Dewar v E & H Auctions Limited T/A Whangarei Car Auctions Reference No. MVD 29/11 (Auckland) [2011] NZMVDT 44 (8 April 2011)

Last Updated: 10 May 2011

Decision No. AK 39 /2011

Reference No. MVD 29/11

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN STACEY RAE DEWAR

Purchaser

AND E&H AUCTIONS LIMITED TRADING AS WHANGAREI CAR AUCTIONS

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr G Middleton, Assessor

HEARING at WHANGAREI on 7 April 2011

APPEARANCES

Miss S R Dewar, the purchaser

Mr E Mustchin, Director for the trader

DECISION

Background

[1] On 29 November Miss Dewar (“the purchaser”) purchased a 1998 Nissan Pulsar registration number FQU350 (“the vehicle”) for $3,500 from E&H Auctions Limited trading as Whangarei Car Auctions (“the trader”). The vehicle’s odometer was 123,755 kilometres at the time of purchase. The purchaser has applied to the Tribunal to reject the vehicle and obtain a refund of her purchase price of $3,500 and other costs because she says the vehicle was not of acceptable quality within the meaning of the Consumer Guarantees Act 1993 (“the Act”) when it was sold to her by the trader.

[2] The trader says that the vehicle was supplied to the purchaser by tender and that accordingly the Act does not apply to the sale of the vehicle to the purchaser. In the alternative the trader says that if the Act does apply the trader considers that the vehicle was of acceptable quality at the time of supply.

[3] Prior to the commencement of the Tribunal’s inquiry, the Tribunal appointed Mr Middleton 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 Middleton assisted the adjudicator but the application was determined by the adjudicator alone.

Facts

[4] The purchaser went to the trader’s premises in Whangarei in November 2010 where she inspected and test drove the vehicle but explained to the trader’s salesman that her budget was $3,000 to $3,500. Her father also inspected the vehicle. The purchaser says the vehicle’s engine oil appeared to be in good condition and she and her father thought the vehicle’s engine was in good condition.

[5] The trader initially had a price of $5,500 on the vehicle. The price was subsequently reduced to $4,000. On the morning of 29 November 2010 Mr Stewart telephoned the purchaser and offered to sell her the vehicle for $3,500 and the purchaser accepted that offer and went to the trader’s premises on the afternoon of 29 November to complete the transaction.

[6] Before she purchased the vehicle the purchaser was handed, read and signed a document headed “TENDER FORM” which had been filled in by the trader which describes the vehicle and the purchaser’s details and which then contains the following:-
“I/We hereby tender the amount of $3,500 Plus $10 (change of ownership) for the above vehicle.
I/We confirm that we are aware that this vehicle is being sold by tender and is accepted in an “as is where is” condition and as such carries no warranty and therefore is not subject to the “Consumer guarantees act 1993” Or the “Sales (sic) of goods act 1908”. I/We also confirm that we have read the “terms and conditions” set out by Whangarei Car Auctions Tender Centre. I hereby confirm that I am over 18 years of age and authorised to submit this tender.”

[7] The trader also had the purchaser sign a document headed “Disclosure” (“the Disclosure Document”) which reads as follows:-

“Disclosure
This Vehicle is sold AS IS WHERE IS
E & H Auctions Ltd, trading as “Whangarei Car Auctions Tender Site” Takes no responsibility for this vehicle once sold.
Any vehicle may be sold with a warrant of fitness or without, with a registration or without.
Any vehicle may be sold as a part or as parts; it may be sold for wrecking purposes or as an incomplete unit.
All vehicles ‘MUST’ be checked and where possible test driven to make your own opinion as to what condition the vehicle is in and to make sure it is fit for your purpose.
As you are accepting the vehicle in an
‘ AS IS WHERE IS’ condition.
THERE IS NO WARRANTY OR GUARANTEE
WITH THIS VEHICLE

Vehicle: NISSAN PULSAR 1998 5DOOR HATCH
Reg Num: FQU350
Name: STACEY RAE DEWAR
Signature: “Tracy Dewar” Date: 29/11/10”

[8] The purchaser says that after she signed the Tender Form and the Disclosure Document documents she paid the trader $3,510 in two EFTPOS transactions, arranged insurance on the vehicle with the assistance of Mr Stewart, and drove the vehicle away.

[9] The purchaser noticed the vehicle’s engine “stuttered” when she drove the vehicle on the afternoon she purchased it. The vehicle’s fuel tank was nearly empty and the purchaser says she thought that the engine’s “stutter” or rough running might be caused by dirt in the fuel. She says that on 1 December after filling the fuel tank and taking the vehicle out of town she discovered the radiator reservoir (header) tank was boiling when she stopped the vehicle at Whangarei Falls. She estimates she would have only travelled about 100kms in the vehicle at that time.

[10] The purchaser took the vehicle back to the trader in early December 2010 and saw Mr Stewart who told her the “stutter” might be caused by moisture on the spark plugs from having the engine cleaned. He dried the spark plugs with compressed air and commented to the purchaser that the vehicle smelt hot. The purchaser says that fixed the vehicle’s “stutter” but not the overheating in the radiator reservoir tank.

[11] The purchaser took the vehicle to Oakleigh Service Station (“Oakleigh”) about one week later. They tested the cooling system and found the radiator was leaking around where the radiator cap seals the radiator. They sent the radiator to be repaired and flushed the engine block. The radiator top tank was replaced, the system was bled and checked for leaks, and the vehicle was returned to the purchaser about 20 December. The purchaser says the coolant level in the radiator reservoir tank continued to drop and although the temperature gauge did not show the engine was overheating the engine smelt hot.

[12] The purchaser took the vehicle back to Oakleigh in early January 2011. Oakleigh pressure tested the engine but could not discover the cause of the coolant loss. The purchaser drove the vehicle to her work the following day but had to stop because the temperature gauge showed the engine was overheating. She had the AA tow the vehicle back to Oakleigh who did a TeeKay test on the engine and found combustion gases were present in the coolant. They informed the purchaser that there was either a crack in the cylinder head or the head gasket had blown. They recommended the vehicle’s cylinder head needed to be removed and checked or a second hand engine fitted.

[13] The purchaser went to the trader and spoke to Mr Mustchin to see if the trader was prepared to work with her to help her resolve the problem. Mr Mustchin told the purchaser the trader was not prepared to assist her. The purchaser says the cost of replacing the engine will be about $1650.

[14] On or about 25 January 2011 the purchaser handed the trader a letter rejecting the vehicle and requesting a refund. This letter was acknowledged by the trader’s solicitors on 25 January 2011 by letter to the purchaser. The solicitors rejected her request for a refund for the vehicle. The trader’s solicitor, George Swanepoel of Swan Law notified her that the tender document she had signed contracted out of the Act and the Sale of Goods Act 1908 and that the vehicle had been supplied to her by tender. The letter also stated that s 41(3) of the Act excluded supply by competitive tender. The trader’s solicitors also informed her that she had bought the vehicle on an “as is where is” condition and that there was no warranty or guarantee with the vehicle.

[15] The Tribunal on receipt of the purchaser’s application on 10 February 2011 issued a Minute notifying the trader that the Tribunal wished the trader to produce evidence at the hearing- preferably by sworn affidavits from the other parties who lodged tender bids for the vehicle- regarding the tender offers they had made so as to bring the sale within the s 41(3) exemption in the Act. The trader has not done so and Mr Mustchin said at the hearing that there was no other tender received for the vehicle.

[16] During the hearing the Tribunal received evidence by telephone conference call from Mr Stevens the Workshop Manager of Oakleigh and of the work he did on the vehicle in mid December 2010 and early January 2011 to establish that the cylinder head was cracked or that the head gasket is faulty. Mr Steven’s evidence was that a TeeKay test he did on the vehicle’s cooling system established that the cylinder head was leaking combustion gas into the cooling system and that the vehicle could not be driven.

[17] Mr Mustchin told the Tribunal that the appearance and name of his premises makes it obvious that the trader conducts auctions and sells vehicles by tender. He says he is an auctioneer. He says he is unaware of any legal requirement that prevents him from supplying a vehicle by tender unless there is more than one party tendering for the vehicle.

[18] Mr Mustchin also stated that the invoices of Oakleigh produced by the purchaser omitted the vehicle’s odometer and the first invoice also only had the vehicle’s make and registration details handwritten on the invoice. He says the evidence of Mr Sam Stevens the Workshop Manager of Oakleigh failed to satisfy him that the vehicle’s cylinder head had cracked or the cylinder head gasket had failed because the cylinder head had not been removed and x-rayed to establish if it was cracked or the gasket was blown. Mr Mustchin produces a copy of a letter dated 22 February 2011 signed by a person named Thorburn, a mechanic at Maunu Mechanical Services Ltd in which Mr Thorburn expresses the opinion that it is highly unlikely that the vehicle could have travelled 1800kms without exhibiting signs of overheating and or failure. However neither Mr Thorburn nor Mr Mustchin have inspected the vehicle since becoming aware of its overheating problem. The Tribunal cannot therefore place any weight on the opinion of a mechanic who has not inspected the vehicle and appears from his letter to be unaware the vehicle first overheated on 1 December 2010 after only 100kms use by the purchaser.

The issues before the Tribunal

[19] Having considered the facts, the Tribunal concludes that the following issues require consideration:
[a] Whether the vehicle was supplied to the purchaser by competitive tender?
[b] If not, whether the vehicle was of acceptable quality within the meaning of s 6 of the Act and whether the trader can contract out of the Act ?
[c] If not, whether the failure is one of substantial character in terms of s 21 of the Act?
[d] If the failure is one of substantial character is the purchaser entitled to reject the vehicle?

The Consumer Guarantees Act 1993 (“the Act”)

Issue (a): Whether the vehicle was supplier to the purchaser by competitive tender?

[20] Section 43 of the Act provides as follows:

“43 No contracting out except for business transactions

(1) Subject to this section and to sections 40, 41 and 43A, the provisions of this Act shall have effect notwithstanding any provision to the contrary in any agreement.”

[21] Section 41 contains certain exceptions and the relevant subsection provides:

“(3) Nothing in this Act shall apply in cases where goods are supplied—

(a) by auction; or
(b) by competitive tender”

[22] The word “supply” is defined in section 2 of the Act as follows:

“supply,--

(a) in relation to goods , means supply (or resupply) by way of gift, sale, exchange, lease, hire, or hire purchase; and
(b) in relation to services, means provide, grant, or confer”

[23] The words “competitive tender” are not defined in the Act.

[24] Mr Mustchin for the trader claimed the vehicle had been supplied to the purchaser by tender. Mr Mustchin said that there was, in his opinion, no need for there to be another or other tenders for the exclusion in s 41(3)(b) of the Act to apply. Mr Mustchin acknowledged that the trader had not received any other competitive bids for the vehicle before it sold it to the purchaser on 29 November 2010. The evidence given by the purchaser and not challenged by the trader was that on 29 November 2010 the trader’s salesman Mr Stewart had contacted her to advise her that the owner of the vehicle was willing for the trader to sell it to the purchaser for $3,500 The purchaser also gave evidence that to her knowledge the trader had not referred her tender offer of $3,500 to anyone else nor had anymore than a few minutes elapsed between her signing the tender offer and the trader accepting it by receiving her EFTPOS payments and handing her the keys to the vehicle.

[25] The Tribunal is therefore satisfied from the evidence that the supply of the vehicle to the purchaser did not take place by competitive tender in the sense that the tender offer made by the purchaser was not made or considered in a rivalous or competitive situation. Accordingly the Tribunal finds as a fact that the vehicle was not sold by competitive tender. The provisions of the Act therefore apply to this transaction because the exemption in s 41(3)(b) of the Act was not satisfied. The Tender Form and the Disclosure Document by which the purchaser appeared to purchase the vehicle by tender and on an “as is where is” basis on 29 November 2010 were both sham documents intended to create the false impression in the purchaser’s mind that she had contracted out of the Act and had no recourse against the trader for the condition of the vehicle. The Tribunal considers the trader in having the purchaser sign the Disclosure Document which purported to exclude all warranties breached s 43(4) of the Act which provides:
“(4) Every supplier and every manufacturer commits an offence against section 13(i) of the Fair Trading Act 1986 who purports to contract out of any provision of this Act other than in accordance with subsection (2) or section 43A.”

[26] The Tribunal in a decision dated 2 November 2010 Comrie v The Auto Group Limited T/A National Vehicle Tenders & Auctions [2010] MVDT 193 stated : “Traders who attempt to exclude the provisions of the Consumer Guarantees Act by claiming that a purchaser was supplied with a vehicle by competitive tender or auction where there is no evidence of a bona fide competitive tender process or a genuine auction having been held prior to the sale of the vehicle should be aware that section 13(i) of the Fair Trading Act 1986 makes it an offence for a trader to make a false or misleading representation concerning the existence, exclusion, or effect of any condition, warranty, guarantee, right or remedy. The Tribunal considers that the trader in this case breached s.13(i) of the Fair Trading Act in representing, following the sale of the vehicle to the purchaser on 4 April 2010 by a negotiation which involved the trader accepting the purchaser’s car as a trade in, that a “tender” had taken place and subsequently attempting to have the purchaser acknowledge that he had bought the vehicle by “tender” when quite clearly he had not done so. It is not possible for a trader to contract out of the statutory guarantees consumers have as of right under the Consumer Guarantees Act unless the sale agreement satisfies section 43(2) of that Act. Traders who use sham tender and auction documentation also risk prosecution by the Commerce Commission.”
The Tribunal’s view is that this is prima facie a breach of s 13(i) of the Fair Trading Act 1986. It is not possible for a trader to contract out of the statutory guarantees consumers have as of right under the Consumer Guarantees Act unless they do so in terms of s 43(2) of the Act and corporate traders who do so risk prosecution and a $200,000 fine.

Issue (b): whether the vehicle was of acceptable quality?

[27] Section 6 of the Act imposes on a supplier (in this case the trader) "a guarantee that the goods are of acceptable quality." Section 2 of the Act defines "goods" as including "vehicles.”

[28] 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.”

[29] 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 has exercised her right to reject the vehicle within a reasonable time.

[30] 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.
[31] The Tribunal notes in considering whether the vehicle complied with the guarantee of acceptable quality in section 6 of the Act that the vehicle sold to the purchaser was a 12 year old Japanese imported Nissan Pulsar which had travelled 123,755kms at the time of sale. It was sold for only $3,500. Within two days of being supplied the vehicle overheated. The Tribunal is satisfied on the evidence produced by the purchaser and that given to the Tribunal by Mr Stevens the Workshop Manager of Oakleigh that the vehicle probably had a cracked cylinder head or a weeping head gasket when it was sold by the trader because the purchaser travelled only 100kms before the vehicle first overheated. The Tribunal’s Assessor has advised the Tribunal that it is entirely possible for a vehicle with a cracked cylinder head or a weeping head gasket to travel 1892kms (which the purchaser appears to have travelled in the vehicle). The Assessor also advised the Tribunal and it accepts that the condition of the weeping/leaking head gasket or cracked cylinder head would more than likely have continued to deteriorate over the distance travelled by the purchaser consistent with the symptoms diagnosed by Oakleigh on 6 January 2011 and the driveability issues experienced by the purchaser. The Tribunal therefore considers that at the time of sale the vehicle was not free from minor defects, fit for the purpose for which motor vehicles are commonly supplied, or as durable as a reasonable consumer would regard as acceptable- even for a $3,500 12 year old Nissan Pulsar which had travelled 123,755kms when it was sold. Accordingly the Tribunal concludes that the vehicle failed to comply with the guarantee of acceptable quality in s 6 of the Act.

Issue (c): whether the failure is one of substantial character in terms of s 21 of the Act?

[32] 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."

[33] The Tribunal does not consider that the vehicle would have been acquired by any reasonable consumer fully acquainted with the fault this vehicle has which requires a sum equivalent to almost one half of the purchase price to be spent to repair the vehicle’s engine;. Accordingly the Tribunal is satisfied the fault with the vehicle is of substantial character within the meaning of s 21(a) of the Act.

Issue (c): Whether the purchaser is entitled to reject the vehicle?

[34] The Tribunal, having found that the fault with the vehicle’s engine is one of substantial character and being satisfied that the purchaser rejected the vehicle in writing to the trader on 25 January 2011 in accordance with s 22(1) of the Act and that such rejection occurred within a reasonable time within the meaning of s 20(2) will order the trader to refund the purchaser with her purchase price in full.

[35] The purchaser sought reimbursement of her repair costs of $554.09 paid to Oakleigh. The Tribunal is not able to order the trader to pay these costs because the purchaser did not comply with s 18 (2) of the Act and require the trader to remedy the overheating fault before she took it to Oakleigh to have that work done. She is therefore now unable to recover the costs she incurred in having Oakleigh try and repair the vehicle’s cooling system and engine. The Tribunal’s filing fee is a cost which is not normally awarded to an applicant. The Tribunal considers that the vehicle cannot be returned or transported back to the trader without significant cost to the purchaser and so it will also order the trader at its expense to collect the vehicle from the purchaser.

Costs

[36] 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 applicant to the Disputes Tribunal, 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 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 the reasonable costs of that other party in connection with the proceedings.”

[37] The Tribunal accepts the evidence of the purchaser that the trader did not attempt to mediate the dispute with the purchaser after her application to the Tribunal was filed or to take part in the discussions referred to in clause 5(1)(b) of the Schedule to the Motor Vehicle Sales Act 2003. Mr Mustchin gave evidence that he telephoned the purchaser on 21 February and told her he did not wish to mediate the dispute. The Tribunal considers that the matter ought reasonably to have been settled before proceeding to a hearing. The Tribunal will therefore order the trader to pay the reasonable costs of the Tribunal’s hearing in Whangarei of $650.

Orders

1. The purchaser’s rejection of the vehicle is upheld.

2. The trader shall refund the purchasers with the purchase price of $3,510 by Bank Cheque immediately.

3. As soon as the trader has paid the purchaser the sum of $3,510 it shall at its expense arrange to uplift the vehicle from the purchaser.

4. Within 21 days of the date of this the trader shall pay to the Crown at the District Court Auckland the sum of $650 being the Tribunal’s hearing costs.

DATED at AUCKLAND this 8th April 2011

C.H Cornwell
Adjudicator