Chapter 23 Warranties

In a building contract, parties are burdened with a number of obligations. These obligations will be classified as either conditions (essential terms) or warranties (non-essential terms). While a breach of a contractual condition will, subject to the terms of the contract, entitle the innocent party to terminate the contract, breach of a warranty will, as a rule, only give rise to a claim for damages by the innocent party.

A warranty may be an express term of the contract or implied into the contract.  Warranties may be implied either by statute (eg the Competition and Consumer Act 2010 (Cth); the States’ various Sale of Goods Acts and Domestic/Residential Building Acts) or by the common law.

CASE STUDY

Actron Investments Queensland Pty Ltd v DEQ Consulting Pty Ltd  [2018] QCA 147

Facts
  • Actron Investments Queensland Pty Limited (Actron) purchased a new commercial warehouse that contained a floating concrete slab as a floor.
  • After completion of the purchase, Actron installed pallet racking in the warehouse and used the warehouse for storing air conditioning units.
  • Over time, the floating concrete slab subsided by 160mm. This affected Actron’s ability to use forklifts in the warehouse.  Actron incurred significant costs to fix the slab.
  • Actron brought proceedings against multiple parties, including the engineering company DEQ Consulting Pty Ltd (DEQ), and one of DEQ’s directors, who had been engaged by the builder of the warehouse to prepare preliminary drawings incorporating the concrete slab, and perform other engineering works and inspections during construction. Actron alleged that DEQ had engaged in misleading and deceptive conduct by issuing a statutory design compliance certificate certifying that the concrete slab, if installed correctly, would comply with the relevant Australian Standard (AS3600).  The AS3600 provided that the slab should be able to withstand loads without ‘undue’ settlement.  The Standard Building Regulation 1993 (Qld) required compliance with AS3600.
  • DEQ claimed that the certification was issued on the basis that the builder had approved a ‘low cost’ design, and it had previously advised the builder of a 150 – 200 mm settlement, meaning the settlement was within Actron’s expectations and therefore was not ‘undue’ for the purposes of the AS3600 and Building Regulations.
Result
  • The Court of Appeal overturned the trial judge’s decision and found that DEQ’s issuing of the certification was misleading and deceptive in character because the anticipated settlement of 150 – 200mm would be ‘undue’ in terms of AS3600.  Whether or not the builder wanted to pursue a ‘low cost’ construction solution did not bear upon the statutory obligation of the engineer to act as a ‘competent person’ in issuing the certification.
  • The misleading character of the certification was not altered by the possibility that a building certifier might discover that the anticipated settlement would be ‘undue’ by examining a report issued with the certificate and notes on the plans.

For further discussion on warranties, see Chapter 19 – Claims under the contract.

There are three standard warranties to be provided by the contractor that, if not expressly stated, will be implied into all forms of building contracts (being contracts for work and materials):

  • that the materials used will be of good quality;
  • that the work will be carried out in a good and workmanlike manner; and
  • that the materials used and the completed works themselves will be reasonably fit the purpose for which they are required.

As a rule, these warranties are expressed as explicit terms in the building contract.

In a standard format design and construct contract, the contractor will warrant to the principal that the contractor:

  • at all times will be suitably qualified and experienced, and will exercise due skill, care and diligence in the execution and completion of the work under the contract;
  • has examined any preliminary design included in the principal’s project requirements and that the preliminary design is suitable, appropriate and adequate for the purpose stated in the principal’s project requirements;
  • will carry out and complete the contractor’s design obligations (often a defined term in the contract meaning all tasks necessary to design and specify the works) to comply with the principal’s project requirements; and
  • will carry out and complete the works in accordance with the design documents so that the works, when completed, will be fit for their stated purpose; and comply with all the requirements of the contract.

A warranty to carry out works with reasonable skill, care and diligence as identified above creates a performance obligation which is analogous to the standard of care in negligence.  It is an implied duty to exercise the level of skill and care expected of another reasonably competent member of the profession.

A contractor may also be required to warrant that it will cooperate with the principal or principal’s representatives or employees and provide all reasonable assistance throughout the life of the project to develop the design of the works.

These design warranties will typically be expressed to operate even though:

  • some of the design work may have been carried out by or on behalf of the principal or any of the principal’s employees and included in any of the design documentation provided by the principal; and
  • the principal or principal’s representatives may review, comment or give a direction on the design documents.

The primary obligation of the contractor is that the works are fit for their intended purpose.  This obligation may arise in three ways:

  • by an express term in the contract;
  • by implication of the common law; and
  • by implication of statute.

For further discussion on fitness for purpose warranties, see Chapter 24 – Fitness for purpose.

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