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Legal Notes: Climate change could affect the nature of fit for purpose warranties

John Bleasby
Legal Notes: Climate change could affect the nature of fit for purpose warranties

Warranties generally fit into one of four types: Implied warranty, warranty of merchantability, warranty of title and warranty of fitness for purpose. Each is designed to meet the specific expectations of the purchaser. As Nicholas Ellis of U.S. law firm Foley & Lardner LLP writes, “Some of the most important terms in any contract for the purchase or sale of goods are the warranties that apply to those goods.”

As construction is affected by the ongoing evolution of codes and standards, increased focus is being placed on the fit for purpose warranties provided under the project contract. However, disputes still arise even when work carried out to the letter of the specifications fails to perform to the required function.

The Supreme Court of Canada spoke to this back in 1966 in the case of Steel Co. of Canada vs. Willand Management Ltd. It ruled, “generally the express obligation to construct a work capable of carrying out the duty in question overrides the obligation to comply with the plans and specifications, and the contractor will be liable for the failure of the work notwithstanding that it is carried out in accordance with the plans and specifications.”

This is powerful stuff. As Ellis explains, “unless properly disclaimed in the contract, an implied warranty of fitness for (a) particular purpose arises when: (1) the seller knows, or should know, buyer’s purpose for the goods; and (2) the seller knows, or should know, that buyer is relying on seller to determine what the buyer needs for that purpose.”

Climate change initiatives could make matters even more complex for warranty obligations, writes David Warren, partner with international law firm Corrs Chambers Westgarth.

“For parties contracting today, it will be unreasonable to assert that the risks of climate change should not have been at the forefront of their thinking when contesting claims in the future.”

This raises issues never encountered before in standard construction contract agreements.

As Warren explains, the problem is that today’s expectations regarding future performance are based on specifications informed by historical data.

Typically, designers, contractors and key project partners rely on current standards in order to determine if the building is fit for purpose. However, future performance objectives for buildings and infrastructure may soon have their requirements of purpose based on forward-looking climate projections 20, 30 or 50 years into the future, and not covered by current standards. This could leave contractors vulnerable.

“If there is some more general purpose for which the works are to be designed and constructed, that further purpose needs to be satisfied, even if it is more onerous or different to the standard,” writes Warren. “And further, the onus is on the contractor to discover that mere compliance with the standard will not meet that purpose.”

Specifically, future performance requirements may relate to climate, writes Warren.

“There is genuine concern that the impacts of climate change will make standards systemically unreliable. The base line for coming up with those probabilities is developed from historic experience. Standards have never had to deal with the prospect of a rapidly changing and increasingly unpredictable external environment, and the changing ways in which people will need to engage with infrastructure in response.”

Yet, it would be unreasonable to expect buildings and infrastructure to withstand every conceivable risk. As Warren points out, today’s state-of-the-art is not the same as “cutting-edge technology,” and neither of these is necessarily reflected in today’s standards.

When it comes to projecting future climate change, implications are based on historical data with uncertainties of outcomes always baked into the forecasts.

Given the challenge of calculating indemnity insurance against such uncertainties of outcomes, Warren suggests that contractors must be clear, not general, regarding fit for purpose. Warranty limits need to be placed, both in terms of time and money.

“(Contractors must) increasingly insist that their duty only extends to professional due care and skill – that is, a promise not to be negligent.”

 

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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