In April 2022, the Federal Court decided in favour of the applicants in a class action against Toyota that may now cost the car manufacturer over $2 billion in damages. Justice Lee’s decision on the quantum reflects the importance of providing substantive and well-reasoned expert evidence in valuation matters where experts commonly offer multiple and divergent approaches to valuation.
Kenneth John Williams brought proceedings against Toyota Motor Corporation Australia Limited (‘TMCA’) for failing to guarantee the quality of its goods and for misleading and deceptive conduct under the provisions of the Australian Consumer Law (‘ACL’).
Mr Williams represented a class of purchasers of diesel Toyota Hilux, Fortuna and Prado models sold between 2015 and 2020 which operated on malfunctioning diesel particulate filters. Toyota had not informed purchasers that the filters would become clogged, releasing foul-smelling white smoke, drastically depleting fuel economy and requiring the customer to service the vehicle frequently.
The Court found in favour of the applicants under the provisions of the ACL.
Both parties relied on expert evidence to quantify damages TMCA would owe to affected customers. In total, six experts were engaged to produce three distinct approaches to quantifying the amount of reduction in value to each affected vehicle that reflected the vehicle’s market value had customers known of the defect.
The Expert Evidence
The applicant’s expert Mr Cuthbert, a car valuer with over 50 years’ experience, measured a reduction of 23.5 to 27% less than original price as a result of the malfunctioning diesel particulate filters. His opinion considered the general consumer’s significant devaluation of the vehicle in light of the inconvenience, effect on performance, and cost of maintenance of Relevant Vehicles until a fix became available.
TMCA’s Mr O’Mara, an expert valuer for merger and acquisition transactions, opined that the defect caused no quantifiable reduction to the value of the defective vehicles. In oral evidence, the expert conceded that his methodology lacked some efficacy – in considering the resale price of vehicles the expert had not accounted for other enhancements or defects that might have affected resale pricing; in considering only the cost of the defect in terms of its risk to personal safety, the expert did not account for the effect of the full spectrum of defect problems on market value. 
In response to TMCA’s criticisms of the applicant’s expert, Justice Lee found that the expert’s reliance on the salvage value of the vehicle as a starting point for valuation did not arbitrarily skew the value of the vehicle downwards. Rather, the salvage value – a “floor price” below which the vehicle value could not drop – was a relevant and logical “yardstick” to “bookend” or structure the report. 
The Court furthermore accepted the customer’s inconvenience and embarrassment as a relevant and generally applicable objective factor in determining the proper market value of the vehicles – Mr Cuthbert’s consideration of customer experience formed part of the “robust common sense” of his expert opinion. 
The applicant’s expert Mr Stefan Boedecker (economist and Managing Director of the Berkeley Research Group) produced three reports based on results from a survey of 4,000 people. The survey offered participants choices between several vehicle profiles with varying characteristics to determine whether consumers were inclined to pay less for a defective vehicle and more for non-defective ones. The results showed that the diesel defect reduced participants’ willingness to pay more by approximately 20-30%. 
Mr Boedecker contracted third parties to implement the survey and select participants, before producing analyses and a joint report with TMCA’s expert Dr Rossi (econometrician and Professor of Marketing, Statistics and Economics at the University of California, Los Angeles).
The court rejected Dr Rossi’s contention that the survey results were wholly unreliable given obvious joke responses to survey questions, evidence of “speeding” through questions, and some results of “illogical preferences for more severe defects”.  The survey results were still efficacious in representing an overall trend towards a significant reduction in the value of vehicles with the defect. The weight given to Mr Boedecker’s findings would however remain limited to their “general impressionistic” value due to the inaccuracies Mr Rossi indicated. 
The applicant’s expert witness Mr Edward Stockton (expert economist with specialisation in automobile markets and Vice President and Director of Economic Services at the Fontana Group) proposed a 2.9% to 7.3% reduction in value of defective vehicles as a “floor” reduction amount.
To calculate this reduction, Mr Stockton relied on the average amount TMCA paid for the repair of defective vehicles, sourcing these amounts from TMCA’s custom built database for processing reimbursement claims from dealers. 
Mr Stockton’s ‘Repair Cost Model’ withstood criticism from Dr Christopher Jon Pleatkis (economist and Vice President of Charles Rivers Associates) – Justice Lee found the repair costs model a feasible method of determining cost reduction, especially where the applicant’s evidence had proven that the cost of repair only remedied and did not enhance vehicles.
Decision and Analysis
Justice Lee determined that the reduction in value amounted to 17.5% of the original sale price of the defective vehicle – halfway between the 15% to 20% reduction range which the Court found sufficiently reflected the “not insignificant” effects of the defect.
The Court discussed three key factors affecting its estimation:
- It reiterated that valuation “is an art, not an exact science” and therefore a persuasive expert opinion in a valuation matter depends on the coherence of its methods and analysis in the specific context of the dispute (i.e. proof of “correct principles in the light of the selected material”). Assessing valuation does not, in contrast, involve an undiscriminating mathematical approach of taking the average of all expert valuation figures.
- The applicant’s economic evidence provided a persuasive base value while the applicant’s valuation and survey evidence, combined with customer complaints provided an appropriate upper limit to vehicle value that reflected the seriousness of the defect.
- The applicant’s evidence was bolstered by a lack of substantive evidence in opposition. The Court found that its reliance on the applicant’s evidence was:
“somewhat fortified… by reason of the fact that none of TMCA’s experts provided any real analysis of their own as to the reduction in value that was suffered by group members. Although Mr O’Mara conceded that the [defect] reduced the value of the Relevant Prado, he did not express any view about the quantum of that reduction in value… Likewise, TMCA’s expert economists provided no positive evidence in relation to the quantification of the reduction in value.” 
- Avoid the Sniper Approach. The case demonstrates the cost of expert opinions which critique opposing expert opinions without providing comprehensive alternative findings – a tactic already identified in courts as the Sniper Approach and particularly common in class actions with multiple expert opinions. Experts should always provide alternative findings and reasoning when critiquing the reports of other experts.
- Providing an admissible expert valuation does not guarantee its acceptance in court. The coherence of expert reports and oral opinions are particularly important in valuation matters, where the court’s perception of the best method for valuation changes on a case-by-case basis. Lawyers and experts should ensure that experts explain and justify the methodology behind their findings. This case demonstrates the advantages of providing findings and methodology which demonstrate the application of “common sense” and the expertise to specific and relevant issues.