The knotty issue of implied terms in construction contracts

A recent case from the Commercial Court (Dalmare SpA v Union Maritime Limited and Valor Shipping Limited) sheds light on the role of implied terms under the Sale of Goods Act 1979 (“SOGA”) in commercial contracts.

The dispute involved the purchase of a ship, which broke down the day after it had set sail due to a damaged engine that had not been picked up during the buyer’s inspection. The contract of sale provided that the ship was to be “delivered and taken over as she was at the time of inspection…However, the Vessel shall be delivered with her class maintained…without condition / recommendation, free from average damage affecting the Vessels class…”

The buyer argued that the sellers were in breach of either the sale agreement (since the ship was not delivered “free from average damage”) or the implied terms as to satisfactory quality under the SOGA. The SOGA provides, however, that its implied terms will not apply where they are inconsistent with the terms of an express agreement between parties. The sellers argued that the SOGA terms were inconsistent with the terms of the sale agreement and could not therefore be implied into it. Their position was that the ship had simply been sold “as she was” without any warranty or condition as to quality or fitness for purpose.

An arbitration tribunal rejected the sellers’ position and they then appealed the point to the Commercial Court. The Commercial Court held that ships were “goods” like any other piece of machinery or equipment and that the correct starting point was that the implied terms of the SOGA would apply. The key issue was whether or not its terms had been excluded by the agreement between the parties. The court held that the reference to “as she was” was concerned only with the sellers’ responsibilities during the period between inspection and delivery and not their responsibilities generally as to the condition of the vessel at either inspection or delivery. As such, the wording did not operate to exclude the implied terms as to satisfactory quality under the SOGA and the sellers’ appeal was dismissed.

From a construction perspective, the SOGA implied terms may be of considerable use in ascertaining a party’s obligations under a construction contract where defective or otherwise unsatisfactory materials or equipment have been supplied. The case provides an interesting insight into how, for instance, the courts might deal with phenomenon such as the recent issue with tempered glass spontaneously breaking. Those drafting construction contracts should also bear in mind the court’s warning that “clear words are needed to exclude the statutory implied conditions” when drafting provisions on quality of materials and / or equipment, particularly where a contractor bears an element of design responsibility.

Reference: Dalmare SpA v Union Maritime Limited and Valor Shipping Limited [2012] EWHC 3537 (Comm)