Dwyer v Volkswagen Group Australia Pty Ltd

[2023] NSWCA 211

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Dwyer v Volkswagen Group Australia Pty Ltd [2023] NSWCA 211

Hearing dates:

29, 30 March 2022

Date of orders:

5 September 2023

Decision date:

05 September 2023

Before:

Gleeson JA at [1]
Leeming JA at [311]
White JA at [312]

Decision:

(1)   Appeal dismissed.

(2)   Appellant to pay the respondent’s costs.

Catchwords:

CONSUMER LAW — Consumer guarantees — Supply of goods — Guarantee of acceptable quality — Australian Consumer Law (ACL), s 54 — Whether vehicles of acceptable quality to reasonable consumer — Whether vehicles not safe or free from defects given installation of airbags — Where asserted risk of rupture of airbags — Whether appellant established a physical feature of the airbags carried the inherent risk alleged — Where no materialisation of asserted risk within 15-year timeframes tested — Where merely speculative theoretical risk of rupture of airbags not within any meaningful timeframe — Whether unquantifiable risk unacceptable to reasonable consumer

CONSUMER LAW — Enforcement and remedies — Defences — Whether assumed failure to comply with guarantee of acceptable quality “only because of” act or default of another person other than manufacturer or its employees or agents — Where third party supplier of airbags not an agent of the manufacturer — Meaning of “manufacturer” — Whether acts of “manufacturer” in choosing third party supplier, installing airbags or releasing vehicles in that state for supply disentitled the manufacturer to defence — ACL, s 271(2)

CONSUMER LAW — Enforcement and remedies — Action by consumer for damages under ACL, s 271(1) — Assessment of damages under ACL, s 272(1) — Where common ground that time for assessing damages for any reduction in value of goods is time of supply — Whether subsequent events which illuminate true value of goods at time of supply should be taken into account in damages assessment — Where airbag replaced at no cost — Whether replacement of airbag should be taken into account in damages assessment assuming breach of consumer guarantee

CIVIL PROCEDURE — Representative proceedings — New points on appeal — Representative party failed to plead new damages claims on behalf of group members — Whether common questions should be amended on appeal — Where no challenge to orders specifying common questions for determination at trial — Where no application to amend common questions at trial or on appeal — Effect of statutory estoppel on issues raised by common questions — Civil Procedure Act 2005 (NSW), s 179

Legislation Cited:

Civil Procedure Act 2005 (NSW), Pt 10, ss 162, 179, 180

Competition and Consumer Act 2010 (Cth), Sch 2 Australian Consumer Law, ss 2, 3, 7, 54, 58, 59, 61, 259, 267, 271, 272

Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, pars 2.37, 7.126

Federal Court of Australia Act 1976 (Cth), Pt IVA

Supreme Court Act 1970 (NSW), s 75A

Supreme Court Act 1986 (Vic), Pt 4A, s 33ZB

Trade Practices Act 1994 (Cth), ss 4B, 74A(4), 74D, 82

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Aon Risk Services Australia Ltd v Australian National University (2000) 239 CLR 175; [2009] HCA 27

Australian Competition and Consumer Commission v Jayco Corporation Pty Ltd [2020] FCA 1672

Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; [1993] HCA 6

Baxter v Obacelo (2001) 205 CLR 635; [2001] HCA 66

BHP Group Ltd v Impiombato (2021) 286 FCR 625; [2021] FCAFC 93

Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833

Capic v Ford Motor Company of Australia Pty Ltd [2021] FCA 715; (2021) 154 ACSR 235

Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54

Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33

Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia [2021] NSWSC 715

Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia (No 2) [2021] NSWSC 1137

Dyczynski v Gibson (2020) 280 FCR 583; [2020] FCAFC 120

Effem Foods Ltd v Nicholls [2004] NSWCA 332; (2004) ATPR 42-034

Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410

Ethicon Sàrl v Grill (2021) 288 FCR 338; [2021] FCAFC 29

Gill v Ethicon Sàrl (No 3) [2019] FCA 587; (2019) 369 ALR 175

Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 68

Henville v Walker (2001) 206 CLR 459; [2001] HCA 52

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41

Jonval Builders Pty Ltd v Commissioner for Fair Trading (2020) 104 NSWLR 1; [2020] NSWCA 233

Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4

Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69

Medtel Pty Ltd v Courtney (2003) FCR 182; [2003] FCAFC 151

Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68

Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30

Paino v Paino [2008] NSWCA 276

Moore v Scenic Tours Pty Ltd (2020) 268 CLR 326; [2020] HCA 17

Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631

Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3

Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257

Potts v Miller (1940) 64 CLR 282; [1940] HCA 43

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28

Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338

Registrar of Titles (WA) v Franzon (1975) 132 CLR 611; [1975] HCA 41

Republic of Croatia v Sneddon (2010) 241 CLR 461; [2010] HCA 14

R v Khazaal (2012) 246 CLR 601; [2012] HCA 26

Scenic Tours Pty Ltd v Moore [2018] NSWCA 238; (2018) 361 ALR 456

Scenic Tours Pty Ltd v Moore [2023] NSWCA 74

Searle v The Commonwealth (2019) 100 NSWLR 55; [2019] NSWCA 127

Sun v Chapman [2022] NSWCA 132

Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35

Takata Airbags Class Action – Common Questions [2018] NSWSC 1868

TAL Life Ltd v Shuetrim; Metlife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68

The King v Jacobs Group (Australia) Pty Ltd (formerly known as Sinclair Knight Merz) [2023] HCA 23

Timbercorp Finance Pty Ltd (in liquidation) v Collins (2016) 259 CLR 212; [206] HCA 44

Toyota Motor Corporation Australia Ltd v Williams [2023] FCAFC 50; (2023) 408 ALR 582

Vautin v By Winddown, Inc (formerly Bertram Yachts) (No 4) [2018] FCA 426; (2018) 362 ALR 702

Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9

Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12

Waters v Public Transport Commission (1991) 173 CLR 349; [1991] HCA 49

Williams v Toyota Motor Corporation Australia Ltd (Initial Trial) [2022] FCA 344

Category:

Principal judgment

Parties:

Philip Dwyer (Appellant)
Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia (Respondent)

Representation:

Counsel:
C R C Newlinds SC / D Barnett (Appellant)
S J Free SC / I Ahmed / C Winnett (Respondent)

Solicitors:
Quinn Emanuel Urquhart & Sullivan, LLP (Appellant)
Clayton Utz (Respondent)

File Number(s):

2021/204042

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2021] NSWSC 715; [2021] NSWSC 1137

Date of Decision:

18 June 2021; 7 September 2021

Before:

Stevenson J

File Number(s):

2018/322648

HEADNOTE

[This headnote is not to be read as part of the judgment]

Volkswagen Australia (VW) supplied to consumers in Australia various models of Volkswagen vehicles manufactured by its German parent company Volkswagen Aktiengesellschaft (VW AG) fitted with driver side airbags manufactured by Takata Corporation or its related entities (Takata). Those airbags were designed by Takata to be inflated by gas generated by the ignition of a propellant inside the airbag inflator known as phase stabilised ammonium nitrate (PSAN).

In February 2016, VW AG commenced an empirical analysis program, involving some 20,000 airbags retrieved from the field worldwide for the purpose of investigating whether the PSAN used in the airbags in Volkswagen vehicles posed a safety risk. VW AG determined that there was no systemic safety risk associated with the Takata airbags installed in Volkswagen vehicles that would warrant their recall. However, following a recall notice issued in February 2018 by the Assistant Minister to the Commonwealth Treasurer in relation to a wide class of vehicles, including some Volkswagen vehicles, VW initiated a recall program of its models in Australia containing the affected Takata airbags and progressively replaced the airbags in those vehicles, at no cost (subject to a small number of exceptions where VW had applied to the Australian Competition and Consumer Commission for an exemption).

The appellant, Prof Dwyer, acquired a VW Passat vehicle for approximately $40,000 in 2013. He commenced representative proceedings against VW on behalf of members of a group consisting of some 83,000 persons who purchased various models of new and second-hand Volkswagen vehicles in Australia between 2007 and 2018 (the VW Vehicles). The appellant claimed that his vehicle was not safe and free from defects, given the installation of the Takata airbag, and therefore did not comply with the consumer guarantee of “acceptable quality” in s 54 of the Australian Consumer Law (ACL). He claimed that the use of PSAN as the propellant in the Takata airbags installed in the VW Vehicles created a risk of mis-deployment or rupture of the airbag, and that risk was present at the time of purchase. The risk was said to arise because PSAN has a propensity to degrade over time when exposed to moisture and temperature fluctuations and, if the PSAN degraded sufficiently, it could burn so aggressively that the airbag inflator could rupture in a life-threatening way. The appellant accepted that the alleged risk was unquantifiable in that it cannot be predicted when and in what circumstances the PSAN in the airbags in the VW Vehicles might degrade to a functionally significant degree.

The appellant sought damages for himself and on behalf of relevant group members under s 272 of the ACL for any reduction in the value of his vehicle resulting from the failure to comply with the consumer guarantee and for consequential loss. He also sought damages under s 74D of the Trade Practices Act 1974 (Cth) on behalf of group members who purchased their vehicles before 1 January 2011 for alleged breach of the warranty of “merchantable quality”.

The primary judge rejected the appellant’s claim. His Honour found that the appellant had not established any link between the propensity of PSAN to degrade and any relevant, functionally significant, propensity of the PSAN to degrade in the particular airbag installed in the appellant’s vehicle so as to cause it to rupture or malfunction. His Honour also made contingent findings that if the acceptable quality guarantee had been breached (i) VW would have the benefit of the defence in s 271(2)(a) of the ACL, as the assumed failure to comply with the acceptable quality guarantee occurred “only because of” “an act, default or omission of … any person other than the manufacturer”, relevantly, Takata; and (ii) the appellant had not established an entitlement to damages as referred to in s 272 of the ACL. The common questions in the proceedings were answered adversely to the appellant and group members and the proceedings were dismissed with costs.

On appeal, Prof Dwyer limited his case on breach of the acceptable quality guarantee to the alleged risk of rupture of the airbags in the VW Vehicles.

The Court held (Gleeson JA, Leeming and White JJA agreeing), dismissing the appeal:

As to the acceptable quality guarantee

1. There was no error by the primary judge in finding that the results of VW AG’s empirical analysis program suggested, very strongly, that there was no reason to predict that the airbag inflators installed in Volkswagen vehicles will become critical or dangerous: [127].

2. Although unacceptable quality may be demonstrated on the basis of an inherent risk associated with a product without that risk actually having materialised, it is first necessary to establish that the product carries the inherent risk alleged: [146].

   Medtel Pty Ltd v Courtney (2003) 130 FCR 182; [2003] FCAFC 151; Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338, considered.

3. The appellant failed to prove that the airbags in the VW Vehicles carried the inherent risk alleged. The appellant’s expert, Mr Renz, accepted that he could not say that degradation would reach a point of functional significance at any identifiable point in time, let alone within the service life of any of the VW Vehicles: [100], [147].

4. The primary judge did not err in finding that the appellant had failed to prove, on the balance of probabilities, that the propensity or risk of PSAN to degrade in the presence of moisture and temperature changes would materialise at any identifiable point in time in the VW Vehicles: [148].

5. The appellant’s contention that there was an unquantifiable risk of serious harm because the risk of rupture had not been excluded for the realistic life of the good reversed the onus of proof. There was no error in the primary judge’s finding that the appellant had not sought to demonstrate that the alleged risk could eventuate during any meaningful timeframe: [153].

6. His Honour was correct to conclude that the appellant had failed to establish a breach of the acceptable quality guarantee in ACL, s 54. A merely speculative theoretical possibility of a risk of rupture of the airbag, not within any meaningful timeframe, would not be regarded as unacceptable by a reasonable consumer: [151], [154]-[156].

As to the applicability of the defence in s 271(2)(a)

1. The phrase “only because of” in s 271(2)(a) is a relational term. The manufacturer’s defence in s 271(2)(a) directs attention to the fact or facts which made the goods of unacceptable quality under the consumer guarantee. Having identified the fact or facts, the question is whether the goods were not of acceptable quality only because of an act, default or omission of any person, other than the manufacturer, or an employee or agent of the manufacturer. If the sole cause of what made the goods non-compliant with the consumer guarantee is an act, default or omission of a third party supplier of a component of the goods who is not the agent of the manufacturer, there is no reason to deny the defence to the manufacturer: [172]-[186].

2. The reference to the “manufacturer” in s 271(2)(a) should be read distributively to include both the actual manufacturer of the vehicles located overseas (here, VW AG) and the importer of the vehicles (here, VW) at a time when the actual manufacturer did not have a place of business in Australia: [176]-[182].

3. Assuming a breach of the consumer guarantee had been established, the acts of VW AG in choosing Takata as a third party supplier of the airbags, installing the airbags as manufactured by Takata and releasing the vehicles in that state for supply to consumers were not what made the VW Vehicles of unacceptable quality (assuming breach of the consumer guarantee had been established). That argument confused those steps taken by VW AG, which are a necessary precondition of liability for any failure to comply with the consumer guarantee of acceptable quality, with the question of whether the vehicle was non-compliant with the consumer guarantee only because of an act, default or omission of any person other than the manufacturer: [188]-[195].

As to damages under s 272(1)

1. Since it was common ground that the time for the assessment of any reduction in value of the goods under s 272(1)(a) is the time of supply, it is not necessary to consider whether a departure from the time of supply as the time of the assessment of damages may be required in some cases: [215]-[218].

   Vautin v By Winddown, Inc (formerly Bertram Yachts) (No 4) [2018] FCA 426; (2018) 362 ALR 702; Capic v Ford Motor Vehicle Company of Australia Pty Ltd [2021] FCA 715; (2021) 154 ACSR 235; Williams v Toyota Motor Corporation Australia Ltd (Initial Trial) [2022] FCA 344; Toyota Motor Corporation Australia Ltd v Williams [2023] FCAFC 50; (2023) 408 ALR 582, referred to.

2. Given the resemblance between the two components of damages referred to in s 272(1)(a) and (b) and compensatory damages available at common law for breach of contract, it is appropriate to draw upon general law notions of compensation, by way of analogy, when assessing statutory damages under s 272(1): [227], [230]-[232], [240].

   Capic v Ford Motor Vehicle Company of Australia Pty Ltd [2021] FCA 715; (2021) 154 ACSR 235; Moore v Scenic Tours Pty Ltd (2020) 268 CLR 326; [2020] HCA 17, considered.

3. By analogy with common law principles, subsequent events which illuminate, indicate or reflect the true value of the good, at the time of supply, may be taken into account under s 272(1)(a) when assessing any reduction in value, at the time of supply. However, subsequent events as a consequence of independent, extrinsic, supervening or accidental factors must not be taken into account. Whether a subsequent event truly illuminates or indicates or reflects the measure of loss earlier suffered depends on all the circumstances: [225]-[234].

   Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291; [1995] HCA 4; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54; Capic v Ford Motor Vehicle Company of Australia Pty Ltd [2021] FCA 715; (2021) 154 ACSR 235; Moore v Scenic Tours Pty Ltd (2020) 268 CLR 326; [2020] HCA 17, considered.

4. To disregard subsequent events which illuminate, indicate or reflect the true value of the good, at the time of supply, would be inconsistent with the “universal rule” that a plaintiff cannot recover more than he or she has lost. There is no reason to consider that s 272, like similar remedial provisions within Pt 5-4 of Ch 5 of the ACL, was intended to be inconsistent with that “strong principle”: [237]-[239].

   Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; [2001] HCA 66; Scenic Tours Pty Ltdv Moore [2023] NSWCA 74, considered.

5. A motor vehicle is a mechanically complex product that requires maintenance in order to remain safe for use, and frequently has parts repaired or replaced during its lifetime. Given that a vehicle should remain safe for use, it is inherent in the nature of a vehicle that upon recognising a latent defect, the defective part will be repaired or replaced as necessary. Assuming the airbag in the appellant’s vehicle was a latent defect, that is what occurred in this case. On the assumption that there was a breach of the acceptable quality guarantee, that was an event that arose from the nature of the vehicle: [241]-[244].

6. There was no error by the primary judge in taking into account the replacement of the airbag, at no cost, when assessing damage for any reduction in value of the appellant’s vehicle, at the time of supply, as referred to in s 272(1)(a). In any event, the appellant had not established his claim for any reduction in value damages under s 272(1)(a): [245], [255], [260]-[261].

7. The appellant’s alternative claim for damages based on the “left in the hand” approach did not fall within the terms of s 272(1)(a). To the extent that this claim was made under s 272(1)(b), it was not pressed in oral submissions, and had this claim been pressed, (i) it should not be permitted as a new point on appeal as it could possibly have been met by calling evidence at the hearing, and (ii) such a claim is not within s 271(1)(b) because it assumes a no transaction case, contrary to the premise of s 272(1), and, by reason of s 272(3), a claim based the reduction in value can only be made under s 272(1)(a) and not s 272(1)(b): [267]-[275].

1. The appellant’s claims for excess financing costs (interest) and excess taxes (GST and stamp duty) under s 272(2)(b) were not run at trial, pleaded, or specified in the common questions. The appellant should not be permitted to advance these claims as new points on appeal: [281], [289]-[293].

2. In any event, insofar as the claim for excess interest was based on the difference between the purchase price and the “true” value of the appellant’s vehicle, at the time of supply, the claim could not succeed because the appellant had failed to establish that his vehicle’s true value was less than what he paid for it, at the time of supply. Insofar as the claim was for interest on the cost of repair, that claim could not succeed because the appellant was never “out of my money”, nor were any of the group members, as the airbags had been replaced by VW, at no cost: [282]-[283].

3. The appellant’s contention that the common questions can now be amended to include the new claims is unsound because it ignores the effect of s 179 of the Civil Procedure Act 2005 (NSW). Group members are bound by a statutory estoppel on the issues raised by common questions 17, 19 and 20A, which concerned loss and damage under s 272(1)(a) and (b): [294]-[298].

   Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631; Timbercorp Finance Pty Ltd (in liquidation) v Collins (2016) 259 CLR 212; [2016] HCA 44; Dyczynski v Gibson [2020] FCAFC 120; (2020) 280 FCR 583; Ethicon Sàrl v Gill [2021] FCAFC 29; (2021) 288 FCR 338; BHP Group Ltd v Impiombato [2021] FCAFC 93; (2021) 286 FCR 625, referred to.

   Searle v Commonwealthof Australia (2019) 100 NSWLR 55; [2019] NSWCA 127, considered.

4. Moreover, the appellant made no application at trial or following the primary judgment to amend the common questions, and there is no ground of appeal contending that the primary judge erred in not amending the common questions. Although s 75A(6) of the Supreme Court Act1970 (NSW) provides that this Court on an appeal by way of rehearing has the same powers as the primary judge, and this includes the power of amendment, there is no occasion to consider amending the common questions following the trial and dismissal of the proceedings. The appellant did not make an application in this Court for leave to amend the common questions to include the new claims for GST and stamp duty: [303]-[306].

Judgment

1. GLEESON JA: This appeal concerns a representative proceeding brought by Prof Philip Dwyer as a representative plaintiff against Volkswagen Group Australia Pty Ltd (VW) claiming damages for himself and on behalf of group members in respect of the supply of Volkswagen motor vehicles which were alleged not to be of acceptable quality or, in some cases, merchantable quality, because the airbags fitted to the vehicles carried a risk of mis-deployment or rupture. Following delivery of his principal judgment on 18 June 2018 and a second judgment on 7 September 2021, the primary judge made final orders on 16 September 2021 determining the common questions in the proceedings adversely to the plaintiff and group members and dismissed the proceedings with costs. Prof Dwyer appeals against those orders and the answers to some of the common questions.

Nature of the case

2. VW imported into Australia various models of Volkswagen vehicles manufactured by its German parent company, Volkswagen Aktiengesellschaft (VW AG). In October 2013, Prof Dwyer (the appellant) purchased a Volkswagen Passat from VW for approximately $40,000. Some 83,000 group members in the representative proceeding purchased various models of new and second-hand Volkswagen vehicles in Australia between 2007 and 2018 (the VW Vehicles). The VW Vehicles were fitted with driver side airbags manufactured by Takata Corporation or its related entities (Takata). Those airbags contained a propellant known as phase stabilised ammonium nitrate (PSAN).

3. The appellant commenced a representative proceeding against VW under Pt 10 of the Civil Procedure Act 2005 (NSW). He sought damages for himself and on behalf of group members claiming that the VW Vehicles supplied from 1 January 2011, including his own, failed to comply with the consumer guarantee of acceptable quality in s 54 of the Australian Consumer Law (ACL) because the vehicles were not safe and free from defects, given the installation of the Takata airbag. He also claimed that the supply of the VW Vehicles to group members prior to 1 January 2011 was a breach of the statutory warranty of merchantable quality in s 74D the Trade Practices Act 1974 (Cth) (TPA). It was common ground that any distinction between the concepts of “merchantable” and “acceptable” quality was not material for the purpose of the proceedings.

4. The questions for determination at the trial before Stevenson J were all those arising on the appellant’s claims and the questions common to the appellant’s and group members’ claims identified in consent orders made by Sackar J on 21 June 2019, as varied on 22 May 2020.

5. The appellant’s case was that the use of PSAN as the propellant in the airbags created a risk of mis-deployment or rupture of the airbag, and that risk was present at the time he purchased his vehicle. He contended that:

1. the PSAN propellant had a propensity to degrade over time when exposed to moisture and temperature fluctuations; and

2. if the PSAN degraded sufficiently, the PSAN could burn so aggressively that the inflator housing could rupture in a life-threatening way.

6. The appellant accepted at trial that the risk of mis-deployment or rupture of the airbags in the VW Vehicles is unquantifiable in that it cannot be predicted when and in what circumstances the PSAN in the airbags might degrade to a functionally significant degree. On his case, this is what made the VW Vehicles of unacceptable quality.

7. The appellant and each group member had used their vehicle since purchase without incident. In the circumstances explained below, VW replaced the airbag in the appellant’s vehicle at no cost during a routine service in 2019. By the time of the trial (in May 2021), VW had replaced the airbags in each group member’s vehicle, subject to some exceptional cases: see [28] below.

8. The primary judge rejected the appellant’s claim (Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia [2021] NSWSC 715). In his principal judgment, his Honour concluded (at [14]) that the appellant had not established any link between the propensity of PSAN to degrade and any relevant, functionally significant propensity of the PSAN to degrade in the particular airbag installed in his vehicle so as to cause it to explode or malfunction. Therefore, the appellant had not established that his vehicle was not of acceptable quality when he purchased it.

9. Against the possibility that this conclusion was wrong, his Honour went on to deal with two further issues. Assuming breach of the guarantee of acceptable quality, his Honour found that the defence relied on by VW under s 271(2)(a) of the ACL applied, because the assumed failure to comply with the consumer guarantee occurred “only because of” the act, default, or omission of another person, relevantly, Takata. His Honour also found that the appellant had not suffered any damage by reason of the installation of a Takata airbag in his vehicle, not least because VW had without charge replaced the Takata airbag with an airbag that is undoubtedly sound and, in any event, damage had not been proved by the appellant.

10. In his second judgment, the primary judge dealt with the question of costs and the answers to the common questions (Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia (No 2) [2021] NSWSC 1137).

The appeal

11. There are three parts to the appeal. To the extent that it relates to questions common to the claims of group members, the appeal is brought as a representative proceeding on behalf of group members: Civil Procedure Act, s 180(1)(a).

12. The first concerns a challenge to the findings that the appellant had failed to establish that the VW Vehicles were not of “acceptable” quality, or in some cases of “merchantable” quality. The case on appeal is limited to the alleged risk of rupture of the airbags in the VW Vehicles; the appellant did not press his case below concerning the alleged risk of mis-deployment of the airbags.

13. The second part concerns whether his Honour erred in his contingent finding that the exception in s 271(2)(a) of the ACL would apply to defeat the appellant’s claim for damages, assuming that the appellant’s vehicle was not of acceptable quality.

14. The third part concerns whether his Honour erred in his contingent finding that the appellant had not suffered any damage and the adverse answers given to the claim for damages on behalf of group members.

15. For the reasons that follow, the appeal should be dismissed.

Structure of these reasons

16. The structure of these reasons is:

• first, to briefly state the factual background to the proceedings;

• second, to identify the applicable legislative provisions;

• third, to explain the standard of appellate review;

• fourth, to provide an overview of the technical and expert evidence, and summarise his Honour’s key findings with respect to that evidence;

• fifth, to deal with the issues on liability relating to the asserted risk of rupture of the airbags, including the challenge to some of his Honour’s findings concerning the technical and expert evidence as to the propensity or risk of PSAN to degrade in the airbags installed in the VW Vehicles so as to cause them to rupture;

• sixth, to deal with the defence relied upon by VW under s 272(2)(a) of the ACL that any failure to comply with the statutory guarantee in s 54 (if established) occurred “only because of” the act, default, or omission of another person namely, Takata; and

• seventh, to deal with the issue of damages, including the new damages claims which the appellant sought to raise on appeal.

Factual background

17. The primary facts are not in dispute. The following outline is largely taken from his Honour’s unchallenged summary in the principal judgment, supplemented by some additional matters which provide context for the appellant’s claim.

Takata airbags

18. The frontal driver side Takata airbags installed in Volkswagen vehicles contained four major subsystems: (a) an inflator; (b) a fabric bag that inflates; (c) a cover that matches the car’s interior and tears open in a controlled way when the bag is inflating; and (d) a sensor system that detects rapid deceleration that is consistent with a crash scenario. A diagrammatic representation of these components, given by Mr Robert Renz, the appellant’s expert, in Figure 2a of his report appears below.

19. The airbag was designed to inflate upon a relevant impact by igniting the booster and then the main PSAN propellant to produce a controlled explosion that generated a hot gas (a “gas generant”) to fill the airbag with pressure within approximately 50 milliseconds of impact.

20. A schematic cross-sectional diagram of such an inflator contained in Figure 9 of an affidavit provided by Mr Andreas Schade, a technical expert employed by VW AG, appears below.

21. The location and operation of the Takata airbags fitted in the VW Vehicles was described by his Honour at [29]-[33]:

The Takata airbags in question were fitted to the front driver side of the vehicles, within the steering wheel boss.

Airbags are comprised of several different components. Those components include the inflator which, in this case, was a particular type of frontal single stage driver airbag inflator known as a “Smokeless Driver Inflator” (“SDI”).

The purpose of an airbag inflator is to cause gas to be generated rapidly when there is a collision.

In the event of a collision, an ignitor within the airbag produces hot gasses. These gasses ignite propellant tablets that cause the propellant, here the PSAN, to ignite and produce gas for inflating the airbag cushion.

These steps need to occur within milliseconds of the initiation of the process by the airbag control unit.

22. The appellant’s vehicle was manufactured by VW AG and fitted with a Takata driver side airbag which contained PSAN as the propellant: at [34]. Takata manufactured the airbag installed in the appellant’s vehicle pursuant to a contract with VW AG: [35]-[36]. The specifications given to Takata by VW AG did not specify the propellant to be used in the airbags: at [38].

Recall of other vehicles in the United States

23. On 3 November 2015, the United States Department of Transportation National Highway Traffic Safety Administration published a Coordinated Remedy Order which imposed recall and remedy obligations on certain vehicle manufacturers (not Volkswagen) in respect of Takata airbags installed in those vehicles. That report noted:

As of October 30, 2015, there have been 99 confirmed incidents in the United States where a ruptured Takata airbag inflator allegedly caused death or injury.

24. Notwithstanding the occurrence of such incidents, the appellant accepts that there has been no reported instance of injury from a rupture of a driver side Takata airbag installed in a Volkswagen vehicle.

VW AG empirical analysis program

25. In February 2016, VW AG commenced an empirical analysis program for the purpose of investigating whether the PSAN gas used in the airbag inflators in Volkswagen vehicles constituted a safety risk. This involved the collection and testing of some 20,000 airbag inflators from the field from vehicles manufactured from 2005 onwards and from various climatic zones around the world: at [67]-[68]. The details of this testing program and analysis are summarised at [56]f below.

26. VW AG’s product safety committee determined that there was no systemic safety risk associated with Takata smokeless driver inflator (SDI) airbag inflators installed in Volkswagen vehicles that would warrant their recall. The Court was also informed that no European regulator has required a recall of Volkswagens fitted with Takata airbags: at [75]. Nevertheless, VW AG and its related companies conducted recalls of vehicles fitted with Takata SDI airbag inflators in those countries where recalls were required by relevant government authorities, including in Australia.

Recall of vehicles in Australia

27. In February 2018, the Assistant Minister to the Commonwealth Treasurer issued a recall notice styled Consumer Goods (Motor Vehicles With Affected Takata Airbag Inflators and Specified Spare Parts) Recall Notice 2018 (Cth), which came into effect in March 2018: at [54]. The recall notice applied to a wide class of motor vehicles, including the VW Vehicles, and required the recall of “Affected Takata Airbag Inflators” including driver side airbags that used PSAN as a propellant to activate the airbag upon a collision: at [55]. The notice stated that it had been issued after a detailed investigation by the Australian Competition and Consumer Commission (ACCC) into possible risks involved in using vehicles containing Takata airbags manufactured by Takata Corporation of Japan: at [56].

28. Following the recall notice, VW initiated a recall program. The VW Vehicles were recalled and the airbag inflators in them progressively replaced by the time of trial, subject to minor exceptions where VW had applied to the ACCC for an allowable exemption (for example, where the vehicle has been stolen, scrapped or where the owner has not been able to be contacted): at [64], [66]. As of 31 December 2020, the oldest VW Vehicle containing a Takata airbag was approximately 14 years old. All other relevant VW Vehicles were no more than 12 years old.

The appellant’s case

29. The appellant’s case is that his vehicle was not as safe and free from defects as the hypothetical reasonable consumer would regard as acceptable because a safety device in the vehicle for the stated purpose of minimising the risk of injury upon collision – the airbag – itself carried a risk of causing injury or death which was not present in airbags that used other propellants.

30. The appellant accepts that his vehicle is, by reason of replacement of the airbag, as valuable today as it would have been had it been supplied originally with non-defective airbags. The appellant’s complaint is that his vehicle, at the time of supply, was worth less than the price he paid for it by reason of the defective airbag installed in it. It is said that notwithstanding the replacement of the airbag some six years after purchase, the appellant has still suffered loss and damage.

The statutory provisions

31. The appellant’s claim for damages for himself and on behalf of the group members who purchased their VW Vehicles from 1 January 2011, was based on a statutory cause of action conferred by s 271 of the ACL. The damages claim advanced on behalf of group members who purchased their VW Vehicles prior to 1 January 2011, was based on a statutory cause of action conferred by s 74D(1) of the TPA. The applicable statutory provisions are set out below.

Australian Consumer Law

32. The Australian Consumer Law commenced on 1 January 2011 and is set out in Sch 2 of the Competition and Consumer Act 2010 (Cth). Section 54 provides a consumer guarantee of acceptable quality:

54   Guarantee as to acceptable quality

(1)   If:

(a)   a person supplies, in trade or commerce, goods to a consumer; and

(b)   the supply does not occur by way of sale by auction;

there is a guarantee that the goods are of acceptable quality.

33. “Supply”, in relation to goods, as defined in s 2(1), includes “supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase”. “Goods” as defined in s 2(1), includes “(a) ships, aircraft and other vehicles; … (f) second-hand goods; and (g) any component part of, or accessory, to goods”.

34. There is no dispute that these provisions were satisfied in the present case, relevantly:

1. the appellant and at least some group members were “consumers” within the meaning of ACL, s 3(a) and (b);

2. the VW Vehicles are “goods” as the inclusive definition of that term in s 2(1) includes “vehicles”, which are expressly referred to in sub-par (a) of the definition (“ships, aircraft and other vehicles”); and

3. VW admitted on the pleadings that the VW Vehicles were supplied in trade or commerce, other than by way of sale by auction.

35. Section 54(2) and (3) define the concept of “acceptable quality” for the purpose of the guarantee:

(2)   Goods are of acceptable quality if they are as:

(a)   fit for all the purposes for which goods of that kind are commonly supplied; and

(b)   acceptable in appearance and finish; and

(c)   free from defects; and

(d)   safe; and

(e)   durable;

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

(3)   The matters for the purposes of subsection (2) are:

(a)   the nature of the goods; and

(b)   the price of the goods (if relevant); and

(c)   any statements made about the goods on any packaging or label on the goods; and

(d)   any representation made about the goods by the supplier or manufacturer of the goods; and

(e)   any other relevant circumstances relating to the supply of the goods.

…

36. The first part of this definition of “acceptable quality” contains a set of quality elements in s 54(2). The present case concerns whether the goods are free from defects and safe: s 54(2)(c) and (d). The second part of the definition contains a reasonable consumer test which applies an objective evaluation of the quality elements, in accordance with the expectations of a hypothetical reasonable consumer who is fully acquainted with the state and condition of the goods, including any hidden defects: s 54(2), taking into account the factors specified in the third part of the definition referred to in s 54(3), which include any other relevant circumstances relating to the supply of the goods: s 54(3)(e).

36. The hypothetical question of whether the reasonable consumer would have regarded the quality of the goods as acceptable is to be determined at the time of supply. However, as Wheelahan J observed in Australian Competition and Consumer Commission v Jayco Corporation Pty Ltd [2020] FCA 1672 at [27]:

… the reference in s 54(2) to hidden defects has the consequence that for the purposes of determining that question, the reasonable consumer may be acquainted with information known at the time of trial: cf, Medtel Pty Ltd v Courtney [2003] FCAFC 151; 130 FCR 182 at [70] (Branson J, Jacobson J agreeing). The standard of acceptable quality prescribed by s 54(2) is not absolute, or a standard of perfection. It is tempered by what a reasonable consumer would regard as acceptable having regard to the several matters in s 54(3). These matters render the standard of acceptable quality elastic, and context specific: Contact Energy Ltd v Jones [2009] 2 NZLR 830 at [95] (Miller J). The significance of the components of the guarantee of acceptable quality will therefore vary with the circumstances of each case.

38. Part 5-4 of the ACL (“Remedies relating to guarantees”) contains Div 1 (“Action against suppliers) and Div 2 (“Action for damages against manufacturers of goods”). Subdivision A of Div 1 concerns actions by a consumer against suppliers of goods if a consumer guarantee, including under s 54, is not complied with. The remedies available to a consumer depend on whether the failure to comply with the guarantee is a major failure or not: s 259(2) and (3).

39. The present case involves Div 2 of Pt 5-4 which concerns action by an affected person against the manufacturer of goods if the consumer guarantee under s 54 is not complied with.

40. Section 271(1) is the remedial provision which entitles consumers to claim damages against a manufacturer for breach of the consumer guarantee in s 54:

271   Action for damages against manufacturers of goods

(1)   If:

(a) the guarantee under section 54 applies to a supply of goods to a consumer; and

(b)   the guarantee is not complied with;

an affected person in relation to the goods may, by action against the manufacturer of the goods, recover damages from the manufacturer.

41. An “affected person” who may claim damages under s 272(1) is defined by s 2(1) as including: (a) a consumer who acquires the goods; (b) a person who acquires the goods from the consumer (other than for the purpose of resupply); or (c) a person who derives title to the goods through or under the consumer.

42. VW admitted on the pleadings that it is a manufacturer of the VW Vehicles by operation of ACL, s 7(1)(e) which provides that a manufacturer includes “a person who imports goods into Australia if, (i) the person is not the manufacturer of the goods, and (ii) at the time of importation, the manufacturer of the goods did not have a place of business in Australia”.

43. The entitlement to claim damages is qualified by s 271(2) which provides that s 271(1) does not apply if the consumer guarantee is not complied with “only because of” one of three specified circumstances:

(a)   an act, default or omission of, or any representation made by, any person other than the manufacturer or an employee or agent of the manufacturer; or

(b)   a cause independent of human control that occurred after the goods left the control of the manufacturer; or

(c)   the fact that the price charged by the supplier was higher than the manufacturer’s recommended retail price, or the average retail price, for the goods.

44. Section 272 specifies the type of the damages recoverable against a manufacturer of goods for breach of a consumer guarantee:

272   Damages that may be recovered by action against manufacturers of goods

(1)   In an action for damages under this Division, an affected person in relation to goods is entitled to recover damages for:

(a)   any reduction in the value of the goods, resulting from the failure to comply with the guarantee to which the action relates, below whichever of the following prices is lower:

(i)   the price paid or payable by the consumer for the goods;

(ii)   the average retail price of the goods at the time of supply; and

(b)   any loss or damage suffered by the affected person because of the failure to comply with the guarantee to which the action relates if it was reasonably foreseeable that the affected person would suffer such loss or damage as a result of such a failure.

(2)   Without limiting subsection (1)(b), the cost of inspecting and returning the goods to the manufacturer is taken to be a reasonably foreseeable loss suffered by the affected person as a result of the failure to comply with the guarantee.

(3)   Subsection (1)(b) does not apply to loss or damage suffered through a reduction in the value of the goods.

Trade Practices Act

45. Prior to 1 January 2011, Part V of the TPA (“Consumer Protection”) included Div 2 (“Conditions and Warranties in Consumer Transactions”) and Div 2A (“Actions against Manufacturers and Importers”). Division 2A contained s 74D which conferred on consumers a direct right of action against a corporate manufacturer of goods which were not of merchantable quality:

74D   Actions in respect of goods of unmerchantable quality

(1)   Where:

(a)   a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re‑supply;

(b)   a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;

(c)   the goods are not of merchantable quality; and

(d)   the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality;

the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

(2)   Subsection (1) does not apply:

(a)   if the goods are not of merchantable quality by reason of:

(i)   an act or default of any person (not being the corporation or a servant or agent of the corporation)

(ii)   a cause independent of human control;

occurring after the goods have left the control of the corporation;

(b)   as regards defects specifically drawn to the consumer’s attention before the making of the contract for the supply of the goods to the consumer; or

(c)   if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal.

(3)   Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to:

(a)   any description applied to the goods by the corporation;

(b)   the price received by the corporation for the goods (if relevant); and

(c)   all the other relevant circumstances.

46. As will be apparent from s 74D(2), the entitlement to claim damages under s 74D(1) is qualified by s 74D(2) which relevantly provides that s 74D(1) does not apply if the warranty of merchantable guarantee is not complied with “by reason of” one of two specified circumstances, occurring after the goods have left the control of the corporate manufacturer.

47. Again, it is not in dispute that at least some of the group members who acquired a VW Vehicle prior to 1 January 2011 satisfied s 74D(1), being a consumer within the definition of that term in the TPA, s 4B, who acquired a “good” being VW Vehicles and that VW is a deemed “manufacturer” by reason of the operation of the extended definition of “manufacturer” in TPA, s 74A(4) which was in similar terms to the definition of manufacturer in ACL, s 7(1)(e): see [42] above.

The common questions

48. The questions for determination at the trial were all those arising on the appellant’s claims and the questions common to the appellant’s and group members’ claims as identified in Annexure A to consent orders made by Sackar J on 21 June 2019 (following a judgment delivered by Sackar J on 11 December 2018: Takata Airbags Class Action – Common Questions [2018] NSWSC 1868), together with an additional common question, Q20A, identified in the consent orders made by Sackar J on 22 May 2020.

49. It is not necessary to reproduce in full the common questions. To the extent that the appellant challenges the answers to some of the questions, those questions and answers given by his Honour are set out in the Schedule to these reasons.

Standard of appellate review

50. The appeal to this Court is an appeal by way of rehearing under s 75A of the Supreme Court Act 1970 (NSW). Before this Court can interfere with the findings made by the primary judge, error must be established: Scenic Tours Pty Ltd v Moore [2018] NSWCA 238; (2018) 361 ALR 456 (Scenic Tours) at [255], citing Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30 at [30] (Gageler J).

51. Neither party directed submissions to the standard of appellate review which applies to the challenge to the finding that there was no breach of the guarantee of acceptable quality in ACL, s 54. Although the determination of this question involved the exercise of an (objective) evaluative judgment, the test for establishing error with respect to whether the appellant’s vehicle was of acceptable quality is the general “correctness” standard of review in Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9, rather than the “deferential standard” which tolerates a range of outcomes.

52. That is because the question of whether the appellant’s vehicle was of acceptable quality must be answered in accordance with the expectations of a hypothetical reasonable consumer applying the express statutory criterion in ACL, s 54(2) and (3), and calls for a decision where there is one correct answer, or adopting the language of Gageler J in SZVFW at [49], a “unique outcome”; see also Scenic Tours at [254]; Sun v Chapman [2022] NSWCA 132 at [8]-[13], [114]-[117] and [189].

53. Further, whilst due respect is to be paid to the conclusions reached by the primary judge, this Court must make its own judgment as to the proper inferences to be drawn from the established facts and give effect to its own conclusions if they differ from those of the primary judge: Scenic Tours at [254], citing SZVFW at [18] (Kiefel CJ), [27], [48]-[50] (Gageler J). Although his Honour heard evidence from the appellant, neither party submitted that the appellant’s evidence informed his Honour’ evaluative judgment in a manner that justifies this Court in giving his Honour’s assessment a significant degree of respect for that reason: Scenic Tours at [255], citing SZVFW at [33] (Gageler J).

Liability: whether breach of guarantee of acceptable quality

54. At trial, the appellant’s case on liability was that the VW Vehicles necessarily carried a risk of airbag mis-deployment or rupture through PSAN degradation in the presence of moisture and temperature changes. The appellant characterised the risk as “unquantified and unquantifiable”. His case was that:

… it is irrelevant whether the airbags installed in the plaintiff’s car, or the car of any particular group member, in fact showed degradation to have occurred to any level or at all. It is sufficient that the propellant used in the Takata airbags had a risk of degradation not present in alternatives.

55. The appellant sought to prove his case on liability by reference to the empirical analysis program conducted by VW AG and expert evidence from Mr Renz. It is of assistance first to refer to this evidence and his Honour’s findings before summarising the findings on acceptable quality.

The technical and expert evidence on liability issues

56. Mr Schade was a technical expert employed by the Product Analysis Department within the Technical Development Department of VW AG. He had been involved in the design and implementation of the empirical analysis program and the analysis of its results since its inception in February 2016.

57. As indicated, some 20,000 airbag inflators were collected from the field from Volkswagen vehicles manufactured from 2005 onwards and from various climatic zones around the world. As of 2020, the airbags retrieved from the field represented vehicles of up to 15 years in age. The airbag inflators were subjected to several tests: (i) physical examination of the inflated module; (ii) investigation of the chemical and physical properties of the propellant; (iii) computerisation tomography scans (CT scans); (iv) deployment tests and tank tests; and (v) closed vessel analysis of pressure/time curves. Mr Schade gave evidence that there were approximately 7,000 deployment tests, 5,000 tank tests (in fact 5,423) and 7,000 closed vessel tests (in fact 7,492).

58. Competing expert evidence was given as to the risk of mis-deployment or rupture of the airbags in the VW Vehicles. Mr Renz was called for the appellant; he was a chemist with mechanical engineering technology expertise and much experience working on automatic airbag ignitors, inflators and micro gas generators. Prof Thomas Klapötke was called by VW; he was a Professor of Chemistry at Ludwig Maximilian University in Munich, Germany.

59. Addressing the evidence of the real-world experience of airbags in Volkswagen vehicles, his Honour made the following general findings:

• inflators using PSAN had been installed in 20 million Volkswagen vehicles worldwide: at [47];

• some 440,000 of those vehicles had been involved in a collision that had resulted in the deployment of an airbag: at [48];

• although many of those vehicles were relatively new, 50,000 of them were nine years or older, and therefore of an age where any problem with the airbags would likely materialise: at [51];

• there was no evidence of any mis-deployment of a Takata airbag in any Volkswagen. This fact, while not determinative, raised a serious question as to whether there is any link between PSAN’s propensity to degrade as a matter of generality, and the likelihood of any functionally significant propensity of PSAN degradation in the airbags fitted to Volkswagen vehicles, including the appellant’s vehicle: at [52];

• the geographical and age spread of the inflators used in the empirical analysis program was important because PSAN degradation observed in other brands of vehicles and in other airbags (such as passenger side frontal airbags) was thought to be more likely to occur in hot and humid conditions and in aging vehicles: at [69];

• Mr Renz agreed that the empirical analysis program had involved ample testing across different climate zones and of inflators of different ages: at [70];

• VW AG concluded from the empirical analysis program that SDI inflators installed in Volkswagen vehicles “did not show any functionally relevant anomalies and no material manufacturing faults … that would lead to rupture”: at [72];

• the empirical analysis program revealed that airbag inflators for Volkswagens were different from the inflators in other vehicles in ways that might meaningfully affect their performance: at [74];

• VW AG’s product safety committee determined that there was no systemic safety risk associated with Takata SDI airbag inflators installed in Volkswagen Vehicles that would warrant their recall: at [75];

• the analysis was the only empirical evidence before the Court concerning how the airbags are or were likely to perform: at [76]; and

• whilst VW did not have to show that the airbags are safe, rather it was for the appellant to show that the airbags are unsafe, the results of the empirical analysis program suggest that the airbags are safe: at [77].

60. Turning to the specific testing as part of the empirical testing program, the evidence and his Honour’s findings may be summarised as follows.

Physical examinations and CT scans

61. Mr Schade gave evidence that the physical examinations of the retrieved airbags involved visual examination to identify signs of changes in inflator behaviour and internal examination by deconstructing the inflator into constituent parts. The CT scans involved a non-invasive examination of the inflator and used two-dimensional, cross-sectional images, which can be combined to produce a three-dimensional image of the inflator.

62. His Honour found that the physical examinations and the CT scans showed differences between airbag inflators fitted to Volkswagen vehicles and those fitted to other vehicles: at [80]. As his Honour said (at [81]):

Such differences included:

(a)   the number of outflow openings;

(b)   the size of the propellant tablets;

(c)   the use of a ceramic, rather than a wired, propellant cushion;

(d)   the use of a thicker base plate;

(e)   a design to deploy with larger output pressure;

(f)   absence of what Mr Schade described as “anomalies” in the base of the generators that in other brands indicated excessive moisture over time; and

(g)   use of 60 gm filter compared to a 70 gm filter in SDI inflators installed in other vehicles.

63. After noting at [82] that Mr Schade gave unchallenged evidence that as a result of this testing, the airbag inflators fitted to the Volkswagen Vehicles did not show any functionally relevant anomalies and no material manufacturing faults that would lead to rupture, his Honour found at [83] that this provided support for the submission made on behalf of VW that airbag inflators for Volkswagen vehicles are different from the inflators in other vehicles in ways that meaningfully affect their performance.

Closed vessel testing

64. Mr Schade explained that the “closed vessel” testing involved the removal of the PSAN propellant from retrieved inflators, a sample of which was then placed in a reinforced closed vessel and ignited. The burn rate of the propellant and the pressure generated by the burning of the propellant (which produces the gas which inflates the airbag cushion) was calculated. The closed vessel allowed the measurement of much higher pressures generated by the propellant, once ignited, than pressures which are reached within an inflator during a typical deployment of an airbag. The burn rate of the propellant is derived from the pressure over time curves that are produced in the closed vessel test. The derived burn rate is then compared to the normal burn rate and a predetermined “critical” integrated burn rate which is the burn rate that produces the maximum pressure that the inflator housing is designed to withstand. If the derived burn rate indicated exceeds the desired inflator housing pressure, then inflator rupture can occur. A burn rate that produces the pressure at levels at which the housing can rupture is known as the “critical burn rate”.

65. As of 1 April 2021, there were 7,493 closed vessel tests. The results of the closed vessel testing were shown in Figure 21 to Mr Schade’s affidavit, which was reproduced as an attachment to the principal judgment. Mr Schade gave evidence that the closed vessel analysis confirmed that the inflators from Volkswagen vehicles did not reveal any critical anomalies in the burn rate of the inflator. He explained that: (i) the normal or expected integrated burn rate for PSAN was between 1,700 to 1,800 MPa*mm/s, (ii) the pressure/time curves plotted in pink and purple in Figure 21 indicated that certain older SDI field inflators retrieved from Volkswagen vehicles from hot and humid climates (Zone 1 and 2) exhibited slightly elevated burn rates, (iii) the highest recorded integrated burn rate for the SDI inflators returned from Volkswagen vehicles was measured by the closed vessel test to be 2051 MPa*mms, and (iv) the pressure/time data results demonstrate that the SDI inflators installed in the Volkswagen vehicles exhibited integrated burn rates in the non-critical range.

66. His Honour observed that the closed vessel testing involved subjecting the PSAN in the airbag inflators retrieved from the field to pressure in a reinforced closed vessel in order to determine whether its integrated burn rate or IBR measured in megapascals per millimetre per second, exceeded a “normal” or “expected” rate of between 1,700 and 1,850 MPa*mm/s or a critical rupture rate determined by Takata to be 3,000 MPa*mm/s: at [84], [91], [97]. His Honour found that the evidence established that the airbags are designed with an industry standard 150 per cent safety margin above the normal or expected burn rate, which would imply a rupture pressure of 2,775 MPa*mm/s: at [103], [137]-[138]. His Honour noted that the two measures were broadly consistent with one another: at [138]. The evidence was that the highest test result observed was 2,051 MPa*mm/s: at [94]. His Honour accepted that this was well below the critical rupture rate, whether that figure was approximately 2,775 MPa*mm/s as suggested by Mr Renz, or 3,000 MPa*mm/s calculated by Takata: at [102], [103], [140].

64. Two further findings in relation to the closed vessel tests should be noted: (i) the results as recorded in Mr Schade’s Figure 21 showed the PSAN was subjected to pressures up to 90 MPa, being much higher than would normally be experienced in the field as the airbags are designed so that when pressure reaches 40 to 50 MPa vent holes open and the airbag inflates: at [90], and (ii) Prof Klapötke agreed that the experiments conducted by Volkswagen show a progressive deterioration in the PSAN that exceeds the normal or expected parameters set by Volkswagen by about 8 per cent, for the older inflators, not for the new ones, and agreed that said that this was “statistically relevant, though it’s not dangerous”: at [93].

Tank testing

68. The “tank” tests involved the inflator as a unit being placed in a sealed tank and sensors measured the internal and external pressure during the firing of gas generators: at [104]. Mr Schade gave evidence that the burn rate of the propellant is inferred from the tank pressure observed during the tank test. High tank pressure indicates excessively rapid burn-off behaviour.

69. Prof Klapötke gave evidence that tank pressure and inflator chamber pressure provide additional information on the propellant burning behaviour inside the inflator because it measures the pressure which occurs inside the inflator housing and in the tank upon deployment of the inflator being tested. He said that, as a result, the performance of the propellant as it burns within the housing is measured, as opposed to the burn rate of the propellant alone, as is measured in closed vessel testing.

70. As of 1 April 2021, 5,423 inflators were subjected to the tank tests. There was a single incident of rupture of an airbag inflator in a tank test. Mr Renz accepted in cross-examination that the single incident was an anomaly as compared to the rest of the data. Mr Schade described this incident as an “outlier”. He said that “it was not something that our data showed at the time in 2019, or its shows today”, “it is so far out that it is an outlier by the data”, that the assumed burn rate for this test was well above 3,000 (MPa*mm/s) and, “we see that all the other burn rates that we have are far away from that”. He proffered the view that “this one outlier can be due to manufacturing issues at the time of its production”.

71. After observing that little attention was paid to the tank tests in final submissions, save that it was emphasised on behalf of the appellant that during one of these tests, one inflator ruptured (at [105]), his Honour made the following findings:

• only one rupture occurred in the entire empirical analysis program which involved some 20,000 airbags: at [106]; and

• Mr Renz accepted that the single incident in the tank tests as an anomaly as compared with the rest of the data: at [107].

The appellant challenges what it says is his Honour’s implicit finding as to the anomalous nature of that one rupture in the tank tests.

The expert evidence concerning the use of PSAN as an inflator in the airbags

72. In their joint report, Mr Renz and Prof Klapötke agreed that the empirical testing conducted by VW AG was done using sound scientific and acceptable practices. They also agreed that the empirical testing shows an increase in the integrated burn rate or IBR, as the inflators age, with Prof Klapötke qualifying his agreement as follows:

I agree that 10-15 year old inflators (VW, SDI) show an increase burn rate, which is, however, critical still well below the level at which may give any cause for concern, as stated in report par 111. If the normal IBR for an SDI inflator ranges from 1700 to 1850 MPa mm/s and some older inflators show IBR of 1850-2000 MPs mm/s, this is still well below the 3000 MPa mm/s threshold that Takata has given as being critical.

73. After noting at [120] that PSAN absorbs moisture from the air, his Honour made the following findings with respect to PSAN’s propensity to degrade:

• Mr Renz and Prof Klapötke agreed that generally speaking:

(a)   the root cause of the degradation of PSAN in the Takata airbag inflators was thermal fluctuation with moisture being present;

(b)   the rate of such degradation increases as the moisture level increases; and

(c)   the degradation of the PSAN will lead to an increase in surface area of the PSAN which leads to faster burning of the propellant tablets. This then causes increased pressure inside the inflator, which in turn causes the airbag inflation to occur faster and at a higher peak pressure than would otherwise be the case: at [121];

• the experts diverged as to whether such degradation was progressive, irreversible and inevitable, being the opinion of Mr Renz, or whether the position was more nuanced, being the opinion of Prof Klapötke, which his Honour accepted, finding that PSAN can degrade if exposed to moisture and temperature fluctuations: at [124];

• the rate at which the PSAN within an airbag inflator will degrade varies significantly according to a variety of factors which differ from manufacturer to manufacturer, and it is not possible to make generalisations between airbags fitted to different manufacturers’ vehicles or even between different models of vehicles made by the same manufacturer: at [126];

• Mr Renz and Prof Klapötke agreed that the differences between inflator design and vehicles, as well as other variables, impacted upon the level of moisture ingress into an inflator, being the critical factor associated with degradation of PSAN: at [129];

• Mr Renz gave evidence in cross-examination that “it’s not scientifically valid to assess PSAN degradation independently of the particular type of inflator and the particular vehicle model into which it’s installed” (at [130]), and agreed that the enquiry as to the safety of the airbag inflators in question must be vehicle and airbag inflator type specific: at [131];

• Prof Klapötke gave evidence in cross-examination that the timing and speed over which degradation of PSAN will occur is “unknowable on the basis of theoretic model of prediction”, however “fierce testing” on many examples returned from the field can create a model to be in a position to predict the time when it becomes critical or dangerous: at [134];

• VW had engaged in “fierce testing” of “many examples returned from the field” so as to be “in a position to predict the time when the airbags become critically dangerous”: at [135]; and

• the testing by VW AG “strongly” suggests that there is no reason to predict that the airbag inflators actually installed in Volkswagen vehicles will become critical or dangerous: at [136].

The primary judge’s reasons on acceptable quality

74. There is no dispute as to his Honour’s concise statement of the concept of “acceptable quality” in s 54. It is convenient to reproduce the reasons at [21]-[24] in full (citations omitted):

The question as to whether goods are of acceptable quality is an objective one, to be determined on the basis of relevant information known at the time of the trial.

The test posed by s 54 is not absolute, nor is it a standard of perfection. Rather, it is a test of what a reasonable consumer would regard as acceptable having regard to, relevantly here, any relevant circumstances relating to supply of the goods.

The relevant expectation is that of a reasonable consumer in the position of the actual consumer. The question is to be answered on the basis of what was objectively reasonable to expect at the time of supply.

The answer will always depend on the circumstances.

75. His Honour found that the results of the empirical analysis program could not lead to a conclusion that the tested airbags were unsafe: at [110]. On the contrary, he found that the results suggested that the airbag inflators installed in the VW vehicles were safe and that increased integrated burn rates revealed by the tests were unlikely to translate to aggressive or unsafe deployment of the airbags: at [111].

76. It is not necessary to summarise all of his Honour’s detailed findings at [137]-[146] on the propensity or risk of explosion case, as much of these reasons have already been referred to at [66] above. It is sufficient to refer to the following further findings:

• the appellant had failed to show any connection between possible degradation in the PSAN (in the presence of moisture and temperature fluctuations) and airbag performance in VW Vehicles: at [141]-[142];

• the appellant had not established that, on the balance of probabilities, "the alleged propensity or risk has been present in any Volkswagen vehicle" or that "the alleged propensity or risk would have materialised in any Volkswagen [vehicle] at any identifiable point in time": at [143];

• rather, the most the appellant can say relying on the evidence of Mr Renz, is that there was no more than a theoretical possibility that at some [un]identified point in the future, if a vehicle was left in the right environment for long enough, the alleged propensity or risk might develop at some future time: at [144]. (There is an obvious typographical error in the word “identified” at [144], given Mr Renz’s evidence referred to at [100] below.);

• the appellant has not sought to demonstrate that this risk could eventuate within any meaningful timeframe: at [145], and

• the risk that the appellant asserts remains no more than a speculative possibility: at [146].

77. It is not necessary to refer to the detailed findings at [147]-[151] in relation to the appellant’s “risk of mis-deployment” case, since the appellant did not press this case on appeal. His Honour summarised conclusion on the “risk of mis-deployment” case at [152]-[153]:

In substance, the plaintiff’s case is that there is a theoretical possibility that at some unidentified time in the future there may be a risk of misdeployment in an airbag inflator fitted to a Volkswagen vehicle.

I am not satisfied that there is any evidence that any such possibility was real or would develop in a way that was meaningful to a consumer.

Finding on acceptable quality

78. The appellant’s case on acceptable quality was that the state and condition of the goods must be assessed in light of six facts, which his Honour set out at [155]:

a.   The PSAN propellent used in the affected airbags has a propensity to degrade over time given the presence of moisture and changes in temperature;

b.   Volkswagen’s own testing shows that propensity is manifesting in the field. That indicates, that by whatever means, sufficient moisture is entering the system in the real word to cause measurable degradation of the PSAN;

c.   As PSAN degrades, the risk of the airbag mis-deploying (ie deploying too quickly) or rupturing increases. This process is inevitable and progressive;

d.   If the airbag deploys too quickly, the risk is that it will not protect the occupant in an accident either at all or to the extent designed, leading to an increased risk of injury. If the airbag ruptures, the risk is that metal fragments are sprayed inside the cabin and cause injury or death;

e.   That process of degradation, culminating in the risk of misdeployment and rupture, is inevitable in the sense that given temperature fluctuations and moisture, those outcomes will happen at some stage;

f.   No time frame can be given for when the risk of misdeployment and/or rupture arises for any given car and the risk for any given car at any given point in time cannot be quantified, other than to say that the risk increases over time. (Emphasis added in original.)

79. His Honour concluded at [159] that he was not persuaded that the appellant’s vehicle was not of acceptable quality, nor persuaded that VW had failed to comply with the guarantee of acceptable quality in s 54(1). He summarised his reasons at [156]-[158]:

But, for the reasons I have set out, a reasonable consumer in this hypothetical circumstance would also be acquainted with the fact that there was no reason to think that, probably, “those outcomes will happen at some stage” [see [155e] set out above] in any Volkswagen and thus in the plaintiff’s vehicle.

This reflects the link or integer that is missing from the plaintiff’s case, namely between the propensity of PSAN to degrade and any relevant, functionally significant propensity of PSAN to degrade in Volkswagens.

Further, the reasonable consumer in the hypothetical circumstance posed by s 54 would also be acquainted with the fact that motor vehicles are complicated pieces of machinery that may develop problems, even problems going to the safety of the vehicle, that may require rectification by the manufacturer during the vehicle’s lifetime.

Grounds 1-10

80. Grounds 1-10 contend:

1. The primary judge erred in failing to hold that the appellant's vehicle was not of acceptable quality at the time of supply to the appellant within the meaning of s 54 of the Australian Consumer Law (ACL).

2. The primary judge ought to have found that the appellant's vehicle was not of acceptable quality under s 54 of the ACL by reason of the matters recorded at J[155] together with the following facts, which were established on the evidence and ought to have been found:

(a)   A substantial portion (circa 30%) of Volkswagen vehicles still remain on the road after 15 years;

(b)   The oldest of the inflators the subject of the closed vessel and tank tests carried out by the respondent as part of its Empircal [sic] Testing Program was 12 years;

(c)   The results of the burn closed vessel tests showed that the incidence of integrated burn rates for phase stabilised ammonium nitrate (PSAN) propellent retrieved from used vehicles exceeding the baseline integrated burn rates for new PSAN increased with the age of the vehicle; and

(d)   Alternative propellants existed and were in use at all material times which did not have a propensity to degrade over time in the presence of moisture and temperature changes.

3.   To the extent that the primary judge did not make findings in terms of the matters at J[155], his Honour ought to have made such findings and erred in not doing so.

4.   The primary judge erred in holding that:

(a) in addition to the matters at J[155], the reasonable consumer in the hypothetical circumstance posed by s 54 of the ACL would also be acquainted with the fact that there was no reason to think that, probably, misdeployment or explosion will happen at some stage in any Volkswagen or in the appellant's vehicle;

(b)   if such knowledge was to be imputed to the reasonable consumer, it produced the result that the affected vehicles were of acceptable quality.

5.   The primary judge erred in finding that the results of Volkswagen's Empirical Analysis Program:

(a)   suggest that the airbags are safe;

(b)   suggest that there is no reason to predict that the airbag inflators actually installed in Volkswagen vehicles will become critical or dangerous;

(c)   could not lead to a conclusion that the airbags were unsafe.

6.   The primary judge erred in failing to hold that the defect lay in the vulnerability of the PSAN propellent to ordinary real world conditions under which moisture could be present in, or enter, the inflation unit, including humidity at the manufacturing plant, error in affixing seals, baseline permeability or leakage of seals, and ordinary wear and tear.

7.   The primary judge erred in disregarding the single instance of rupture in the tank tests carried out by Volkswagen. His Honour ought to have found that it demonstrated that the vulnerability at ground [6] above could lead to rupture of the airbag inflator and the risk of explosion or misdeployment.

8.   The primary judge erred in holding that it was necessary for the appellant to establish that the risk of misdeployment or rupture arising from the accepted propensity of PSAN to degrade over time in the presence of temperature cycling and moisture would have materialised in any Volkswagen vehicle at any identifiable point in time.

9. The primary judge erred in taking into account, or considering it relevant to the analysis under s 54 of the ACL, that motor vehicles are complicated pieces of machinery that may develop problems, even problems going to the safety of the vehicle, that may require rectification by the manufacturer.

10.   The primary judge erred in answering in the negative each of common questions 3, 4, 10 and 11. The primary judge ought to have answered each of these questions, yes.

81. Grounds 1-4, 6 and 8 contend in various ways that his Honour ought to have found that the appellant’s vehicle was not of acceptable quality. It is common ground that the outcome of the challenge to the finding on acceptable quality governs the question of merchantable quality. Ground 5 challenges the findings in relation to the significance of the empirical testing program. Ground 7 challenges the specific finding in relation to the single instance of rupture of the airbag inflator in the tank tests. Ground 9 challenges the finding concerning the nature of motor vehicles. Ground 10 challenges the answers to some common questions and depends on the outcome of the other grounds.

82. As indicated, the references in grounds 4, 7 and 8 to the appellant’s case based on the risk of mis-deployment can be ignored, as this case was not pressed on appeal.

The appellant’s argument on appeal

83. The appellant’s submissions addressed grounds 1-10 compendiously under three headings: Volkswagen’s testing, Expert evidence, and Unacceptable quality. Not all the grounds were the subject of submissions. It is said that sub-pars (e) and (f) of [155] of the principal judgment (set out at [78] above), encapsulates the way the appellant puts his case on appeal.

84. It is convenient to address the grounds as advanced in the appellant’s submissions in the following order: (1) the closed vessel testing, (2) the single tank test result, (3) the empirical testing program, (4) the nature of motor vehicles, and (5) whether the VW Vehicles were of unacceptable quality.

The closed vessel testing

85. It is common ground that the closed vessel test involves observing the PSAN burning in conditions that do not exist when an airbag is ignited in the field. Airbag inflators are designed so that once the propellant is ignited and starts generating gas, the pressure within the inflator will start to stabilise once it reaches a certain point, approximately 45-50 MPa, as gas is released from the vent openings. By contrast, in a closed vessel test the propellant continues to burn to conditions where the pressure significantly exceeds 50 MPa. The closed vessel tests subjected the PSAN in the inflators to pressures of up to 90 MPa, which his Honour found was much higher than would normally be experienced in the field as airbags are designed so that when pressure reaches 40-50 MPa vent holes open and the airbag inflates: at [90].

86. About 8 per cent of the closed vessel test results exceeded the “normal” or “expected” range of the integrated burn rate. The appellant referred to the “normal” or “expected” range as the “accepted” range as determined by Takata and adopted by Volkswagen. VW submits that it does not follow that a test result above this level was unacceptable or to be deemed dangerous. It said that the relevant comparator was the critical rupture rate, which as his Honour observed at [100], was the rate at which there was the possibility of rupture of an airbag on inflation.

87. The appellant made two related complaints in relation to his Honour’s findings in relation to the closed vessel testing. The first is that although his Honour recognised that the testing showed that the integrated burn rate of PSAN from retrieved airbag inflators exceeded Takata’s “normal” or “expected” range of between 1,700 and 1,850 MPa*mm/s in 8 per cent of results, his Honour focused on the fact that all the results were substantially below the “critical rupture point” of 3,000 MPa*mm/s as determined by Takata: at [100]-[103]. The second is that his Honour focused on the margin between the highest observed closed vessel test result of 2,051 MPa*mm/s and either the 3,000 MPa*mm/s critical rate calculated by Takata, or the 2,775 MPa*mm/s rate implied by applying a 150 per cent safety margin to the expected range: at [138]-[139].

271. Nor was the belated “offer” by the appellant on the last day of trial (1 June 2021) that VW appoint an expert who would inspect the vehicle and prepare a report on its market value an adequate solution to the prejudice occasioned to VW. There is no reason not to accept senior counsel’s statement at trial, which was repeated in this Court, that had the appellant claimed this loss at some point before closing submissions, VW would have put on evidence going directly to the question of the vehicle’s current value.

272. The appellant should not be permitted to advance a new point on appeal which could possibly have been met by calling evidence at the hearing: Suttor v Gundowda Pty Ltd at 438; Coulton v Holcombe at 7-9.

The “left in the hand” claim is not within s 272(1)

274. The “left in the hand” claim assumes a “no transaction” case, which is inconsistent with the rights given in s 272(1) which are premised on the transaction having taken effect: Capic at [891]. So much was correctly accepted by the appellant in oral argument.

275. Further, the premise of this claim under s 272(1)(b) is that the appellant acquired a vehicle that was less valuable than the purchase price. But this is inconsistent with s 272(3), which indicates that any claim for loss or damage alleged to have been “suffered through a reduction in the value of the goods” must be made under s 272(1)(a), not s 272(1)(b). As noted, the appellant accepts that the “left in the hand” claim does not come within s 272(1)(a).

276. Ground 18(c) should be rejected.

Consequential loss: interest, GST and stamp duty

277. The claim for “excess” financing costs (interest) and “excess” taxes (GST and stamp duty) is put as a claim for consequential loss under s 272(1)(b). The appellant acknowledged that no claim was made at trial for GST and stamp duty but said that a claim for interest was made.

278. It is said that the appellant should be permitted to advance the claims for interest and GST on appeal, as these claims “depend on resolution of a question of principle, not on any factual matter not debated at trial”. The appellant pointed to documentary evidence that he financed the purchase of his vehicle, paying $6,133 in interest over five years and GST of $3,617.

279. It is also said that whilst the appellant did not press his claim for stamp duty on appeal, given the absence of evidence that he paid stamp duty on the purchase, the group members might be able to claim stamp duty after this Court “resolve[s] the question of principle” concerning whether those amounts “are recoverable”.

Interest

280. The claim for interest was put differently at trial. As his Honour observed at [265(b)], the appellant contended in final submissions that one “potential approach” to the “do my best” assessment of damages was that the court should award “interest” at an appropriate rate on the difference between the price paid and the true value “over the period” during which the vehicle was defective, being the period 2013 to 2019, before the airbag in the appellant’s vehicle was replaced.

281. The stated premise of this approach was that replacement of the airbag in the appellant’s vehicle in 2018 reduces, but does not fully offset, that part of the appellant’s loss that comprises the difference between the purchase price and true value, and some allowance should be made for the fact that for most of the period of the appellant’s ownership, he has not had the car he paid for. That claim was not pressed on appeal. In this Court, the “interest” claim was put in two ways; neither was run at trial, nor pleaded, nor specified in the common questions.

282. “Excess” financing costs: It is said that the appellant and group members are entitled to damages referable to the interest on the difference between the purchase price and the “true” value of the vehicle, at the time of supply. This assumed that the appellant had established by evidence that his vehicle’s value was less than what he paid for it, at the time of supply, by reason of the defective airbags, and that he sustained detriment arising from that state of affairs. That is not so, for the reasons given above in rejecting the reduction in value claim.

283. Interest on the “cost of repair”: It is said that fixing the airbag is a proxy for paying reduction in value damages, and the appellant and group members are entitled to damages under s 272(1)(b) for consequential loss for being “out of my money” for the period the airbag was not fixed. The premise of this claim is unsound. The appellant was never “out of my money” for the cost of repair, nor were any of the group members. There can be no consequential loss for interest on the cost of repair of the airbag, given the replacement of the airbags was at no cost to the appellant and group members.

GST and stamp duty

284. It is said that the appellant’s failure to contend at trial that the available damage under s 272(1)(b) included “excess” GST and stamp duty paid in respect of the purchase is not fatal for three reasons: (i) a distinction must be drawn between the appellant’s individual claim and claims on behalf of group members, (ii) the new claims sought to be raised on appeal involve questions of law, and (iii) the common questions can now be amended to reflect the legal issues actually common to the appellant and group members.

285. As to the first matter, the distinction between a plaintiff’s role as a party advancing an individual claim and the representative role of a plaintiff in representative proceedings under Pt 10 of the Civil Procedure Act is not contentious: see, for example, BHP Group Ltd v Impiombato (2021) 286 FCR 625; [2021] FCAFC 93 at [17]-[18]. As observed in Searle v Commonwealthof Australia (2019) 100 NSWLR 55; [2019] NSWCA 127 at [236] (Bell P, Bathurst CJ and Basten JA agreeing):

The representative proceedings regime [in Pt 10 of the CP Act] is concerned with the common determination of common questions only. The regime directly attends to the inevitability in representative proceedings that parts of the proceedings will not be common. (Emphasis in original.)

286. However, this distinction is no explanation for the appellant’s failure to make a claim for himself and on behalf of group members for GST and stamp duty.

287. As to the second matter, even if it be assumed that the new claims only involved a question of law, “[a] party does not have a right to insist that a new point be decided on appeal simply because all of the facts having been established beyond controversy or the point is one of construction or of law”: Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645 (Mason P, Gleeson CJ and Priestley JA agreeing). It always remains a question of whether it is “expedient and in the interests of justice” to entertain the point: Multicon at 645 (Mason P), quoting Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12.

288. When considering that question, it has been said that “the finality of litigation and the importance of parties being bound to the cases they make at trial should never be overlooked”: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [38] (Allsop J, Drummond and Mansfield JJ agreeing), referring among others to Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68 at 71. See also: TAL Life Ltd v Shuetrim; Metlife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 at [166] (Leeming JA, Beazley P and Emmett AJA agreeing).

289. In this case, it would not be “expedient” or “in the interests of justice” to permit the appellant to advance for himself and on behalf of group members new claims for GST and stamp duty which were not run at trial, nor pleaded, nor specified in the common questions. This is for several reasons.

290. One is that there is no explanation for why these new claims were not advanced at trial, including for the delay in raising the new claims: Aon Risk Services Australia Ltd v Australian National University (2000) 239 CLR 175; [2009] HCA 27 at [98], [102]-[103] (Gummow, Hayne, Crennan, Kiefel and Bell JJ). The appellant has not identified any sufficient reason why he and group members should not be bound by the forensic choices made at trial, including as representative plaintiff as reflected in the common questions: Water Board v Moustakas at 497.

291. Another is that there is no reasoning by his Honour on the complex question of whether and how damages for GST and stamp duty payments fit within s 272(1) of the ACL. The complexity is apparent from Capic at [891]-[898], [909]-[916], where Perram J dealt with a similar claim for consequential losses.

292. Another reason relates to the third matter relied upon by the appellant. The premise of the submission that the common questions can now be amended is unsound. This ignores the effect of s 179 of the Civil Procedure Act which is addressed in the next section below.

293. Further, even if the appellant was permitted to advance his new claim for GST on appeal (noting that he did not pursue his individual claim for stamp duty), for the reasons already given at [282] above, the premise of the appellant’s claim for GST has not been established.

Amendment to the common questions

294. The appellant said that VW’s criticism – that the common questions as framed by the parties and adopted by the primary judge do not raise the questions of GST and stamp duty – treats the procedural device of common questions as the master rather than the servant. This submission overlooks that Pt 10 of the Civil Procedure Act creates its own kind of “statutory estoppel” in s 179, as the similar provision in Part 4A of the Supreme Court Act 1986 (Vic), s 33ZB, was described in Timbercorp Finance Pty Ltd (in liquidation) v Collins (2016) 259 CLR 212; [2016] HCA 44 at [52] (French CJ, Kiefel, Keane and Nettle JJ).

295. Section 179 requires that a judgment given in representative proceedings must describe or otherwise identify the group members affected by it and provides that the judgment “binds all such persons” (subject to s 162 which is not presently relevant, concerning any person who has opted out of the proceedings). It is established that group members in a representative proceeding are only bound by the determination of the claims giving rise to the common questions, but not with respect to the plaintiff’s individual claims: Timbercorp at [53].

296. The way the statutory scheme works to bind group members (as non-parties) to an order made by the Court in proceedings under Pt 10 of the Civil Procedure Act is by operation of s 179: Dyczynski v Gibson (2020) 280 FCR 583; [2020] FCAFC 120 at [249] (Murphy and Colvin JJ) and [391] (Lee J); Ethicon Sàrl v Gill (2021) 288 FCR 338; [2021] FCAFC 29 at [393] (Jagot, Murphy and Lee JJ). This is one of the reasons why it is critical for the orderly conduct of a representative proceeding that prior to an initial trial there is specificity in what common questions are being determined at trial: Gill v Ethicon Sàrl (No 3) [2019] FCA 587; (2019) 369 ALR 175 at [9] (Lee J). This occurred in the present case. The interlocutory decision and orders of Sackar J made on 21 June 2019, as varied on 22 May 2020, identified the common questions for determination at trial.

297. It is not in dispute, as VW submits, that questions 17, 19 and 20A articulated in detail the damages claimed on group members’ behalf, and were carefully framed to facilitate a determination, on a common basis, of the heads of loss that were or were not claimable by the group members. The framing of the common questions in this case is to be distinguished from Scenic Tours, where Appendix C records that common question 12, relevantly, posed the broader question: “What heads of damage are recoverable for a claim for compensation under s 267 of the ACL?”.

298. Nor is it in dispute, as VW submits, that the effect of s 179 of the Civil Procedure Act is that the group members (as non-parties) are relevantly bound by the statutory estoppel on the issues raised by questions 17, 19 and 20A: Timbercorp at [52]; Dyczynski at [249], [391]; Ethicon Sàrl v Gill at [393].

299. The appellant’s sole response to the statutory estoppel on the issues raised by questions 17, 19 and 20A, is to suggest that the common questions as framed can now be amended “to reflect the resolution of the legal issues actually common to the appellant and group members”. Searle does not assist the appellant.

300. Searle relevantly involved an unsuccessful application by the Commonwealth for leave to appeal against the discretionary decision of the trial judge declining to answer common questions 22 and 23 in the negative or at all: at [238]. That was in circumstances where, although no formal order had been made by the trial judge amending the terms of the common questions to reflect the way in which the representative party had ran the case at trial, the trial judge had found Mr Searle’s abandonment of negligent misrepresentation and deceit claims had the effect of withdrawing questions 22 and 23 from determination in the hearing but did not effect an abandonment of those claims on behalf of all group members: at [233].

301. The power to amend the terms of the common questions was not in issue in Searle, given the concession on appeal by the Commonwealth. The Court (Bell P, Bathurst CJ and Basten JA agreeing) held at [237] that it was not only within power for the trial judge to decline to answer questions 22 and 23, but entirely appropriate. As Bell P said at [225]:

Senior counsel for the Commonwealth could not point to any authority in support of his contention that the primary judge lacked power to decline to answer a common question which had been formulated for determination at a hearing of representative proceedings. That was not surprising, and the submission as to lack of power is wholly inconsistent with the flexible nature of the statutory provisions relating to class actions generally and to discontinuance of claims more specifically. It was also entirely inconsistent with senior counsel’s acceptance that there existed power to amend the terms of common questions. (Emphasis in original.)

302. Nor is the trial judge’s power to amend the common questions in issue in this case. As said in Ethicon Sàrl v Grill at [56] (Jagot, Murphy and Lee JJ) in relation to Pt IVA of the Federal Court of Australia Act 1976 (Cth) which is, relevantly, in similar terms to Pt 10 of the Civil Procedure Act:

A routine misconception is that the common questions specified in the originating application or supporting documentation define the common questions for the balance of the proceeding. This cannot be the case. For one thing, issues which are common may narrow considerably upon a joinder of issue by way of pleadings. Similarly, issues which are common to the claims may arise by way of a positive averment made in a subsequent pleading, whether it be a defence, a reply, a rejoinder or so on. Further common issues of fact may arise upon the filing of lay or expert affidavit evidence.

303. By contrast, the task of an appellate court by way of rehearing pursuant to s 75A of the Supreme Court Act 1970 (NSW) is the correction of error: Branir at [22], [30]. In this case, (i) there is no challenge to the interlocutory decision and orders of Sackar J made on 21 June 2019, as varied on 22 May 2022, identifying the common questions for determination at trial, (ii) the appellant did not make any application during the trial or following delivery of the principal judgment for leave to amend the amended statement of claim and the common questions to include the new claims now sought to be raised regarding GST and stamp duty, and (iii) there is no ground of appeal contending that the primary judge erred in not amending the common questions.

304. Nor did the appellant apply before the primary judge to set aside the final orders made on 16 September 2021 on the ground that the Court below “has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing”: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 303 (Mason CJ); [1993] HCA 6.

305. Whilst this Court on an appeal by way of rehearing has the same powers as the primary judge, including concerning amendment: Supreme Court Act, s 75A(6), there is no occasion to consider amending the common questions following the trial and dismissal of the proceedings. The appellant did not make any application for leave to amend the notice of appeal to seek such relief in respect of a matter which the appellant for himself and as the representative party had not run at trial, nor pleaded.

306. Aside from the absence of a formal amendment application, no circumstances were identified by the appellant that would justify this Court reopening the damages issues based on the common questions following the trial and judgment below. That would constitute a marked departure from the way the parties conducted the trial with respect to the common questions. This is not a case where the appellant for himself and on behalf of group members was not afforded an opportunity of being heard on the common questions which proved to be decisive in the determination of the proceedings before the primary judge: Autodesk Inc v Dyason (No 2) at 308 (Brennan J).

307. There was no error by his Honour in the answers given to questions 17, 19 and 20A. Grounds 18(e), (f) and (g) and 20 should be rejected.

Ground 21: costs

308. The appellant did not advance any written or oral submissions in support of ground 21 which challenged the indemnity costs order made on 16 September 2021 relating to one aspect of the damages claim. This ground can be taken not to have been pressed.

Conclusion and Orders

309. The appeal has failed. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

310. I propose the following orders:

1. Appeal dismissed.

2. Appellant to pay the respondent’s costs.

311. LEEMING JA: I agree with Gleeson JA.

312. WHITE JA: I agree with Gleeson JA.

SCHEDULE

Question	Answer
3	Whether the Takata Airbags in each of the Recalled Vehicles have either or both: (a) a propensity to explode and/or a risk of exploding, thereby propelling metal shrapnel towards the occupants of the Defective Vehicle; (b) a propensity to malfunction and/or a risk of malfunctioning on deployment of the Takata Airbag, by deploying too rapidly and/or with excessive force; as a consequence of the use of ammonium nitrate in the propellant?	No. The Takata Airbags in each of the Recalled Vehicles do not, as a consequence of the use of ammonium nitrate in the propellant: (a) have a propensity to explode or a risk of exploding; (b) have a propensity to malfunction or a risk of malfunctioning on deployment of the Takata Airbag, by deploying too rapidly or with excessive force. hav
4	As a result of the answer to Question 3 above, in respect of each model of the Recalled Vehicles: (a) are or were they not safe to drive; and/or (b) if driven, do or did they expose the driver or any passengers to unnecessary danger and harm, attributable to their construction with at least one Takata Airbag?	No. The fact that each model of the Recalled Vehicles was constructed with at least one Takata Airbag: (a) does not make any of those Recalled Vehicles not safe to drive and does not expose the driver or any passengers to any unnecessary danger or harm; (b) did not in the past make any of those Recalled Vehicles not safe to drive and did not expose the driver or any passengers to any unnecessary danger or harm.
10	Was any Recalled Vehicle acquired by a Group Member not of merchantable quality within the meaning of section 74D of the TPA at the time of supply to the Group Member by reason of the answers to Questions 3 to 5?	No. By reason of the answers to questions 3 to 4, the Recalled Vehicles acquired by Group Members were of merchantable quality within the meaning of section 74D of the TPA at the time of supply to each Group Member.
11	Whether a reasonable consumer fully acquainted with the state and condition of the Recalled Vehicles at the time of supply would not regard the Recalled Vehicles as: (a) acceptably fit for all the purposes for which goods of that kind are commonly supplied? (b) free from defects? (c) safe? for the purposes of section 54 of the ACL.	No. Given the answers to Questions 3 and 4, a reasonable consumer fully acquainted with the state and condition of the Recalled Vehicles at the time of supply would regard the Recalled Vehicles as: (a) acceptably fit for all the purposes for which goods of that kind are commonly supplied; (b) free from defects; and (c) safe. for the purposes of section 54 of the ACL.
17	If the answer to Question 10 is “Yes”, can the Group Members have suffered any loss of damage, in the form of a reduction in the “true value” of that Recalled Vehicle as at date of purchase, attributable to the Recalled Vehicle not being of merchantable quality, in circumstances in which: (a) the Group Member has had the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement; or (b) the Group Member is able to have the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement?	Given the answer to question 10, it is not necessary to answer this question. But given the answer to Questions 3, 4 and 10, Group Members have not suffered any loss or damage. In circumstances where the Takata Airbag in a Recalled Vehicle has been replaced at no cost, there is no difference between the purchase price of the Recalled Vehicle and the “true value” of that Recalled Vehicle at the time of purchase.
18	If the answer to Question 11 is “Yes”, was any non-compliance with section 54(1) of the ACL only because of any act, default or omission of Takata Corporation (or its related entities, including TK Holdings Inc) and not because of any act, default or omission of the Defendant?	Given the answers to Questions 3, 4 and 11, it is not necessary to answer this question.
19	If the answer to Question 11 is “Yes”, can the Group Members have suffered any loss of damage, in the form of a reduction in the “true value” of that Recalled Vehicle as at date of purchase, attributable to the Recalled Vehicle not being of acceptable quality, in circumstances in which: (a) the Group Member has had the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement; or (b) the Group Member is able to have the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement?	Given the answer to question 11 it is not necessary to answer this question. But given the answers to Questions 3, 4 and 11, Group Members have not suffered any loss or damage. In circumstances where the Takata Airbag in a Recalled Vehicle has been replaced at no cost, there is no difference between the purchase price of the Recalled Vehicle and the “true value” of that Recalled Vehicle at the time of purchase.
20A	Can the Group Members have suffered any loss or damage, in the form of disappointment, distress and / or anxiety, attributable: (a) If the answer to question 10 is yes, to the Recalled Vehicle not being of merchantable quality; (b) If the answer to question 11 is yes, to their Recalled Vehicle not being of acceptable quality; (c) If the answer to question 15 is yes, to the misleading or deceptive conduct of the defendant; in circumstances in which: (d) the Group Member has had the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement; or (e) the Group Member is able to have the Recalled Takata Airbag in their Recalled Vehicle replaced at no cost for the replacement?	No. Given the answers to Questions 3, 4, 10, 11, 14 and 15, it is not possible for any Group Members to have suffered any loss or damage of the kind described in this question.

Amendments

05 September 2023 - Formatting (Headnote)