In forming a contract, especially in construction contract, not all obligations are expressed since both parties do not take the time and effort to express all of the obligations of both parties. This might raise contractual disputes, mostly involving the scope of each party. Therefore, if both parties do not make an enough consideration in constructing the contract, they may end up in court and long time disputes. Basically, there are 3 (three) types of term in a contract; express terms, implied terms and misleading terms. In this paper, I will focus on the first two types and how to manage any discrepancy or divergence occurs in construction contract.
The express terms can be divided into 3 main categories:
Conditions are major terms of a contract where the breach of it may lead to the termination of contract by the innocent party. In other words, condition is a fundamental obligation of the contract.
Warranties are minor terms of a contract where the breach of it does not lead to the termination of contract, but the innocent party is entitled to claim damages. In other works, warranty is a subsidiary obligation which is not so vital.
3. Inominate Terms
Inominate terms are not classified as either conditions or warranties. They can be major or minor terms. In deciding if the innocent party can terminate the contract, the consequences of the breach will need to be considered.
All terms which are stated in contract documents are considered as express terms. For example in PWD, Clause 8a; it is expressed that the Contract Documents are to be taken as mutually explanatory of one another. Furthermore, it is expressed that the Contractor must provide everything necessary for the proper execution of the works whether or not that work is particularly shown or described in the Contract Documents, so long as is reasonably inferred therefrom.
In practice, parties do not express all obligations to be performed under a contract as this would be impracticable. Therefore, in addition to expressly agreed terms, we may find implied terms in a contract. The main principle of this implied term is that it may not contradict an express term, but where the express term is flexible, it may be widened or narrowed by an implied term if necessary. So there is 2 functions of implied terms; first is to give implied rights, duties and obligations of both parties; and second is to give additional explanations of express terms of the contract.
There are 3 ways in which terms can be implied into a contract:
1. By Custom or Usage (also known as common practiced terms)
Refers to commonly used terms in certain type of trading or local contract.
2. By Statute
Refers to terms which implied into all contracts which may relevant to statutes, such as Sale of Goods Act.
3. By Court or Judicial Decisions
Terms implied by court revert to give business efficacy irrespective of the intentions of the parties or the fact of a particular case.
In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 AJLR 20, Lord Simon of Glaisdale had set up some circumstances where the court may imply the missing terms:
- If it is reasonable and equitable
- If it is necessary to give business efficacy to the contract
- If it is obvious
- If it is capable of clear expression
- If it is not inconsistent with the express terms of the contract or its general tenor
However, there are some circumstances when terms cannot be implied into a contract:
- Where one party may have agreed to certain terms, but the other party would not have
- In rigorous contracts with detailed written terms where any omission would be deemed to be deliberate
Here are some typical implied terms in construction contracts; obey all laws, complete work in a good quality, conform to industry standards, complete work in a reasonable time, pay a reasonable price, freedom from minor defects, expected appearance and finish, fitness for all the purposes, durability, safety, etc. Next question is what should we do if there is a discrepancy in or divergence between terms in contract documents?