You’ve probably heard the term ‘fit for purpose’ before. It might have been used in the context of consumer guarantees. While it’s very relevant for consumers, it has a different use when it comes to commercial (business-to-business) transactions.
In this article, we’ll have a look at what this term means when it comes to such commercial transactions when it comes to the sale of goods.
Note: This article will deal with the Sale of Goods Act 1923 (NSW). This legislation concerns contracts of sale that are for trade and commerce and not for consumer use. When consumers are involved, the Australian Consumer Law applies instead. Consumer transactions will involve anything under $100,000. Or, if the amount is over, it must be for personal or household use. You should speak to a commercial lawyer if you need personalised advice about the quality of the goods you’re buying or selling.
What does ‘fit for purpose’ mean?
Fit for purpose refers to a common implied condition that goods or services provided under a contract should be suitable for the specific purpose for which they were intended or specified by the buyer or end-user. In other words, if a buyer explicitly informs the seller about the intended purpose of the goods or services, they should be fit for that particular purpose.
The “fit for purpose” requirement is closely related to the Australian Consumer Law (ACL), which is part of the Competition and Consumer Act 2010 (Cth). The ACL outlines consumer guarantees that businesses must provide to their customers, including the guarantee that goods and services must be fit for any disclosed purpose. If the goods or services fail to meet this guarantee, the buyer may have the right to seek remedies such as a refund, replacement, or compensation.
It’s important to note that “fit for purpose” does not necessarily mean that the goods or services must be of the highest quality, but they should reasonably fulfill the intended purpose as specified in the contract or as expected by the buyer based on their representations.
What are the prerequisites to ‘Fit for Purpose’
Under the Sale of Goods Act 1923 (NSW), there are a number of conditions that are implied in contracts of sale. Especially when it comes to the fitness of purpose, implied terms don’t apply unless a few things are satisfied. The reason behind this is that buyers should understand the principle of caveat emptor.
This fancy legal term tells buyers they are responsible for checking the quality of goods. One such implied term is found in section 19(1), which defines fitness for purpose. This subsection might seem similar to ‘merchantable quality ‘ but is different in its prerequisites and has a narrower scope.
To understand whether goods purchased actually have to be fit for purpose, it’s first important to know when this section applies. There are three main conditions that must be met before goods have to be fit for purpose.
1. The buyer must make the purpose of the goods known
When entering into a contract for the sale of goods, the buyer of goods must have made known to the seller, whether expressly or by implication, that the goods would be used for a particular purpose.
This just means that you need to tell the supplier what the goods you’re purchasing are being used for. An example might explain this concept more clearly.
Let’s say your business needs a certain chemical that’s used to extract gold from ore. This chemical must be very specific because you risk damaging your tools and destroying the gold if it isn’t. If you make this use clear to the seller, they should provide you with goods that are fit for extracting gold.
Providing you with a different chemical that destroys the gold and your tools would not be fit for purpose. In this case, it would be unfair to expect to receive this exact chemical if you did not specify to the seller that you would use the chemical for extracting gold.
2. The buyer relied on the seller’s skill and judgment
The second prerequisite to goods needing to be fit for purpose is based on reliance. In this condition, the particular purpose must have been explained to the seller in such a way that it was clear that the buyer was relying on the seller’s skill and judgement.
If the buyer relies on the seller’s judgement and the goods aren’t fit for purpose, then the seller might be liable. This is regardless of whether they knew the goods were defective. This might seem a little complex, too. However, it’s just a matter of communication and what is reasonable in the circumstances.
To explain, let’s use the earlier example of gold extraction. The buyer of chemicals does not need to explicitly state that they are relying on the seller’s skills, but this might help effectively communicate that the buyer is doing so. It’s enough that a reasonable person would have realised that they were inviting the buyer to rely on skill and judgement.
This is because, as a manufacturer, it would be rare for your business customers to know how to do what you specialise in. So, purchasers will assume they’re getting what they need. Merely the fact that a gold extractor does not know how to create the proper chemicals may be enough to prove that they rely on the seller’s expertise.
3. The seller is in the business of poviding specific goods
For this condition, the seller must be in the business of providing specific goods. A seller deals in goods of that description if their business is willing to take orders for them. It doesn’t matter that the seller is dealing in these particular goods for the first time.
Back to the example of the gold extractor. If the seller of chemicals sells lots of different chemicals, they are a seller in the business of providing these goods. Therefore, any chemicals they sell should be fit for purpose. If the seller provides a variety of tools to gold extractors, they are still a seller in the business of providing these goods. The chemical should be fit for purpose here, too.
However, let’s say the seller deals in film cameras. If you’re a gold extractor buying chemicals from a film camera company, then you shouldn’t expect that they’d have any idea about gold extraction or chemicals.
Conclusion
In all business transactions involving goods, the principle of caveat emptor is important to remember. Ultimately, you should do everything possible to ensure you’re getting the right goods that you need. At the end of the day, ensuring goods are fit for purpose is mostly up to you. Most of the prerequisites mentioned are fairly self-explanatory.
You shouldn’t be buying candy bars from a chemical company or the other way around. If you need advice on how the fitness for purpose of goods can affect your business, speak to a commercial lawyer.
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