Smith v Automark Co Limited - Reference No. MVD 197/2011 (Auckland) [2011] NZMVDT 147 (28 October 2011)

Last Updated: 17 November 2011

Decision No. AK 122 /2011

Reference No. MVD 197/2011

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN ANIEL MCRAE SMITH

Purchaser

AND AUTOMARK CO LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at AUCKLAND on 25 October 2011

APPEARANCES
Mr A M. Smith, the purchaser
Mr R N Taylor, manager for the trader

DECISION

Background

[1] On 31 August 2011 Mr Smith (“the purchaser”) purchased a 1998 Subaru Legacy GT (“the vehicle”) by internet auction from Automark Co Limited (“the trader”) for $3,100. The purchaser says that the vehicle’s cylinder head(s) are leaking and or its head gasket is damaged and he seeks to recover his purchase price from the trader because he says the trader misrepresented the vehicle to him by failing to inform him that the head gasket was faulty which the trader must have been aware of at the time of sale.

[2] The trader denies that it knew the cylinder heads were leaking or that the head gasket was faulty at the time of sale or that it misrepresented the vehicle to the purchaser and says that the vehicle was sold on an “as is where is” basis without any warranty.

[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 by auction on Trademe in August 2011 with a $1 reserve price. The trader’s advertisement contained a brief description of the vehicle and the fact that it was a trade in and that it had a new warrant of fitness but its registration was “on hold”. The trader’s advertisement also contained the following statement:
“Sold by way of auction thus no warranty applied.”

[5] The purchaser says he read the trader’s advertisement and sent the trader a question on 28 August asking where the vehicle could be inspected which the trader replied to by text on the morning of 29 August. On 30 August the purchaser inspected the vehicle and took it for a test drive which he told the Tribunal was satisfactory. The purchaser was the highest bidder for the vehicle at $3,100 when the auction closed at 5.56pm on 31 August 2011.

[6] On 1 September the purchaser collected the vehicle from the trader and was given a receipt for his $3,100 cash payment by the trader which noted “vehicle sold by $1 reserve auction as is where is. No warranty.” The trader and the purchaser signed that receipt. The vehicle’s odometer at the time of sale was 177,686kms according to the Consumer Information Notice signed by the parties.

[7] On 2 September the purchaser drove the vehicle from Blockhouse Bay to Henderson, a distance of about 20kms and noticed the temperature gauge was rising and as he approached Henderson the water in the radiator started boiling.
The purchaser says he next drove the vehicle again on 5 September when it overheated on the way from Blockhouse Bay to Massey.

[8] The purchaser took the vehicle to Candia Automotive Ltd who told him the vehicle had a major cylinder head or gasket fault which it attempted to fix with an additive, “Chemiweld”, without success. On the evening of 5 September the purchaser sent the trader an email informing it that the vehicle was overheating and asked for a refund of his purchase price or money back to fix the fault. His email stated: “I know I signed the VIN notice that said no warranty implied, but surely this damage you would have known about?”

[9] On Friday 10 September the purchaser attempted to obtain a copy of the warrant of fitness check sheet from the issuer of the WOF, WHIBUS Motors but the owner of that business claimed he did not hold a copy at his premises and that it was at his home. The purchaser then went to see the trader who had not replied to his email sent on 5 September. Mr Taylor the trader’s manager claimed that he was not aware of the problem with the vehicle and refused to refund the purchaser his purchase price. Mr Taylor offered to use his mechanics and contacts to repair the vehicle cheaply. He also provided a photocopy of the WOF for the purchaser. The purchaser gave the trader a letter rejecting the vehicle.

[10] The purchaser had Auto Service & Repair carry out a TeeKay test on the vehicle on 11 October which it failed, and he also had Waikowhai Garage pressure test the system and carry out a TeeKay test on 18 October which was also positive showing the head gaskets were leaking. Waikowhai Garage gave an estimate of $3000 to $4,000 to replace the engine. On 18 October Ian Heem Motors Ltd gave the purchaser an estimate of $2,424 to replace the engine and on 21 October Auto Service & Repair Kingsland gave a quote of $5,450.62 to replace the engine with a second hand engine with a 6 month warranty, a new radiator, cambelt, and fluids.

[11] The essence of the purchaser’s claim is that although he acknowledges that he has no claim under the Consumer Guarantees Act 1993 because he purchased the vehicle by auction, he says the trader’s failure to disclose the fault with the vehicle’s cylinder head(s) or leaking head gaskets, which he says the trader must have been aware of, amounts to misleading conduct and he seeks a remedy under the Fair Trading Act 1986. He says that the fact that the vehicle’s registration was on hold must have been because there was some fault with the vehicle.

[12] Mr Taylor for the trader says the vehicle was sold by $1 reserve auction and the market set the price; not the trader. He denies that the trader misled the purchaser and says he asked the purchaser to come to the trader’s premises to inspect the vehicle. The main reason the trader put the WOF on the vehicle was to ensure it was safe and at no time did the trader portray the vehicle as anything other than what it is. Mr Taylor says he drove the vehicle around the block and did not find any issues with it. He pointed out to the purchaser a small oil leak from what he thinks is a turbo seal but which he says was not dripping oil.

Issues

[13] The facts raise the following issues:
[a] Whether the trader’s conduct was misleading or deceptive?
[b] Whether the vehicle was of merchantable quality within the meaning of s.16 of the Sale of Goods Act 1908 at the time of sale?
[c] If not, whether the implied conditions in the Sale of Goods Act 1908 have been excluded?

[14] 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. 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 and the Consumer Guarantees Act 1993, as applicable to the circumstances of the case. The Consumer Guarantees Act does not apply because the vehicle was supplied by auction and s41 of the Consumer Guarantees Act provides that nothing in that Act shall apply in cases where goods are supplied by auction.

Issue (a): Whether the trader’s conduct was misleading or deceptive?

[15] Section 9 of the Fair Trading Act 1986 reads:

“9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

[16] The essence of the purchaser’s claim is that the trader’s conduct breaches s.9 of the Fair Trading Act by failing to disclose to the purchaser that the vehicle had a leaking cylinder head(s).

[17] The authorities note that an intention to mislead need not be proved, Taylor Bros Limited v Taylors Textile Services Auckland Limited (1987) 2 TCLR 415, at 447. and a useful test for determining whether conduct falls within the section being that adopted by Tipping J in the Court of Appeal in AMP Finance Ltd v Heaven (1997) 8 TCLR 144; (1988) 6 NZBLC 102, 414 (Court of Appeal) when he said that it was necessary to ask:

[a] Whether the conduct was capable of being misleading;
[b] Whether the people concerned were in fact misled by the relevant conduct; and
[c] Whether it was in all the circumstances, reasonable for them to have been misled.

[18] A trader generally is under no duty whatsoever to disclose to a purchaser that a vehicle has any particular faults- be they minor or major. Of course a trader must, if asked, answer honestly and completely and to the best of its knowledge and a trader will be liable to a purchaser if its response misleads the purchaser by, for instance only disclosing a half truth. However, as a general rule silence does not constitute misrepresentation. A trader’s silence- its failure to volunteer information- can only be misleading if there is a reasonable expectation of disclosure; that is, when the trader’s silence of itself or with other factors creates misleading or deceptive conduct. (Hieber v Barfoot & Thompson Ltd (1996) 7 TCLR 301; 5 NZBLC 104,179). The Tribunal does not consider that there was any reasonable expectation of disclosure in this case and the purchaser did not claim that he had made any enquiry regarding the state of the vehicle’s engine or its cylinder heads before bidding for the vehicle and buying it. Accordingly the Tribunal is not satisfied that the trader’s conduct was misleading or deceptive.

Issue (b) Whether the vehicle was of merchantable quality within the meaning of s16 of the Sale of Goods Act 1908 (“SOGA”) at the time of sale?

[19] 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.”

[20] The Tribunal considers that the s.16(b) implied condition of merchantable quality (underlined above) is relevant to the facts of this application. Section 16(a) has no applicability because the purchaser did not make known to the trader any particular purpose for which the vehicle was being acquired nor did he rely on the trader’s skill or judgment in buying the vehicle.

[21] 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.

[22] 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.

[23] The definition of “merchantable quality” given by Lord Reid in Henry Kendell and Sons Ltd v William Lillico and Sons Ltd [1968] UKHL 3; [1969] 2 AC 31 was as follows:
“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.”

[24] In Finch Motors Ltd v Quin (No 2) [1980] 2 NZLR 519 Hardie Boys J observed that the basic concept is that “merchantable quality” means commercially saleable under the description by which the goods are sold.

[25] The time at which merchantable quality is to be assessed is the time of the supply of the goods to the buyer. However, information relating to the goods, unknown at the time of the sale, may come to light after the sale is made and so be available by the time a Court is required to determine merchantable quality. In Henry Kendell it was held that after-acquired knowledge could be taken into account, for otherwise it would never be possible to hold that goods were unmerchantable by reason of latent defect.

[26] Applying these principles, it is clear to the Tribunal that the vehicle was not of merchantable quality at the time of sale because its cylinder head(s) were leaking. In the state in which the vehicle was sold its engine was overheating after driving very short distances and the Tribunal does not consider the vehicle in that condition was commercially saleable. The Tribunal thus finds the vehicle sold to the purchaser was not commercially saleable as a motor vehicle and as such did not comply with the implied condition of merchantable quality in s16(b) of the SOGA.

Issue (c): Whether the implied conditions as in the SOGA have been excluded?

[27] Section 56 of the SOGA permits parties, by contract, to agree to negate or vary any right duty or liability that would arise under a contract of sale by implication of law. It 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.”

[28] The question which the Tribunal has to determine is whether the s.16(b) condition of merchantable quality has been negatived or varied by express agreement or by the course of dealing between the parties or by usage which binds both parties to the contract.

[29] The Tribunal considers in this case that the trader negated or varied the s.16(b) SOGA implied condition of merchantable quality by express agreement with the purchaser as s56 of the SOGA contemplates must occur by having the purchaser sign the receipt which acknowledged that the vehicle was sold “by $1 reserve auction as is where is. No warranty”. Accordingly, with regret, the Tribunal finds that the purchaser has no remedy under the Sale of Goods Act 1908. His application must be dismissed.

Order

The purchaser’s application is dismissed.

DATED at Auckland this 28th day of October 2011

C.H.Cornwell
Adjudicator