‘Good Faith’ in Construction Contracts in Ireland – A Lacuna in the Law ?

This Blog will delve into ‘Good Faith’ in construction. Clause 4 of the Irish Public Works Contract (PWC) imposes obligations upon the Employer’s Representative, with reciprocal cooperation being the most important for all parties, being the Employer, ER and the Contractor, ‘forming a triumvirate of prime importance’[1].

Clause 4 of the PWC also explicitly mandates the contractor to adhere to specific administrative requirements. This entails adhering to strict timeframes for responding to the employer (ER) requests and submitting detailed reports or programmes. Non-compliance with these provisions could be considered a breach of contract by the contractor. The repercussions for such non-compliance range from the contractor losing entitlement to certain claims under clauses 9[2] and 10[3] to a potential reduction in payment specified in an interim payment certificate and, as a last resort, termination of the contractor’s employment under the contract.

The wording ‘Co-operation’ is akin to ‘partnering’ and ‘is the promotion and practice of collaborative working and the use of techniques to encourage co-operation between the parties. The degree of the relationship can vary considerably across a wide range, from nothing more than a signature of a statement of goals to, at the other end of the spectrum, full integration of management systems, open-book accounting and sharing of other information and mutual incentivisation. Alliancing is a related concept centred around all the major participants.”[4]

Kings College Professor David Mosey states in the International Construction Law Report[5]  that ‘If partnering is a process, then that process can be described in a contract so that all team members can understand it and implement it. For example, where PPC2000 refers to “the spirit of trust, fairness and mutual cooperation”[6]

In the English case of Merton v Leech[7], it was clarified that ‘cooperation’ entails reciprocal duties on the part of employers and contractors through an implied term. One of the implied terms pleaded by Leech was that Merton would take all steps reasonably necessary to enable Leech to discharge the works in a regular and orderly manner. Citing the Mckay v Dick case from the 19^th Century;  ‘in a written contract it appears both parties have agreed that something should be done which cannot be effectively be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing though there may be no express words to that effect’[8].

Vinelott J, in Merton v Leech held that such an implied term regarding ‘co-operation’; ‘extends to those things which the architect must do to enable the contractor to carry out the work and that the building owner is liable for any breach of this duty on the part of the architect.’[9]

So, it appears that Clause 4.1.1 can be construed as a ‘Good Faith’ clause. But, delving further into Clause 4.1.1, what are the restraints to an Irish ‘public authority’[10] in Clause 4.1.1 and Good Faith ?  Under Irish Law as of 2024, ‘there is currently no general implied duty of good faith in B2B commercial contracts.’[11]

In the Irish case of Flynn v Breccia, Breccia, a Blackrock Private Clinic shareholder, acquired overdue loans from another shareholder, Benray Limited, secured by its Blackrock shareholding. Breccia demanded repayment and then appointed a receiver when Benray failed to comply. Benray tried to prevent the sale of its shares, citing implied terms in the shareholders’ agreement. The High Court agreed to imply a duty of good faith and fair dealing into the shareholders’ agreement.[12]

This decision by the High Court in Dublin, however, was overturned by the Court of Appeal[13], reaffirming that Irish law does not recognise an overarching ’duty of good faith’.

The Court of Appeal, however, did leave the door slightly ajar to the principle when noting “there are certain limited categories of contractual relationships where such a duty may be implied”. It is also important to note that the Irish Supreme Court has not issued a judgement on the issue, so that may be the next stage in developing the concept of ‘Good Faith’ under Irish law.

Under EU contract law, Article 1:202 of the Principles of European Contract Law (PECL)  addresses the “Duty to Co-operate”. According to this provision of the PECL, parties to a contract have an obligation to ‘cooperate’ in good faith and deal fairly with each other. This duty ensures that both parties work together to achieve the contract’s objectives, promoting trust and effective communication. This is akin to collaboration in a relational contract.

Article 1:202 states “Good Faith and Fair Dealing: (1) each party must act in accordance with good faith and fair dealing (2) The parties may not exclude or limit this duty.” It provides that the principle of good faith is a basic principle running through the Principles.[14]

Many questions arise at this point. Why hasn’t Ireland been guided by Article 1:202 in clause 4.1.1 regarding cooperation and good faith?

And where does the NEC 4 contract stand when used in Ireland on large infrastructure projects such as Metrolink?

In the 2021 case of Van Oord v Dragados[15], the Scottish court of Appeal found that NEC 3 clause 10.1 “reflects and reinforces the general principle of good faith in contract”[16] and ‘was consistent with other terms in the Contract and general principles of contract law including the principle of mutuality of obligations, meaning that a party cannot enforce a contractual term in its favour if it is the counterpart of another obligation which it has breached.’[17] The court emphatically stated that the good faith provision in the NEC3 form (clause 10.1) is an integral part of the contract, not merely ‘an avowal aspiration’[18].

So, it appears that there is a lacuna regarding Clause 4 of the Irish Public Works contract and Clause 10 of the NEC 4 contract when used in the Jurisdiction of Ireland.

 

[1] Wren, T. (2014). Public Works in Ireland, Procurement and Contracting. (1st ed.,p.259) Clarus Press

[2] PW – CF – Time and Completion

[3] PW – CF – Claims and Adjustments

[4] Bailey, J. (2018). Construction Law (3rd ed., p. Vol.1.(ix). London Publishing Partnership.

[5] Mosey, D. (2024). GOOD FAITH IN ENGLISH CONSTRUCTION LAW – WHAT DOES IT MEAN, AND DOES IT MATTER? International Construction Law Review, (0265 1416), 402.

[6] PPC2000 Partnering Terms, clause 1.3

[7] London Borough of Merton v Stanley Hugh Leach (1985) 32 BLR 51

[8] McKay v Dick (1881) 6 App Cas 251 (para.63)

[9] Ibid, at pages 80-81, as was followed in Glenlion Construction Ltd. V Guinness Trust (1988) 39 BLR 94 at 101-2.

[10] A public authority under EU law is ‘defined in the Directive as `state, regional or local authorities‟. This definition covers not only the executive authority of the state, but all state entities i.e. state administrations and regional or local authorities. The term `the state’ also encompasses all of the bodies that exercise legislative, executive and judicial powers. The same applies to bodies that, in a federal state, exercise those powers at federal level.’ Sigma (2011, January 1). What is a Contracting Authority? Https://Sigmaweb.org/. Retrieved June 17, 2024, from https://sigmaweb.org/publications/Public_Procurement_Contracting_Authority_2011.pdf

 

[11] McGirr, D. (2021, November 24). Good Faith in Irish Contracts – Where Are We Now and Where Are We Going? Https://www.mhc.ie. Retrieved June 17, 2024, from https://www.mhc.ie/latest/insights/good-faith-in-irish-contracts-where-are-we-now-and-where-are-we-going

 

[12] A&L Goodbody (2017, March 21). No Implied Duty of Good Faith and Fair Dealing in Commercial Contract. Https://www.Algoodbody.com. Retrieved June 17, 2024, from https://www.algoodbody.com/insights-publications/no-implied-duty-of-good-faith-and-fair-dealing-in-commercial-contract

 

[13] Flynn & Anor v Breccia & Anor [2017] IECA 74

[14] Ole Lando And Hugh Beale, ‘Principles of European Contract Law, Parts I and II’” (Hague: Kluwer Law International, 2000) 113

[15] RECLAIMING MOTION BY VAN OORD UK LTD AGAINST DRAGADOS UK LTD [2021] ScotCS CSIH_50 (05 October 2021)

[16] Ibid at (Para [19])

[17] Pinsent Masons (2022, September 7). ‘Good faith’ and its treatment in EMEA construction contracts. https://www.Pinsentmasons.com. Retrieved June 17, 2024, from https://www.pinsentmasons.com/out-law/analysis/good-faith-treatment-emea-construction-contracts

[18] RECLAIMING MOTION BY VAN OORD UK LTD AGAINST DRAGADOS UK LTD [2021] ScotCS CSIH_50 (05 October 2021). at (Para [19])

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