High Court 'green-lights' loss of value damages for goods capable of repair

What you need to know

• An important issue in consumer claims for allegedly defective goods in breach of acceptable quality guarantees under the Australian Consumer Law, including consumer class actions brought against goods manufacturers and/or suppliers, has been whether damages are available for reduction in value when a repair becomes available after supply and, if so, how to measure those damages.
• The High Court has recently confirmed the availability of damages for reduction in value when a repair is later available, and provided guidance on how to assess the damages: Williams v Toyota Motor Corporation Australia Ltd and Capic v Ford Motor Company of Australia Pty Ltd.
• Both cases have been remitted to the relevant primary judges to undertake the assessment of damages in accordance with the High Court's reasons. The outcome of these assessments will provide further guidance on the range of damages that may be available for reduction in value claims based on effectiveness, cost, inconvenience and timing of any repair at the time of trial.
• Greater certainty of the availability of loss of value damages for defective goods even when a repair is available may result in increased class action risk for manufacturers and suppliers, particularly for high value goods with large markets.

What you need to do

• The 'sooner the better' approach to a remediation to repair defects (alongside a communications campaign to make consumers aware of the defects) continues to be the key take away to limit damages exposure to potential breach of 'acceptable quality' claims made under the Australian Consumer Law.
• A 'consumer first' focus in any remediation program is important to reduce potential damages exposure i.e. establishing as efficient a process as possible (e.g. one and done repair) with as little cost and inconvenience to the consumer as possible.

The High Court upheld an appeal from the judgment of the Full Federal Court in the Toyota Class Action about the availability and approach to damages when a repair later becomes available – we discussed the Full Federal Court decision in our 2023 publication: "Reduction in value can be repaired latest guidance on damages in consumer claims".

The High Court found that the Full Court erred in construing damages that may be recovered against manufacturers of goods pursuant to s 272(1)(a) of the Australian Consumer Law so as to permit departing from the time of supply as the time of the assessment, and that this error followed, in part, from the Full Court's erroneous approach to construing the concept of "damages" in s 272(1)(a).

The relevant measure of damages is the reduction in value of the goods at the time of supply

In summary, the High Court found that:

• the damages sought pursuant to s 272(1)(a) are the amount by which the value of the goods is reduced at the time of supply to the consumer as a result of the failure of the goods to comply with the guarantee of acceptable quality at that time; and
• the assessment of these damages is to be undertaken by:
  • having regard to all that is known at the time of the trial about the "state and condition of the goods" at the time of their supply to the consumer; and
  • considering the effectiveness, cost, inconvenience and timing of any repair of a defect in the goods as known at the time of trial – noting that they are all characteristics of the "state and condition of the goods" at the time of their supply to the consumer and are therefore all to be taken into account in the assessment.

The "value" of the goods is a concept similar to "intrinsic value" rather than "utility" of the good

The High Court considered what is meant by the concept of "value" in the objective assessment of the "reduction in the value of the goods", and held that:

• later acquired knowledge of the capacity to repair a defect (including a hidden defect) or ameliorate its consequences cannot be divorced from any analysis of what constitutes the relevant "defect";
• the analysis of damages for the reduction in value that is provided for in s 272(1)(a) invokes a concept of value that is similar or analogous to the concept of "intrinsic" (as opposed to "market") value; and
• therefore, in assessing the reduction in value at the time of supply, it was necessary to take into account the "availability" of the available repair, but that analysis also required taking into account how long after the time of supply that repair would become practically available as well as the inconvenience and cost that would be occasioned to a hypothetical reasonable consumer in the meantime. This means that a consumer who refuses to take up an effective repair that is practically available is in no different position to a consumer who did.

Reduction in value damages available where there is a subsequent repair available free of charge

As a result of that reasoning, Toyota's sole ground of appeal failed. Toyota had contended that no damages were recoverable under s 272(1)(a) where there was "no ongoing reduction in value at the time of trial due to the availability of a repair free of charge". This ground failed because an assessment of the reduction in value at the time of the trial does not address the period of time between the time of supply and when a repair is available as well as the likely effect of the defect on the use of the vehicles in the meantime.

An "affected person in relation to the goods" includes original and subsequent owners

The High Court also suggested that an "affected person in relation to the goods" can include a person with title or ownership of the goods or a person who no longer has title or ownership of the goods.

The right to seek the remedy for reduction in value of the goods in s 272(1)(a) against a manufacturer runs with title or ownership of the goods but claims for consequential loss by affected persons in s 272(1)(b) are not tied to the affected person's title or ownership of the goods.

Appeal in Capic upheld

The Ford Class Action also concerned the assessment of reduction in value damages for a failure to comply with the acceptable quality guarantee.

The class action was brought on behalf of people who had purchased new or second-hand vehicles between September 2010 and November 2018 which were fitted with a dry, dual clutch transmission and had at least one of five specific defects.

At the time of supply, no fix existed for any of the five defects. However, after supply, fixes were developed for some (but not all) of the defects, and by the time of the trial, some defects were not shown to be capable of remedy.

As a result of the High Court's decision in Williams (which overturns various parts of the Full Court's reasoning), the Ford proceeding has also been remitted to the primary judge to assess the damages payable in accordance with the High Court's reasons in Williams.

Want to know more?

• Reduction in value can be repaired latest guidance on damages in consumer claims (30 March 2023) 

Authors: John Pavlakis, Partner; Tess Grieve, Senior Associate and Sarah Philipson, Lawyer.