The TCC has considered the meaning of the partnering clause at the heart of the NEC suite of contracts. Stuart Pemble explains that the clause might not have the effect the contract drafters hoped
Coulson J’s decision in Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319 (TCC) may well be remembered for posterity for reasons other than the issue at the heart of the dispute.
The facts
In February 2014, Tarmac entered into a sub-contract to supply Costain with concrete for a new safety barrier between junctions 28 and 31 on the M1 motorway. The sub-contract incorporated the NEC3 Supply Short Contract conditions. Both parties agreed that the concrete was defective, but disputed the appropriate remedial work required and whether or not any dispute had to be resolved by arbitration.
Costain commenced court proceedings and Tarmac applied to stay those proceedings to arbitration under section 9(1) of the Arbitration Act 1996. Coulson J granted that application for a number of reasons, one of which was his analysis of the meaning of the partnering clause at the beginning of all NEC contracts. Although his decision cannot be said to be the definitive legal guidance on the meaning and effect of partnering clauses, it is hugely influential and of undoubted significance.
Partnering
Partnering (sometimes referred to as alliancing) is a somewhat amorphous concept. Broadly speaking, it requires parties to work together and collaborate to deliver a project or a set of outcomes. The parties are supposed to avoid confrontational behaviour or taking inappropriate commercial or legal advantage of each other. It has acquired increased importance in the UK construction industry following Sir Michael Latham’s 1994 report Constructing the Team (which also led to the statutory adjudication regime for construction disputes) and is central to the increasingly important NEC suite of contracts (with over 40% of UK construction clients saying that they use the NEC forms regularly).
All NEC contracts, including the form used in Costain, begin with a statement that the parties “shall act as stated in this contract and in the spirit of mutual trust and cooperation”. It is the “in the spirit” part which is the partnering or alliancing obligation, and judges and commentators draw parallels between that wording and obligations on the parties to act “in good faith”, which are often seen in other common law jurisdictions.
Decisions on partnering
However, despite its increasing importance within the industry, there has been little judicial commentary on the effect, if anything, of a partnering obligation on the other terms of a contract. As Coulson J explained in Costain, most of the “authorities dealing with ‘good faith’ are mainly from outside the United Kingdom, because good faith has not been… a concept that has gained much traction in the English common law”.
For a while, the most significant British judicial aid to understanding the effect of a partnering clause came from the obiter comments of Judge LLoyd QC in Birse Construction Ltd v St David Ltd [1999] EWHC 253 (TCC). This also dealt with an application to stay court proceedings to arbitration: in particular, whether or not various letters of intent and the other dealings between the parties adequately incorporated a JCT contract that contained an arbitration agreement. Having decided on the facts that a contract had been entered into sufficient to stay the proceedings to arbitration, Judge LLoyd QC commented (the partnering obligation having adopted similar wording to the NEC approach) that parties “who have agreed to proceed on the basis of mutual co-operation and trust, are hardly likely at the same time to adopt a rigid attitude as to the formation of a contract”.
Interestingly, Coulson J did not refer to Judge LLoyd’s thinking. Instead, he cited a number of Australian cases on ‘good faith’ obligations – particularly Automasters Australia PTY Ltd v Bruness PTY Ltd [2002] WASC 286 – and the analysis of them contained in Keating on NEC 3 (first edition 2012). Keating stresses the limits of the possible effect that good faith obligations and, by analogy, partnering clauses can have. In particular, they do not require the parties to put aside their own self-interests or to act otherwise than in the normal course of business. However, Coulson J went on to say that partnering obligations stop the parties from exploiting one another.
The judge was able to find one English authority – the decision of Sales J in F&C Alternative Investments (Holdings) Ltd v Barthelmey (Nos 2 and 3) [2011] EWHC 1731 (Ch) – to help him. He agreed with this analysis:
“It is a form of contractual duty which requires the obliger to have regard to the interests of the obligee, while also being entitled to have regard to its own self-interest when acting.”
He concluded by stressing that he was uneasy about imposing a more general obligation on the parties to act fairly since “that is a difficult obligation to police because it is subjective”, and asking whether an obligation to act with mutual trust does no more than Vinelott J suggested was implied into all construction contracts in Merton LBC v High Stanley Leach (1986) 32 BLR 51.
Trust and cooperation
This analysis enabled Coulson J to hold that Tarmac had not breached the terms of the partnering obligation in its dealings with Costain in relation to the arbitration provision.
More generally, it arguably leaves partnering obligations weaker than their wording might suggest because they do not really lessen either party’s rights and obligations in a material sense. While they do put limits on either’s ability to exploit or take advantage of the other, that seems quite far removed from an obligation actually to trust and cooperate.
Stuart Pemble is a partner at Mills & Reeve LLP
