Automotive snapshot: fuel consumption labels, cartels, environmental claims, class actions

27 Apr 2023
9 minutes

The road ahead for Australia's first National Electric Vehicle Strategy

On Wednesday, April 19th, the Australian Federal Government released the nation's first National Electric Vehicle Strategy. The strategy, announced by the Labor Government, outlines a roadmap to increase the uptake of electric vehicles and help achieve Australia's emissions reduction goals.

One of the key measures outlined in the strategy is the introduction of a Fuel Efficiency Standard, which will initially focus on light passenger and light commercial vehicles. This standard aims to encourage car manufacturers to supply more EVs to Australia, ultimately reducing fuel costs for motorists and improving the supply and variety of EVs available in the Australian market.

To support the integration of EVs into workplaces and homes, the Labor Government will develop a national mapping tool that includes initiatives to support battery recycling, infrastructure planning, apartment building design, and training for emergency services workers.

Australia's legislated commitment to an economy-wide emissions reduction target of 43% below 2005 levels by 2030, and net-zero emissions by 2050, has raised expectations both domestically and internationally. The introduction of the Fuel Efficiency Standard is an important step towards achieving these targets, particularly given that Australia has lagged behind other advanced economies, in implementing such standards.

While it has not yet set a date for the cessation of new petrol and diesel car sales, the Labor Government has committed to a second review of the policy in eight months, with legislation expected to be introduced in late 2022 or 2023.

You can learn more about the National Electric Vehicle Strategy here.

Mitsubishi v Begovic – High Court special leave application

A consumer motor vehicle complaint which began in the Victorian Civil and Administrative Tribunal (the Tribunal) will be heard in the High Court after the manufacturer Mitsubishi was granted special leave to appeal against a decision of the Victorian Court of Appeal.

The matter began when Mr Begovic, owner of a 2016 Mitsubishi Triton, sought a full refund of the vehicle's purchase price on the basis that it consumed fuel at a higher rate than that indicated on the label on its windscreen. The Tribunal – accepting Mr Begovic's expert evidence of his vehicle's actual rate of fuel consumption – found that the label was misleading or deceptive in the sense that it represented that Mr Begovic's vehicle would achieve the consumption rates it displayed when the evidence showed that it did not. The Tribunal also found that the conduct breached the consumer guarantees attached the supply of products by the Australian Consumer Law (ACL).

Importantly, the evidence at this stage of the proceeding did not come from testing of the same kind which the manufacturer was required by Australian law to conduct when performing the standardised tests to produce the figures on the label (as will be explained below).

Appeals to Victorian Supreme Court and Court of Appeal

Mitsubishi appealed the Tribunal decision to the Victorian Supreme Court and was partially successful (regarding the consumer guarantees) but did not persuade the Court to overturn the finding that the label was misleading or deceptive. The Court held that the label represented that the fuel consumption figures it displayed could be replicated in Mr Begovic's vehicle if it undertook the prescribed form of testing and, in the absence of evidence that it indeed could, the label was misleading.

Mitsubishi appealed further to the Victorian Court of Appeal, where it argued that:

  • affixing a label which complied with, and was required by, law could not constitute misleading and deceptive conduct (more detail on this below);
  • the label was not misleading because it only showed the results of a test vehicle (rather than the specific vehicle it was affixed to), which it showed accurately; and
  • the label did not suggest that its testing results could be substantially replicated in the vehicle purchased.

The appeal was dismissed, with the Court essentially concluding that a reasonable consumer was entitled to believe that the information on the fuel label would substantially reflect the results that their own vehicle would produce if it was tested using the prescribed method.

Special leave application

Mitsubishi applied to the High Court for special leave to appeal against the decision of the Court of Appeal. In the hearing, Mitsubishi's central argument was that performing a statutory obligation – namely the affixing of the fuel-consumption label to the vehicle before sale – cannot, and should not be held to, constitute misleading or deceptive conduct.

The basis for that argument is that the Motor Vehicle Standards Act 1989 (Cth) makes it an offence to supply a vehicle which does not comply with "national standards". One of those standards requires that a specific fuel-consumption label, containing the results of a stipulated form of fuel-consumption testing, be affixed to the vehicle. The testing in question requires testing a sample vehicle representative of the class of vehicle being sold in precisely defined testing conditions. It does not require testing in ordinary driving conditions, let alone testing every vehicle. Mitsubishi maintains – and it is not disputed in this case – that it undertook the testing correctly and displayed the truthful results of that testing on the label. In that sense, Mitsubishi says that it has only ever done what was lawfully required of it, and that doing so should not result in it incurring any liability.

No legal obligation to sell the vehicle?

Mitsubishi characterised the Court of Appeal's reasoning as resolving this issue on the basis that its mere compliance with the law was not what caused Mitsubishi's liability, because the law did not require Mitsubishi to sell the subject vehicle, or in fact any vehicle. On its application for special leave, Mitsubishi argued that the act of selling the vehicle and the act of affixing to it a label – which was only required in order to sell the vehicle – could not meaningfully be distinguished. It maintained that the law is in a position of conflict and argued that it is no answer to that conflict to say that the manufacturer could simply withdraw from the market.

Does every vehicle need to be tested?

Mitsubishi suggested that if the decision of the Court of Appeal was to stand, a possible consequence would be that to avoid liability of this kind, suppliers of vehicles would be required to test every individual vehicle for its adherence to the fuel-consumption rate shown on the label and sell only those vehicles which performed to within an acceptable margin of error. The prescribed tests are costly and time-consuming and require technical expertise.

To that end, Mitsubishi criticised the Court of Appeal's conclusion that a hypothetical consumer would not consider the figures on the label to be confined to a test vehicle and therefore "irrelevant" to their own vehicle. The manufacturer contended that the question was not whether the figures were "irrelevant", but rather whether the consumer was on notice of the relationship between the displayed testing figures and the performance of their own vehicle, namely that, as the label states:

“Actual fuel-consumption and CO2 emissions depend on factors such as traffic conditions, vehicle condition and how you drive.”

In that regard, Mitsubishi also reminded the Court that Mr Begovic's vehicle was at the time of testing two years old and had travelled over 50,000km.

Should manufactured vehicles be able to replicate testing figures?

Mr Begovic's lawyers argued that there should be an obligation on those who supply products to consumers to ensure that statements made about the products – such as on labels – are accurate. In that sense, Mr Begovic rejected Mitsubishi's argument that the Court of Appeal's decision left it with only two choices: to sell the vehicles despite their potential discrepancy with the label, or not to sell them at all; instead, there was said to be a third choice: to ensure that the vehicle sold conformed to what was said on the label. In fact, Mr Begovic emphasised, in order to obtain the relevant approval of their testing results, vehicle manufacturers are required to show that they have in place manufacturing procedures which enable their testing figures to be replicated in the vehicles that they produce. Further, Mr Begovic pointed to the option of Mitsubishi seeking approval for a different fuel consumption label if it learned that a certain batch of vehicles did not conform to the tested fuel consumption rate.

In this sense, Mr Begovic submitted that Mitsubishi's misleading and deceptive conduct did not arise purely from its performing of its obligations under law, and there were several courses by which it could have performed those obligations and not misled consumers.

Broader implications: whose responsibility is ensuring a product's conformity to its label?

The case could well have implications for other industries. As pointed out by Mitsubishi's counsel at the special leave hearing, foods are subject to similar specific labelling requirements: the nutrient-content figures on food labels reflect the results of standard testing and not testing of each individual product.

If the results of standardised testing can be misleading, absent proof that each individual product conforms to those results, practical difficulties may arise for retailers who rely on testing and labelling provided by a manufacturer. Under the ACL the primary liability for a failure of products to comply with a consumer guarantee falls on the retailer.

Special leave to appeal granted

The Court granted special leave to Mitsubishi to appeal the Victorian Court of Appeal's decision to the High Court. Although the Court did not provide reasons for its grant of leave, the question for determination appears to be whether a label – which is required by law and which sets out accurate results of prescribed standardised testing – could constitute misleading and deceptive conduct under the ACL.

The case will have significant consequences for manufacturers and suppliers in many industries which are subject to legally mandated labelling requirements. Regardless of which way the High Court decides, it would be prudent for manufacturers and suppliers to scrutinise their methods for ensuring that products taken to market match what is represented about them – even where those representations are legally mandated and are accurate according to the prescribed from of standardised testing.

Global nature of competition/antitrust investigations reinforced by recent Korean and European cartel enforcement actions

The fallout from automotive emissions investigations has recently expanded into competition/antitrust spheres, with the Korea Fair Trade Commission (KFTC) having recently imposed fines totalling almost AU$50m in relation to a 2006 agreement between automotive manufacturers not to compete on the supply of cars containing emission-reduction technology. This follows the European Commission's action in relation to collusion over emissions technology in 2021, and other regulators globally having commenced investigations into potential cartel conduct in the automotive industry.

These enforcement actions are notable for their level of inter-agency co-operation between regulators across multiple jurisdictions. In the case of the KFTC, the investigation was marked by close co-operation with the Turkish Competition Authority which had opened a similar investigation in 2020.

Could the same occur in Australia?

The ACCC has made it clear that it intends to continue working with foreign regulators. In 2022 the ACCC announced that it has joined with other competition authorities in the US, the UK, Canada and New Zealand to form a "five eyes" working group to focus on illegal conduct within global supply chains, including cartel conduct (which continues to be a high priority for the ACCC).

Looking ahead, inter-agency co-operation is likely to continue and grow. We expect that this will not be limited to investigations in relation to potential enforcement action, but will extend to other activities by regulators, such as market studies. For example, the ACCC is working closely with US regulators in relation to the Digital Platform Services Inquiry that will likely result in legislative reforms in Australia.

The KFTC's actions signify the increasing global approach to competition investigation and enforcement. It is a timely reminder that subsidiaries of multinational corporations who conduct business in Australia should be cognisant of the extra-territorial reach of competition laws and the ACCC's intention to co-operate with foreign agencies when investigating possible flow-on effects from decisions made overseas that potentially harm Australian consumers.

Regulators revving up to investigate environmental claims

The filing of ASIC's historic first greenwashing civil penalty proceeding against a Superfund is a timely reminder to boards, executives and legal advisers across industries that caution needs to be exercised when making environmental or sustainability claims about products, services or business.

We know from our clients that greenwashing is top of mind and is emerging as an issue not just for those making sustainability claims to drive consumer interest.

We have put together Six Top Things we see emerging during 2023 in this space.

The Western Australian class action regime is now live

WA's class actions regime will most likely be used for WA-related mass claims, with the Federal Court continuing as the leading forum of choice for class actions in Australia.

Class action reform in Western Australia had been under consideration for more than a decade. In September 2022, WA became the fifth Australian State to enact a class actions regime. However, the regime did not commence immediately, giving the WA Supreme Court the opportunity to develop supporting practice directions to ensure that class action proceedings are conducted efficiently and fairly.

The Court's Consolidated Practice Directions (CPDs) have now been updated to provide procedural guidance as to how class actions are to be conducted and managed in the jurisdiction, and the regime has now come into effect.

You can learn more about the operation of WA's new class actions regime here.

Litigation funders watching for certainty on common fund orders in class actions

The power of the Federal Court to make a common fund order in the context of class actions remains in question but the Full Federal Court decision may provide clarity, which might reassure litigation funders keen to step into the jurisdiction.

Diverging judicial opinions on whether the Federal Court has the power to make a common fund order in a class action proceeding might seem a classic lawyer's problem, of little relevance to the wider world. It goes, however, to the heart of the profitability of litigation funders' business model, and consequently impacts access to justice; a principle that underpins Australia's class action regimes. To appreciate the divergence of the Federal Court that has recently been emphasised by Davaria Pty Ltd v 7-Eleven stores Pty Ltd (No 13) [2023] FCA 84 and what it means, it is first necessary to explore how class actions are funded, which we do here.

ACCC enforcement priorities 2023-24: what you need to know

The automotive industry continues to be in the headlights of the ACCC in 2023-24 with the regulator's enforcement priorities including compliance with consumer guarantees and obligations under the Franchising Code of Conduct.

At her first annual address at the helm of the Australian Competition and Consumer Commission, Gina Cass-Gottlieb outlined the agency's compliance and enforcement priorities for 2023/24.

Of particular relevance to those in the automotive sector:

  • the introduction, in November 2023, of new laws prohibiting unfair contract terms, including a new penalty regime that are subject to recent increased pecuniary penalty provisions;
  • ensuring that consumers and small businesses, including franchisees, enjoy the full benefit of the strengthened laws;
  • improving industry compliance with consumer guarantees, with a focus on high value goods including motor vehicles and caravans; and
  • the ACCC will also lobby the Federal Government to adopt a general law prohibiting unfair trading practices,

More broadly, the ACCC will also focus its enforcement efforts on issues including:

  1. consumer and fair trading issues arising from the pricing and selling of essential services with a focus on energy and telecommunications;
  2. competition and pricing issues in gas markets, including compliance with the recently-applied price cap order and other legal obligations for wholesale gas markets;
  3. promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services;
  4. competition and consumer issues in global and domestic supply chains, with a focus on transport and logistics;
  5. consumer product safety issues for young children, with a focus on compliance, enforcement and education initiatives;
  6. the ACCC will also possibly include mandatory merger filings as part of its push for a general law prohibiting unfair trading practices; and
  7. scam detection and disruption, including to support the implementation of the National Anti-Scam Centre.

You can learn more in our detailed overview of the ACCC's 2023/24 priorities here.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.