JJ International Holdings Pty Ltd v Al Fares
[2024] VSC 707
•18 November 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2023 6000
| JJ INTERNATIONAL HOLDINGS PTY LTD (ACN 156 042 821) | Applicant |
| v | |
| SABRIN AL FARES | Respondent |
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JUDGE: | Gorton J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 October 2024 |
DATE OF JUDGMENT: | 18 November 2024 |
CASE MAY BE CITED AS: | JJ International Holdings Pty Ltd v Al Fares |
MEDIUM NEUTRAL CITATION: | [2024] VSC 707 |
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JUDICIAL REVIEW – Appeal from Victorian Civil and Administrative Tribunal – Sale of car not of acceptable quality in breach of statutory guarantee in s 54 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (‘Australian Consumer Law’) – Whether Tribunal erred in law when determining whether statutory guarantee did not apply per s 54(7) of Australian Consumer Law – Where at time of sale car had rust on underbody – Where third party examined car on behalf of consumer prior to purchase – Whether inspection ought reasonably to have revealed car not of acceptable quality – Whether necessary that inspection reveal defect on which consumer relies – Tribunal did not ask itself the wrong question –Application for leave to appeal dismissed – Medtel Pty Ltd v Courtney (2003) 130 FCR 182 – Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2021] FCA 1493 – Capic v Ford Motor Company of Australia Pty Ltd [2021] FCA 715 – Australian Consumer Law, s 54 – Australian Consumer Law and Fair Trading Act 2012 (Vic) – Victorian Civil and Administrative Tribunal Act 1998 (Vic) – Motor Car Traders Act 1986 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A Berger | Hiways Lawyers |
| For the Respondent | Ms K Laycock-Walsh | Bartier Perry Pty Ltd |
TABLE OF CONTENTS
A. Introduction................................................................................................................................... 1
B. The background and evidence led............................................................................................. 1
B.1Purchase of the car and emerging problems..................................................................... 1
B.2Evidence led in the proceeding below................................................................................ 3
C. The Tribunal’s findings.............................................................................................................. 7
D. Did the Tribunal ask itself the wrong question?.................................................................. 9
D.1What question was the Tribunal obliged to ask?............................................................. 9
D.1.1The guarantee and how unacceptable quality is ascertained............................ 9
D.1.2When, in the case of inspection, goods are deemed to be of acceptable quality 11
D.1.2.1What is required of the examiner?....................................................... 11
D.1.2.2Is a connection required between the defect sued on and an observed defect ?.............................................................................................................. 13
D.2Did the Tribunal ask itself the wrong question?............................................................ 16
E. Other grounds of appeal............................................................................................................ 18
F. Disposition................................................................................................................................... 19
HIS HONOUR:
A. Introduction
On 1 December 2023 the Victorian Civil and Administrative Tribunal (‘VCAT’) determined that a used-car dealer was liable for breaching the statutory guarantee, imposed by s 54(1) of the Australian Consumer Law,[1] that a car it sold be of ‘acceptable quality’. The RACV, engaged on behalf of the purchaser to inspect the car, had not identified any problems prior to purchase. The dealer does not here challenge the Tribunal’s findings that the car was not of acceptable quality. The issue that arises in this proceeding is whether the Tribunal erred by asking itself the wrong question when it rejected the dealer’s argument that the statutory guarantee was not engaged because the RACV’s examination ought reasonably to have revealed that the car was not of acceptable quality at the time of purchase.
[1]Being Schedule 2 to the Competition and Consumer Act 2010 (Cth), as applied in Victoria by s 8 of the Australian Consumer Law and Fair Trading Act 2012 (Vic).
B. The background and evidence led
B.1 Purchase of the car and emerging problems
In May 2021 Ms Sabrin Al Fares, the respondent in this case, bought a 2015 Range Rover Sport Hybrid from JJ International Holdings Pty Ltd, the applicant, who traded as JJ Prestige Auto Sales in Blackburn, for $78,000. JJ Prestige Auto Sales was not an authorised Range Rover dealer.
Prior to purchasing the car, JJ Prestige Auto Sales had arranged for the RACV to perform a ‘pre-sale inspection’ of the car. Ms Al Fares accepted that, although this inspection had been arranged by JJ Prestige Auto Sales, it was made on her behalf. The RACV report said the car drove well and was ‘in good overall condition’ and it found no ‘major faults’. It stated that there were ‘no fault codes logged’, and ‘no visible evidence of any … major body defects’. The report in its terms and conditions stated that the inspection did not include removal of parts and the inspection of the body condition was based on ‘visual examination’ of the exterior, that electrical items were ‘checked for operation and performance’ and that ‘general wiring condition is visually examined for safety and security’. The RACV’s report did not refer in terms to any inspection of the hybrid drive system, and said:
The inspection is based on external examination of components only. A Components (sic) are not dismantled to examine internal parts.
Problems with the Range Rover became apparent in October 2021, following which the car completely broke down in December 2021 due to a failure of its hybrid drive system. Ms Al Fares had only driven the car about 2,300km because of the lockdowns imposed throughout 2021 during the COVID pandemic.
Ms Al Fares spoke to JJ Prestige Auto Sales. JJ Prestige Auto Sales said, correctly, that the car was outside the three-month statutory warranty imposed by s 54 of the Motor Car Traders Act 1986 and did not accept responsibility for fixing the problem.[2] Ms Al Fares had the car towed to Berwick Land Rover. Berwick Land Rover was unsure of the cause of the failure of the hybrid drive system. It replaced a coolant pump, hoping that was the cause. That did not fix the problem. Ms Al Fares later had the car towed to Melbourne City Land Rover in Port Melbourne. In March 2022, Melbourne City Land Rover, after apologising for being ‘the bearer of bad news’, told her that the hybrid battery required replacement, which would involve a 9 month delay due to worldwide shortages, and the ‘DC/DC converter’ and the ‘main generator’ probably also required replacement, and that the cost of replacing those parts would exceed $80,000. Melbourne City Land Rover thought, and it seems likely, that this was due to ‘saltwater ingress’.[3]
[2]Section 54(2B) of the Motor Car Traders Act 1986 (Vic) provides that the warranty period is the shorter of either 3 months from date of delivery or the period of time when the car has been driven for a further 5000 kilometres.
[3]There was a tow bar on the car and, it seems, the rear of the car had been immersed in saltwater while launching a boat.
Melbourne City Land Rover also found a lot of ‘fault codes’ associated with these problems when the car was connected to its computer diagnostic tool. Those fault codes, Melbourne City Land Rover suggested, had been ‘wiped’ prior to the sale. The Tribunal did not determine whether this was the case or, if it were, who had ‘wiped’ them.
B.2 Evidence led in the proceeding below
Ms Al Fares commenced a proceeding at the VCAT in which she alleged that JJ Prestige Auto Sales had misrepresented that the car was fit for purpose and had engaged in misleading and deceptive conduct, and that the car was sold in breach of the statutory warranty of ‘acceptable quality’ imposed by s 54 of the Australian Consumer Law. It was accepted that the Australian Consumer Law applied to the transaction. In its points of defence, JJ Prestige Auto Sales alleged that:
(a) The car was of acceptable quality at the time of sale; and
(b) Any rust or corrosion due to saltwater ingress was patent at the time that the car was purchased.
Ms Al Fares tendered various communications including with Berwick Land Rover and Melbourne City Land Rover and gave evidence of the history above including that:
(a) JJ Prestige Auto Sales assured her that the car had not been involved in any accidents, ‘did not suffer any defects’ and that the dealership was well-known for selling ‘quality cars’, and that she relied on those assurances when she purchased the car. She said in cross-examination that the dealership had told her that there were ‘no fault codes in the car’, that it was ‘good quality’, that they ‘insist on quality’ and that they were selling her ‘a quality vehicle’;
(b) On or around June 2021 she noticed the electrical drive was not engaging, however, having not driven the car over long distances, she relied on statements made by JJ Prestige Auto Sales that the hybrid battery would charge when driven over longer distances;
(c) From October 2021, issues with the car became apparent. The car started ‘alarming’ and dashboard messages appeared indicating the hybrid system was malfunctioning. The car finally became inoperable in December 2021. Her local mechanic told her that the car was ‘just full of fault codes’ and told her to take it back to the dealership;
(d) When she approached JJ Prestige Auto Sales, she was told that she was going to have to repair the car herself. She spent time trying to have it assessed by Land Rover, but it was difficult getting Land Rover to help because she had not bought it from an authorised dealer. Berwick Land Rover noted the fault codes and that the batteries were not working, but it did not know the cause and suggested that the coolant pump might have damaged the hybrid system. The invoice from Berwick Land Rover confirmed that it replaced the ‘hybrid coolant pumps’, but the same issues were still present. Once it became clear that there was no easy fix, she spoke again to JJ Prestige Auto Sales. It did not accept responsibility and asked her to provide evidence that she had not damaged the car herself;
(e) She flew to Sydney to meet with Land Rover’s operational manager, who told here that the ‘fault codes are stored in the car’ and that at the time the car had been sold to her those fault codes had been ‘wiped off’ (although Land Rover could still identify that they were there). Ms Al Fares then took the car to Melbourne City Land Rover; and
(f) Melbourne City Land Rover identified salt water ingress and corrosion as the cause of the problems. The email from Melbourne City Land Rover confirmed its recommendation that she replace the battery at a cost of $40,000 (and that there would be a 9-month wait due to global supply issues), and then possibly also ‘the DC/DC converter’ at a cost of $15,000 and the ‘main generator’ at ‘around the $25,000 mark’. She contacted JJ Prestige Auto Sales again, and was asked whether she could prove that she had not driven the car in saltwater and caused the damage herself.
Ms Al Fares had obtained an expert report from Mr Goran Turk, a Master Member with the Institute of Automotive Mechanical Engineers. She tendered his report and called him to give evidence. JJ Prestige Auto Sales had, in May 2021 prior to the purchase, arranged for a mechanic to provide a roadworthy certificate, which it was obliged by VicRoads to do. That mechanic was not called, but photographs taken by him, including of the underneath of the car, were obtained by Ms Al Fares from VicRoads and provided to Mr Turk.
Mr Turk had put the car on a hoist and observed that ‘the majority of the high voltage components’ had been ‘exposed to a contaminant that appeared to be saltwater residue’. He saw ‘corrosion/rust’ towards the rear section of the car underbody and where the 12 volt battery was housed. Some visible electrical connections and cables were showing oxidation. The 12 volt battery had no charge and he could not recharge it. His ‘diagnostic health report’ extracted 105 faults from the electrical system. He started the car with a donor 12 volt battery, and drove it for a short while, but the donor battery depleted causing the engine to shut off. He then analysed the data monitor within the Battery Energy Control Module which revealed that the high voltage battery had only 37.23% of remaining life and there was ‘battery leakage and high resistance’. He agreed with Land Rover that the battery and the DC/DC convertor would have to be replaced. Then, ‘based on the findings from [Melbourne City] Range Rover … in relation to the saltwater ingress/corrosion’, he took some samples of the corrosion and had them tested by a metallurgist using ‘optical microscopy, SEM/EDX and FTIR analysis’. The metallurgist found chloride compounds in the rust, which confirmed that the car had been exposed to ‘a high level of saltwater ingress’ and that this was consistent with the rear of the car being immersed in salt water while launching boats. He also said that the ‘driveshaft axles will require replacing’ because their structural integrity had been compromised.He said, by reference to the photographs taken by the mechanic who provided the roadworthy certificate, that the ‘rust/corrosion’ was ‘well established at the time of sale’. He opined that the RACV inspection was ‘not up to the industry standard’ because, among other things, it did not mention the presence of any rust or include a battery health report. He said that:
(a) The rust was ‘quite obvious’ once the car was raised on the hoist;
(b) Any proper inspection should have identified the areas of rust and recommended against the purchase of the car. He ultimately said:
“Any technician would’ve been able to discover the rust. The effect of the rust would require diagnostics. Again, then the, the – it’s not entirely up to the technician to carry on with diagnostics. They would need to relay what they’ve discovered to the owner of the vehicle and ask would you like us to diagnose it ‘cause there’s gonna be a cost involved. It’s not free.”
JJ Prestige Auto Sales called its sales manager, Mr Juwon Li, known as ‘Andy’. Mr Li said the only representation he made was that the car had not been in an accident and had a clear title history indicating that it had not previously been ‘written off’ or stolen, but he also said that he told Ms Al Fares: ‘it is a good car’. He said that he recommended a ‘third party mechanic inspection’ to ‘make the customer more confident in purchasing’, and that at the request of Ms Al Fares (or her husband) he arranged for such an inspection from the RACV on their behalf, and that when he received that report he forwarded it on.
JJ Prestige Auto Sales did not abandon its argument that the car was of an acceptable quality at the time of sale. But, as noted above, it contended that, if it were not, then the RACV’s examination ought reasonably to have revealed that fact. To make good that contention, it relied on the presence of signs of rust underneath the car, as shown on the photographs taken by the mechanic who provided the roadworthy certificate and on photographs later taken by Mr Turk, and on the evidence given by Mr Turk.
I observe, therefore, that although there was evidence from Mr Turk that, if accepted, could found a conclusion that the RACV’s inspection ought reasonably to have revealed that the car was of unacceptable quality, there were some circumstances that tended to suggest the contrary:
(a) First, the mechanics who inspected the car and provided a roadworthy certificate at the request of JJ Prestige Auto Sales did not identify any defects with the car’s hybrid system or any concerns with rust;
(b) Second, at the time of the examination by the RACV, the car was working and, it seems, driving and handling properly;
(c) Third, and related to the above, at the time of the RACV’s inspection there were no ‘fault codes’ that indicated problems with the car’s hybrid system;
(d) Fourth, the RACV did not in fact identify any defects with the car’s hybrid system or express any concern about the presence of rust;
(e) Fifth, Berwick Land Rover, even after the car had broken down, did not identify that saltwater ingress was the cause of the problems with the hybrid system and instead changed a water cooler pump hoping that would fix the problems;
(f) Sixth, Mr Turk required samples to be sent to a laboratory for testing in order to confirm saltwater ingress;
(g) Seventh, Mr Li of JJ Prestige Auto Sales accepted that he told Ms Al Fares that the car was a ‘good car’. From this and the price of the car, it may be inferred, but does not have to be inferred, that JJ Prestige Auto Sales probably inspected the car itself either when it purchased it or before it sold it. Mr Li’s evidence was to the effect that the only inspection that JJ Prestige Auto Sales performed was a ‘cosmetic’ check and a test that measured the paint thickness that indicated whether the car had been an accident. If that evidence were rejected and it was inferred instead that JJ Prestige Auto Sales probably did look under the car at some stage, then either JJ Prestige Auto Sales did not in its own inspection identify that the car was not of acceptable quality, or JJ Prestige Auto Sales did identify that the car was not of acceptable quality and sold it anyway; and
(h) Eighth, and finally, JJ Prestige Auto Sales arranged for an inspection of the car for the purpose of the Tribunal hearing, but did not exchange that report or call the person who undertook it to give evidence at the Tribunal hearing.[4]
[4]Cf, eg, Jones v Dunkel (1959) 101 CLR 298.
C. The Tribunal’s findings
The Tribunal Member gave oral reasons and then reduced those to writing in her form of order. The findings made included the following:
(a) The extensive saltwater damage to the car did not become apparent until October 2021, after Ms Al Fares had driven only approximately 2,000kms, and that the car ‘completely failed’ in December 2021 with Ms Al Fares having only travelled 2,385kms;
(b) Although Ms Al Fares had claimed unconscionable conduct and misleading and deceptive conduct, the Tribunal did not determine those claims because this was ‘a clear case of breach of the consumer guarantee of acceptable quality’ imposed by s 54 of the Australian Consumer Law;[5] and
[5]The Member’s oral reasons, delivered ex tempore, suggest that Ms Al Fares would have succeeded in such claims. The Member said she ‘probably accepted’ Ms Al Fares’ evidence about the representations made and that ‘probably [Ms Al Fares] would have an alternative claim under misleading or deceptive but I think the more straightforward case is the guarantee as to acceptable quality.’ Those provisional findings were not included in the revised written reasons.
(c) The car was not of acceptable quality:
“[Ms Al Fares] paid $78,000 for a premium brand car which [JJ Prestige Auto Sales]’s salesperson described as a good car in the hearing. [Ms Al Fares] should have reasonably been expected to drive 100,000 kms or more in the car before it suffered a catastrophic failure. The car only travelled 2,385 kms before it broke down completely ... No reasonable person knowing the defects would have purchased the vehicle.”
When considering the submission of JJ Prestige Auto Sales that the statutory warranty was not engaged because of the RACV’s inspection, the Tribunal stated, in a paragraph to which I will return:
Although Mr Turk was critical of the RACV inspection failing to detect the corrosion evident at the time of purchase, I am not satisfied that an RACV inspection ought to have reasonably identified the salt corrosion in the hybrid battery, wires, connectors, DC converter and the main generator. At the time of inspection these components were working. Further Land Rover Berwick, an authorised land rover repairer did not identify the salt corrosion in December 2021. Instead, it diagnosed a coolant pump issue. To my mind if Land Rover Berwick could not identify the salt corrosion after a more detailed inspection in December 2021, RACV could not be expected to diagnose the salt corrosion on a more limited inspection in May 2021.
The Tribunal then ordered that JJ Prestige Auto Sales collect the car from Ms Al Fares at its own cost, refund to her the purchase price of $82,590, and pay interest and costs.[6]
D. Did the Tribunal ask itself the wrong question?
[6]The remedies for a breach of the statutory guarantee are found in Part 5.4 of the Australian Consumer Law. The Tribunal resolved disputes as to the availability of these remedies but these do not matter for the purpose of this appeal.
This appeal, brought under s 148 of the Victorian Civil and Administrative Tribunal Act 1998, is limited to an appeal on a question of law. None of the above findings set out in para 13 above were challenged in this proceeding. As noted above, JJ Prestige Auto Sales instead contended that the Tribunal failed to ask itself the right question when it failed to find that the RACV’s examination ‘ought reasonably to have revealed that the goods were not of acceptable quality’ and therefore concluded that s 54(7) was not engaged. In plain terms, it contended that the presence of rust on the underbody ought reasonably to have revealed that the car was not of acceptable quality.
D.1 What question was the Tribunal obliged to ask?
D.1.1 The guarantee and how unacceptable quality is ascertained
Section 54(1) imposes a guarantee that goods supplied in trade and commerce to a consumer, other than by way of sale of auction, are ‘of acceptable quality’. Section 54(2) provides as follows:
(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;
(b)acceptable in appearance and finish;
(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).
There is clearly some overlap between these subparagraphs. For convenience, I will use the word ‘defect’ to refer generally to a feature of a good that would cause a reasonable consumer to regard it as not of acceptable quality.
Section 54(3) refers to the nature of the goods, the price of the goods, any statements made about the goods on any packaging or label, any representation made about the goods by the supplier or manufacturer of the goods, and any other relevant circumstances relating to the supply of the goods.
Then, s 54(7) of the Australian Consumer Law states that:
(7) Goods do not fail to be of acceptable quality if:
(a)the consumer acquiring the goods examines them before the consumer agrees to the supply of the goods; and
(b)the examination ought reasonably to have revealed that the goods were not of acceptable quality.
Speaking generally, a consumer may, depending on the circumstances, establish that a good is not of acceptable quality either by simply demonstrating that it does not in fact work properly (focusing on the ‘symptoms’), or by identifying some underlying feature that either causes some malfunction or which creates an unacceptable risk of malfunction (focusing on the ‘cause’).[7]
[7]As counsel for JJ Prestige Auto Sales pointed out, it may be necessary in a class action to identify the underlying cause of the problem across all the goods, rather than simply that any particular good sold did not work acceptably in one way or another.
JJ Prestige Auto Sales pointed out, correctly, that the question of whether the car was ‘of acceptable quality’ had to be determined as at the time of supply.[8] That focuses attention on the need to identify a feature of the car, present at the time of sale, that made the car not of acceptable quality notwithstanding that it was driving normally when Ms Al Fares bought it.[9] Where a good, such as a car, is working normally at the time of sale but later breaks down, the good will be of unacceptable quality even while ‘working normally’ if there is nonetheless some feature or ‘anomaly’[10] that gives rise to an unacceptable risk of later failure. It is the unacceptably-high risk of a later failure that makes a product not of acceptable quality as at the date of sale.[11]
[8]Medtel Pty Ltd v Courtney (2003) 130 FCR 182, 206 [70] (Branson J); Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2021] FCA 1493, [101] (O’Callaghan J).
[9]It may be that the battery was already degraded, as was later found, at the time of sale. The RACV appears not to have tested the battery performance. But I put this to one side.
[10]For the use of the word ‘anomaly’, see Medtel Pty Ltd v Courtney (2003) 130 FCR 182, 192 [21] (Branson J).
[11]An analysis based on an increased risk of failure in a working good is well established. In Medtel Pty Ltd v Courtney (2003) 130 FCR 182, the Court accepted that a pacemaker that had a higher-than-acceptable risk of failure is not of acceptable quality even when it works and may, or probably would, continue to work in that particular case.
That said, in the circumstances under consideration here, Ms Al Fares’ case was established by her satisfying the Tribunal that her car broke down in a way that was very expensive to repair and that it did so within an unacceptably short time after buying it. In the absence of some suggestion that Ms Al Fares herself caused the breakdown by mistreating the car, or some other such explanation, the early and serious breakdown in the hybrid drive system compelled an inference that there was something wrong with the car at the time of sale – that it had some feature or ‘anomaly’ that gave it a ‘propensity’ to fail or an ‘increased risk’ of failure – that made it of unacceptable quality. Because that inference could be drawn in the circumstances of this case, Ms Al Fares was probably not in fact obliged to identify the precise mechanical explanation of the later failure. To adapt the example given by Perram J in Capic v Ford Motor Company of Australia Pty Ltd,[12] there is no difference between a kettle that doesn’t work the first time it is used and a kettle that doesn’t work the second time that it is used: in both cases, the unacceptable quality is established by the kettle’s mere failure to work as expected and the consumer is not obliged to establish why it is that the kettle does not work.[13] Ms Al Fares’ experience with the car was sufficient to establish that it was not of acceptable quality when it was sold without her having to establish that it broke down because saltwater rust had penetrated, or at the time of sale was likely to penetrate, the hybrid drive system.
D.1.2 When, in the case of inspection, goods are deemed to be of acceptable quality
[12][2021] FCA 715.
[13]Ibid [53].
The question that then arises is how s 54(7) is to be interpreted in circumstances where a product is sold in working order but later breaks down.
D.1.2.1 What is required of the examiner?
An issue arose in the hearing of this appeal as to whether s 54(7) focuses on what the examination as actually performed ought to have revealed, or whether the focus should be on what an examination properly performed ought to have revealed. That issue arose because it is not clear whether the RACV noticed the rust under the car but failed to appreciate its significance, or whether, perhaps unreasonably, the RACV simply did not look under the car or did not look under the car carefully enough to notice the rust at all. Similarly, it seems that the RACV did not perform a test of the high-voltage battery, and it may be that it ought to have done so and, had it done so, it would have revealed a problem with the car. JJ Prestige Auto Sales submitted that where a defect is not revealed because an examination is not properly performed, a purpose of the legislation is to divert the purchaser’s claim from a claim against the supplier under the statutory guarantee to claim in tort against the examiner.
For reasons set out further below, it is not necessary for me to decide this question. But given that the matter was argued, I will set out my preliminary thoughts.
As developed in Part D.1.2.2 below, the purpose of s 54(7) is to prevent consumers from relying on the guarantee who have seen, and therefore presumably accepted, the feature that rendered the goods not to be of acceptable quality. Consumers are also prevented from relying on the guarantee if they undertake an examination that ought to have revealed the feature that rendered the goods not to be of acceptable quality. Oftentimes, however, it will be the consumer him or herself who performs the examination; certainly, the legislature was not concerned only with the situation where the consumer has engaged an expert to perform the examination on his or her behalf who can be sued if something is missed. The obligations on an examiner will depend on the contract between the examiner and the consumer. Here, if Ms Al Fares had not herself looked under the car, or had not engaged the RACV to look under the car, the statutory guarantee would apply. If the RACV simply did not look under the car, and so did not even see the rust, then I tend to the view that it could not be said that the examination attributable to Ms Al Fares ought reasonably have revealed the unacceptably-high risk of later failure. Section 54(7) talks of what an ‘examination ought reasonably to have revealed’, and not what ‘a reasonably-performed examination would have revealed’. As a matter of policy, it is difficult to see why JJ Prestige Auto Sales should be in a better position, and Ms Al Fares be forced to sue in negligence, if Ms Al Fares engaged the RACV to inspect the car but it did not look underneath it, than JJ Prestige Auto Sales would be in if Ms Al Fares did not engage the RACV at all. But, for reasons set out in Part D.2 below, it is not necessary for me to resolve this issue.
D.1.2.2 Is a connection required between the defect sued on and an observed defect ?
JJ Prestige Auto Sales submitted that it was not necessary for it to establish that the RACV’s examination ought reasonably to have revealed that there was salt corrosion in the hybrid battery, wires, connectors, DC converter and the main generator; it was sufficient if the RACV’s examination ought reasonably to have revealed the rust underneath the car. The question the Tribunal should have then asked itself, but did not, it therefore submitted, was whether the existence of the rust underneath the car meant that the car was not of acceptable quality, in the sense that a reasonable consumer would not regard the car as being of acceptable quality because it had that rust. In this respect, I observe that Mr Turk gave evidence, for example, that because of the rust the driveshaft axles also needed to be replaced.
JJ Prestige Auto Sales further submitted that no connection is required between the ‘defect’[14] for which a consumer contends a good is not of acceptable quality, and a feature observed on examination that renders the good to be not of acceptable quality. It submitted that, on a proper construction of the legislation (and this is my understanding of its submission, not a precis of it as put), if a good has two defects, defect A and defect B, and a ‘reasonable consumer’ would regard either as rendering the good unacceptable, then:
[14]I am here and below using the word ‘defect’ to cover all features of a good set out in s 54(2) that might cause a reasonable consumer to consider the good not acceptable.
(a) If a particular consumer inspects the good, notices defect A, is prepared to accept the good with that defect, but does not notice defect B (and the inspection ought not reasonably have revealed defect B); and
(b) The consumer, after purchase, becomes aware of defect B, or defect B manifests itself, and seeks to enforce the statutory guarantee in respect of defect B; then
(c) The statutory guarantee does not apply. The consumer is unable to recover in respect to defect B because, by reason of his or her awareness of defect A at the time of purchase, the good is deemed under s 54(7) to be of acceptable quality.
This construction is, perhaps, tenable on the language of the legislation. But a simple example indicate how surprisingly this construction would operate in practice. A person might buy a car with a defective coat of paint, which a reasonable consumer would consider makes the car of unacceptable quality, because the purchaser intends or is prepared to repaint the car. Unbeknown to that purchaser, there is also a serious problem with the car’s engine. On the construction proposed by JJ Prestige Auto Sales, the purchaser would be unable to rely on the statutory guarantee of fit for purpose in order to obtain a remedy for having purchased a car with a defective engine, because the inspection had revealed that the car, by reason of its paint job, was, objectively, ‘not of acceptable quality’. It is inconceivable that the legislature would have intended that result.[15]
[15]See also Explanatory Memorandum, Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 (Cth) [7.38]-[7.39], particularly the words ‘… the guarantee of acceptable quality does not apply to the extent that the examination should have revealed the relevant defect or defects’ (emphasis added).
In my view, the legislation, when read as a whole, does not operate in that manner. Instead, s 54 requires some connection between the defect that the consumer contends makes the good not to be of acceptable quality and the defect that the consumer saw or, perhaps, ought to have seen, before purchase and thus accepted or is taken to have accepted. The subsections of s 54 are intended to operate sequentially and in that way the scope of s 54(7) is narrowed by what has come before. The first step is for the consumer seeking to enforce the statutory guarantee to establish, by reference to s 54(2), the ‘defect’ in the good acquired that he or she contends makes the good not of acceptable quality. Once that has been done, the onus shifts to the supplier to establish that s 54(7) is engaged so as to remove the consumer’s ability to rely on the statutory guarantee for that defect. In order to do this, the supplier must establish that the consumer’s examination revealed or ought reasonably to have revealed that defect. The underlying purpose of s 54(7) is to prevent consumers from relying on the guarantee when they have seen, and therefore presumably accepted, the defect of which they complain. It is not enough for the supplier to establish that the consumer’s examination revealed some other defect of which the consumer is not complaining.[16]
[16]That is not to say, however, that the presence of other accepted defects might not affect the amount of any damages or other remedy ordered.
Accordingly, I do not accept JJ Prestige Auto’s submission that the statutory guarantee does not apply if the RACV’s inspection would reasonably have revealed any detail that meant that the car supplied was not of an acceptable quality. It would not be sufficient for JJ Prestige Auto Sales to establish, for example, that the RACV’s examination revealed or ought reasonably to have revealed that there was a problem with the suspension. Equally, I do not accept JJ Prestige Auto’s submission that the Tribunal was required to ask whether the presence of rust under the car, which was or should have been observed by the RACV, was of a type or nature or extent that meant, for any reason, that the car was not of an acceptable quality.
It is not, however, straightforward to ascertain the level of abstraction at which the ‘defect’ should be described for the purpose of connecting the problem of which the consumer is complaining with what was or should have been revealed in an examination prior to purchase. The issue with this car was that it broke down due to the presence of damage to the drive train, and that is the level at which the analysis should take place. Accordingly, I accept that it was not necessary for JJ Prestige Auto Sales, in order to defeat Ms Al Fares’ claim, to establish that the RACV’s examination revealed or ought reasonably to have revealed, specifically, that there was salt corrosion in the hybrid battery, wires, connectors, DC Converter and the main generator. But JJ Prestige Auto Sales was obliged to establish that the RACV’s examination revealed or ought reasonably to have revealed that this car was at an unacceptably increased risk of its drive train breaking down. The only feature the subject of argument was the presence of rust underneath the car. Accordingly, the question the Tribunal was obliged to ask itself was whether the RACV saw, or, perhaps ought to have seen, rust underneath the car that revealed that the car had a sufficiently increased risk of its drive train failing such that the reasonable consumer would regard the car as being of unacceptable quality.
D.2 Did the Tribunal ask itself the wrong question?
It was common ground that the car was working at the time of sale, and that the later failure of the drive train was due to the progression of salt corrosion and its entering or otherwise affecting the hybrid battery, wires, connectors, DC converter and the main generator. Some rust was present at the time of sale and so, once any other cause was excluded, it followed that the existence of the rust was associated with an increased likelihood that the drive train would later fail.
I repeat the Tribunal’s central findings as expressed in the following paragraph:
Although Mr Turk was critical of the RACV inspection failing to detect the corrosion evident at the time of purchase, I am not satisfied that an RACV inspection ought to have reasonably identified the salt corrosion in the hybrid battery, wires, connectors, DC converter and the main generator. At the time of inspection these components were working. Further Land Rover Berwick, an authorised land rover repairer did not identify the salt corrosion in December 2021. Instead, it diagnosed a coolant pump issue. To my mind if Land Rover Berwick could not identify the salt corrosion after a more detailed inspection in December 2021, RACV could not be expected to diagnose the salt corrosion on a more limited inspection in May 2021.
When the Tribunal’s reasons are read fairly in context of the issues as they arose in the hearing, I am not persuaded that the Tribunal asked itself the wrong question.
The Tribunal’s reasons must be read in light of the manner in which the case was argued before it. JJ Prestige Auto Sales submitted below, orally and concisely, that the RACV’s examination ought reasonably to have revealed that the car was not of acceptable quality because:
(a) Although the RACV’s report did not refer to any ‘rusting issues’, it would have been ‘quite obvious and easy for any qualified inspector to identify these issues’ for the two batteries; and
(b) In respect to the high-voltage battery, ‘which is critical for the functioning of a hybrid vehicle’, when the bottom of the vehicle is ‘getting examined properly’, ‘you will see the rusting there already’.
In this way, JJ Prestige Auto Sale’s submissions focused on the potential damage to the batteries, associated with rust that, it says, should have, but seems not to have been, picked up by the RACV examination. JJ Prestige Auto Sales did not explicitly refer the Tribunal to the need to assess the car as at the time or sale or to the distinction between an existing problem and a defect in the sense of an increased risk of the later development of a problem. This explains why the Tribunal did not address that distinction in it reasons. But this was of little moment given that, as noted above, by the time of the hearing it was common ground that the car was working at the time of sale but had rust that later caused it not to fail completely, and the issue was whether that likely progression should have been revealed by the examination.
Some of the evidence given by Mr Turk could have justified the Tribunal in finding in JJ Prestige Auto Sales’ favour. But, reading the reasons fairly, the Tribunal did not accept his opinion that the inspection should have revealed rust that made the car not of acceptable quality. That is apparent from the use by the Tribunal of the word ‘although’ – identifying that the conclusion following is contrary to the views expressed by Mr Turk - and from the immediately following reference to the fact that Berwick Land Rover had inspected the car, and presumably the rust, without it ascertaining from that inspection that the rust was associated with a risk of failure of the drive train; and indeed it had, it seems, excluded the rust even as a possible cause of the car’s failure.
Also, it is to be remembered that Mr Turk was a highly qualified mechanic who, in contrast to the RACV, examined the car after it had already broken down, put it on a hoist and removed parts, and sent the rust off to be tested. He had, in a sense, the benefit of hindsight, and no inspection done prior to his had identified the presence of rust as either putting the hybrid drive train at unacceptable risk of failure or as having been responsible for its failure.
In my assessment, when the Tribunal said:
…if Land Rover Berwick could not identify the salt corrosion after a more detailed inspection in December 2021, RACV could not be expected to diagnose the salt corrosion on a more limited inspection in May 2021
the Tribunal was indicating that it was not satisfied that the RACV’s inspection ought reasonably to have revealed rust (or corrosion) of a type that carried with it an increased risk of the drive train later failing such as then to reveal the car to be not of acceptable quality. The phrase ‘diagnose the salt corrosion’ meant diagnose in the sense of identify its presence and the underlying process or risks associated with it.
As noted in Part D.1.2.1 above, there is a dispute as to whether the question is what the actual examination as performed ought reasonably to have revealed, or is what an examination performed reasonably ought to have revealed. It is not necessary to form a view on this dispute because the reasons reveal that the Tribunal, favourably to JJ Prestige Auto Sales, considered that the question was the latter, but answered that question in Ms Al Fares’s favour. So much is apparent by the words; ‘RACV could not be expected to diagnose ...’.
For these reasons, I reject JJ Prestige Auto Sales’ submission that the Tribunal asked itself the wrong question.
E. Other grounds of appeal.
JJ Prestige Auto Sales’ grounds of appeal included allegations that the Tribunal’s findings were not open on the evidence or were erroneous, illogical or unreasonable. Those grounds would have faced difficulty given that the onus was on JJ Prestige Auto Sales to establish the conditions that engaged s 54(7) of the Australian Consumer Law and the Tribunal found that it had not discharged its onus. Ultimately, no oral submissions were presented in support of those grounds and JJ Prestige Auto Sales’ counsel, sensibly in my view, confirmed that the application for leave to appeal was limited to the single issue of whether the Tribunal asked itself the correct question. Accordingly, I say no more about them.
F. Disposition
The application for leave to appeal will be dismissed. I will hear the parties on the question of costs.
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