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Hong Kong – About Time: An NEC PSC Case On The NEC3 Eight Week Period For Notifying Compensation Events.

25 June, 2014

 

The case of Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited [2014] NICA 27 was decided by the Court of Appeal for Northern Ireland and provides some useful judicial interpretation of clauses 61.1 and 61.3 of the NEC3 Professional Services Contract (“NEC PSC”). The case concerned the original version of NEC PSC and Clauses 61.1 and 61.3 have been amended in the latest version issued in April 2013 but not in a material way and the principles of this case should apply equally to the latest version. Clause 61.3 (and its ECC equivalent) requires notice to be served for compensation events and is probably the most famous NEC clause after clause 10.1 “mutual trust and co-operation”.

 
The background was that Northern Ireland Housing Executive (“NIHE”) had employed Healthy Buildings (“HB”) to undertake the equivalent of around HKD 14mof asbestos surveys and sampling on its extensive residential housing stock. With NEC PSC the employer sets out what the consultant is to do in a bespoke Scope document. The key obligation in the Scope in the present case was to complete surveys in accordance with ‘Health and Safety Guidance HSG264’. As its name suggests, this is general guidance not a specific sampling or survey regime for a specific housing stock. Different regimes and sampling rates may be appropriate in different situations – after all, you cannot realistically sample and check every square inch of every property on a big estate. Amongst other things, the guidance indicated that in some circumstances assumptions can be made. For example, if you find asbestos in the ceilings of a particular type of house you can assume it will be present in other identical ones – they don’t all need to be separately checked.

 

Early on in the contract there was a minuted meeting between NIHE and HB to discuss the surveys and sampling. NIHE said every room where asbestos might be present should be sampled – no making assumptions. As far as NIHE were concerned they were simply confirming what HB were obliged to do anyway – they did not see it as additional to the Scope. It does not appear that HB made an immediate fuss but nearly 19 weeks later they served notice of a compensation event under NEC PSC clause 61.3.

 
There were essentially two key issues for the court. First, was there a change to Scope resulting in a compensation event? Second, was HB out of time notifying a compensation event pursuant to clause 61.3?The Court of Appeal decided that NIHE had indeed required significant additional work – this turned on the wording of HSG264 and it did not matter that NIHE had not issued a formal instruction. This part of the case does not really relate to NEC PSC as this is exactly the sort of dispute which can arise on any consultancy or construction contract. The NEC are well aware of this and their guide to producing the NEC PSC Scope advocates using specific and measurable requirements. If NIHE had thought about it at tender stage they could have made the full extent of their sampling requirements clear.

 
Clause 61.3 provides that consultants must notify their employer of compensation events within eight weeks of becoming aware of them and if they fail to do so they are not entitled to additional time or money unless the Employer should have notified the event to the consultant but did not. These last words proved crucial because pursuant to clause 61.1 where compensation events arise from the employer giving an instruction the employer should itself notify the compensation event. The NIHE argued that these words did not apply in circumstances where an employer did not believe an instruction was a compensation event but the consultant did. The crux of NIHE’s argument was that NEC was all about prompt notification so it was right that the onus was on a consultant to notify a change of Scope within eight weeks where it was clear the employer did not accept there was a change of Scope. Also it was argued that an employer who does not consider an event to be a compensation event cannot sensibly be obliged to notify it as such.

 
The Court of Appeal rejected NIHE’s arguments. There was no basis for implying any qualification into the wording of clauses 61.1 and 61.3. The time bar acts as an exclusion clause in favour of the employer and insofar as there is any ambiguity about its application it is construed contra proferentem against the Employer. Also, applying clause 10.1 (partner shall act as stated in the contract and in the spirit of mutual trust and co-operation) to the language of clause 61.1 the NIHE was bound to give written notification of the compensation event arising from the instruction to change the services and had failed to do so. HB were not time barred.

 
The conclusions of the Court of Appeal as to the application of the time bar, in circumstances where NIHE should have issued a formal instruction and compensation event notice, are not surprising. Perhaps it is more surprising that a party which had entered into a contract based on mutual trust and co-operation should have sought to run such technical legal arguments in the first place.

 
In conclusion, it seems that whilst NEC contains an effective condition precedent in respect of claims it is not going to apply to those arising out of additional work required by the employer – even in circumstances where the employer does not think they are requiring extra work. The fact that the dispute arose in the first place has nothing at all to do with the clarity of wording of NEC but an awful lot to do with the clarity of the specific Scope obligations the parties had signed up to in this case.

 

Pinsent Masons

 

For further information, please contact:

 

Peter Clayton, Partner, Pinsent Masons
peter.clayton@pinsentmasons.com

 

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