Terms in Building Contracts

Lecture week 3/4

Photo Productions Ltd v

Securicor Transport Ltd

Per Lord Diplock : “A basic principle of the common law of contract, to which there are no exceptions that are relevant in the instant case, is that parties to a contract are free to determine for what primary obligations they will accept. They may state these in express words in the contract itself and where they do, the statement is determinative; but in practice a commercial contract never states all the primary obligations of the parties in full; many are left to be incorporated by implication of the law from the legal nature of the contract…”

Terms

Conditions Warranties Implied terms Exemption/ Limitation Clauses

Implied Terms Terms that have not been expressly agreed

by the parties. This may occur because the parties have

decided to record only the most important terms, leaving others to be understood, or because the parties have not considered that a particular situation would arise.

The courts have traditionally implied a term into a contract by: usage and custom; previous course of dealings; intention of the parties; statute; and common law

Vickery v Waitaki International Ltd [1992] 2 NZLR 58 at 64

Per Cooke P: A conventional classification of implied terms

(a) terms implied by statute; (b) terms implied by custom or usage; (c) terms implied from fact; (d) terms implied by law.

Is implied term in building contract be implied by law or to be implied from fact? Justice Byrne in Implied Terms In Building

Contracts: Inference Or Imputation? Building and Construction Law, February 1995 :

“The distinction between terms implied by law and those implied by fact is much less clear than it might at first appear”.

Implied terms in building contract

Fitness for purpose: standard of workmanship, type of materials supplied, suitability of design

Co-operation

Price and payments

Site supervision: contractor’s duty to supervise operations on site; whether by direct employees or by subcontractors.

Time for completion: unless otherwise specified, completion in lump sum contract is to be within reasonable time.

Design liability: Contractor who undertakes that the design shall be fit for the purpose.

Standard of workmanshipLynch v Thorne [1956] 1 All ER 744

A builder agreed to construct a house in accordance with a plan and specification annexed to the contract. The specification require inter alia for the southern wall of the house to be constructed as nine-inch solid brick. The contractor complied exactly with the spec, good workmanship and use good materials. After completion. The southern wall suffer penetration which render it uninhabitable. The purchaser claimed an implied warranty that the standard of construction should be as to render the house to fit for human habitation through out.

Succeeded in the trial court but Court of Appeal overruled.

Held : Where the builder had complied exactly with the detailed express specification, there is no room for further implication of provision to the standard required to be achieved.

Hancock v Brazier (Annerly) Ltd

The def built and sold a house to the plf. The def used hardcore for the foundations which unknown to them contained sodium sulphate which caused absorption of water and consequent cracking of the foundations. The plf sued the def who relied upon the exclusion of liability upon conveyance of the house.

C.A: The contract of to build a house did not merge with the contract of conveyance. In a contract for building of a house, in the absence of express agreement, three terms should be implied: 1) the builder would do his work in a good and workmanlike manner 2) he would supply good and proper materials and 3) the house would be reasonably fir for human habitation.

Per Lord Denning MR:

“The quality of materials is left to be implied and the necessary implication is that they should be in a good and suitable for work. I am quite clear that it is implied in the contract that the hardcore must be good and suitable for the work in the same way as the bricks must be good and proper bricks. I know the builder were not at fault themselves. Nevertheless, this is a contract; it was their responsibility to see that good and proper hardcore was put in … they are in breach of their contract.”

Implied Term as to Co-operation-

This is the implied term which is most resorted to in building cases.

It assumes various manifestations depending upon the circumstances which bring the parties into conflict.

At its most basic, it supposes that the proprietor will give to the contractor access to the site as is required to carry out the work and that the proprietor will provide sufficient instructions and details as are necessary for the same purpose.

Mc Kone v Johnson [1966] NSWR 471.

Held: Where the purpose for which the building was required was disclosed to the contractor and it appears that the proprietor relied, to the contractor's knowledge, on the contractor's skill and judgment, a term as to reasonable fitness would be implied in an ordinary building contract.

Tan Hock Chan v Kho Teck Seng

The resp agreed with the app to construct six units of shop houses for $223 000. The agreement provided for progress payment on completion of specified stages of construction. The contractor completed five of the six units but the owner was unable to give vacant possession of the remaining site because of difficulties in removing squatters. The contractor claimed full amount under contract.

Chan Ming Tat FJ:

“ …it seems to us that by his failure to give effective possession of lot 216 to the contractor whatever reason the developer has not repudiated the contract but has only broken his covenant”

Price and payments

Rees v Lines

Held: Where such a right to payment on account exist, it follows that there must be an impliable right to repudiation if payment is refused.

Woon Hoe Kan & Sons Sdn Bhd v Bandar Raya Dev Bhd

The plf were contractors for civil engineering works carried out in connection with the development of Bandar Raya off Jln Bangsar, KL. The plf claimed entitlement to an agreed rate of interest at 10.8% per annum on an overdue payment.

Harun J: “…the events…show clearly that no agreement had been reached as to the rate of interest payable. On the evidence, I hold that there was no contractual rate, the plf is only entitled a reasonable rate of interest… in all circumstances of this case, a rate of 5% per annum at simple interest on each outstanding until date of payment id reasonable”.

Case Review1 In those cases where all the terms agreed upon by the parties have not been stated in the agreement the courts have power to imply the missing terms on the basis of the intention of the parties. For ascertaining the intention of the parties in such cases the courts have evolved certain tests in order to find out the true agreement between the parties.

* Find ONE case law where the court decided on the issue of implied term in building contract.