Williams v TMCA – Assessing Damages for Latent Defects

04 Oct 2023

The High Court will soon decide whether to hear an appeal from the Full Federal Court of Australia decision in Toyota Motor Corporation Australia Ltd v Williams [2023] FCAFC 50. These proceedings have raised interesting questions for product liability class actions and the assessment of damages, in particular the issue of latent defects and when in time damages are assessed.

Williams is a representative proceeding filed in the Federal Court concerning allegedly faulty Diesel Particulate Filters (DPFs) installed in certain Toyota vehicles. DPFs are a requirement for diesel vehicles under industry regulations and prevent certain harmful chemicals being released into the environment and vehicle interior. According to the claim filed by the applicant, the DPFs installed in these Toyota vehicles did not properly recycle the captured particulates, and once the device was full, several defect consequences could result, including the vehicle decelerating and entering a ‘Limp Mode’, white, odorous smoke being emitted from the exhaust, and a warning light flashing on the dashboard display. Such consequences were more likely if a car owner did not drive frequently at high speeds, meaning not all purchasers of the vehicles experienced all or any of the defect consequences. Toyota later introduced a repair program which purported to fix the issues alleged. However, class action proceedings were initiated on behalf of all owners of the affected vehicles, alleging breaches of s 54 acceptable quality guarantees, as well as misleading and deceptive conduct under the Australian Consumer Law.

At trial, Justice Lee found substantially in favour of Mr Williams and the group members. His Honour held that all consumers who had bought a vehicle with the defective DPF had overpaid on their purchase. His Honour rejected arguments from TMCA that the defect consequences were not substantial in that they did not hinder the ability to drive from one destination to another, that the repair program or “Field Fix” had restored any lost value, and that there was no disproportionate reduction in value of the affected vehicles on the second-hand market. Toyota’s overall point had been that damages should be assessed when the defect crystalises or that until a latent defect manifests or the vehicle is resold at a reduced price, the damages claimable are minimal.

On appeal, the Full Court rejected this underlying claim, finding that the latent defect was across the entire class, regardless of when or whether the repair program had been taken up or whether the defect had manifested. However, the Full Court did find that the reduction in value assigned at trial had been overestimated on the basis that the main function of the vehicle, or its utility, to drive from A to B had not been severely affected and that availability of the Field Fix should be considered in the quantification of loss.

The case raises interesting questions of policy and commerciality in consumer actions. Firstly, it will be worth watching to see whether the Court’s description of s 54 acceptable quality guarantees as a form of ‘utility value’ is taken up in other consumer class actions which do not relate specifically to a product’s function, but instead safety or appearance. Secondly, the case highlights a balancing in consumer law policy between incentivising programs such as the Field Fix, so that when manufacturers or suppliers become aware of a defect, it is remedied; and between ensuring that products are initially sold within the parameters of acceptable quality. Finally, businesses and consumers should be aware that purchasers are able to recover for the amount overpaid for a product with a latent defect, regardless of intended purpose or subsequent, reasonable use.

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