n Much obliged

MUCH OBLIGED

HOW MIGHT AN EMPLOYER’S EXPRESSED OBLIGATION TO CO-OPERATE WITH THE CONTRACTOR OPERATE S ub-clause 4.1.1 of an Employer Design Public Works Contract (PWC) states that: IN A PUBLIC WORKS CONTRACT? What is an obligation to co-operate? 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. In Costain Ltd v Tarmac Holdings “The Employer [subject to restraints as a public Ltd [2017] EWHC 319 (TCC), Coulson J., in determining the meaning of the NEC3 collaboration authority] and the Contractor shall support clause 10.1, which uses the phrase “work together in a spirit of mutual trust and co-operation”, reciprocal co-operation for the Contract purposes, drew a parallel between “mutual trust and co-operation” and obligations of “good faith”. including co-operation with and between Contractors Personnel and Employers Personnel”. What is the scope of an employer’s expressed obligation to act in good faith? Due to the impact Covid-19 has had on The scope and application of a good faith provision will depend on the clause wording and rules of construction projects, the Office of Government interpretation. The rules of interpretation were summarised in Costain Ltd v Tarmac Holdings Ltd, Procurement (OGP) has asked in its Covid-19 where Justice Coulson affirmed that the starting point for the interpretation of a contract provision guidance notes that the parties make every effort is the language the parties have chosen. Keating on NEC3 regarded clause 10.1 of the NEC3 (see to co-operate with each other by making specific above) as a widely drafted clause, providing a “portmanteau general obligation” or an overarching reference to the above clause. This guidance from obligation to act in good faith. the OGP is welcome, but what does an obligation Enforceable rights may be created by overarching good faith obligations, which may impose to co-operate with the contractor mean? obligations in addition to the proper performance of the parties’ other contractual duties. This article aims to answer this question by However, in Mason (a firm) v WD King Ltd [2003] EWHC 3124 (TCC), the courts seemed to take the defining what an obligation to co-operate means view that there was only a remote possibility that overarching obligations would carry more weight and what the scope of a co-operation clause might than other more specifically drafted provisions. Sub-clause 4.1.1 of the PWC is widely drafted like be. The impact an obligation to co-operate may clause 10.1 of NEC3, and could be regarded as being an overarching obligation to act in good faith. have on an employer’s other rights and obligations This clause could impose obligations in addition to the employer’s other obligations, especially when in a PWC is also considered. the employer and their representative are exercising their decision-making functions.

FEATURE

Peter McCarthy Principal Consultant, McCarthy Dispute Resolution Ltd

What impact would an obligation to co-operate have on an employer’s other rights and obligations in a Public Works Contract? 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, case law suggests that an express obligation of good faith will have little or no impact on an employer’s other expressed terms. In Portsmouth v Ensign [2015] EWHC 1969 (TCC), 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. However, in Northern Ireland Housing v Healthy Buildings [2014] NICA 27, obligations of good faith were found to have an impact on other contractual obligations where an employer has to use their discretionary powers where the contract is relational in nature. Construction contracts could be regarded as being a relational type contract. Where an overarching obligation of good faith exists, it may assist in the interpretation of other obligations, especially those obligations that involve the exercise of some discretion. Academic papers say 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 in Comparative Contract Law says that discretion must firstly 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, Mid Essex v Compass Group [2012] EWHC 781 (QB), 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 their discretionary powers. The findings of the High Court were as follows:

“CASE LAW SUGGESTS

THAT AN EXPRESS OBLIGATION OF GOOD FAITH WILL HAVE LITTLE OR NO IMPACT ON AN EMPLOYER’S OTHER EXPRESSED TERMS.

n the contract contained an overarching good faith obligation; n this obligation imposed a broad obligation on the employer to act reasonably in conducting the contract by not taking unreasonable actions; n the employer’s contractual entitlement to make deductions from service payment due to the contractor were regarded as discretionary; n the Court found that the way the deductions were calculated was absurd; and, n this behaviour was deemed in breach of the employer’s 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 is likely to 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. The UK legal system is regarded as being restrictive when interpreting a good faith provision when compared to European civil law. It will be interesting to see how the law of good faith develops, as Ireland is now the only common law jurisdiction left in the EU, post Brexit.