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NEC3: What is the spirit of mutual trust and co-operation?

A recent case between Costain and Tarmac has clarified the meaning of some of the words commonly found in NEC3 contracts.

What does acting ‘in a spirit of mutual trust and co-operation’ actually entail?

There is precious little certainty on the meaning of such terms, but the Technology and Construction Court recently provided guidance in Costain Limited v Tarmac Holdings Limited [2017] EWHC 319 (TCC) on whether ‘mutual trust and co-operation’ would require a party to act against its own self-interest.

The answer, in short, is no.

Facts of the case

Costain engaged the defendant to supply concrete for the construction of a new safety barrier between junctions 28 and 31 of the M1 under a NEC3 Supply Short Contract. The concrete was agreed to be defective and a dispute arose as to the extent of the remedial works required.

This led to an adjudication where the adjudicator held that the claimant was time-barred from making a claim regarding the remedial costs.

“This decision has made clear that an obligation to act in a ‘spirit of mutual trust and co-operation’ does not require a party to act against its own self-interest”

Costain then issued proceedings in the TCC and Tarmac applied for a stay of such proceedings on the basis that the subcontract included an arbitration agreement.

An element of Costain’s argument was that an estoppel occurred in respect of referring a dispute to arbitration, as Tarmac had failed to point out to Costain the full effect of clause 93 of the subcontract and the potential time bar for bringing a claim.

Costain suggested that by failing to do so Tarmac had failed to act ‘in a spirit of mutual trust and co-operation’ as required by clause 10.1 of the subcontract.

The decision

The court held that Tarmac had not failed to act in a spirit of mutual trust and co-operation.

Tarmac had not said or done anything that had lulled Costain into a false belief that the time bar in clause 93 was non-operative or would not be relied on in this instance.

Even if the obligation was expanded further and required Tarmac to correct any false assumptions made by Costain, Tarmac had not breached it simply by remaining silent on an issue that was not raised by Costain.

The court noted that, in effect, what Costain was requesting was the imposition of a positive duty on Tarmac to explain how clause 93 worked and the need to refer a claim promptly to adjudication, which was contrary to Tarmac’s self-interest.

It was not for Tarmac to double-check that clause 93 was understood properly by the opposing side. It was therefore decided that there had been no estoppel and the wording of clause 10.1 did not turn an otherwise unsuccessful assertion of an estoppel into a successful one.

What it means for contractors

This decision has made clear that an obligation to act in a ‘spirit of mutual trust and co-operation’ does not require a party to act against its own self-interest.

The court also endorsed the proposition that it meant that a party could not improperly exploit the other, but it stated that it was uneasy about suggesting that there was a more general obligation to act ‘fairly’.

This decision gives some welcome clarity to the effect of this provision but, as is so often the situation, each case will depend on its own facts.

Jorge Klein is an associate at Charles Russell Speechlys

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