‘Fit for purpose’ or ‘Fitness for purpose’ obligations sit at the heart of Australian consumer protection and many commercial contracts. If your business supplies goods or services, misunderstanding this concept can expose you to refund claims, costly rework or uninsured liabilities.
This guide, prepared by our contract law team, details key legislation, major cases and practical risk-management steps so Australian businesses and in-house counsel can navigate fitness-for-purpose requirements with confidence.
Key Takeaways
- ‘Fit for purpose’ is a non-excludable statutory guarantee under s 55 of the Australian Consumer Law (ACL)
- For B2B transactions under $100,000, the ACL can still apply
- State and Territory Sale of Goods Acts imply similar fitness terms when buyers rely on the seller’s skill or judgment
- Contract wording can lift the standard from reasonable care to strict correctness, creating insurance gaps
- Clear scopes, written purposes and qualified warranties reduce exposure
What does ‘Fit for Purpose’ mean?
At law, goods or services are fit for purpose when they achieve either:
- the ordinary purpose for which such goods or services are commonly supplied; or
- a specific purpose the consumer or buyer has communicated to the supplier.
Section 55 of the ACL renders this guarantee mandatory whenever the buyer relies on the supplier’s skill or judgment. Parallel provisions exist in s 19 Sale of Goods Act 1923 (NSW) and equivalent statutes across all jurisdictions.
Why Fit for Purpose Matters
It’s important to understand ‘fit for purpose’ in your contracts for a number of reasons, including:
- Non-compliance may trigger repair, replacement or refund rights (ss 259–260 ACL)
- Contractual exclusion clauses are void to the extent they purport to limit the statutory guarantee (s 64 ACL)
- The Australian Competition and Consumer Commission (ACCC) actively enforces breaches
- Professional indemnity insurance often excludes strict contractual warranties that go beyond reasonable care
Find out whether your business is compliant with NSW’s indemnity insurance laws by reviewing this helpful resource: Mandatory Professional Indemnity Insurance in NSW.
Fit for Purpose in B2C Transactions
Under the Australian Consumer Law (ACL), consumer guarantees apply to most business-to-consumer (B2C) transactions – particularly where goods or services are priced under $100,000 or are typically used for personal, domestic, or household purposes.
One key guarantee is that products must be fit for their intended purpose. This means the item must work as a reasonable consumer would expect, or meet any specific purpose the buyer clearly communicated to the seller.
Importantly, this guarantee cannot be waived, even with a signed contract.
Example: If a homeowner tells a retailer they need a pool pump suitable for saltwater, and the pump corrodes after a few months, it fails to meet the agreed purpose. In this case, the consumer is entitled to a remedy under the ACL.
Fit for Purpose in B2B Transactions
When does the ACL Apply?
The ACL can apply to business-to-business (B2B) transactions where:
The contract value is $100,000 or less (since 1 July 2021); or
The goods are ordinarily acquired for personal, domestic or household use, regardless of price.
Beyond the ACL
Where the ACL does not apply – such as for high-value, commercial equipment – fitness for purpose may still be implied under state-based Sale of Goods Acts. These protections can arise if:
The buyer makes the intended purpose known, either expressly or by implication;
The buyer relies on the seller’s skill or judgment; and
The goods are of a kind the seller typically supplies.
Contractual Fit for Purpose Clauses
Businesses often build additional fit for purpose warranties into supply, engineering or consultancy contracts. Clauses may read:
“The Consultant warrants the Deliverables will be suitable and adequate for the purposes described in Schedule 1.”
“Supplier guarantees the goods are fit for their usual and ordinary purpose.”
These clauses go beyond a duty to exercise reasonable care – they create a strict obligation to achieve the agreed outcome. If the result falls short (even without negligence), the supplier may still be liable, potentially beyond the scope of professional indemnity insurance.
Risks and Insurance Implications
Risk Area | Why It Matters | Mitigation Strategy |
Professional indemnity exclusions | Policies cover negligence, not strict warranties | Amend clause to reference “due care and skill” |
Miscommunication of purpose | Oral instructions create evidentiary disputes | Require written scopes and specifications |
Reliance on manufacturer advice | Supplier remains liable to consumer | Obtain back-to-back indemnities from manufacturer |
Inexperienced staff advice | Incorrect recommendations bind the business | Provide product training and scripted guidance |
Practical Tips for Managing Fit for Purpose Risk
Use written questionnaires to clearly document the customer’s intended use of the goods or services. This helps define expectations and reduce ambiguity later.
Define the “purpose” as specifically as possible, such as:
“Structural adequacy in accordance with Australian Standard XYZ.”
A narrow definition limits exposure and clarifies what success looks like.Qualify fitness-for-purpose clauses by adding language like:
“Subject to the standard of care of a reasonable [profession] in Australia.”
This ties performance obligations to professional norms rather than strict guarantees.Maintain records of all warnings, assumptions, and instructions provided to the client. These may be critical if a dispute arises.
Cross-check all contractual warranties and representations against your insurance policy wording. Ensure there are no unintended gaps in cover if something goes wrong.
Learn more about how the ACL applies to your online business in our article.
Case Law Spotlight
Grant v Australian Knitting Mills
Underwear causing dermatitis was (unsurprisingly) held unfit for purpose despite being wearable. This case confirms physical safety is integral to fitness for purpose in clothing goods.
Baldry v Marshall
Here, the Seller was held liable when a sports car that was unsuitable for touring purposes was not disclosed to the buyer. This case demonstrates the reliance element of fit for purpose.
ACCC v Valve Corporation
The Federal Court extended ACL consumer guarantees to digital game downloads, highlighting broad application beyond physical goods.
Whether you sell machinery, software or consultancy services, “fit for purpose” is more than marketing language – it is a legally enforceable promise under Australian law. By clarifying purposes, qualifying warranties and aligning insurance, businesses can deliver confident compliance while protecting the bottom line.
Frequently Asked Questions
Can a contract exclude the ACL fit-for-purpose guarantee?
No. Section 64 ACL voids any attempt to exclude or restrict consumer guarantees.
Does the guarantee apply to services as well as goods?
Yes. Services must be fit for the purpose made known to the supplier, unless provided by architects or engineers who owe a duty of due care and skill instead.
How is “purpose” proven in court?
Evidence may include emails, written specifications, sales conversations or industry custom that reasonably implies the intended use.
What if the buyer installs the product incorrectly?
If misuse causes the failure, the supplier may have a defence that the product would have been fit but for the buyer’s actions.
Are digital products covered by fit-for-purpose guarantees?
Yes. Australian courts have confirmed that software and downloads fall within the ACL’s definition of goods.
Does professional indemnity insurance cover fitness-for-purpose breaches?
Typically only where the breach also involves negligence. Pure warranty breaches may sit outside cover unless specifically endorsed.
