Implied Terms

Contracts for the Supply of Services

The supply of services is the dominant feature of the modern economy. Contracts for services are central in a wide range of sectors including services, financial services, professional services, engineering services, healthcare, construction services, entertainments and leisure.

The law on the supply of services is less developed and less prescriptive than that in relation to the sale of goods.  There is no comprehensive code of law equivalent to the Sale of Goods Act.

The Sale of Goods and Supply of Services Act, 1980 contains a handful of sections dealing with the implied obligations in relation to the provision of services.  The obligations are not as absolute as in the case of the supply of goods.  They can be more readily excluded.

There is increasing legislation in the area of digital services, deriving in particular from European Union requirements. Significant EU derived consumer protection legislation, such as that relating to digital marketing and pre-contract information, applies generally to suppliers of goods and services.


Sectoral Regulation

Many services sectors are subject to formal or informal regulation. The regulatory arrangements in key sectors are examined in other or future parts of this work, which deal with the relevant sectors.  They include financial services, human and veterinary medicines, healthcare, property services and many others. In some sectors, business is subject to regulation, whereas others are not.

The provision of some professional services is regulated by law. Many of the traditional professions are governed by bodies established by law. For example, legal services, medical services and veterinary services are subject to a statutory framework.  They consist of rules providing for and enforcing standards as well as codes of ethics which may be legally binding or be binding as a disciplinary matter.

In some sectors, in particular, financial services, there are detailed codes of practice which are backed by legal sanctions. In the financial services sector, a detailed “doing business” rulebook has emerged from EU and domestic reforms. The financial crisis has led to increased and more prescriptive regulation in financial services.

In other sectors, the providers are legally or practically required to be members of a private body which promotes and enforces its own code of conduct or code of ethics. Although the rules are derived from membership of the association or body, there may be very significant sanctions, ultimately, removal from membership of the association which may effectively lead to cessation of practice.


The Supply of Services

The provisions of Part IV of the Sale of Goods and Supply of Services Act, 1980, apply where a contract is made for the supply of services by a supplier acting in the course of its business. The legislation implies terms into the contract. It limits the extent to which they can be varied or excluded.

A “service” covers and includes the full range of services that might be provided.  It includes the supply of goods where the supply of service is also involved.  The supply of services includes the rendering or provision of a service or facility or an offer to supply it.

The legislation does not apply to services provided under an employment or apprenticeship contract.  It does not apply to aviation services provided by a Minister or meteorological services.

In some cases, it may be unclear if there is a supply of services at all.  In a case involving the National Lotto, it was held that the sale of a lottery ticket was not a contract for the supply of a service.


Implied Terms in Services Contracts

Part IV of the 1980 Act applies where the service is supplied in the course of a business.  The recipient of the service may be a consumer or business.  The concept of a supply in the course of business arises in numerous other contexts, and a broadly similar interpretation applies.

Case law holds, that a service may be supplied in the course of a business, although it is not the supplier’s principal type of business.  Accordingly, where a trading business provides a service, it is likely to be deemed to be supplied in the course of a business, even if the business does not normally provide services of this type.

Where a service is supplied other than in the course of business, there may be implied terms at common law similar to those implied by statute.  At common law, most contracts for the supply of a service imply an obligation on the part of the supplier to exercise due care and skill.

A common law duty of care in “negligence” may arise even in the absence of a contract where a person undertakes a service which may damage or cause loss to another, if carelessly provided. Liability in negligence may arise where a person undertakes or assumes a particular obligation to another, regardless of the existence of a contract between them. The duty usually requires that the provider use reasonable care and skill in the provision of the service.


The Statutory Terms

The implied terms in relation to the provision of services under the 1980 Act are that:

  • the supplier has the necessary skill to render the service;
  • that he will supply the service with due skill, care and diligence;
  • that where materials are used, they will be sound and reasonably fit for the purpose for which they are required;
  • that any good supplied will be of merchantable quality.

The above requirements are incorporated as terms into the service contract.  Unlike the position in relation to the sale of goods, they are not classified as conditions or warranties. A condition in relation to the sale of goods is an obligation in the contract, the breach of which entitles the other party to terminate his obligation and pursue remedies.  A warranty is an obligation, the breach of which gives rise to a right to damages or compensation only.

The contractual significance of the breach of the implied term will depend on the circumstances. They will determine whether the term is a fundamental term, breach of which entitles the other party to terminate his obligations and seek compensation or whether his sole recourse is for monetary damages only for the breach.

The general principle of contract law, as to what constitutes a fundamental breach will apply.  A fundamental breach is one going to the “root of the contract”, which substantially denies the innocent party of the benefit of what he has contracted for.


Substantive Requirements

The supplier of a service promises that he has the necessary skills to render the service.  This implies that he has the requisite education, competence, training and ability to provide the service he holds himself out, as competent to supply.

It is implied that the supplier of the service will supply it with skill, care and diligence.  This is a broadly similar standard and the requirement to the common-law implied term and the requirements of the duty of care in negligence.  In accordance with contract law principles, breach of the term makes the supplier of the service liable for loss and damage thereby caused to the other party.

Unlike the case of Sale of Goods Act, the obligation as to the result to be provided is not in absolute terms.  In the case of the sale of goods, there are some absolute obligations in relation to merchantability and fitness for purpose. In the case of the supply of services, the standard is based on the exercise of due skill, care, and diligence by the supplier.


The Required Standard I

The requisite standard is measured by what is reasonably required of a person with the ordinary skill of a supplier of that particular service. Where the supplier of the service holds himself out as having an extra skill, or particular expertise, skills or specialism, the standard required is that applicable to a person who in fact has that level of skill. He is accordingly held to a higher standard. The principles are similar to those which apply to a claim based on negligence.

Generally, following the usual reasonable and ordinary practice in a particular trade or profession, will meet the requisite standard.  However, where there are obvious defects in this practice, this does not suffice. Where the required standard is disputed, the evidence of practitioners or suppliers in the same trade or business will be admissible as evidence as to what constitutes due skill, care and diligence in the particular circumstances of the case.

In areas where legal requirements, codes of conduct or ethics make particular requirements, then they may define or assist in defining the required standard of skill and care.


Required Standard II

A number of UK and Irish cases have involved the standard of care required of travel agents and tour operators in the context of poor holiday accommodation and facilities.  The claims have succeeded only where the tour operator was shown to have failed to exercise reasonable skill in selecting the particular facilities.

Many services involve the provision of advice.  Some services are in the nature of an art rather than a science and involve the exercise of judgment and an opinion.  In these types of case, there may be a greater leeway for the service provider in terms of what satisfies the requirement. Where the service involves a technical skill, the requirements may be more defined and less subject to debate.

There is no statutorily implied term or warranty that the service is fit for any particular purpose or will fulfil any purpose by implication. Materials supplied must be fit for purpose.

The contract may provide that a particular standard is to be met.  However, in the absence of an express term, the implied term in the case of the supply of services in the course of a business is that of due skill, care and diligence.

There may contractual requirement that a design or specification which is provided by the supplier is fit for purpose. Where the design work for a job or project is provided by the person who commissions it or a third-party on his behalf, the person who provides the service in accordance with the specifications will not usually warrant their fitness for purpose, suitability or efficacy.


Liability in Tort and Contract

Failures or shortcomings in the provision of a service may give rise to a claim both in tort and for breach of contract.  A very significant issue that may arise in this context is the application of the Statute of Limitations.  The cause of action accrues in the case of negligence when the damage arises.  It accrues in the case of breach of contract at the date of breach of the obligation.  This is of the utmost importance, in cases where the loss or damage becomes evident sometime later than the breach.

Courts have taken different views as to whether there may be a concurrent liability in tort and in  contract.  On one view, where there is a contractual duty, this is the totality of obligations and there is no space for the imposition of a further duty.

The second view, which is strongly supported in Ireland and England, allows for concurrent liability.  The argument in favour of concurrent liability is that in its absence, a person with whom there is a contract may have more limited rights than a person with whom there is no contract.  It is argued to be anomalous that the recipient of a gratuitous service should be in a better position than one pays for the service.


Sub-Contractor

Many services are supplied through the instrumentality of a subcontractor. The general position is that the subcontractor’s obligations to the buyer of the service, subsist at most in negligence.  The contractor party will generally be unconditionally liable to the buyer under the terms of the principal contract, in respect of the services provided by the subcontractor.

Where the contractor party’ obligation is to perform the service, he must exercise due care, skill and diligence in providing the service.  If the subcontractor is negligent, the main contractor is likely to breach this obligation.  If the duty is simply to exercise due care in selecting the subcontractor, the duty is limited to selection.

The contractor party’s obligations may be a matter of interpretation of the contract. In some cases, he may be unconditionally obliged to provide the service. in other cases, it may be (only) to arrange for others to provide (subcontractors) service.  The obligation may be only to exercise due care in selecting the subcontractor.

If the subcontractor is nominated by the employer/buyer, then the employer/ buyer will not have relied on the contractor party in relation to his selection, and the contractor party will not generally be liable for breach of the principal contract caused by the subcontractor.

The contractor party may be an agent of the employer/purchaser in contracting with the sub-purchaser.  In this case, there may be a direct contract between the employer and subcontractor.


Goods and Materials

Where goods are supplied under a contract for the supply of services, there is an implied term that they will be of merchantable quality.  Accordingly, where goods are supplied in the course of a contract for the supply of services, the same obligations of merchantable quality arise, as in the case of a sale of goods.

Materials supplied in the course of a contract for the provision of a service must be sound and reasonably fit for their purpose.  In some cases, there will be a contract for the supply of goods. The two types of contract are distinguished by reference to the primacy of the supply.  Where the goods and materials are provided incidental to the provision of a service, there is a contract for the supply of a service.

The issue arises frequently in relation to the installation of fixtures and fittings.  The materials provided are usually incidental to the provision of the service of installation and fitting. In other cases, there may be a contract for the sale of goods. In some cases, where there is a separate price, there may be two contracts.


Remedies for and Consequences of Breach

Unlike the position in the case of a sale of goods, the breach of the above obligations in a contract for the supply of services is not necessarily the breach of a condition, entitles the buyer /employer to terminate the contract.  It will depend on the circumstances as to whether the breach is so fundamental and serious so that the other party may terminate the contract.

Unlike the case with a supply of goods, the conditions and warranties regarding merchantability, fitness for purpose, correspondence with sample and description are not applicable by way of statutorily implied terms in the supply of a service.  However, they may be an express or implied term in the contract in that regard.

Terms implied under the Sale of Goods and Supply of Services Act, in a contract for the provision of a service may be excluded or amended. Where the recipient/employer is not a consumer, the exclusion it must be brought to the buyer’s attention in order to be binding.  They may be incorporated as an express term, by course of dealing or by usage between them.

Where the recipient of the service is a consumer, any limitation or exclusion of liability is permissible only where it is fair and reasonable.  This is in contrast to the position with the supply of goods.


Fair and Reasonable terms

There are guidelines in the Schedule to the Sale of Goods and Supply of Services Act, as to what may constitute fair and reasonable terms.  A term must be fair and reasonable having regard to the circumstances which are known or ought reasonably to have been known or in the contemplation of the parties at the time the contract was made.

In particular, regard is to be had to any of the following which appears relevant:

  • the strength and the bargaining positions of the parties relative to each other, taking into account (amongst other things) alternative means by which the consumer’s requirements could have been met;
  • whether the consumer received an inducement to agree to the term and in accepting it, had the opportunity of entering into a similar contract with other persons with or without having to accept such a term;
  • whether the customer knew or ought to have known of the existence and extent of the term (having regard amongst other things to any custom of the trade and any previous course of dealing between parties);
  • where the term excludes or restricts any relevant liability if some condition is not complied with;
  • whether it was reasonable at the time of the contract to expect that compliance with the condition would be practicable;
  • whether any goods involved a manufactured process or adapted to the special order of the consumer.

Exceptions

The above provision does not apply to

  • a term of an agreement for the international carriage of passengers or goods by land, sea or air, including an agreement between parties whose places of business or residences are situated in the State.
  • a contract for the carriage of passengers or goods by land, sea, air or inland waterway from one place to another within the State until such date as the Minister, after consultation with the Minister for Transport, by order provides whether in relation to such contracts generally or in relation to contracts of a class defined in the order in such manner and by reference to such matters as the Minister, after such consultation, thinks proper.

Prohibited Statements

This following provision applies to any statement likely to be taken as indicating that a right or the exercise of a right conferred by, or a liability arising is restricted or excluded otherwise than as permitted above. It is an offence for a person in the course of a business to do any of the following things in relation to the above matter

  • to display on any part of any premises a notice that includes any such statement,
  • to publish or cause to be published an advertisement which contains any such statement
  • to supply goods bearing or goods in a container bearing, any such statement,
  • otherwise to furnish or to cause to be furnished a document including any such statement.

A statement to the effect that goods will not be exchanged, or that money will not be refunded, or that only credit notes will be given for goods returned, is deemed such a statement unless it is so clearly qualified that it cannot be construed as applicable in circumstances in which the recipient of the service may be seeking to exercise the statutory right in relation to services.


Offences

It is an offence for a person in the course of a business to display, publish, a statement to the effect that rights conferred under the Act are restricted or excluded.  Breach of this is an offence on summary conviction to a fine up to €635 and imprisonment up to six months or on indictment €1269 or imprisonment up to two years.

It is an offence for a person in the course of a business to furnish to the recipient of a service goods bearing, or goods in a container bearing, or any document including, any statement, irrespective of its legal effect, which sets out, limits or describes rights conferred on the recipient or liabilities to the recipient in relation to goods acquired by him or any statement likely to be taken as such a statement, unless that statement is accompanied by a clear and conspicuous declaration that the contractual rights which the recipient enjoys by virtue of section 39 are in no way prejudiced by the relevant statement.


International Sales

Were the proper law of a contract for the supply of a service in the course of a business would, apart from a term that it should be the law of some other country or a term to the like effect, be the law of Ireland or where any such contract contains a term which purports to substitute, or has the effect of substituting, the provisions of the law of some other country for all or any of the above provisions, those provisions  shall, notwithstanding that term, apply to the contract.