Fit for what purpose and fit to what standard?

The recent decision of the High Court of Singapore in Global Switch (Property) Singapore Ltd v Arup Singapore Pte Ltd [2019] SGHC 122 considered whether a fitness for purpose warranty could be implied in a design contract.

Fitness for purpose warranties are where a contractor or consultant warrants that whatever they have been contractually engaged to design, build or supply, is fit for the principal’s intended purpose once completed. In New Zealand, they may be incorporated into a contract via express agreement or can be implied into contracts by statute or common law.

In ‘construct only’ contracts, there is limited scope for a fitness for purpose term to be implied. This is because, in most cases, it is not the role of the contractor to provide specialist services but to construct the works in compliance with the plans and specifications it has been provided with. There is wider scope for a fitness for purpose term to be implied in design and ‘design and construct’ contracts, where the principal is reliant on the consultant’s skill and expertise to provide designs or services that are fit for an intended purpose.

However, a fitness for purpose term will not be implied into every consultant / design contract. Whether it will be is fact-specific. This is illustrated by the recent decision of the High Court of Singapore in Global Switch where the Court rejected the plaintiff’s submission that there was an implied term in the design contract that the consultant engineer was to ensure that its designs were fit for their intended purpose of use as a data centre.

This article examines the Court’s reasoning and considers the significance of the decision.

Key facts

The plaintiff, Global Switch (Property) Singapore Pte Ltd (GSS), and defendant, Arup Singapore Pte Ltd (Arup) were parties to a consultant agreement under which Arup was to provide mechanical and electrical consultancy services to GSS for an extension to its existing data facility (Contract).

Issues with the extension arose and GSS issued proceedings against Arup for breach of contract claiming, among other things, that the Contract contained an implied term that Arup was to ensure that its designs would “meet the needs of the operation of a data centre and… be fit for their intended purposes”.

Decision

The Court held that there was no implied fitness for purpose term, in either law or fact. The Court considered that there is no implied term in law that a designer, who designs but does not supply or build a structure, must ensure that its design is fit for its intended purpose. The threshold for implying such a term in law is high and neither party had addressed the Court sufficiently on this. The Court cited the United Kingdom decision, George Hawkins v Chrysler (UK Ltd) and Burne Associates [1986] EWCA Civ J0206-3, where the Court said:

The general position… is that a professional man who is called to advise is bound, and impliedly undertakes, to use reasonable care and skill in advising, but is not responsible for providing a perfect result or a perfect building. To establish a warranty that what he advises will be effective, something more is needed than his mere engagement as a professional man to advise.

The Court also held that there was no implied term in fact. In determining this issue, it asked two questions:

  1. Fit for what purpose?
  2. Fit to what standard?

While the Court accepted GSS’ argument that the ‘purpose’ of the design was for use as a data centre, it declined to find an implied term on the basis that the contractual documents were unclear as to the standard required.

In determining ‘fit to what standard’, the Court considered the standard in the context of designing a data centre. The Court considered this was significant given that, in the context of designing a data centre, there are “numerous levels of quality and standards.” The Court said that given the absence of sufficient documentation outlining the standard required, “an implied term of fitness for purpose [on GSS’ pleaded case] was too vague and ambiguous to succeed.”

Overall, in assessing whether there was an implied term of fitness for purpose, the Court held:

  • the parties did not contemplate the question of whether Arup should be under a contractual warranty that its design would be fit for purpose;
  • an implied term of fitness for purpose would not have been necessary for business efficacy, as Arup would already be under a contractual duty to use reasonable care and skill in performing its obligations; and
  • Arup would not have agreed to guarantee more than the use of reasonable care and skill, in light of its modest fee and the fact that it was to develop the design in close consultation with GSS.

Our view

Global Switch is an interesting decision because it suggests that courts will be cautious to find implied fitness for purpose terms in both ‘construct only’ and design contracts. In determining whether such a term was implied, it is significant that the Court considered whether the Contract contained both a clear purpose and clear standard for the design works. It is also significant that the Court considered that Arup was already under a contractual duty to use reasonable care and skill in performing its obligations and something more was needed to establish an implied warranty of fitness for purpose.

However, while the Court held that the threshold for finding an implied term in law is high, it also noted that neither party had sufficiently addressed the Court on this. Lack of contractual clarity and supporting documentation was also a significant factor in the Court finding that there was no implied term in fact. This suggests that there could be scope for implying a fitness for purpose warranty into a design contract where the contract is clear as to the purpose and standard of the design works. The decision should not be interpreted as the Court saying that a fitness for purpose term cannot be implied into design contracts. What it does show, is that whether the courts will imply such a term will be dependent on the facts and pleadings by the respective parties.

Global Switch is consistent with the approach taken by the United Kingdom in recent decisions[1] and will likely influence the approach New Zealand courts would take if a similar case arose. In New Zealand, while parties do not have the option of contracting out of implied statutory fitness for purpose warranties, they can avoid being caught unaware by common law implications if they expressly exclude fitness for purpose obligations in their contract.

It is also worth noting that professional indemnity insurance usually covers third-party claims arising from negligence or breach of common law duty (in exercising reasonable care and skill) but such insurance policies will often expressly exclude liabilities assumed under contract. Therefore, designers must be mindful that they risk incurring liabilities for which they are uninsured, and other parties risk being unable to achieve satisfaction for claims against the design team.

To view the full decision, click here.

[1] See Williams Tarr Construction Ltd v Anthony Rowlance Ltd, Anthony Rowlance [2018] EWHC 2339 (TCC).

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