Reference No. MVD 92/2008 (AK) [2008] NZMVDT 88 (22 May 2008)

Last Updated: 28 July 2008

Decision No. AK 71/2008

Reference No. MVD 92/2008

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN XXXX

Purchaser

AND YYYY

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr J W Farnsworth, Assessor

HEARING at AUCKLAND on 19 May 2008

APPEARANCES

Miss XXXX, the purchaser

Mr AAAA, witness for the purchaser
Mr BBBB, Director, for the trader

DECISION

Introduction

[1] On 9 November 2006 Miss XXXX (“the purchaser”) purchased a 1997 Mitsubishi RVR registration number RRRR (“the vehicle”) from YYYY. The purchaser agreed to pay $15,243 for the vehicle, all of which was financed by a collateral finance agreement with CCCC.

[2] On 17 April 2008 the purchaser purported to reject the vehicle under the Consumer Guarantees Act 1993 (“the Act”) because the trader had taken an unreasonably long period to repair it after being required to do so. She now seeks to obtain the Tribunal’s order upholding her rejection and also to have a collateral finance agreement she made with CCCC (“the Finance Company”) to purchase the vehicle vested in the trader and also to obtain from the Finance Company a full refund of all payments she has made to it for the vehicle.

[3] Pursuant to clause 10 of Schedule 1 of the Motor Vehicle Sales Act 2003 the Tribunal has appointed Mr J W Farnsworth, as expert assessor to assist in the determination of the complaint. Prior to the hearing Mr Farnsworth took the oath required by clause 10(2) of Schedule 1 to that Act.

The purchaser’s evidence

[4] The purchaser bought the vehicle from the trader on 9 November 2006 for $14,999 plus on road costs of $244; a total of $15,243. The purchaser financed the purchase by borrowing the full purchase price, the cost of a mechanical insurance warranty and other fees and charges altogether totalling $20,532 under a collateral finance agreement with the Finance Company over a four year term at 19.5% per annum.

[5] It was a term of the mechanical insurance warranty referred to as “DDDD” that for three years the purchaser’s vehicle was covered for “any mechanical or electrical problems that may develop.” The warranty, which the purchaser was required to sign provided “Everything is covered except for tyres. If anything goes wrong we will fix it. If the vehicle fails a WOF bring it in & we will fix any problems.
At no cost to you –DDDD does not (like other motor vehicle warranties) have an excess to be paid whenever you make a claim. No matter how many claims you make during the three years of the warranty you will never have to pay anything towards the repairs...

[6] Under a separate heading “Using your warranty” the following sentence appears: In general most vehicles will be in & out on the same day. Occasionally if we have to wait for replacement parts this can take much longer. Please be aware that we do not supply courtesy cars except where the vehicle will be in our possession for more than a week.”

[7] In April 2007 the purchaser had gearbox problems with the vehicle. At the same time she told the trader that the vehicle was burning an excessive amount of oil and that the oil warning light was coming on intermittently. There was a lot smoke from the exhaust. This complaint about the oil use was apparently dismissed by the trader as not being of concern. The trader told her it would take a week to fix the transmission whereupon she requested a courtesy car but was told one was not available. After creating a fuss about the non availability of a courtesy car she says she had her vehicle returned the next day. It’s transmission appeared to have been fixed but the vehicle continued to burn oil.

[8] The vehicle’s warrant of fitness and registration both expired in April 2007; she continued to drive the vehicle without either and without having the vehicle serviced.

[9] In November 2007 the vehicle’s overdrive stopped working and by that time the vehicle was using 2 litres of oil once or twice a week according to the purchaser’s evidence. At the end of November 2007 the oil warning light remained lit even after the purchaser topped up the engine oil. She claims that she telephoned the trader’s service manager Mr EEEE who told her he could not attend to the vehicle immediately but that she should bring the vehicle back to the trader in a couple of weeks time.

[10] At the beginning of December 2007 the vehicle’s engine seized whilst being driven by Mr AAAA in FFFF. The purchaser telephoned the trader who asked her to have it towed into the trader’s workshop in GGGG. The purchaser says she did not have the $70 towage fee to do so until 12 February 2008 when she had the vehicle towed to the trader’s workshop and as requested left a handwritten note in the vehicle saying that the vehicle’s engine had seized up. The trader’s representative Mr BBBB says the trader’s service manager understood that the vehicle was merely noisy.

[11] After the vehicle had been with the trader for 2 weeks the purchaser telephoned Mr EEEE to enquire as to progress in having it repaired to be told that there was no battery in the vehicle and so the trader had not started work on it. She says she arranged to deliver the battery to the trader on 26 February. A week later she again telephoned the trader to enquire as to progress and was told by Mr EEEE that the vehicle had not been repaired. When the purchaser asked for a courtesy car she was told none of the trader’s five courtesy cars was available.

[12] During the fifth week after the vehicle had been towed in to be repaired the purchaser says that Mr EEEE told her that the trader had ordered a replacement engine for the vehicle to be sent from Japan and the trader did not know how long that would take to arrive but expected the vehicle to be repaired before Easter.

[13] On 19 March when the purchaser telephoned the trader she was told the vehicle would be repaired after Easter. A courtesy car was still not available for her use. The trader‘s service manager told her the replacement engine had still not arrived from Japan on 25 March when she rang to enquire as to progress. On 28 March the purchaser sought advice from HHHH and was informed she had to give the trader a reasonable time to repair the vehicle and she should ask it for a time frame within which the vehicle would be repaired and returned and if she was not satisfied she should give the trader a time limit in which she expected repairs to be completed.

[14] On 28 March the purchaser went to the trader and found her vehicle in the same place as she had last seen it and Mr EEEE told her the engine had still not arrived from Japan and he was unable to tell her when the vehicle would be repaired. She says she told the trader she wanted the vehicle repaired by the following week, Friday 4 April 2008. Mr AAAA’s mother then lent her $1800 to buy another vehicle from IIII and on 4 April when there was still no progress with the repairs to her vehicle the purchaser told the trader she was not satisfied it had repaired the vehicle within a reasonable time and would take a dispute to the Tribunal. When her vehicle had still not been repaired on 11 April she sent the trader a letter dated 17 April, a copy of which she produces which purports to reject the vehicle.

[15] On Monday 21 April she says she received a phone call from Mr BBBB and asked to attend a meeting at the trader’s premises the following day. The purchaser produced a note of the meeting held at 10-30am on 22 April attended by herself, Mr AAAA, Mr BBBB and Mr EEEE. Mr EEEE promised to have the vehicle repaired by 24 April and the gearbox repaired within a further week after that. Mr BBBB offered the purchaser a new warrant of fitness and registration paid for by the trader from when it had expired in April 2007 until November 2008. She rejected this offer and left the meeting.

The trader’s evidence

[16] The trader’s evidence was given by Mr BBBB. It is assessed later. He says that there is no record of the vehicle ever having been serviced and he was unaware of any phone calls having been made to the trader’s service department by the purchaser.

[17] He agrees that the vehicle was towed to the trader’s premises in mid February 2008 but understood the vehicle was noisy, not that it had seized. He says it took the trader a week to 10 days to identify the problem and it then tried to source a replacement engine in New Zealand and when it was unable to do so an attempt was made to source an engine in Japan. He is unable to provide copies of any emails to show what steps the trader took to locate a replacement engine.

[18] He says that at the time he had a meeting with the purchaser on 22 April he had received her notice of rejection in the mail and he understood that the engine had been dismantled and parts purchased from JJJJ to repair the engine. He produces an invoice from JJJJ dated 10 April 2008 which lists 8 parts purchased by the trader, one of which is a thermostat for a Honda which he says is not relevant. He says this is the only invoice for parts purchased to repair the vehicle.

[19] He also refers to a letter dated 30 April 2008 which he wrote to the Tribunal in which he said that the trader’s workshop ordered a replacement engine when the vehicle was delivered to the trader in February 2008 and that the replacement engine had been fitted to the vehicle and passed as being OK the day after the discussion with the purchaser. He says this letter is wrong and he wishes to retract the references in the letter to a replacement engine because a replacement engine was not fitted to the vehicle.

[20] He produces a letter dated 13 May 2008 from the service manager of the trader, EEEE in which he also acknowledges that the vehicle was brought to the trader’s workshop in February 2008 and claimed that the owner advised that there was a problem with the engine being “noisy”. Tests conducted by the trader found that the engine needed to be re-conditioned as there was a problem with the main bearing. The engine oil was thick and black. The service manager’s report also says that on dismantling the engine the trader found problems with the engine block and parts were ordered and fitted to the vehicle. The parts were provided by the trader’s suppliers on 10 April 2008 and subsequently fitted. A problem with the gearbox was also found which required replacement of the friction blades. The report states the vehicle was repaired by 24 April 2008 and then the trader found “after fixing the vehicle” that the vehicle did not have a current warrant of fitness or registration and these were arranged on 1 May 2008.

[21] In reply to questions from the Tribunal’s Assessor he is unable to say which of the parts purchased from JJJJ would have been used to repair the problem with the bearings referred to in the service manager’s report. He does not know which parts were used to repair the problem with the engine block also referred to in the service manager’s report. He says he does not know if the repairs to the transmission were done by the trader or out sourced. He has no invoices or service records to show what work was done to the transmission.

Tribunal’s Jurisdiction

[22] The Tribunal has jurisdiction to inquire into and determine applications or claims between a Motor Vehicle Trader and the purchaser of a motor vehicle. In doing so, it may apply the provisions of the Sale of Goods Act 1908, the Fair Trading Act 1986 or the Consumer Guarantees Act 1993, as applicable to the circumstances of the case. In this case because the Tribunal considers the provisions of the Consumer Guarantees Act 1993 (“the Act”) are relevant.

The issues

[23] The Tribunal considers that the only issues raised by this application are, first, was the vehicle of acceptable quality. Second, did the trader after being required to do so repair the vehicle within a reasonable time. Third, did the purchaser reject the vehicle in accordance with section 22 and did she do so within a reasonable time as required by section 20 of the Act.

Consumer Guarantees Act

[24] Section 6 of the Act imposes on a “supplier” (in this case the trader) "a guarantee that the goods are of acceptable quality." Section 2 of the Act defines "goods" as including "vehicles."

[25] The expression "acceptable quality" is defined in Section 7 as follows:

“(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, ¾

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 ¾

(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:

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

manufacturer

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

(2) Where any defects in goods have been specifically drawn to the consumer’s

attention before he or she agreed to the supply, then notwithstanding that a

reasonable consumer may not have regarded the goods as acceptable with

those defects, the goods will not fail to comply with the guarantee as to

acceptable quality by reason only of those defects.

(3) Where goods are displayed for sale or hire, the defects that are to be treated

as having been specifically drawn to the consumer’s attention for the purposes

of subsection (2) of this section are those disclosed on a written notice

displayed with the goods.

(4) Goods will not fail to comply with the guarantee of acceptable quality if—

(a) The goods have been used in a manner, or to an extent which is

inconsistent with the manner or extent of use that a reasonable consumer

would expect to maintain from the goods; and

(b) The goods would have complied with the guarantee of acceptable quality if

they had not been used in that manner or to that extent.

(5) A reference in subsections (2) and (3) of this section to a defect means any

failure of the goods to comply with the guarantee of acceptable quality.”

[26] Under Section 18 of the Act, where a consumer has a right of redress against the supplier in accordance with Part 2 of the Act as a result of the failure of any goods to comply with a guarantee, the consumer may exercise the following remedies:

(2) Where the failure can be remedied, the consumer may ¾

(a) require the supplier to remedy the failure within a reasonable time in accordance with section 19:

(b) where a supplier who has been required to remedy a failure refuses or neglects to do so, or does not succeed in doing so within a reasonable time, ¾
(i) have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in having the failure remedied; or
(ii) subject to section 20, reject the goods in accordance with section 22.

(3) Where the failure cannot be remedied or is of a substantial character within the meaning of Section 21, the consumer may ¾

(a) subject to section 20, reject the goods in accordance with section 22; or

(b) obtain from the supplier damages in compensation for any reduction in

value of the goods below the price paid or payable by the consumer for the

goods.

(4) In addition to the remedies set out in subsection (2) and subsection (3), the

consumer may obtain from the supplier damages for any loss or damage to the

consumer resulting from the failure (other than loss or damage through

reduction in value of the goods) which was reasonably foreseeable as liable to

result from the failure."

[27] Section 21 of the Act defines the circumstances in which a failure to comply with the guarantee as to acceptable quality will be regarded as being a failure of a substantial character for the purposes of section 18(3). Section 21 provides as follows:
“For the purposes of section 18(3), a failure to comply with a guarantee is of a substantial character in any case where ¾
(a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or

(b) the goods depart in 1 or more significant respects from the description by which they were supplied or, where they were supplied by reference to a sample or demonstration model, from the sample or demonstration model; or

(c) the goods are substantially unfit for a purpose for which goods of the type in question are commonly supplied or, where section 8(1) applies, the goods are unfit for a particular purpose made known to the supplier or represented by the supplier to be a purpose for which the goods would be fit, and the goods cannot easily and within a reasonable time be remedied to make them fit for such purpose; or

(d) the goods are not of acceptable quality within the meaning of section 7 because they are unsafe."

[28] In Stephens v Chevron Motor Court Limited [1996] DCR1, the District Court held that the correct approach to the Act was first to consider whether the vehicle was of “acceptable quality”. If the vehicle was not of acceptable quality, the next point to consider was whether the purchasers required the trader to remedy any faults within a reasonable time in accordance with Section 19 of the Act. If the failure to comply with the guarantee of acceptable quality was of a “substantial character” within the meaning of Section 21, or if the faults cannot be remedied, the Tribunal is directed to ask whether the purchaser has exercised his right to reject the vehicle within a reasonable time.

The Tribunal’s Assessment

Issue one: was the vehicle of acceptable quality?

[29] The vehicle sold to the purchaser in November 2006 for $15,243 was a 9 year old 2 litre Mitsubishi RVR Japanese import which had done 75,260 kilometres at the date of sale. The purchase price included a mechanical warranty for 3 years which met all mechanical and electrical repairs with a nil excess and, quite remarkably did not contain any obligations on the purchaser to have the vehicle regularly serviced. The Tribunal considers the terms of the mechanical insurance warranty to be a “relevant circumstance of the supply of the goods “ as provided in section 7(1)(j) of the Act.

[30] Over a 13 month period from the date of purchase the purchaser drove 35,900 kilometres in the vehicle and admitted that she had not had the vehicle serviced during that period nor had she bothered to obtain a current warrant of fitness or relicence the vehicle from April 2007 onwards. The vehicle burnt oil and did so in increasing quantities until the purchaser said in evidence she was putting in 2 litres of oil once or twice a week. When the engine oil light remained lit she contact the trader to arrange to have the vehicle taken back to be assessed. The trader appears to have put her off for two weeks. Before the trader was able to examine the engine, it seized in early December.

[31] The trader appeared to invite the Tribunal, by inference, to conclude that the purchaser had not looked after the vehicle by having it regularly serviced and thus the vehicle had not failed to comply with the guarantee of acceptable quality because it was used in a manner or to an extent inconsistent with the manner or extent that a reasonable purchaser would use it. The Tribunal has considered the high mileage driven by the purchaser in the vehicle and her failure to have the vehicle serviced for 13 months, but has decided that it is not satisfied that the vehicle would have complied with the guarantee of acceptable quality even if it had not been used in the manner that the purchaser used this vehicle.

[32] The Tribunal considers that the problem with the gearbox within three months of purchase and the seizure of the motor in December 2007 both indicated that the vehicle was not as free from minor defects or as durable as a reasonable purchaser of a $15,000 vehicle with 75,260 kilometres would reasonably regard as acceptable. Accordingly the Tribunal has concluded that the vehicle did not comply with the guarantee of acceptable quality at the date of sale.

Issue two: did the trader after being required to do so repair the vehicle within a reasonable time?

[33] The purchaser had the vehicle towed to the trader’s workshop to be repaired on Tuesday 12 February 2008 according to the invoice she produced from FFFF. The Tribunal accepts as probable that the reason it was towed to the trader was because it could not be driven there. This was because its engine had seized. The Tribunal accepts the evidence of both the purchaser and Mr AAAA on this point. The trader claims that the vehicle was repaired on 24 April but the Tribunal does not think the vehicle’s gearbox was repaired until the end of April. In the intervening period of 11 weeks the purchaser was in the Tribunal’s view, fobbed-off by the trader’s service manager Mr EEEE who, unfortunately, was not present at the hearing. The Tribunal accepts as honest and credible the evidence given clearly by the purchaser that she telephoned and asked Mr EEEE about the trader’s progress in repairing her vehicle on no less than 9 occasions from 26 February until she finally sent the trader a letter of rejection on 14 April. Even after receiving the letter of rejection the trader took another 9 days to fix the vehicle so that it could be driven to obtain a warrant of fitness on 1 May 2008.

[34] The Tribunal notes that the service manager’s letter of 13 May refers to a problem with the main bearing. If this is correct it is consistent with the purchaser’s claim that the engine had seized and is also consistent with the service manager’s note that the engine oil was “thick and black”. However the trader’s repair invoice does not show that it purchased any replacement components that would be required to rebuild an engine that had suffered a problem with the main bearing as stated by Mr EEEE. Likewise the damage to the engine block referred to by Mr EEEE would, if it existed, require machining operations, yet no invoice was produced by the trader for that. In summary the Tribunal does not accept as credible the trader’s confused explanation of the repairs carried out to the vehicle’s main bearing and engine block.

[35] The Tribunal has therefore concluded that the trader has no credible explanation for the time that it took to effect repairs to the vehicle and that the 11 weeks spent in repairing the vehicle was not reasonable and that the purchaser was thus entitled under section 18(2) (b)(ii) to reject the vehicle when it had not been repaired within a reasonable time of the trader being required to repair it on 12 February 2008.
Issue three: did the purchaser reject the vehicle in accordance with section 22 and did she do so within a reasonable time as required by section 20 of the Act.

[36] The purchaser sent a letter to the trader on 17 April 2008 in which she notified the trader of her decision to reject the vehicle and set out her grounds for doing so as required by section 22(1) of the Act. Her letter rejecting the vehicle was sent after giving the trader a period of 11 weeks in which to repair the seized engine and repair the gearbox and the Tribunal considers this to be a reasonable time. Accordingly the Tribunal will uphold the purchaser’s purported rejection of the vehicle on 17 April 2008 and order the collateral finance agreement with the Finance Company to be vested in the trader from that date and all capital payments made by the purchaser to the Finance Company shall be refunded to the purchaser by the trader.

[37] As at the date of hearing the vehicle’s odometer reading was 111,181 kilometres, showing a distance travelled since the date of sale of 35,921 kilometres. Unfortunately, the Tribunal does not have jurisdiction to make any adjustment in the trader’s favour by way of a mileage/depreciation allowance because the Act provides no means of compensating the trader for the use of the vehicle in the interim period. It has been suggested that the absence of any such jurisdiction is a deliberate policy of the Legislature in order to create an incentive for the suppliers of goods to act promptly on any valid notice of rejection by taking the goods back and providing a refund at that stage. (See Stephens v Chevron Motor Court Ltd [1996] DCR1,8).

Orders
[38] The purchaser’s complaint having been upheld the Tribunal makes the following formal orders:

1. That the purchaser has validly rejected the vehicle in accordance with the provisions of the Consumer Guarantees Act 1993.

2. The rights and obligations of the purchaser under the finance agreement between the purchaser and CCCC shall immediately vest in the trader.

3. The trader shall refund to the purchaser the amount of all principal payments made to date under the agreement referred to in Order 2 (above)

4. If the purchaser and the trader cannot agree on the appropriate amount of the refund provided for in order 3 (above), leave is reserved for the matter to be put back before the Tribunal.

DATED at Auckland this 22nd day of May 2008

C.H.Cornwell
Adjudicator

DIRECTION TO THE CHIEF EXECUTIVE, MINISTRY OF JUSTICE.

Section 94 of the Motor Vehicle Sales Act 2003 provides that if an application is made to this Tribunal which falls within its jurisdiction and that in determining the application the Tribunal decides against a motor vehicle trader, the Tribunal must direct the Chief Executive of the Department for Courts (now Ministry of Justice) to publish a notice in the Gazette containing the particulars set out in subsection (2). The notice is only to be published once the circumstances described in subsection (3) have occurred. The Chief Executive is directed accordingly.