Australian auto class actions go into top gear: New frontiers for reduction in value damages claims

What you need to know

• Capic v Ford Motor Company of Australia Pty Ltd (Ford) is the most recent judicial foray into several vexing legal issues arising from claims against manufacturers for reduction in value damages for the supply of faulty goods.¹
• The outcome in Ford, which is subject to appeals, is counter-intuitive. The decision arises from a class action brought on behalf of purchasers of faulty vehicles. The group members included consumers who had purchased the vehicles new, as well as consumers who had purchased the vehicles second-hand from the original purchasers. In earlier instalments of the litigation, it was held that the faults in the vehicles breached the statutory guarantee of acceptable quality, reducing the value of the vehicles, when purchased new, by 30%. In this most recent judgment, it was held that second-hand purchasers were entitled to reduction in value damages calculated by reference to the original purchase price, not the second-hand price.
• To take an example. A vehicle was purchased new for $30,000. It is then sold used to the second purchaser for $20,000. The second-hand purchaser receives damages for reduction in value of $9,000, being 30% of the purchase price paid by the original owner.
• This surprising result, if upheld, adds significant potency to class actions in respect of faulty consumer goods, especially where the goods have a large second-hand market.

The Federal Court has delivered an important judgment about the liability of manufacturers of goods that are sold to "consumers" and have a large second-hand market. It is particularly consequential if the goods are high-value.

The counter-intuitive result in Ford is due in no small part to obscurities in the drafting of key provisions in the Australian Consumer Law (ACL) which will undoubtedly receive further judicial consideration.

Background

A "consumer" is defined broadly in the ACL. Anyone who purchases goods in the following circumstances purchases them as a "consumer":

1. the purchase is for $100,000 or less;
2. the goods are a vehicle or trailer that is acquired for use principally in the transport of goods on public roads; or
3. the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption.

Cars, trucks, trailers, caravans, motorbikes and boats are all prime examples of high-value goods that are widely sold to "consumers". Each of these have an extensive second-hand market.

If a good is sold to a "consumer" and does not comply with one of the statutory guarantees contained in the ACL, the manufacturer must compensate an "affected person" for any reduction in value (RIV) caused by the non-compliance. "Affected persons" are defined to include the original consumer, a consumer who acquires the goods from the original consumer, and successors in title.

In this context, a statutory guarantee of particular note is that goods must be of "acceptable quality" under section 54 of the ACL.

The High Court's approach to reduction in value

In 2024, the High Court addressed how RIV is assessed in Williams v Toyota Motor Corporation Australia Limited [2024] HCA 38. The case concerned cars which were found to have faults in breach of the statutory guarantee of acceptable quality. The Court held that RIV is assessed by reference to what a "hypothetical reasonable consumer" would have paid for the car had they known of the matters that caused it not to be of "acceptable quality". Critically, the Court also held that the right to RIV damages travels with title to the goods. This means that if the original purchaser sells the goods, they lose the right to RIV damages.

But what about consumers who purchase the good from the original purchaser? They have a claim for RIV damages for breach of the statutory guarantee as an "affected person" as long as they have retained ownership. Are they entitled to the same compensation for reduction in value as the original purchaser? This is where the latest Federal Court decision in Capic v Ford Motor Company of Australia Pty Ltd [2026] FCA 35 (Ford) comes in.

Key findings in Ford (subject to appeals)

• Pass through: The Court previously assessed an RIV of 30% of the purchase price when the relevant vehicles were purchased new. The RIV was based on faults in the vehicles' transmission . In this latest decision, the Court concluded that second-hand purchasers were entitled to this same amount even though they purchased the cars at a second-hand price. To illustrate the point, take a consumer who purchases a car for $30,000. They would be entitled to compensation of $9,000 for a 30% RIV, but lose that right because they sell the vehicle. Another consumer then purchases the car second-hand for $20,000 from the original owner. The second consumer doesn't receive $6,000 (being 30% of $20,000) but instead receives the full $9,000.
• Successor in title: Not only is a second-hand purchaser entitled to RIV damages, but any subsequent successor in title may also entitled due to the definition of "affected person", which covers a person who "derives title to the goods through or under the consumer." Perram J held that by this mechanism, third and subsequent purchasers of the used vehicle may also pick up the right to RIV damages held by the original purchaser of the vehicle as new.
• Where a dealer breaks the chain: There is a catch. The second-hand purchaser does not inherit the initial purchaser's entitlement to $9,000 if the initial purchaser sells the car to a second-hand dealer and the second-hand purchaser then buys the car from the dealer in "trade or commerce". Instead, the second-hand purchaser's entitlement to compensation for RIV will be reassessed according to the circumstances of their second-hand purchase; not a brand new purchase. This may result in a different amount of compensation for RIV. The reasoning underlying this finding is two-fold. First, the nature and price of the vehicle will change as time passes and the acceptable quality of the vehicle will therefore also change under section 54 of the ACL. Second, and more significantly, earlier section 54 guarantees will be extinguished when there is an intervening acquisition by a dealer. This is because a person cannot be an "affected person" if they acquire the vehicle for resupply and a dealer acquires the vehicle for resupply. Once a claim is extinguished, it cannot be revived by a subsequent consumer. This is illustrated by the following graphic:

RIV class actions and what this means for manufacturers

Aspects of the outcome in Ford are undoubtedly surprising. They are borne from the complexity of the ACL provisions – some of which Perram J has earlier characterised as a result of drafters' "stumbling", and "[lurking] near the bottom of the barrel" of the "lamentable standards of Commonwealth drafting". This means that the scope of potential liability is difficult to predict and may be far broader than many in the industry have assumed.²

The findings in Ford, if they stand, are a boon for plaintiffs, plaintiff solicitors and litigation funders. Consumer goods class actions involving RIV damages claims are attracting enormous attention and investment. With RIV damages now potentially passing through to every subsequent owner of a defective good – and with the ACL's tortured drafting producing results that are difficult to predict or defend against – the incentives for plaintiff firms and funders to pursue these claims are only growing.

Other authors: Peter Sise, Counsel; Tate du Plessis, Senior Associate; Patrick Stratmann, Lawyer