Legal Transplants Part III: Fitness for Purpose

Fitness for Purpose Warranties

Fitness for purpose warranties and representations are frequently discussed in the context of international supply and construction contracts, both under English law and Finnish law. Fitness for purpose warranties mean, in general, that the contractor or supplier guarantees that when completed, the end product will be fit for its intended purpose. In Finnish, a direct translation is that the end product ‘soveltuu käyttötarkoitukseensa’.

A UK Perspective

Under English law, fitness for purpose warranties are considered problematic, since they impose on a party a high standard of guaranteeing a certain outcome. A main root of the problem under UK law seems to be the higher standard of care that the warranty imposes on the guaranteeing party as opposed to the standard of care that otherwise would apply. As described in this article, the requirement of a higher standard of care can also cause problems from the professional indemnity insurance perspective.

This may be one of the reasons that any fitness for purpose warranty is usually preceded by lengthy negotiations and may also involve a higher contract price for the works or supply in question.

Fitness for Purpose Warranties under Finnish Law

As I explained in my previous post on endeavours clauses, international contracts that are governed by Finnish law are quite standardly written in English. However, there is no established independent meaning for the concept of ‘fitness for purpose’ under Finnish law, nor is there any exact equivalent for the concept in Finnish jurisprudence. Under Finnish law, the phrase would generally be given its natural meaning – the party giving the warranty guarantees that the end product will be suitable for its intended purpose.

On the one hand, fitness for purpose under Finnish law comprises a contractual obligation like any other, and it may be explicitly stated in or implied by the contract. The essential question in general is the existence of (and showing) the alleged breach of contract or lack of the same. Under Finnish law, ultimately, the question boils down to (1) whether or not the end product needs to be fit for purpose in the first place and, if so, (2) whether it in fact is fit for its purpose.

On the other hand, in case of warranties, under Finnish law, the burden of proof is generally reversed as opposed to what it would be in case of a ‘normal’ contractual obligation. This means that in case of a claim under a fitness for purpose guarantee, under Finnish law, it is up to the contractor to show that the product is not defective if he wants to avoid liability. Usually, this requires showing an alternative cause for the alleged defect that the Contractor is not liable for.

Concluding Remarks

Fitness for purpose warranties are a very interesting example of the interfaces between different jurisdictions. The possibility of different interpretations is of particular importance to note with regard to fitness for purpose warranties, as the lengthy negotiations and potentially higher contract price involved can often lead to excess cost and prolonged negotiations.

To avoid this, all parties should investigate the actual meaning of the phrase under the applicable law – and ensure that it is understood in the same way by all parties – before entering into negotiations under a foreign law or with parties from different jurisdictions. This also decreases the risk of disputes later on as to what de facto was meant by the wording.

For common law discussion, see the following articles:

Simmons & Simmons: Fitness for Purpose in English construction contracts
Simmons & Simmons: Fitness for Purpose, Michael Polling Speaking Notes