Fitness for purpose rejected as implied term in data centre design contract

The Court said that Global Switch (Property) Singapore (GSS) could not base its claim for $24 million in damages on an implied term in the contract that mechanical and electrical consultant Arup Singapore's work should be 'fit for purpose'.

GSS operates data in seven cities in Europe and Southeast Asia and hired Arup in 2008 to work on an extension to its data centre in Singapore. Arup's fee was $595,000.

GSS later sued Arup for breach of contract, claiming that it had not designed a system to meet its needs. Arup argued that the scope of work changed as the project developed. GSS sought $23.m in general damages, interest, costs and an indemnity. Arup denied liability and filed a counterclaim for the balance of its fees.

GSS claimed that there was an implied term in the contract that Arup needed to make sure its design for met the needs of GSS and was fit for purpose. It claimed that Arup breached this implied term by failing to perform its mechanical and electrical services properly, which resulted in defects to the data centre extension.

The court said that it was not clear whether GSS' fitness for purpose argument was asserted "as a matter of law, or as a matter of fact".

After reviewing cases law submitted by GSS Justice Quentin Loh declined to find an implied term in law, as the threshold for such implication is high and "neither party has addressed me sufficiently on this". He said that, among other things, the cases relied on by GSS on this issue appear to concern the implied obligations of contractors, but not designers or mechanical and electrical consultants such as like Arup.

Justice Loh also declined to find an implied law in fact, as GSS had also failed to establish the legal requirements for such implication. In coming to this decision the judge considered two questions - "fit for what purpose?" and "fit to what standard?". He said that while GSS had addressed the first question by identifying the purpose as use as a data centre, GSS had failed to deal with the second question. This was problematic for GSS, as there were numerous potential "standards" in the data centre design. Thus, "absent sufficient particularisation of the applicable standard" such an implied term in fact was "too vague and ambiguous to succeed".

Justice Loh also considered whether the 'fitness for purpose' implied term would have met the legal requirement of being necessary for business efficacy. He ruled that it was not, as Arup would already be under a duty to use reasonable care and skill and performing its contractual obligations.

The court rejected GSS' suit and found it was "only entitled to nominal damages of $1,000 for Arup’s breach of its obligations regarding the provision of additional cooling", and allowed Arup’s counterclaim of $71,347.60.

"This case is notable for two reasons," said construction law expert Wee Jian Ang of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law.com. 

"First, the Court did not definitively rule out the possibility that an implied 'fitness for purpose' term in law could be found," he said. "That may be a game-changer for the construction industry, which explains why Justice Loh was hesitant about reaching any firm landing on this issue without the benefit of detailed submission by counsel. Second, it provides useful guidance to parties seeking to mount 'fitness for purpose arguments' particularly in construction projects – one would have to at the very least consider these two key questions 'fit for what purpose' and 'fit to what standard'."