LexisNexis
lslaw

NEC3 clause 63.1: a tale of necessary assumptions, the principles of sound construction and uncertain equity

Monday 27 June 2022

Credit: ktasimar/Adobe Stock

Andrew Muttitt
Wardell Graham Consulting, Johannesburg
andrew@wardellgraham.com

Background

The key provision governing the methodology for assessment of a contractor’s monetary compensation under both NEC2 and NEC3 is clause 63.1 of the core clauses. Those who are familiar with both documents will doubtless be aware that the wording of this clause under the newer NEC3 differs significantly from that under NEC2: the distinction being that the NEC3 rendering of the clause has been augmented by an all-important final paragraph. Thus, as well as providing that the cost element of a compensation event is to be assessed on the basis of the defined cost for work already done and the defined cost of work not yet done, clause 63.1 of NEC3 also adds that the date dividing the work already done from the work not yet done is the date when the project manager instructed or should have instructed the contractor to submit quotations.

There is no doubt that this additional paragraph was introduced by a drafting committee motivated by the very best of intentions in seeking to strengthen a contractual framework whose primary objective from the outset has been the preservation of mutual trust and cooperation between the contracting parties and, in particular, the avoidance of contractor and sub-contractor exploitation by employers and main contractors in a position of dominance. Indeed, the official guidance notes on NEC31 indicate that the shorter version of clause 63.1 contained in NEC2 had proven inadequate to impede the exploitation of contractors by employers through the dubious manipulation of the existing change management procedure. As a result, the new concluding paragraph was the committee’s considered solution in countering a disturbing trend of retrospective cherry picking between quotation and final recorded costs.

Nevertheless, situations can, and frequently do, arise in which the final paragraph of clause 63.1 of NEC3 has the potential to produce the very sort of injustice for the employer that it was designed to eliminate for the contractor. Before dealing with this aspect further, we first need to understand the correct application of the final paragraph of clause 63.1 within the context of the compensation event procedures. For the sake of brevity, I will refer to the paragraph in question as ‘63.1 final paragraph’ throughout this article.

Situations can, and frequently do, arise in which the final paragraph of clause 63.1 of NEC3 has the potential to produce the very sort of injustice for the employer that it was designed to eliminate for the contractor.

The definition of the ‘switch date’2 as the date when the project manager instructed or should have instructed the contractor to submit quotations for the relevant compensation event initially obscures the vision of the user more than it attempts to clear it. According to the wording in question, the ‘switch date’ can either be the date when the project manager instructs the contractor to submit a compensation event quotation, or the date when he should have done so. The problem is that, while it is customary in commercial contracts to qualify this choice with such words as ‘whichever is the earlier’, ‘whichever is the later’, or some other suitable linguistic compass enabling the parties to determine clearly which of the two options will be applicable to a given set of circumstances, no such qualifier exists under 61.3 final paragraph. The situation is then exacerbated further by the absence of any cross-referencing to those provisions of the contract dealing with how and when the project manager is to instruct quotations.

There are two instances in which the project manager is under an obligation to instruct the contractor to submit quotations. The first of these arises under clause 61.1 of the core clauses, which provides that the project manager is required to notify a compensation event and immediately instruct quotations for any of the events described in clauses 60.1(1), 60.1(4), 60.1(7), 60.1(8), 60.1(10) and 60.1(17). The second arises in terms of the project manager’s obligation to instruct quotations under clause 61.4, by way of response to a valid compensation event notified by the contractor under clause 61.3.

Thereafter, so as not to leave a quotation open to allegations of invalidity due to the project manager having wrongfully defaulted on their notification obligations in either of the two instances prescribed in clauses 61.1 and 61.4, clause 61.4 incorporates a helpful deeming provision. This states that, subject to the contractor having issued the project manager with a written reminder within one week of having received no response, a further two weeks of silence by the project manager triggers a procedural mechanism whereby the project manager is deemed to have instructed quotations on the date of the written reminder.

The importance of notifying assumptions

Let us now consider a scenario based on a recent dispute. The contractor notifies a valid compensation event under clause 61.3 of NEC3 ECC. The project in question is highly complex from both a technical and logistical perspective, such that the project manager acts on a representation by the contractor that the project manager should withhold its instruction to quote until a clearer picture of the impact of the compensation event presents itself. This is based on an affirmation by the contractor that it is currently impossible to forecast the relevant defined cost, and that it would therefore be better for it to wait until actual costs are known before quoting.

Ultimately, the employer (in conjunction with the project manager) takes steps to ensure that the contractor’s costs of the additional work arising from the compensation event are reduced by a margin far greater than the contractor could have anticipated at the time when the project manager should have instructed quotations.

Shortly before completion of the additional work, the project manager instructs the contractor to submit quotations in respect of the compensation event in question. Pursuant to the second bullet of clause 63.1 and 63.1 final paragraph, the contractor then submits a quotation based on a forecast of defined cost as it would have been at the date when the project manager should have instructed quotations but for the informal agreement to postpone. In doing so, the contractor formulates their quotation as if they were looking at the situation on the day when the quotation should originally have been instructed, without taking into account any of the employer-motivated mitigating factors that have occurred in the meantime. Consequently, the contractor submits a quotation that is excessively high in comparison with their actual costs of completing the additional work, calculated by reference to the shorter schedule of cost components. The project manager rejects the quotation on the basis that the contractor’s assessment is incorrect, and proceeds with their own assessment in accordance with clause 64.1. The contractor takes issue with the project manager’s assessment and declares a dispute. The dispute is submitted to adjudication, and the adjudicator upholds the contractor’s original quotation on the grounds that their calculation of the change to the prices is correct in accordance with clause 63.1 bullet 2 and 63.1 final paragraph.

In conclusion, the employer is required to pay an amount in excess of what justice and common sense would at first sight demand.

So how could the situation have been avoided? If the adjudicator’s interpretation of 63.1 final paragraph is correct, yet the true impact of a compensation event is so uncertain that a project manager does not feel capable of determining the correctness of a quotation were it to be submitted shortly after the date when they should instruct quotations under the contract, what are they to do other than instruct and pray?

The answer to these questions is deceptively simple. Indeed, it lies in another clause of NEC3 chapter 6 that is, in my experience, generally ignored and, at best, misunderstood by most project managers. The provision in question is clause 61.6, which expressly provides for the project manager to furnish the contractor with assumptions upon which to base their quotation whenever defined cost is too uncertain to be forecast accurately, and further provides that these assumptions can be changed if later proven to be wrong.

Thus, within chapter 6 of NEC3 ECC, there exists a very straightforward and accessible mechanism for preventing the pain described in the above illustration. To guard the employer against financial loss of punitive proportions, all the project manager has to do is to reject the contractor’s non-contractual, albeit understandable, plea for postponement, and to instruct them instead to base their quotation for forecast defined cost on conservative assumptions designed to confine the amount quoted within reasonable parameters. Ultimately, if the assumptions turn out to be wrong to the detriment of the contractor, and their actual costs are higher than forecast, the assumptions can be corrected, thereby triggering a further compensation event under clause 60.1(17) and preserving fairness. Alternatively, if the assumptions turn out to be wrong to the detriment of the employer, the contractor’s costs being lower than expected, they can be corrected using the same procedure, and fairness is still preserved.

The contractor with assumptions upon which to base their quotation whenever defined cost is too uncertain to be forecast accurately, and further provides that these assumptions can be changed if later proven to be wrong.

In this context, the wording of clause 65.2 of NEC3 is also of the utmost significance. That clause provides as follows: ‘The assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to be wrong.’

In other words, as far as the letter of NEC3 is concerned, clause 61.6 is the only mechanism that enables the project manager to revise an assessment that turns out to be incorrect on the basis of an erroneous forecast, even where the relevant error could not have been detected at the time of quotation.

The importance of a correct understanding and application of the common law rules of construction

What happens in the same scenario if the project manager fails to utilise clause 61.6? Is the employer left with no option but to pay the excess or does common law provide him with an alternative solution?

Given that, in my own personal experience, the two bodies of law by which NEC3 contracts are most frequently governed are those of England and Wales on the one hand and South Africa on the other, we will examine this question from the perspective of the laws of both of these jurisdictions in turn.

The two bodies of law by which NEC3 contracts are most frequently governed are those of England and Wales on the one hand and South Africa on the other

The rules pertaining to the construction of contract terms as applied by the courts both in England and Wales, and in South Africa are broadly equivalent. For both jurisdictions, the following four principles apply:3

1. every contract is to be construed by reference to its object and the whole of its terms;

2. where words contained in a contract are disputed, they are to be construed by reference to their ordinary and natural meaning as it would be understood by a reasonable person having full cognisance of the unitary context in which they were written, including the purpose of the relevant provision and the circumstances in which the contract came into being;

3. the fact that a particular construction leads to an unreasonable result must be a relevant consideration, as follows:

• the more unreasonable the result, the less likely it is that the parties could have intended it; and

• if there are two possible constructions, the decision-maker is entitled to favour the construction which is consistent with business common sense; and

4. decision-makers must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. In the words of Lord Hoffmann, ‘it clearly requires a strong case to persuade the court that something must have gone wrong with the language’ in order to justify a meaning which departs from the words actually used.4

The correct construction of clause 63.1 final paragraph

The most significant and reliable indicator of the purpose of 63.1 final paragraph is the official statement to that effect articulated in the NEC3 Guidance Notes. The statement in question affirms that the absence of the paragraph would:

• give the project manager carte blanche to make a retrospective and selective choice between a quotation and the final recorded costs related to a compensation event; and

• thereby trigger the sort of ‘adversarialism’ and game playing that NEC3 is designed to eliminate.

Remembering that 61.3 final paragraph was absent from NEC2, and deducing from the commentary in the Guidance Notes that it was introduced into NEC3 to cure a perceived flaw with its predecessor form, it is impossible for us to establish the true unitary context of the paragraph without first taking a look at the relevant clauses of NEC2 chapter 6 and comparing them with their counterparts under NEC3.

When we recall that one of the key founding objectives of the NEC standard forms was to avoid injustice and adversarial behaviour on the part of the employer, it does not require too careful an examination of the wording of clauses 61.4 and 62.3 of NEC2 in to realise why the NEC3 drafting committee was reluctant to leave chapter 6 unmodified.

As the section of the Guidance Notes pertaining to clause 63.1 indicates, one of the favourite practices of employers and project managers during that era was to leave the determination of any extension of time and compensation entitlement arising from a scope variation or an employer risk event until after the relevant delay had ended and/or the resultant additional costs had been incurred. Accordingly, should the contractor be required to carry out additional work on the basis of the variation or event, the contractor would necessarily have to perform the entirety of such work at their own expense, and then face protracted argument as to the proper amount due with an employer to whom the benefit of the completed work had already accrued.

While strong in spirit and intent, the relevant wording of NEC2 is demonstrably weak in its capacity to prevent the type of abuse just described:

• The wording of clause 61.3 does not contain an express time bar, and the vagueness of the wording is such as to lure a busy and eager-to-please contractor into postponing notification of a compensation event until a time when the project manager would inevitably have the upper hand as described.

• One only has to read clause 64.1 of NEC2 through site-experienced eyes in order to note the absence of any efficient sanction, other than the prospect of a formal, costly and disruptive common law application for specific performance, against an unscrupulous project manager who simply decides to postpone the instruction of quotations until a far later time advantageous to the employer. Any hint of the corrective deeming provision introduced into the corresponding clause of NEC3 is noticeably absent.

• The existence in NEC2 of clauses 62.3 and 62.4, without any corresponding deeming provision of the kind included under clause 62.6 of NEC3, is but another opportunity for an unscrupulous project manager/employer to achieve an outcome similar to that referred to previously by deliberately delaying its reply to the contractor’s quotation.

All of the aforementioned flaws have, to some extent, been addressed in NEC3 via the modifications made to the wording of clauses 61.3 and 61.4, and by the introduction of an additional clause in the form of 62.6. Nevertheless, for reasons which will become apparent, the NEC3 drafting committee also saw fit to add 63.1 final paragraph.

In this regard, we have already seen that there are two instances under the contract when the project manager ‘should’, or ought to, instruct the contractor to submit quotations: these being the circumstances provided for under clauses 61.1 and 61.3.

Remembering always the purpose of the wording stated in the Guidance Notes and the unitary context of the quotations to which the wording refers, based on an application of the ordinary and natural meaning test, the date referred to in 63.1 final paragraph as the ‘date when the Project Manager instructed or should have instructed the Contractor to submit quotations’ must surely be as follows:

• in the event that the project manager instructed the contractor to submit quotations strictly in accordance with whichever is applicable of clauses 61.1 and 61.4, the date when they did so; and

• in the event that the project manager failed to instruct the contractor to submit quotations strictly in accordance with whichever is applicable of clauses 61.1 and 61.4, the date when they should have done so under the wording of whichever of those clauses is applicable.

One of the key founding objectives of the NEC standard forms was to avoid injustice and adversarial behaviour on the part of the employer

Only on this interpretation will the contractor be placed in the position in terms of cost compensation that they would have been in but for the failure of the project manager to comply with their instruction obligations under clause 61.1 or 61.4, and on this interpretation alone will the abuse which the paragraph is expressly intended to prevent (according to the Guidance Notes) be avoided.

Based on the ordinary and natural meaning of the words in the unitary context, it would thus seem that the only reasonable construction of 63.1 final paragraph is that the ‘switch date’ is whichever is the earlier of the date when the project manager instructed quotations and the date when he should have instructed quotations in accordance with the contract.

A useful way of verifying this is to examine the outcome if the alternative construction is adopted and the ‘switch date’ is consequently interpreted to mean whichever is the later of the date when the project manager instructed quotations and the date when he should have instructed quotations in accordance with the contract. The result of this would be as follows:

• In terms of a compensation event that is notifiable under clause 61.1, there would be nothing to stop the project manager from taking advantage of a breach of their contractual obligation to instruct quotations simultaneously upon notification, and instead waiting until the entirety of the additional work was completed before issuing an instruction to quote, thereby placing all of the additional work into the category of ‘work already done’, and triggering the very opportunity for game playing and ‘adversarialism’ that the wording of 63.1 final paragraph is allegedly designed to avoid.

• In terms of a compensation event notifiable under clause 61.3, the potential outcome would be exactly the same, albeit that the scope for an abusive unilateral postponement would be significantly reduced, assuming communication by the contractor of the reminder notification necessary to trigger the deemed instruction to submit quotations under clause 64.1.

That the construction favoured above is the correct one is further reinforced by the fact that clauses 61 and 62 of NEC3 contain suitable safeguards, the effect of which is that the ‘whichever is earlier’ interpretation would not be prejudicial to the employer in circumstances where the contract is properly administered.

Indeed, depending on the facts, the project manager has an array of alternatives open to them in order to ensure that they are ultimately only required to accept a quotation which is fair and accurate, from the option to provide the contractor with (modifiable) assumptions where reasonable forecasting is impossible (clause 61.6 of NEC3), to the option of requiring a revised quotation to be submitted in cases where the contractor is clearly in error (clause 62.3 bullet 1 of NEC3), to the option of the project manager making their own assessment of the compensation due in circumstances where the contractor has failed to act in accordance with certain key provisions of the contract (clause 62.3 bullet 4 of NEC3).

Trapped on the horns of a dilemma?

Nevertheless, as we have seen from the outline at the beginning of this paper, if we are to apply the ‘whichever is earlier’ construction to the specific scenario at issue, we surely arrive at an outcome which is as unjustly absurd as that which 63.1 final paragraph is, in normal circumstances, designed to prevent.

The reason for this is that the circumstances of the case scenario at hand are far from normal, due to the project manager and contractor having agreed a significant departure from the ordinary rules of engagement as prescribed by the contract, and having failed to reduce such agreement into writing as required by clause 12.3 of NEC3.

In view of the aforementioned, the only option left open to the employer would be a plea of estoppel.

Estoppel under English Law

In the context of a binding contract, to succeed in a defence of estoppel under English law, the employer would need to demonstrate the existence of the following five criteria:

1. There must be a pre-existing legal relationship between the parties.5

2. There must be a promise, or an assurance or representation in the nature of a promise, which is intended to affect the legal relationship between the parties, and which indicates that the promisor will not insist on their strict legal rights against the promisee (or which induces the promisee reasonably to believe that the promisor will not insist on their strict legal rights), to the extent that such rights arise out of the relevant legal relationship.6

3. The promise or representation must be ‘clear’ or ‘unequivocal;7 however, it need not be expressed, with an implied promise or representation being sufficient.8 In terms of the degree of implication required, the promise must be sufficiently certain that it would have been backed by consideration in the event that a contract were being entered into.

4. The promisee’s conduct must be influenced by the promise.

5. The promisee must alter their position in reliance on the promise, so that it would be inequitable for the promisor to act inconsistently with it.9

Case scenario viewed in light of the criteria under English law

Our case scenario certainly satisfies the requirements of criterion 1, as there is an existing contractual relationship between the parties.

Moving to criteria 2 and 3, matters become a little trickier. The best way to determine whether these criteria have been met is by reference to the facts in the leading English case of Central London Property Trust Ltd v High Trees House Ltd (High Trees).10 In that case, a landlord made an oral promise to a tenant to reduce rent for a certain number of years and the tenant relied on the promise. At the end of the period the landlord sued the tenant for the balance of the reduced payments. The Court of Appeal ruled that the landlord was estopped from doing so based on the tenant having placed reasonable reliance on the earlier contradictory promise made by the landlord.

In the present scenario there is no doubt that the contractor made an oral promise to the effect that, contrary to an express contractual obligation, the project manager would only have to instruct quotations for a compensation event once the actual additional costs arising from the event were known, rather than shortly after the event had happened and been notified. It seems evident that this promise was sufficiently certain to have been binding if backed by consideration.

With this in mind, and applying the principle articulated in High Trees, the evident outcome is that a project manager with knowledge of the contract would reasonably have relied on such a promise to conclude that, for the purposes of 63.1 final paragraph, the date when the project manager should have instructed quotations was to be the date when the additional costs of the event were known, rather than the early date required by the letter of clause 64.1 of the contract.

Hence criteria 2 and 3 are satisfied and, provided that criteria 4 and 5 are also satisfied, the contractor is therefore required to base its quotation on the actual prices of all the work that was done before the new promise-induced switch date.

In terms of criteria 4 and 5, it goes without saying that the project manager, as agent of the employer, was influenced by the above promise. Further, in reliance on the promise, the project manager sacrificed their opportunity to instruct, obtain and assess a quotation at an early stage, and the employer took steps to mitigate the actual costs arising from the compensation event. It would be therefore inequitable for the contractor to go back on their promise and base their eventual quotation on a strictly legal construction of clause 63.1.

Estoppel under South African law

To succeed in a defence of estoppel under South African law, the employer would need to demonstrate the existence of the following six criteria, which are essentially derived from the English law doctrine of estoppel by representation:11

1. There must be a representation by words or conduct.

2. The representation must have been made in such a manner that the representor would reasonably have expected the representee to rely on it.

3. The representation must be unequivocal.12

4. The representee’s reliance on the representation must be reasonable.

5. The representee must have acted in reliance on the representation to its financial detriment.13

6. The representor must have been blameworthy in making the representation: in other words, at the very least, it must be demonstrated that, as a reasonably prudent person, it would have foreseen detriment of the kind suffered, and have guarded against it in order to prevent abuse.14

Case scenario viewed in light of the criteria under South African law

Criteria 1 and 2 are satisfied for the same reasons as those described in the analysis of criteria 1 and 2 of the English law test.

While criteria 3 and 4 are broadly the same as criterion 3 of the English law test, the nature of the sub-test applied under South African law to determine whether or not a representation is unequivocal for the purpose of a defence of estoppel is slightly different from its English counterpart. Instead of asking whether the representation would have contractual effect if it were backed by consideration, the South African courts ask whether a reasonable person in the position of the estoppel assertor would have made more enquiries before acting to their detriment in reliance on the perceived meaning of the words and/or conduct which constitute the relevant representation.

For the reasons already discussed in relation to the application of English law:

• there is no doubt that the contractor in the example scenario made a representation to the effect that the project manager would only have to instruct quotations for a compensation event once the actual additional costs arising from the event were known; and

• both this representation and its broader meaning would be so clear to a reasonable project manager with knowledge of the contract, that they would have no reason to make further enquiries before engaging in prejudicial conduct in reliance on it.

It is thus my view that criteria 3 and 4 of the South African test would be satisfied.

Based on the decision in Jonker v Boland Bank PKS Bpk,15 the sub-test applied by the South African courts to establish the existence of criterion 5 consists of a comparison between the position in which an estoppel assertor actually finds itself, and the position in which it will probably be if the estoppel denier is permitted to resile from the representation on which the estoppel assertor relies. If the position in which it finds itself is better than the position it would probably be in, then prejudice or detriment exists.

In the example scenario, if the contractor were permitted to resile from the representation, the following outcomes would result:

• Based on the second bullet of clause 63.1 and on 63.1 final paragraph, the contractor would be entitled to submit a quotation based on a forecast of defined cost as it would have been at the date when the project manager should have instructed quotations but for the representation.

• In doing so, the contractor would be entitled to formulate its quotation as if it were looking at the situation on the day when the quotation should originally have been instructed, without taking into account the consequences of the representation, including the employer-motivated mitigating factors that have occurred in the meantime.

• As a result, the employer would be placed at a considerable financial disadvantage when compared to the situation it would be in were the contractor estopped from resiling on its representation: as we have already seen during the course of the English law analysis, by reason of the representation the contractor is required to base its quotation on the actual prices of all the work that was done prior to the new promise-induced switch date, which in this case would result in a far lower figure than that derived from a forecast in terms of the first two bullet points above.

There is thus a strong argument that criterion 5 of the South African test is met.

If ever a South African project manager were inclined to take a relaxed approach to the proper application of NEC3 in the type of situation that we are presently analysing, on the assumption that an estoppel defence will provide the employer with a robust safety net in the event of a fall, then the uncertainties involved in satisfying criterion 6 of the South African estoppel test are probably sufficient to prompt a serious rethink of that approach.

The key to criterion 6 lies in three leading decisions from the late 1990s, namely ABSA Bank Ltd v IW Blumberg and Wilkinson,16 ABSA Bank Ltd v De Klerk17 and Koekemoer v Langeberg Stene BK.18 In all three, the respective courts make it clear that, in terms of blameworthiness, to successfully argue a defence of estoppel the assertor must prove a minimum of negligence on the part of the representor, along with a sufficient causal link between the negligence proved and the harm suffered.

The relevant sub-test is based on the traditional formulation applied in the South African law of delict, as laid down in the case of Kruger v Coetzee,19 and comprises two limbs. First, one must consider whether a diligent person in the position of the representor would have foreseen a reasonable possibility that its conduct would injure another to the point of causing that other financial loss. Second, one must consider whether the same diligent person would then have taken steps to minimise or divert the possible loss.

The application of this test to the example scenario sadly tends to raise more questions than it answers, and consequently stirs up more uncertainties than it resolves.

On the one hand:

• It can be argued that a diligent person in the position of the contractor would be sufficiently familiar with the contract terms and their change management mechanisms to know that, by inducing the project manager to postpone its decision, it would cause the latter:

– to abandon its option to notify assumptions in terms of clause 61.6, in the reasonable belief that the change to the prices would in any event now be calculated by reference to actual costs; and

– based in the same reasonable belief, simultaneously stimulate a willingness on the parts of project manager and employer to take steps to mitigate the contractor’s actual costs;

• In light of the express contractual obligation under clause 10.1 of NEC3 to act in a spirit of mutual trust and cooperation, it can be argued quite convincingly that a diligent person in the position of the contractor would have taken steps to mitigate the loss which the employer would suffer, were the contractor to resile from its representation.

On the other hand:

• In terms of the assertor, we are dealing here not with an uncommercial layman or a casual passer-by, but with a project manager who is deemed by law to possess the skill and knowledge of a professional project manager experienced in the relevant discipline;

• The assertor is therefore deemed to be sufficiently versed in the terms of the contract to be expected to know all about clauses 12.3 and 61.6, and to recognise the risk to which it would expose the employer by relying on the contractor’s representation; and

• with this in mind, one must surely question

– the extent to which the project manager’s choice to rely on the representation, rather than exercising its power under clause 61.6 or formalising the revised switch date in terms of clause 12.3, was in and of itself negligent; and

– the extent, therefore, to which such contributory negligence would neutralise the effectiveness of the estoppel defence by erasing the necessary causal link between the representation at issue and the potential loss.

Accordingly, there is a significant risk that the facts of our example scenario do not satisfy the requirements of criterion 6 of the estoppel test prescribed by South African law.

Conclusion

Based on the comprehensive analysis set out above, we may articulate the following practical conclusions:

• The purpose of clause 61.6 in the context of the NEC3 change management regime is clear and essential, as opposed to obscure and peripheral.

• At the time of notifying a compensation event under clause 61.1 or accepting a compensation event under clause 61.4, if there is any reasonable doubt whatsoever in the mind of the project manager as to whether the impact of the compensation event is sufficiently certain to be forecast reasonably, they must use their power under clause 61.6 to state assumptions upon which the contractor is to base its quotation, in the knowledge that, unlike accepted quotations, assumptions can be changed to incorporate an accurate reflection of the true impact of the compensation event once it becomes clear.

• Another valid (albeit unorthodox) approach is for the parties to reach mutual agreement as to a later switch date. However the presence of clause 12.3 means that such an agreement will only be binding if the prescribed formalities as to writing and signature are strictly observed.

The purpose of clause 61.6 in the context of the NEC3 change management regime is clear and essential, as opposed to obscure and peripheral.

• While, in terms of the example scenario, the common law doctrine of estoppel may be a source of just relief for an employer in the event that the two options above have been overlooked, such an alternative under South African law is far too uncertain to be considered a substitute for compliance with the letter of the contract.

• Even in the case of the more favourable approach furnished by the English law doctrine of promissory estoppel, estoppel can only ever be employed as a defence to an action for relief by the contractor and, even then, it can only ever be pleaded successfully in the relatively narrow circumstances that have been described.

Notes

1 NEC3: Engineering and Construction Contract Guidance Notes (April 2013).

2 The date dividing that portion of a compensation event quotation which must be based on actual defined cost from that portion of the same quotation which must be based on forecast defined cost.

3 See Mannai Investment Co Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749; Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896; Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2012] Lloyd’s Rep 34 at [21]; Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014(2) SA 494 (SCA) at [10] – [12].

4 See Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [15], cited in Joseph Chitty, Chitty on Contracts (34th ed, 2021, 12-055) p 939.

5 Ibid, 3-088 at p 348.

6 See Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130; Spence v Shell (1980) 256 EG 55, 63; James v Heim Galleries (1980) 256 EG 819; Collin v Duke of Westminster [1985] QB 581.

7 See Low v Bouverie [1891] 3 Ch 82, 106; Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741; The Schackleford [1978] 2 Lloyds Rep 155, 159; Channel Island Ferries v Sealink UK Ltd [1987] 1 Lloyd’s Rep 559, 580.

8 Spence v Shell (1980) 256 EG 55, 63.

9 See James v Heim Galleries (1980) 256 EG 819, 825; Societe Italo-Belge pour le Commerce et l’Industrie v Palm & Vegetable Oils (Malaysia) Sdn Bhd (The Post Chaser) [1981] 2 Lloyd’s Rep 695, 701; Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (No 2) [1990] 2 Lloyd’s Rep 431, 454; Fortisbank SA v Trenwick International Ltd [2005] EWHC 339; 2 Lloyd’s Rep IR 464 at [13].

10 [1947] KB 130.

11 For a summary of the criteria see Company Unique Finance (Pty) Ltd v Johannesburg Northern Metropolitan Local Council 2011 (1) SA 440 (GSJ) 458H – 459A, applying the decisions in NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 (1) SA 396 (SCA) and Glofinco v ABSA Bank Ltd t/a United Bank 2002 (6) SA 470 (SCA) at 12.

12 Saflec Security Systems (Pty) Ltd v Group Five Building (East Cape) (Pty) Ltd 1990 (4) SA 626 (E).

13 Jonker v Boland Bank PKS Bpk 2000(1) SA 542(O).

14 Grosvenor Motors (Potchefstroom) Ltd v Douglas 1956 (3) SA 420(A).

15 See n 13 above.

16 1995 (4) SA 403 (W).

17 1999 (1) SA 861 (W).

18 1999 (1) SA 361 (NC).

19 1966 (2) SA 428 (A).

Andrew Muttitt is a Director at Wardell Graham Consulting in Johannesburg and Special Counsel to Binvic Africa and can be contacted at andrew@wardellgraham.com.