PPT Investments Pty Ltd v DRE Group Pty Ltd

The Tribunal's Reasons

1. Remembering that there were two separate occasions of failure of one or more turbo chargers, the critical findings of the Tribunal were: "20 As articulated in Matamaini v Automobile Industries Pty Ltd [2017] NSWCATAP 93), the question which the Tribunal must first consider and answer is whether, at the time of the sale, the vehicle was of acceptable quality as that phrase is defined in s 54 (2) of the ACL NSW. It is not necessary to prove that at the time of the sale, there was a particular identified defect which caused the vehicle not to be of an acceptable standard. 21 The evidence in this matter is that the damage to the engine of the X5 was caused because of turbo failure. It is apparent that at least one turbo failed, work was carried out and a complete failure of the engine was identified thereafter. When the X5 was delivered to the respondent after the failure of the engine, the respondent identified that three turbo chargers had failed and there was subsequent internal engine damage. 22 There is very little evidence and no independent evidence as to why the first turbo failed. Mr John Di Nardo observed that the damage to the first turbo looked like it had happened "all of a sudden". He did not think that the disintegration of the turbo was consistent with wear and tear. He opined that, in his experience, turbos fail because they have not had oil available to the turbo, (for example because the vehicle has not been regularly serviced), or else there is a fault in the turbo and it just fails, in the same way that any mechanical item may just break. He reasoned that there was no evidence that the turbo had been starved of oil and concluded that it "just broke". He said that because the X5 was a sports model: 'I expected that it ought to have an engine which would last more than 5.5 years.' 23 I must take into consideration that the X5 is a top end motor vehicle, with a purchase price of $115,000 plus taxes, a total purchase price of almost $150,000. The question I must ask is whether a reasonable consumer, being acquainted with the fact that a turbo might fail after 5.5 years and 147,000 km, would have purchased the vehicle as a top end high performance vehicle for a price of almost $150,000? … 27 Whilst the X5 had travelled 147,437 km at the time of the failure of the turbo, and I have no expert evidence as to how long a turbo is expected to last, or whether it is to be expected that a turbo would "just break" after 147,000 km, I accept that a reasonable consumer would expect a luxury motor vehicle to last "a number of years or at least many thousands of kilometres" (Campbell v Caravan & RV Central Pty Ltd [2016] NSWCATCD 91). I am satisfied that, taking into account the matters in s 54(2) of the ACL, the failure of the turbo meant that the XS was not of acceptable quality when it was supplied. In particular, it was not durable, taking into account the price paid for the vehicle. … 37 I am satisfied that the failure of the vehicle so soon after the replacement of the first turbo represented a major failure. The X5 is substantially unfit for purpose and it cannot, easily and within a reasonable time, be remedied to make it fit for purpose. The failure of the vehicle would not have occurred without the failure of the first turbo. I accept the respondent's submission that some of the damage may have been prevented if a full diagnosis and repair had been initiated upon the first failure, but it is obvious that the consequent breakdowns indicated that further work (in addition to the replacement of the first turbo) was required. Overall, I am satisfied that the damage to the engine was caused by the failure of the first turbo, and not by any shortcomings in the work carried out by the applicant's mechanics."
2. There are a number of difficulties with those reasons which appear on closer examination including the reference in [27] to the "taking into account the matters in s 54(2) of the ACL". Section 54(2) does not set out matters to be taken into account in the sense that one takes into account various facts in order to arrive at a conclusion. Rather, it sets out the five matters required for goods to be judged of acceptable quality or, put another way, it sets out the test for acceptable quality.
3. To be of acceptable quality goods must "must possess all of the qualities listed in s 54(2), to the requisite standard": Williams v Toyota Motor Corporation Australia Limited (Initial Trial) [2022] FCA 344 (Williams) at [164]. As the respondent bore the onus of proof, it bore the onus of proving that the vehicle did not possess one or more of the qualities listed in s 54(2).
4. That sentence of the Tribunal's reasons to which we have referred may simply be infelicitously expressed but there are no findings that that any one or more of the qualities in s 54(2)(a)-(d) of the ACL were not possessed by the vehicle at the time of supply.
5. That is to be contrasted with the final sentence of [27] of the Tribunal's reasons - that the vehicle was "not durable" - which we read as a finding that the vehicle did not possess the quality of durability as required by 54(2)(e) of the ACL. We shall return to this matter later in these reasons.
6. For reasons which do not need exploration here, the Tribunal determined that the limit of its jurisdiction to make a money order in this case was $40,000. Neither party contended on this appeal that conclusion was incorrect. Therefore, in ordering the appellant to refund the purchase monies, the Tribunal ordered that that sum be $40,000.
7. The Tribunal also ordered the respondent to return the vehicle to the appellant. Unknown to the Tribunal and the appellant the respondent disposed of the vehicle after the hearing had concluded but shortly before the Tribunal's decision was published. That matter was taken up on this appeal but does not need to be decided given our conclusions on another ground of appeal.

The Grounds of Appeal

1. At the time the Notice of Appeal was filed the appellant was not legally represented. Its grounds of appeal, with no disrespect, reflect that position.
2. Four weeks before the hearing of this appeal the appellant lodged and served what was called Supplementary Grounds of Appeal. In substance, they replaced the original grounds of appeal.
3. The respondent objected to the appellant being entitled to rely on the Supplementary Grounds of Appeal but we granted leave to the appellant to do so on the basis that they raised matters of law and not fact and no prejudice was caused to the respondent.
4. The Supplementary Grounds of Appeal were (omitting various particulars): "1. The respondent was not entitled to the relief it sought and obtained below as it was not, as at the date of the Tribunal's orders, entitled to reject the subject motor vehicle and/ or had engaged in conduct by that time unequivocally inconsistent with its rejection notice, by disposing of the motor vehicle. 2. The Tribunal erred at law in finding at [27] that the failure of the subject motor vehicle's first turbo meant that the subject motor vehicle was not of acceptable quality within the meaning of section 54 of the Australian Consumer Law, in making findings on the basis of probative material that was insufficient to meet the relevant statutory test. 3. The Tribunal constructively failed to exercise its jurisdiction, in failing to take into account evidence and/ or a clearly articulated submission on a contested issue of fact, being an issue material to its ultimate conclusion. 4. The Tribunal erred at law in finding at [37] that the respondent's failure to comply with the guarantee of acceptable quality was a " major failure" within the meaning of section 260 of the Australian Consumer Law, in making findings on the basis of probative material that was insufficient to meet the relevant statutory test, or by engaging in reasoning that was illogical or unreasonable. 5. Further and/ or in the alternate, the Tribunal erred at law in failing to give adequate reasons to find that: (a) The failure of the subject motor vehicle's first turbo meant that the subject motor vehicle was not of acceptable quality within the meaning of section 54 of the Australian Consumer Law; and (b) The respondent's failure to comply with the guarantee of acceptable quality was a "major failure" within the meaning of section 260 of the Australian Consumer Law."
5. As we uphold ground 2 for reasons to which we will now come, and as it is dispositive of the appeal, we shall not decide the remaining grounds.

Ground 2

1. Ground 2 is focused on the Tribunal's reasoning regarding s 54(2) of the ACL as applied to the facts of this case.
2. As we observed earlier in these reasons, the respondent bore the onus of proving that the vehicle was not of acceptable quality within the meaning of s 54(2) at the time of supply. To satisfy that onus it was required to prove that the vehicle did not possess one or more of the qualities listed in s 54(2)(a)-(e) at that time. Our reading of the Tribunal's reasons is that the Tribunal only found that the vehicle lacked one of the listed qualities, namely that of durability.
3. Section 54(1)-(3) says: 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. (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.
4. The Tribunal's reasons for finding the vehicle lacked durability at the time of supply were set out in its reasons at [27] which we have set out at [20] above.
5. It is relevant to note that the Tribunal did not find any defect in the vehicle at the time of supply, and also relevant that the Tribunal had no expert evidence as to how long a turbo was expected to last, or whether it was to be expected that a turbo charger would "just break" after 147,000 km. In light of that absence of evidence it is difficult to see how the Tribunal could come to the view that a reasonable consumer, at the time of sale, would not regard this vehicle to be of acceptable quality (knowing what was known at the time of the hearing) having regard to the matters set out in s 54(3).
6. The standard set by s 54(2) is not one of perfection. In Australian Competition and Consumer Commission v Jayco Corporation Pty Ltd [2020] FCA 1672 Wheelahan J said at [27]: "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."
7. In Contact Energy Ltd v Jones [2009] 2 NZLR 830 (Contact Energy), cited by Wheelahan J, Miller J was asked to clarify the provisions of the Consumer Guarantees Act 1993 (NZ) when applied to electricity (defined as a "good" under that Act) and electricity distribution (defined as a "service") in proceedings brought by New Zealand's major electricity generators and retailers.
8. His Honour observed that: "[102] In the end, the question whether a given supply of electricity breached the acceptable quality guarantee is a question of fact and degree. ..."
9. His Honour noted that electricity did not possess the quality of durability, but in relation to safety his Honour said: "[103] Secondly, the nature and extent of any risk posed by a given fault is relevant. Plainly safety is a very important consideration. That said, goods are not unsafe merely because some risk is inherent in them (Carey-Hazell v Getz Brothers)." (Emphasis ours)
10. The position is the same in Australia, the question of acceptability is a question of fact and degree. In addition, in our opinion, goods are not lacking in durability merely because some risk (of failure) is inherent in them.
11. In Contact Energy Miller J, at [103] (quoted above) cited Kiefel J's (as her Honour then was) decision in Carey-Hazell v Getz Bros and Co (Aust) Pty Ltd [2004] FCA 853; (2004) ATPR 42-014 (Carey-Hazell) for the proposition that goods are not unsafe merely because some risk is inherent in them. Carey-Hazell concerned the implant of a mechanical or prosthetic mitral valve in the applicant's heart and her subsequent development of thromboembolisms with other serious consequences including the need for further surgery to replace the valve with a tissue or bio-prosthetic valve. The manufacturer of the valve was the first respondent. Her Honour said: "[197] There are a number of facts which are relevant to a consideration as to whether the safety of the St Jude Medical valves generally is such as might be expected by the public. And it is important to bear in mind that the fact that a risk of complication attends their use would not of itself render them defective, as the Explanatory Memorandum to the Trade Practices Amendment Bill (No 2) 1991 (Cth) points out. Goods are not required to be completely free of defect."
12. In relation to motor vehicles, Stevenson J in Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia [2021] NSWSC 715 (Dwyer) said: "[158] 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. [159] In these circumstances, I am not persuaded that the plaintiff's vehicle was not of acceptable quality and thus not persuaded that VW has failed to comply with the guarantee in s 54(1) of the ACL."
13. This statement was quoted with approval by Lee J in Williams, another motor vehicle case, at [198].
14. Therefore, accepting the reasonable consumer will accept some degree of risk as to durability in relation to motor vehicles, what is it in this case, as a matter of fact and degree, that persuaded the Tribunal that the vehicle was not of acceptable quality at the time of supply?
15. The Tribunal said it had no expert evidence as to how long a turbo charger was expected to last, or whether it was to be expected that a turbo charger would "just break" after 147,000 km (thus impliedly, and correctly in our view, giving no weight to Mr John Di Nardo's evidence at [21] of his statement quoted earlier in these reasons), and thus the reasonable consumer at the time of supply would not know those things either. But such a consumer would know (per Stevenson J in Dwyer at [158]) 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.
16. That, of course, is the very reason for new car warranties. All know that new vehicles, even expensive ones, may develop problems. New car warranties are (subject to their terms) promises by the manufacturer to fix any such problems that may arise within the warranty period at no cost to the consumer. The fact that such warranties exist is proof of the fact that new vehicles, even expensive ones, occasionally suffer from problems, breakages and part failures. This would be known to reasonable consumers.
17. The Tribunal cited with approval a statement from Campbell v Caravan & RV Central Pty Ltd [2016] NSWCATCD 91 that a reasonable consumer would expect a luxury motor vehicle to last "a number of years or at least many thousands of kilometres". Such a statement is probably generally acceptable, and the vehicle the subject of this case had lasted a number of years (approximately 5 years and eight months between purchase and the failure of the first turbo) and had lasted many thousands of kilometres (147,000). Why the Tribunal regarded (at least impliedly) that that number of years or that number of kilometres was less than a reasonable consumer would regard as being acceptable in terms of durability was not explained.
18. There is no doubt the vehicle was an expensive one, the purchase price being approximately $149,000, and price is a matter to be considered under s 54(3). But that was the only s 54(3) matter to which the Tribunal referred and, in our view, was insufficient to support a finding (given the authorities to which we have referred) that this vehicle was not of acceptable quality at the time of supply.
19. The respondent submitted that the fact it was offered (but did not take up) an extended warranty (from five years up to seven years) meant that the vehicle was not of acceptable quality at the time of supply, but we disagree. The fact the manufacturer was prepared to extend the warranty (probably in exchange for payment of a certain fee) did not make the vehicle any more or less acceptable in terms of durability at the time of supply.
20. The respondent also placed reliance on [31] and [32] of Mr John Di Nardo's statement. Mr John Di Nardo said: "31. I looked at the failed turbo which was replaced and I observed that the turbo fan part moved more than 1cm, when I would normally expect It to move no more than 1mm, and it looked to me as though the actual turbo itself had just failed, aka 'broke'. 32. I haven't had the benefit of pulling apart the engine to conduct a thorough assessment, however, Kloster BMW have done. Anthony told me that Kloster BMW had assessed the vehicle and had in fact looked at engine, and they stated that 'the team had identified the failure of 3 turbo chargers and subsequent internal engine damage. The root cause of this failure is metal debris and swarf present in the intake system damaging the turbo chargers and entering the combustion chambers.' 33. However, the assessment by Kloster BMW (who are the only mechanics who have in fact looked at the engine) did not refer to anything related to the oil pump or the oil pick up which they would have seen when they were assessing the engine if that had been the Issue. Rather, Kloster BMW attributed the Issue to arising from metal swarf and debris present which had been taken into the engine. That confirms my view that the turbo just unfortunately failed, aka 'broke'."
21. However, that evidence does not advance the respondent's position as it does not establish, for example, that the turbo charger fan had that excessive movement at the time of supply (as distinct from after the failure of the turbo charger).
22. In addition, the subsequent failure of the engine (when three turbo chargers failed and the engine sustained internal damage) was, the Tribunal found, caused by the failure of the first turbo charger. Thus, that subsequent failure was not relevant to the s 54(2) question. In other words, the subsequent failure of the engine was a consequence of the failure of the first turbo charger on 22 February 2021 and it was that first failure which was relevant to durability.
23. For those reasons, the appeal must succeed.

Costs

1. The Appeal Panel directed the parties to provide their costs submissions at the same time as their submissions on the appeal. The appellant did so but the respondent did not. Nevertheless, we received the respondent's oral submissions on costs.
2. By reason of the operation of r 38A, r 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) applies in this case and therefore the appellant is not required to prove special circumstances warranting an award of costs.
3. The general principles therefore applicable were set out by the Appeal Panel in Thompson v Chapman [2016] NSWCATAP 6: "[69] The starting point in exercising such discretion is that the "usual order for costs" is that a successful party should be entitled to an order for costs in their favour: see Latoudis v Casey [1990] 170 CLR 534 per Mason CJ at 554 and Oshlack v Richmond River Council per McHugh J at 97. [70] The reason for such an order is that it is appropriate for the party who incurred costs caused by the other party in litigation to be reimbursed. Further, an award of costs is by way of an indemnity to the successful party and not as punishment of the unsuccessful party: see Latoudis v Casey per Mason CJ at 543 and McHugh J at 567 and in Oshlack v Richmond River Council per Brennan CJ at 75. [71] Where there is a general discretion for costs there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party nor is there any rule that a successful party might not be ordered to bear the costs of an unsuccessful party: see Oshlack v Richmond River Council per Gaudron and Gummow JJ at 88 and Kirby J at 121 - 123."
4. Here, the appellant was successful on the appeal and so the usual order would be for the respondent to pay the appellant's costs.
5. The respondent submits the appellant should not have its costs because the appellant only obtained legal representation after it had lost the case before the Tribunal. We cannot see how that fact would disentitle the appellant to its costs of the appeal.
6. The respondent also submitted that it had a reasonable case, it did not take that case to a court, and it capped its claim to the Tribunal's jurisdictional limit (in this case) of $40,000. We do not agree that those factors should disentitle the appellant to its costs.
7. As the authorities say, the starting point is that the appellant should have its costs because those costs were incurred as a result of proceedings commenced by the respondent. The costs order is not by way of punishment of the respondent but is made in order to compensate the innocent party (the appellant) who incurred costs because of the action of the respondent (in bringing unsuccessful proceedings).
8. The fact the respondent may have acted reasonably in bringing the case in the Tribunal does not overcome the fact that by doing so it caused the appellant to incur legal costs in a case which the respondent ultimately lost.

Orders

1. We make the following orders: 1. the Appeal is allowed; 2. the orders of the Tribunal of 10 December 2021 are set aside; 3. in lieu thereof, order that the respondent's application is dismissed; 4. the respondent is to pay the appellant's costs of the appeal as agreed or assessed.

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: 16 May 2022