The obligation on parties to act “in a spirit of mutual trust and co-operation” under NEC clause 10.1 is very well known. However, although clause 10.1 is much quoted when disagreements arise there has been a general feeling that parties perhaps only pay lip service to this obligation. This is perhaps because the Courts had not given it any real teeth. That is, until the recent decision of the Scottish Appeal Court in the case of Van Oord UK Limited v Dragados UK Limited [2021] CSIH 50 which has done just that.
In this case, Dragados had, in breach of contract, omitted substantial elements of the subcontract works and transferred them to be undertaken by other subcontractors. The Court decided that Dragados would not be able to rely on clause 63.10 to reduce the Prices due to a change in the Subcontract Works Information where it had not fulfilled its duty to act “in a spirit of mutual trust and co-operation”. The Court decided that clause 10.1 “is not merely an avowal of aspiration” but instead “reflects and reinforces the general principle of good faith in contract”.
The Court based its decision firmly on the Scots law doctrine of mutuality whereby “a party cannot enforce a contractual stipulation in its favour, if it is the counterpart of another obligation which it has breached”. The Court decided that a right to reduce the Prices under clause 63.10 was a counterpart of the clause 10.1 obligation to act “in a spirit of mutual trust and co-operation”. Therefore, the consequence of Dragados breaching the latter would be that the former could not be enforced.
The Court’s decision here has given clause 10.1 real practical effect and this is surely to be welcomed. In a Scottish context, we anticipate parties beginning to argue that other clauses are also proper counterparts of clause 10.1. For example, does a party have to continue to act in a spirit of mutual trust and co-operation if it wishes to enforce a right to payment for uncorrected defects under clause 45? It will also be interesting to see if the Courts in the rest of the United Kingdom likewise provide clause 10.1 with a similar practical application given there are key differences between English and Scots law.
You can read our blog on the case for more detail.
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