Does NEC3 make you twitch?
As somebody that spent six enjoyable years as in house counsel at TfL and Crossrail, dealing almost solely with various parts of the NEC3 suite of contracts, I regularly prowl around legal case law websites and databases on the search for new case law that considers NEC3. It’s kind of like the lawyer equivalent of twitching for rare birds.
Judicial consideration of standard forms of construction contract is hugely important. NEC evangelists will tell you that the lack of reported cases on this contract form is evidence of two things: (i) that the simple language does in fact work well without the need for referral to the tribunal for matters of interpretation, and (ii) the key ethos of NEC is to avoid disputes which have been successful due to the lack of reported court proceedings.
"In my experience, clause 10.1 of NEC contracts is usually either completely ignored or abused to the point of unilateral distrust."
I don’t think the evangelists are quite right. My experience on the front line with this contract is that significant amounts of project management, commercial and legal resources are being expended on major projects on issues relating to contract interpretation.
Mr Justice Akenhead did not appear to me to be an NEC evangelist when, in the 2013 case of Atkins Ltd v Secretary of State for Transport, he appeared to note concern that
“There are some sirens or other voices which criticise these Conditions for some loose language, which is mostly in the present tense, which can give rise to confusion as to whether and to what extent actual obligations and liabilities actually arise. Very few cases involving material disputes as to the interpretation of the NEC3 Conditions have made their way through to reported court decisions.”
There were very few further cases on NEC3 until the end of February: Costain Limited v Tarmac Holdings Limited. The case as a whole is worth a read as it covers issues such as the relationship between separate dispute resolution provisions in a single contract and also analysis of the basis upon which the validity of an arbitration clause might be challenged.
However, in amongst this, was a kakapo parrot, a lesser spotted judicial opinion on the NEC3 contract; in particular, the standard mutual trust provision generally found at clause 10 of the NEC suite of contracts.
The issue was whether or not the mutual trust provision impacted an estoppel argument being run by Costain (that Tarmac had had a duty to speak out on a time bar provision in respect of the right to arbitrate). It was argued that, as a result of the mutual trust provision, Tarmac had an express obligation to point out to Costain the nature, scope and potential effect of clause 93. This argument was rejected by Mr Justice Coulson, who relied upon Keating on NEC3 and some Australian cases when providing an opinion as to the meaning of this provision, and in doing so, equating the provision with obligations of good faith:
“This obligation would go further than the negative obligation not to do or say anything that might mislead; it would extend to a positive obligation on the part of the defendant to correct a false assumption obviously being made by the claimant, either that clause 93 was not going to be operated or that the time bar provision was not going to be relied on. But beyond that, on any view of clause 10.1 there can have been no further obligation, because otherwise the provision would have required the defendant to put aside its own self-interest.”
In my experience, clause 10.1 of NEC contracts is usually either completely ignored or abused to the point of unilateral distrust. The truth is, the clause is a key piece of the NEC jigsaw, and this case is hugely useful in informing parties to NEC contracts how it should be used.