Management, Procurement and Law Proceedings of the Institution of Civil Engineers
Volume 170 Issue MP5 Management, Procurement and Law 170 October 2017 Issue MP5
Pages 218–219 http://dx.doi.org/10.1680/jmapl.17.00033
Discussion: Good faith obligations in NEC Paper 1700033
Received 17/07/2017
contracts and Construction Law Quarterly
Davis, Thurlow, Dix and Jackson
ice | proceedings ICE Publishing: All rights reserved
Discussion: Good faith obligations in NEC
contracts and Construction Law Quarterly
Terrence Davis BCom, LLB, HDip Tax, HDip Co Law (Wits)
Qualified (The Law Society, England) Practising Attorney under the style
LindsayKeller, Rosebank, Johannesburg, South Africa
(corresponding author: tdavis@lindsaykeller.com)
Peter Newson Thurlow Pr Eng BSc (Eng) (Civil) Wits, MSAICE,
MICE, MCMI, MAPM(SA), PMP(USA)
Construction Procurement and Delivery Consultant, Montgomery Park,
Johannesburg, South Africa
Contribution by P. Dix
It is interesting to compare and contrast two recent papers in
Management, Procurement and Law: Davis and Thurlow’s
briefing entitled ‘Good faith obligations in NEC contracts’
(Davis and Thurlow, 2016) and Jackson’s contribution to the
‘Construction Law Quarterly’ (Higgs et al., 2016)
Whereas Davis and Thurlow assert in their introduction ‘… the duty
of good faith is accepted by the parties in core clause 10.1 as
governing their dealings concerning the project’ (Davis and Thurlow,
2016: p. 145), Jackson’s review of case law suggests that the English
courts are generally reluctant to imply a duty of good faith. Jackson
notes that neither NEC3 (2013) nor the Framework Alliance
Contract (FAC-1 (ACA, 2016)) expressly use the term ‘good faith’.
In TSG Building Services PLC v. South Anglia Housing Ltd [2013]
(a decision regarding a term partnering contract (ACA, 2008),
referred to by Jackson), Mr Justice Akenhead stated in paragraph 51
‘I do not consider that there was as such an implied term of good
faith in the Contract. The parties had gone as far as they wanted
in expressing terms in Clause 1.1 about how they were to work
together in a spirit of ‘trust fairness and mutual cooperation’ and to
act reasonably. Even if there was some implied term of good faith, it
would not and could not circumscribe or restrict what the parties had
expressly agreed…’ It would appear on the basis of this case that
rather than unequivocally incorporating good faith obligations into
the contract clause 1.1, and by extension NEC3 clause 10.1, serves
to limit the relationship of the parties to the words expressly used.
It is also interesting to note that although the word ‘trust’ is used,
there is no suggestion in this decision that this implies a duty
greater than that of good faith – that is, of a ‘quasi-trustee’. Is there
such a judicial precedent or is the more likely interpretation going
to rely on the context rather than on the literal interpretation of an
isolated word? The leading cases on contractual interpretation
would suggest that the courts would not interpret ‘trust’ in a
vacuum but would provide more weight to the context: perhaps the
authors could shed some light.
Author’s reply (Terrence Davis)
The use of the word of ‘trust’ in core clause 10.1 imports into
the contract the legal concept of trust (as a legal device) with
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Accepted 17/07/2017
Peter Dix BSc, LLB, CEng, MICE, FCIArb, IMaPS
Director, Marsden ADR Ltd, Tyne and Wear, UK
Shy Jackson LLB, LLM, MSc, FCIArb, FInstCES
Partner, Pinsent Masons LLP, London, UK
its concomitant fiduciary duties. This is what the words of 10.1
say: ‘The Employer, the Contractor… shall act… in… trust…’
(NEC3, 2013: core clause 10.1).
The laws of trust govern the manner in which a trustee may deal
with the trust property held by the trustee for the benefit of a
beneficiary. The laws of trust prohibit a trustee from utilising the
trust property for their own benefit, or acquiring any gain arising
from the trust property for their own benefit, or detracting in any
manner from the trust property to the prejudice of the beneficiary.
A trustee’s duties exist only in respect of the trust property held
by the trustee for the benefit of the beneficiary. Because the parties
to the NEC do not hold trust property for the benefit of the other
party, core clause 10.1 obliges the parties to act in the ‘spirit of
trust’. This obliges the parties to act as if they were each holding
trust property for the benefit of the other, and to comply with the
legal principles underlying the law of trust. The trust property in
this case is the contractual and accrued rights of the beneficiary
party in terms of the contract. These rights arise directly from the
undertaking of the trustee party in core clause 10.1 to act ‘as
stated in this contract’. It is in respect of these rights of the
beneficiary party that the trustee party is prevented by its fiduciary
duties from diminishing, or changing in any manner not provided
for in the contract. In so complying with its obligations,
the trustee party is acting as a quasi-trustee in relation to the
contractual and accrued rights of the beneficiary party.
Core clause 10.1 is the only clause in the contract that is structured
as a legal obligation: ‘The Employer, the Contractor… shall act…
in… trust’ (own emphasis). To construe the word ‘trust’ in this
clause as a social science term is to relegate the legal obligation in
clause 10.1 to mere window dressing, an expression of good intent
and unenforceable. This was not the intention of Sir Michael Latham
in his report Contracting the Team being the joint review of the UK
government and construction industry of the procurement and
contractual arrangements in UK construction (Latham, 1994). In this
report, Sir Michael advocates that the wording of the then NEC core
clause 1 be amended to include an obligation on the employee and
contractor ‘to undertake the project in the spirit of mutual trust and
co-operation’ (Latham, 1994: paragraph 5.20 (4)). The purpose being
 Management, Procurement and Law
Volume 170 Issue MP5
‘to change deep rooted cultural attitudes’ present ‘in the adversarial
atmosphere’ in the construction industry (Latham, 1994: paragraph
5.20 (5)). This pervading amendment was introduced into core clause
10.1 in the second edition of NEC (November 1995). Sir Michael
specifically recommended the use of the word ‘trust’ in the
amendment; had he intended the word ‘trust’ to mean a general duty
of ‘good faith’ he would have used these exact words in his report.
The term ‘good faith’ or words with equivalent meaning would have
been avoided precisely because they bring with them a lot of
intellectual baggage, whereas the concept of a legal trust and its
concomitant fiduciary duties are legally well established and certain.
Black’s Law Dictionary (5th edition) defines ‘good faith’ as ‘an
intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief,
the absence of malice and the absence of design to defraud or to seek
an unconscionable advantage, and an individual’s personal good faith
is concept of his own mind and inner spirit and, therefore, may not
conclusively be determined by his protestations alone’ (Black, 1981).
Obliging each party to work in trust with the other renders each
party secure in the knowledge that the other party may not do
anything to the prejudice of such party’s rights. It is only once the
parties are assured of this right that they can begin acting in
co-operation with each other, and can fulfill the goal of
completing the project in partnership and in strict compliance
with the terms of their contract.
The legal concept of trust in the NEC does not involve one party
having to put the interests of the other party ahead of its own
interests, but it does prohibit a party from detracting from the
contractual and accrued rights of the other party as specified expressly
in the contract, in the same way as a trustee is prohibited from
detracting from the trust property to the prejudice of the beneficiary.
In practice, this author has come across a number of cases where
the project manager, or employer, or adjudicator has held that the
assessment of a compensation event must be made as at the date of
the assessment (no matter how late the assessment is made), and not
as at the date of the compensation event first coming into existence.
This error has resulted in parties being obliged to wade through
voluminous site diaries, minutes, reports and correspondence, in an
attempt to establish what took place on site after the advent of the
compensation event. These complex and costly investigations, which
are required in other construction contracts, are obviated in the NEC.
In the NEC, the compensation event is assessed as the effect of the
compensation event on ‘the forecast Defined Cost of the work not yet
done’ (NEC3, 2013: core clause 63.1). This is a right that accrues to the
contractor in terms of the contract, on the advent of the compensation
event, and the employer must not detract from this contractor’s right.
The NEC places the contractor, with regard to a compensation event, in
the same position that the contractor was when he or she first forecast
what the cost of completing the entire project would be and submitted
a tender. It is from this right of the contractor that core clause 10.1
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Discussion: Good faith obligations in NEC
contracts and Construction Law Quarterly
Davis, Thurlow, Dix and Jackson
prevents the employer from detracting. This example illustrates the
importance of the law of trust in the structure of the NEC.
Author’s reply (Shy Jackson)
There is still uncertainty about how the courts interpret ‘good
faith’ clauses (Jackson, 2014). The recent trend seems reluctant to
accept that such clauses add much to what the contract expressly
provides, although some court decisions do accept that clause 10.1
has an impact, most notably Northern Ireland Housing Executive
v. Healthy Buildings (Ireland) Limited [2014] when looking at the
time bar clause. Words like ‘trust’ are difficult to apply and courts
may well be reluctant to hold they give rise to specific obligations.
This author would be surprised if the English courts would find
that it gave rise to a fiduciary relationship or obliged a party to act
as a trustee unless there were specific words to that effect, bearing
in mind the reluctance to enforce a lower good faith obligation.
REFERENCES
ACA (Association of Consultant Architects) (2008) ACA Standard Form of
Contract for Term Partnering. Association of Consultant Architects,
Bromley, UK.
ACA (2016) FAC-1: Framework Alliance Contract. Association of
Consultant Architects, Bromley, UK.
Black HC (1981) Black’s Law Dictionary, 5th edn. West Publishing,
Eagan, MN, USA.
Davis T and Thurlow PN (2016) Good faith obligations in NEC contracts.
Proceedings of the Institution of Civil Engineers – Management,
Procurement and Law 169(4): 145–146, https://doi.org/10.1680/jmapl.
16.00004.
Higgs N, Jackson S, Minogue A et al. (2016) Construction Law Quarterly.
Proceedings of the Institution of Civil Engineers – Management,
Procurement and Law 169(6): 258–265, https://doi.org/10.1680/jmapl.
2016.169.6.258.
Jackson S (2014) Good faith revisited. Construction Law Journal 30(8):
379–389.
Latham M (1994) Constructing the Team. Her Majesty’s Stationery
Office, London, UK.
NEC3 (2013) NEC3 Engineering and Construction Contract. ICE
Publishing, London, UK.
Northern Ireland Housing Executive v. Healthy Buildings (Ireland) Limited
[2014] NICA 27.
TSG Building Services PLC v. South Anglia Housing Ltd [2014] EWHC
1151 (TCC).
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