Smallmon v. Transport Sales Ltd.

Transport Sales Ltd. and Grant Alan Miller (sellers) (defendants) owned four trucks that were located in New Zealand. The trucks were assembled in Australia but did not have plates indicating that they complied with the Australian Design Rules (ADR) that would allow them to be registered in Australia. Australians R. J. and A. M. Smallmon (buyers) (plaintiffs) were experienced transport operators who purchased the trucks for import into Australia. The sales contract did not address whether the trucks would be registerable in Australia. The sellers suggested that the buyers engage contractors to help with the import and ADR compliance. The Australian authorities refused to allow the buyers to register the trucks in Australia due to the lack of ADR-compliance plates, although Australia eventually permitted the trucks to be used on a limited basis. The buyers then sued the sellers, alleging breach of an implied warranty that the trucks were fit for their intended purpose. The New Zealand High Court ruled for the sellers, deciding that under Article 35 of the Convention on Contracts for the International Sale of Goods (CISG), the sellers did not impliedly warranty that the trucks could be registered in Australia. Based on its review of international precedents, the high court concluded that, absent special circumstances, sellers do not impliedly warranty compliance with foreign regulatory provisions or standards even if sellers know that goods are intended for a foreign country. The high court further concluded that no special circumstances existed despite the fact that the sellers advertised the trucks for sale in Australia and had exported similar trucks to Australia in the past because, among other things, the sellers’ recommendation that the buyers hire expert help signaled that the sellers were not responsible for Australian regulatory issues. Finally, the high court opined that the trucks were fit for their intended purpose because trucks ordinarily are used to transport cargo and the trucks were mechanically capable of doing that. The buyers appealed.