Mazda and the ACCC race to win appeal in the Full Federal Court
On 14 April 2022, both the Australian Competition and Consumer Commission and Mazda Australia appealed the November 2021 decision of Justice O’Callaghan of the Federal Court of Australia. In that first instance decision, the Court found that Mazda engaged in misleading and deceptive conduct and had made false or misleading representations in breach of the Australian Consumer Law (ACL). The Court however, declined to find that Mazda had engaged in unconscionable conduct in breach of the ACL.
On 30 October 2019, the ACCC brought civil penalty proceedings against Mazda, following the 2017 New Car Retailing Industry Market Study which found concerning levels of non-compliance with the ACL in the new car industry. The ACCC has since brought proceedings against several other motor vehicle manufacturers for making false or misleading representations to consumers, including Honda and Jayco, as well as securing various enforcement outcomes, including:
- court enforceable undertakings from Toyota, Volkswagen, Holden and Hyundai to improve their compliance with the ACL;
- pecuniary penalties against Volkswagen and Ford; and
- infringement notices against Ford.
Mazda and the ACCC’s respective appeals are also brought in circumstances where one of the ACCC’s 2022 Enforcement Priorities is improving industry compliance with consumer guarantees, with a focus on high value goods including motor vehicles and caravans.
Mazda Australia is the wholly owned subsidiary of Mazda Motor Corporation (Mazda Corp), a Japanese manufacturer of motor vehicles that are supplied to Mazda. Mazda in turn supplies those motor vehicles to dealers throughout Australia who ultimately supply those vehicles to consumers. Each dealer (rather than Mazda) is therefore, under the ACL, considered the ‘supplier’ of those vehicles and has an obligation to provide a remedy under the ACL in certain circumstances where there is a fault with the vehicle.
Mazda, as the manufacturer, despite having no obligation under the ACL directly to provide to the consumer a refund or replacement vehicle, took on the responsibility for dealing with consumer complaints.
Broadly, the ACCC alleged that Mazda had made false or misleading representations about the consumer guarantees under the ACL arising from conversations between consumers and Mazda customer service representatives. The ACCC also alleged that Mazda had engaged in misleading and deceptive conduct and unconscionable conduct. To support its case, the ACCC called several consumer witnesses and relied on various documentary evidence.
The decision of the Federal Court
Did Mazda make false or misleading representations?
The first issue that his Honour was required to consider was whether Mazda had:
- engaged in misleading or deceptive conduct under section 18 of the ACL; and/or
- made false or misleading representations under section 29(1)(m) of the ACL.
His Honour considered each consumer witness’ interactions with Mazda separately. However, the general themes of the interactions (summarised below) lead the Court to find that Mazda had made misrepresentations in contravention of the ACL:
- Mazda’s insistence that it had an obligation to repair the consumer’s vehicle (even when the consumer notified Mazda that there was a major fault) falsely represented that the consumers were not entitled to refunds or replacements.
- Mazda’s representation that they “work in line with the consumer laws” and in that context, saying that the vehicle will be safe to drive again once repairs are undertaken, was false as it conveyed that the consumer did not have any ability to obtain (or conversely, Mazda was not required to provide) a refund or replacement vehicle under the ACL. Notably, the Court found that it was entirely artificial for Mazda here to characterise the representation made by its representative as “simply putting a position”.
- Mazda’s refusal to provide a new vehicle, communicated using clear words such as “we’re not going to…we won’t be able to” implicitly rejected consumer’s right to refund or replacement.
- Mazda’s statement that a major failure under the ACL was limited to a failure of a major component of the vehicle was misleading as there is no such requirement under the ACL.
- Mazda’s offers of partial refunds to consumers in response to their complaints that the vehicle’s failure was major was an implied rejection of their request for a refund and was misleading in circumstances where Mazda never undertook proper enquiries to determine whether the failure was major or not. In those circumstances, the fact that Mazda offered more than the market value of the car was irrelevant.
- Mazda’s contention that cars are “not like” other consumer products for the purposes of relevant provisions of the ACL was a false assertion.
Did Mazda engage in unconscionable conduct?
The second issue that his Honour was required to consider was whether Mazda’s behaviour could be characterised as unconscionable conduct under section 21 of the ACL.
Interestingly, the ACCC did not advance a case based on a pattern or system of conduct, (explained in our previous post) and as such, the Court was required to consider each allegation of unconscionable conduct separately. As with the assessment of misleading and deceptive conduct, there was a high degree of similarity in the facts for each consumer witness and as such, there was overlap in the factors the Court considered when assessing Mazda’s conduct.
Ultimately, his Honour found that while Mazda’s conduct could constitute “appalling customer service” and a “failure to comply with Mazda’s own procedures”, Mazda’s conduct was not unconscionable as its conduct was not ‘sufficiently divergent from the community standards of acceptable business practices’. The factors that appeared to weigh against a finding of unconscionably included:
- no allegations had been made that Mazda had acted in bad faith or dishonestly;
- Mazda did not impose any ‘unfair or unreasonable commercial pressure’ on the consumers to accept their offer for a partial refund, but rather, consumers could have asked for extra time to consider the offer but did not; and
- there was nothing to suggest that Mazda did not take the safety concerns raised by the consumers seriously, rather, Mazda offered to repair the vehicle, provide a loan vehicle, and ultimately offered to trade in the vehicle for a new one.
It was, however, observed that:
- Mazda was in a dominant bargaining position compared to the consumers (however, the mere disparity in bargaining position and the exercise of that power by Mazda was not sufficient to be unconscionable);
- Mazda did not give any genuine consideration to whether consumers were entitled to a refund or replacement vehicle during its relevant meetings;
- Mazda failed to escalate consumer requests thereby delaying making a decision on each consumer’s request for a refund or replacement vehicle; and
- Mazda attempted to dissuade consumers from continuing with their requests by offering to trade in their vehicle or making an offer for limited compensation.
Key takeaways from Mazda decision
While O’Callaghan J’s decision was quite fact-specific, there are some useful lessons that can be drawn from the judgement in relation to compliance with the ACL.
In relation to misleading and deceptive conduct or representations:
- manufacturers who take control over the consumer complaint process are likely subject to liability under the ACL for any representations they make to consumers;
- care should be taken to avoid making representations that suggest that cars are different to other consumer goods for the purpose of the ACL, for example, that consumers are only entitled to a refund or replacement under the ACL if the relevant fault relates to major component of the vehicle; and
- manufacturers should be aware of the behaviours that may be construed by the Court as being implicit rejections of a consumer’s request for a refund or replacement, such as by offering a partial refund, insisting on providing a repair, or expressing unwillingness or the inability to provide a refund or replacement.
In relation to unconscionable conduct, the following factors appear to be important (although not necessarily determinative or essential) considerations in the assessment of whether, objectively, a supplier’s conduct involves such a departure from accepted community standards to warrant the characterisation that it is unconscionable:
- the absence of ‘unfair or unreasonable commercial pressure’; and
- bad faith and dishonesty. This is consistent with the outcomes in the Geowash and Quantum Housing decisions where the Full Federal Court found that unconscionable conduct was established because, among other things, each respondent behaved deceptively and dishonestly towards consumers.
More generally, given the ACCC’s current and historical enforcement priorities, businesses in the motor vehicle industry should remain vigilant about compliance with the ACL.
The ACCC sought to appeal the Court’s finding that Mazda did not engage in unconscionable conduct, whereas Mazda sought to appeal the Court’s finding that it engaged in misleading and deceptive conduct and made false or misleading representations to consumers.
On 28 April 2022, both parties were granted leave to appeal the decision, with each party’s notice of appeal to be filed by 5 May 2022.
Watch this space for further updates as these proceedings progress.
2014 Mazda 3 SP25 Astina – Australia’s Auto Sales: 1st Quarter (January – March 2014) by TuRbO_J / Creative Commons CC BY 2.0 / Remixed to B&W and resized