General Rule
The general rule is that a person who contracts to do work and supply materials warrants that the materials used will be of good quality and reasonably fit for its intended purpose, unless the Contract excludes such warranty.1
Free Issue Items/Material
In McMurray v AIG Insurance Australia Ltd [No. 5] [2021] WASC 300, 'free issue items' were defined to be:
building and construction materials (including debris) wheresoever located, or in transit and which are supplied or to be supplied in connection with the Contract Work, Temporary Work or Works' by the party to the contract who is not carrying out the work. (emphasis added).
From the definition in Murray, the Principal, being 'the party to the Contract who is not carrying out the work', is the supplier of free issue materials.
Seemingly, the Principal warrants that the free issue materials are of good quality and fit for their intended purpose.
Express and Implied Warranties
Express and implied warranties in any contract (including construction contracts) are a matter of contractual interpretation.2 In Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [46] to [51], the court set out the following principles on the contractual interpretation of express and implied warranties:
- Parties' rights and liabilities of parties under a contractual provision are determined objectively, by reference to its text, context (the entire contractual text and any contract, document or statutory provision referred to in the contract's text) and purpose.
- Determining the meaning of the terms of a commercial contract requires asking what a reasonable businessperson would have understood those terms to mean. This, in turn, requires consideration of parties' language used, circumstances addressed by the contract and commercial purpose or objects to be contractually secured.
- Ordinarily, construction is a process possible by reference to the contract alone.
- However, sometimes, recourse to events, circumstances and things external to the contract is necessary in identifying the commercial purpose or objects of the contract.
- Events, circumstances and things external to the contract to which recourse may be had are objective. Evidence of the parties' statements and actions reflecting their actual intentions and expectations is inadmissible.
- Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, contractual interpretation of a commercial contract can proceed on the assumption that parties intended for a commercial result.
Thus, express warranties can reinforce, supplement and independently augment duties implied by common law and statute.
In the absence of express provisions in a Contract, a warranty regarding free issue materials may be implied. This implied warranty extends to latent defects in materials.3
In construction Contracts involving Subcontractors, the main Contractor accepts responsibility for materials provided by its nominated Subcontractors.4 It has been held that there is 'good reason' for not construing any implied terms of quality and fitness of materials in such circumstances.5
For residential building works, there are implied statutory warranties where all materials supplied must be 'good and suitable for the purpose for which they are used.'6
Clause 29.1 of the AS4902-2000, a standard contract commonly used for Design and Construct projects, provides in respect of the quality of materials:
Unless otherwise provided, the Contractor shall use suitable new materials.
Typically, the Principal supplies specific (free issue) materials for use by the Contractor in the project and these are 'otherwise provided' for in Special Conditions of Contract. The second part of clause 29.1 applies to the materials sourced by the Contractor.
Often, however, Principals in construction contracts attempt to nullify implied warranties of fitness and quality of free issue materials. They do so by including express terms in the Contract which imparts most, if not all, risk as it relates to free issue materials on the Contractor. Strictly speaking, there is nothing sinister or unusual about this.
Contractors be Wary
Contractors must be wary of express provisions in a Contract which seek to nullify implied warranties of good quality and fitness as it relates to free issue materials. Failing which, a Contractor may be significantly exposed, leaving them without any remedy or right of recourse against the Principal (in the absence of a statutory warranty), where the free issue items are in fact not fit for its intended purpose or alternatively of inferior quality.
A Contractor must seek competent legal advice when negotiating specific terms of construction Contracts. Express warranties in a Contract are always preferrable because courts will always look to the Contract as the starting point for determining liability.7 The very fact that a party had the opportunity to consider protecting itself by an express warranty and failed to do so weighs against contractual implication.
The inclusion of the following clause in a construction Contract may be useful to protect the Contractor against potential liability where free issue items are of inferior quality or may not be fit for purpose, but you should seek specific legal advice about your contract:
The principal warrants that the free issue items supplied by it are new, of good quality, and are fit and suitable for its intended purpose.
Footnotes
1. G H Myers and Co v Brent Cross Service Co [1934] 1 KB 46 at 55 per du Parcq J; Timms Contracting Pty Ltd v Pipes International (Qld) Pty Ltd [2010] QSC 88 at 65.
2. Harris v Marabito Holdings [2018] NSWSC 912.
3. Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317.
4. Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd (1980) 14 BLR 9 at 44.
5. Robt Jones (363 Adelaide Street) Pty Ltd v First Abbott Corporation Pty Ltd (1997) 14 BCL 282 at 326 per White J.
6. Home Building Act 1989 (NSW) Section 18B (1)(b).
7. Harris v Marabito Holdings above.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
