Van Oord v Dragados: The Inner House Dredge up Good Faith from Aberdeen Harbour

Document Cited in Related
DOI10.3366/elr.2022.0768
Author
Pages268-273
Date01 May 2022
Published date01 May 2022

At £350m and the “largest marine infrastructure project in the UK”,1 the work to extend Aberdeen Harbour is a significant but somewhat troubled project, due for completion in 2022. The original main contractor, Dragados, had (reportedly) had difficulties and left the project in Summer 2021.2 That did not end their involvement, as litigation about the scope of subcontracted dredging works was subject to a decision of the Inner House in October 2021.3 The case examines the role of an express term of the building contract which requires the parties to act “in a spirit of mutual trust and cooperation” and the way in which that interacts with the idea of good faith.

The factual basis for the case can be set out briefly.4 The extension works included digging out Nigg Bay next to the existing harbour basin.5 Dragados first subcontracted the dredging work to Van Oord in September 2018, and subsequently (without Van Oord knowing) subcontracted portions of the same dredging work to other operators. This work amounted to around 30% of the total dredging. Van Oord’s contract was then terminated in March 2020.6

Van Oord claimed that the instruction to reduce the amount of dredging was a breach of contract. This was confirmed by the Outer House.7 A subsequent appeal to the Inner House considered the mechanism for evaluating the consequences of that breach. The Inner House also put the case to proof on the question of whether Dragados had complied with the contractual “spirit of mutual trust and cooperation” clause.

There are three legal questions in the case. The first two provide important context for the third.

The first issue relates to the law around changing a construction project to reduce the amount to be done. Construction contracts usually anticipate change to the agreed scope of works – reflecting the frequency of change in the delivery of construction projects.8 This is usually straightforward and leads to more work (and therefore more money) for the contractor. Reduction of work is different as it impacts the contractor’s profit margin (as here, where the ‘easy’ work was removed, leaving the less economic work for Van Oord). In some circumstances, it could even be a circuitous route to termination (if all remaining work was removed from the contract). There is scant authority on this issue.9

The second issue is that the case examines the core terms of the New Engineering Contract (NEC) Standard form of building contract. In this case, the contract was based on the third edition of the NEC, known as NEC 3, although the fourth edition is currently in use. The NEC has risen to prominence in the last 30 years. Its novel approach focuses on promoting collaboration through (i) using plain English,10 (ii) requiring parties to be proactive, and (iii) the promotion of communication, especially around...

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