Design life warranties and fitness for purpose in Construction Contracts: the position in Australia and England

By Sandra Steele, Belinda Montgomery, and Julia Kingston

Although Australian construction contracts quite commonly provide for design life warranties in respect of plant, equipment, building or structures, the concept of a ‘design life warranty’ has not been the subject of extensive commentary by the Australian legal profession or interpretation by the courts in Australia.

Design life relates to the period of time over which the works under the contract are to be designed to meet specified requirements. However, it is unclear how design life clauses relate to other contractual requirements, in particular fitness for purpose clauses. A question arises as to whether a design life warranty contains an implied fitness for purpose warranty; does the contractor actually guarantee that the finished works will be fit for purpose for the entire duration of the design life? Or is the contractor merely required to do work to a standard that it estimates will be sufficient for the works to last for that time? This issue is compounded when contracts provide for an express fitness for purpose clause; do these two clauses work together to create an actual guarantee, or are they different and conflicting standards?

There is uncertainty in Australia as to what ‘design life warranty’ means. However a number of overseas courts have considered the issue. A recent English case, MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd & Anor [2015] EWCA Civ 407 (the MT Hojgaard Case) has considered the issue in that jurisdiction and may provide guidance for how the term ‘design life’ may be interpreted by the courts in Australia.

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Note: This article first appeared in the Australian Construction Law Bulletin Volume 27 No 8 to 9 from page 126.