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Tokolahi v Zodiac Motor Company Limited - Reference No. MVD 289/2022 [2022] NZMVDT 268 (8 December 2022)

Last Updated: 17 January 2023

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL
I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 289/2022
[2022] NZMVDT 268

BETWEEN MANASE TOKOLAHI

Applicant

AND ZODIAC MOTOR COMPANY LIMITED
Respondent





HEARING at AUCKLAND on 4 October 2022 (by audio-visual link)

MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Gregory, Assessor




APPEARANCES
M Tokolahi, Applicant
P Maharaj, for the Respondent

DATE OF DECISION 8 December 2022

_________________________________________________________________

DECISION OF THE TRIBUNAL

_________________________________________________________________

  1. The vehicle offer and sale agreement dated 3 June 2021 between Manase Tokolahi and Zodiac Motor Company Ltd is declared void from the date of this decision.
  2. Mr Tokolahi’s rights and obligations under the loan he entered into with Go Car Finance Ltd on 3 June 2021 to purchase the vehicle are assigned to Zodiac Motor Company Ltd from the date of this decision.
  1. Zodiac Motor Company Ltd shall, within 10 working days of the date of this decision, pay $7,218.86 to Mr Tokolahi. Mr Tokolahi must then make the vehicle available to be collected by Zodiac Motor Company Ltd.

________________________________________________________________

REASONS

Introduction

[1] On 3 June 2021, Manase Tokolahi purchased a 2014 Jeep Grand Cherokee[1] for $49,995 from Zodiac Motor Company Ltd. He has since discovered that the vehicle had been written off in Australia due to accident damage.
[2] Mr Tokolahi alleges that Zodiac Motor Company has engaged in misleading conduct by failing to disclose that the vehicle was an accident damaged insurance write off. He also says that the vehicle has not been of acceptable quality, due to a fault that has caused it to overheat twice. Mr Tokolahi wants to return the vehicle, receive compensation for all amounts he paid for the vehicle and for his rights and obligations under the loan he entered into with Go Car Finance Ltd on 3 June 2021 to purchase the vehicle (the collateral credit agreement) assigned to Zodiac Motor Company.
[3] Zodiac Motor Company denies misleading Mr Tokolahi. It says that it did not know of the extent of the damage to the vehicle in Australia and it disclosed that the vehicle was “imported as damaged” on the Consumer Information Notice signed by Mr Tokolahi. It also says that the vehicle has been of acceptable quality because the overheating occurred too long after purchase for it to have liability.

Relevant background

[4] The vehicle was written of due to accident damage in Australia in about August 2020. Mr Tokolahi provided information from the Carjam.co.nz website to show that the vehicle was classified as a “Statutory Write-off” due to:
[5] The vehicle was imported into New Zealand in about April 2021. During a border inspection at that time, the vehicle was flagged as “imported as damaged”, meaning the inspector had identified that the vehicle was damaged and required repair.
[6] Mr Tokolahi purchased the vehicle in early June 2021, when its odometer reading was 94,355 km. He was not told that the vehicle had previously been written off, but the Consumer Information Notice (CIN) that he signed when he purchased the vehicle stated that the vehicle had been imported as damaged. Mr Tokolahi says that he did not read the CIN and was not pointed to the section of the CIN where that information is disclosed.
[7] The vehicle overheated in June 2022, when its odometer reading was 107,010 km. Mr Tokolahi took the vehicle to Western Radiators 2021 Ltd, which found that the cooling system was contaminated with oil. It cleaned the cooling system and replaced the radiator and thermostat but does not appear to have diagnosed the underlying cause of the oil contamination. While performing that repair, Western Radiators advised Mr Tokolahi that the vehicle was written off in Australia. Mr Tokolahi also asked Western Radiators to service the vehicle. Mr Tokolahi was charged a total of $1,104.40 for the repairs and servicing.
[8] About two weeks later, the vehicle overheated again. Mr Tokolahi again contacted Provident Insurance, which told him that the repairs required may well be expensive. Mr Tokolahi then had the vehicle assessed by My Auto Shop Ltd on 16 August 2022. An invoice of that date from My Auto Shop states:

Upon arrival, can visually see oil mixed in coolant, milky substance

Milkshake in coolant reservoir

Check engine oil, looks to be in good condition, no milky mess, at max mark on dipstick

Check transmission oil level, level seems little bit low

Took sample of transmission fluid, looks dirty and dark, no milky substance but should be red oil not blackish brown

Tk tested for head gasket check, and came back fine, no change in fluid colour

Pressure tested cooling system, losing pressure quite fast

Suspect transmission oil is leaking through cooler to cooling system

Need further diagnosis and remove transmission pan to check if coolant has entered transmission

Customer states transmission is playing up, making weird noises when put in gear

[9] Mr Tokolahi then rejected the vehicle.
[10] Following the hearing on 4 October 2022, the Tribunal asked Mr Tokolahi to have a cylinder pressure test performed on the vehicle to determine whether its head gasket was blown. A report dated 18 October 2022 from Carplus Auto Services states that the vehicle passed radiator pressure and engine compression tests and there is no engine oil in the coolant fluid. Instead, Carplus Auto Services says that there is transmission fluid in the coolant with transmission fluid leaking through the radiator heat exchange.

The issues

[11] Against this background, the issues requiring the Tribunal’s consideration in this case are:

Issue 1: Did the vehicle fail to comply with the guarantee of acceptable quality?

[12] Section 6(1) of the CGA provides that “where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality”.
[13] “Acceptable quality” is defined in s 7 of the CGA (as far as is relevant) as follows:
  1. Meaning of acceptable quality

(1) For the purposes of section 6, goods are of acceptable quality if they are as—

(a) fit for all the purposes for which goods of the type in question are commonly supplied; and

(b) acceptable in appearance and finish; and

(c) free from minor defects; and

(d) safe; and

(e) durable,—

as a reasonable consumer fully acquainted with the state and condition of the goods, including any hidden defects, would regard as acceptable, having regard to—

(f) the nature of the goods:

(g) the price (where relevant):

(h) any statements made about the goods on any packaging or label on the goods:

(ha) the nature of the supplier and the context in which the supplier supplies the goods:

(i) any representation made about the goods by the supplier or the manufacturer:

(j) all other relevant circumstances of the supply of the goods.


[14] Whether a vehicle is of acceptable quality is considered from the point of view of a reasonable consumer who is fully acquainted with the state and condition of the vehicle, including any hidden defects.
[15] The vehicle first overheated in June 2022, 12 months and a little less than 13,000 km of driving after purchase. Western Radiators found that the coolant was contaminated so it replaced the radiator (including the transmission cooler) and the thermostat. Western Radiators says that it also cleaned the cooling system.
[16] The vehicle overheated shortly afterwards. Although the transmission cooler (which sits within the radiator) had recently been replaced, My Auto Shop believed that the overheating was caused by a fluid leak from the transmission cooler. It appears to have based that diagnosis on the following factors:
[17] The Carplus Auto Services report provided after the hearing confirmed that the vehicle is continuing to overheat due to transmission fluid in the coolant. Mr Gregory, the Tribunal’s Assessor, advises that there are two likely causes of this overheating – the transmission cooler (or heat exchange) in the radiator is still leaking or the transmission fluid in the coolant was not completely removed from the cooling system when the radiator was replaced by Western Radiators.
[18] Because the transmission cooler was replaced with the radiator in June 2022, Mr Gregory considers it most likely that the vehicle is continuing to overheat because there is still transmission fluid in the coolant. Mr Gregory advises that the cooling system needs to be flushed, which is not a difficult task, and the overheating fault will likely be fixed.
[19] In those circumstances, given the length of Mr Tokolahi’s ownership and the distance travelled in the vehicle before the overheating issues became apparent, I am satisfied that the vehicle has been as free of minor defects and as durable as a reasonable consumer would consider acceptable. Mr Tokolahi’s claim under the CGA is therefore dismissed.

Issue 2: Has Zodiac Motor Company engaged in conduct that breached s 9 of the FTA?

[20] Section 9 of the FTA provides:
  1. Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[21] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corporation Ltd v Ellis:[2]

The question to be answered in relation to s 9 ... is ... whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived. If so, a breach of s 9 has been established.

[22] The vehicle was written off for insurance purposes in Australia because it had suffered accident damage. Information from the Carjam website shows that the vehicle was written off in Australia because of heavy structural impact damage to the front passenger side, heavy panel damage to the front driver side and heavy chassis/structural rail damage to the passenger side. The vehicle was then classified as imported as damaged when inspected at the New Zealand border, meaning the vehicle is recorded on the motor vehicle register as having been imported as damaged.
[23] Mr Tokolahi says that Zodiac Motor Company engaged in misleading conduct by failing to advise him that the vehicle had been imported as damaged and that it was a statutory write-off from Australia because of structural damage. He says he would not have purchased the vehicle if he had been aware of these facts.
[24] To succeed in his claim, Mr Tokolahi must show that Zodiac Motor Company failed to disclose that the vehicle was imported as damaged and a statutory write off due to accident damage, and that this failure was misleading or deceptive conduct in breach of s 9 of the FTA. This requires the Tribunal to consider the extent to which non-disclosure or silence can be a breach of s 9 and, if so, whether s 9 was breached on the facts of the present case.
[25] Under the common law principle of caveat emptor (let the buyer beware), a claimant needed to show that the other party had made a positive representation before it could succeed in any claim. Silence or the failure to disclose a material fact could not give rise to a claim.[3]
[26] This principle of caveat emptor has now been displaced by the FTA. Under the FTA, silence or the failure to disclose a material fact can constitute misleading or deceptive conduct.[4] In Des Forges v Wright, Elias J (as she then was) stated:[5]

Silence may constitute misleading or deceptive conduct, but whether it does is to be objectively assessed in all the circumstances ... Conduct may be misleading or deceptive within the meaning of s 9 of the Fair Trading Act 1986 by an omission to provide information even if no obligation to provide such information exists as a matter of general law, outside the standards of conduct required by the Fair Trading Act.

[27] Since Des Forges, the Courts have developed a “reasonable expectation of disclosure” test in several other cases.[6] Under that test, silence or the failure to disclose a material fact can be misleading where, taking account of the circumstances of the particular case, a reasonable consumer would expect the information to have been disclosed.
[28] Having regard to the “reasonable expectation of disclosure” test in light of the general test for whether conduct is misleading and deceptive in Red Eagle, for the reasons that follow, I consider that a reasonable person in Mr Tokolahi’s situation would expect Zodiac Motor Company to advise it that the vehicle was classified as imported as damaged and had previously been written off in Australia.
[29] Zodiac Motor Company had a legal obligation to disclose that the vehicle was imported as damaged on the Consumer Information Notice (CIN). Zodiac Motor Company complied with that obligation. The CIN signed by Mr Tokolahi discloses that the vehicle was imported as damaged.
[30] Zodiac Motor Company had a separate obligation to disclose that the vehicle had been written off in Australia. As recognised by the High Court in McBride Street Cars Ltd v District Court (Dunedin Registry), such information is material to any reasonable consumers purchasing decision.[7] It is material information because it enables a consumer to make an informed decision about the purchase — which includes the consumer then being able to make its own enquiries as to the future consequences of the vehicle being a statutory write-off. Those future consequences are important because a stigma attaches to vehicles that have been written off. This stigma significantly affects the resale value of those vehicles — irrespective of the nature of the damage that caused the vehicle to be written off. It is the fact that the vehicle has been written off that creates the stigma.
[31] Zodiac Motor Company did not comply with that obligation. In that regard, I accept Mr Tokolahi’s evidence that no one from Zodiac Motor Company advised him that the vehicle had been written off in Australia. I also note that Pooja Maharaj, who appeared for Zodiac Motor Company, advised that the company purchased the vehicle from a motor vehicle trader who had imported the vehicle from Australia, and it did not know that the vehicle had been written off. I therefore find that Zodiac Motor Company failed to disclose that the vehicle was written off in Australia.
[32] Zodiac Motor Company’s failure to advise Mr Tokolahi that the vehicle was a statutory write-off is misleading conduct that breached s 9 of the FTA. Zodiac Motor Company had an obligation to inform Mr Tokolahi that the vehicle was a statutory write-off. It did not do so.
[33] Zodiac Motor Company says that it did not know that the vehicle had been written off. Absence of knowledge provides no defence. The FTA is a strict liability statute, in that the representor can have liability under the FTA even if it believes the representation to be true. Additionally, in this Tribunal’s experience, almost all vehicles that are classified as imported as damaged from Australia have been written off. An experienced motor vehicle trader such as Zodiac Motor Company ought therefore to have known that there is a high likelihood that this vehicle was written off in Australia and should have made inquiries about whether the vehicle had been written off before selling it to Mr Tokolahi.

Issue 3: What remedy is Mr Tokolahi entitled to under the FTA

[34] The remedies available for a breach of the FTA are set out in s 43(3) of the FTA which is as follows:

43 Other orders

...

(3) The orders are as follows:

(a) an order declaring all or part of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) to be void; and

(ii) if the court or the Disputes Tribunal thinks fit, to have been void at all times on and after a date specified in the order, which may be before the date on which the order is made:

(b) if an order described in paragraph (a) is made in respect of a contract that is associated with a collateral credit agreement, an order vesting in person B all or any of the rights and obligations of person A under the collateral credit agreement:

(c) an order in respect of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) varying the contract or the arrangement in the manner specified in the order; and

(ii) if the court or the Disputes Tribunal thinks fit, declaring the varied contract or arrangement to have had effect on and after a date specified in the order, which may be before the date on which the order is made:

(d) if an order described in paragraph (c) is made in respect of a contract that is associated with a collateral credit agreement, and if that order results in person A no longer having property in the goods that are the subject of the contract, an order vesting in person B the rights and obligations of person A under the collateral credit agreement:

(e) an order directing person B to refund money or return property to person A:

(f) an order directing person B to pay to person A the amount of the loss or damage:

(g) an order directing person B, at person B’s own expense, to repair, or to provide parts for, goods that have been supplied by person B to person A:

(h) an order directing person B, at person B’s own expense, to supply specified goods or services to person A.

(4) In subsection (3)(a) to (d), collateral credit agreement, in relation to a contract for the supply of goods, means a contract or an agreement that—

(a) is arranged or procured by the supplier of the goods; and

(b) is for the provision of credit by a person other than the supplier to enable person A to pay, or defer payment, for the goods.


[35] The remedies in s 43(3) of the FTA are discretionary and the discretion is to be exercised so as to give effect to the policy of the FTA, which includes protecting the interests of consumers. The object of the remedies in s 43(3) of the FTA is to do justice to the parties in the particular circumstances of the case.[8]
[36] In all the circumstances of this case, I consider that Mr Tokolahi would be entitled to the following remedies under the FTA:
[37] In reaching this conclusion, I am particularly persuaded by three factors — the fact that the vehicle is likely to be worth less because of the undisclosed damage, the significance of the damage to the vehicle that caused it to be written off and the fact that Mr Tokolahi was deprived of the opportunity to make an informed decision to purchase the vehicle.
[38] The Tribunal commonly encounters cases involving vehicles that have been written off for insurance purposes. Common to those cases is evidence that, although there is a market for such vehicles, those vehicles are worth less because of their history as a statutory write-off. In this case, the reduction in this vehicle’s value is evident in the difficulty that Mr Tokolahi has had in attempting to sell the vehicle.
[39] Further, the damage that caused the vehicle to be written off was extensive. Although Zodiac Motor Company claimed that the vehicle’s damage was not structural, information supplied by Zodiac Motor Company shows the vehicle suffered structural damage to its outer sill and A pillar, which required repair, as well as non-structural damage to its doors and front guard.
[40] Given the extent of the damage and repairs to this vehicle, I also consider that a reasonable consumer would not have purchased this vehicle without considering pre-purchase checks to satisfy itself of the structural integrity and durability of the vehicle. In this case, Mr Tokolahi was not given that opportunity because Zodiac Motor Company failed in its obligation to disclose that the vehicle had been written off.
[41] In then determining a fair compensation amount, I must consider the fact that Mr Tokolahi has driven this vehicle for more than 12 months and travelled approximately 13,000 km in that time. Mr Tokolahi has obtained real value from the use of the vehicle in that time, and I would not be doing justice by the parties if I failed to take account of the value of that use. Accordingly, I intend to reduce the amount payable to Mr Tokolahi by $3,000, which is appropriate to reflect the benefit Mr Tokolahi has obtained in using the vehicle. I therefore order that Zodiac Motor Company Ltd pay a total of $7,208.86 in compensation to Mr Tokolahi.

The collateral credit agreement

[42] Mr Tokolahi is also entitled to have his ongoing rights and obligations under the collateral credit agreement assigned to Zodiac Motor Company. The relevant provisions are set out in ss 89(2) and (3) of the Motor Vehicle Sales Act 2003 (the MVSA), which state:

89 Jurisdiction of Disputes Tribunal

...

(2) A Disputes Tribunal may order that the rights and obligations of the buyer of a motor vehicle under a collateral credit agreement vest in a motor vehicle trader if—

(a) the collateral credit agreement is associated with the contract for the sale of that motor vehicle; and

(b) the motor vehicle trader is a party to that contract for sale; and

(c) either one of the following circumstances applies:

(i) the buyer exercises the right conferred by the Consumer Guarantees Act 1993 to reject that motor vehicle and, on a claim by the buyer under section 47(1) of that Act, the Disputes Tribunal orders the motor vehicle trader to refund any money paid, or other consideration provided, for that motor vehicle; or

(ii) the Disputes Tribunal finds that the buyer has suffered, or is likely to suffer, loss or damage by the conduct of the motor vehicle trader that constitutes, or would constitute, any of the conduct referred to in section 43(1) of the Fair Trading Act 1986 and the Disputes Tribunal makes an order under section 43(2) of that Act declaring the whole or any part of the contract for sale to be void.

(3) For the purposes of subsection (2), collateral credit agreement, in relation to a contract for the sale of a motor vehicle, means a contract or agreement arranged or procured by the motor vehicle trader or the buyer for the provision of credit by a person other than by the motor vehicle trader to enable the buyer to pay the price reserved by the contract for sale in respect of the motor vehicle.

[43] The criteria in s 89(2) of the MVSA for the assignment of rights and obligations under a collateral credit agreement to Zodiac Motor Company are all met in this case:
[44] Accordingly, under s 89(2) of the MVSA, all of Mr Tokolahi’s rights and obligations under the collateral credit agreement are assigned to Zodiac Motor Company from the date of this decision.

Outcome

[45] The Tribunal orders that:

B R Carter
Adjudicator



[1] Registration number NLZ359.

[2] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

[3] Smith v Hughes (1871) LR 6 QB 597; March Construction v Christchurch City Council (1995) 5 NZBLC 103,878 (HC).

[4] Des Forges v Wright [1996] 2 NZLR 758 (HC).

[5] At 764.

[6] Hieber v Barfoot & Thompson (1996) 5 NZBLC 104,179 (HC); Tuiara v Frost & Sutcliffe [2003] 2 NZLR 833 (HC) at [91]; Guthrie v Taylor Parris Group Cossey Ltd (2002) 10 TCLR 367 (HC) at [31] and [32].

[7] McBride Street Cars Ltd v District Court (Dunedin Registry) [2018] NZHC 111, [2018] NZAR 289.

[8] Red Eagle Corp Ltd v Ellis, above n 2, at [31].


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