In the Range Rover Case, issues experienced by the consumer within the first 19,000 kilometres of the car’s life included continued activation of the coolant warning light, activation of the gearbox warning light, failures to start the car, excessive carbon deposits on the throttle and the emptying of the car’s coolant reservoir despite the coolant warning light failing to activate. At the hearing, an expert automotive and mechanical engineer testified that damage from contamination of engine oil by the car’s coolant can result in sudden and catastrophic engine failure and that the carbon build-up in the throttle box (which prevented the car from starting in October 2016) was caused by coolant contamination and bound to re-occur every 16,000 kilometres travelled by the car.
The Tribunal found that the Dealer had not complied with the consumer guarantee that goods must be of an acceptable quality. In reaching this decision, the Tribunal found that a reasonable consumer, fully acquainted with the nature of the defects, having regard to the nature of the goods, the purchase price and the representations made by the manufacturer as to the “supreme” quality of the car’s engineering, would not regard the car as fit for all purposes that goods of that kind are commonly supplied, free from defects, safe and durable.
The Tribunal stated that the unreliability of the car and the prospect of the defect leading to sudden and catastrophic engine failure rendered the car unfit for its basic purpose, let alone any other purpose. In finding that the car was unsafe, the Tribunal stated that a reasonable consumer would not accept the safety risk associated with a car being used for transporting children and towing horses over long stretches of country roads where there are limited or no facilities for dealing with the consequences of a catastrophic breakdown.
However, was the failure to comply with the consumer guarantee that goods must be of an acceptable quality, a “major failure”?
A major failure of the Consumer Guarantees
A failure to comply with a consumer guarantee is a major failure if:
1. The goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or
2. The goods depart (in one or more significant ways) from their description, sample or demonstration model; or
3. The goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
4. The goods are unfit for a disclosed purpose that was made known to the consumer or any person engaged in negotiations and the provider of the goods cannot easily remedy it within a reasonable time; or
5. The goods are not of acceptable quality because they are unsafe.[5]
The Tribunal found that the Dealer’s failure to comply with the consumer guarantee of acceptable quality was a major failure because:
1. A reasonable consumer, fully acquainted with the extent of the failure would not have acquired the car. In reaching this conclusion, the Tribunal stated that a reasonable consumer, having paid a very high price for a brand new, high quality car would be entitled to expect, at worst, only minor teething problems within the early years of the car’s life;
2. The car is substantially unfit for the purpose for which such goods are supplied owing to the repetitive failures which rendered it unreliable;
3. The failure was such that it could not easily, and within a reasonable time, be remedied to make it fit for purpose (as evidenced by the fact that the car was taken in for repair on numerous occasions yet none of the repairs fixed the problem); and
4. The failure rendered the car unsafe owing to it being liable to sudden and catastrophic engine failure.
Consequences of a major failure of the Consumer Guarantees
Where there is a major failure to comply with the consumer guarantees relating to goods (such as the guarantee that goods will be of an acceptable quality under section 54):
1. Under section 259(3) of the ACL, the consumer can:
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- notify the supplier that the consumer rejects the goods and the grounds for the rejection; or
- by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods;
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2. If the consumer rejects the goods under section 259(3) of the ACL, provided that the consumer returns the goods or establishes that the goods cannot be returned without significant cost to the consumer, under section 263(4) of the ACL, the supplier must, at the election of the consumer, refund the consumer or replace the rejected goods; and
3. Under section 259(4) of the ACL, the consumer can by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure (Consequential Losses).
By letter dated 22 December 2016, the consumer wrote a letter to the Dealer rejecting the car and requesting a refund of the purchase price. The Dealer and Importer did not accept the consumer’s rejection of the car. By letter to the consumer dated 24 January 2017, the Importer’s solicitors advised the consumer that the coolant leak had been traced to a faulty engine oil cooler, the faulty oil cooler had been replaced and the car was operating in accordance with the manufacturer’s specifications. On 1 August 2017, after continuing to experience problems with the car, the consumer’s solicitors wrote to the Dealer to confirm the consumer’s earlier rejection of the car and sought advice as to where to return the car. Neither the Dealer nor the Importer responded to the consumer’s letter.The Tribunal accepted the consumer’s letter dated 22 December 2016 as a valid rejection of the car and found that the consumer was not required to return the car due to the significant costs (in the order of $2,400 to $2,600) associated with doing so.
In addition to the full refund of the purchase price, the Tribunal awarded the consumer penalty interest in the sum of $26,187 as well as $21,929 for the following Consequential Losses:
1. The transfer fee and stamp duty charge payable in connection with the car, discounted in consideration that the consumer had received some benefit from the car, having driven 19,000 kilometres prior to the rejection of the car;
2. The full cost of having a towing accessory fitted to the car;
3. The cost of the use of a replacement car, calculated by deducting the current trade value of the replacement car from its purchase price;
4. The full cost of engaging an expert to diagnose the car’s defects; and
5. The full cost of maintaining the car’s registration after it was rejected by the consumer.
The Tribunal found that the Dealer was liable to the consumer for the refund, the Dealer and the Importer were jointly liable for the Consequential Losses and that the consumer was entitled to penalty interest. The sum of $283,191.33 was ordered to be paid to the consumer by the Dealer. Under the Dealer’s cross claim against the Importer under section 274 of the ACL, the Tribunal ordered the Importer to indemnify the Dealer to the full extent of the Dealer’s liability to the consumer. As such, the Tribunal ordered the Importer to pay the sum of $283,191.33 either directly to the Dealer, or at the direction of the Dealer, to the consumer.
Key takeaways for businesses and consumers
The protections offered under the consumer guarantee regime should not be overlooked or underestimated.
From the perspectives of car dealers, importers, manufacturers and other suppliers of goods, preventing a minor fault from turning into a major fault is paramount. Further, resolving the consumer’s concerns at an earlier stage mitigates the Consequential Loss the consumer may subsequently suffer.
From a consumer’s perspective, the Range Rover Case should provide some comfort that there are avenues for redress (including in some circumstances, the right to a full refund and Consequential Losses) if they purchase defective goods, including defective cars. The Range Rover Case also illustrates the importance of communicating the rejection of the goods to the supplier, should the failure to comply with a consumer guarantee be a major failure.
Teresa Torcasio is a Partner in the HWL Ebsworth commercial group based in Melbourne. Teresa advises clients on general commercial law and corporate transactions, including ongoing supply, manufacturing and distribution arrangements, transport and logistics procurement contracts, acquisitions and disposals, joint ventures, corporate restructuring and strategic alliances. Teresa brings together her extensive legal skills and strong industry knowledge to provide practical and commercial advice to clients in fields such as retail, logistics and transport, manufacturing, mining services and major events. By developing a deep understanding of clients’ businesses and corporate objectives, Teresa is well positioned to advise on operational legal matters as well as strategic commercial law matters. Contact Teresa at ttorcasio@hwle.com.au or connect via LinkedIn.
Marian Ngo is a Senior Associate at HWL Ebsworth in Commercial and Franchising Law. Connect with Marian via LinkedIn.
[1] Morphy v Beaufort Townsville Pty Ltd (Civil Claims) [2018] VCAT 1520.
[2] The article titled ‘All over Range Rover. Couple’s record payout for luxury lemon’ on page 19 of The Advertiser (SA) on 23 October 2018.
[3] The article titled ‘All over Range Rover. Couple’s record payout for luxury lemon’ on page 19 of The Advertiser (SA) on 23 October 2018.
[4] Section 54(2) of the Australian Consumer Law.
[5] Section 260 of the Australian Consumer Law.