Reality testing in ‘lemon’ vehicle disputes

On 1 September 2019, the Queensland Civil and Administrative Tribunal and Other Legislation Amendment Act 2019 (Qld), known colloquially as the ‘lemon laws’, increased QCAT’s jurisdiction in motor vehicle disputes from $25,000 to $100,000.

The ‘lemon laws’ have now been in operation for over 21 months, and one of the striking features has been the very low rate of resolution of disputes between $25,000 and $100,000 prior to hearing.

The tribunal has recently concluded a 12-month trial which saw mediations conducted in these matters by the Dispute Resolution Branch of the Department of Justice and Attorney-General. The resolution rate hovered stubbornly around 15%.

This does not appear to be a reflection on the quality of the Dispute Resolution Branch mediators, as the same mediators continue to achieve resolution rates of close to 50% in under $25,000 disputes. The difference appears to be that under $25,000 disputes often involve older vehicles, which are more amenable to resolution by repair. In disputes over $25,000, the relief sought is invariably return of the vehicle and a refund, which is an all-or-nothing outcome.

The low rate of resolution in over $25,000 disputes has been at odds with my experience as a decision-maker. While only 15% of claims resolved at mediation, the majority of matters I have decided after a hearing have had what I considered to be a clear outcome one way or the other.

The purpose of this article to provide some updated guidance on the matters in which consumers have been successful in obtaining a refund before the tTribunal, and those in which they have not.

A brief recap on the law

I have set out provisions of the Australian Consumer Law relating to motor vehicle disputes in greater detail in an earlier article.¹ However, for present purposes, it is sufficient to note that most (but not all) cases where a consumer is seeking a refund on a vehicle turn on three key issues:

1. Is the vehicle of ‘acceptable quality’ for the purposes of s54(2) and (3) of the Australian Consumer Law?
2. Is any failure of the guarantee of acceptable quality a ‘major failure’ for the purposes of s260 of the Australian Consumer Law?
3. Did the consumer reject the vehicle within the rejection period for the purposes of s262(2) of the Australian Consumer Law?

If the answer to each of these questions is ‘yes’, the consumer will generally be entitled to a refund from the supplier.

Without setting them out, relevant exceptions to the entitlement to a refund include those contained in s54(1) and (4)-(7), and s262(1) of the Australian Consumer Law.

It should also be noted that the entitlement to a refund in s263(4) of the Australian Consumer Law lies against the supplier. The remedies against a manufacturer set out in s272 do not include a refund.

‘Acceptable quality’ and ‘major failure’

The definitions of acceptable quality and major failure contained in the Australian Consumer Law are lengthy and multi-factored, and to that extent can appear difficult to apply. However, it is important to bear in mind that the starting point for both definitions is a ‘reasonable consumer’ test.

At the risk of over-simplification, the definition of acceptable quality in s54 of the Australian Consumer Law may be summarised as whether a reasonable consumer would consider the quality of the vehicle supplied as acceptable, taking into account the circumstances of the particular transaction. The reasonable consumer is taken to be ‘fully acquainted with the state and condition of the goods, (including any hidden defects in the goods)’. However, it is not a guarantee that the vehicle supplied will be perfect and absolutely free from defects. The definition is intended to protect consumers while not imposing unrealistic standards on suppliers and manufacturers.²

Similarly, the definition of a ‘major failure’ in s260(1)(a) of the Australian Consumer Law is whether ‘the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure’. Professor Jeannie Paterson has usefully identified matters that a reasonable consumer would take into account as including:³

• how soon the fault developed after supply: the shorter the time, the more serious the fault
• the price of the goods: the more expensive the goods, the less acceptable is any fault
• any other faults with the goods: a number of small faults may not be serious, but their cumulative effect may be major.

Section 260(2) now makes it clear that two or more failures may constitute a major failure if “the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of those failures, taken as a whole”.

Cases in which a refund has been granted

In examining cases in which a refund has been granted by the tribunal, it is useful to look at new vehicles and used vehicles separately.

New vehicles

The tribunal has regularly granted refunds on the purchase of new (or near new) vehicles which had multiple defects resulting in the vehicles spending considerable periods of time off the road shortly after purchase. For example, the tribunal found that there were major failures in the following cases:

• ACH Computing Pty Ltd v Austral Pty Ltd trading as Brisbane City Jaguar Land Rover,⁴ where the presence of defects resulted in the vehicle being returned to the dealer for 29 days out of the first few months of ACH’s ownership of the motor vehicle.
• Foley v Westco Cairns Pty Ltd,⁵ where the presence of defects resulted in the vehicle being returned to the dealer on 14 occasions, and remaining in the dealer’s possession for 57 days in the first year of Mr Foley’s ownership of the vehicle and 16 days in the second year.
• Kablar Financial Services Pty Ltd v LSH Auto (Brisbane) Pty Ltd trading as Mercedes-Benz Brisbane⁶ where the presence of defects which resulted in the vehicle being returned on nine occasions in the first year of Mr Kablar’s ownership.
• Sullivan & Anor v James Frizelle’s Automotive Group Pty Ltd,⁷ where the presence of defects resulted in the motor vehicle being returned to the dealer on four occasions in the first six months of Ms Sullivan’s ownership.
• Crawford v Sunco Motors Pty Ltd,⁸ where the presence of defects resulted in the motor vehicle being returned to the dealer on nine occasions in the first two years of Mr Crawford’s ownership, and which resulted in the motor vehicle being in the dealer’s possession for over six weeks during that period.

This approach is supported by the new s260(2) of the Australian Consumer Law.

Used vehicles

In Ashe v Vehicle Auctions Australia Pty Ltd,⁹ Mr Ashe purchased a vehicle for $28,442.50. The vehicle was advertised as having a roadworthy certificate, but he subsequently discovered that it did not. Two days after he purchased the vehicle, Mr Ashe had the vehicle inspected by a mechanic, who identified more a list than 25 faults which resulted in the vehicle being unroadworthy.

The tribunal found that:

• the absence of a roadworthy certificate, and
• the presence of multiple faults resulting in the motor vehicle being unroadworthy,

was such that a reasonable consumer fully acquainted with the nature and extent of the failure, would not have acquired the motor vehicle.

In Berry v Auto Direct Group Pty Ltd,¹⁰ Mr Berry purchased a vehicle for $18,950. On the way home after picking up the vehicle, the engine started making noises and warning lights appeared. Mr Berry attempted to return the vehicle the following day, but the dealer refused to provide a refund. Ultimately, Mr Berry took the vehicle to his own mechanic. The mechanic initially replaced the turbo, before conducting further tests which indicated that a complete engine replacement was required.

The tribunal found that the presence of defects which resulted in the motor vehicle requiring a replacement turbo and then a complete engine replacement shortly after purchase was such that a reasonable consumer fully acquainted with the nature and extent of the failure, would not have acquired the motor vehicle

It is certainly the case that a reasonable consumer would not expect a used vehicle to be perfect and absolutely free from defects. The older the vehicle, the more defects a reasonable consumer would expect. However, as the two examples above illustrate, a reasonable consumer would rarely expect to purchase a vehicle that was unroadworthy or in immediate need of a complete engine replacement.

Cases in which a refund has been refused

Having examined cases in which a refund has been granted, it is useful to look at two examples of cases in which a refund was refused by the tribunal.

In Johnson v Toyota Motor Corporation Pty Ltd,¹¹ Mr Johnson had two complaints. The first was that exhaust fumes filled the cabin when the vehicle levelled out after driving up a steep hill. The evidence from Toyota was that the air intake is in front of the windscreen, and the sensor for the air intake control is at the front of the vehicle. Exhaust gases catching up from behind would reach the windscreen first before they reach the front of the vehicle. The tribunal found:¹²

“Presumably if the sensor was located in front of the windscreen adjacent to the intake, it would not be as effective in detecting exhaust fumes from other vehicles travelling in front, which is the primary purpose of the automatic system.”

Mr Johnson’s second complaint was that a loud knocking noise was emitted by the vacuum pump during cold starts and persisted for a number of minutes afterwards. The evidence from Toyota was that there was no appreciable difference in the level or duration of vacuum pump noise to those of other vehicles. The tribunal found:¹³

“It is a feature of the vacuum pump used in the engine, does not affect the operation of the motor vehicle and persists for no more than three minutes after a cold start. The issue of whether the noise is a ‘loud’ noise appears to be subjective one, with the parties providing differing evidence on the issue.”

In Parsons v Trivett Automotive Retail Pty Ltd trading as Keystar Mitsubishi Morayfield,¹⁴ Mr Parsons’ complaint related to the operation of the adaptive cruise control, which was designed to detect a vehicle in front and adjust the speed of the vehicle accordingly to maintain a safe distance from the other vehicle. However, Mr Parsons did not provide any form of expert evidence indicating that the adaptive cruise control was operating outside the parameters set out in the manual.

In this regard, a copy of the manual provided by Mr Parsons included a caution to drivers and set out a number of circumstances in which “the system may become transiently unable to detect a vehicle in front or triggers its control and alarm functions by detecting something other than a vehicle in front”. The evidence was also that Mr Parsons could disengage the adaptive cruise control by pressing a button.

These two cases illustrate that all vehicles have mechanical limitations arising from the laws of physics and the current state of technology. The mere fact that there is an aspect of the performance of a vehicle that a consumer is unhappy with does not necessarily mean the vehicle is not of acceptable quality, or that the consumer is entitled to a refund.

Conclusion

The object of this article has been to demonstrate that in many ‘lemon’ vehicle disputes it is possible for the parties to reach an informed assessment of their prospects of success by the time all the evidence had been filed. Of course, there will always be a number of cases where the outcome is less obvious. However, in my experience, this is a minority of cases.

There may be reasons that parties elect to proceed to a hearing, even in the knowledge that their prospects of success are low. Section 50C of the Fair Trading Act 1989 (Qld) prevents a costs order being made against an applicant, and limits a respondent’s exposure to a costs order to the amount of the filing fee. This may give rise to a temptation on the part of the parties to take their chances at a hearing.

However, preparing and presenting a case at hearing can involve a substantial investment of time. There is no return on this investment if a party is unsuccessful. Further, written decisions of the tribunal are published on the Supreme Court library website, and the outcomes of motor vehicle disputes are also regularly reported in the media. Parties may benefit for reputational reasons from an informed assessment of their prospects of success in advance of the hearing.

Glen Cranwell is a full-time member of the Queensland Civil and Administrative Tribunal, and is the list manager of the Motor Vehicle List. The views expressed are those of the author, and not those of the tribunal.

Also by this author:
Motor vehicle disputes at QCAT: Some practical observations
and
QCAT’s use of assessors in ‘lemon’ vehicle cases

Footnotes
¹ Glen Cranwell, ‘Motor vehicle disputes at QCAT: Some practical observations’, QLS Proctor (web page, 30 September 2020).
² See Stephen Corones, ‘Why Australia needs a motor vehicle ‘Lemon’ Law’ (2016) 39(2) University of New South Wales Law Journal 625, 634-5.
³ Jeannie Marie Paterson, Corones’ Australian Consumer Law (Lawbook Co., 4^th ed., 2019), 669
⁴ [2020] QCAT 176.
⁵ [2020] QCAT 345.
⁶ [2020] QCAT 346.
⁷ [2021] QCAT 49.
⁸ [2021] QCAT 183.
⁹ [2020] QCAT 500.
¹⁰ [2020] QCAT 383.
¹¹ [2020] QCAT 436.
¹² Ibid [14].
¹³ Ibid [13].
¹⁴ [2020] QCAT 420.