1. Dennis Li - HKCIC Lecturer
Principles of NEC
Dennis Li
- HKCIC Lecturer

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

3. Game – How many squares do you see?

4. Inconsistencies and Ambiguities
Cl 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

5. Inconsistencies and Ambiguities
Cl 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
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 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.

6. Inconsistencies and Ambiguities
Cl 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.

7. 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?

8. 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.

9. Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255
HC held:
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.
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.
Placer has unfettered right of termination under this contract.

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

11. Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255
Commentary:
In Australia, contract that contains good faith clauses are considered valid and will be recognized by the law as effective.
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
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.

12. 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.”

13. 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, damages would be an adequate remedy.

14. Mutual Trust & Cooperation
Good faith clauses?
Costain Ltd v Bechtel Ltd [2005] EWHC 1018
Role of project manager to act in the spirit of mutual trust and co-operation?
Jackson J. confirmed that the project manager's discretion had to be exercised as set out in Sutcliff v Thackrah 25 and resisted the suggestion that the detailed provisions of the contract meant that the project manager only had to consider the employer's interests. Significantly, he noted that the argument was presented by reference to a duty of good faith, which he observed was used as a synonym for “impartiality ” or “honesty ”. However, he saw no point in considering the precise meaning of good faith, making it clear he only considered the issue of impartiality. This case, therefore, serves as an example of the court's use of existing law to deal with what can be described, and had been described during submissions in that case, as a good faith duty.
Indeed, this can be seen as the background to H.H. Judge LLoyd Q.C.'s judgment in Birse Construction Ltd v St David Ltd, 16 in which he suggested that a non-binding partnership charter was intended to provide the standards by which the parties were to conduct themselves and against which their conduct and attitudes were to be measured.17 He suggested that even though the terms of the partnership charter would not alter or affect the terms of the contract, an arbitrator would undoubtedly take such adherence to the charter into account in exercising the discretion to open up, review and revise.18
However, there is a reluctance in the construction industry to accept such additional duties as binding obligations by entering into genuine partnerships, in the legal sense of the word. The practical difficulties of this approach have been noted and it has been suggested that binding good faith duties would leave scope for disagreement on interpretation.19 In addition, as it has been pointed out that while the courts may recognise a good faith duty arising out of a partnering contract, it is difficult to see such duty extending beyond the obligation to do what is reasonably necessary to allow the contract to be performed.20
Can good faith be relied upon to stop parties from what has been described in Automasters Australia v Bruness 43 as cynical resort to black letter law or the literal meaning of a contractual provision? In that case, it was successfully argued that a notice of default and the subsequent termination, based on contractual rights, were in breach of an express term to deal in good faith. The Supreme Court of Western Australia held that the good faith obligation meant a party could not exercise rights capriciously or unreasonably and was obliged to consider the legitimate interests of all parties to the contract.

15. Costain Ltd v Bechtel Ltd [2005] EWHC 1018
Mr. Justice Jackson held:
there was no evidence that Mr Basily was acting dishonestly.
“I do not understand how it can be said that the principles stated in Sutcliffe do not apply.”
“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”. 

16. Costain Ltd v Bechtel Ltd [2005] EWHC 1018
“The implied obligation of a certifier to act fairly, if it exists, arises by operation of law not as a consequence of custom”.
the phrase ‘in good faith’: “Sometimes it is used as a synonym for ‘impartiality’. Sometimes, it is used as a synonym for ‘honestly’.” 
“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 whether there was a duty of impartiality and whether, arguably, that duty was breached.”

17. Mutual Trust & Cooperation
Automasters Australia Pty Ltd v Bruness Pty Ltd[2002] WASC 286, Hasluck J considered the obligation of good faith and held:
“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.”
the alleged breach were trivial, correctable and did not justify termination.
The duty to co-operate permeates the law of contract and is related to the principles of good faith and fair dealing. In common law countries, the duty can take the form of implied terms within the contract. A greater level of awareness of this duty by the parties to construction contracts would minimise disputes and better ensure that the parties achieved their shared objectives.
In many civil law systems, it is considered that the duty to co-operate derives from the principle of good faith. The duty to co-operate is also recognised as a general principle of lex mercatoria (Vogenauer and Kleinheisterkamp, 2009, p. 543). As we have seen, the duty to co-operate is also contained within some of the key instruments relating to the unification of private law. As a means of exploring the nature and substance of the duty, each of these will therefore now be considered.

18. The Society Game

19. 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!

20. The Red/Blue Game

21. 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 All -3
Some Red Some Blue Red -6 Blue +6
All Red All +3
Communication opportunity at 4th and 8th rounds
Marks in the last 2 rounds will double.
The group with positive score at the end will share the money!

22. Ways to effectuate a trusting relationship
Reputation
Long-term relationship
Revenge!

23. The need for collaborationOM