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Have you recently bought a used car that later turned out to be a lemon? A recent Supreme Court decision confirms that Australian consumers can be entitled to a full refund - even for second-hand vehicles -when serious hidden defects come to light.
In our previous article, we gave a crash course in consumer rights for defective motor vehicles. In this article, we provide a case example where we acted for a consumer who successfully obtained a full refund for a defective second-hand car.
In May 2021, Ms Al Fares purchased a second-hand Range Rover Sport Hybrid from JJ Prestige Auto Sales (Dealer).
In October 2021, despite only having driven 2,385 kms, Ms Al Fares discovered extensive saltwater damage underneath the vehicle and contacted a mechanic to rectify the damage. Ms Al Fares was advised that the vehicle was beyond repair as the hybrid system had broken down, and that the saltwater ingress was so severe that the hybrid battery, DC/DC converter and the main generator required replacement.
In circumstances where the repairs of the vehicle were likely to exceed the cost of the vehicle itself, Ms Al Fares requested a full refund from the Dealer. In Victorian Civil and Administrative Tribunal (Tribunal ) proceedings, Ms Al Fares produced evidence that at the time of purchase, the vehicle had already been subject to saltwater immersion and was already irreparably damaged.
Did the Dealer breach its consumer guarantees under the Australian Consumer Law?
The Tribunal found that this was a "clear case of breach of the consumer guarantee of acceptable quality" under section 54(2) of the Australian Consumer Law (ACL ) and that Ms Al Fares was entitled to a full refund of the purchase price. In summary, the vehicle was found not:
- fit for use because the salt damage had rendered it inoperable;
- free from defects because of the extensive salt damage;
- safe because, whilst it was still drivable, it was at risk of breaking down at any time without notice; and
- durable as it had only driven 2,385 kms before breaking down.
Did the Dealer have a valid defence under the Australian Consumer Law?
The Dealer argued under section 54(7) of the ACL that the vehicle did not fail to be of acceptable quality because:
- Ms Al Fares had engaged a third-party to inspect the vehicle at the time of purchase;
- Ms Al Fares had accepted the vehicle following this inspection; and
- the pre-purchase inspection ought reasonably to have revealed that the vehicle was not of acceptable quality.
Despite Ms Al Fares' expert stating that the pre-purchase inspection was 'not up to the industry standard' and that it ought to have recommended investigating the cause of the apparent underbody rust, the Tribunal found that section 54(7)(b) of the ACL was not satisfied. The Tribunal noted that the vehicle and its components were still functional at the time of the pre-purchase inspection, and that the salt corrosion was also not identified by MsAl Fares' mechanic when performing repairs in December 2021 after the vehicle broke down.
Supreme Court of Victoria confirms the purchaser's right to a full refund
The Dealer appealed, arguing that the Tribunal had asked itself the wrong legal question and that the presence of the underbody rust, visible at the time of sale, should have been enough to trigger section 54(7), thereby negating the statutory guarantee.
The Supreme Court dismissed the appeal and affirmed the Tribunal's decision. The judgment clarified several key points:
- Timing of defect assessment: The quality of goods must be assessed at the time of sale. Even if a product appears functional, underlying defects that pose a high risk of failure render it unacceptable.
- Scope of inspection: The limited visual pre-purchase inspection did not include dismantling components or testing the hybrid system. The Court found it unreasonable to expect such an inspection to reveal rust or corrosion 'that carried with it an increased risk of the drive train later failing'.
- Connection between observed and claimed defects: The Court rejected the Dealer's argument that any observable defect (e.g. rust) could negate the guarantee, even if unrelated to the defect that caused the failure. There must be a direct connection between the defect observed and the defect complained of by the consumer.
- Burden of proof: The seller bears the burden of proving that the inspection ought reasonably to have revealed the defect. In this case, the evidence did not support that conclusion.
The Supreme Court's decision is a significant affirmation of consumer rights. Importantly, it establishes that a pre-purchase inspection does not take away a consumer's rights where serious defects are not reasonably discoverable at the time of sale.
Recent case: Dealer found liable to pay for repairs of second-hand vehicle
On 21 January 2026, another consumer succeeded in exercising his consumer rights against the Dealer. This consumer had purchased a second-hand Mercedes Benz from the Dealer in October 2023. Shortly after purchasing the vehicle, the consumer noticed that the engine light was illuminated. A mechanic determined the cause to be a faulty thermostat that required replacement. The consumer also alleged the Dealer had promised that the vehicle had tinted windows, and that he had relied upon this representation when purchasing the vehicle.
The consumer argued that the vehicle was not safe, not free from defects and had a major defect. The Dealer's position was that, until the date of hearing, the vehicle had been driven for nearly two years and 23,000km and that the thermostat was essentially a perishable item. It disputed any breach under the ACL.
The Tribunal found that:
- the vehicle was not free from defects;
- the vehicle was not what was promised; and
- that the conduct of the seller's representative was misleading and deceptive.
Unlike in Ms Al Fares' case, the Tribunal did not order a full refund. The Tribunal found that the defect (i.e. faulty thermostat) was not a major fault and the consumer having driven 23,000kms, had "clearly had the benefit of an otherwise serviceable vehicle."
Instead, the Tribunal ordered the Dealer to pay the cost of the vehicle repairs, inspection fee and tints, and reimburse the consumer for 50% of the Tribunal filing fee.
Conclusion
These recent cases against JJ Prestige Auto Sales are a reminder to consumers, suppliers and manufacturers alike of the importance of understanding the Australian Consumer Law.
If you are a consumer, supplier or manufacturer who is dealing with a faulty vehicle issue, our team can provide you with advice on the extent of your rights and obligations under consumer law. Please contact the writers of this article for further information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
