Defective or deficient: the operation of the implied term of reasonable fitness for purpose
by
Norton Rose
The implied term of reasonable fitness for purpose has a long heritage. It was first enshrined in the UK Sale of Goods Act 1896 which provided the model for sale of goods legislation throughout the common law world and has, over the century since its introduction, attracted a massive accretion of case law interpreting its deceptively simply words. A recent useful contribution to the debate is made by the New Zealand High Court in Superior Minerals Ltd v Watt (2006 8 NZBLC 101,822).
The District Court had awarded damages to a dairy farmer who had purchased a new fertiliser which had failed to produce pasture to the same standard that he had come to expect in the past using a competitors product. (A discussion of fertiliser theory is beyond the scope of this note but any Pitt Street or Collins Street farmers reading this note may be interested that whereas the vast majority of fertiliser in New Zealand is provided on the basis of the “quantity theory” the new product was provided on the basis of the “ratio theory”).
The High Court in overruling the court below noted that the purpose of the implied term is to provide remedies for defective goods and not to impose guarantees of performance:
Essentially the defendants in their counterclaim wish to obtain from the supplier of fertiliser an implied assumption of legal liability for the general performance of the farm as a whole. Their complaint is not so much that the fertiliser was defective, but that it was not capable of maintaining the general performance of the farm, that is, the appropriate production in milk fat from cows. This is an ambitious claim and in my view well beyond the original purpose of the implied terms of fitness for purpose imposed by parliament in the statutory reform of the common law.
The product was ineffective rather than defective and it was held that the implied term “did not make suppliers of inputs guarantors of the output for which the input was only part”. To construe the implied term in any other way would be to “impose enormous burdens on suppliers”. The implied term qualifies but does not eliminate the principle of buyer beware: “where buyers take a risk on a novel product [the implied term] has no application”.
This article was written by Deacons Special Counsel Prof Andrew Terry. 14.09.2007
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