Fitness for purpose terms implied by statute

Terms relating to fitness for purpose may be automatically implied into a construction contract under certain Commonwealth and state statutes.

Australian Consumer Law

The Australian Consumer Law provides consumers with a number of consumer guarantees. The statutory warranties exist in addition to any other warranty provided by suppliers, importers or manufacturers.

The consumer guarantees are relevant to the construction industry particularly because builders are regarded as suppliers as they sell goods and services to consumers.

Suppliers and manufacturers cannot:

• limit, restrict or exclude consumer guarantees, or
• avoid their obligations by getting the consumer to agree that the law of another country applies to the contract or to any dispute.

The definition of ‘consumer’ is restricted to persons who acquire goods or services:

• with a value less than $100,000; or
• if the goods or services cost more than $100,000 but are normally used for personal, domestic or household purposes, the consumer guarantees will still apply.

The effect of the definitions of consumer is as follows:

• a consumer can in fact be a large company if the purchase value is under $100,000;
• if the price is less than $100,000, the goods or services do not have to be used for personal, domestic or household use;
• if the goods or services cost more than $100,000, they must be of a kind that are bought for personal, domestic or household use or consumption for the implied guarantees to apply. Importantly, it is not necessary for the consumer to be a householder. For example, if a builder supplies carpet costing more than $100,000 to a commercial business, the consumer guarantees would apply because carpet is ordinarily acquired for personal, domestic or household use or consumption.

The relevant consumer guarantees in relation to fitness for purpose for goods and services are:

Guarantee as to acceptable quality

Goods will be considered to be of acceptable quality if they:

• are safe, durable and free from defects;
• acceptable in appearance and finish; and
• do everything that they are commonly used for.

Guarantee as to fitness for any disclosed purpose

There is a guarantee that the goods are reasonably fit for:

• a purpose for which the supplier represents they are fit; or
• a purpose the consumer makes known to the supplier or manufacturer that they will use the goods for.

Guarantee relating to supply by description

If goods are sold by description, there is a guarantee that the goods correspond with the description.

Guarantee relating to supply by sample or demonstration model

If goods are sold by sample or demonstration model, there is a guarantee that the goods correspond with that sample or model.

Guarantee as to due care and skill

There is a guarantee that service providers must carry out all services using an acceptable level of care and skill. Their work must be at least as good as what a competent person with average skills and experience would provide. They must also take reasonable steps to avoid loss or damage when providing the service.

Guarantee relating to the supply of services

There is a guarantee that the services and any resulting products will be reasonably fit for any particular purpose specified. This guarantee may not apply if it is unreasonable to rely on the service provider’s skill or judgment, or if the provider tells you the service or resulting product will not meet your purpose. This guarantee does not apply to professional services provided by a qualified architect or engineer.

Home Building Act 1989 (NSW)

The Home Building Act 1989 (NSW) implies warranties in every contract to do residential building work. The relevant warranties in relation to fitness for purpose for goods and services are that:

• the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract;
• all materials supplied will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;
• if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling;
• the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.

The effect of the warranties is to incorporate into every residential building work contract those terms as if they were agreed at the time when the contract was signed. Statutory warranties under the Home Building Act 1989 (NSW) are valid for six years for a major defect and two years in any other case, commencing from the date when the work carried out by the builder is completed.

The NSW Government has proposed sweeping changes to the NSW building industry, including the introduction of the Building Bill 2022 (NSW) which will replace the Home Building Act.