Between: HELICOPTER SALES PTY LTD
And: ROTOR-WORK PTY LTD

Judges: Barwick CJ
Menzies J
Stephen J
Mason J

Jacobs J

Subject References:
Contract
Implied warranty
Repair
Whether warranties excluded
Practice and procedure
Third party
Leave to defend

Legislative References:
Rules of the Supreme Court (Qld) - O 17, r 4

ADELAIDE

Judgment by:
JACOBS J

The facts are sufficiently set forth in the judgments of other members of the Court and I need not repeat them.

It appears to me that if A enters into a contract with B to achieve a certain result by the doing of work and the supply of necessary materials the primary obligation of A is to achieve that result. The work must be such that thereby the result is achieved in a proper and workmanlike manner and the materials used must be fit for the purpose of achieving that result. However, if the contract is not one to achieve a particular result but is one to do certain specified work then that work and that work alone needs to be, or indeed may be, done under the contract and it is that work which must be done in a proper and workmanlike manner within the confines of the area of discretion left to the contractor under the contract. Except where the contract is of a special kind, such as a contract for the supply of professional services, I would prefer not to express the obligation in terms of the exercise of reasonable care and skill. In relation to materials supplied, if the contract specifies the materials to be used, the obligation on the contractor is to use those materials and no other materials. He does not promise that materials of the kind specified will as products of industry be fit for the purpose for which they have been specified. If they are inherently unfit for that purpose then the fault lies not with the contractor but with the other contracting party. But the obligation of the contractor, unless the contract expressly or impliedly provides otherwise, is to provide materials which fit the specified description and which, within the confines of their specification, are fit for the purpose for which they are specified. If such materials are inherently unfit for the purpose for which they are specified then the contractor is not responsible. However, if the materials have defects not inherent in them as the specified product then the contractor will ordinarily be responsible. He undertakes that the specified material has no defect which is not intrinsic to or inherent in the particular product. He does not give any promise of the quality of the product which he is contractually bound to use other than one that the product has the quality usually to be found in that product.

I do not think that the question of using reasonable care arises. Proof that reasonable care was used will not absolve from liability. Therefore I do not think that it is necessary to distinguish between latent defects and patent defects. I hesitate to distinguish in this type of case between quality and fitness for purpose, though this distinction is made by Lord Reid in Young & Marten Ltd v McManus Childs Ltd, ^[F27] when he says that there are really two warranties. With respect I would prefer to say that the materials supplied must answer the specified description in their fitness for purpose and therefore in their quality or, without change of meaning, in their quality and therefore in their fitness for purpose. In the case referred to roofing tiles made only by one manufacturer - Somerset 13 tiles - were specified as the materials to be used. The tiles soon crumbled and the question was whether although a particular make of tiles was specified the contractor impliedly warranted that the tiles would be of good quality. It was held that such a warranty was usually to be implied. But it must be borne in mind that the Somerset 13 tiles, as described in the contract, had no inherent or intrinsic defect in quality or fitness for the purpose of roofing buildings. It was the particular batch of tiles which the manufacturer supplied which was defective (see per Lord Upjohn ^[F28] ). It was held that the obligation of the contractor was to supply materials, namely, roofing tiles which within the specified description were of proper quality. Reasonable care on the part of the contractor, the defect not being discoverable on inspection, did not absolve him from liability.

That is, or those are, then the warranty or warranties usually to be implied - quality and fitness for purpose. But the warranty implied by law may be found in certain contexts to be excluded. I say "excluded" because in my opinion the principle to be applied is the same as that which was established in respect of the sale of goods and which is now incorporated in the Sale of Goods Act of 1896 (Q.): see s. 56. The position at common law is stated in Benjamin on Sale, 8th ed. (1950), at p. 643, as follows:

"With regard to the merchantable quality of goods contracted for the common law rule was first clearly stated by Lord Ellenborough in Gardiner v Gray, ^[F29] where the defendant made a sale of twelve bags of `waste silk'. The declaration contained counts charging the promise to be that the silk should be of a good and merchantable quality. Lord Ellenborough said: `Under such circumstances the purchaser has a right to expect a saleable article, answering the description in the contract. Without any particular warranty, this is an implied term in every such contract. Where there is no opportunity to inspect the commodity, the maxim of caveat emptor does not apply. He cannot, without a warranty, insist that it shall be of any particular quality or fineness, but the intention of both parties must be taken to be that it shall be saleable in the market under the denomination mentioned in the contract between them. The purchaser cannot be supposed to buy goods to lay them on a dunghill'."

Benjamin then adds: "This rule was followed in a long series of decisions" and he quotes them in a footnote.

Whether the warranty is found to be excluded is a question of law which must be answered in the light of the particular facts proved in the case such as the terms of the agreement and the circumstances of the making of the contract. But since the question is one of law and not of fact and degree it is important that when the courts exclude a warranty which would otherwise be implied they do so conscious of the fact that implications arising in law and not merely questions of fact and degree are involved. What in law will lead a court to exclude a warranty which would otherwise certainly be implied? First, I would state that there must be found circumstances which strongly lead to the conclusion that the warranty was excluded. It would not be a satisfactory state of the law that the public - contractors and their employers alike - should not be able reasonably simply to know what their rights and liabilities are. The implication of warranties in these business dealings is based on what judges representing the community of which they are part say is a fair and reasonable interpretation of what the parties themselves would have stated if they had turned their minds to the question. The existence of a warranty of quality and fitness for purpose is to be regarded as firmly established and the warranty should not be displaced unless the circumstances of the dealings between the parties can only be regarded as inconsistent with the implication. In Duncombe v Porter, ^[F30] a contract provided in cl. 2 thereof:

"The purchaser's agent shall have the right to accept or reject at the stacks but in the event of the buyer's representative not being present when any hay is loaded at the stacks no objection shall be taken by the purchaser to the quality of the hay delivered at rail."

Dixon C.J. said: ^[F31]

"The strongest support which the plaintiff's contention finds in the document is the use of the words `no objection' in cl. 2. No doubt there is a good deal to be said for the view that a buyer who seeks to recover compensation for the defective condition of goods actually delivered to him which he has accepted literally does object to the quality of the goods when he makes his claim. But there are several considerations which make it right in my opinion to treat the logical susceptibility of the word `object' to this meaning as insufficient to justify a construction depriving the buyer of his right to claim damages after the delivery of the goods. First and foremost is the general rule which is expressed by Scrutton L.J. in Szymonowski & Co v Beck & Co. ^[F32] Scrutton L.J. ^[F33] describes it as a principle repeatedly acted upon that if a party wishes to exclude the ordinary consequences that would flow in law from the contract that he is making he must do so in clear terms."

Fullagar J. said: ^[F34]

"To construe the latter part of cl. 2 in the wider sense would be, I think, to violate a well-established general rule of the construction of all instruments. Rights which exist at common law or by statute are not to be regarded as denied by words of dubious import. Before any such denial is accepted, it must appear with reasonable clarity from the language used that the denial is intended. It does not seem to me to be possible to maintain that the latter part of cl. 2 explicitly or unequivocally denies a right to claim damages for breach of cl. 1. I think, indeed, on the whole, that the words actually used, while entirely apt to exclude a right to reject for breach of condition as to quality, are less appropriate to express an intention to exclude a claim for damages in respect of goods delivered and accepted."

I would refer also to Beaton v Moore Acceptance Corporation Pty Ltd. ^[F35] An offer to purchase expressly excluded all conditions and warranties implied by law. The offer stated "Finance to be arranged" and as the judgment of the Court stated: ^[F36]

"Apparently what was contemplated was that the appellant should satisfy his obligation to make the payment initially required by the `Offer to Purchase' the Challenger tractor by trading in his own tractor and that he should then execute a hire purchase agreement with respect to it."

It was held that the exclusion of the warranties in the offer to purchase did not provide a sufficient basis for a conclusion that a warranty was excluded in the hire purchase agreement. The Court stated: ^[F37]

"No doubt, if the appellant had purchased the tractor from the Machinery Company the existence of such a clause would have operated contractually to exclude conditions or warranties which might otherwise have been implied. But in the events which happened the clause could not have any such operation in relation to the Acceptance Company's obligations. The learned trial judge does not, of course, suggest otherwise; on the contrary, he relies upon the existence of the clause merely as one of the circumstances surrounding the execution of the hire purchase agreement. But even if it may be so regarded what inference, if any, concerning the intentions of the parties to the hire purchase agreement can be drawn from this particular circumstance? Perhaps if one were permitted to guess it could be said that it is probable that the Acceptance Company had no desire to accept any higher responsibility than that which the Machinery Company had purported to accept under the terms of the relevant `Offer to Purchase'. But this is far from saying that the existence of the excluding clause in the `Offer to Purchase' negatived the implication in the hire purchase agreement of conditions which might otherwise be implied by law."

It is thus that I approach the circumstances of the present case. I ask myself whether the circumstances displace the usual implication of a warranty that the material supplied would be of proper quality for the repair of the respondent's helicopter. The important circumstances as I see them which would support the exclusion of a warranty are as follows:

1.

It was the agreement between the plaintiff and the defendant that the helicopter would be maintained in accordance with the Australian Department of Civil Aviation specifications - the Air Navigation Orders - and in accordance with the Bell Helicopter manufacturer's manual.

2.

It was a further agreement that a part having a Bell Part number would be a Bell Part.

3.

The material supplied in the form of spare parts had by virtue of the Australian Civil Aviation Air Navigation Orders s. 100.5 par. 6.1 to be procured by the contractor "under cover of a Release Note as defined in Air Navigation Orders s. 104.0 or an equivalent certification document acceptable to the Director-General". For the power of the Director-General, see Air Navigation Regulations 27 and 28.

4.

It was the agreement between the parties that the Bell agents - the present appellant third party - would sign the release note.

5.

There was no agreement or expectation between the parties that spare parts bought from the Bell agents would be checked in order to ensure that they conformed with drawings and it was the common knowledge of the parties that the defendant did not have the scientific facilities to carry out such a check.

6.

Mr. Ferguson, a director of the plaintiff company, deposed that his "understanding of the arrangement" between the plaintiff and the defendant was that the Bell agents would "have complete responsibility for the quality of that bolt".

The question is whether these circumstances lead clearly to the conclusion that the implication of a warranty of the quality of the spare part in question should be excluded. I have come to the conclusion that they do not. It seems to me that the first five of the circumstances which I have enumerated are quite neutral when it is borne in mind that the contractor is responsible for latent as well as patent defects of quality. The fact that both parties knew that there would be no intermediate examination or that an intermediate examination would not reveal the defect is not a circumstance which will exclude the implied warranty. The intention of the parties in my opinion was that there would be used Bell parts which complied with the Bell design and which would be capable of satisfactory use during the rated life of the particular part, to use the words of Matthews J. in the Supreme Court of Queensland. These words spell out the appropriate warranty of quality and of fitness for purpose.

The circumstance most in favour of the exclusion of the warranty is that which I have lastly enumerated above, the understanding of the arrangement deposed to by Mr. Ferguson. But in my opinion these words do not exclude the warranty otherwise to be implied, when one bears in mind the principles established in the cases to which I have referred. They do no more than establish that no independent inspection by the defendant was intended. That, as I have stated, is not sufficient to exclude the warranty. I cannot read the words as referring to legal responsibility but even if they did refer to legal responsibility then there would have to be implied in the contract terms which gave effect to that responsibility. That could only be effectively done by retaining the defendant's liability to the plaintiff so that a claim over against the Bell agents would have substance. That, far from excluding the implied warranty would provide all the more reason for retaining it.

I would dismiss the appeal.