April 2009

Make sure you know what is implied in a contract even though the terms are not written down.

Question: If a contract is silent in relation to liability for design, is it an implied term that the service will be limited to reasonable skill and care?

Answer: Pursuant to the Supply of Goods and Services Act 1982 (“the Act”) where there is a contract for the supply of services, such as design services, there is an implied term that the services will be carried out with reasonable skill and care (section 13). This term will be implied only if the contract is silent on the issue. In other words, an express term in the contract can exclude/negate the implied term (although, this does not apply unless it is inconsistent with the Act). The burden of proof falls on the party claiming that the supplier of the service has failed to use reasonable skill and care.

Question: Will this situation be different where the contractor is building and designing?

Answer: Where a contractor takes on both construction and design work (commonly known as design and build), and his skill and judgment are relied upon, unless an express term displaces the implication of a term, there will be an implied term as to the fitness of those works for their intended purpose. An employer will find this valuable because it will be no defence for the contractor to show that he has taken reasonable skill and care in the preparation of the relevant aspect of design. Most standard form contracts tend to attempt to limit the contractor’s responsibility for design to one of reasonable skill and care.

Question: What is the obligation regarding materials?

Answer: Section 4(5) of the Supply of Goods and Services Act states that where the contract is one for the transfer of goods (including materials), there is an implied condition that the goods supplied under the contract are of satisfactory quality and “reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied.”

Again, the implied condition can be excluded or negated by express agreement between the parties or by reference to evidence of the intentions of the parties.

In general terms, the Courts will imply terms into a construction contract (and indeed any type of contract) where the term is implied by statute or if necessary in order to achieve the intentions of both parties to the contract and if necessary to make the contract work as a matter of business efficacy.