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Pryor v Economy Cars Limited - Reference No. MVD 177/11 (Wellington) [2011] NZMVDT 168 (1 December 2011)

Last Updated: 8 February 2012

Decision No. WN 27 /2011

Reference No. MVD 177 /11

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN CHRISTOPHER PRYOR

Purchaser

AND ECONOMY CARS LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

N J Wills - Barrister, Adjudicator
N Barrett - Assessor

HEARING at Christchurch on 27 October 2011

APPEARANCES

Christopher Pryor, purchaser
Brendan Cartwright, witness for the purchaser (by telephone)
Johnathon Knowles, director for the trader
Don Fearon, witness for the trader
Mark Nicholls, witness for the trader


DECISION

Background


[1] On 10 January 2010 Christopher Pryor (the purchaser) purchased a 1998 Subaru Legacy (registration FCU170) (the car) for $9,000 from Economy Cars Limited (the trader). The purchaser alleges that the car has suffered major engine failure as a result of an improperly performed cam belt replacement carried out by the trader. The purchaser has applied to the tribunal to recover from the trader repair costs and compensation for consequential loss.

[2] The trader’s position is that the work done to replace the cam belt did not cause the engine failure and that the trader is not responsible for the problems with the car. The trader also says that the repairs that were carried out could have been carried out for significantly less cost that would have been within the mechanical protection insurance claim limit.

[3] Prior to the commencement of the hearing the tribunal appointed Mr Barrett as the tribunal’s assessor and he took the oath required of an assessor by Schedule 1, cl.10(2) of the Motor Vehicle Sales Act 2003. As an assessor appointed pursuant to the Motor Vehicle Sales Act 2003 Mr Barrett assisted the adjudicator but the application was determined by the adjudicator alone.

Summary

[4] The car failed the guarantee of acceptable quality when sold to the purchaser because:
[5] The failure in the guarantee of acceptable quality is a substantial failure. Because the failure is substantial Mr Pryor is entitled to recover compensation for any reduction in value of the car that flows from the failure in the guarantee of acceptable quality.

[6] The tribunal is satisfied that $1,695 is an appropriate amount of compensation (the tribunal has disallowed three items on the purchaser’s claim).

[7] The tribunal’s findings of fact and reasoning are set out in more detail below.

Facts

[8] Mr Pryor bought the car from the trader for $9,000 on 10 January 2010. The mileage at the time of sale was 104,801 kilometres. As a condition of the sale the trader had the car’s cam belt replaced. The work was carried out by Premium Tyres & Auto (Premium), a firm of mechanics the trader used regularly. The work included replacement of the cam belt, idler and tensioner bearings and some other minor repairs to the horn, wiper and ignition switch. This work cost the trader $410.50.

[9] The trader provided Mr Pryor with a three year mechanical breakdown insurance policy for the car with Lumley (the Lumley policy). Mr Knowles, a director of the trader company, told the tribunal that the Lumley policy was provided in order for the trader to be able to meet any future legal obligations to repair the car. The tribunal understood this to mean that the trader had an expectation that the purchaser would have recourse to the Lumley policy should any issues arise under the Consumer Guarantees Act 1993 (the CGA). A review of the vehicle offer and sale agreement dated 10 January 2010 (VOSA) between Mr Pryor and the trader does not reveal any term that records the trader’s expectation about the use of the Lumley policy in those circumstances.

[10] On 31 January 2011, the car had a major breakdown and was towed to CV Specialists for assessment. An assessment of the problem was undertaken and Brendan Cartwright (the owner of CV Specialists) contacted Lumley to lodge a claim under the mechanical protection insurance.

[11] There was a lull in activity following the February 2011 earthquake. In early April 2011 when work resumed on the repair, Mr Pryor was advised by Mr Cartwright that the cause of the engine failure was a sheared tensioner bolt. He explained that this was a component that was usually replaced as part of a cam belt replacement. Mr Cartwright told Mr Pryor that in his view the wrong tensioner bolt had been installed when the cam belt replacement was carried out. The major damage to the engine was a flow on effect from the cam belt tensioner bearing bolt shearing off which then caused the cam belt to slip and break. This affected the timing between the camshafts and crankshafts causing the valves to hit the pistons damaging them and other engine components.

[12] At this time the quote from CV Specialists for the necessary repair work was $6,233. Mr Cartwright advised Mr Pryor that Lumley had accepted the claim however the maximum claim was $4,600 with an excess of $300. The original quote from CV specialists was for the installation of a second-hand engine. There was a problem with the second-hand engine so CV Specialists decided to rebuild the existing engine instead (for the same price).

[13] Mr Pryor formed the view that the trader was responsible for the engine failure because the trader was responsible for the cam belt replacement. In May 2011 Mr Pryor contacted the trader by letter and asked the trader to meet the repair costs not covered by the Lumley policy and consequential losses of $500 for car rental, insurance and registration.

[14] In the trader’s response to that request Mr Knowles:

[15] Mr Knowles and Mr Pryor had several conversations following this exchange of letters but were unable to resolve matters. Mr Pryor referred the dispute to the Motor Trade Association mediation service but they were also unable to resolve their dispute via that service and Mr Pryor made this application to the tribunal.

[16] Mr Pryor had the repairs (and some additional work unrelated to the engine failure) carried out by CV Specialists. Lumley have been invoiced for $4,300 (the maximum amount claimable taking into account the excess). Mr Pryor produced an additional invoice from CV Specialists for $3,790.77. Mr Pryor told the tribunal that the total amount spent on the car was more than anticipated because, in Mr Pryor’s words, he got them “to do everything” (including some work unrelated to the failure). He said that CV Specialists also told him that there was more work required that was initially expected. He has paid $1,900 of the $2,790.77 he owes to CV Specialists and is paying off the remainder in instalments.

[17] In his application Mr Pryor has identified the following costs as the basis for his claim for compensation:

Sub-total $1,680.87

GST 252.13

Total $1,933.00


[18] These items (with the exception of the insurance excess) have been invoiced to Mr Pryor personally not Lumley insurance. Mr Pryor told the tribunal that he had selected these items and labour costs to form the basis of his claim because they related specifically to the damage caused by the sheared tensioner bolt. In addition Mr Pryor is claiming 144 days of registration and insurance premium costs for the just over four month period that he did not have the use of the car while it was being repaired.

[19] There are two key areas of factual dispute between the parties – the cause of the engine failure and the amount of any compensation. The evidence presented at the hearing in respect of these two areas and the tribunal’s conclusions are set out below.

The cause of the engine failure

[20] Mr Pryor’s submission was that when the trader had the cam belt changed at the time of sale, the wrong tensioner bolt was used. Mr Pryor had formed this view as a result of discussions with Brendan Cartwright, the owner of CV Specialists and the mechanic who carried out the repairs.

[21] Mr Cartwright gave evidence to the tribunal by telephone. He is an A grade mechanic with over 30 years experience. He told the tribunal that the cause of the engine failure was that the tensioner bolt had sheared off. His expert opinion on the cause of the bolt shearing off was that it was caused by the incorrect tensioner bolt being fitted to the car. He also believed that the tensioner bolt had not been correctly “torqued” (or tightened). He formed that view because the bolt showed evidence of “fretting” – he could see damage to the female part of the bolt thread. He also said that there was no sign of “Lock Tight” – a product commonly used to ensure a tensioner bolt was sufficiently tight.

[22] Mr Cartwright explained the basis for his opinion that the wrong tensioner bolt had been used. He said that in his experience tensioner bolts for Subaru vehicles have tensile markings (indicting the hardness of the bolt) and the bolt he discovered in the car when he dismantled it had no such markings. Mr Cartwright was of the opinion that the bolt used was likely an after-market bolt (rather than a genuine Subaru part). The bolt he took out of the car (the original bolt) was produced for the tribunal and Mr Cartwright described to the tribunal where on the bolt he would have expected there to be tensile markings.

[23] At the hearing Mr Knowles produced a new tensioner bearing assembly (with a bolt installed) for the tribunal to inspect. His evidence was that the tensioner bolt he produced was identical to the original bolt installed in the car when the cam belt was changed and that it (and therefore the original bolt) was a genuine Subaru part. He pointed out to the tribunal that the genuine tensioner bolt did not have tensile markings. In support of this evidence he also produced an invoice from Partsmaster addressed to Premium Tyres for $319.82 dated 18 February 2010. He said that that this invoice was for the parts used in the cam belt replacement and that it showed that genuine parts were used in the replacement. He drew the tribunal’s attention to the description of the part “T/TA SUB 1996-“ which he said indicated that the part was a genuine Subaru part. The invoice had a handwritten notation “Econ Cars Subaru Legacy FCU170” but no evidence was presented as to the origin of that notation.

[24] Having been presented with this evidence, Mr Cartwright remained firm in his view that in his experience Subaru tensioner bolts had tensile markings and made the point that the bolt presented in evidence was not identical to the one he removed from the car so it could not be the same type of bolt that was installed in the car when the cam belt was changed.

[25] Mr Fearon gave evidence for the trader. He is the owner of Premium Tyres & Auto. He told the tribunal that he thought they were installing genuine Subaru parts – as indicated by the invoice from Partsmaster but agreed that the bolt taken out of the car was not the same as the genuine Subaru assembly the trader had produced in evidence. He also conceded that if his firm had installed the parts as invoiced by Partsmaster (which cost $319.82) that the trader had been undercharged for the job at $410.50 because his estimate of the labour cost was around $250 plus GST.

[26] Mr Fearon suggested that if the bolt had sheared as a result of poor workmanship it would have manifested a lot earlier than occurred in this case. Mr Fearon was not able to provide any technical basis for that submission and conceded that a bolt that had not been properly tightened could take some time to loosen.

[27] Having heard all the evidence, the tribunal finds that the tensioner bolt failed because it worked loose. Having inspected the bolt and heard the evidence the tribunal is not persuaded that the bolt installed at the cam belt change was a genuine Subaru part. Mr Fearon was equivocal in his evidence – he was only prepared to say that he “thought” he was installing a genuine part and he was unable to give a sensible explanation as to why the amount of the account for the work was inconsistent with the actual costs if a genuine part had been used.

[28] To some extent whether the part was genuine or aftermarket is irrelevant because it is not necessarily the case that use of an aftermarket part results in an unacceptable repair. In this case the bolt may have loosened because it was an inferior aftermarket part or it may have loosened because it was not sufficiently tightened. The tribunal does not need to decide which of those two scenarios caused the failure because either scenario results in a conclusion that the failure came about as a result of the cam belt replacement.

The cost of repairs


[29] At the hearing, the trader did not challenge individual items and/or work done as charged for by CV Specialists but made the general submission that the repair was too expensive. The trader’s submission focused on providing the tribunal with evidence to substantiate the trader’s claim that the work could have been completed within the Lumley insurance claim limit of $4,500.

[30] In support of that submission Mr Knowles produced a copy of a quotation provided to the trader from Elite Service Centre (2007) Limited dated 12 October 2011. The quotation was not based on an inspection of the car. It provided as follows:

“To check a Subaru legacy 98 EJ20TT for a broken cambelt, spark & fuel, and check codes would take roughly an hour, to remove and strip engine ie: pull out remove manifolds turbos & heads to inspect bore would take 8 hours to determine [sic] how excessive the damage, retail rate of 8 hours at $65 +gst = $520, to fit a secondhand motor with warranty would cost on average $4,500 as we have fitted many before.”


[31] In support of his submission that replacement of the engine would have been a more cost effective repair, Mr Knowles also produced a copy of an advertisement for a new Subaru short motor kit – for sale for $2,500. The advertisement said that the kit included a “short motor, oil pump and oil cooler”. Mr Nicholls who is the service manager for Premium Tyres & Auto conceded that this was not a complete engine and that there were other parts that would be required. These other parts would normally be transferred from the original engine which is a labour intensive exercise and would realistically take a similar amount of time as an engine rebuild.

The issues before the Tribunal


[32] The following issues arise:


The Consumer Guarantees Act 1993

The guarantee of acceptable quality

[33] Section 6 of the Consumer Guarantees Act 1993 provides a guarantee as to the acceptable quality of goods sold:

"6 Guarantee as to acceptable quality

(1) Subject to section 41 of this Act, where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality.

(2) Where the goods fail to comply with the guarantee in this section,—

(a) Part 2 of this Act may give the consumer a right of redress against the supplier; and

(b) Part 3 of this Act may give the consumer a right of redress against the manufacturer."


[34] Section 7 sets out a definition of the guarantee of acceptable quality:

"7 Meaning of “acceptable quality”
(1) For the purposes of section 6 of this Act, 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) 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 obtain 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."

[35] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements as set out in section 7(1)(a) to (e) as modified by the factors set out in section 7(1)(f) to (j) from the perspective of a “reasonable consumer”. This test is an objective test. It is not a review of those factors from the purchaser’s subjective perspective.

[36] The reasonable consumer test is derived from the statement of Dickson J in Australian Knitting Mills Limited v Grant [1933] HCA 35; (1937) 50 CLR 387:

"The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist, and not being limited to their apparent condition would buy them without abatement or price ... and without special terms".


[37] In this case the relevant background factors are that the car is a thirteen year old second-hand car with an odometer reading of 104,801 kilometres when sold to Mr Pryor for $9.000. At the time the car was sold to Mr Pryor it had a latent defect – the incorrectly installed and/or inferior tensioner bolt. That defect was undetectable (without significantly dismantling the car) and had disastrous and significant consequences when the bolt eventually sheared off. The tribunal is satisfied that a reasonable consumer acquainted with this defect would not regard the car as being of acceptable quality.

Was the failure a substantial failure in the guarantee of acceptable quality?

[38] Section 21 sets out the circumstances in which a failure is deemed to be a substantial failure in the guarantee of acceptable quality. Whether or not the failure is substantial as defined in section 21 has ramifications for the remedies available to the purchaser.

[39] Section 21 provides:

“21 Failure of substantial character

For the purposes of section 18(3) of this Act, a failure to comply with a guarantee is of a substantial character in any case where—

(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 one 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) of this Act 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 of this Act because they are unsafe.”

[40] The tribunal finds that the failure in this case was substantial. In reaching that conclusion the tribunal finds that a reasonable consumer, aware that there was a latent defect in the car that would cause substantial engine failure within about a year of purchasing the car, would not have purchased the car.

What are the remedies available to the purchaser?

[41] Section 18 of the Consumer Guarantees Act 1993 sets out the remedies available to the purchaser in respect of a failure in the guarantee of acceptable quality. It provides 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 of this Act 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—
(a) Require the supplier to remedy the failure within a reasonable time in accordance with section 19 of this Act:
(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,—
(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 of this Act, reject the goods in accordance with section 22 of this Act.
(3) Where the failure cannot be remedied or is of a substantial character within the meaning of section 21 of this Act, the consumer may—
(a) Subject to section 20 of this Act, reject the goods in accordance with section 22 of this Act; 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) of this section, 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."

[42] In this case Mr Pryor has had repairs carried out on the car. He is now seeking to recover some of the costs associated with those repairs and some consequential losses. Because the failure was a substantial failure, Mr Pryor is entitled to recover damages in compensation for any reduction in value below the price he paid for the car. In this case, the tribunal is satisfied that the cost of repairs is a reasonable proxy for assessing any loss in value. If Mr Pryor had tried to sell the car after the engine failure, it is most likely that any purchaser would assess the value of the car as being the market value of the car in good condition less the cost of any necessary repairs. On this basis for assessment of damages, Mr Pryor’s entitlement is not predicated on him giving the trader the opportunity to carry out the repairs.

[43] The tribunal has reviewed the $1,933 compensation claimed by Mr Pryor. Relying on the expertise of the tribunal’s assessor, the tribunal finds that all but three of the items claimed relate to the failure and are appropriate. The three items identified are the idlers (identified in paragraph 17 above as [k] T/belt idler 281x30, $38.68; [m] T/belt idler EJ18/20, $109.98; and [o] Tensioner idler, $57.54). Mr Barrett’s view which is accepted by the tribunal is that these idlers would have been replaced as part of the cam belt change and generally last 100,000 kilometres.

[44] Mr Knowles’ argument that the trader should not have to pay Mr Pryor compensation because he could have recovered all the costs of repair from the mechanical protection insurance is not accepted. There was insufficient evidence from the trader to show that the repairs that were undertaken were excessive either in terms of cost or work done. The quotation provided by the trader was a quotation prepared without the benefit of inspecting the car. It was clear from both Mr Pryor and Mr Cartwright’s evidence that the additional expense was incurred as the repair progressed and further problems were discovered. Having inspected the various accounts and having taken advice from the tribunal’s assessor the tribunal is satisfied that the amounts claimed (less those identified in the preceding paragraph) are costs incurred as a result of the failure in the guarantee of acceptable quality and they are costs that Mr Pryor has personally incurred above and beyond the limit of the Lumley insurance.

[45] Under section 18(4) Mr Pryor is entitled to recover damages for loss caused by the failure in the guarantee of acceptable quality (consequential loss). The losses claimed by Mr Pryor are for registration and insurance. Those are costs that Mr Pryor would have incurred whether or not the failure occurred and are not recoverable under the CGA.

Orders


  1. The trader shall pay the purchaser $1,695.87

DATED at WELLINGTON this 1st day of December 2011

___________________
N Wills
Adjudicator

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