Pearson v Babylon Enterprises Limited - Reference No. MVD 197/2010 (Auckland) [2010] NZMVDT 155 (10 November 2010)

Last Updated: 22 February 2011

Decision No. AK 130/2010

Reference No. MVD 197/2010

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN BLAIR BEVAN PEARSON & JULIA JANICE PEARSON

Purchasers

AND BABYLON ENTERPRISES LIMITED

Trader

BEFORE THE AUCKLAND MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr S Gregory, Assessor

HEARING at AUCKLAND on 8 November 2010

APPEARANCES
Mr & Mrs Pearson, the purchasers
Mr J Millar, Salesman for the trader

DECISION

Background

[1] On 26 July 2010 Mr & Mrs Pearson (“the purchasers”) purchased a 2001 Nissan Primera registration number FEM535 (“the vehicle”) from Babylon Enterprises Limited (“the trader”) for $8,000. The purchasers have rejected the vehicle because they say the vehicle has serious faults which the trader has refused to remedy. They seek a refund of their purchase price.

[2] The trader says that the purchasers are not entitled to reject the vehicle because the faults are not serious and the purchasers did not reject the vehicle within a reasonable period of purchasing it.
[3] Prior to the commencement of the Tribunal’s inquiry, the Tribunal appointed Mr Gregory 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 Gregory assisted the adjudicator but the application was determined by the adjudicator alone.

Facts

[4] The purchaser say they agreed to purchase the vehicle from the trader on 18 July 2010 for $8,000 subject to a condition that their deposit of $500 would be refunded if they were unhappy with a VTNZ report. The vehicle had travelled 93,700kms at the time of sale according to the Vehicle Offer and Sale Agreement they signed but the Consumer Information Notice signed on 26 July 2010 recorded the odometer as 93,000kms.

[5] The vehicle passed a VTNZ warrant of fitness on 20 July and the purchasers also had the AA inspect the vehicle on 23 July. The AA report records the odometer at that time as 93,584kms. The AA report identified that the reverse camera in the vehicle was full of condensation, the coolant level was low, the engine needed a service, the power steering was ineffective, the air filter was dirty and there was seepage around the transmission assembly. The trader agreed to repair each of those faults and on that basis the purchasers agreed to proceed with the purchase. They paid the balance of the purchase price and collected the vehicle on 26 July. Their request to the trader for a copy of the invoice from the trader’s mechanics as evidence that the agreed work had been done on the vehicle was ignored.

[6] On 11 September the purchaser Mr Pearson says he first heard an unusual noise coming from the vehicle and on 13 September he took the vehicle back to the trader and was told the trader would ring him the following day. The trader did not do so. Mr Pearson took the vehicle back to the trader on 14 September and spoke to Mr Millar, a salesman who promised to get back to him that evening to arrange a time to take the vehicle back to be repaired. He also failed to contact the purchaser. The next day Mr Pearson went back to the trader for the third time. A mechanic at the trader’s premises listened to the vehicle and said it could be a fault with the power steering but could not be sure. Mr Pearson asked Mr Millar who was going to pay for the vehicle to be repaired and Mr Millar told him the trader only accepted responsibility for repairs within 30 days after sale and as more than 30 days had passed the purchasers would be responsible for the repair costs. The following day the purchasers left a message with the trader saying they understood the trader was responsible under the Consumer Guarantees Act for the vehicle’s fault and they would call back later. When Mr Pearson telephoned the trader later in the afternoon of 16 September he says that he spoke to both Mr Millar and Mr Brad Worsley the trader’s manager and was told by both that the trader only accepted responsibility for 30 days because the purchasers had declined to purchase a mechanical breakdown insurance cover at the time of sale. The trader refused to accept responsibility for the cost of the vehicle’s repairs.

[7] On 17 September the purchasers took the vehicle to their mechanic Peninsula Workshop Ltd who diagnosed the noise as probably coming from the air conditioning and recommended the purchasers take the vehicle to an air conditioning specialist. On 20 September a technician from Auckland Air Care came to Mr Pearson’s workplace and tried to start the vehicle to diagnose the problem. The vehicle would not start. Air Care gave a written quotation of $444.37 to repair and re-gas the air conditioner. The AA came and inspected the vehicle on 20 September and diagnosed a fault with the starter motor. The vehicle was then towed to the purchasers’ home.

[8] On 21 September Peninsula Workshop Ltd sent a mechanic to the purchasers’ home who inspected the vehicle and quoted them $417.94 to repair the starter motor.

[9] On 22 September the purchasers sent a letter to the trader claiming the vehicle had two serious faults, the air conditioning clutch unit and the starter motor and included two mechanics’ reports on those faults. The purchasers claimed that they were entitled to reject the vehicle and receive a refund of their purchase price of $8,000 and asked the trader for a response within 5 working days. They received no response from the trader and so they filed their application with the Tribunal on 4 October 2010. In reply to a question from the Adjudicator the purchasers stated that in mid August the vehicle had been involved in an accident; it had been struck from behind by another driver and the rear bumper had been replaced.

[10] The trader’s defence according to Mr Millar was set out in an unsigned letter sent to the purchasers from the trader on 13 October from Katie Li on behalf of the trader. This letter claimed the fault with the starter motor (the fault with the air conditioning was not referred to in that letter) was not a serious fault because the cost of repairing it was only $417.94 compared with the cost of the vehicle of $8,000, and also because the fault had not been picked up during the WOF examination so it could not have been a serious fault. The trader’s letter also claimed that the purchasers had not rejected the vehicle within a reasonable time. It stated that the Court of Appeal’s decision in Nesbitt v Porter had held that a reasonable time for a motor defect was one month after the latest WOF check and that since the WOF had been issued on 20 July and did not detect the faults the purchasers had not rejected the vehicle within a reasonable time.

[11] Mr Millar claimed that Mr Ali Ramadan a director of the trader had offered to pay one half of the cost of the repairs in a telephone conversation he had with Mr Pearson about 20 October; an offer which had been rejected by the purchasers.

Issues

[12] The facts raise the following issues:
[a] Whether the vehicle complied with the guarantee of acceptable quality in section 6 of the Consumer Guarantees Act 1993 (“the Act”)?
[b]: Whether the purchasers required the trader to remedy the faults and whether the trader did so within a reasonable time?

[c] Whether the failure(s) are of substantial character as defined in s.21 of the Act?
[d] Whether the purchasers are entitled to reject the vehicle and have a refund of their purchase price?

[13] In terms of s.89 of the Motor Vehicle Sales Act 2003 the Tribunal only 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, the Contractual Remedies Act 1979 or the Consumer Guarantees Act 1993, as applicable to the circumstances of the case. The Consumer Guarantees Act is relevant to this application.

The Consumer Guarantees Act 1993

Issue (a): Did the vehicle comply with the guarantee of acceptable quality in section 6 of the Act?

[14] Section 6 of the Act imposes on a supplier and the manufacturer of consumer goods "a guarantee that the goods are of acceptable quality." Section 2 of the Act defines "goods" as including "vehicles.”

[15] 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.”

[16] 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.

[17] 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 purchaser 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 exercised his right to reject the vehicle within a reasonable time.
[18] The factors to be considered by the Tribunal in this case in deciding if the vehicle was of acceptable quality are that the vehicle was, at the time of sale a
9 year old Japanese imported second hand motor vehicle which had travelled 93,584kms and was sold for $8,000. Within only 49 days of the date of supply on 11 September the purchasers first noticed an unusual noise from the vehicle’s engine which was later diagnosed as a fault with the air conditioning. Nine days later the starter motor failed. In those circumstances the Tribunal has no hesitation in finding that the vehicle was not as durable as a reasonable purchaser buying such a vehicle would consider acceptable and hence the vehicle did not comply with the guarantee of acceptable quality in section 6 of the Act.

[19] The trader appears to have misunderstood or failed to acquaint itself with its statutory obligations under the Consumer Guarantees Act. Its response to the purchasers’ request to remedy the faults was not in accordance with their obligations under the Act. There is no “30 day period” provided in the Act within which the purchaser of a vehicle must notify the trader of a fault or defect with the vehicle; the test, which the Tribunal expects traders to be aware of is what would a reasonable purchaser expect in terms of durability of a vehicle of the age, price, and condition of the vehicle supplied by the trader. The fact that a purchasers declined to purchase a mechanical breakdown insurance cover from the trader at the time of sale is irrelevant. It does not affect their right to a remedy if the vehicle subsequently fails to comply with the guarantee of acceptable quality.

[20] Section 18 of the Act sets out the options available to purchasers where suppliers do not comply with the guarantees. Section 18 is as follows:

“18. Options against suppliers where goods do not comply with guarantees

(1) Where a consumer has a right of redress against the supplier in accordance with this Part in respect 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."

Issue (b): Whether the purchasers required the trader to remedy the faults and whether the trader did so within a reasonable time?

[21] Mr Pearson gave evidence that on Monday 13 September and within two days of the air conditioning noise first occurring he contacted the trader to ask it to remedy the fault. The trader refused to do so. When the starter motor failed on 20 September Mr Pearson again telephoned the trader and asked it to remedy that fault. Once again the trader refused to do so. The Tribunal is therefore satisfied that the purchasers complied with their obligations under section 18(2)(a) of the Act but the trader refused to remedy the failures. The purchasers thereupon became entitled to make their election under section 18(2)(b) of the Act to either have the faults remedied elsewhere and obtain from the trader the reasonable costs incurred in doing so or to reject the vehicle. They chose the second option and rejected the vehicle and did so in writing as required by section 22(1) of the Act on 22 September which was well within a reasonable period of time from the time of supply as provided in section 20 of the Act. In that connection the Tribunal does not agree with the incomplete and misleading statement of the law relating to the Court of Appeal’s decision in Nesbitt v Porter contained in the trader’s letter of 13 October to Mr Pearson.

Issue (c): Whether the failure is of substantial character as defined in s.21 of the Act?

[22] 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."

[23] The Tribunal is not satisfied that the faults with the air conditioning and the starter motor either separately or taken together constitute a failure of substantial character within the meaning of section 21 of the Act because they are both faults which can be remedied for less than $870 in total. The argument advanced by the purchasers that without a starter motor the vehicle cannot be started and that therefore it is a serious fault is not, in the Tribunal’s view, valid. Both the starter motor and the air conditioner faults can be easily repaired, at a reasonable cost, and neither is a failure of substantial character.

Issue (c): Whether the purchasers are entitled to reject the vehicle and have a refund of their purchase price?

[24] The Tribunal would have been prepared to uphold the purchasers’ right to reject the vehicle under section 18(2)(b)(ii) of the Act on the grounds which the purchasers proved of the trader’s refusal to remedy the vehicle’s defects following a breach of the guarantee of acceptable quality. In such an event the Tribunal would have ordered the trader to give the purchasers a full refund of their purchase price of $8,000. However the purchasers disclosed during the hearing that the vehicle had been involved in an accident whilst in their ownership. Very unfortunately for the purchasers section 20 (1)(c) of the Act provides as follows:

“ 20 Loss of right to reject goods
(1) The right to reject goods conferred by this Act shall not apply if-
.....
(c) the goods were damaged after delivery to the consumer for reasons not related to their state or condition at the time of supply..”

[25] Regrettably the Tribunal has no discretion in the matter and considers itself prevented by section 20(1)(c) of the Act from giving the purchasers the remedy of rejection they seek and to which they would otherwise be entitled. The Tribunal accepts that the accident in which the vehicle was involved was minor and the damage has been repaired. Nevertheless it considers it remains unable to order rejection because of the clear language in section 20(1)(c) of the Act. However the Tribunal can still award the purchasers the reasonable costs they will incur in remedying the faults which the Tribunal considers amount to $862.31 as quoted to the purchasers by the two repairers.

Orders

1. The purchasers’ application to reject the vehicle under the Consumer Guarantees Act 1993 is dismissed

2. The trader shall pay the purchasers the sum of $862.31 immediately by Bank Cheque.

DATED at Auckland this 10th November 2010

C.H.Cornwell
Adjudicator