In a recent decision, the Court of Appeal (QLD) clarified the scope of damages that are recoverable against a manufacturer under section 272 of the ACL.
In issue
This matter concerned the assessment of damages under section 272(1) of the Australian Consumer Law (the ACL) which provides for the damages which may be recovered against a manufacturer of goods. Specifically, the Court of Appeal (QLD) considered whether the claimant was entitled to:
- Recover damages for a reduction in value of the goods under section 272(1)(a) of the ACL where no expert evidence had been adduced in relation to the claimed loss of value of the goods; and to
- Recover damages for the replacement of the damaged goods under section 272(1)(b) of the ACL.
The background
In this matter, Mr Callinan (the applicant) purchased two Yanmar engines and accompanying sterndrives (the goods) for his recreational speedboat named ‘Quick Fix’, from Mackay Marine Services Pty Ltd (the respondent). The goods were purchased in late 2012 for a total cost of $124,850.00.
Although the applicant got some use from the goods, between 2013 and 2018 the goods experienced nine failures (including one failure of the engine and two total failures of the sterndrives requiring replacement). After the final failure, the applicant brought a claim for damages against the respondent for the sale of goods that were not of an acceptable quality pursuant to section 54 of the ACL. Pursuant to section 272 of the ACL, the applicant sought to recover damages for the reduction in value of the goods and the consequential costs involved in replacing them. As such, he advanced a claim seeking $155,412.15 in damages (of which $145,068.00 was for the cost of the replacement goods).
The decision at trial
At trial, the primary judge found the goods were not of acceptable quality under section 54 of the ACL. However, the applicant was only awarded $8,069.00 in damages (inclusive of interest) for the costs of carrying out repairs on Quick Fix. In assessing the applicant’s damages, the trial judge considered:
- That in assessing damages under section 272(1)(a) of the ACL, it was not appropriate for a Court to ‘hazard a guess’ as to how much the goods had reduced in value. He considered the applicant had not adduced appropriate evidence which permitted the calculation of any reduction in the value of the goods, and therefore the applicant had failed to prove this component of damage; and
- That damages under section 272(1)(b) of the ACL did not extend to the inclusion of any amount for the cost of the replacement goods, or the labour involved in removing/installing the replacement goods.
The issues on appeal
The applicant (Mr Callinan) sought leave of the Court to Appeal to appeal the previous assessment of damages in relation to two separate points:
- The applicant’s entitlement to recover damages for a reduction in value under section 272(1)(a); and
- The applicant’s entitlement to recover replacement costs as a reasonably foreseeable loss under section 272(1)(b).
The decision on appeal
On appeal, Cooper J (with Bond JA and Henry J agreeing) considered:
- The approaches which had been adopted in Toyota Motor Corporation Australia Ltd v Williams (2023) 296 FCR 514 and Vautin v By Wunddown Inc (formerly Bertram Yachts) (No 4) (2018) 362 ALR 702 to determine the general principles in assessing a reduction in value under section 272(1)(a) of the ACL. The Court found that they were required to make an objective assessment of the amount by which the good’s value had been reduced. The Court determined that where circumstances allowed, expert evidence was not a pre-condition to this assessment. As such, the Court was able to evaluate the diminishment in value by comparing the lifetime use of the goods with and without the failures. This resulted in the Court awarding $62,425.00 for damages pursuant to section 272(1)(a) of the ACL.
- That section 272 (as a whole) does not confer an entitlement to recover the replacement costs of a defective good. Relying on Edelman’s analysis in Scenic Tours Pty Ltd v Moore [2023] NSWCA 74, the Court considered that an award for the replacement costs of defective goods would constitute compensation for performance interest (that is, compensation that seeks to restore the injured party to a position that they would have been in had the breach not occurred). Under s 272(1)(a) of the ACL, compensation for performance interest does not extend to the replacement of defective goods. To the extent that consequential losses may be recovered pursuant to s 272(1)(b), the loss must go beyond the value of the promised performance – a plaintiff cannot recover compensation for performance interest as a form of consequential loss. Accordingly, this part of the appeal was dismissed.
Implications for you
Practically, this decision clarifies the scope of damages that are recoverable under section 272 of the ACL and provides an approach for how a reduction in value may be calculated in the absence of expert evidence. However, the most significant takeaway from the decision is that it confirms that the effect of section 272 (as a whole) prevents plaintiffs from seeking to recover the replacement costs of defective goods in actions for damages against manufacturers.
