Chapter 24 Fitness for purpose terms implied by common law

In a ‘construct only’ contract, where the contractor is bound to complete according to detailed plans and specifications or a bill of quantities for which the contractor was not responsible, the scope of an implied fitness for purpose term is small.  This is because the contractor is not providing ‘specialist’ services and its role is limited to complying with the detailed plans and specifications.  In those instances, the principal will have already separately engaged an architect and/or engineer to provide a detailed design, drawings or specifications.

In design contracts and design and construct contracts, an implied fitness for purpose term is more readily implied because the principal is reliant on the skill and expertise of the consultant or contractor to provide a design or services which will be fit for the intended purposes including any purposes specifically made known to the consultant/contractor.

For a term to be implied into a construction contract, it must be reasonable and equitable in the circumstances, necessary, obvious, clearly expressed and consistent with the terms of the contract, as observed in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.

A course of past dealings may give rise to an implied term of fitness for purpose. A term may also be implied by custom or usage in contracts of a similar nature or in similar circumstances (Henry Kendall & Sons Ltd v William Lillico & Sons Ltd and Others [1969] 2 AC 31). For example, a fitness for purpose term may arise in two distinct, but often connected, scenarios:

  • where a contract is for the supply of materials, and
  • where a contract is for the performance of work.

Contract for the supply of materials

Where a contract is for the supply of materials, a warranty will be implied that the materials are of good quality and, if the principal has made known the purpose for which the materials are to be supplied, that they are reasonably fit for the purpose for which they will be used. Either or both warranties may be excluded where the express terms and surrounding circumstances reveal such an intention.

CASE STUDY

Young & Marten Ltd v McManus Childs Ltd  [1969] 1 AC 454

Facts
  • In building dwelling-houses, the contractors subcontracted the roofing works to the subcontractor.
  • The contractor specified to the subcontractor that a specific type of tile should be used for the roof.
  • These tiles were made by only one manufacturer.
  • Within 12 months after being fixed, the tiles, although apparently of good quality, began to disintegrate by reason of an undetectable defect.
  • The contractor claimed damages from the subcontractor for breach of the implied warranty that the tiles would be fit for their intended purpose.
Result
  • The court said that there had been no reliance by the contractor on the subcontractor’s skill and judgment in selecting the materials.
  • As the tiles were chosen by the contractor and there was only one manufacturer of the tiles, there was no implied warranty by the subcontractor as to fitness of purpose.
  • By selecting the type of goods to be supplied, the contractor took on himself the responsibility of selecting tiles suitable for his purpose.

Performance of work

Where a contract is for the performance of work, ordinarily the only warranty that will be implied is that the contractor will perform the work under the contract with all proper care and skill.

If the principal relies on the contractor’s skill and judgement in performing the work, a term may be implied that the work (along with any materials used in the work) will be reasonably fit for the intended purpose. This warranty will only be implied where the principal makes known to the contractor the particular purpose, and where the terms of the contract and the surrounding circumstances do not exclude it.

CASE STUDY

Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd  [1934] AC 402

Facts
  • The contractor entered into a contract to manufacture a propeller for a vessel in accordance with a number of specifications.
  • The only element unspecified was the thickness of the blades.
  • The propellers were found to produce noise above the level permitted for the vessel to receive the classification sought by the owner.
Result
  • The court found that the contractor had breached the implied warranty that the propeller would be fit for the intended purpose of obtaining the specified classification, because the thickness of the blades had been left to the skill and judgment of the contractor.

The decision in Cammell Laird can be contrasted with the decision in Lynch v Thorne [1956] 1 WLR 303, where no aspect of the work was left to the skill and judgement of the builder.

CASE STUDY

Lynch v Thorne [1956] 1 WLR 303

Facts
  • Lynch entered into an agreement with Thorne, a builder, to buy land with a house under construction which Thorne agreed to complete in accordance with a detailed specification attached to the agreement.
  • The specification provided for 9-inch walls with no rendering.
  • Within days of Lynch moving into the house, rain began to penetrate the wall, rendering the room uninhabitable.
Result
  • The court held that there was no implied warranty of fitness for purpose with regard to the wall because it could not have been made water proof without departing from the express requirement to complete the building in accordance with the specification.
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