There have been concerns raised recently within the Fiji construction industry regarding the importation of substandard structural steel for use in construction projects in Fiji.
What happens if substandard quality materials are used in construction projects in Fiji and who is legally responsible?
In this commercial law update, we look at the legal position in relation to substandard materials and warranties implied by law in contracts for works and materials.
A photo of the building located on McGregor Road known as the WG Friendship Plaza currently under construction that is intended to be 28 storeys high when complete, and at the time of writing is subject to a review by the Suva City Council to determine whether it meets relevant Fiji construction standards. [Update: shortly after this commercial law update was published it appears that tests on the WG Friendship Plaza confirmed that it meets appropriate standards and construction continues.]
There is a legal Latin maxim “Caveat Emptor” which translates to “let the buyer beware”. The general principle behind this maxim is that the buyer is responsible for checking the quality and suitability of goods before any purchase is made.
This however, doesn’t satisfy the general desire for justice amongst human beings and, particularly in the case of sale of defective goods, the basic need to ensure that the persons who have suffered loss through the defective goods should be able to recover from the persons who put them into that situation.
In Fiji, we have the Sale of Goods Act which implies a number of warranties on a seller of goods which are the subject of trade or commerce, including, in section 16:
Where a seller sells goods in the course of business then there is an implied condition that the goods supplied under the contract are of merchantable quality [emphasis added]
There are, of course, exemptions to this implied warranty where (a) defects are specifically drawn to the buyers attention before the contract is made, or (b) the buyer examines the goods before the contract is made and that examination ought to have revealed the defects complained of.
However, if neither of these exemptions apply, then the warranty of “merchantable quality” is implied in any contract for sale of goods.
But what does “merchantable quality” mean?
Section 2(2) of the Sale of Goods Act defines this as follows:
Goods (of any kind) are of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect, having regard to any description applied to them, the price and all other relevant circumstances
In summary therefore, any contract for the sale of goods which are the subject of trade or commerce, has implied into it a warranty that the goods being sold are fit for the purpose (or purposes) as it is reasonable to expect that goods of those kind are commonly bought.
But what about in the case of a construction contract, where it is not a contract for sale of goods but one of sale of materials and services?
In most (if not all) construction contracts, the contractor is not the original seller of the goods but is only buying those goods to incorporate into the construction project.
What warranties does the law imply on the contractor in this instance?
This question was discussed by the House of Lords in the case of Young & Marten v McManus Childs.
The case raised a question of the liability of the contractor in respect of roofing material supplied by it under the construction contract.
In that case, an agreement was made between the builder and a roofing subcontractor. The builder specified a particular tile from a particular manufacturer. The subcontractor purchased those particular tiles from the particular manufacturer in the ordinary course of trade and fixed them to the roofs as contracted. However, owing to faulty manufacture of those particular tiles, they had an undetectable defect which made them liable to break in frosty weather.
This wasn’t an issue of implied warranty on workmanship of a contractor but that of the implied warranty in respect of the roofing material supplied by the contractor under a construction contract.
The court also made a further distinction in relation to the materials in question making it clear that this wasn’t a question of the material being “unsuitable for the contract purpose” but rather of the material being of “defective quality”.
Basically, the materials conformed to the contract description but they were defective.
The Court observed, as a starting point, that:
“where the material [the contractor] is required to use can be obtained from anyone of several suppliers and the choice of suppliers is left to him. There is no doubt that in every case he is bound to make a proper inspection of the material before using it, and he will be liable if the loss is caused by the use of material which reasonable inspection would have shown to be defective.”
However, in this instance, the builder specified a particular tile from a particular manufacturer, the subcontractor bought that particular tile from that particular manufacturer, and an inspection of those tiles would not have detected the manufacturing defect which led to the performance failure and subsequent losses suffered by the builder.
The question the court had to decide in this instance is:
“whether [the contractor] warrants the material against latent defects.”
The court in this instance held that there was good reason to imply such a warranty on the contractor, if it is not excluded by the terms of the contract.
The court made it clear that:
“there are really two warranties [Implied on the contractor in a construction contract], one as to quality and one as to reasonable fitness for the job; and the fact that the latter is excluded, as it is in this case, does not affect the warranty of quality.”
The court also considered the fact that the construction contract is not a contract for the sale of goods but rather, a contract for work and materials. As such, how does this affect the implied warranty as to fitness for purpose and quality?
To put this another way, since a construction contract is not a contract for the sale of goods, can the same implied warranties of fitness for purpose and quality apply to a construction contract (which is a contract for work and materials)?
Lord Upjohn stated in relation to this point as follows:
“I cannot see any logical distinction between the obligations which ought in general to be implied with regard to quality and fitness between a sale of goods and contract for work and materials. Indeed, for my part I think, as a matter of common sense and justice, one who contracts to do work and supply materials ought to be under at least as high, if not a higher, degree of obligation with regard to other goods he supplies and the work that he does than a middleman or wholesaler.”
So where does this leave parties to a construction contract in Fiji?
If you are a contractor supplying materials and service under a construction contract, the law implies on you a warranty of fitness for purpose and quality, which extends to latent defects.
As such, it is important to ensure that you get a corresponding warranty from, or at least an avenue for redress against, the party supplying goods to you.
Check your supply contracts. Check the warranties being given to you by your suppliers.
If you are the project owner, it is important to ensure that the contractor does not try to contract out of its implied warranties.
The basic risk being that you, as project owner, will be unlikely to have any recourse directly against the suppliers of defective materials so, if you don’t preserve the warranties implied against the contractor, you are unlikely to have any recourse against any third party and will end up bearing the loss yourself.
This commercial law update is provided for general information purposes only and it is not, and should not be relied on as, legal advice.