Principles of NEC Dennis Li HKCIC Lecturer Lecture

Principles of NEC Dennis Li - HKCIC Lecturer

Lecture 4 Partnering • • Inconsistencies and Ambiguities Mutual trust and cooperation Importance of Trust Practicing partnering

Game – How many squares do you see?

Inconsistencies and Ambiguities • Cl. 17. 1 The Project Manager and the Contractor notifies the other as soon as either becomes aware of an ambiguity or inconsistency in or between the documents which are part of this contract. The Project Manager gives an instruction resolving the ambiguity or inconsistency

Inconsistencies and Ambiguities • Cl. 60. 2 In judging the physical conditions for the purpose of assessing a compensation event, the Contractor is assumed to have taken into account • • The Site Information Publicly available information referred to the Site Information obtainable from a visual inspection of the Site and Other information which an experienced contractor could reasonably expected to have or to obtain • Cl. 60. 3 If there is an ambiguity or inconsistency within the Site Information (or the information referred to in it), the Contractor is assumed to have taken into account the physical conditions more favourable to doing the work.

Inconsistencies and Ambiguities • Cl. 63. 9 A compensation event which is an instruction to change the Works Information in order to resolve an ambiguity or inconsistency is assessed as if the Prices, the Completion Date and the Key Dates were for the interpretation most favourable to the Party which did not provide the Works Information.

NEC ECC Clause 10. 1 - Actions • The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in a spirit of mutual trust and co-operation. • What are the obligations? How to enforce it?

Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255 • FACTS • Placer was the owner of the Granny Smith gold mine and in 1989 engaged Thiess to carry our open cut mining at the mine site. • The original contract was a schedule of rates contract; latent conditions lead to Thiess making windfall profits. • In 1991, Placer therefore proposed that the parties enter into a partnering arrangement with the parties to share the risk of cost fluctuations, the parties working in good faith on all matters relating to the contract, and the contract providing for a fixed profit for Thiess. • Placer terminated the contract in March 1995 and relied upon a clause that stated that Placer could terminate the contract at any time and for any reason. • Thiess issued legal proceedings claiming that the termination of the contract was unlawful. • Placer counterclaimed for damages from a breach of contract alleging that Thiess had not acted in good faith by providing an initial incorrect estimate of its genuine costs according to which Thiess was to be paid. 8

Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255 • HC held: 1. Placer was induced to enter into the contract by a deceitful misrepresentation by Thiess, who had inflated its estimated operating costs with a view to deriving a profit of 8. 7% on its costs. 2. The contract imposed on Thiess the obligation of formulating, in good faith, equipment operating costs based on historic data. Thiess was in breach of the contract and Placer was awarded damages. 3. Placer has unfettered right of termination under this contract. 9

Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255 On appeal by Thiess, Supreme Court of West Australia held: 1. Thiess’s appeal against a dismissal of the claim for wrongful termination of contract failed. 2. Thiess’s appeal against the judgement on counterclaim succeeded. Placer’s counterclaim was set aside and replaced by a nominal sum of $100. 10

Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255 Commentary: 1. In Australia, contract that contains good faith clauses are considered valid and will be recognized by the law as effective. 2. A good faith clause can be enforceable even where it is drafted in a wide ambit. However, it will not operate to fetter clear rights that are set out in the contract. E. g. right of termination by convenience clause 3. The concept of good faith consists of, inter alia, (a) goodwill of both parties; (b) reasonable cooperation by both parties; (c) an obligation to deal and act honestly with each other. 11

Mutual Trust & Cooperation Roles of Project Manager Sutcliffe v Thackrah [1974] AC 727 “The building owner and the contractor make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the architect that he shall not only exercise due care and skill but also reach such decision fairly, holding the balance between his client and the contractor. ” 12

Costain Ltd v Bechtel Ltd [2005] EWHC 1018 • Following a meeting with the project managers on the Channel Tunnel Rail Link project, the contract administrators increased disallowance of contractors’ claims. • The contractors alleged improper interference causing the client to breach the contract and they sought interim injunctions. • The project managers argued that under the (amended) NEC contract there was no duty of impartiality on the project managers. • The court entertained doubts about this and held that there was a serious issue to be tried, but refused the injunctions, since on the balance of convenience,

Mutual Trust & Cooperation Good faith clauses? Costain Ltd v Bechtel Ltd [2005] EWHC 1018 Ø Role of project manager to act in the spirit of mutual trust and co-operation? 14

Costain Ltd v Bechtel Ltd [2005] EWHC 1018 Mr. Justice Jackson held: 1. there was no evidence that Mr Basily was acting dishonestly. 2. “I do not understand how it can be said that the principles stated in Sutcliffe do not apply. ” 3. “in discharging many of its functions under the contract, the project manager acts solely in the interests of the employer … Nevertheless, I do not see how this circumstance detracts from the normal duty which any certifier has on these occasions when the project manager is holding a balance between employer and contractor”. 15

Costain Ltd v Bechtel Ltd [2005] EWHC 1018 4. “The implied obligation of a certifier to act fairly, if it exists, arises by operation of law not as a consequence of custom”. 5. the phrase ‘in good faith’: “Sometimes it is used as a synonym for ‘impartiality’. Sometimes, it is used as a synonym for ‘honestly’. ” 6. “A semantic debate about the precise meaning of the phrase ‘in good faith’ in the context of certification seems to me to serve no useful purpose. I have therefore concentrated on the question whethere was a duty of impartiality and whether, arguably, that duty was breached. ” 16

Mutual Trust & Cooperation Automasters Australia Pty Ltd v Bruness Pty Ltd[2002] WASC 286, Hasluck J considered the obligation of good faith and held: 1. “it is apparent from the decided cases and related discussion that an express term concerning good faith, either in negotiation or performance, is likely to be considered certain and the term will be interpreted to give it meaning. What constitutes good faith will depend on the circumstances of the case and upon the context of the whole of the contract. The Courts will allow normal and reasonable business behaviour, with the result that the parties are not obliged to put aside their own self interest or proprietary rights. A court considering such a provision is entitled to have regard to the reasonableness of the conduct and whether a party has acted unconscionably or capriciously. ” 17

The Society Game

THE SOCIETY GAME • Play 6 rounds • Each Group is given $100 at each round • Each Group can decide to put token into the “Public Pot” and keep it themselves. • All money found in the “Public Pot” will multiply by 2 times at each round. The multiplied sum will be equally distributed to all groups. • The group with most money at the end will win!

The Red/Blue Game

THE RED/BLUE GAME • • Play 10 rounds Each person will contribute $100 at the beginning Each Group is given a red and a blue paper Each Group will decide whether to raise the red or blue paper. The scores of different results are as follow: • All Blue • Some Red Some Blue +6 • All Red All -3 Red -6 +3 • Communication opportunity at 4 th and 8 th rounds • Marks in the last 2 rounds will double. • The group with positive score at the end will share the money!

WAYS TO EFFECTUATE A TRUSTING RELATIONSHIP • Reputation • Long-term relationship • Revenge!

THE NEED FOR COLLABORATION • https: //www. youtube. com/watch? v=v. MXP 2 O GSo. OM