Does a contractor have the right to stop work, potentially causing costly project delays, if the supplied fittings are found to be non-compliant? On the face of it, there are conflicting legal obligations here, namely (1) to complete work to deadline, and (2) to install only compliant fittings. Legal expert Paul Cott comments.

This article will look at a relatively common but interesting scenario in the trades and construction industry. The key lesson out of this scenario is: if you don’t have a written contract for the works, get one in place. But if you do, refer back to it! And hope that it has been drafted properly. Don’t draft your contracts yourself. The secondary lesson is that it is far better to spend the money now having a properly drafted contract drawn up, rather than spend what will often be far more money down the track in a legal dispute without a properly drafted contract in place.

Imagine a case where you are a tradesman who has been contracted (whether orally or in writing) to do certain works in a new apartment building (those works including installation of, say, plumbing or electrical fittings). The tradesman notices, prior to the fittings being installed, that they are not compliant with building standards and/or codes, and so he or she refuses to install them. Obviously, there are benefits that arise from the fact that the tradie refused to install the non-compliant fittings, such as minimising the potential for some significant fault (like a major water leak) to occur post-occupancy.

However, as a result of the tradie refusing to install the fittings, the overall works are delayed as the builder or head contractor orders new (presumably now compliant) fittings to be supplied and delivered. As a result of the delays, significant extra costs are incurred, such as the cost of new fittings and extra labour costs. The question arises: What if the developer and/or the builder claims delays and associated costs from the tradie (for example, by a legal claim where the developer sues the builder, who then joins the tradie to the action, saying in effect, ‘I am being sued but the loss arises as a result of you delaying the project by not installing the fittings when they were delivered, so the loss is on you, not me’)?

LEGAL PRINCIPLES

Firstly, as said above, the parties all need to look to their written contracts. Secondly, the law implies (and the law sets out expressly) certain things into contracts and works, such as that the works must be conducted with reasonable care and diligence, and materials must be fit for purpose, free of defects, at least defects which are known or ought to be known. The law, conversely, says that parties must proceed with works with reasonable expedition, speed, and timeliness so that if a party (and the law here is very often fault-based) delays works without reasonable cause, then the party may be liable for delay costs. The critical thing is that a court or tribunal will look at what was reasonable in the whole circumstances for the parties to do, considering what they knew or ought to have known as reasonable builders, developers, tradies, etc.

So, a critical thing to look at here is the contract, and in particular, to determine if any or all of the contract included a liquidated damages clause or similar, or a clause specifying an amount that has to be paid by a party if the works they do are late. In the alternative, there may be delay damages that speak to this situation. Either way, these types of clauses are in general ‘fault-based’, so that here, if the tradie is in no way at fault in the situation (and in the author’s view, that is likely), then delay damages or liquidated damages against the tradie will not be applicable. It doesn’t mean, however, that they may not be claimed, the issue being whether it is a reasonable claim, and so likely to succeed or not.

WHOSE FAULT IN THE FIRST PLACE?

The most fundamental thing from a legal standpoint is that the court will examine whose fault, neglect, and/or omission resulted in the supply of the non-compliant fittings in the first place. The developer may need to claim their losses from the supplier of the fittings.

There are a multitude of warranties and guarantees as to product safety and product liability implied by law into virtually every supply of materials, such as that the materials are of merchantable quality, are fit for purpose, and are of a standard, grade, and quality that a reasonable consumer would expect. These warranties are set out in the Competition and Consumer Act (Cth). The common law of negligence supplements the legislative provisions just referred to. Sometimes, if there are any statements by the supplier and/or developer here (and/or even the builder) that the fittings were in fact of good quality and/or defect-free, and a court or a tribunal said that such a statement was not reasonable and/or that the representor knew, or ought or have known, such a statement was false, then the law of false and misleading and/or deceptive conduct may apply. The bottom line, though, is that in such a circumstance, without more information, it is very difficult to see how the tradie can be liable.

OTHER AFFECTED TRADES

The question as to whether other tradespeople on the job, such as concreters and or glaziers, may also claim their loss and damage is governed by the same principles stated earlier in this article. In the view of the author, the course of action taken by the tradie in not proceeding with the works because of the reason stated herein is a sound, defensible and reasonable one. Though other parties would (or may) be adversely affected by the tradie’s course of action, the alternative, i.e., that of installing the non-compliant fittings, is likely to cause far more losses of an indeterminate nature and amount to occur – albeit to possibly different parties, such as apartment owners, occupiers, or the builder.

INSURANCE

As to the issue of whether insurance coverage may be availed upon if a claim is made in this scenario by, say, the developer, builder and/or tradie, this is a difficult question. However, one can say confidently that a close reading by an insurance expert such as an insurance broker, or even an insurance lawyer, of the insurance policy and any exclusions in it will often yield the answer. Certainly, many professionals and builders are required to have an insurance policy covering this type of scenario, such a policy being titled a ‘professional indemnity’ insurance policy. Tradesmen should consult their insurance broker to discuss insurance needs, and in particular whether the broker is of the view that such an insurance is available and/or necessary.

CONCLUSION

This conundrum is a legally complex one. One hopes, despite the fact that this article does not profess to be a complete exposition of the law which could come into play in a legal claim arising from the scenario, that most relevant considerations have been set out above.