Express obligations of ‘mutual trust and co-operation’
COSTAIN v TARMAC [2017]
This case featured the NEC form of model construction contract. It is comparatively unusual because of an express obligation that both parties had to act in a spirit of ‘mutual trust and co-operation’. The decision for the Technology and Construction Court was what impact this obligation had on other specific contractual provisions.
Facts:
- Costain (“C”) and Tarmac (“T”) entered into an NEC form contract related to building work connected with improvements to the M1 motorway. It was common ground between the parties that the concrete supplied by T was defective.
- Clause 93.3 of the NEC contract in question contained an adjudication provision with a time bar for bringing claims. It said that a party may refer a dispute to the Adjudicator if that party notified the other party of the dispute within four weeks of becoming aware of it and between two and four further weeks have passed since the notification. If a disputed matter was not notified and referred within the times set out in this contract, neither party could subsequently refer it to the Adjudicator.
- Clause 10.1 contained a provision that the parties would act “in the spirit of mutual trust and co-operation”. C argued that the effect of this was that T had an express obligation to point out to it the nature, scope and potential effects of the provision which operated as a time bar to bringing a claim for breach of contract.
Decision:
- The Court rejected C's argument. It suggested that, at its highest in the context of the case, the term “mutual trust and co-operation” meant that T should not do or say anything that lulled C into falsely believing the time bar was inoperative or would not be relied on. It also considered that this obligation would extend to a positive obligation on T to correct any false assumption C was “obviously ” making in this regard. However, the Court thought that beyond this, on any view of clause 10.1, there was no further obligation on T, because otherwise the provision would have required it to put aside its own self-interest.
- In doing so, the Court noted that ‘good faith’ is not a concept that ‘has gained much traction’ under English law. The Court also referred to a well-known textbook on the NEC3 contract where it draws parallels between ‘mutual trust and co-operation’ and ‘good faith’, and agreed with its analysis that, “the term of mutual trust and co-operation suggests that, whilst the parties can maintain their legitimate commercial interests, they must behave so that their words and deeds are … not attempts to improperly exploit the other party ”.
Points to note:
- This was another case where the Courts have had to interpret the combined effect of two different contractual provisions (in this case contained in two separate documents) which have overlapping provisions (similar to the case of McGee v Galliford Try Building [2017]). This is always best avoided.
- It is also one more example of an argument based on a broader notion of good faith that was ultimately unsuccessful. No doubt there will be other cases following on which explore similar themes. In this respect it is perhaps worth noting that the Court did refer to a small number of Australian authorities, seemingly with express approval, saying that ‘good faith’ requires a party to have regard to the legitimate interests of both parties (when exercising contractual rights), although the judge stopped short of saying that there was a general obligation to act ‘fairly’ because of it being so subjective. These comments just highlight the struggles that the judges are currently experiencing in this area of the law.