Levy v Mercedes-Benz Australia/Pacific Pty Ltd

NCAT Appeal Panel|2024-05-02

January 2024 Before: P French, Senior Member File Number(s): 2023/00383392

Introduction

The appellant purchased a Mercedes-Benz motor vehicle from Wollongong City Motors Pty Ltd t/a Mercedes-Benz Wollongong (Dealer) by contract dated 1 March 2021. From the time of purchase, the appellant had the vehicle serviced by Sandersons Rushcutters Bay (Sandersons), a Mercedes-Benz dealer, located closer to his home.
Approximately 2 years after the supply, the appellant sought to have the steering wheel repaired or replaced under warranty because it had suffered delamination to the Teflon surface coating. For this purpose, he returned the vehicle to Sandersons.
The claim was apparently referred to Mercedes-Benz Australia/Pacific Pty Ltd (Mercedes-Benz/respondent), which for present purposes, including under the Australian Consumer Law (NSW), is the manufacturer of the vehicle. The respondent declined to repair or replace the steering wheel. An email from Sandersons to the appellant dated 20 July 2023, Appeal Bundle (AB) at 141, stated: "Mercedes have come back to us and said it looks like outside influence or wear and tear and is not warrantable".
The vehicle was supplied with what we will call a "manufacturer's warranty" which was a written document provided by the respondent. In general terms, this manufacturer's warranty was for a period of 5 years and was a warranty by which respondent said it would repair or replace defective goods. The terms of this warranty and what it obliged the respondent to do is a matter to which we will return below.

Notice of Appeal

The Notice of Appeal was filed 30 January 2024. The appeal was lodged in time.
The orders sought are: "For Mercedes-Benz to Repair the defective Steering Wheel or Mercedes-Benz to replace the defective steering wheel at the cost".
As to the grounds of appeal, the Notice of Appeal states: "Mercedes-Benz offered a 5 year warranty with the sale of the car. The warranty has not been upheld. Grounds of appeal being made under Section 59 of the Australian Consumer Law".
Leave to appeal is sought. As to why the decision was not fair and equitable, the appellant said: "Specifically, I would like to highlight that, during the proceedings, I inadvertently failed to cite the correct section under the Australian Consumer Law (ACL) that pertains to my claim as an ordinary consumer. Upon thorough examination of the law, it is evident that Section 59 of the Australian Consumer Law should have been taken into account. Section 59 of the ACL outlined that a supplier or manufacturer of goods must comply with an express warranty. … Regrettably, due to my oversight during the hearing, this vital section was not brought to the attention of the NCAT senior member. I firmly believe that had Section 59 of the ACL been considered, it would have significantly influenced the outcome of the decision."
As to why the decision was against the weight of evidence, the appellant referred to a report of Dr Casey, who was an expert called on behalf of the respondent. Of his evidence, the appellant said that Dr Casey made "Inconclusive Findings" and had "no expertise in leather".
The respondent filed a Reply to Appeal. The respondent said the decision of the Tribunal should be upheld. At 3B of the Reply to Appeal, the respondent said: The Tribunal was aware that in order to establish that the Respondent may have breached the warranty with respect to the steering wheel it thus fell to the Appellant to prove on the balance of probabilities that the deterioration in the condition of the steering will resulted from defective material or workmanship rather than from any other cause. At the civil standard or proof (sic) and on the balance of probabilities the Appellant failed to do so. The Tribunal was therefore not wrong in its decision to make the Orders. … The Tribunal was aware of the Respondent's obligations under s 59 [of the ACL] and was not satisfied that the Appellant has established that the condition of the steering wheel resulted from a manufacturing defect which engaged the operation of the Mercedes-Benz Warranty. His claim in contract therefore failed on its merits and the application was dismissed. The Tribunal was not wrong in its decision to make the Orders. The Respondent has and will continue to comply with its obligations under s 59 to rectify any defect which stems from a material or manufacturing defect under the terms of its 5 warranty (sic) which expires on 28/05/2026.
The respondent continues that leave to appeal should not be granted. The Tribunal took account of relevant evidence and the claims made. In this regard the respondent says "the grounds of appeal regarding s 59 were taken into account, considered and adequately addressed by the Tribunal". The respondent says that the Tribunal was correct to conclude the appellant had not "established that the condition of the steering wheel results from a manufacturing defect which engages the operation of the Mercedes-Benz Warranty."
The respondent then says the "appeal application is both vexatious and personal in nature and is not based on any substantive basis in fact, law or error of the Tribunal". Reference was made to an email dated 9 January 2024, said to have been seen shortly before the Notice of Appeal was filed.
For the purpose of the appeal, the parties provided written submissions, the appellant also providing an electronic copy of the sound recording and some transcript excerpts.
In relation to the transcript, we were provided with "Part 1" and Part 2". However, these were essentially the same documents. Submissions in reply, file by the appellant, contained other parts of the transcript. It does not appear either party provided a complete transcript of the proceedings at first instance, particularly the cross examination of Dr Casey. However, the sound recording was reviewed in circumstances where both parties made submissions concerning the effect of the evidence given.

Decision of the Tribunal

In its reasons, the Tribunal recorded that the application before it was only against the manufacturer, not the Dealer.
The Tribunal had raised this matter in the context that the regime in s 271 to 273 of the ACL only permitted an award of damages against a manufacturer. If an order was sought for repair, the claim would need to be amended because such an order could only be sought against the Dealer, being the supplier of the motor vehicle.
In this regard the Tribunal's reasons at [49]-[50] recorded discussions between the Tribunal and the parties concerning an earlier directions hearing on 28 August 2023, where the Tribunal (differently constituted), had made procedural directions which included the identification of issues in dispute. Order 2 made 28 August 2023 stated: 2. The issue to be determined by the Tribunal is whether the steering wheel of the vehicle, the subject of this Application, is of acceptable quality and if not, should it be replaced.
Of this direction, and whether the Dealer should be joined as a party, the Tribunal said at [50]-[51] of the reasons: 50. Following this explanation, I invited the consumer to consider his position, indicating that he had the option of seeking leave to amend his application and to join Mercedez-Benz Wollongong as a respondent to the application, both of which would necessitate an adjournment of the hearing. I also indicated to the consumer that it was open to him to withdraw his application as it presently stood which would be without prejudice to a future application against a different respondent if he elected to pursue the matter further. I note that I indicated these possibilities in a context where matters of this kind are ordinarily dealt with at the Group List stage but had not been in this case. In this respect I indicated to the parties my view that the Tribunal had to accept some responsibility for the misconceived way in which the consumer's case presented because of procedural direction 2 made on 28 August 2023 which stated a cause of action that could not lead to the remedy sought. 51. …The consumer indicated that he wished to proceed with his application and that he relied on the terms of the manufacturer's warranty, and ss 58 and 90 of the ACL.
Section 58 of the ACL (found in Division 1, of Part 3.2 of Chapter 3 of the ACL) provides a guarantee as to a manufacturer taking steps to ensure the reasonable availability of spare parts. Section 90, on the other hand, which is found in Division 2, of Part 3.2 of Chapter 3 of the ACL, provides that a consumer under "an unsolicited consumer agreement" cannot waive a right conferred by Division 2. There is no suggestion that the purchase of the vehicle was an unsolicited consumer agreement or that parts for the vehicle are not reasonably available form the manufacturer. The Tribunal noted at [53] and [55] that the appellant's reliance on these sections was misconceived and that they had no application. The appellant did not take issue with those findings before us.
As to the substantive dispute regarding the manufacturer's warranty, the Tribunal accepted the appellant's claim was a consumer claim within the meaning of the Fair Trading Act 1987 (NSW) (FT Act) and that it had jurisdiction to determine the dispute: at [60]. At [62] the Tribunal continued: With respect to s 79E(2) there can be no issue in this case that a claim in relation to the Mercedes-Benz Warranty arises from the direct supply of the motor vehicle to the consumer by Wollongong Mercedes-Benz. Pursuant to s 79N(b) in Part 6A the Tribunal therefore has power to grant the remedy sought by the applicant against the manufacturer: 79N Orders in favour of claimant In determining a consumer claim wholly or partly in favour of a claimant, the Tribunal may, subject to this Division, make any one or more of the following orders that it considers appropriate - … (b) an order that requires a respondent to perform specified work in order to rectify a defect in goods … to which the claim relates, …
For the purpose of determining the claim, the Tribunal had before it the manufacturer's warranty, parts of which were set out at [14] of Tribunal's reasons.
As to the issue of whether the steering wheel was defective, the Tribunal had before it two reports setting out views of witnesses put forward as experts to comment on the defects. These were: 1. for the appellant - a report from Klingshield dated 4 September 2023 (Levy report), a company providing car tinting and sun protection equipment. The author of the report was the appellant's father, Mr Leon Levy; and 2. for the respondent - a report provided by Dr Casey dated 20 September 2023, an engineer (Casey report).
There was also photographic evidence of the steering wheel and a statement from the appellant concerning his use and maintenance of the vehicle.
At the hearing, the appellant and Dr Casey were cross examined. The appellant's father, who provided the Levy report, did not attend the hearing and was not cross examined.
As to the scope of the manufacturer's warranty, the Tribunal said at [64]-[66]: 64 The salient terms of the Mercedes-Benz Warranty are set out in full at paragraph 14 above. In short summary, Mercedes-Benz warrants that it will repair or replace at its election within the warranty period any defective component in the motor vehicle where the cause of the defect is defective material or workmanship. The warranty operates subject to various limitations and exclusions which include improper maintenance, care and cleaning methods, and natural environmental influences. 65 In order to establish that Mercedes-Benz has breached the warranty with respect to the steering wheel it thus falls to the consumer to prove on the balance of probabilities that the deterioration in the condition of the steering wheel results from defective material or workmanship rather than from any other cause. 66 I note that the consumer appears to approach the matter on the basis that it is Mercedes-Benz that bears the onus of proving that the deterioration in the condition of the steering wheel was not caused by a manufacturing defect, and in particular, that it was caused by his method of maintenance, care and cleaning or his use of skin creams. That is a misconception. Mercedes Benz may bear a practical onus of establishing other possible causes of the condition of the steering wheel, but it is the consumer who bears the formal onus of proving a manufacturing defect.
Ultimately, the Tribunal rejected the appellant's claim as the appellant had failed to prove what was the cause of the deterioration in the condition of the steering wheel. At [67]-[71] Tribunal said: 67 It is for this reason that the consumer's case must ultimately fail. His evidence, taken at its highest, does not establish the cause of the deterioration in the condition of the steering wheel. I do not consider Mr Leon Levy's evidence that of an expert because he is the father of the consumer and therefore not independent of the dispute. However, treating that evidence as lay evidence and taking it at face value, it only establishes two things. First, that the damage was not caused by exposure of the steering wheel to sunlight, which is a proposition with which Mercedes-Benz agrees on the basis of Dr Casey's evidence. Second, that the underlying or root cause of the damage can not be identified. That second conclusion is of little assistance to the consumer's case having regard to the onus of proof that he bears. 68 The consumer attempts to deny all theories of possible causation advanced by Mercedes Benz. He denies ever causing or permitting accidental, negligent, or intentional damage to the steering wheel. He denies ever using hand cream, although he volunteered in cross-examination that he sometimes uses sunscreen cream, but never before or during his use of this motor vehicle. Nevertheless, Dr Casey found evidence of some dried substance on the steering wheel at the time of his inspection. He denied failing to maintain and clean the steering wheel in accordance with Mercedes-Benz's Owners Manual but volunteered that he did clean with a microfibre cloth, contrary to what the Owners Manual recommends. 69 The consumer's position is, in essence, that his disproof of every theory of causation advanced by Mercedes-Benz must lead to the conclusion that the only possible cause of the defect in the steering is a manufacturing defect. Assuming for the purposes of argument that all Mercedes-Benz's possible theories of causation are negatived by the consumer's case, such a proposition might have some force if the interval between the supply of the motor vehicle and the emergence of the defect was quite short. But in this case that interval is more than two years. That is a very substantial period of time. It is impossible to know with certainty every incident that has affected the steering wheel during this period. The underlying damage may have occurred as a result of an incident about which the consumer is completely unaware. But in any event, Mercedes-Benz's theories of causation do not have to be proven by it. On the evidence set out above they are not disproven by the consumer, and they remain plausible contributors if not originators of the damage. 70 In summary, I make the following findings of fact in relation to the damage to the steering wheel: i. on the date of supply (late May or June 2021) there was no visible damage to the steering wheel, ii. there is no evidence of any complaint by the consumer about the condition of the steering wheel before 23 June 2023, which is an at least two year period, iii. the damage to the steering wheel is localised to a section at the top of the steering wheel. That is consistent with that area sustaining some form of post supply injury. It is inconsistent with any systemic failure of the material of the steering wheel. If this material did have a systemic defect, there is a likelihood that the damage would be apparent elsewhere on the steering wheel. 71 The fact that the motor vehicle is two years old, has been subject to limited use, and is otherwise presents in well-cared for condition does not mean that the steering wheel cannot have suffered an unintentional post supply injury. The manufacturing defect present in the Active Lane Assist software is unrelated to the damage to the steering wheel, and that defect is isolated. It is not give rise to a presumption that the motor vehicle has other defective components
As to the scope of the manufacturer's warranty, the Tribunal said at [64]-[66]: 64 The salient terms of the Mercedes-Benz Warranty are set out in full at paragraph 14 above. In short summary, Mercedes-Benz warrants that it will repair or replace at its election within the warranty period any defective component in the motor vehicle where the cause of the defect is defective material or workmanship. The warranty operates subject to various limitations and exclusions which include improper maintenance, care and cleaning methods, and natural environmental influences. 65 In order to establish that Mercedes-Benz has breached the warranty with respect to the steering wheel it thus falls to the consumer to prove on the balance of probabilities that the deterioration in the condition of the steering wheel results from defective material or workmanship rather than from any other cause. 66 I note that the consumer appears to approach the matter on the basis that it is Mercedes-Benz that bears the onus of proving that the deterioration in the condition of the steering wheel was not caused by a manufacturing defect, and in particular, that it was caused by his method of maintenance, care and cleaning or his use of skin creams. That is a misconception. Mercedes Benz may bear a practical onus of establishing other possible causes of the condition of the steering wheel, but it is the consumer who bears the formal onus of proving a manufacturing defect.

Hearing of the appeal

The appeal was heard on 2 May 2024. The appellant appeared in person. Mr Sidley, Corporate Counsel, appeared for the respondent.
Each party made submissions concerning their respective positions. As necessary, we will refer to these submissions below. They included submissions concerning the operation of ss 54, 59 and 271 of the ACL.
In the course of the hearing, there was also discussion about the decision of the Appeal Panel in Volkswagen Group Australia Pty Ltd v Saad [2022] NSWCATAP 133 (Saad), which dealt with the powers of the Tribunal to make orders against the manufacturer for breach of the guarantee found in s 54 of the ACL.

Consideration

The central issues raised in this case are whether the respondent has wrongly refused to repair or replace the steering wheel of the subject vehicle in the circumstances which occurred and whether the Tribunal was correct to dismiss the appellant's claim on the basis he had failed to prove the cause of the defect in the steering wheel.
It is clear from the application and the Tribunal's reasons that the appellant's claim against the respondent was brought under the manufacturer's warranty and under the ACL.
As to the manufacturer's warranty, it was accepted by the respondent that this warranty constituted a collateral agreement between the appellant and the respondent. The fact it was with the third-party manufacturer's warranty does not mean it is unenforceable at the suit of the appellant: see eg Wells (Merstham) Ltd v Buckland Sand and Silica Ltd [1965] 2 QB 170 at 179-80.
In effect, the appellant contends that the manufacturer's warranty applied to the circumstances of this case and the Tribunal was in error in its conclusion that he was obliged to prove the cause of the defect in order for the obligation to repair or replace to arise. Further, and in any event, the Tribunal was in error in concluding the facts did not establish the relevant defect.
The first issue involves construing the manufacturer's warranty and the nature and extent of the obligations of the manufacturer to repair or replace defective materials or workmanship. The proper construction of the manufacturer's warranty and which party bears the onus of proof when a claim is made under the warranty and proceedings are subsequently brought concerning a dispute raise questions of law.
The second involves a challenge to the factual findings of the Tribunal. Such a challenge requires leave to appeal. In order to obtain leave, the appellant must demonstrate he may have suffered a substantial miscarriage of justice because the decision was not fair and equitable, against the weight of evidence or there is significant new evidence that was not reasonably available at the time the original decision was made: Sch 4 cl 12(1) Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act). The decision of Collins v Urban [2014] NSWCATAP 17 sets out the principles applicable to the grant of leave.
On the issue of new evidence, we should briefly note the appellant sought to rely on a report of Sydney Motor Trimmers & Clifford Powell dated 13 March 2024: AB 379. The appellant properly conceded this was new evidence reasonably available at the time of the original hearing. Consequently, it should not be admitted for the purpose of this appeal: Sch 4 cl 12(1)(c); Al Daouk v Mr Pine Pty Ltd t/as Furnco Bankstown [2015] NSWCATAP 111 at [19] and following.

The warranty

The manufacturer's warranty relevantly provides: Important Notice Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure. The benefits of this Warranty are in addition to any other rights and remedies you have under a law in relation to the Vehicle. In circumstances where your rights under the Australian Consumer Law are greater than your rights under this Warranty, we will always honour your rights under the Australian Consumer Law. Warranty Mercedes-Benz Australia/Pacific Pty Ltd (Company) offers this Warranty for the Vehicle described on page 3 (Vehicle) in Australia. This Warranty is applicable to Mercedes-AMG vehicles and Mercedes-Benz Passenger Cars including, Plug-In Hybrid Electric Vehicles and C-Class vehicles but excluding EQ vehicles. This Warranty does not apply to vehicles which are subject to specific warranty arrangements with the Company. If the Vehicle is subject to a specific warranty arrangement, the terms of that specific arrangement shall apply. All precautions which are usual and reasonable have been taken to ensure the quality of the materials and workmanship in our vehicles. This Warranty exists for the benefit of any owner of the Vehicle during the applicable Warranty Period. However, this Warranty terminates if the Vehicle is sold by public auction or if it is damaged and assessed as a write off, repairable write off or total loss. If any defect arises and is presented to one of the Company's authorised Mercedes-Benz Retailers within the applicable Warranty Period and upon examination the defect is determined to be caused by defective material or workmanship, the Company will repair or replace (at the Company's election) the defective material or workmanship free of charge. In most cases, there will be no charge to you for expenses associated with making a claim under this Warranty. If there are circumstances that mean you may need to pay a charge, the charge will be discussed with you in advance. … Your Obligations This warranty is given on the condition that:

the Vehicle is at all times properly used and operated, and regularly serviced and maintained at the applicable intervals of time or distance specified by the Company, and in accordance with the procedures set out in the maintenance booklet or as otherwise specified by the Company using approved parts and lubricants; and
the Vehicle's application being notified by the owner to the Company. If the above obligations are not complied with, this may partially or entirely void the Vehicle's Warranty. Exclusions and Limitations This Warranty does not cover damage, faults or defects arising out of:
neglect, misuse, intentional damage, improper operation, improper maintenance, storage, transportation, accident or use of the Vehicle for a purpose for which it was not designed;
water ingress such as from floods or deep-water fording;
modifications in engine output or vehicle specifications without the Company's approval;
use of non-genuine Mercedes-Benz parts and/or use of parts, accessories, supplies or service products not approved or recommended by the Company or Mercedes-Benz Genuine Parts on which the identification marks have been altered, defaced or are otherwise unidentifiable;
repairs, modifications or reprogramming other than by an authorised Mercedes-Benz Retailer and such repair, modification or re-programming causes damage, fault or defect;
the permissible gross vehicle mass, the permissible gross combination mass or the permissible axle mass having been exceeded;
natural, external and/or environmental influences including but not limited to climatic conditions, fallout, bird or animal droppings, road salt, plant and animal substances and pollution;
improper care, improper cleaning methods, cleaning materials and spray waxes not recommended by the Company, or use of non-approved fuels, lubricants or additives;
use of the Vehicle beyond its engineered and stated capability in regards to use, application and load capacity;
goods not imported into Australia or manufactured by the Company or a related body corporate (including but not limited to the goods and services of body builders and suppliers). Damage, faults or defects in, or damage consequential to the use of such goods, are the responsibility of the third party manufacturer or supplier. The Company will supply the name and address of any such manufacture or supplier on request and it is the owner's responsibility to make claims under such warranties; or
use of the Vehicle in motor sport, competition, rally or race or beyond its engineered and stated capability in regards to use, application and load capacity. This Warranty does not Cover:
tyres, consumables, maintenance, servicing, normal wear and tear, the alignment of front and rear axles, wheel balancing and tyre rotation;
any consequential damage incurred or repairs required if you continue to operate the Vehicle after the defect arises. …

As to the first issue, the manufacturer's warranty applies where: 1. "any defect arises" and 2. the defect is presented to a dealer; and 3. the defect is determined to be "caused by defective materials or workmanship".
Under the heading "Exclusions and Limitations" (the exclusion clause), the operation of the warranty "does not cover damage, faults or defects arising out of" the circumstances or matters specified in the exclusion clause.
The words "defect" and "defective material or workmanship" are not defined in the manufacturer's warranty. They should be given their ordinary meaning. "Defect" means a shortcoming or imperfection. "Defective" means imperfect or faulty: Oxford English Dictionary, online ed, May 2024. There is no reason why a defect would not include a shortcoming or imperfection in the goods (in this case in the steering wheel materials) resulting in the goods not being of acceptable quality as required by s 54 of the ACL, an obligation that also applies to the manufacturer.
The effect of the respondent's submissions is that, on its proper construction, it is for the owner to prove the cause of the defect, including negating any exclusion relied on, as opposed to proving the fact of a defect, before the manufacturer's warranty operates to oblige the respondent to repair or replace the defective item. This was the view accepted by the Tribunal below. It placed the onus on the appellant to disprove the existence of the exclusions relied on by Mercedes-Benz.
In our view, this construction should not be adopted. Rather, when read together, the effect of the clauses in the manufacturer's warranty is that defects in materials in the vehicle, which arise during the warranty period of 5 years, are covered by the warranty unless otherwise excluded. The exclusion clause operates to limit or exclude Mercedes-Benz's general obligation under the manufacturer's warranty to repair or replace defective materials or workmanship, where the defect arises from the circumstances specified in the exclusion clause.
Put another way, and using the words of the exclusion clause, there can be a "defect" in materials or workmanship, but it is excluded from "cover" where it arises out of: 1. "neglect, misuse, intentional damage, improper operation, improper maintenance … or use of the Vehicle for which it has not been designed"; 2. "improper care, improper cleaning methods, cleaning materials and spray waxes not recommended by the Company, or use of non-approved fuels, lubricants or additives"; or 3. other circumstances specified in the exclusion clause.
Our view is not affected by the words "upon examination the defect is determined to be caused by defective material or workmanship". Rather, this provision permits the manufacturer to examine the defect to determine if there are circumstances in which the exclusion clause applies.
Construed this way, the appellant had an obligation to prove to the Tribunal the facts necessary to claim under the warranty. Namely, that there was a defect in the materials, which he presented to the Sandersons within the warranty period when making his claim. If, upon examination, the manufacturer sought to rely on the exclusion clause to relieve itself of liability, the law required it prove that the case fell within one of the exclusions in the warranty.

The evidence

In the present case, the evidence concerning the steering wheel, its condition and how the appellant operated and maintained the vehicle is to the following effect: 1. Since purchasing the car, the appellant has driven the vehicle in the usual manner with no rings or sharp objects that might have penetrated the surface of the steering wheel. He does not use hand lotion but may from time to time use suntan lotion: Transcript from audio file 2 (Tspt 2) at [00:50:33]. 2. The appellant has regularly maintained the vehicle, which, in connection with the steering wheel has included using a microfibre cloth and water: Transcript from audio file 1 (Tspt 1) at [01:33:36]. 3. Expert evidence has been provided: 1. in the case of the appellant, by his father who works in the motor vehicle industry providing glass coatings, inter-alia to protect the internal finish of motor vehicles from the effects of radiation and heat including ultraviolet light; and 2. in the case of the respondent by Dr Casey who holds a PhD, Master of Engineering Science and a Bachelor of Engineering, "all in the field of mechanical engineering". 1. The steering wheel includes a leather covering on its rim.: Casey report para 5.7. 2. The leather covering has a Teflon coating to protect it. The respondent's expert says that such a coating system "is becoming the norm within the automotive industry for steering wheels, because steering wheels experience high levels of sweat, creams, hand sanitisers and other substances that can otherwise damage that leather.": Casey report para 5.7. 3. The Teflon coating has delaminated or broken down in the area between roughly the 11 o'clock and 2:30 positions: Casey report para 5.7. 4. There are no signs the Teflon coating or the leather has been damaged by penetration of a sharp object: Dr. Casey Tspt 2 [00:33:18]. 5. Various hypotheses are put forward as to what might have caused a breakdown in the Teflon coating and its delamination. They include: 1. sweat from hands; 2. hand lotion 3. suntan lotion; and/or 4. cleaning with a microfibre cloth. Tribunal decision at [25]. 1. Neither the appellant's expert nor the respondent's expert is able to express an opinion concerning the "root cause", namely the exact reason why delamination has occurred. Casey report para 6.2; Levy report para (e). On this point, in cross examination of Dr Casey the following exchange occurred between the appellant and Dr Casey at Tspt 2 [00:33:10]: Mr Levy: [33:10] Are you saying here the reason for the process starting in the first place is inconclusive? What are you trying to say by that? Dr Casey: [33:18] Oh no. It's a very explicit statement. I mean no more and no less than what I actually say. So, just to reiterate, I believe that something has caused the protective coating to be penetrated at one small point, probably towards the centre of that symmetric damage patch and from there, substances are then able to get underneath the protective coating and wick in between, in the layer, between the leather and that substrate. And it weakens the bond in the substrate so it then peels off. And at point now the same sort of substances are wicking under the edge, weakening the edge, then it peels off, so it's just slowly moving off, much like ripples on a pond. [34:00] But what started it, in that very very centre area, I don't know. I did look with my magnifying glass, because I was looking for a scratch, a puncture mark, things of that nature. I couldn't see any. However, the leather is really coarse. Unless that puncture mark was large, much larger than the grain in the leather, you wouldn't see it. So I don't know whether one is there or not. I don't know whether it was some sort of chemical attack or not (emphasis added). In order to take that investigation further, you'd need to literally start getting into the realms of a scanning electron microscope and chemical analysis such as GCMS and that will cost at least five to eight thousand dollars. So if you want to take it further, the cost of the investigation is so prohibitive- then at [00:36:31]: Mr Levy: … Have you seen a motor vehicle roughly 10,000 km on the clock, which is in an early part of its warranty? … Have you ever seen something like this occur in such a similar scenario? Dr Casey: no, no. and finally at [00:39:05] Mr Levy: … And yes, you can talk generally about steering wheels that are installed on all types of Mercedes-Benz from one class to another, but you just like one part of the vehicle, failed and needed to be replaced because it wasn't of acceptable quality. Can you 100% conclusively say that this steering wheel. Came with. No with with no defect on it out of the factory. Dr Casey I just cannot say that. Simply do not say that. Because I stand by what I said. What caused it to fail is inconclusive. And so one of the possibilities, as you're putting forward, that there was some issue with the bond. And so can I rule that out? Of course not. Yeah, of course not. And so therefore I have to consider it still to be possible. 1. Both experts agree that the failure of the Teflon coating in the period of approximately 2 years since purchase is not usual, in the sense that neither expert had observed like coating systems fail in such a short period of time. Dr Casey Tspt 2 [00:37:26]; Levy report AB 157 point (f). 2. It is not in dispute that the failure was notified to the respondent about 2 years after the vehicle was purchased new.
In our view, the above evidence leads to the following conclusions: 1. There was a defect in materials in that the Teflon coating on the leather of the steering wheel broke down and delaminated. 2. The Teflon coating is applied to provide a protective cover to the leather substrate which forms part of the steering wheel. 3. The failure of the Teflon coating was in the location where the steering wheel is ordinarily held to operate the motor vehicle. 4. The delamination was progressive, culminating in the state of the steering wheel as depicted in images taken after approximately 2 years from supply. That is, the delamination commenced sometime prior to the time when the appellant returned the motor vehicle to make a claim under the manufacturer's warranty. 5. Such delamination is not an ordinary occurrence in a vehicle of the age of the appellant's vehicle. 6. It is possible that the delamination commenced at a point on the steering wheel where there was a small "hole" in the Teflon coating and delamination radiated out from that position. What the failure mechanism was, including whether arising from sweat or other foreign substances entering under the Teflon coating is unknown. The cause of the hole (if any) is unknown. However, there is no evidence of damage to the leather surface caused by a foreign object penetrating the Teflon coating or any other event that might be attributable to the actions of the appellant. Otherwise, there is no evidence of general delamination of the Teflon coating in other locations on the steering wheel. 7. The evidence indicates the steering wheel was cleaned all over with the microfibre cloth and water. Even if this cleaning process was not recommended by the manufacturer, it did not cause damage in any sections of the steering wheel, as might be expected if such cleaning could damage the Teflon coating. Rather, the delamination only occurred in the area where the steering wheel was held for the purpose of ordinary operation. Consequently, it is unlikely that cleaning by a microfibre cloth caused damage to the steering will in the present circumstances. 8. The evidence does not otherwise support a conclusion that the actions of the appellant, while operating or maintaining the motor vehicle, might have caused the Teflon coating to be penetrated or to fail. Rather, the evidence indicates the Teflon coating has failed during the ordinary operation of the motor vehicle in a manner that was not meant to occur and could not be attributable to the age of the vehicle or matters to which the exclusion clause would apply.
Having regard to the above we are satisfied there was a defect to which the warranty applied.
The defective material was the Teflon coating which failed and delaminated.
Further, the evidence leads us to the conclusion that the steering wheel, with its Teflon coating, was not of acceptable quality as that expression is used in s 54 of the ACL in that the steering will was not: 1. acceptable in appearance and finish, 2. free from defects and/or 3. durable. This was also a defect in the material constituting the steering wheel.
Finally, none of the matters that might operate to exclude cover are established by the evidence in the proceedings.

Conclusion

It follows that we are satisfied that the Tribunal was in error in relation to its construction of the manufacturer's warranty and in respect to its factual conclusions concerning the defect and who carried the onus of proof.
Insofar as leave to appeal is required, we are satisfied that the factual conclusions reached by the Tribunal were against the weight of evidence and/or that the Tribunal's decision was not fair and equitable. To use the words of Collins at [79] the appellant "has been deprived of a 'significant possibility' or a 'chance which was fairly open' of achieving a different and more favourable result" because of these matters. This has resulted in "an injustice which is reasonably clear": Collins at [84]. Consequently, leave to appeal is granted.
Having reached this conclusion, there is power under s 79N of the FT Act to make an order that the manufacturer have the steering wheel repaired or replaced.
It was not suggested in evidence that this work could not be done. There was no suggestion such an order would not otherwise be fair and equitable in the circumstances of this case. Accordingly, we will make this order.
Finally, we should note that the appellant also claimed he was entitled to an order to repair or replace the steering wheel under s 59 of the ACL. The Tribunal noted the potentiality of this claim at [58] of the reasons. While unnecessary to decide, this matter being dealt with on the basis of collateral contract, we would have determined the same remedy was available if dealt with under s 59. In relation to available remedies, the decision of Saad does not prevent the granting of a remedy to repair or replace the steering wheel. This is because the FT Act provides the remedies the Tribunal may grant in connection with a claim under s 59 of the ACL, which remedies includes an order in the nature of a work order.
As to the question of costs, s 60 appears to apply. As such, each party, would, ordinarily, bear their own costs of the appeal. We will permit submissions on this topic should the parties contend for a different outcome.

Orders

The Appeal Panel makes the following orders: 1. The appellant has leave to appeal and the appeal is allowed. 2. The order of the Tribunal made 4 January 2024 in application 2023/00383392 is set aside and in lieu thereof the following order is made: "The respondent (Mercedes-Benz Australia/Pacific Pty Ltd) is to repair or replace the steering wheel on the appellant's motor vehicle, the subject of this application, such work to be completed on or before 31 July 2024." 1. Subject to order 4, each party is to pay their own costs of the appeal. 2. If either party contends for a different order to that of order 3, the following directions apply: 1. Within 14 days from the publication of these reasons, any applicant for costs (costs applicant) is to file and serve any application for costs (costs application) which is to include any evidence and submissions, submissions to be not more than 5 pages. In this event, order 3 will cease and have no effect. 2. Within 28 days from the publication of these reasons, any respondent to the costs application is to file and serve any evidence and submissions in reply, submissions to be not more than 5 pages. 3. Within 35 days from the publication of these reasons, the costs applicant is to file and serve any submissions in reply (not more than 2 pages).

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 June 2024

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