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Australian Consumer Law & The Volkswagen Diesel Episode

Published on March 4, 2016 by Julia HarrisonJulia Harrison

As first published the Primerus Paradigm Magazine Spring 2016.

The consumers of Australia are protected by laws at state and territory level, as well as nationally, most significantly by the Competition and Consumer Act 2010 (Cth). The most significant part of the 2010 Act is its second schedule, known as The Australian Consumer Law (ACL). The ACL outlines certain rights of consumers, sets out standards for goods and services and provides penalties for breaches.

Protections for consumers provided in the ACL include:

1. Ensuring that goods supplied will correspond with the description of those goods and be fit for their disclosed purpose;
2. Requiring that goods sold are of acceptable quality, safe and free of defects; and
3. Guarantees that services are provided with due care and skill.

In addition, the ACL prevents any of these protections from being “contracted out.” Remedies where the guarantees are not met include having the goods repaired, replacing the goods or providing a refund. The ACL also gives Australian Federal Courts the power to grant injunctions where the ACL is breached.

The statutory liability for products is primarily borne by manufacturers, however suppliers along the supply chain can also be liable in certain circumstances. In addition, the definition of “manufacturer” in the ACL is quite broad, including those who apply their brand name to the goods. This is of particular concern to importers into Australia, as they may be held liable, and are likely to be sued when the original manufacturer is not in Australia.

One of the most significant provisions in the ACL is the s18 prohibition against a person, in trade or commerce, engaging in conduct that is misleading or deceptive or is likely to mislead or deceive. This can be infringed without any proof of intention to mislead. This section and its earlier equivalents have been relied upon in cases ranging from furniture[1] and rice farms[2] to fragrances[3] and cricket tests.[4] The provision famously prevented fast-food chain Taco Bell from starting its Australian presence due to the existence of a restaurant named “Taco Bell’s Casa” in Sydney.[5]

One of the biggest limitations of the ACL or consumers, is in enforcement.  In Australia, unsuccessful litigants are usually obliged to pay the majority of the winner’s legal costs.  Many cases involving misleading and deceptive conduct are accordingly between two competing businesses as opposed to between business and consumer. While the ACL provides consumer protection for goods and services, the legal costs in seeing those guarantees complied with often outweigh the value of the product itself.

The Australian Consumer and Competition Commission

Enforcement of the ACL is often effected by the Australian Consumer and Competition Commission (ACCC). Known as the “consumer watchdog” of Australia, the ACCC has the authority to investigate and research matters relating to competition and consumer protection, as well as educate the public regarding such issues. The ACCC is also concerned with enforcing the ACL by bringing court action against business perceived to have breached their obligations under the ACL.

The most recent success for the ACCC was the Federal Court of Australia requiring ReckittBenckiser, manufacturer of the Nurofen pain killer range, to withdraw products that were said on the packaging to treat specific pains (such as migraines or back pain) despite each containing the same active ingredients. The ACCC has also succeeded in court action for a range of problematic practices including misleading “free range” claims, producing fake testimonials for removalists and unfair and aggressive sales pitches for vacuum cleaners.

Safety Standards and the Australian Consumer Law

The ACL is also important in the enforcement of product safety standards in Australia. Although it contains no particular standards itself, it provides the Government with the authority to declare certain safety standards for consumer goods or product related services. The ACL stipulates that where such a safety standard exists, a person cannot supply any good that does not comply with those standards nor may they be offered for supply, unless exported outside of Australia and with the approval of the Government. The ACL also prohibits the manufacture, possession or control of any contravening goods where the goods are to be used in the used in trade or commerce.

A significant example of such safety standards are the Australian Design Rules (ADRs) which set national standards for the safety, theft resistance and emissions of vehicles. The ADRs, which are made up of a vast collection of separate legislative instruments, provide very technical specifications often based on standards produced by international bodies. The ADRs are not an approvals system, rather manufacturers must self-certify that they comply with all applicable ADRs. It is the threat of investigation and legal action from bodies such as the ACCC that seeks to ensure compliance with the ADRs.

Consumer Law and Volkswagen

On October 1, 2015, the ACCC provided a press release confirming its investigations into the Volkswagen (VW) Group.[6] The Group, which includes Volkswagen, Audi and Skoda, admitted to the use of software code in certain diesel-fueled vehicles. This code was capable of determining when a vehicle was being run under test-conditions in order to change engine controls that resulted in a lower output of nitrogen oxides (NO_x), thus allowing the vehicles to breach certain emissions standards.

The ACCC has stated that they are investigating two potential breaches by Volkswagen:

1. The use of the software to manipulate test results, which is specifically prohibited by the ADRs and thus breach ACL mandatory safety standards; and
2. That the use of the software may have misled customers given that claims relating to environmental benefits or fuel efficiency are factors influencing consumer choice.

There is a maximum penalty of $1.1 million per breach of the ACL for corporations.

The ACCC indicated that VW is yet to confirm the local use of software; however testing by the International Council of Clean Transportation (ICCT) does suggest that some affected vehicles may have breached Australia’s emissions standards (a mix of the Euro 4 and Euro 5 standards that were previously enforced in the European Union). In response, VW have agreed to recall the affected vehicles and modify them in order to bring them within Australian emissions standards.

The case involving VW is an example of how Australian consumer laws and protection operates around the notion that prevention is far better than treatment. The options for redress are usually quite limited for a single disgruntled consumer. However, breaches of the ACL can still be met with formidable litigants, either in the form of the ACCC or a class-action suit. It is this risk of this court action that provides a significant factor in business seeking to comply with the ACL.

Julia Harrison is a partner in the compensation (consumer law) division at Carroll & O’Dea Lawyers. She has extensive experience in a wide variety of litigation matters including consumer and compensation law, commercial litigation and matters relating to the Succession Act (Estate Disputes). She also has expertise assisting clients required to appear before Special Commissions of Inquiries or Royal Commissions.

Selwyn Black leads the business lawyers group at Carroll & O’Dea Lawyers. His practice includes advising on a variety of issues for businesses and other organizations, including acquisitions and disposals, joint ventures, contracts and employment arrangements, international supply and distributorship arrangements and associated disputes and regulatory issues.

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