The evidence of Mr Cuthbert
166 We now turn to consider the expert evidence that was before the primary judge, including some of Toyota's contentions on appeal.
167 Mr Cuthbert has worked in the automotive industry for over 50 years. He is a qualified motor mechanic, has been a licensed second hand dealer in motor vehicles and for a number of years was a licensed vehicle tester. He estimates that he has conducted over 10,000 valuations of motor vehicles. He has provided valuations for a number of different purposes, including court proceedings, vehicle insurance and vehicle financing.
168 In his report dated 23 July 2021, Mr Cuthbert explained how he would undertake vehicle valuations. He explained that in his experience and opinion, "valuing vehicles is an impressionistic exercise in which a number of factors are considered, with these factors taking on different levels of importance depending on the kind of vehicle being valued and the context in which it is being valued" (para 53). The report goes on to say:
My typical practice is to consider a range of factors as I describe in this report, assess them together to form a view about the value of the vehicle, and then use them to "sense-check" my valuation.
169 The process he then described involves considering attributes of the particular vehicle, undertaking his assessment of the general popularity and desirability of the vehicle and bringing to account the available market data for comparable vehicles. As to his approach to problems with a vehicle, he provided the following evidence in his report (paras 69 to 71):
In my experience, it is not unusual to identify issues or problems of some description with a vehicle I am valuing. In particular, there are often minor cosmetic issues in used vehicles.
When I identify an issue or problem with a vehicle I am valuing, I consider the nature of the issue or problem and whether I should reduce the value of the vehicle to reflect the impact of the issue or problem. As I explained … above, when I value a vehicle, I also consider the nature of the vehicle and the way in which that type of vehicle is generally used, as this is relevant to the significance of any issue or problem that I identify.
It is not my usual practice to reduce the value of a vehicle for a minor or trivial issue such as minor wear and tear on a used vehicle, or a small deviation from regular recommended servicing requirements if the vehicle otherwise has no issues.
(Emphasis added.)
170 He referred to the types of mechanical issues or problems that would generally cause him to reduce the value of a vehicle. He said that they included (para 73):
(a) problems with the vehicle's engine, including engine noises indicating wear, sensor issues, oil leaks, temperature issues and pressure issues; and
(b) problems with other important mechanical parts of the vehicle, including problems with the transmission, the exhaust system, power steering operation and suspension, to name a few.
171 Mr Cuthbert then identified factors that he typically considered in deciding how to reduce the value of a vehicle due to a mechanical issue or problem with the vehicle.
172 The circumstances in which Mr Cuthbert said he would apply a discount, based upon the factors he identified, may be summarised as follows:
(1) whether a repair is available and the cost of repair (noting that typically he would not apply a reduction for repair costs if such a repair is available at the time and will be carried out under the vehicle's factory warranty, but may reduce the value due to the inconvenience associated with obtaining the repair);
(2) whether the vehicle is likely to require additional servicing, maintenance or repairs outside of regular servicing;
(3) whether there was a risk that the resale value would be reduced because of the issue or problem;
(4) whether there are likely to be safety implications that cannot be addressed by repair (in which case Mr Cuthbert's evidence was "I may consider that the vehicle is not fit for use and therefore will reduce the value of the vehicle to its "salvage value", which is the price that I would expect a salvage auction house to pay for a vehicle");
(5) whether the issue or problem may result in discomfort or embarrassment to the owner; and
(6) whether the defect was of a kind such that there should be a "desirability reduction".
173 Mr Cuthbert then reported upon his assessment of the attributes of Mr Williams's Prado. He referred to his instructions to the effect that the vehicle suffered from the defect at the time of purchase by DCS. He described his instructions as to the consequences of the defect. He expressed the opinion that he considered the defect to be "a serious mechanical problem … which materially reduces [its] value" (para 99). He also expressed the opinion that he considered the defect consequences "to be serious and the risk of experiencing them a factor which materially reduces the value" of the vehicle (para 103).
174 Mr Cuthbert's evidence was as to the value of Mr Williams's Prado with the defect; his view as to the seriousness of the defect was properly treated at the initial trial as an assumption on which his evidence was based (being a matter to be established by other evidence). Ultimately, the findings by the primary judge as to the defect consequences were unchallenged. Those findings were based upon a referee report. Also unchallenged were the findings by the primary judge rejecting submissions by Toyota that sought to downplay the significance of the defect and the defect consequences: J[79]-[86]. His Honour found that the consequences were "not trivial" and "they impact significantly upon consumers' use and enjoyment" of the vehicles: J[183]. Notably, there was no finding to the effect that the defect was so serious that without repair the vehicles were only able to be used for salvage. Nor did the primary judge find in terms that the defect was a "serious mechanical problem" (terminology which suggests that the vehicle was prone to breaking down, which was not the state of the findings).
175 Mr Cuthbert was asked to assume that there was no effective fix for the defect at the time of purchase of the vehicle in April 2016. As to that aspect, he said in his report (para 104):
… if no repair is available which will fix the issue or problem at the time I am valuing the vehicle, depending on the severity of the issue or problem, I will typically reduce the value of the vehicle more than if such a repair exists.
176 He expressed the opinion that on account of the defect and its consequences "which did not have an effective fix at the time of purchase" he considered it appropriate to reduce the value of the vehicle at the time of purchase "significantly" on account of the defect and its consequences (para 104).
177 It may be observed that the whole of the methodology described by Mr Cuthbert up until this point explained how he would undertake the task of assessing the appropriate reduction in value to account for the defect (para 110).
178 Mr Cuthbert then turned to the quantification of the reduction in value. He began as follows (para 109):
In my opinion, the value of the [vehicle] as at April 2016 was significantly reduced as a result of the [defect] and the risk of the vehicle experiencing the [defect consequences].
179 He then stated that he assessed the value of the vehicle at the time of purchase to be an amount which was 23.5% to 27% below his assessment of its retail market price.
180 Both these statements are consistent with Mr Cuthbert undertaking an assessment of the appropriate reduction in value to account for the defect. They reflect his earlier indication that the process is impressionistic and requires regard to the various factors that he identified.
181 Mr Cuthbert then expressed the basis for his view as to the extent of the reduction in the following terms in his report (para 111):
I have formed this view drawing on my experience as a motor vehicle dealer, broker and valuer over the last 50 years and having regard to:
(a) the seriousness of the [defect and defect consequences];
(b) there not being any effective fix to the [defect] available as at April 2016;
(c) the salvage value of the [vehicle] as at April 2016, with a reduction to this level being the maximum reduction I would expect to apply to a vehicle with a defect which does not have an effective fix at the time of purchase; and
(d) the price at which I consider [Mr Williams and DCS] may have been able to sell the [vehicle] to a purchaser, other than a salvage auction house, in April 2016 (assuming it had not been driven).
182 Mr Cuthbert went on to explain that he had considered the salvage value and the price at which the vehicle might have been sold to a buyer other than a salvage auction house. He estimated the salvage value of the vehicle to have been "approximately 60% to 63%" of his assessed retail market price (para 116). He gave the basis for that estimate.
183 Mr Cuthbert then explained that he considered the salvage value "to be the floor value" (para 121). He then expressed the following view (para 123):
In assessing the price within this range at which [Mr Williams and DCS] would likely have been able to sell the [vehicle] in April 2016, I consider that purchasers would have existed in the market who would have been willing to pay a further amount on top of the salvage value of the [vehicle], in the hope that they would be able to find someone to fix the [defect] at a reasonable price, despite the absence of a known effective fix at the time. In my experience, including in interacting with them at vehicle auctions, purchasers of this kind take into account the types of considerations that I address above when determining a vehicle's value.
184 At the initial trial and on appeal, Toyota was critical of this reasoning. Toyota contended that it had the consequence that the analysis undertaken by Mr Cuthbert was anchored in the salvage value and, in the result, did not bring to account the factors that he said were involved in undertaking his assessment.
185 A number of points should be made concerning this submission insofar as it concerned the report itself. First, Mr Cuthbert described his approach as impressionistic and involved bringing the factors that he had described into a single assessment based upon experience. Secondly, having regard to the terms of the whole of the report and the detail provided concerning the factors that Mr Cuthbert considered as a matter of usual practice, it is unlikely that at the point of assessing the relevant amount Mr Cuthbert simply put all those matters to one side. Thirdly, in the final sentence of the paragraph quoted above, Mr Cuthbert made express reference to purchasers of the kind he had described taking into account "the types of considerations that I address above when determining a vehicle's value". In effect, he is attributing to those buyers a consideration of the same factors as those that he would take into account.
186 Nevertheless, it appears from the terms of the report that at the point of undertaking the assessment, Mr Cuthbert may not have evaluated for himself the required reduction in value having regard to the factors he described, but rather posited a buyer considering the amount on top of salvage value that the buyer would pay on the basis that "purchasers would have existed in the market who would have been willing to pay a further amount on top of the salvage value of the [vehicle], in the hope that they would be able to find someone to fix the [defect] at a reasonable price, despite the absence of a known effective fix at the time".
187 It was the possibility of such a buyer approaching the question of price in that way (as well as his own view as to the seriousness of the defect) that caused him to reach the opinion that an approximate 23.5% to 27% reduction was appropriate (para 124).
188 Therefore, the precise manner in which the assessment reflected Mr Cuthbert's application of the factors in the manner he described in his report is, at least, somewhat obscure when regard is had to the terms of his report. It appears to focus upon a buyer who was assessing, by reference to the factors Mr Cuthbert had identified, an amount that the buyer was willing to pay on top of salvage value in the hope that the defect could be fixed. At least on its face, this appears to be different to forming his own opinion as to the amount by which he should reduce the value from the retail market price by reference to the factors he has described in order to take account of the defect. It appears to focus upon the price that a buyer who was purchasing a vehicle that would have no utility unless the vehicle was repaired might be willing to pay.
189 Mr Cuthbert was also asked whether his opinion would differ if at the time of purchase "there was a real possibility that an effective fix … would become available from around January 2020". As to that question, his evidence in his report was as follows (paras 127 and 128):
I consider that a delay in the development of an effective fix of almost four years is too long to have an impact on my assessment of the reduction in value to the [vehicle] resulting from the [defect] and risk of the [defect consequences] at the time of purchase.
The possibility of an available fix for the [defect] four years after the [vehicle] was purchased does not change the fact that the purchaser would have been exposed to four years of owning the vehicle without the fix. This is not a case of the vehicle being restored to a defect-free state immediately after purchase; four years is sufficiently long for the impact of the [defect] and the [defect consequences] to be likely to be experienced by the owner.
190 The reasoning in the report as to the significance of a real possibility of a fix some four years later rests upon the view that there would have been a period when the defect consequences would be likely to be experienced.
191 It may be noted that in response to criticisms raised concerning the valuation approach set out in his report, Mr Cuthbert provided a supplementary report, dated 22 October 2021. In that report he explained his opinion concerning fair market value in the following terms (para 12 (c)):
… in my view and based on my experience, it is unrealistic and incorrect to conclude that a prospective purchaser of the [vehicle] in April 2016 who is aware that the vehicle suffers from the [defect] and the risk of experiencing one or more of the Defect Consequences and that no fix for the [defect] exists at that time, would be willing to pay the same purchase price as they would if the [vehicle] did not suffer from the [defect] and the risk of experiencing one or more of the Defect Consequences. In these circumstances, based on my experience, the seller would need to reduce the purchase price of the [vehicle] in order to achieve a sale to a prospective purchaser who had this knowledge.
192 However, he then went on to explain again that in his experience and opinion the valuation of motor vehicles was an impressionistic exercise. He explained his approach in the following terms (para 18):
… valuing motor vehicles is an impressionistic exercise in which a number of factors should be considered, including the cosmetic condition of the vehicle, the mechanical condition of the vehicle and the general popularity and desirability of the vehicle in the relevant market. These factors, and the individual characteristics of particular vehicles, will take on different levels of importance depending on the kind of the vehicle being valued and the context in which it is being valued.
193 He then explained that his view on the reduction in value of the vehicle the subject of the claim by Mr Williams and DCS was formed having regard to the following (we paraphrase, save where quoted):
(1) the factors described in the passage quoted above (as explained in his report), namely the various factors that he had identified;
(2) his assessment of the seriousness of the defect and the defect consequences;
(3) there being no effective fix to the defect as at April 2016 (the time the vehicle was purchased);
(4) the salvage value, "with a reduction to this level being the maximum reduction I would expect to apply to a vehicle with a defect which does not have an effective fix at the time of purchase"; and
(5) the price at which Mr Williams and DCS may have been able to sell the vehicle to a purchaser other than a salvage auction house assuming that it had not been driven (being the buyer he had described in his evidence as one willing to pay a further amount on top of salvage value in the hope that someone could be found to fix the defect at a reasonable price).
194 Therefore, regard to the supplementary report describes the salvage value as an outer limit on the extent of the appropriate reduction. Importantly for present purposes, it reiterates Mr Cuthbert's description of the task that he had undertaken as being an impressionistic assessment taking account of the factors he had applied based upon his extensive experience in valuing motor vehicles taking account of their defects. It places his analysis of the price that a purchaser might pay above the salvage value in that context.
195 Nevertheless, it appears to treat the defect as one which is so serious that it is appropriate to approach the valuation on the basis that it requires the ascertainment of an amount on top of salvage based upon the uncertain prospect (or hope) of being able to find someone who can fix the defect. Such an approach suggests, at least, that he has in mind a buyer who considers that if the defect cannot be fixed then the only use of the vehicle is for salvage.
196 Toyota's submissions in the appeal criticised the reasoning of Mr Cuthbert on the basis that it involved working up "in some unspecified way" to reach an amount on top of the salvage value. It was said to be an approach that fixated on the salvage value which was inappropriate for a vehicle that was functional and not in a state where it needed to be scrapped by reason of the defect. His reasoning process was characterised as "wholly opaque" and involved working from an inappropriate starting point.
197 Particular reliance was placed upon what emerged at the trial in the course of cross-examination of Mr Cuthbert which was said to demonstrate that no objective means had been used to reach the conclusion as to the appropriate reduction. Exchanges to the following effect were said to be significant:
(1) Mr Cuthbert agreed that what he did was to take the salvage value and then say that "there might be a hypothetical consumer who assesses the probability of a fix arising and you add a bit to the value that you've already arrived at when you do your salvage method" (T127) (later in his evidence he agreed that he was referring to "people having the hope that they would be able to find someone to fix the defect at a reasonable price" (T128)).
(2) It was put to Mr Cuthbert a number of times that he did not undertake the exercise of going through the factors that he said that he typically considered in undertaking a value (set out above) but he was unable to explain how he did so. In that regard Mr Cuthbert referred to "the whole process moving forward" (T127) and his methodology being one that "follows through the valuation process" (T129) as being the way he established value but did not otherwise elaborate on the manner in which the factors identified by him had been applied.
(3) Mr Cuthbert maintained that it was appropriate to start the approach to valuing the vehicle by starting with the salvage value even though the vehicle could do most of the things that a car should do, namely, get the passenger from point A to point B (T128-129).
(4) Mr Cuthbert seemed to agree that the approach that used the salvage value as the baseline value was different to the approach of using the factors to assess a reduction from the retail price as explained in his report (T133).
198 It was also put to Mr Cuthbert that a defect in his approach was that the use of the salvage value as a starting point was to assume that the vehicle could not be driven and it was so unfit for use that the best that you could do is sell it off for parts (T126). Mr Cuthbert disagreed with that characterisation. However, it may be noted that earlier he had agreed that in most cases the affected vehicles would remain capable of taking driver and passenger from point A to point B (T113). Therefore, taking account of that concession, it would not be logical for Mr Cuthbert to undertake his valuation analysis on the basis that the vehicle was only good for parts unless the defect was fixed. This point may be viewed as support for a conclusion that he did not undertake his valuation on that basis or as a reason why, if he did, he was in error as to his approach.
199 By starting with a salvage value and positing the additional amount that a purchaser might pay on top of the salvage value on the basis that he might, to use the language of Mr Cuthbert "put the vehicle back on the road at a reasonable cost" (T126), Mr Cuthbert appeared to have treated the vehicle as if it was a write-off unless repaired in some way - or, at the very least, that the defect was so substantial that such an approach was appropriate. Further, the required repair was considered on the basis that it was only a possibility or a matter about which a purchaser may be hopeful. This is supported by the fact that during cross-examination, Mr Cuthbert described his approach as "a variation in the salvage auction house as to which type of salvage auction it may be sold at" (T126). He referred to two variants of salvage value. First, "the straight out salvage value" (the floor price) and second "the possibility of a potential buyer considering that he can put the vehicle back on the road at a reasonable cost to fix and have it back on the road for a figure that he has calculated away from [the manufacturer's standard retail price]" (T126).
200 The state of the evidence supported a submission to the effect that Mr Cuthbert's opinion appeared to have been formed on the basis of a view that overstated the seriousness of the defect. Hence, its focus upon salvage value and its ultimate emphasis upon what a buyer might pay over and above the salvage value on the basis that a repair might be found.
201 As to the evidence of Mr Cuthbert, the primary judge made the following finding (J[354]):
The seriousness of the mechanical problem, the lack of a fix at the time of supply, the risk of additional servicing and associated inconvenience, the embarrassment and discomfort associated with excessive foul-smelling white smoke and the impact on resale value and desirability were all factors considered by Mr Cuthbert … I similarly accept his evidence that he did not start from salvage value and work up in a way that skews the value to the bottom end of the range.
202 Ultimately, his Honour found that there was no reason not to accept Mr Cuthbert's evidence "as a useful guide to valuation" and that it should be accepted because he was a professional car valuer with 50 years' experience and it accords with what his Honour considered to be "robust common sense": J[356].
203 In our view, this broad brush approach failed to have regard to the extent of the validity of the main criticisms raised by Toyota, namely the focus upon the salvage value and the associated (implicit) view that the vehicle was so defective it needed to be repaired before it had any real utility as a motor vehicle. It also failed to have regard to the emphasis that Mr Cuthbert's ultimate assessment placed upon a notional buyer who was the kind of buyer who would be purchasing a vehicle that was being sold for salvage that might be able to be repaired rather than upon the value that a retail purchaser would place on the vehicle given the effect of the defect on the use of the vehicle.
204 In our view, the issues raised concerning the use of the salvage value and proper regard to the diminished use of the vehicle with the defect should have led his Honour to treat Mr Cuthbert's percentage reduction in value with considerable circumspection. It should not have been treated as a useful guide to valuation without making due allowance for the matters to which we have referred. To this extent, we uphold grounds 10 and 12 of the notice of appeal.
205 Further, in our view, there were two additional conceptual reasons for concluding that Mr Cuthbert's approach overstated the reduction in value, especially to the extent that his value was sought to be deployed to support an aggregate assessment of loss for all group members who had bought and kept their defective Toyota vehicles. They arise from the views we have expressed as to the proper valuation task required by the terms of s 272(1).
206 First, in the case of consumer goods, assessment of the reduction in value resulting from a failure to comply with the consumer guarantee should not be made on the basis of an unadjusted resale value. This is because it is the value of the goods to a consumer purchaser that must be assessed. The resale price of a consumer good will determine a different value, namely the second-hand value. It will include transaction costs and discounts for risk. For those reasons, an assessment of reduction in value without regard to such considerations is likely to overstate the reduction in value compared to an approach which considers the extent of the reduction in value for a reasonable purchaser resulting from the failure to comply with the guarantee.
207 Secondly, it failed to grapple with the effect on an aggregate assessment of reduction in value damages of the possibility that a free fix may become available. In that regard, Mr Cuthbert's value was expressed on the basis that no fix was available. He was then asked to say whether he would have a different view if, at the time of purchase, there was a real possibility that an effective fix would become available almost four years later. In his view, that possibility was too far away to have any impact on his assessment. However, the purchase of Mr Williams's Prado was one of the earlier purchases of the defective vehicles. Other vehicles were purchased much closer to the time when the free fix ultimately became available.
208 Mr Cuthbert's evidence was dealing specifically with the purchase of Mr Williams's Prado by DCS. However, reliance was placed on the report to reach a conclusion as to reduction in value damages on an aggregate basis for the whole of the relevant cohort. For reasons we have given, what was required in order to use market information to support an aggregate assessment of value was for account to be taken of the possibility of a repair and the extent of the utility of the vehicle in the meantime. Any such assessment would depend upon matters such as prevailing views as to Toyota's approach to performing its warranty obligations, views as to the likelihood of the defect consequences arising and views as to the seriousness of those defect consequences if they arose. Therefore, there were issues in simply extrapolating the opinion expressed by Mr Cuthbert by reference to the circumstances of Mr Williams and DCS to the aggregate assessment of reduction in value damages for all members of the relevant cohort.
209 Neither party addressed these aspects before the primary judge. We will return to them when considering the appropriate orders to be made on the appeal.
210 For completeness we note that it was submitted that Mr Cuthbert's analysis did not take account of the potential resale value of the vehicle. It was put to him that he had not taken account of the market evidence as to what a Prado may sell for in the market place. He responded to the effect that there was no secondary market information at that time (bearing in mind that the valuation task was in respect of the reduction in value of a new vehicle as at the date of purchase). He accepted that the vehicles were popular and renowned for having a high resale value. He said that he should have included a sentence in his report to the effect that Prados are generally known for reliability and were "not known for having an upcoming listed fault". He did not agree that he should have brought to account the resale information at that time because the full extent of the defect was not known. We can see no difficulty with this reasoning by Mr Cuthbert, so far as it goes.
211 Finally, it was submitted that Mr Cuthbert had accepted in cross-examination that the inconvenience and embarrassment suffered by Mr Williams was central to his analysis. The relevant passages relied upon concern Mr Cuthbert's response to certain questions that were posed by the primary judge for consideration by the experts.
212 The questions posed by the primary judge were based upon six assumptions the last of which was expressed in the following terms:
… although unknown and unknowable at the time of purchase four years earlier, the secondary market resale data shows no discernible deterioration in the resale value of vehicles like the [vehicle] purchased compared to similar types of motor vehicles.
213 As will emerge, the assumption appears to have been prompted by data collected by Mr Stockton (considered in more detail below). The other assumptions were to the effect that the defect and its consequences existed at the time of purchase, that it was also known at the time of purchase that there was no ready fix for the defect, that any additional servicing required to be undertaken by reason of the defect would be undertaken under warranty at no cost, that it was likely that there would be some negative but undetermined impact on fuel economy and that countermeasures are now available at no cost which will remedy the defect if implemented.
214 Based upon the six assumptions, Mr Cuthbert was asked to express his opinion in answer to three questions, namely:
1 Assessed as at the time of purchase, using only information which was available at the time of purchase?
2 Assessed as at the time of purchase, using the information available today?
3 Assessed as at [the date of the initial trial]?
215 As to 1, Mr Cuthbert maintained the value expressed in his report. As to 2, he expressed the opinion that the value would be the same because Mr Williams would be faced with the defect consequences for a considerable period during which time there would be requirements for extra servicing and possible repairs, he would have lost trust in his vehicle and he would have the constant thought as to whether or not the vehicle would leave him in an embarrassing situation with the issuing of white smoke and/or the foul odour. As to 3, Mr Cuthbert identified many factors that affected a resale valuation of Mr Williams's Prado at the time of the initial trial (some of which had increased used car values) and expressed the opinion that a vehicle with the fix applied would have the same value as those being advertised for sale at the time.
216 At one point in the course of his cross-examination about these answers, Mr Cuthbert did accept that he was loading a lot of his assessment of loss of value into embarrassment and inconvenience (T196). He also agreed that in referring to embarrassment and inconvenience he was relying upon the information from Mr Williams because "that's the one we have the details for" (T195). However, shortly after that evidence, Mr Cuthbert said: "I didn't concentrate on the embarrassment and inconvenience. I took the overall ownership problems and consequences into my initial calculations, and that's what I based it on" (T196).
217 These exchanges do indicate that the evidence of Mr Cuthbert concerned the circumstances of use of the Prado as experienced by Mr Williams. Whilst they are an insufficient foundation to support the submission that the analysis of Mr Cuthbert rested, in effect, upon Mr Williams's evidence as to his embarrassment, they do expose the limitations of an opinion as to the reduction in value of a particular vehicle as a foundation for drawing conclusions to support an aggregate assessment of reduction in value damages for all members of the relevant cohort. Reliance upon the actual experience of Mr Williams and the conclusions that might be drawn based upon that experience (such as his embarrassment) tend to disconnect the analysis from an objective assessment as to how a reasonable consumer might view the significance of the defect at the time of purchase taking into account the possibility that a fix may be found and provided under warranty.
218 Finally, we note that Mr Cuthbert accepted that the availability of the fix restored the value of the vehicle. This was made abundantly clear in other evidence and was not in issue on the appeal.