Shy Jackson is a partner at law firm BCLP
It was back in 1994 that Sir Michael Latham stated that a modern form of contract should include a specific duty for all parties to deal fairly with each other, and with their subcontractors, specialists and suppliers, in an atmosphere of mutual cooperation. More recently, the government’s Construction Playbook and the equivalent private sector Trust and Productivity report also highlighted collaborative contracting as a way to improve delivery.
“The courts have made it clear that each case will depend on its own facts, and we have seen judges take different approaches”
It is against that background that JCT introduced Article 3 into the JCT 2024 suite of contracts, which requires the parties to work with each other and other project team members in a cooperative and collaborative manner, in good faith, and in a spirit of trust and respect. In addition, it requires the parties to support collaborative behaviour and to address behaviour that is not collaborative.
JCT is not alone in that respect – the NEC suite of contracts has always included such an obligation and FIDIC is looking to also publish a collaborative form of contract this year.
This is therefore a welcome development, in line with the wider drive for a change in culture and behaviour in the construction sector. Experience, however, tells us that there is some uncertainty as to how such clauses operate in practice, as well as the extent to which including such clauses would result in behavioural change.
English law has been reluctant traditionally to recognise and enforce duties of good faith, on the basis that they are too uncertain and involve a subjective assessment a judge cannot easily undertake.
The test was recently identified in one of the decisions in the highly publicised Bates v Post Office dispute – Bates v Post Office Ltd (No.3) [2019] EWHC 606 (QB) – where it was held that it was necessary to decide whether the conduct in question, in the relevant context, would be regarded as commercially unacceptable by reasonable and honest people. It is easy to see why that might not be easy to apply in practice, and the courts have also recognised the tension with the need to avoid a good-faith obligation cutting across the commercial terms agreed by the parties.
What we have therefore seen is a preference by the courts to use more established legal principles such as waiver and estoppel where possible, rather than find a breach of a duty to cooperate and act in good faith. Similarly, the courts seem more willing to rely on good-faith obligations to support arguments based on specific contractual obligations, then seeing a good-faith obligation as giving rise to cause of action on its own. This is also because it will not usually be easy to identify what losses flow directly from a breach of a good-faith obligation.
Change of mindset
Perhaps the more important message from the courts has been that a duty of good faith does not require a party to give up its own self-interest or freely negotiated commercial advantage. What this means in practice is that Article 3 will not help when a party is seeking relief from its own breach of contract or to circumvent a specifically agreed contractual term.
At the same time, courts have also made it clear that the similar good-faith obligation under the NEC form of contract is “not merely an avowal of aspiration” and will have practical consequences (see Van Oord UK Ltd v Dragados UK Ltd [2021] CSIH 50).
Overall, the courts have made it clear that each case will depend on its own facts, and we have seen judges take different approaches to this issue. This will also be the case in adjudications, but as the decisions will not be published it will be more difficult to see how these issues are dealt with.
Parties will no doubt come up with new arguments about Article 3, but this should not be seen as an opportunity to create new causes of action. Parties should consider why Article 3 was introduced and focus their efforts on embedding the collaborative behaviours it encourages. This is the real challenge for the industry; it will not be achieved by solely signing up to an obligation to collaborate but will require a genuine change from the traditional mindset.
