Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd

[1974] HCA 32

HIGH COURT OF AUSTRALIA

Barwick C.J., Menzies, Stephen, Mason and Jacobs JJ.

HELICOPTER SALES PTY. LTD. v. ROTOR-WORK PTY. LTD.

(1974) 132 CLR 1

17 September 1974

Contract—Practice (Q.)

Contract—Work and labour—Implied warranty of quality and fitness for purpose—Contract to service helicopter—Manufacturer of parts nominated by customer—Repairer's inability to check quality known to customer—Repairer a wholly owned subsidiary company of customer—Whether warranties excluded by circumstances. Practice (Q.)—Parties—Third party—Leave to defend—Judgment for plaintiff against defendant and for defendant against third party—No appeal by defendant—Whether third party competent to appeal against judgment entered against defendant—Rules of the Supreme Court (Q.) O. 17, r. 4 (4).

Decisions

September 17.
The following written judgments were delivered:-
BARWICK C.J. I have had the advantage in this appeal of reading the reasons for judgment prepared by my brothers Menzies and Stephen. I agree with them that the circumstances of the case excluded the implication of a warranty of quality of the bolt the fracture of which due to latent defect caused the damage for which the first respondent sued. I agree with the reasons which my brothers offer for that conclusion and do not desire to add anything thereto on my own behalf. (at p4)

2. I also agree that the appellant's appeal against the decision in favour of the plaintiff in the action against the defendant, the now second respondent R.W. Engineering Pty. Ltd., should be treated as competent. (at p4)

3. I would wish to add on my own behalf that I do not share the doubts expressed by my brother Stephen as to that competence. It seems to me that a third party who is given leave to defend a plaintiff's action, and who does so, is bound by the result of the issues which that third party contests. That it seems to me is so, not only on principle but having regard to the case law on O. 16, r. 4 of the Supreme Court Rules (Eng.), see White Book, 1973 vol. 1, p. 229. In my opinion, the function of par. 4 of that rule, and of like words in O. 17, r. 4(4) of the Rules of the Supreme Court (Q.), is to enable the court to limit the extent to which such a third party may be so bound. In my opinion, the result of the third party contesting issues in the action does not depend on the making of an order determining the extent to which the third party should be bound but upon the making of an order giving the third party leave to defend the plaintiff's action. Further, where a third party does contest that action without leave to defend having been given, it may well be proper to deal with the case as if an order giving leave had been made. (at p5)

4. I would allow each of the appeals brought by the appellant third party. (at p5)

MENZIES J. In his judgment, which I have had the advantage of reading, Stephen J. has set out the question of law which has to be decided here and the facts which give rise to it. (at p5)

2. Were it not for the decision of the House of Lords in Young &Marten Ltd. v. McManus Childs Ltd. (1969) 1 AC 454 , I would have thought it beyond question that the installation of the defective bolt by the defendant was not in breach of any implied term of its contract with the plaintiff to do the work and provide the parts necessary for the servicing of the plaintiff's Bell helicopter. The bolt, as it had to be before it could be installed, was manufactured by the Bell Helicopter Co. of Fort Worth, Texas, for the purpose for which the defendant used it, and certified on behalf of the Bell Helicopter Co. to have been manufactured in accordance with the "applicable design and process specification requirements" and to have been "found by inspection to be air-worthy". To add to this, by implication, a term that the defendant - which gave the certificate that the bolt had been so manufactured and inspected - itself impliedly warranted the bolt to be of merchantable quality and reasonably fit for the purpose for which it was being used would not, in the circumstances, have been reasonable. The defendant, as the plaintiff well knew, was in no position to give such a warranty. It did not have the specifications according to which the bolt was made; it had no means of testing the bolt; it had no expertise to determine whether or not it was suitable for the purpose for which it was being used. Both the plaintiff and the defendant plainly enough were relying upon the manufacturer to have made a bolt suitable for the purpose for which it was to be used and of airworthy quality. (at p5)

3. It was argued, however, that the decision of the House of Lords in Young &Marten Ltd. v. McManus Childs Ltd. (1969) 1 AC 454 required the implication in the contract between the plaintiff and the defendant of a warranty, by the defendant, that the bolt was of merchantable quality. The House of Lords, however, did no more than decide that the fact that a builder had specified tiles made by one manufacturer only did not exclude the ordinary implied warranty of quality on the part of the sub-contractor who supplied the tiles which it used in roofing houses under sub-contract with the builder. There can be no doubt about this as a general proposition. If, for instance, the sub-contractor used cracked tiles made by the specified manufacturer, there would clearly enough have been a breach of contract on the part of the sub-contractor. The hardship of the particular case lay in the fact that the tiles which the sub-contractor used had an undetectable defect which made them liable to crack in frosty weather. All the House decided was that the fact that the defect in the quality of the tiles was latent did not of itself exclude the implication of the warranty of quality. What their Lordships did was to apply what du Parcq J. had said in G.H. Myers &Co. v. Brent Cross Service Co. (1934) 1 KB 46, at p 55 that "a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them, unless the circumstances of the contract are such as to exclude any such warranty". The House decided that the circumstances did exclude any warranty that the tiles were reasonably fit for use but did not exclude a warranty that they were of good quality. It is not without significance that, at the same time, their Lordships decided, in different circumstances, that such a warranty was excluded: Gloucestershire County Council v. Richardson (1969) 1 AC 480 . Each case must depend upon its own circumstances and upon what is found to be the intention of the parties. The statement approved expressly recognizes that there can be circumstances that exclude the implication of such a warranty. Indeed, in Young &Marten Ltd. v. McManus Childs Ltd. (1969) 1 AC 454 it was said that, had the parties been aware that the tile manufacturer would only sell on terms which excluded a warranty of quality on its part, that would be sufficient to exclude the implications of a warranty between the builder and the sub-contractor. The reason for this must be that the builder would understand that, in such circumstances, the sub-contractor would not itself give a warranty of quality. No warranty would therefore be implied notwithstanding that the attitude of the manufacturer would of itself make the builder the more anxious to obtain the warranty of his sub-contractor. Here it is clear that the defendant could not reasonably give a warranty of quality, and this was known to the plaintiff. The plaintiff knew that a new certified bolt, made by the Bell Helicopter Company to a particular specification and imported into Australia, would be used by the defendant. In my opinion both the parties contracted on this basis and no further warranty was intended. (at p6)

4. The facts stated in greater detail by Stephen J. do, I think, establish circumstances which exclude the implication of a warranty of quality by the defendant. (at p6)

5. I would allow the appeal and adopt the course proposed by Stephen J. to dispose of the matter. (at p7)

STEPHEN J. This appeal raises the question of the circumstances in which a contractor, engaged in the servicing of another's equipment, may be liable, despite the absence of any want of care, for the consequences of fitting to that equipment a replacement part vitiated by a latent manufacturing defect. (at p7)

2. While flying over Circular Quay, Sydney, a bolt retaining in position the tail rotor blade of the plaintiff's helicopter failed; the helicopter was lost and its occupants killed. The failure was due to a machining defect in the bolt which had occurred in its manufacture. The defendant had, under contract to the plaintiff, undertaken the servicing of the helicopter and in the course of regular servicing had fitted the defective bolt. (at p7)

3. In the Supreme Court of Queensland the learned trial judge (Matthews J.) found that in its servicing of the helicopter and in fitting the defective bolt the defendant had not been negligent but that the bolt was not reasonably fit for its purpose, was not of merchantable quality and did not, because of its machining defect, comply with the manufacturer's authorized drawings. No express warranties had been given by the defendant and his Honour concluded thatup no statutory implication of warranties arose, there having been no sale of goods. However the defendant was, he held, in breach of warranties as to quality and compliance with manufacturer's drawings, which were to be implied from the circumstances of the contract. (at p7)

4. There was judgment for the plaintiff against the defendant and for the latter against the third party, an Australian distributor of helicopter parts from which the defendant had purchased the bolt. The third party had joined as fourth party the overseas manufacturer of the helicopter from which it had in turn purchased the bolt but we were told that jurisdictional difficulties, together with the existence of an exclusion clause in favour of the manufacturer in its contract with the Australian distributor, had resulted in a settlement of the third party's claims during the course of the trial. (at p7)

5. The third party, which was given leave to defend and in fact defended the plaintiff's claim against the defendant, now appeals against the whole of the judgment, no appeal being brought by the defendant, which is a wholly owned subsidiary of the plaintiff. (at p7)

6. No issue arises as to the defendant's judgment against the third party, it stands or falls with the plaintiff's judgment against the defendant, and it is accordingly against that latter judgment that this appeal is primarily directed. I shall later revert to the procedural oddity of the third party, in the role of appellant, seeking to set aside a judgment entered against another, the defendant. But for the present I turn to the question of the existence of the implied warranties upon which the plaintiff succeeded. (at p8)

7. I restrict myself to the case of contracts in the nature of agreements for work and materials. There are many other situations in which goods may come to be supplied without there being any sale of those goods and each no doubt calls for individual consideration; the topic has been much canvassed of late in various common law jurisdictions, as Mr. Waddams' recent article in the Modern Law Review, vol. 37 (1974), p. 154 discloses, and any broad generalizations are, I think, better avoided. (at p8)

8. In the case of contracts for work and materials the position has lately been examined in the speeches of their Lordships in Young &Marten Ltd. v. McManus Childs Ltd. (1969) 1 AC 454 , where it was held that a contract to do work and supply materials will, in the absence of special circumstances, carry with it two implied warranties, that those materials are of good quality, this warranty extending to their freedom from latent defects, and that they are reasonably fit for their intended purpose. Their Lordships adopted as their own the enunciation of principle to this effect by du Parcq J. in G.H. Myers &Co. v. Brent Cross Service Co. (1934) 1 KB 46 and in doing so suggested a number of reasons why such a rule accorded with good sense and was for the general commercial benefit of the community; it would usually, although it did not in fact in that case, permit of the ultimate liability being, by recourse to third party procedure, borne by the manufacturer whose responsibility it should properly be; it assimilated contracts for work and materials to contracts for the sale of goods, avoiding the anomaly of a supplier of goods who happens also to fit or install them for that reason escaping the imposition of these implied warranties; it recognized that before the codifying Sale of Goods Act 1893 (U.K.) the common law drew no presently relevant distinction between a sale of goods and a contract for work and materials. (at p8)

9. That warranties of quality and of fitness for purpose may be implied in contracts for work and materials is not, in my view, open to any doubt. Very soon after their Lordships' decision in the Young &Marten Ltd. Case, this Court, in Reg. Glass Pty. Ltd. v. Rivers Locking Systems Pty. Ltd. (1968) 120 CLR 516 , applied the principle of G.H. Myers &Co. v. Brent Cross Service Co. (1934) 1 KB 46 in a case concerned with a contract for work and materials, the installation of a burglar-proof door, and found breach of an implied warranty of reasonable fitness for purpose (1968) 120 CLR, at pp 521, 522 . It had earlier implied such a warranty in the case of a hire-purchase agreement (Beaton v. Moore Acceptance Corporation Pty. Ltd. (1959) 104 CLR 107 ) and in a subsequent bailment case it also implied a like warranty (Derbyshire Building Co. Pty. Ltd. v. Becker (1962) 107 CLR 633 ). The Canadian Supreme Court has also recognized the applicability of implied warranties to the case of contracts for work and the supply of materials (Laminated Structures &Holdings Ltd. v. Eastern Woodworkers Ltd. (1962) 32 DLR (2d) 1 ). holding that "the liability of a contractor for the supplying of material and the erection of a structure is no less than that of a vendor under the Sale of Goods Act" (1962) 32 DLR (2d), at p 5 . (at p9)

10. The real issue in the present appeal is whether the implication of a warranty of merchantable quality ought to be held to have been excluded by the particular circumstances of the present contract between plaintiff and defendant. In Young &Marten's Case (1969) 1 AC 454 their Lordships accorded full recognition to the possibility that implied warranties might be excluded by particular circumstances and they in fact excluded from the contract in that case the implication of any warranty of fitness for purpose because the materials which there proved to be defective had been selected by the respondent by their trade name and the respondent had then required that particular brand to be supplied to it. That circumstance was not thought appropriate to exclude a warranty of quality; however in giving judgment later in the same day in another appeal concerned with implied warranties on the supply of materials, Gloucestershire County Council v. Richardson (1969) 1 AC 480 , their Lordships held, Lord Pearson dissenting, that a warranty of quality was excluded by the particular circumstance of that case. (at p9)

11. Young &Marten's Case (1969) 1 AC 454 concerned the supply and fixing of roofing tiles. In it, as in the Reg. Glass Case (1968) 120 CLR 516 , the contract was one in the performance of which the supplying of goods no doubt played as prominent a part as did the work of fixing in place. It was recognized in some of their Lordships' speeches that the implication of warranties might the more readily be excluded where the nature of the contract was predominantly for the performance of services, the supply of goods being only incidental thereto: per Lord Reid (1969) 1 AC, at p 468 and per Lord Wilberforce (1969) 1 AC, at pp 476-477 . The contract in the present case is such a contract, it is predominantly for the performance of engineering services in the maintenance and overhauling of the plaintiff's aircraft, the renewing of parts being but an incidental, albeit important, feature of the defendant's contractual obligations. (at p9)

12. It is also a contract having quite special features associated with it which bear directly upon the question of the implication of warranties. The plaintiff owns and operates a fleet of Bell helicopters which must be maintained in an airworthy condition so as to comply with the quite rigorous standards of the Department of Civil Aviation; the defendant, its wholly-owned subsidiary, carries on the business of aeronautical engineer and has for some years carried out all the necessary maintenance and overhaul work on the plaintiff's aircraft. It has done so pursuant to an oral contract constituted by a conversation between the manager of the defendant and the managing director of the plaintiff, who happens also to be managing director of the defendant but was on this occasion representing the plaintiff. The terms of this contract reflect in some measure the requirements of the Department of Civil Aviation. (at p10)

13. By Air Navigation Orders (A.N.O.) Pt 100 s. 100.5.0 the Department of Civil Aviation requires that materials used in the maintenance of an aircraft "shall have been procured under cover of a Release Note . . . or an equivalent certification document" and that the requirements of the particular aircraft manufacturer's current maintenance overhaul and repair manuals shall be observed. Release notes complying with A.N.O. requirements bear a certificate "that the aircraft goods enumerated hereon have been inspected and tested and that each item complies with specification and/or design number quoted"; they may only be issued by a supplier duly authorized by the Department and who is in possession of a current approval. The third party, the Australian distributor of Bell helicopter parts, was so authorized and was the holder of such a current approval. The Bell helicopter here in question was, according to the manufacturer's manual, due for a major overhaul after 1200 hours of operation; this overhaul was undertaken, pursuant to this contract, by the defendant and it was in the course of that major overhaul that the defective bolt was installed. The bolt, a Bell product manufactured in the United States, was a numbered component part listed in the manufacturer's manual and was supplied to the defendant by the third party under cover of an appropriate release note on which was quoted the bolt's design number and its "incoming certification", identified as an invoice no. 4135, which proved to be an invoice received by the third party from Bell on the importation of the bolt into Australia and which was retained by the third party. This invoice stated that the parts to which it related, which included the bolt, had been manufactured in accordance with "applicable design and process specification requirements" and had been "found by inspection to be airworthy"; it was apparently by reliance upon the information in this invoice from the manufacturer that the third party was entitled, under Air Navigation Orders, to issue to the defendant a certified release note in respect of the bolt. (at p10)

14. It was a term of the contract between plaintiff and defendant that in maintaining the plaintiff's aircraft the defendant would conform to D.C.A. requirements and to the requirements of the manufacturer's manual and would, to the extent that the Bell manuals required use of replacement parts supplied by Bell, use only such parts, obtaining them from Bell's authorized distributor, the third party. In particular it was stipulated that the defendant should obtain a duly certified release note in respect of all such replacement parts. (at p11)

15. No doubt because they had a common managing director, a Mr. Ferguson, and because of their intimate association the one with the other, the plaintiff was aware of many details of the circumstances under which the defendant obtained replacement parts which it was to fit to the helicopters which it maintained and, in particular, knew of the significance of release notes and of the certificates which they contained and knew that it was in fact the policy of the defendant to buy helicopter replacement parts exclusively from the third party and always to obtain appropriate release notes in respect of those parts. (at p11)

16. All Bell replacement parts were imported by the third party from the U.S. manufacturer and many were supplied to it and passed on to the defendant in individual factory-sealed packs. The defendant would, to the plaintiff's knowledge, have found it quite impracticable to attempt to carry out as a regular procedure the quite complex scientific tests necessary to ensure absence of latent defects in the replacement parts which were supplied to it; it would in any event have been impossible for it to ensure their compliance with the manufacturer's design requirements since the manufacturer, Bell, treated its design drawings and specifications as confidential documents access to which by outsiders was restricted. (at p11)

17. To treat the present contract as including an implied warranty of quality appears to me to be impermissible. The plaintiff, with knowledge of the limited technical capabilities of the defendant, of the provenance of the replacement parts in question and of the nature and significance of release notes, made a stipulation relating to quality of parts to be installed in its aircraft which it no doubt regarded, not without justification, as involving standards more exacting and a resultant assurance of quality of considerably greater weight than anything of which the defendant was capable; it required a release note, which necessarily involved certification by the manufacturer's authorized Australian distributor, duly approved of in that behalf by the Department of Civil Aviation and who held its current approval; the certification would attest to due inspection, testing and compliance with manufacturer's specification or design. (at p11)

18. It was this that the plaintiff expressly bargained for and upon which it chose to rely and no occasion arises for the operation of an implied warranty as to quality. Lord Reid, in Young &Marten's Case (1969) 1 AC, at p 466 , cites as guiding principle this passage from the judgment of the Exchequer Chamber in Readhead v. Midland Railway Co. (1869) LR 4 QB 379, at p 392 :

"Warranties implied by law are for the most part founded on the presumed intention of the parties, and ought certainly to be founded on reason, and with a just regard to the interests of the party who is supposed to give the warranty, as well as of the party to whom it is supposed to be given." (at p12)

19. If this passage be applied to the present case it becomes apparent that a court cannot infer that the presumed intention of the parties was that a warranty as to quality should be superimposed upon the express term as to release notes; moreover such a warranty would not be a reasonable one in view of the practical inability of the defendant to ensure compliance with such a warranty and the effect of its implication upon the liability of the defendant may well be said to amount to a disregard of its interests, especially in view of the defendant's known inability to ensure compliance with it. (at p12)

20. A warrantor's inability to ensure compliance with quality standards will often, of itself, provide no ground for the exclusion of an implied warranty of quality; no disregard of the legitimate interests of the warrantor will thereby be involved. But the case will be different where, as here, both contracting parties know all the relevant facts, have agreed upon an exclusive source of supply and are treating a third party's certification as to quality as being critical. (at p12)

21. A like conclusion follows if a somewhat different aspect of the matter be examined. The express term as to release notes is, because of the certification of replacement parts which it necessarily involves, a term concerned with the same subject matter, quality, as would be an implied warranty of merchantable quality. As Maule J. said in Dickson v. Zizinia (1851) 10 CB 602, at p 611 (138 ER 238, at p 242) , "We should not, by inference, insert in a contract implied provisions with respect to a subject which the contract has expressly provided for". See also Moore v. Winther &Co., per Hodges J. (1897) 3 ALR (CN) 41 and Gemmell Power Farming Co. Ltd. v. Nies, per Jordan C. J. (1935) 35 SR (NSW) 469, at pp 476-477 . When the parties have chosen expressly to contract upon certain terms relating to quality the introduction into their contract of a further implied term as to quality is likely to do violence to their contractual intentions rather than to give effect to them. (at p12)

22. It is for these reasons that I have concluded that any implied warranty of merchantable quality ought to be excluded in the present case; for like reasons I would not imply any warranty of compliance with manufacturer's drawings. The learned trial judge did not, as I read his reasons for judgment, find any implied warranty as to fitness for purpose; nor should he have, the requirement that the defendant should obtain replacement parts only from the third party, and that they should be of Bell manufacture and otherwise conform to the manufacturer's manual, leaves no room for such an implied warranty. (at p13)

23. One consequence of the view which I have formed is that the plaintiff is here left to bear the consequences of latent defects in replacement parts which are, without negligence, installed in its aircraft by the defendant. What may be conceived to be the socially desirable result that liability for such defects is, by means of third party proceedings, passed down the chain of supply until it comes to rest upon the manufacturer miscarries; the manufacturer, the party who may be thought of as morally responsible and also, perhaps, as best able to bear, or insure against, such liability, escapes liability. (at p13)

24. I do not deny the merits of such a concept, however imperfect may prove its execution in practice due to the existence of impediments along the line of liability such as unsuspected exemption clauses, jurisdictional obstacles and time bars. But it seems to me to be relevant only in two respects; first as providing argumentative support for the general rule, not here in doubt, that in contracts for work and materials warranties should be implied in the absence of special circumstances and, secondly, as going to the parties' presumed intentions at the time of contract. As to the latter, when only one of the two contracting parties, the supplier of the goods, possesses any contractual right of recourse against a third party and this fact is appreciated by the contracting parties it will influence a court against excluding an implied warranty by the supplier. (at p13)

25. In the present case the express term as to release notes does not, as would an implied warranty, confer upon the plaintiff any right to damages for breach of contract should the certification prove to be incorrect. But the implication of terms into a contract is not designed to achieve a maximum of rights for one party whenever the other has corresponding rights over against a third party, although the existence of such a situation may in particular cases open the way to the making of an appropriate implication or prevent its exclusion. Moreover parties are not necessarily to be presumed to have contracted in the expectation of breach and with a concern for the rights which might or should then arise between them. Nor are terms to be implied in contracts merely so as to give effect to some policy thought likely to promote the attainment of desirable social ends. Terms are implied so as the better to give effect to the bargain arrived at between the parties, thus carrying out their presumed intention. (at p13)

26. It is with these considerations in mind that I would, in the present case, exclude from the parties' contract the suggested implied warranties despite the consequence that the theoretical possibility of liability in contract being passed down the chain of supply to the guilty manufacturer is thus frustrated; I say "theoretical possibility" because this is apparently one of those not infrequent cases in which the intervention of an exemption clause would in any event have frustrated the working out of what might be thought to be a desirable pattern for the bearing of ultimate liability. (at p14)

27. Since in my opinion warranties as to quality and compliance with manufacturer's drawings should be excluded in the contract between plaintiff and defendant and since it is solely on the ground of breach of such a warranty that the defendant has been held liable in damages to the plaintiff I consider that the defendant should have succeeded in its defence to the plaintiff's claim. (at p14)

28. However the defendant has not appealed against the plaintiff's judgment against it; it is the third party alone which is an appellant and it seeks to appeal not only against the defendant's judgment against it but also against the plaintiff's judgment against the defendant. An order by way of third party directions was made before the trial of this action by which leave was given to the third party "to defend the plaintiff's action" but that order was silent concerning "the extent to which the third party is to be bound by any judgment or decision in this action" - Supreme Court Rules (Q.) O. 17, r. 4 (4). Those rules, unlike the rules of some other States, e.g. Supreme Court Rules (Vict.) O. 16A, r. 11 (b) (iii), do not provide that upon the third party entering an appearance he shall thereafter be bound by the result of the trial and in the absence of a court order it is at least doubtful whether the third party would be bound by or be competent to appeal against the judgment in favour of the plaintiff. (at p14)

29. No attack was in fact made upon the competency of the third party's appeal against the judgment in favour of the plaintiff; the plaintiff's counsel took the leading role in presenting the respondents' arguments before us and it was only the third party's appeal against the judgment in favour of the plaintiff that was in fact argued, its outcome being treated as decisive of the fate of the other appeal. (at p14)

30. In these circumstances, and despite the absence of any order such as might have been made under O. 17, r. 4 (4), the appropriate course appears to be to treat the matter as the parties have chosen to, to deal with both of the third party's appeals as if an order had been made binding it by the result of the trial of the issues between plaintiff and defendant - Asphalt and Public Works Ltd. v. Indemnity Guarantee Trust Ltd. (1969) 1 QB 465, at p 471 . To do otherwise, allowing only the appeal against the defendant's judgment and that only to the extent of the damages awarded, the defendant remaining entitled to nominal damages for breach of contract, appears to be a wholly unsatisfactory alternative. (at p15)

31. I would accordingly allow each of the third party's appeals. (at p15)

MASON J. For the reasons which have been given by Stephen J. I am of opinion that judgment should have been given for the defendant in the action brought by the plaintiff, with the consequence that there should have been judgment for the third party on the defendant's third party claim. (at p15)

2. I do not feel that there is any difficulty in dealing with both of the third party's appeals. The third party defended the plaintiff's action pursuant to an order giving it leave so to do. Although no order was made binding the third party to the result of the trial of the issues between the plaintiff and the defendant, it was in my view in these circumstances entitled to appeal against the judgment against the defendant. I should have taken the same view had the third party defended the plaintiff's action without the benefit of an order giving it leave so to do. (at p15)

3. Accordingly, I would allow both appeals by the third party. (at p15)

JACOBS J. The facts are sufficiently set forth in the judgments of other members of the Court and I need not repeat them. (at p15)

2. 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. (at p16)

3. 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. (1969) 1 AC, at p 468 , 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 of 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 (1969) 1 AC, at pp 471-472 ). 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. (at p16)

4. 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 (1851) 4 Camp 144 (171 ER 46) , 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 of 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. (at p17)

5. 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 (1953) 90 CLR 295 , 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 (1953) 90 CLR, at pp 305-306 :

"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. (1923) 1 KB 457; affd. (1924) AC 43

. Scrutton L.J. (1923) 1 KB, at p 466

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 (1953) 90 CLR, at p 311 :

"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. (1959) 104 CLR 107 . 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 (1959) 104 CLR, at p 115 :

"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 (1959) 104 CLR, at pp 120-121 :

"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." (at p19)

6. 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". (at p20)

7. 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. (at p20)

8. 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. (at p20)

9. I would dismiss the appeal. (at p20)

Orders

Appeals allowed.

Judgment of the Supreme Court of Queensland for the first respondent Rotor-Work Pty. Ltd. against the second respondent R. W. Engineering Pty. Ltd. and for the second respondent against the appellant set aside, and in lieu thereof order that judgment be entered for the second respondent against the first respondent and for the appellant against the second respondent.

Costs of the appeal and of the proceedings in the Supreme Court to be paid by the respondents.