By Mark Armstrong, Solicitor

6 March 2024

In recent news, Mazda Australia has been ordered to pay an $11.5 million fine for several contraventions of the Australian Consumer Law (ACL) contained within the Competition and Consumer Act 2010 (Cth).  In February 2024, the Federal Court ruled in favour of the Australian Competition and Consumer Commission (ACCC), upholding their assertions that Mazda had engaged in misleading and deceptive conduct and had made 49 separate false or misleading representations to nine consumers with regard to their consumer guarantee rights.  These consumers encountered repeated and serious faults within two years of the purchase of a vehicle and Mazda failed to provide an appropriate response.  Consumers have non-excludable rights under the ACL when a product purchased has a failure.  Read on as we explore those rights and the remedies available in light of this recent decision against Mazda.

Statutory Consumer Guarantees

The ACL confers several statutory rights onto consumers in Australia, that cannot be contracted out of or avoided by suppliers or manufacturers.  Generally, purchases of products for personal, domestic or household use, and as well as products that cost less than $100,000 including GST, are protected by statutory consumer guarantees.  This means that consumers have the legal right to expect that the product they are purchasing:

• is of acceptable quality;
• is fit for a particular purpose;
• matches the product’s description or a sample of the product;
• will meet any promises made by the supplier or manufacture (also known as warranties);
• will have spare parts and repair facilities available for a reasonable time after purchase (unless expressly told otherwise at the time of sale); and
• will result in full ownership of the product without any fear of reclaim, repossession or money owing from any other person or a previous owner.

These rights cannot be excluded or contracted out of through disclaimers or wording related to limitations of liability.  And yes, these guarantees apply to major purchases like automobiles. So, what happens if a product fails to meet the guarantees? And what is the appropriate remedy to deal with the problematic product?  That depends on whether the failure is a “major” or “minor” failure.

Major Failures

Under the ACL, a major failure occurs when a product is:

• not of acceptable quality, that is, it is not safe, durable and free from defects;
• markedly different from the description or sample;
• has one serious issue or several smaller issues that would have prevented a consumer from purchasing the product had they known of the issue/s prior to purchase; or
• not fit for its regular purpose, or another purpose communicated to the seller prior to purchase and cannot be rectified within a reasonable time.

For example, in the Mazda case, where a vehicle has been repaired several times unsuccessfully (including in one customer’s case, three complete engine replacements), this would amount to a major failure.

Where a major failure has occurred, the consumer is entitled to have the product repaired, replaced, or refunded in full (including return costs if applicable), as chosen by the consumer.  In this case, the relevant Mazda customers were clearly facing major failures, including the poor buyer that had three full engine replacements.  These customers were initially told that a repair was their only option, and later offers consisted of an offer of a partial refund or replacement vehicle only following a substantial payment by the consumer.  By law, these customers have the right to choose their remedy, including a refund if preferred. This right was not afforded to them, in breach of the ACL.

Importantly, the supplier must not redirect consumers with products with major failures to the manufacturer to resolve the issue.  The supplier is responsible for fixing the issue with the consumer and can then later claim compensation from the manufacturer for the fault.

Minor Failures

A minor failure under the ACL occurs where the product has a fault that can be remedied relatively quickly and easily.  Where a minor failure has occurred, the consumer is only legally entitled to a repair, however the business can replace or refund the product if the business prefers. In other words, the supplier is the one that has the choice of how to remedy a minor failure.  For example, if a customer purchased a vehicle from a dealership and soon after had an air conditioning issue that could be repaired within a few weeks, this would likely constitute a minor failure and if the dealership opted to repair the fault, this would be an appropriate remedy.  Persistent serious faults however, such as several engine replacements are a major failure and customers are entitled (and encouraged by the ACCC) to exercise their rights bestowed under the ACL.

It is obviously tricky to perfectly assess the distinction between minor and major failures. After all, factors differ widely depending on the market segment, the price of the relevant product, the function of the product, and general consumer expectations may differ also.  This can lead many suppliers and manufacturers astray, as they attempt to treat serious problems as minor failures. It is generally prudent to adopt a “customer is always right” approach to such complaints, as Mazda has just found out.

Guarantees vs Warranties

As noted above, the ACL contains statutory guarantees that all consumers are entitled to and cannot be excluded.  These guarantees apply automatically to consumer purchases and regardless of any warranty provided by a manufacturer.

An “extended warranty” or “manufacturers warranty” is an additional voluntary promise that a business may make when offering a product, however, a warranty is always in addition to the consumer guarantees enshrined in the ACL.  Usually, warranties are for a set period, but even after a warranty period expires, the consumer guarantees would continue to be in effect for a reasonable period of time, that is, a period of time that most people would think is fair in the relevant circumstances.

For example, if a $3,000 television comes with a 12 month warranty, the product would likely be subject to the consumer guarantees over and above the terms of this warranty.  If the television failed within 18 months of purchase through no misuse by the consumer, a reasonable person would think that a product at this price point would last for a much longer period of time, and the consumer guarantees would likely provide an avenue for recourse to this consumer.  To be clear, businesses must not fail to rectify an issue, simply because the additional warranty period has run out, as the consumer guarantees will still provide protection to the consumer.

Penalties

The penalties for making false or misleading representations in breach of the ACL can be of enormous consequence.  The ACCC is the regulator of the ACL and has a large budget with which it frequently launches legal action to make an example of consistent wrongdoers, as was the case here with Mazda.  Financially, the penalties can be devastating, with the current maximum pecuniary penalty for a business being the greater of: (i) $50 million; (ii) if the court can determine the total value of the benefit obtained, three times that value; or: (iii) if the court cannot determine the total value of the benefits, 30% of the corporation’s adjusted turnover during the breach turnover period (being a minimum of 12 months).

Additionally, the ACCC has the power to issue injunctions and corrective orders, order that a company implement an ACL compliance program, and in extreme cases, criminal prosecution can occur.  In this case, in addition to their hefty fine, Mazda was ordered to pay $82,000 in compensation to some of the affect customers and part of the ACCC’s legal costs, implement a compliance program, publish a corrective notice on its website and notify its dealers of the outcome of the case.

Notably, the maximum pecuniary penalty amounts noted above increased in November 2023.  Mazda’s conduct in breach of the ACL occurred prior to October 2019, meaning that the maximum pecuniary penalty at that time applied, so Mazda should consider itself lucky that it was not subject to the updated regime, as the penalty would have been even greater.

It is important to note that there are statutory consumer guarantees that also apply to the purchase of services.  Under the ACL, a consumer has the right to expect that the services will be carried out with due care and skill, are fit for a particular purpose and will be provided within a reasonable time.  In any case, businesses must be able to provide a solution if their services offered do not meet these guarantees or they run the risk of facing the wrath of the ACCC.

What does this mean for you?

This case should prompt you to review your internal policies and education methods to ensure all staff are well versed as to how the consumer guarantees operate under the ACL, including what constitutes a major and minor fault, as well as the statutory rights that customers have.  Relying on signs such as “No refunds” (including for sales items), or other terms that exclude or purport to exclude the consumer guarantees will not be acceptable.  Additionally, ensure you treat product issues seriously and directly, noting that businesses must not palm customers off to manufacturers if there is a major fault with a product purchased.  The ACCC frequently takes businesses to account if there is a suspected breach of the ACL, so ensure all of your staff well equipped to deal with product faults to avoid any further investigations from the ACCC.

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If you would like further information on consumer law issues and how these may impact you or your business, please contact one of our experts below. We can provide tailored legal and practical advice to assist you with compliance with the ACL.