July 23, 2018

In Harris v Morabito Holdings [2018] NSWSC 912, the Supreme Court of NSW considered, amongst other things, the standard of workmanship required in order to satisfy contractual warranties provided by a party in the contract documents.

Harris entered into a contract with Morabito Holdings to undertake residential building work on a luxury waterfront home. The contract provided, as express contractual terms, the standard statutory warranties that are commonly implied into contracts for building work of a residential nature.

A dispute arose between the parties in relation to defective work. Proceedings were commenced and the matter was referred to a special referee, who determined that Morabito owed Harris $328,000.

Harris opposed the adoption of the report of the special referee as it considered the damages award was insufficient. Specifically, it argued that the special referee had erred in applying the ordinary standard of workmanship, as contemplated by the warranties, to the building work. Harris asserted that in making its determination, the special referee should have applied a higher standard of workmanship, taking into account “matters of context and background known to the parties before the contract was concluded”.

Morabito contended that while it had been open to Harris to specify a higher, or more specific, standard of workmanship and quality for the works, it had failed to do so and had instead elected to include the statutory warranties as express terms of the contract.

Relevantly, in adopting the findings of the special referee, McDougall J held that the:

  •   report gave effect to the parties’ bargain, correctly identified that the warranties expressed in the contract applied and Harris had not stipulated a different standard of workmanship;
  •   subjective non-contractual expectations and pre-contractual statements of the parties were not relevant to the contractual obligations; and
  •   approach taken by Harris was antithetical to certainty and the objective approach to the construction of contracts.

This case provides a useful reminder to parties to a construction contract to ensure that the express terms of the contract are consistent with the parties’ expectations and intentions. It also reinforces that parties should not proceed on the basis that pre-contractual representations will be relevant when considering the proper interpretation of contractual obligations.

The full decision can be found here.

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