NIHE v Healthy Buildings (2014)
Neutral citation: Northern Ireland Housing Executive v Healthy Building (Ireland) Ltd [2014] NICA 27
NEC contract topics: Notification of compensation events, time bars, objective assessment of compensation events
Form of contract: NEC3 Professional Services Contract
Main areas of law: Interpretation and application of contractual provisions on time bars
Background and the Dispute
The Northern Ireland Housing Executive (NIHE), acting as employer, entered into a contract with Healthy Buildings (Ireland) Ltd (HBL), a company providing asbestos management services. The contract, governed by the NEC3 Professional Services Contract (PSC), related to asbestos surveying across two NIHE regions: Belfast and the north east. The services were to comply with HSE guidance HSG264, which permits a surveyor to presume asbestos content in materials under certain conditions, thus limiting the need for sampling.
The dispute arose following a meeting on 10 January 2013 where NIHE stated that samples should be taken in every room suspected of containing asbestos. This instruction conflicted with the presumption-based approach under HSG264 and led to a significantly increased workload for HBL. On 23 May 2013, HBL submitted a compensation event notification under claiming this instruction constituted a change to the scope of services. NIHE disputed this, asserting that the instruction merely clarified their requirements and did not alter the scope. NIHE also contended that HBL’s compensation event notice was time barred, as it was submitted more than eight weeks after the instruction was given.
Legal Issues
The Northern Ireland Court of Appeal was asked to resolve two key issues. First, whether the instruction issued at the meeting constituted a change in scope under the NEC3 PSC and therefore a compensation event under clause 60.1(1). Second, whether HBL's compensation event notification was time barred under clause 61.3, which generally requires notification within eight weeks unless the employer should have notified the compensation event and failed to do so.
NIHE contended that the instruction merely selected one permissible method under HSG264 and did not constitute a contractual variation. They also argued that the time bar applied because HBL had not issued its notice within the eight-week period. In contrast, HBL maintained that the instruction imposed a more onerous sampling requirement than that envisaged under HSG264 and the contract, thus amounting to a variation. HBL further argued that the employer had an obligation to notify the compensation event, and since it had not done so, the time bar should not apply.
Judgment
The Court upheld the decision in the court of first instance and dismissed NIHE’s appeal. It found that the instruction issued at the meeting did indeed alter the scope of services by requiring sampling in all areas where asbestos might be present, overriding the presumption-based methodology allowed under HSG264. The Court concluded that this instruction imposed a more burdensome obligation than that originally envisaged by the contract and thus qualified as a change in scope under clause 60.1(1).
The Court also rejected NIHE’s argument that the compensation event notification was time barred. It held that under clause 61.1, the employer is required to notify the consultant of a compensation event at the time the instruction is issued. Since NIHE failed to do so, HBL was entitled to notify the event even after the eight-week period had passed. The Court emphasised that clause 61.3 provides an explicit exception to the time bar: the consultant is not barred where the employer should have notified the event but did not. The Court found that NIHE could not rely on its own failure to avoid liability and that a subjective belief that the instruction did not constitute a compensation event was irrelevant.
The Court applied the contra proferentem rule to interpret the time bar clause against NIHE, as it sought to benefit from an exclusion of liability. It confirmed that no qualification could be read into clause 61.1 or 61.3, rejecting NIHE’s argument that a belief-based standard should apply.
NEC contract learning points and implications for the construction industry
The decision provides important guidance for users of NEC3 contracts. First, it affirms that instructions which depart from the methodology envisaged in the contract documents and referenced guidance materials can constitute changes in scope, even if they are presented as clarifications. This has implications for project managers and consultants who must carefully assess the impact of employer communications.
Second, the case confirms the robustness of the NEC3 notification provisions. While clause 61.3 imposes a strict time bar, the Court affirmed that this is subject to a clear exception where the employer fails in its obligation to notify a compensation event under clause 61.1. The ruling reinforces the need for employers to be proactive in identifying and notifying compensation events.
Furthermore, the Court’s approach to contract interpretation shows that time bar and exclusion clauses will be construed narrowly and against the party seeking to rely on them. Legal and project teams should be aware that courts will assess instructions and compensation mechanisms objectively, focusing on the substance of an instruction and its effect on contractual obligations.
Similar provisions exist in clause 61.1 and 61.3 of NEC4 Professional Service Contract (PSC), but the contract is managed by a Service Manager appointed by the Client. Service Manager’s under the PSC should be aware of their obligation to notify a compensation event which arise from their instruction changing the Scope (61.1). Further, that the eight week time bar on the Consultant’s notification of compensation events does not apply when the event arises from the Consultant giving an instruction to change the Scope (61.3). The position is the same under all of the other long form NEC4 contracts.