Reference No. MVD 183/09 (AK) [2009] NZMVDT 148 (27 November 2009)

Last Updated: 1 December 2009

Decision No. AK 113 /2009

Reference No. MVD 183/09

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 M Whinham, Assessor

HEARING at AUCKLAND on 23rd November 2009

APPEARANCES

Miss XXXX, the purchaser

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

DECISION

Background

[1] On 12 March 2009 Miss XXXX (“the purchaser”) purchased a 2001 Audi A4 1.8T registration number RRRR (“the vehicle”) for $17,995 from YYYY (“the trader”). The vehicle’s odometer was 137,999 kilometres at the time of purchase. The purchaser also bought a 1 year CCCC “Gold” mechanical breakdown cover for $500 from the trader.

[2] The purchaser has rejected the vehicle and seeks a refund of her purchase price from the trader because she says the vehicle’s turbo charger has failed. She claims the failure is a serious fault and that she is entitled to reject the vehicle under the Consumer Guarantees Act 1993.

[3] The trader says that the purchaser should use the CCCC mechanical breakdown cover she purchased to have the vehicle’s turbo repaired. The trader in the course of the hearing said that it would both pay the excess on any claim lodged to repair the vehicle under the CCCC Policy and also provide the purchaser with a 12 month warranty on the vehicle.

[4] Pursuant to clause 10 of Schedule 1 of the Motor Vehicle Sales Act 2003 the Tribunal appointed Mr M Whinham, as expert assessor to assist in the determination of the complaint however the application was determined by the Adjudicator alone. Mr Whinham took the oath required by clause 10(2) of Schedule 1 to that Act.

Facts

[5] The purchaser purchased the vehicle for $17,995 on 12 March 2009 after test driving it overnight and having it inspected by her father. The Vehicle Offer and Sale Agreement also records that she also purchased a 1 year “Gold” mechanical breakdown insurance policy through the trader for $500. She says the trader told her that the vehicle had been serviced shortly before she bought it, which she understood would include an engine oil change but she did not obtain any details of this service.

[6] The purchaser used the vehicle to travel initially from her parents home in DDDD to her work in EEEE and, from May or June 2009 from FFFF to EEEE to work each day.

[7] In late August the vehicle’s oil warning light came on and she and her partner Mr AAAA checked the engine oil level and topped it up with about 200 mls of oil they purchased from a garage. The oil warning light went off but came on shortly afterwards and then went off again.

[8] Mr AAAA gave evidence that shortly afterwards he changed the vehicle’s engine oil and oil filter but, apart from the brand of oil purchased (Castrol), and the cost of the filter ($45), and where he bought the oil and filter, he could not recall the grade of oil he used and was unable to produce a receipt for the oil or filter. He says the oil warning light continued to come on intermittently after he changed the oil.

[9] Mr AAAA says that on 8 September he was driving the vehicle from GGGG towards HHHH on the motorway when it suddenly lost power and the oil warning light came on. The engine was making a rattling sound. He was able to get the vehicle off the motorway and a garage agreed to his leaving it on their premises overnight.

[10] On 9 September the purchaser had the vehicle towed to JJJJ trading as JJJJ in KKKK who wrote a report on the vehicle dated 14 October, a copy of which she produces. The vehicle’s odometer is recorded in the report as 147,137 kilometres or 9,138 kilometres more than at the date of sale. The report states as follows:
“Check engine for oil pressure + found zero drain oil, strip lower subframe+sump+ clean oil pick up, reassemble, change filter+refill. Oil pressure is back but oil is pumping straight out the exhaust. Checked turbo+found shaft flogged out. The report then lists the items supplied by JJJJ and their price and labour with GST totalling $704.14 and concludes “can possibly be repaired with a replacement turbo, but there is a very good chance of other engine damage.”

[11] Mr AAAA gave JJJJ details of the CCCC mechanical breakdown policy but CCCC denied that any policy had been issued. The purchaser subsequently gave Mr AAAA a written but unsigned authority to represent her in dealings with CCCC and the trader and on 12 October Mr AAAA sent the trader a letter rejecting the vehicle on the purchaser’s behalf. The trader subsequently confirmed by telephone with the purchaser that Mr AAAA had her authority to do so.

[12] Mr AAAA obtained and produced to the Tribunal an estimate of $3,089.25 dated 6 October 2009 from JJJJ to replace the vehicle’s turbo.

[13] On 12 October Mr AAAA wrote a letter to the trader on behalf of the purchaser rejecting the vehicle for what he claimed was a “serious fault” namely a blown turbo. He also sent the trader a copy of an email from KKKK of JJJJ that says:
“To whom it may concern, the Audi A4 was brought to our shop where we checked oil pressure +found zero. The sump was removed + it was found that the oil pick up was clogged. This was cleaned + reassembled producing oil pressure + raw oil pumping out the exhaust. On checking we found the turbo bearings destroyed through lack of oil. A turbo could have this engine running again but there may well be further damage.”

[14] The purchaser says that on 14 October the vehicle was towed to LLLL at FFFF at a cost of $80 for which she produces a receipt from MMMM for the towage fee.

[15] Mr BBBB for the trader says that he heard from Mr AAAA on 28 September regarding a problem with the CCCC policy and found that the policy had not been lodged with CCCC because they had not collected it from the trader. He also found out that the vehicle was in JJJJ’s workshop. He says he spoke to a mechanic there and found out what had happened to the vehicle

[16] He says a member of the trader’s staff confirmed on 8 October that the policy that should have been issued by CCCC was a Gold warranty and Mr AAAA was informed of this. A few days later he had communication from Mr AAAA saying that the purchaser did not want the vehicle’s turbo replaced but wanted to reject the vehicle. The trader was sent a letter of rejection on 12 October signed on behalf of the purchaser. On 16 October the trader confirmed by telephone with the purchaser that Mr AAAA had her authority to reject the vehicle on her behalf.

[17] Mr BBBB says that the trader considers that the vehicle’s turbo should be replaced and the trader is willing to pay the purchaser’s excess of $250 under the CCCC policy if she lodges a claim to have the vehicle’s turbo replaced. He says CCCC will pay up to $3,000 maximum per claim so that the cost of repairs can be done at little cost to the purchaser. NNNN can then inspect the vehicle and a compression test undertaken to establish that the engine is operating properly. Mr BBBB says the trader will also provide a 12-month warranty over the vehicle to the purchaser.

The issues before the Tribunal

[18] Having considered the facts, the Tribunal concludes that the following issues require consideration:
[a] Whether the vehicle failed the guarantee of acceptable quality provided for in the Consumer Guarantees Act?
[b] If so whether the failure was one of substantial character?
[c] Whether the purchaser is entitled to reject the vehicle?

Legal Principles

[19] In terms of s.89 of the Motor Vehicle Sales Act 2003 the Tribunal has jurisdiction to inquire into and determine applications or claims between a Motor Vehicle Trader and the purchaser of a motor vehicle relating to the sale of a motor vehicle. The Tribunal may apply the provisions of the Fair Trading Act 1986 the Consumer Guarantees Act 1993 or the Sale of Goods Act 1908, as applicable to the circumstances of the case. In this case the facts and the issues raised require consideration of the Consumer Guarantees Act 1993.

The Consumer Guarantees Act 1993 (“the Act”)

[20] 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”.

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

“7 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, 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.”

[22] In Stephens v Chevron Motor Court Limited [1996] DCR1, the District Court held that the correct approach to the CGA 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 purchaser required the trader to remedy any faults within a reasonable time in accordance with Section 19 of the CGA. 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/her right to reject the vehicle within a reasonable time.

Issue (a): Whether the vehicle failed the guarantee of acceptable quality provided for in the Consumer Guarantees Act?
[23] The guarantee of acceptable quality is in three parts. A set of quality elements set out in s. 7(1)(a) to (e), a reasonable consumer test which applies a consumer’s objective evaluation of those quality elements and a set of factors in s.7(1)( f) to (j) which are to be taken into account by the reasonable consumer to modify his or her assessment of the quality of the goods.

[24] The relevant factors in determining if the vehicle was of acceptable quality in this case are that the goods (the vehicle) was an 8 year old second hand vehicle with 137,995 kilometres on its odometer at the time of sale . It was sold for $17,995. The vehicle’s turbo charger failed within 6 months and 9,138 kilometres.

[25] The failure of the vehicle’s turbo in September 2009 was, in the opinion of JJJJ due to clogged oil pick up which starved the turbo of oil pressure and caused the turbo shaft to fail. The unclogging of the oil pickup still caused oil to be pumped straight out the exhaust and the Tribunal’s Assessor considers that was probably because the turbo charger had already been damaged.

[26] The Tribunal considers on the basis of the JJJJ report that the vehicle’s engine was not as durable as a reasonable purchaser of a 8 year old $17, 995 Audi A4 would expect. Such a consumer would not expect the turbo to fail within 6 months and a little over 9,000 kilometres of use. Accordingly, the Tribunal concludes that the vehicle did not comply with the guarantee of acceptable quality in section 6 of the Act.

Issue (b): Whether the failure was one of substantial character?

[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:

“ 21 Failure of substantial character
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] The Tribunal considers that the failure of the vehicle’s turbo on 9 September was a failure of substantial character within the meaning of s. 21(a) of the Act because no reasonable consumer would have acquired the vehicle if they knew that its turbo would fail within 6 months and 9,138 kilometers after sale and that the cost of repairing the turbo would be a little over $3,000 in addition to the cost of diagnosing the problem of $704.

[29] Where there is a failure of substantial character the purchaser has the option under s.23 of the Act of either a refund or replacement. In this application the purchaser requires a refund. Whilst the Tribunal notes that the trader expressed it’s willing at the hearing to pay the $250 excess if the purchaser made a claim on her CCCC mechanical breakdown policy to have the turbo repaired, and also offered to provide an NNNN post-repair inspection and a 12 month warranty, the decision as to whether to accept that offer remained with the purchaser.

Issue (c): What remedy is available to the purchaser?

[30] The Tribunal is satisfied that the purchaser was entitled to reject the vehicle on 12 October and did so by notifying the supplier (trader) of her decision to reject and the grounds for rejection as required by s.22(1) and that she did so within a reasonable time of the date of supply as required by s.20 of the Act.

[31] Accordingly the Tribunal will order that the purchaser’s rejection of the vehicle is upheld and will order the trader to repay the purchase price of $17,995. In addition the trader is to pay the purchaser’s cost of diagnosing the fault of $704.14 and towage cost of $80; both of which sums the Tribunal considers were reasonably foreseeable as liable to result from the failure in terms of s.18(4) of the Act. The total amount payable to the purchaser is thus $18,779.14.

[32] Normally the purchaser is responsible for returning rejecting goods to the trader under s.22(2) of the Act unless the Tribunal considers that the cost of transporting the vehicle back to the trader is significant. The Tribunal thinks the cost of transporting the vehicle back to the trader in PPPP will be significant and will therefore order the trader to recover the vehicle at its expense from the purchaser’s address of LLLL at FFFF as soon as it has paid the purchaser the sum of $18,779.14.

[33] The vehicle has been driven some 9,138 kilometres by the purchaser and has depreciated since it was sold to the purchaser. The Tribunal is unfortunately unable to make an allowance for this following the decision of McDonald DCJ in Stephens v Chevron Motor Court Limited [1996] DCR 1. In that case the Court did not see it had authority under the Act for compensating the trader for depreciation. McDonald DCJ acknowledged that this was an unsatisfactory result given the use of the vehicle enjoyed by the purchaser in that case, but suspected that the legislation was deliberately framed in that way.

Orders

1. That the purchaser’s rejection of the vehicle on 12 October 2009 is upheld.

2. The trader shall pay the purchaser $18,779.14.

3. As soon as the trader has paid the purchaser the sum of $18,779.14 it shall at its expense recover the vehicle from LLLL,at FFFF.

DATED at AUCKLAND this 27th November 2009.

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.