Keil v South Auckland Motors Limited - Reference No. MVD 110/2011 (Auckland) [2011] NZMVDT 89 (30 June 2011)

Last Updated: 24 July 2011

Decision No. AK 75 /2011

Reference No. MVD 110/2011

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN LAURA VERONICA KEIL & WALTER JOSEPH HALL

Purchasers

AND SOUTH AUCKLAND MOTORS LIMITED

Trader

BEFORE THE AUCKLAND MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Auckland on 27 June 2011

APPEARANCES
Mr W J Hall, joint purchaser
Miss L V Keil, joint purchaser
Mr I Cullen, Used Vehicle Sales Manager for the trader

DECISION

Background

[1] On 29 November 2010 Mr Hall and Miss Keil (“the purchasers”) purchased a 2002 Ford Explorer registration number FFS53 (“the vehicle”) for $17,000 from South Auckland Motors Limited (“the trader”). The purchasers financed the entire purchase price of the vehicle by a collateral finance agreement with UDC Finance Limited (“UDC”). The purchasers want to reject the vehicle and obtain a full refund of all the money they have paid to UDC (both principal and interest) because they say the vehicle has a serious fault which the trader has failed to rectify.

[2] The trader acknowledges that it has had four attempts to remedy the fault but believes the vehicle has now been repaired and that the purchasers should uplift it from the trader.

[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 purchasers, after a test drive, agreed to buy the vehicle on 29 November 2010 from the trader for $17,000. The purchasers borrowed the full purchase price and a $450 loan establishment and $5 PPSR fee from UDC over 47 months at an annual interest rate of 15.95%. The vehicle’s odometer was 195,704kms when the purchasers took possession of the vehicle on 30 November 2010.

[5] The purchasers say that on 4 December 2010 the vehicle would not start and a “check engine” warning light came on in the vehicle’s instrument panel. They eventually started the vehicle and on 6 December took it back to the trader who scanned the vehicle’s electronic control unit (“ECU”), found a misfire code which they cleared, test drove the vehicle and the fault did not reoccur. The odometer was then 195,941kms.

[6] On 21 December the “check engine” warning light came back on and the purchasers say the vehicle’s engine began to run rough and misfire. They took the vehicle back to the trader who found water in the spark plug recesses in the cylinder head/s which they cleaned out, road tested and found the vehicle to be ok. The odometer was then 196,492kms.

[7] On 7 February 2011 the vehicle’s engine began to run and idle rough. The purchasers took the vehicle back to the trader who scanned the ECU and found a misfire fault code in cylinder #4. The trader carried out a water test and found water leaking down from a broken cowl panel. They removed the cowl and fitted a second hand one and tested the vehicle which they found to be ok. The odometer was then 198,057kms. As a goodwill gesture the trader carried out a free lube, oil and filter change for the purchasers.

[8] Shortly before Easter the purchasers experienced a reoccurrence of the same problem and on 26 April the purchasers went to discuss the ongoing faults with the vehicle with Mr Cullen the trader’s used vehicle sales manager. Mr Cullen offered to replace the vehicle for another Ford Explorer but the price of that car would have involved the purchasers borrowing a further $5,000 which they were not prepared to do. On 30 April the purchasers informed the trader that they did not want to exchange the vehicle for another and also that they no longer wished to keep the vehicle. On 2 May 2011 the purchasers sent the trader an email rejecting the vehicle and asking for a refund of all the money that they had paid to UDC. The purchasers say they owe UDC $15,764.15 as at 23 June 2011 and that they have paid UDC twenty nine (29) payments each of $113.26 or $3,284.54 in total as at 22 June 2011. They seek a full refund of that sum and also $147.80 paid to register the vehicle and $313.47 they claim to have paid for insurance cover on the vehicle.

[9] The purchasers also say that they were misled by the trader who failed to disclose to them at the time of the sale of the vehicle that it had spent $1,239.08 in replacing the timing chains and tensioners in the vehicle on 22 November 2010 shortly before they bought the vehicle. The purchasers say they did not ask the trader if it had done any work on the vehicle before they bought it. The Tribunal does not consider that there was any duty on the trader to disclose that the timing chains and tensioners had been replaced nor does the Tribunal think there was anything misleading or deceptive about the trader’s conduct in failing to disclose that it had done what the Tribunal considers to be reasonably routine work in replacing the timing chains and associated tensioners on an engine which had travelled 195,000kms.

[10] Mr Cullen for the trader says the course of events as described by the purchasers is not in dispute and he acknowledges that the purchasers had experienced what he described as a “particularly frustrating problem” which took the trader four attempts to fix. The trader had difficulty in finding what caused the vehicle to misfire. However Mr Cullen says the purchasers were provided with a loan car on each occasion they brought the vehicle back to be fixed and the purchasers have had 5 months and 4,244kms of use from the vehicle.

Issues

[11] The facts raise the following issues:
[a] Whether the vehicle is of acceptable quality within the meaning of s7 of the Consumer Guarantees Act 1993?
[b] If not, have the purchasers given the trader a reasonable time to remedy the fault?
[c] If so, are the purchasers entitled to reject the vehicle?
[d] If so is the trader liable to pay the purchasers the interest on their loan, their registration and insurance costs?

The Consumer Guarantees Act 1993 (“the Act”)

[12] 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.”

[13] 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.”

[14] 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.

[15] 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 s19 of the Act. If the failure to comply with the guarantee of acceptable quality 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.
Issue (a): Whether the vehicle is of acceptable quality within the meaning of s7 of the Consumer Guarantees Act 1993?

[16] The vehicle supplied to the purchasers was, at the time of sale on 30 November 2010 an 8 year old New Zealand new Ford Explorer 4.6 V8 which had travelled 195,704kms and was sold for $17,000. Within a few days of buying the vehicle its engine warning light came on, it misfired and the purchasers had difficulty starting it. The purchasers gave evidence, which was not challenged by the trader, that they experienced intermittent rough idling and rough running of the vehicle’s engine over the following four months and on four occasions they took the vehicle back to the trader to have it repaired. The Tribunal does not consider that a reasonable consumer who had paid $17,000 for an 8 year old moderately high mileage vehicle would regard the vehicle as being of acceptable quality because of the problems associated with the intermittent rough running and misfiring this vehicle has given the purchasers. The Tribunal does not consider that the vehicle was either free of minor defects when it was supplied to the purchasers or that it has been as durable as a reasonable consumer would regard as acceptable. The Tribunal therefore finds the vehicle did not comply with the guarantee of acceptable quality in s6 of the Act.

[17] 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 s21 has ramifications for the remedies available to the purchaser.

[18] Section 21 provides:
“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."

[19] The Tribunal does not consider there was sufficient evidence provided by the purchasers to prove that the fault with the vehicle amounted to a failure of substantial character.

Issue (b): Have the purchasers given the trader a reasonable time to remedy the fault?

[20] Section 18 of the Act sets out the remedies available to the purchasers 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 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."

[21] Where the failure is not one of substantial character the Act requires a purchaser to give the trader a reasonable time within which to remedy the defect. In this application the purchasers gave the trader four opportunities over a period from 6 December 2010 until the end of April 2011 to rectify the problem with the vehicle. Miss Keil in giving evidence to the Tribunal said that if the trader had fixed the vehicle, even on the third time that the purchasers returned it, the purchasers would not have been before the Tribunal.

[22] The Tribunal finds that the purchasers certainly required the trader to remedy the defect with the engine and gave the trader a reasonable time within which to do so but the trader failed to remedy the fault within a reasonable time.

Issue (c): Are the purchasers entitled to reject the vehicle?

[23] The Tribunal is satisfied for the reasons given in paragraph 22 (above) that the purchasers are now entitled to reject the vehicle under s18(2)(b)(ii) of the Act. The Tribunal will order the purchaser’s rejection of the vehicle is upheld with effect from 2 May 2011 and will, pursuant to s89(2) of the Motor Vehicle Sales Act 2003, vest the collateral UDC finance agreement in the trader from that date.

Issue (d): is the trader liable to pay the purchasers the interest on their loan, their registration and insurance costs?

[24] The Tribunal will order the trader to refund the purchasers with the capital component of all payments they have made to UDC from the date of sale until 2 May 2011 when they rejected the vehicle in accordance with s22(1) of the Act and will also order the trader to refund to the purchasers the total amount they have paid to UDC under the collateral credit agreement from 2 May 2011. The Tribunal considers that it is unable, as the purchasers requested it to do, to order the trader to make a full refund of all the payments (both interest and principal) under the UDC agreement because the purchasers’ contract to borrow the purchase price from UDC is a separate contract they made with UDC to which the trader is not a party and, in equity, the trader ought not to be responsible for the interests costs incurred by the purchasers to borrow money to buy the vehicle. The Tribunal also regards the cost of motor vehicle licensing (registration) of $147.80 claimed by the purchasers to be a normal cost of owning a vehicle as too are the premiums paid by the purchasers for insurance of their interest in the vehicle. Hence the Tribunal will not order the trader to refund the purchasers with those costs.

Orders

1. The purchasers’ rejection of the vehicle is upheld.

2. The collateral finance agreement between the purchasers and UDC dated 29 November 2010 shall, with effect from 2 May 2011, vest in the trader.

3. The trader shall refund to the purchasers the following sums:
a) the capital component of all payments made by the purchasers to UDC from 29 November 2010 to 1 May 2011; and
b) the total amount of all payments made by the purchasers to UDC under the collateral credit agreement from 2 May 2011 to the date of this order. If there is any dispute between the parties as to the amount repayable to the purchasers in accordance with this order, leave is granted to either party to refer that matter back to the Tribunal for determination.

DATED at Auckland this 30th day of June 2011.

C.H.Cornwell
Adjudicator