By James Tobin, Partner, Edwin Fah, Senior Associate, and Alana Berney, Lawyer

In Morphy v Beaufort Townsville Pty Ltd & Jaguar Land Rover Australia Pty Ltd (Civil Claims) [2018] VCAT 1520 (Proceedings) the Victorian Civil and Administrative Tribunal (VCAT) awarded a landmark sum of $283,000 to the purchaser of a Range Rover after determining that the vehicle suffered from a “major failure” entitling her to reject the vehicle and receive a full refund of its purchase price.

Mills Oakley acted for the First Respondent, Beaufort Townsville Pty Ltd (Beaufort) which was the car dealership from which Mrs Morphy purchased the vehicle.

Background

The Applicant, Sally Morphy, bought a Range Rover (Vehicle) from Beaufort in 2015 for the sum of $235,074.08.  The Vehicle was imported into Australia by the Second Respondent, Jaguar Land Rover Australia Pty Ltd (JLRA).

Shortly after Mrs Morphy took delivery of the Vehicle, problems arose. Including:

1. the coolant warning light and the gearbox warning light would constantly illuminate due to coolant leaking into the engine, contaminating the engine oil;
2. the Vehicle regularly overheated because the coolant was leaking into the engine;
3. the engine exhibited excessive carbon deposits; and
4. the Vehicle would fail to start without warning.

On each occasion when the above issues presented themselves, Mrs Morphy would take the Vehicle in to her local Jaguar dealership to be serviced. On each occasion, Mrs Morphy was assured that there were no issues with the Vehicle, or that the issues had been fixed, however above problems continued to occur.

After numerous attempts to repair the Vehicle, and despite the fact that it had travelled only 19,000 kilometres, on 27 November 2016, Mrs Morphy refused to use the Vehicle any further and garaged it. Shortly after this, on 22 December 2016 Mrs Morphy’s solicitors wrote to Beaufort formally rejecting the Vehicle, and seeking a refund.

The Claim – Consumer Guarantees

The Australian Consumer Law (ACL) provides for a guarantee to all consumers that goods purchased will be of “acceptable quality”.[1] In some circumstances, goods will fall so far short of the standard required in order to be of “acceptable quality” that those goods will be deemed to contain a “major failure”. If goods are held to have suffered a “major failure”, the consumer is entitled to formally reject those goods, and to receive a full refund.

In this case, in determining whether the Vehicle was of “acceptable quality”, VCAT was required to consider whether a reasonable consumer  would regard the Vehicle as fit for its purpose, free from defects, safe or durable[2] having regard to certain factors contained in the ACL.

Ultimately, VCAT found that the problems Mrs Morphy experienced with the Vehicle were substantial and given the Vehicle could not even be relied upon to start, rendered the Vehicle unfit for even its basic purpose and hence, the Vehicle was not of “acceptable quality” as required by the ACL.

Following this finding, VCAT needed to determine whether the Vehicle fell so far short of the required quality that it could be considered to have suffered from a “major failure”.[3] Section 260 of the ACL sets out a list of factors determining when a “major failure” has occurred. Relevantly, the following factors were considered by VCAT:

• would a reasonable consumer have acquired the Vehicle had they been fully aware of the nature and extent of the failure;
• was the Vehicle substantially unfit for purpose, and could it not be easily remedied within a reasonable time; and
• was the Vehicle unsafe.

VCAT found that Mrs Morphy had demonstrated each of the above factors, finding that a reasonable person acquainted with the nature and extent of the Vehicle’s failures would not have purchased the Vehicle, especially given the substantial price paid by Mrs Morphy for the Vehicle.  Additionally, Mrs Morphy had taken the vehicle to be repaired on numerous occasions and still the problems persisted. Finally, and perhaps most damningly, the auto expert called by Mrs Morphy gave evidence that the Vehicle was liable to sudden and catastrophic engine failure.[4]

Given the finding that the Vehicle suffered from a “major failure”, Mrs Morphy was entitled to reject the Vehicle pursuant to sections 259 and 260 of the ACL and to seek a full refund, together with any consequential losses.

Mrs Morphy initially sought redress solely from Beaufort. Mills Oakley then joined JLRA to the Proceedings seeking to be indemnified by JLRA under section 274 of the ACL for any amounts ultimately found to be owing by Beaufort to Mrs Morphy as a result of the “major failure” of the Vehicle and its rejection by Mrs Morphy.

Consumer Remedies

In validly rejecting the Vehicle, VCAT determined that Mrs Morphy was entitled to a full refund, together with consequential losses, and ordered that Beaufort and JLRA refund to Mrs Morphy the purchase price of the Vehicle in the sum of $235,074.08 together with consequential losses in the sum of $21,929.90, plus interest in the sum of $26,187.

Indemnity

VCAT also made orders requiring JLRA to indemnify Beaufort for any amounts Beaufort may be liable to pay Mrs Morphy, together with Beaufort’s own costs (including legal costs) pursuant to section 274 of the ACL. [5]

Costs

The question of costs was the subject of a separate hearing before VCAT.

There was no dispute by the parties that VCAT had the power to make a costs order in principle, subject to it finding that it was fair and reasonable to do so.[6]

JLRA did not seek its costs, but sought to resist applications by Mrs Morphy and Beaufort for payment by it of their costs.

With respect to Mrs Morphy’s costs, VCAT determined that it would be fair and reasonable to award her costs, principally because of the large amount in issue, that the Proceeding involved technical legal points and that there was complexity in it. That finding made, VCAT then went on to find that Mrs Morphy was entitled to a special costs order (or costs on an indemnity basis) for part of the Proceedings because, amongst other things, JLRA unnecessarily delayed the Proceedings, and did not take basic measures to avoid unnecessary costs for itself and for the other parties which, coupled with its failure to comply with a number of VCAT’s directions, constituted a “relevant delinquency” justifying a special costs order.[7]

With respect to Beaufort’s costs, VCAT accepted that the indemnity contained within section 274 of the ACL was wide enough to encompass Beaufort’s own legal costs. The nature of the indemnity however was that Beaufort was entitled to have the entirety of its legal costs paid by JLRA subject only to those costs being reasonable (which is in fact a significantly better costs outcome than was received by Mrs Morphy, the Applicant, who succeeded on basically the entirety of her claim).

Key Takeaways

The key takeaways from the judgment are as follows:

1. VCAT will strictly enforce the protections offered to consumers under the ACL, especially when there is a safety aspect;
2. Suppliers of vehicles can be in a better overall position in a piece of litigation than both the consumer and the importer as a result of the indemnity afforded to it by the ACL, particularly as the indemnity applies to cover the supplier’s legal costs as well as any principal liability;
3. Importers of vehicles should be especially vigilant, and be proactive in trying to repair vehicles before a “major failure” occurs, and in the event that it does nevertheless occur, to be proactive in resolving that issue with the consumer, whether that be by way of substantial repairs, or by providing a full refund;
4. The judgment reiterates that if a vehicle is deemed to have suffered from a “major failure” the consumer is entitled to reject the vehicle and seek a full refund of its purchase price; and
5. Importers should not leave it to suppliers of vehicles to resolve consumer issues, but should take a leading role in that resolution, simply because suppliers will have little incentive (from a financial perspective) to be proactive given the existence of the indemnity.

[1]           ACL s. 54(2).

[2]           Morphy v Beaufort Townsville Pty Ltd (Civil Claims) [2018] VCAT 1520 at [67].

[3]           Ibid at [69].

[4]           Ibid at [78].

[5]           Ibid at [132].

[6]           Victorian Civil and Administrative Tribunal Act 1998, section 109.

[7]          Morphy v Beaufort Townsville Pty Ltd (Civil Claims) (Costs) [2019] VCAT 67  at [83].