Builder’s Rights in Dealing with Supply of Defective Goods

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A Builder’s rights will heavily depend on whether the supplier is located within Australia or overseas.

  1. Builder rights against Australian suppliers:

Each jurisdiction within Australia has its own ‘Sale of Goods Act’, which regulates the supply of goods and sets out implied terms in every ‘Contract of Sale’. The Sale of Goods Acts within each jurisdiction is very similar and operates on the same premise.

Within NSW, the ‘Sale of Goods Act 1923’ (‘the Act’) defines a Contract of Sale to mean “an agreement to sell as well as a sale”. In this regard, section 6 expands on this definition to state a contract of sale of goods is a contract whereby “the seller transfer or agrees to transfer the property in goods to the buyer for a money consideration”.

Section 19 of the Act importantly incorporates two implied terms into Contracts of Sale, namely that:

  • Goods are fit for their intended purpose; and
  • Goods are of a ‘merchantable quality’.

To imply into the contract the condition that goods must be fit for their intended purpose, a builder must:

  1. expressly or impliedly make known to the supplier for what particular purpose the goods are required for;
  2. make this known to the supplier in circumstances that show that there is a reliance on the suppliers skill or judgment; and
  3. the goods are of a description which it is in the course of the seller’s business to supply (regardless of whether the supplier is the manufacturer).

To imply into the contract the condition that the goods must be of merchantable quality, it must be shown:

  1. The goods were bought by description;
  2. The seller deals in goods of that description;
  3. The buyer did not examine the goods before or at the time of sale or, if they did, the defects were such as could not reasonably have been discoverable on such examination.

It is strongly recommended that builder’s consider the condition of the good at the time of delivery. If a defect is found upon inspection, builders must check the terms of their supply contracts and notify the supplier they are rejecting the goods due to defects. The Act provides a buyer with a reasonable opportunity to examine goods to check that they comply with the terms of the contract before they are taken to be ‘accepted’ pursuant to the Act.

In the event defects materialise after construction works have finished, a builder can seek damages for a breach of warranty by the seller.

  1. Builder rights against foreign suppliers:

Whilst builders have an avenue to pursue for defectively supplied materials from suppliers within Australia, this same claim is difficult when trying to pursue overseas suppliers. The matter becomes an issue for International Law, where it becomes increasingly difficult to compel foreign entities to be heard within Australian Courts. Whilst Australian Courts have jurisdiction to hear matters against foreign suppliers, difficulty arises with principals of International Law allowing each Country to ‘self-determine’ their own affairs.

There is an International Law Convention, namely the United Nations Convention on Contracts for the International Sale of Goods, which establishes some practices for international trade, however its effectiveness is limited to the consent of international parties to comply with its standards.

As such, whether a builder can pursue against a foreign supplier will depend on many factors which include:

  • The terms of the Supply Contract;
  • Whether the supplier is amicable in performing its contractual obligations;
  • Whether the foreign supplier agrees to be heard within an Australian Court when disputes arise; or
  • Whether any domestic law will apply in the country where the supplier is situated.

It is crucial for builders to be cautious when dealing with international suppliers and look to know the party they are dealing with before ordering goods.

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