Management

The right to imply

9 November 2011

Two recent cases show that goods and services should be fit for purpose, even where there is no contract, says James Mullen

In July 2011 two judgments considered terms being implied into contracts by statute and common law, particularly in relation to supplying goods that are fit for purpose and of satisfactory quality, and carrying out works with reasonable skill and care.

In Lowe v W Machell Joinery, Lowe had ordered a bespoke wooden staircase from Machell, for which it paid in advance. The staircase was delivered unassembled. Lowe had assumed it would be installed, Machell had assumed otherwise. Lowe rejected the staircase and sued Machell to recover its money.

Lowe said that if the staircase had been installed, it would not have complied with Building Regulations and contended that this was a further breach of contract by Machell. The judge agreed that the staircase would not have complied, but the breach of contract did not justify Lowe’s rejection of the goods because the design of the staircase could have been easily modified to make it compliant. The claim was dismissed. Lowe appealed.

As there was no written contract between the parties, only a handwritten quote, it was necessary to infer any implied terms of the contract.

The Court of Appeal held that the installed staircase was required to be fit for the purpose of use in a residential property and to be of satisfactory quality. Fitness for purpose was to be implied into the contract unless it could be shown that Lowe did not rely on the skill and judgment of Machell as a seller.

The goods supplied to Lowe could not lawfully be used for their intended purpose, which was known to Machell. They were therefore not fit for purpose and a reasonable buyer would not find them satisfactory. Accordingly, Lowe was entitled to get its money back.

Meanwhile, in Harrison and Others v Shepherd Homes, National House Building Council and NHBC Building Control Services, the case centred on properties built by Shepherd, where defects had arisen in a number of the houses.

Judge Ramsey held that Shepherd was liable to the eight claimants who had purchased their property directly under the sales contract on the basis that the contract imposed an express obligation on Shepherd to design the houses with proper skill and care and provide houses that were fit for habitation.

He added that even if the contracts did not include express obligations in respect of design and fitness for habitation, these obligations would have been implied under the Supply of Goods and Services Act 1982 and in common law.

Shepherd had argued that clause 8 of the sales contract was an entire agreement clause which excluded any implied terms, because the phrase “any terms, undertakings, promises or agreements not set out in this agreement are released by both parties and shall have no affect” in the clause precluded any such implications.

Shepherd’s argument was rejected and Judge Ramsey held that the entire agreement clause did not exclude the implied term relating to Shepherd’s standard of care because the clause was evidently aimed at precluding “terms, undertakings, promises or agreements” which were the subject of discussion or other consideration by the parties and which could have been, but were not, set out in the sales contract.

These two decisions highlight the “hidden” obligations imposed on sellers and building contractors. If the contract is silent on the quality of the goods to be supplied or the works to be carried out, terms will be implied by the courts.

For building contractors, if a contract has no provisions concerning the standard to which the works are to be carried out, this will be implied. Just because a contract does not expressly state that the works are to be carried out to a good standard does not mean the contractor is off the hook if it fails to do so.

James Mullen is a solicitor at Fenwick Elliott. Email jmullen@fenwickelliott.com

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