Reduction in value can be repaired latest guidance on damages in consumer claims
30 March 2023
30 March 2023
The Toyota Class Action:
The defective diesel exhaust system would malfunction under certain conditions (including regular continuous driving at ~100 km/hour) causing the emission of white smoke and foul-smelling exhaust, increased service needs, and increased fuel consumption.
In mid-2020, Toyota introduced a "free field fix" which completely remedied the defective diesel exhaust system.
At the initial trial of the Toyota Class Action, Lee J found that:
Toyota appealed Lee J's decision to the Full Federal Court.
The Full Court found that Lee J erred in failing to take into account the fact that the 2020 fix was available when assessing damages under the reduction in value provision of the ACL (s 272(1)(a)). This approach overcompensated group members by failing to have regard to the fact that, from mid-2020, a complete remedy to the defect was freely available.
The proper conceptual approach to assessing diminution in value damages, according to the Full Court, is to:
In re-assessing damages, the Full Court made allowances for:
The Full Court said that the focus under the reduction in value provision of the ACL should be on the utilisation value of the goods, and not (as Toyota had submitted) on their value at the time of any resale. This is because the ACL applies to consumer goods which are ordinarily acquired for use rather than resale, and accordingly their intrinsic value lies in their utility to consumers and not their on-sale price (as opposed to, for instance, commodities whose value lies in their market price). This is particularly apparent with motor vehicles, which are often more valuable to owners than the price they could get for their vehicle on the second-hand market.
A strict arithmetical approach is not required to ascertain any reduction in value following the Full Court's approach – reduction in value can still be determined by the Court doing the best that can be done with the available evidence.
The Full Court rejected Toyota's submission that there was insufficient evidence for the Court to make a common sense assessment concerning reduction in value.
Instead, the Full Court re-assessed the reduction of value of the vehicles to be 10% (measured against average retail price) before taking into account the availability of the 2020 fix. The Court reached this conclusion for three reasons.
First, due to the seriousness of the defect and its consequences for the utility of the vehicle in the hands of the consumer. In this regard, the Court found that:
Second, the Full Court took into consideration the fact that much of the vehicles' utility was unaffected by the defect and its consequences, even though these consequences occurred in relatively common driving conditions. The Full Court noted there was no suggestion of safety issues, or of the vehicles being unroadworthy.
Third, the Court found that Lee J erred in the significance his Honour gave to the Plaintiffs' expert valuation evidence (which suggested a reduction in value of between 23% and 27.5%) in assessing the reduction in value figure of 17.5%. The Full Court criticised this valuation evidence for emphasising the 'salvage' price of a vehicle, effectively treating the relevant vehicles as write-offs unless repaired, and, in so doing overstating the seriousness of the defect and the reduction in value. The valuation evidence did not grapple with the possibility of a free remedy becoming available (as occurred), and did not allow for use of the vehicles in the meantime before being remedied.
The Full Court did not have sufficient material before it to determine what allowance should be made for the 2020 fix when determining reduction in value, and accordingly remitted the matter to Lee J.
The Full Court discussed (but did not ultimately determine) an example formula for determining reduction in value which involved:
It is now open Lee J to determine whether any such formula can be applied to all group members on an aggregate basis, applied differently to sub-groups, or not applied on a common basis at all.
A registration process is still required before the total number of group members who will participate in any settlement or final judgment is known.
The Full Federal Court's decision offers useful guidance as to the circumstances and extent to which damages can be awarded for reduction in value.
The availability of a complete, free repair is plainly a relevant consideration under the reduction in value provision of the ACL. The Court's decision suggests that reduction in value damages may only be available for any (lengthy) period between supply of defective consumer good, and the availability of a free remedy – assuming a defect is "serious" and it has consequences for the good's utility.
Even in circumstances where a full repair is not yet available at the time of the trial, the potential for a future remedy is a relevant consideration according to the Full Court.
This decision sought to balance two competing factors about the possibility of repair:
The Full Court upheld Lee J's finding that the affected vehicles were not of acceptable quality and that Toyota engaged in misleading or deceptive conduct.
The Court confirmed that any breach of the acceptable quality guarantee can be determined on a common basis in class action proceedings. To establish otherwise, it may have been sufficient to rely on evidence of materially different relevant circumstances between different group members: even just evidence of one different circumstance rather than evidence of the circumstances of each individual purchase of the approximately 265,000 relevant vehicles in the class.
The Full Court also rejected the argument that a defect in the diesel exhaust after treatment system (a single component of the vehicle) was distinct from a defect in the vehicle – and upheld Lee J's finding that to divorce issues with the diesel exhaust system from the vehicle is entirely superficial.
At trial, Lee J determined that a claim for aggregate damages (by way of a formula for the assessment of individual claims) was appropriate pursuant s 33Z(1)(e) of the Federal Court of Australia Act because the Court need only be satisfied, in accordance with the general damages principles, that the proposed methodology would sufficiently approximate the reduction in value of the relevant vehicles resulting from the defect as at the date of acquisition.
The Full Court did not consider its ability to award damages on an aggregate basis in determining the Toyota Class Action pursuant to s 33Z of the Act. It is likely that the extent of the power to award aggregate damages will be the subject of further consideration in other cases.