OBLIGATIONS AND WARRANTY:

Contractor’s Obligations

BEQ2043/BEQ203 – Construction Contract Law And Dispute

Resolution 1

By: Muhammad Ariffuddin Arifin

 SYNOPSIS

The purpose of this lecture is to discuss and make

aware of the responsibilities and obligations of
the builders/ contractors under standard forms
(express) and common law implied
 Land Main
surveyors Client contractor
Sub
contractor

The project THE Nom. Sub

manager contractor
CONSTRUCTION
PROJECT TEAM

Architect
suppliers

C&S Bankers
engineer M&E Quantity
Landscape Surveyor
engineer architect
 Client accept tender and enter into
contract with contractor

Client appoints and enter into

contract withconsultants Client

The project
manager C& S M&E Landscape Main
Quantity
Architect engineer engineer architect Surveyor contractor

Contractorenterintocontractwithsub-
contractors and suppliers

THE PROJECT TEAM

and their relationship Nom. Sub Sub
(Traditional Approach) contractor contractor suppliers
 THEPROJECT TEAM and their Interrelationship
(Design and Build/Turnkey) Client
Client accept
tender and
enter into
Contractorengageandcontracting contract
withdesign and management team with
contractor

Main
contractor

The project Contractor enter

manager
into contract
Architect
C&S M&E Landscap Quantity withsub-
engineer engineer e Surveyor contractors and
architect
suppliers

Sub Sub Sub Sub

contractor contractor contractor contractor suppliers
 CLIENT
RESPONSIBILITIES
(Individual/organisations)

DESIGN MANAGEMENT
RESPONSIBILITIES RESPONSIBILITIES
(Architect, engineers, QS) (Project Managers)

CONSTRUCTION
RESPONSIBILITIES
(Contractor, Sub Contractors, suppliers)

THECONSTRUCTION RESPONSIBILITYAREA
 CONSTRUCTION PROCESS AND AREA OF RESPONSIBILITIES

CLIENT’SRESPOSNIBILITY(PROJECTMANAGER’SROLEANDRESPONSIBILITY)

CONSTRUCTIONMANAGER’SROLEANDRESPONSIBILITY

DESIGN TEAM RESPONSIBILITY SPECIALIST CONTRACTORS’RESPONSIBILITY

FEASIBILITY DETAIL
THE BRIEF STUDY CONCEPT COMPONEN
DESIGN COMPONENT
DESIGN T DESIGN SITE
MANUFACTURE
ASSEMBLY

6
TRADITIONAL GENERAL CONTRACTING

11
 TERMS OF A CONTRACT

Contents of a contract are made up of terms either express term or

implied term.
Express Term
• The terms which are agreed between the parties orally or in writing.
• Included in the contract to provide clear information to the
contracting parties, generally unambiguous.
• Clear obligation and responsibility is needed to avoid breach of
contract.
• When any party in the contract fails to perform fully and exactly a
contractual obligation, that party is guilty for a breach of contract.
• In construing construction contract, the court will not totally
depend on the express term only because the express term may
not comprise the whole of the agreement and the common
11
situation that often arises.
 TERMS OF A CONTRACT

Implied Term
• Terms which are implied into existence of contract by the action of
fact, custom or law.
• In other words, they are terms which the courts will “write” into the
contracts even where the parties have not included in them.
• Implying terms into the contract will affect the obligations of the
contracting parties especially the employer and main contractors.
• This obligation is known as “implied obligation” and all the parties
have their own implied obligation in the contract and certain
important issue.
• When the terms are implied, they carry the same weight as express
terms and may find a claim for breach of contract.
• This will lead to repudiation of the contract and claiming damages
11
from the innocent party.
 IMPLIED TERM

A term which will be implied (e.g. from statue or custom) where it is

necessary to carry out the presumed intention of the parties to a
contract and is so obvious that the parties must have intended it to
apply such a term will not override an express term.
(LB Curzon, P.179)

A term which not written down in a contract or openly expressed at

the time it is made but which the law implied.
The expression is used in several different senses... An implied term
must not be in conflict with or be inconsistent with an express term. It
must be based on the imputed or presumed intention of the parties…
(Powell-Smith et al.)
 IMPLIED WARRANTY AND IMPLIED

A lesser term of a contract (i.e. not a condition) which is implied by law

or by the behavior of the parties.
(Penner, 2001, P.174)

This term can only be properly used to mean “established by indirect or

circumstantial evidence’ or, which comes to the same thing, ‘presumed
in certain circumstances to exist, in the absence of evidence to the
contrary’, especially with reference to inward intentions or motives as
inferred from over acts.
(Penner, 2001, P.174)
 TERMS IMPLIED

Terms can be implied in to contracts by custom, by fact or by

law (by the court or by statue)
Terms Implied by custom or habit
• Implied by trade or professional custom.
• Only have force in so far that the parties have not expressly excluded
them from the contract.
• It must be certain, notorious, reasonable, recognized as legal binding
and consistent with the express terms.
• There must be proof in the first place that the custom is generally
accepted by those who habitually do business in the trade or market
concerned.
• The custom must be so generally known that an outsider who makes
reasonable enquiries could not fail to be made aware of it.
 TERMS IMPLIED

Terms can be implied in to contracts by custom, by fact or by

law (by the court or by statue)
Terms Implied by fact
• Implied to give sense and meaning to the agreement.
• Implied because of the prior conduct of the contracting parties;
Hillas v Arcos.
• Two tests in Implied by fact
• “Business efficacy test” - The Moorcock.
• “Officious bystander test” or “Oh, of course! test” - Reigate v
Union manufacturing Co. Ltd. [1918] and Shirlaw v Southern
Foundries [1939] 2 KB 206.
 The Moorcock [1889]

Facts
The defendants (def.) owned a wharf with a jetty on the Thames. Ship owners
contracted with def. to discharge a ship at def.’s jetty. Both parties were aware
at the time of contracting that this could involve the ship being at the jetty at
low tide. On grounding, the ship was damaged due to uneven nature of the
river-bed. The ship-owners claimed for breach of contract. However, def.
argued that there was no term of the contract stating they were a duty to
ascertain the state of the river-bed.
Held
The court held that there was an implied undertaking that the ship would not
be damaged. Bowen LJ explained that:
“In business what the transactions such as this, what the law desires to effect
by the implication is to give such business efficacy… as must have been
intended at all events by both parties who are businessmen.”
 Reigate v Union manufacturing Co. Ltd. [1918]

Facts
An agreement was made between the plaintiff and a limited company on
December 27th 1915, which carried on business in Lancashire, the plaintiff
subscribed for 1000l in the shares of the named company and his role was to
introduce new classes of good to be manufactured by them. The company
made him their sole agent in the UK, India and the Colonies for seven years. All
orders obtained were to be at once communicated to the company who upon
accepting or rejecting the order he was to carry out such orders without delay.
The company would then pay the agent a commission upon the invoiced price
of all the goods delivered. A few months after, the company required fresh
capital and asked the plaintiff to assist them in finding some, in which he failed.
The company then asked him to give up the agency for the Manchester district,
telling him that he would have to stand down, but he refused. The company
went on to voluntary wind their assets and ceased to do business through the
plaintiff and sold their business.
 Reigate v Union manufacturing Co. Ltd. [1918]

Held
Scrutton LJ said that ‘[a] term can only be implied if it is necessary in the
business sense to give efficacy to the contract’. He added that a term would
only be implied if ‘it is such a term that it can confidently be said that if at the
time the contract was being negotiated’ the parties had been asked what
would happen in a certain event, they would both have replied ”Of course, so
and so will happen; we did not trouble to say that; it is too clear”.
 Shirlaw v Southern Foundries [1939] 2 KB 206

Facts
Shirlaw was appointed managing director of Southern Foundries (SF) for a fixed
term of ten years. SF was taken over by another company who altered the pre-
existing articles of association empowering two directors and a secretary to
remove a director, irrespective of the terms of his contract. Shirlaw was sacked
prior to the expiration of the fixed term, and he brought a claim to recover
damages for breach of contract.
 Shirlaw v Southern Foundries [1939] 2 KB 206

Held
Shirlaw successfully recovered damages for breach of contract. It was an
implied term of his employment contract that he would not be removed from
his role during the fixed ten year period. The company could not be prevented
from altering its articles of association, but it may be liable in damages if it
amends the articles so as to prejudice a contract validly made prior to the
amendments.
MacKinnon LJ stated:
“any contract is left to be implied and need not be expressed is something so
obvious that it goes without saying; so that if while the parties were making
their bargain, an officious bystander were to suggest some express provision for
it in the agreement, they would testify suppress him with a common ‘Oh, of
course!’.”
 Pasuma Pharmacal Corporation V McAlister & Co. Ltd [1965]
1MLJ 221.
The Federal Court in Pasuma explained the process by which the court may
imply terms into a contract:-

• To give efficacy to the transaction. That is, terms may be implied from the
presumed intention of the parties and upon reason so that there will not be
a failure of consideration – The Moorcock.
• By applying the “officious bystander” Test or what is commonly known as
the “Oh, of course!” test. That is, if at the time the contract was negotiated,
someone had said to the parties, “what will happen in such a case?, the
parties would both have replied, “of course, such and such will happen. We
did not trouble to say that, it is too clear.” Reigate v Union manufacturing
Co. Ltd. [1918] and Shirlaw v Southern Foundries [1939] 2 KB 206.
 TERMS IMPLIED

Terms can be implied in to contracts by custom, by fact or by

law (by the court or by statue)
Terms Implied by Law – By the court
Terms Implied by Law – By Statue
• Terms implied by law are imposed upon the parties either by statute or by
the court acting out of necessity, such obligations are imposed by of the law
which enables to achieve substantial justice between parties.
• For example, in a tenancy of a furnished house, the courts will imply a term
that the premises will be reasonably fit for human habitation when the
tenancy begins.
 IMPLIED TERM

Implied warranty on contractor’s obligation

The courts have over time, implied in all building contracts that the
builder or contractor will do his work in:

1. Good and workmanlike manner

2. That he will supply good and proper materials and that,
3. It will be reasonable fit for the purpose required.
 Hancock v Brazier [1966] 1 WLR 1317; [1966] 2 ALL ER901

Facts
The defendant built and sold a house to the plaintiff. The defendant used
hardcore for the foundations which unknown to them contained sodium
sulphate which caused absorption of water and consequent cracking of the
foundations. The plaintiff sued the defendant who relied upon the exclusion of
liability upon conveyance of the house.
 Hancock v Brazier [1966] 1 WLR 1317; [1966] 2 ALL ER901

Held
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 fit for human habitation.
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

Implied warranty on contractor’s obligation

1. For the construct only contract
2. For the design contract and design and construct contracts

Construct only contract

• Contractor is bound to complete according to detailed plans and
specifications or a bill of quantities
• Since the contractor is not providing “specialist” services and its
role is limited to complying with the detailed plans and
specifications, he is not responsible and the scope of an implied
fitness for purpose term is small.
• Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454; [1968]
3 WLR 630
 Young & Marten Ltd v McManus Childs Ltd
[1969] 1 AC 454; [1968] 3 WLR 630
Facts
In building dwelling-houses, the contractors sub-contracted the roofing works to
the subcontractor. The contractor specified to the subcontractor that “Somerset
13” tiles should be used for the roof. These tiles were manufactured 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.
Held
The court said that there had been no reliance by the contractor on the
subcontractor’s skill and judgment in selecting the materials. Since 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.
 IMPLIED TERM

Implied warranty on contractor’s obligation

1. For the construct only contract
2. For the design contract and design and construct contracts

For the design contract 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.
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.

Held
The court held 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
judgement of the contractor.
 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 no rendering. Within days of Lynch moving into the house, rain
began to penetrate the wall, rendering the room uninhabitable.

Held
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 waterproof water proof
without departing from the express requirement to complete the building in
accordance with the specification.
 Tutorial

Referring to PAM2018 (with quantities), what is the

obligation of contractor?