Lovich v Acquired Holdings Limited T/A NZ Wholesale Vehicle Distributors Reference No. MVD 190/2010 (Auckland) [2010] NZMVDT 150 (1 November 2010)

Last Updated: 22 February 2011

Decision No. AK 125 /2010

Reference No. MVD 190/2010

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN ERIN AMY LOVICH & SCOTT COLDHAM

Purchasers

AND ACQUIRED HOLDINGS LIMITED TRADING AS NZ WHOLESALE VEHICLE DISTRIBUTORS

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr M Whinham, Assessor

HEARING at AUCKLAND on 27 October 2010

APPEARANCES
Miss E A Lovich, purchaser
Mr S Coldham, purchaser
Mr J D Lovich, witness for the purchaser

Mr P J Tweedie, Director, representing the trader

DECISION

Background

[1] On 6 July 2010 Miss Lovich and Mr Coldham (“the purchasers”) were the successful bidders on an Internet auction for a 2003 Volkswagen Golf registration number FLN883 (“the vehicle”) from Acquired Holdings Limited trading as NZ Wholesale Vehicle Distributors (“the trader”) for $8,630 (including on road costs). The purchasers say first, that the distance the vehicle had travelled was misrepresented by the trader and second, that the vehicle has a faulty transmission. The purchasers claim the trader breached the Fair Trading Act by misrepresenting the distance the vehicle had travelled and also that the vehicle does not comply with the implied condition as to merchantable quality in section 16(b) of the Sale of Goods Act 1908. They seek to recover as damages the estimated costs of replacing the vehicle’s transmission of $4,789.75.

[2] The trader says that the vehicle’s odometer was pictured in a photograph displayed with the advertisement which correctly shows the distance the vehicle has travelled. The trader says that because the vehicle was supplied by auction the purchasers have no right to their repair costs under the Consumer Guarantees Act 1993. The trader says that the implied condition as to merchantable quality in section 16(b) of the Sale of Goods Act 1908 was excluded by the trader’s Internet advertisement stating that “All our vehicles are sold as is where is.”

[3] Prior to the commencement of the Tribunal’s inquiry, the Tribunal appointed Mr Whinham who took the oath required of an assessor by Schedule 1 cl. 10(2) of the Motor Vehicle Sales Act 2003. As an assessor Mr Whinham assisted the adjudicator but the application was determined by the adjudicator alone.

Facts

[4] In July 2010 the trader advertised the vehicle for sale by auction on TradeMe. The advertisement included details of the vehicle and described it as having travelled 67,000kms. The trader’s advertisement included a statement:
. “All our vehicles are sold as is where is.”

[5] The purchasers went to the trader’s premises on 3 July, inspected the vehicle and test drove it around the block a distance they estimate to be between 2km and 4kms. The vehicle performed satisfactorily.

[6] On 6 July the purchasers were the highest bidders for the vehicle at $8,350 plus $280 on road costs; a total of $8,630. On 8 July the purchaser Miss Lovich went to the trader’s premises in Penrose, paid for the vehicle, signed a Consumer Information Notice and drove it to Auckland City. She says that when she was approaching Spaghetti Junction in the vehicle she noticed a momentary slipping of the vehicle’s gears but says she thought little of it at the time other than the vehicle probably needed a service. Later the same evening after she had driven the vehicle about 7 minutes towards the North Shore an engine fault light lit up on the instrument panel and the vehicle’s transmission began slipping in gear.

[7] On 7 July she took the vehicle to be inspected by her uncle Mr J Lovich who is a mechanic. Mr Lovich, who appeared at the hearing and gave evidence for the purchaser says that he has been a mechanic for 38 years during part of which he repaired VW cars, and that he has been the owner of his own mechanical repair business for 26 years. He says the 1997 to 2003 Volkswagen Golf has a K3 high speed clutch which is prone to faults with the valve body and ECU. He says he immediately diagnosed a fault in the transmission of the purchasers’ vehicle and that in his opinion the vehicle was not safe and should not have been issued with a warrant of fitness because it lacked driveability. He says that on a 2-4km road test the faulty transmission would not have become apparent but as soon as the vehicle’s transmission reached its operating temperature the fault in the transmission would become evident.

[8] The purchasers say that on 9 July they contacted the trader about the problem and took the vehicle back to the trader for inspection by its mechanic. The trader told the purchasers that it would contact them the following week. Later the following week the purchasers contacted Mr Paul Tweedie, a Director of the trader who confirmed that the transmission needed replacing but that the trader was not liable for any of the costs involved in repairing/replacing it but that it would contact its Japanese agent who supplied the vehicle about sourcing a replacement transmission.

[9] The trader’s Japanese agent was unable to source a suitable replacement transmission and on 3 September the trader offered to source a replacement transmission within NZ at a cost of $1,500 of which the Japanese agent would contribute $500 and the purchasers were expected to pay the balance of $1000 with the cost of fitting the transmission into the vehicle being paid by the trader. The transmission would come with a 2 month warranty. The trader required the purchasers to agree to that proposal by the end of the day and pay $1000 by the following Monday. The purchasers decided not to accept the trader’s offer and informed Mr Tweedie accordingly on 6 September who then told them he was “washing his hands of the situation”. The purchasers collected the vehicle and had it towed to their mechanic, Jim Lovich Motors who provided a written quotation dated 7 September 2010, a copy of which they produce, of $4,685.65 (with GST at 12.5%) to have the transmission reconditioned using Transmission Solutions Ltd to do the work on the transmission. They also obtained and produced a quotation from The Toy Shop (2009) Ltd dated 20 October of $6,269.17 for the same work.

[10] The purchaser Miss Lovich says that when the vehicle’s transmission started to malfunction on the night of July 8 she noticed the odometer was 69,310kms and when she compared that with the distance the vehicle had travelled as advertised by the trader she noticed it was 2,310kms greater than the advertised distance. She says that she would still have bought the vehicle if she had known the odometer was 69,300kms instead of 67,000kms and she says she understands that there is unlikely to be any material difference in value between the vehicle with 67,000kms and the same vehicle with 69,000kms on its odometer.

[11] Since filing their application with the Tribunal on 30 September the purchasers say that they have not heard from the trader with any mediation proposals.

[12] The trader was requested before the hearing to send the Tribunal a statement of its defence but chose not to do so. The trader, by its Director Mr Tweedie, says that the trader has withdrawn an offer it made to assist the purchasers by sourcing a second hand transmission and fitting it to the vehicle for $1,000. The trader’s position is that because the vehicle was supplied by auction the guarantees in the Consumer Guarantees Act have no application. The trader also considers that it excluded the implied condition of merchantability in s.16 of the Sale of Goods Act 1908 by advertising the vehicle as “sold as is where is”. The trader produces a copy of the decision in Davis v Healy 9/7/84, Vautier J, HC Auckland A251/80 in support of its submission that because the advertisement contained the statement: “All our vehicles are sold as is where is.” the implied conditions in the Sale of Goods Act 1908 were excluded.

[13] Mr Tweedie also produces a photograph which he says appeared with the advertisement for the vehicle on TradeMe which he says shows the odometer as 69,000 but which he agrees is very difficult to read. He also produces a copy of a statement signed by Justina Tweedie in which she claims when completing the paperwork with Miss Lovich she realised the auction listing showed 67,000km and the CIN showed 69,000km and that she asked Miss Lovich if she had inspected the vehicle prior to auction to which she replied Miss Lovich agreed that she had and that the purchasers were aware of the odometer. Another signed statement from one Nick Mulvey produced by the trader states he overheard Miss Lovich say that the difference in the odometer reading was not an issue.

[14] The purchasers claim that the trader’s conduct was misleading and deceptive in advertising the vehicle as having an odometer reading of 67,000kms when it was aware from the JEVIC certificate in its possession that the true odometer reading was 69,310kms. The Tribunal agrees that the trader’s conduct was misleading and did not cease to be so because the colour photograph of the odometer produced by the trader at the hearing does not clearly show the odometer reading. The Tribunal considers that a reasonable person would still be misled into thinking the odometer was 67,000kms. However, as the purchasers acknowledged, they would still have bought the vehicle if they had been aware it had travelled 69,310kms and they also accept that there is no material difference in value between a vehicle with 67,000km and one with 69,310kms on its odometer. Accordingly the Tribunal has decided that the purchasers would not be entitled to a remedy under the Fair Trading Act. The purchaser also acknowledge that because the vehicle was supplied to them by auction, the provisions of the Consumer Guarantees Act 1993 have been excluded by s. 41 (3)( a) of that Act. The purchasers have founded their application on the vehicle’s failure to meet the implied condition of merchantability contained in s.16(b) of the Sale of Goods Act 1908 which they say was not excluded by agreement.

Issues

[15] The relevant issues are:
[a] Whether the implied conditions as to quality or fitness in the Sale of Goods Act 1908 have been excluded?
[b] If not, does the vehicle comply with section 16 (b) of the Sale of Goods Act 1908?
[c] If not, what remedy do the purchasers have under the Sale of Goods Act?

Issue (a): Whether the implied conditions as to quality or fitness in the Sale of Goods Act 1908 have been excluded?

The Sale of Goods Act 1908(“SOGA”)

[16] Section 16 of the SOGA implies conditions as to quality or fitness in certain contracts of sale. The section provides as follows:

“16 Implied conditions as to quality or fitness
Subject to the provisions of this Act and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:
(a) where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose:
provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose:
(b) where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality:
provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed:
(c) an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of the trader:
(d) an express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.”

[17] Section 56 of the SOGA provides as follows:

“56 Exclusion of implied terms and conditions
Where any right, duty, or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.”

[18] The Tribunal is not satisfied in this case that the implied condition of merchantable quality in section 16(b) of the SOGA has been negatived or varied by express agreement as the trader claims. The trader made no claim that there had been a prior course of dealing between itself and the purchasers nor that by usage the provisions of section 16(b) of the SOGA did not apply. The Tribunal’s reasons are as follows: first, in order for there to have been express agreement that the provisions of section 16(b) of the SOGA were excluded the Tribunal would have expected the trader to produce some evidence of written or oral acceptance by the purchasers before the contract to purchase the vehicle was formed showing that they agreed that the implied conditions as to merchantability in the SOGA were excluded. The trader offered no such evidence. Second, the Tribunal considers the words which the trader claims amount to the exclusion of s.16 of the SOGA : “All our vehicles are sold as is where is” to be ambiguous and incapable of amounting to an express agreement. Third, the authority referred to by the trader; the decision of Vautier J in Davis v Healy (supra) does not appear to be an authority which supports the trader’s claim that it had excluded the SOGA by its advertisement. To the contrary, the Judgment of Vautier J in that decision appears to be authority for the proposition that even where the terms of a written contract for the sale of goods (in that case a pleasure yacht) include a clause (in that case clause 5) which read:
“The Purchaser hereby agrees to purchase the said vessel ‘in as is where is’ condition” the Court can still ignore such a clause and award damages against a seller who orally misrepresents goods to a buyer. In that case the seller, Mr Davis was held, notwithstanding clause 5 of the written agreement, to have made a number of oral representations regarding the condition of the hull, the type of engine, the condition of the engine, and the number of winches on the vessel all of which were found to be false and misleading. The seller was ordered to pay the purchaser $29,965 in damages for those misrepresentations. The Tribunal therefore finds that the implied condition of merchantable quality in s.16(b) of the SOGA was not excluded by the trader’s advertisement and thus s.16(b) of the SOGA remains a condition of the sale of the vehicle.

Issue (b): Did the vehicle comply with s.16(b) of the SOGA?

[19] To be subject to the merchantable quality condition, the goods must be of a description which it is in the course of the seller’s business to supply. This is because a seller in a particular business is expected to know more about the goods he sells than the buyer, so the subsection is intended to protect buyers - see Knight v Mason (1912)15 GLR 300. In this case the goods were of a description which it is in the course of the trader’s business to supply. The trader is a registered motor vehicle trader and has been for some years.

[20] The meaning of “merchantable quality” has been the subject of various approaches by Judges in both New Zealand and English cases over the past 80 years. Some cases have considered merchantable quality in terms of saleability, other cases uses acceptability as the standard, and others are concerned with usability. However the cases have emphasised the need to consider, regardless of which approach is adopted, the description under which the goods have been sold. Hence the question of whether goods are of a merchantable quality must always be determined in the context of the particular case.

[21] The Tribunal follows the definition of “merchantable quality” given by Lord Reid in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1968] UKHL 3; [1969] 2 AC 31:
“What subsection (2) now means by “merchantable quality” is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description. This is an objective test: “were of no use for any purpose... must mean “would not have been used by a reasonable man for any purpose.”

[22] The Tribunal accepts the evidence of Mr J D Lovich, an experienced mechanic, that on the day following the supply of the vehicle to the purchasers he examined it, and found the transmission to be faulty. Mr Lovich described the vehicle as unsafe because it was undriveable and expressed his opinion that the vehicle should not have been issued with a warrant of fitness because it was not driveable. Hence the Tribunal considers that the vehicle was not of merchantable quality at the time it was sold because it would not have been used by any reasonable person as a vehicle in the condition in which it was sold to the purchaser.

Issue (c): What remedy do the purchasers have under the SOGA?

[23] The remedies available to the purchaser in terms of s.54(1) of the SOGA for a breach of the warranty of merchantable quality by the seller are to seek an abatement of the price, or to maintain an action for damages. The remedies do not extend to reimbursing the purchasers with their consequential losses (interest costs) or permitting them to reject the vehicle.
Section 54 provides as follows:
“54 Remedy for breach of warranty
(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may-
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.

(3) In the case of breach of warranty of quality, such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.”

[24] The Tribunal considers that the purchasers’ loss is the reasonable cost they will incur in removing the transmission from the vehicle, sending it to a specialist transmission firm to overhaul, and refitting it to the vehicle and filling the transmission with transmission oil. The Tribunal considers, on the basis of the quotation submitted by the purchasers, which appears to the Tribunal to be reasonable, the cost will amount to $4,789.75 and it will order the trader to pay that sum to the purchasers.
Costs

[25] The Tribunal has limited power to make an award of costs to or against a party to any proceedings under clause 14(1) of Schedule 1 to the Motor Vehicle Sales Act 2003. The relevant provision is as follows:
“14 Disputes Tribunal may award costs in certain circumstances

(1) The Disputes Tribunal may award costs to or against a party to any proceedings before it only if,-

• (a) in the opinion of the Disputes Tribunal,-
  

(i) the proceedings are frivolous or vexatious or ought not to have been brought:

(ii) the matter ought reasonably to have been settled before proceeding to a hearing but that the party against whom an award of costs is to be made refused, without reasonable excuse, to take part in the discussions referred to in clause 5(1)(b) or acted in a contemptuous or improper manner during those discussions; or

(b) any party, after receiving notice of the hearing, fails to attend the hearing without good cause.
(2) In any case to which subclause (1) applies, the Disputes Tribunal may order a party to pay---

• (a) to the Crown all, or any part of either or both of the following:
  • (i) the reasonable costs of the Disputes Tribunal hearing:
  • (ii) the fees and expenses of any witness that have been paid or are payable by the Crown; or

(b) to another party all, or any part of the reasonable costs of that other party in connection with the proceedings.”

[26] The Tribunal accepts the evidence of the purchasers that the trader did not make any effort to contact the purchasers after their application to the Tribunal was filed to take part in the discussions referred to in clause 5(1)(b) of the Schedule to the Motor Vehicle Sales Act 2003. The Tribunal considers that the matter ought to have been settled by the trader before proceeding to a hearing. The Tribunal also considers that the trader had no real defence to the purchasers claim and will therefore order the trader to pay the reasonable costs of the hearing of $500 to the Crown within 21 days of the date of this decision.

Orders

1. The trader shall pay to the purchasers immediately the sum of $4,789.75.

2. The trader shall pay to the Crown the cost of the hearing of $500 by payment to Auckland District Court, Albert Street, Auckland within 21 days of the date of this decision

DATED at Auckland this 1st day of November 2010

C.H.Cornwell
Adjudicator