Consumer claims, class actions and the automotive industry: Toyota v Williams

The recent decision by the Federal Court (an appeal of an earlier decision) in Toyota Motor Corporation Australia Limited v Williams [2023] FCAFC 50 (Toyota Class Action) provides valuable insight into the current state of the product liability landscape in Australia and the types of class action claims that may be brought against manufacturers and suppliers in the automotive sector in the future.

Background to the proceedings

The Toyota Class Action involved claims that approximately 250,000 motor vehicles in the Prado, Fortuner and HiLux ranges sold to consumers between 2015 and 2020 were fitted with defective diesel exhaust after-treatment systems (DPF system).

The lead applicant, Direct Claim Services Qld Pty Ltd argued the DPF system was defective because it was not designed to function effectively during all reasonably expected conditions of normal operation and use of the vehicle. In particular, it was asserted that under certain conditions the vehicles experienced a range of problems including emission of excessive white smoke and foul-smelling exhaust gas.

The applicants alleged that by reason of the defective DPF system:

the relevant vehicles were not of “acceptable quality” and therefore failed to comply with a consumer guarantee in the ACL; and
Toyota made misleading representations and omissions about the vehicles, in contravention of the ACL.

In its decision of 7 April 2022, the Federal Court made a number of findings, including:

the relevant vehicles were not of acceptable quality because of their defective DPF systems;
Toyota engaged in misleading or deceptive conduct in connection with marketing and selling the relevant vehicles;
the value of the relevant vehicles at the time of initial supply was reduced by 17.5% because of their defective DPF systems; and
group members were entitled to be paid money to compensate them for this reduction in value and for the excess GST they paid as a result of acquiring their vehicles at prices which were higher than the true value of those vehicles.

Following that decision, Toyota lodged an appeal in the Federal Court. In March 2023, the Federal Court upheld the findings from the initial decision, except for the issues concerning the assessment of reduction in value.

Findings in relation to acceptable quality

We have outlined some of the key findings in relation to the vehicles not being of acceptable quality in the following table.

Key finding	Reasoning
Defects in goods are not restricted to safety defects	The guarantee as to acceptable quality has a number offactors, including that the goods will be safe to use. However, the Court has made it clear that “free from defects” does not necessarily mean safety defects. The Court rejected Toyota’s submission that the emission of excessive and foul-smelling white smoke is not something that a reasonable consumer would regard as unacceptable because it does not impact upon the “safety” of the vehicle. The adverse consequences and symptoms associated with the defective DPF system, including discomfort and/or distress experienced by the drivers of the vehicles impacted significantly upon the use and enjoyment of the vehicle.
Defects in goods need not be material	It did not matter that the defect was not so substantial that the vehicle could not function effectively as a mode of transportation. The expectation from consumers is that vehicles should be capable of more than just going from point A to point B.
An inherent propensity to manifest one or more adverse consequences is enough to breach the acceptable quality guarantee	The Court held that it did not matter whether or not the defect in certain vehicles had manifested or not. The vehicles had breached the acceptable quality guarantee because there was an inherent propensity that the DPF system would malfunction.

Re-assessment of the reduction in value

In reviewing the primary judge’s assessment for the reduction in value of 17.5% for the vehicles, on appeal, the Federal Court re-considered the assessment for damages with a focus upon the nature of the defect and the magnitude or significance of its effect to the customer, rather than looking at resale prices.

In alleging that the vehicles were not of ‘acceptable quality’, the lead applicant and class members sought recovery of damages, including on an aggregate basis (i.e. claims of all class members).

The Court looked at a myriad of factors that play into the assessment where there is availability of general market information for assessing reduction in value, including second-hand or defective markets (and the willingness by buyers and sellers to use those markets).

The Court’s re-assessment of the reduction in value considered:

the loss of utility from the failure of the consumer guarantee;
the reduction in price that a reasonable consumer would be willing to pay for the defected product;
the comparative retail price of unaffected goods; and
resale prices (although noting this is to be carefully considered).
Ultimately, the Federal Court held that the reduction in value of the vehicles should be reduced to 10% (instead of 17.5%) on the basis that much of the utility of the vehicle was unaffected by the defect and the primary judge had relied too much on evidence as to the salvage value of the vehicle

Conclusion

The Toyota Class Action makes it clear that suppliers of goods (particularly, those in the car manufacturing industry) should take prompt action to investigate potential defects and undertake a detailed review of their obligations and compliance with consumer laws.

Furthermore, the recent judgment provides useful guidance on how courts are likely to assess the reduction in value of goods when awarding damages. Although resale prices might be relevant, care must be taken in using prices paid on resale of used goods. Instead, a more holistic assessment for damages is likely to be taken with a particular focus on the nature of the defect and the impact on the customer.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Co-author: Stephanie Maurangi

Position: Lawyer

Practice: Transactions

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