Introduction

The case of Van Oord UK Limited against Dragados UK Limited, adjudicated on September 30, 2020, by the Scottish Court of Session, delves into the contractual obligations and rights under the NEC3 Engineering and Construction Subcontract. This dispute centers around the Aberdeen Harbour Expansion Project (AHEP) at Nigg Bay, near Aberdeen, where Dragados UK Limited, acting as the main contractor and subcontractor to Aberdeen Harbour Board, engaged Van Oord UK Limited to perform specific dredging works.

The crux of the disagreement lies in Dragados' repeated instructions to Van Oord to omit certain works from their subcontract, subsequently transferring these tasks to other subcontractors without prior disclosure. Van Oord contended that such actions breached the contractual terms, particularly the obligation to act in mutual trust and cooperation as stipulated in the NEC3 subcontract.

Summary of the Judgment

The Scottish Court of Session addressed three primary issues:

• Entitlement to Transfer Work: Whether Dragados was contractually entitled to omit works and transfer them to other subcontractors.
• Consequences of Breach: If Dragados was in breach, what were the contractual implications for payment reductions to Van Oord.
• Interpretation of Wave Measurement Provisions: Clarification on how wave measurements should be interpreted for compensating adverse weather conditions.

The court concluded that Dragados had indeed breached the subcontract by omitting works without proper contractual authority. Consequently, the compensation event mechanism under NEC3 was applicable, leading to a reduction in the bill rate payable to Van Oord for the remaining works. The third issue regarding wave measurements remained unresolved pending further proof.

Analysis

Precedents Cited

The judgment referenced the case of Abbey Developments Ltd v PP Brickwork Ltd [2003] EWHC 1987 (Technology), which addressed similar issues concerning the removal of subcontracted work. In Abbey Developments, the court held that unless explicitly permitted by the contract, a contractor cannot unilaterally omit work and transfer it to another subcontractor without breaching the original subcontract agreement.

This precedent was pivotal in assessing whether Dragados had the contractual right to omit and transfer works under the NEC3 subcontract, emphasizing the necessity for clear contractual provisions to allow such actions.

Legal Reasoning

The court meticulously examined the NEC3 subcontract clauses, particularly focusing on:

• Clause 10.1: Obliges parties to act in mutual trust and cooperation.
• Clause 14.3: Specifies conditions under which a contractor may instruct omissions.
• Clauses 60.1, 61, and 63: Govern the compensation event mechanism and its financial implications.

The court determined that Dragados lacked explicit contractual authority to omit works and transfer them to WASA and Canlemar. Although NEC3 provides mechanisms for compensating subcontractors for certain events, unilateral omissions without adhering to contractual procedures constituted a breach. The court further analyzed whether the compensation mechanism was appropriately applied, concluding that while Dragados could reduce the bill rate under NEC3, the initial omission of works was not justified contractually.

Impact

This decision reinforces the importance of adhering to contractual terms, especially in standard forms like NEC3. Contractors must strictly follow the procedures outlined for any alterations or omissions in subcontracted works. Unauthorized omissions can lead to breaches, invoking compensation mechanisms that may financially disadvantage the subcontractor.

Future cases will likely reference this judgment to clarify the extent of contractual powers regarding work modifications and emphasize the necessity of clear, unambiguous contract clauses to prevent similar disputes.

Complex Concepts Simplified

Conclusion

The Van Oord vs Dragados judgment underscores the critical nature of mutual trust and strict adherence to contractual terms within NEC3 subcontracts. Dragados' unauthorized omission and transfer of work without proper contractual provisions were deemed a breach, activating the compensation event mechanism and leading to financial repercussions for Van Oord. This case serves as a cautionary tale for contractors to ensure all actions align with contractually agreed procedures and emphasizes the judiciary's role in upholding contractual sanctity.

For legal practitioners and parties engaged in construction contracts, this decision highlights the necessity of clear contract drafting and the potential consequences of unilateral actions that deviate from agreed terms. It also illustrates the effectiveness of NEC3's compensation mechanisms in addressing disputes fairly, provided they are applied within the boundaries of the contract.