Major headache: Mazda case reinforces consumer guarantee enforcement risks for automotive industry

The Federal Court's findings against Mazda reinforce the importance of having in place clear guidance for customer representatives and dealer staff for discussing warranty and consumer law remedy rights with consumers, particularly in light of the "lemon laws" introduced in December 2020 which make representations about whether an issue may be a major failure all the more difficult in the absence of a detailed assessment of the vehicle itself.

The Mazda case centred on nine consumers who requested a refund or replacement vehicle from Mazda after experiencing serious and recurring faults with their new vehicles within two years of purchase. Mazda ignored or rejected consumer requests and made representations that the only available remedy was another repair, notwithstanding that they had already undergone multiple unsuccessful repair attempts (including up to three complete engine replacements) over months or years.

In October 2019, the ACCC instituted proceedings in the Federal Court seeking declarations that Mazda engaged in misleading and deceptive conduct, made false or misleading representations and engaged in unconscionable conduct in contravention of the Australian Consumer Law (ACL) provisions.

The ACCC's allegations about Mazda's representations on its consumer guarantees

The ACCC alleged that Mazda engaged in misleading and deceptive conduct, made false and misleading representations concerning the consumer guarantees under the ACL.

The ACCC submitted that the relevant representations made by Mazda included that:

• certain faults with Mazda vehicles were not "major failures" under the consumer guarantee provisions;
• consumers were not entitled to a refund or replacement vehicle at no cost to them;
• consumers did not have any ability under the ACL to seek a refund or replacement vehicle because Mazda was entitled to repair the faults regardless of the number of attempts made to repair the faults, the time it took to repair the faults, the consumers' rejection of the vehicles and requests for a refund or replacement, and/or Mazda's obligation under the ACL to repair the vehicle;
• Mazda was not required to provide a refund or replacement at no cost to the consumers because of the age and/or mileage of the vehicles; and
• a major failure within the meaning of the consumer guarantee provisions of the ACL in respect of a motor vehicle is limited to a failure of a major component of the motor vehicle.

Interestingly, the ACCC did not seek to prove that the relevant vehicles in fact suffered major failures within the meaning of the ACL. Rather, it pursued a narrower case on the basis that Mazda misrepresented the position as to consumers' legal rights as they had not considered whether the issues were major failures before representing to the consumers that they did not have the right to reject the vehicle and obtain a refund or replacement (which they would have been able to do were the issues major failures for the purposes of the ACL).  This is a key issue for retailers and manufacturers – in the automotive industry and more broadly – and is reflective of a trend in the way in which the ACCC has pursued consumer guarantee cases through the lens of misleading and deceptive conduct and false and misleading representations without necessarily needing to prove the status of individual failures of goods to make out their case.

The ACCC also submitted that Mazda's conduct was “irreconcilable with what is right or reasonable” and involved “unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism” warranting a finding of unconscionable conduct.

Federal Court agrees on misrepresentations, disagrees on unconscionability

While the Federal Court found that Mazda engaged in 49 separate false or misleading representations relating to the nine consumers, it did not find that Mazda's actions amounted to unconscionable conduct.

Despite Justice O'Callaghan accepting that the consumers suffered harm, he characterised Mazda's handling of the complaints as "appalling customer service" and "very bad management" of compliance standards and processes. Justice O'Callaghan further noted that there was no allegation that Mazda had acted in bad faith nor that Mazda engaged in a pattern or system of conduct.

The Court is due to decide on penalties and other orders sought by the ACCC at a later date.