing Trust, Ramsey J looked at how a party behaved in an adjudication under a partnering contract using the PPC 2000 form. He made the point that the parties chose to use a partnering contract under which they agreed to work in mutual co-operation, including a:

“transparent and co-operative exchange of information in all matters relating to the project.”

This “mutual co-operation” included performing the problem solving and dispute avoidance or resolution provisions, including adjudication. In that context, Ramsey J held that the employer’s failure to contact the contractor and ask about the referral documents was a breach of that partnering obligation, which meant the employer could not then raise arguments about the status of the referral.

The partnering clause certainly made a difference in that case.

A final note – the NEC 2013 amendments to 61.3

The proviso in clause 61.3 was critical to the decision in Northern Ireland Housing Executive v Healthy Buildings and prevented the application of the time bar. However, that wording has been removed from the 2013 edition and replaced in the ECC form (with equivalent wording in the PSC form) with:

“… unless the event arises from the Project Manager or the Supervisor giving an instruction, issuing a certificate, changing an earlier decision or correcting an assumption.”

Would that wording have affected the outcome in Northern Ireland Housing Executive v Healthy Buildings?

No, as it was held that the employer did in fact issue an instruction. However, if it is not possible to identify something which amounts to an instruction, it will not be possible to argue that an instruction should have been issued, based on the previous wording.

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