Hillyer v Euro Prestige Limited - Reference No. MVD 149/2011 (Auckland) [2011] NZMVDT 115 (22 August 2011)

Last Updated: 2 May 2012

Decision No. AK95 /2011 Reference No. MVD 149/2011

IN THE MATTER AND

IN THE MATTER

BETWEEN

AND

of the Motor Vehicle Sales Act 2003

of a dispute

CLAIRE ELIZABETH HILLYER Purchaser

EURO PRESTIGE LIMITED

Trader

BEFORE THE AUCKLAND MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Auckland on 17 August 2011

APPEARANCES
Mrs C E Hillyer, the purchaser
Mr S Lea, witness for the purchaser Mr V Levada, Director for the trader

DECISION

Background

[1] On 15 January 2011 Mrs Hillyer, then called Mrs Furlong ("the purchaser") purchased a 2000 Nissan El Grande vehicle registration number EGN681 ("the vehicle") for $9,000 from Euro Prestige Limited ("the trader"). The purchaser has applied to the Tribunal to recover the sum of $7,800.94 she has been quoted to rebuild the vehicle's engine because she says the vehicle's engine has failed to comply with the guarantee of acceptable quality in the Consumer Guarantees Act 1993.
[2] The trader's position is that it says that it sold the vehicle to the purchaser by competitive tender or by auction. Second, if the vehicle was not sold by competitive tender that the vehicle was of acceptable quality for its age and mileage. Accordingly the trader says the purchaser is not entitled to the repair costs claimed.

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[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 trader advertised the vehicle for sale on TradeMe for a start price of $6,000 and a buy now price of $9,995. The vehicle was advertised as having an odometer reading of 149,000km and as having an alarm and a sunroof. The purchaser went to the trader's premises to inspect the vehicle and test drive it. She says she found that the vehicle's odometer was not 149,000kms but 153,200kms and the vehicle did not have either a sunroof or an alarm. She says she also found that the rear set of seats would not fold down which was important to her because she wanted to be able to carry BMX cycles in the rear of the vehicle. The purchaser says she made an offer of $9,000 to the trader who promptly accepted her offer. She says she was not told by the trader that the vehicle was being sold by auction or by competitive tender and she did not complete a tender offer document.
[5] The trader obtained an AA pre purchase inspection report dated 14 January 2011 which graded the vehicle as "Grade 2: May require unplanned maintenance and repair" but was otherwise satisfactory. A Tee-Kay test for the presence of hydrocarbons in the coolant was apparently done by the AA with negative results but as the vehicle has a diesel engine the detection of hydrocarbons would, in the Assessor's opinion, have been highly unlikely unless the diesel engine was very close to failing.
[6] The purchaser entered into a Vehicle Offer and Sale Agreement with the trader on 15 January 2011 and took delivery of the vehicle the same day. The trader inserted the following clause in the VOSA as a Special Condition: "Sold in AS TRADED CONDITION NO WARRANTY". The Tribunal considers the inclusion of that condition in the VOSA probably breaches s 13(i) of the Fair Trading Act 1986. The trader also failed to display on the vehicle or to supply to the purchaser a Consumer Information Notice in breach of the Consumer Information Standards (Used Motor Vehicle) Regulations 2008 the breach of which is an offence under the Fair Trading Act 1986. The Tribunal notified the purchaser at the hearing that the Fair Trading Unit of the Commerce Commission has responsibility for investigating possible breaches of the Fair Trading Act.
[7] The purchaser, who lives in Whangarei drove the vehicle to her home and says the vehicle drove well on that 165km journey. She says that when she reached Whangarei she checked the oil and water and the vehicle's radiator was low and required water. The purchaser says she used the vehicle to travel to work each day travelling about 120kms a week.
[8] On 17 April before making a trip from Whangarei to Orewa the purchaser says she topped up the radiator and the vehicle also required between 500ml

and 1500mls of water before she took it on a trip to New Plymouth on 25 April

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and about the same quantity of water when she returned from New Plymouth to VVhangarei.

[9] On 3 May the purchaser had the vehicle fully serviced and its coolant radiator level checked by Union Car Spares ARB Northern ("Union") at a cost of $478.93. Surprisingly the purchaser did not inform Union that the vehicle was

consuming water. Union's invoice recorded the vehicle's odometer as
158,194kms at that date. Although Union's service invoice says that Union replaced coolant no charge appears on the invoice for the coolant.

[10] In mid May the purchaser says she had trouble starting the vehicle and when it did start a cloud of white exhaust smoke was expelled from the exhaust. On 16 June the vehicle failed to start for 5 or so minutes and the purchaser took the vehicle to Union to have it checked. Union diagnosed that, the vehicle had a blown head gasket and gave the purchaser a quotation to rebuild the engine at a cost of $7,800.94. The vehicle's current odometer according to Union's written quotation is 159,680kms showing the purchaser has travelled 6,480kms in the vehicle in the 5 months that she owned and used it before its head gasket blew.
[11] The purchaser gave evidence that on 20 June she telephoned the trader and spoke to its director Mr Levada who told her that she should expect things would go wrong with an 11 year vehicle which had travelled 153,000kms. The purchaser says she went to the 155 Community Law Centre in Whangarei and on 22 June they wrote a letter for her to the trader asking it to accept responsibility for the cost of $7,800.94 for repairing the vehicle but the trader did not respond to that request and, since filing her application on 11 July, the trader has made no effort to contact her to attempt to mediate the application as requested by the Tribunal.

[12] Mr Lea the owner of Union appeared at the hearing to give evidence for the purchaser. He says that he is a qualified mechanic and that Union specialises in servicing 4 wheel drive vehicles and operates a wrecking business. He says that when the vehicle was brought to Union on 16 June he carried out a Tee-Kay test which is normally difficult to do on a diesel but the test clearly showed the presence of hydrocarbons in the coolant. He obtained the purchaser's permission to strip the engine down and found, from markings on the turbo unit that it was a second hand unit supplied by a New Zealand parts supplier because it had markings in English on it. He produces colour photographs of the vehicle's stripped engine taken in his presence by the purchaser's husband. He says that he found a large crack in the cylinder head between the valves in No 2 cylinder and No 3 cylinder. He says No 1 piston has a small dent in its edge which he says caused damage to the bore of No 1 cylinder. He says there is also evidence of steam pitting on the cylinder head indicating the problem has existed for some time. He says a foreign body- probably a fragment of the turbo- has entered the top of No 1 cylinder causing scoring damage to the bore. He says the most economical way to repair the problem is to rebuild the engine rather than replace it with a second hand engine. The cost of rebuilding is $7,800.94 for which Union has given a quotation to the purchaser. In reply to a question from the Assessor Mr Lea says the presence

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of the steam pitting on the cylinder head indicates the vehicle has been consuming water for some time and that caused the problem.

[13] Mr Levada for the trader says that the trader sold the vehicle by competitive tender because there was another purchaser interested in the vehicle and on the trader's premises at the same time as the purchaser. He does not have any details of who that purchaser was and he says he did not tell the purchaser the vehicle was being sold by competitive tender or have her complete a tender.

[14] Mr Levada says a Tee-Kay test was completed by the AA as part of the pre-purchase inspection on the vehicle on 14 January 2011 which showed a negative result. He also says the vehicle was sold with a warrant of fitness issued on 14 January 2011. He says it is not reasonable to expect the trader to guarantee the quality of an 11 year old imported Nissan vehicle for 5 months and 6,500kms.

Issues

[15] The facts raise the following issues:

[a] Whether the vehicle was supplied by competitive tender or auction?
[b] If not whether the vehicle was of acceptable quality at the time of sale in terms of the guarantee in s6 of the Consumer Guarantees Act 1993?
[c] If not, whether the purchaser required the trader to remedy any faults and gave the trader a reasonable time within which to do so?
[d] If so, whether the purchaser is entitled to recover her repair costs from the trader and if so what amount is reasonable?

Issue: [a] Whether the vehicle was supplied by competitive tender or auction?

[16] 41(3) of the Consumer Guarantees Act 1993 ("the Act") sets out the sale by auction or competitive tender exception to the application of the Act as follows:

"(3) Nothing in this Act shall apply in cases where goods are supplied-

(a) by auction; or
(b) by competitive tender."

[17] The term "competitive tender" is not defined in the Act, nor is there any case law that has considered that term. Section 5(1) of the Acts Interpretation Act 1999 provides:
"The meaning of an enactment must be ascertained from its text and in the light of its purpose."

[18] The purpose of s 41(3) is to provide two methods for the sale of goods to consumers where the protections of the Act do not apply. However common sense dictates that the mechanisms in s41(3) for a sale by auction or a sale by competitive tender must be easily distinguished from an ordinary consumer goods sales transaction where, particularly in the case of the sale of a motor vehicle, more than one purchaser may be interested in making an offer to
purchase the same vehicle. If that were not the case, a consumer would not be

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in the position to know whether or not the Act applied to a contemplated transaction and the Act's general purpose of consumer protection would be defeated

[19] Black's Law Dictionary (8th edition) defines a "tender" as "an over or bid put forward for acceptance". The Tribunal believes that there must be more than the mere prospect of competition (ie that someone else might come along and buy particular goods); there needs to be actual competition.
[20] There may be different sales processes that would meet that test but the conventional negotiated sales process used by the trader in this case is not one of them. The Tribunal's reasons are as follows: first, there was no process in place where tenderers could compete to buy the vehicle. Second, there were no other offers made in competition with the purchaser's offer of which she was made aware. Third, there was no advertised competitive process. Fourth, there was no tender documentation the purchaser was asked to complete. Fifth, the trader itself set the upper limit of the purchase price by advertising the prlce at which the vehicle could be bought as $9,995- the "buy now" price. Finally, the facts show that the trader negotiated the price with the purchaser. For all those reasons the Tribunal concludes that the vehicle was not sold by competitive tender or auction and therefore the Act applies to the sale.

Issue [b]: Whether the vehicle was of acceptable quality at the time of sale in terms of the guarantee in s6 of the Act

[21] 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."
[22] The expression "acceptable quality" is defined in s 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, -- 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:
(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) Were any defects in goods have been specifically drawn to the consumers 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 fall 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 ot been used in that manner or to that extent.

(5) A referece in subsections (2) and (3) of this section of acceptable quality if they had not been used in that manner or to that extent.

[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 evalutation 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 modity his or her assessment of the quality of the goods.

[24] In Stephens v Chevron Motor Court Limited [1996] DCR 1, 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 s19 of the Act. If the failure to comply with the guarantee of acceptable was of a “substantial character” within the meaning of s21, or if the faults cannot be remedied, the Tribunal is directed to ask whether the purchaser exercised his/her right to reject the vehicle within a reasonable time.

[25] The vehicle supplied to the purchaser on 15 January 2011 is an 11 year Japanese imported Nissan El Grande diesel vehicle which had travelled 153,481kms according to the AA pre purchase inspection report which is probably more accurate than the VOSA’s record of 153,200kms although the difference is insignificant. The vehicle was sold for the fairly modest price of $9,000. The vehicle was, in the Tribunal’s opinion very probably consuming water at the time it was sold to the purchaser because the purchaser had to top up the radiator as soon as she bought it after driving the 165kms to her home in Whangarei. The problem became evident in April when the vehicle needed 500mls to one and a half litres of water before and after the trip to New Plymouth. The Tribunal therefore finds that the vehicle was not free of minor

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defects and was not as durable as a reasonable consumer would regard as acceptable for a vehicle of this type, age, price, and distance travelled. It accordingly concludes that the vehicle did not comply with the guarantee of acceptable quality in s6 of the Act.

[261 The Trlbunal also considers the failure to be one of substantial character as defined in s 21 of the Act because it does not consider the vehicle would have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; one costing more than two thirds of the cost price of the vehicle to rectify.

Issue (c] Whether the purchaser required the trader to remedy any faults and gave the trader a reasonable time within which to do so?

[27) The purchaser gave evidence, which was not challenged by the trader that she had telephoned the trader on 20 June and asked it to accept responsibility for the cost of the repairs and the purchaser also had a Legal Advisor at 155 Community Law Centre write to the trader on 22 June requesting it to remedy the fault by paylng for it to be repaired. The trader did not respond to that request.

Issue [d]: Whether the purchaser is entitled to recover her repair costs from the trader and if so what amount is reasonable?

[28] The Tribunal is satisfied that the purchaser is entitled to recover her reasonable repair costs from the trader. The Tribunal considers the costs quoted by Union in its quotation dated 16 June are reasonable but that there would be betterment if the purchaser were to have the cost of the main bearings ($110.43), big end bearings ($78.26), and $1213.04 portion of the outwork paid by the trader. It will therefore deduct those sums plus GST; a total of $1,612 from the amount quoted of $7,800.94 leavlng the trader to pay the sum of $6,188.94.

Order

The trader shall pay the purchaser $6,188.94.

DATED at Auckland this 22nd August 2011

C. H.Cornwell Adjudicator