Compensating a consumer for a vehicle that has a major failure can be expensive. Especially if the failure is unsuccessfully contested in a tribunal, in which case legal expenses will be added to the costs incurred by the Dealer. Fortunately, if the legal requirements are satisfied, Dealers will be indemnified by their manufacturers for the costs they have incurred.
The following cases, Morphy v Beaufort Townsville Pty Ltd & Jaguar Land Rover Australia Pty Ltd and Begovic v Northpark Berwick Investments Pty Ltd & Mitsubishi Motors Australia Pty Ltd offer illustrative examples where the dealer has been entitled to indemnification or encouraged to pursue indemnification from the manufacturer.
Legal Requirements to be met to obtain an indemnity from a manufacturer
The following legal requirements have to be met for a Dealer to successfully be indemnified by the manufacturer:
- Section 274 of the ACL sets out that a manufacturer of goods is liable to indemnify the supplier who supplies the goods to a consumer if two requirements are satisfied.
- Firstly, the supplier is liable to pay damages under section 259(4) to the consumer for loss or damage suffered by the consumer.
- Secondly, the manufacturer would be liable under section 271 to pay damages to the consumer for the same loss or damage.
- Section 259(4) will be satisfied if it can be proven that the Dealer’s failure to comply with a consumer guarantee made it reasonably foreseeable that the consumer would suffer the loss or damage as a result of such failure.
- Section 271(1) will be satisfied if the guarantee of acceptable quality was not complied with, thus enabling the consumer to recover damages from the manufacturer.
Morphy v Beaufort Townsville Pty Ltd & Jaguar Land Rover Australia Pty Ltd (Civil Claims)  VCAT 1520
In this case the applicant (Morphy) bought a Range Rover from Beaufort (Dealer). The vehicle was imported into Australia by the second respondent, Jaguar Land Rover Australia Pty Ltd (JLRA). The vehicle had a number of issues from delivery including overheating, failing to start on occasion and the engine exhibiting excessive carbon deposits. The vehicle was found not to be of acceptable quality and was found to have suffered a major failure. The consumer was therefore entitled to reject the vehicle and receive a refund.
VCAT ordered JLRA to compensate the Dealer for the expense of refunding the vehicle ($283,000) as well as for the applicant’s and dealer’s costs in accordance with section 274.
Begovic v Northpark Berwick Investments Pty Ltd (Civil Claims)  VCAT 772
In this case, Begovic purchased a 2017 Triton because he wanted a more fuel efficient vehicle than his previous 2008 Triton. A fuel consumption label was on the front windscreen of the 2017 Triton prior to purchase. The information on the fuel consumption label was found to be false and represented the vehicle to be more fuel efficient than it in fact was. Mr Begovic wanted a more fuel efficient vehicle than his previous 2008 Mitsubishi Triton and he alleged that he would not have purchased the 2017 Triton if he was aware that the actual fuel consumption would be higher than both his previous Triton and the fuel consumption label.
VCAT determined that the 2017 Triton’s fuel consumption was higher than the fuel consumption label and his previous 2008 Triton. The tribunal accepted that Mr Begovic relied on the misleading representation contained on the label and suffered losses as a result of the increased fuel costs. Amongst other issues, the vehicle failed to be of acceptable quality because its fuel consumption was substantially more than represented by the label and the vehicle failed to be fit for its purpose of being more fuel efficient. These were considered major failures by VCAT and Begovic was within his right to reject the 2017 Triton for the purposes of enforcing a right to refund or replacement. As the guarantee of acceptable quality was not complied with, the tribunal noted that the Dealer was not prevented by this decision from making a claim against the manufacturer.
Dealers should be aware that they have a right to indemnification from manufacturers when a customer claim against them occurs as a result of fault from the manufacturer and ensure that any consumer claim includes a cross claim against the manufacturer under s274 of the ACL.
In the Morphy case, the Dealer cross claimed and received an award in its favour which equalled the award made against it in favour of the customer. Accordingly, the Dealer was not out of pocket.
In the Begovic case, the Dealer it appears did not cross claim against Mitsubishi but was encouraged to make a claim against the manufacturer.
Although both Dealers and manufacturers may be sued by the consumer over a vehicle failure, manufacturers will likely be held responsible for the full extent of the liability that Dealers incur during proceedings.