Construction News

Fri July 19 2024

Related Information

JCT’s good faith provisions

14 May Irwin Mitchell solicitors Tim Willis and Gordon Chan consider the enhanced prominence of ‘good faith’ in the new JCT Design and Build Contract 2024

With the introduction of JCT Design and Build Contract 2024  (DB 2024), the Joint Contracts Tribunal recently held a launch event that enabled members of the drafting committee to explain the thinking behind certain changes.  As may have been noted already, the DB 2024 mandates previously optional provisions for (i) collaborative working, (ii) sustainable development, and (iii) notification and negotiation of disputes.

In this article, we examine the collaborative working clause in DB 2024 (Article 3), which says:

“The parties shall work with each other and with other project team members in a co-operative and collaborative manner, in good faith and in a spirit of trust and respect.  To that end, each shall support collaborative behaviour and address behaviour which is not collaborative”.

As above, Article 3 was previously an optional clause.  In DB 2024, the wording of the clause has not changed except that it now appears as Article 3, at the beginning of the contract, to give it much more prominence and importance.

There are two key elements to Article 3:

  • working cooperatively and collaboratively in “good faith” in a spirit of trust and respect; and
  • supporting collaborative behaviour and addressing non-collaborative behaviour.

The courts’ interpretation

The interpretation of good faith is known to be context specific.  In explaining its view, the JCT drafting committee referred to the Court of Appeal case Re Compound Photonics Group Ltd [2022] EWCA Civ 137.  The committee summarised the case as authority for the proposition that a clause requiring parties to act in good faith gives rise to:

  • a core duty to act honestly and not in bad faith; and
  • (subject to context) the prohibition of conduct that reasonable and honest people would regard as commercially unacceptable, but not necessarily dishonest.

The Compound Photonics case suggests that, while the essence of good faith is “honesty”, its application can prevent behaviours that undermine the contractual spirit.  The Court of Appeal further illustrates that good faith clauses, which could mean many different things, are grounded by principles of “fair dealing”. (It also explained what amounts to “dishonest”, with reference to cases such as Royal Brunei Airlines v Tan [1995] 2 AC 378 and Ivey v Genting Casinos [2017] UKSC 67.)

However, the English courts are also cautious in extending the duty beyond these bounds without clear context, such that good faith should not be interpreted so widely as to introduce obligations not intended by the parties and/or fundamentally changing the nature of the underlying contract.

Related Information

Going forward (and as we see it), if being asked to interpret Article 3, the court is likely to draw analogy from previous cases concerning the New Engineering Contract’s Core Clause 10 (NEC Cl.10).  That clause states that parties “shall act as stated in the contract” (10.1) and “in a spirit of mutual trust and co-operation” (10.2), which bears some resemblance to Article 3.  Here’s how we think this may happen.

In Van Oord UK Limited v Dragados [2021] CSIH 50, the contractor (Dragados) asked the subcontractor (Van Oord) to omit works from the scope of their subcontract which incorporates NEC Cl.10, but Dragados then transferred the omitted work to other subcontractors.  The Scottish Inner House held that NEC Cl.10 meant that Dragados could not seek a reduction in the prices unless it demonstrated that it performed its duty to act “in a spirit of mutual trust and co-operation”.

If this case was taken to interpret Article 3’s effect on DB 2024 by analogy, arguably it may affect how the courts would see Section 8 (Termination) of DB 2024.  We speculate that the extent of application of Article 3 is unknown but is likely to be minimal, as some other cases have made it clear that good faith clauses will not trump the contractual rights and responsibilities parties expressly entered into.

In Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319 (TCC), the dispute regarding good faith focused on whether the subcontractor had a duty, under NEC Cl.10, to inform the contractor about significant contractual implications, particularly regarding time limitations in an adjudication clause. The Technology & Construction Court (TCC) held that the parties are expected to not only refrain from misleading each other but also engage in open, honest communication regarding key contractual effects.

By the same vein, such duty to “speak out” based on NEC Cl.10 could potentially be referred to if the court was asked to interpret the new Clause 9.1 (notification and negotiation of disputes) of DB 2024, which requires parties to undergo “direct, good faith negotiations” to resolve disputes or differences.

Conclusion

In adopting Article 3 as a standard clause, we think that the JCT has not taken a risk with what is generally considered to be a fairly well settled form of contract. Parties who wish to raise arguments of interpretation or to avoid its clear drafting will not find a new route being provided by Article 3. In the limited circumstances where the core duty of dishonesty or “sharp practice” is established, the law would have had many existing remedies and principles such as estoppel and duties of co‑operation that provide the remedy without engaging much with good faith.

For those who prefer not to rely on the enforcement of collaboration through the courts, the answer lies in the procurement routes adopted and the partners chosen.  Looking forward, the JCT 2024 suite will provide additional tools to achieve that end in the forms of target contract and the early services agreement.  But that is a topic for another article after JCT has released the relevant contracts.

About the authors: Tim Willis is a senior associate and Gordon Chan a solicitor with law firm Irwin Mitchell. This article is part of a series by Irwin Mitchell’s Construction and Engineering team on the JCT Design and Build Contract 2024.

Got a story? Email news@theconstructionindex.co.uk

MPU
MPU

Click here to view latest construction news »