L M Automotive Limited v Eastland Ssangyong Limited - Reference No. MVD 162/12 (Auckland) [2012] NZMVDT 115 (16 November 2012)

Last Updated: 4 January 2013

Decision No. AK 92/2012

Reference No. MVD 162/12

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN L M AUTOMOTIVE LIMITED

Purchaser

AND EASTLAND SSANGYONG LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at NAPIER on 14 November 2012

APPEARANCES

Mr L B McClunie, director representing the purchaser

Mr M Sinclair, director representing the trader

DECISION

Background

[1] On 11 July 2012 L M Automotive Limited bought a 2003 Mazda Bounty truck for $15,000 sight unseen from Eastland Ssangyong Limited. Shortly after purchasing the vehicle Automotive found its engine was using water and testing of the engine block showed it was not economic to repair the engine. Automotive required Eastland to pay its costs of replacing the vehicle’s engine but Eastland refused. Eastland have since offered to pay one half of the cost of a replacement engine, which Automotive has rejected. Automotive seeks only to recover the cost it incurred in buying a second hand replacement engine of $2,639.25 and the cost of pressure testing the cylinder head of $120; a total of $2,759.25.

[2] Eastland says that Automotive is a “trade garage” and it sold the vehicle to Automotive on an “as is” basis. Mr Sinclair representing Eastland told the Tribunal at the commencement of the hearing that Eastland are now willing to contribute towards the cost of the replacement engine but that he considers that Automotive will get betterment from the replacement motor and some allowance should be made for that.

[3] Prior to the commencement of the hearing the Tribunal appointed Mr Gregory 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 Mr Gregory assisted the adjudicator but the application was determined by the adjudicator alone.

The Issues
[4] The issues raised by this application are:
[a] Whether Eastland excluded the Consumer Guarantees Act 1993 (“the Act”) by supplying to Automotive as a “trade garage” and by purporting to sell the vehicle on an “as is” basis?
[b] If the Act applies, did the vehicle comply with the statutory guarantee of acceptable quality at the time of sale?
[c] If not, what amount is Automotive able to recover from Eastland for the engine repairs?

Issue [a]: Whether Eastland excluded the Act by supplying Automotive as a “trade garage” and by purporting to sell the vehicle on an “as is” basis?

[5] The Vehicle Offer and Sale Agreement signed by the parties contained a special condition which says: “As is with current WOF”. Eastland say that Automotive is a company and a “trade garage” and that it sold the vehicle to Automotive “as is”. The Tribunal understands that Eastland understands that the sale to a company who is a “trade garage” and by expressing the sale to be “as is” excludes the statutory guarantees a consumer has under the Act.

The relevant law
[6] Section 43(1) of the Act provides that, with limited exceptions which are not relevant to the facts of this application, it is not possible to contract out of the provisions of the Act. Section 43(2)(a) contains an exception; it provides that the provisions of the Act may be excluded where the supplier and a consumer who is acquiring goods or services for the purposes of the consumer’s business agree in writing. The relevant provision is 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.
(2) Nothing in subsection (1) shall apply to an agreement made between the supplier and a consumer who acquires, or holds himself or herself out as acquiring, under the agreement, goods or services for the purposes of a business provided either—
(a) that the agreement is in writing; or
(b) where it is not possible to conclude an agreement in writing because the supplier is unaware of the acceptance by the consumer of the supplier’s offer at the time of acceptance, that the supplier has clearly displayed the terms and conditions of the service at every place of the supplier’s business.”

Application of law to facts
[7] Automotive certainly acquired the vehicle for the purpose of its business but it did not agree in writing with Eastland to exclude the provisions of the Act in the manner set out in s43(2) of the Act.

[8] Prior to the hearing Eastland sent the Tribunal the terms and conditions upon which it claimed to have made the sale. Clause 8.1 of those conditions specifically provides that in the case of sales of second hand vehicles the Act applies. It states:
“8. WARRANTY CONDITIONS RELATING TO SECONDHAND MOTOR VEHICLES

8.1 Consumer Guarantees Act 1993: The statutory warranties given in the Consumer Guarantees Act 1993 applies (sic) in this contract”.

[9] Eastland reproduced a different set of terms and conditions on the reverse of the Consumer Information Notice. Clause 8 of those conditions which purports to exclude the provisions of the Act when the vehicle is acquired for the purposes of a business fails to refer to the essential requirement in s43 (2)(a) of the Act; that any such agreement must be in writing. Automotive did not agree in writing to exclude the provisions of the Act and therefore the Act applies.

[10] The Tribunal also notes that Eastland did not reproduce the information required to be included on the back of the Consumer Information Notice in breach of Consumer Information Standards (Used Motor Vehicles) Regulations 2008, reg 7 which prescribes the information that is required to appear on the back of a consumer information notice. It is an offence under the Fair Trading Act 1986 s 40 to supply a vehicle which does not comply with the standard.

[11] Section 43(4) of the Act makes it an offence against the Fair Trading Act 1986 s 13(i) for a supplier (here Eastland) to “purport to contract out of any provision in the [Consumer Guarantees Act] other than in accordance with s 43(2) or 43A”. This offence is punishable by a fine of up to $200,000. The Tribunal finds that in attempting to sell the vehicle to Automotive “as is” Eastland were purporting to contract out of the Act. The Tribunal will therefore forward a copy of this decision to the Commerce Commission who is the body responsible for enforcing the Fair Trading Act 1986.

[12] The Tribunal concludes that Eastland did not lawfully exclude the Act by purporting to sell the vehicle on an “as is” basis nor did Eastland comply with s43(2) of the Act. Accordingly the provisions of the Act apply to this transaction.

Issue [b]: Did the vehicle comply with the statutory guarantee of acceptable quality at the time of sale?

[13] Section 6 of the Act imposes on a supplier "a guarantee that the goods are of acceptable quality." Section 2 defines "goods" as including "vehicles.”

[14] The expression "acceptable quality" is defined in s 7(1) of the Act 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.

[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 is not of acceptable quality, the next point to consider is whether the purchaser required the trader to remedy any faults within a reasonable time in accordance with s 19 of the Act. If the failure to comply with the guarantee of acceptable quality is of a “substantial character” within the meaning of s 21, or if the faults cannot be remedied, the Tribunal is directed to ask whether the purchaser has exercised his/her right to reject the vehicle within a reasonable time.
[16] The vehicle in this case is a 9 year old Mazda Bounty double cab 4X4 turbo diesel truck which had travelled 234,000kms when Automotive bought it for $15,000. Eastland described the vehicle in its advertisement on Autobase as “really tidy for the kms” and sharing a reputation of being a great reliable workhorse, this one has been well maintained and still has lots of life in it.”

[17] Mr McClunie for Automotive, who appeared to the Tribunal to be a reliable if somewhat naive witness gave evidence that he collected the vehicle on 14 July 2012. He says he noticed that the alloy wheels that Eastland had promised were on the vehicle had been replaced. He did not mention that to Eastland at the time. He says he took the vehicle back to his workshop in Te Awamutu and checked it over. The vehicle had not been well maintained because the fuel filter was filthy and the vehicle required more than a litre of water to be added to top up its cooling system. Mr McClunie says he decided to monitor the vehicle’s use of water over the next fortnight. After travelling a further 420kms in the vehicle during July he says it required another litre of water. He contacted Mr Hearn, Eastland’s Sales Manager who asked him, at Eastland’s cost, to remove the cylinder head and have it crack tested.

[18] Mr McClunie says he did not have time to remove the cylinder head until September but when he removed the head it appeared to him that it had been removed previously because he found “Copper Coat” had been applied to the head bolts. The cylinder head was pressure tested by Waikato Engine Reconditioners Ltd who in a report dated 18 September 2012 say the head leaked pressure testing fluid from No 3 cylinder and the head was condemned. On 6 September Waikato Engine Reconditioners measured the wear on the vehicle’s engine block and found number 3 cylinder had .014˝ wear from standard size; well past the maximum wear limit. The other three cylinders had .003˝ and .004˝ wear; consistent with the age and mileage of the vehicle’s engine.

[19] The Tribunal finds on the advice of its Assessor and in reliance on the contents of Waikato Engine Reconditioners’ report that the vehicle’s engine was worn beyond further economic use. It therefore finds that the vehicle was neither free of minor faults at the time of supply nor as durable as a reasonable purchaser paying $15,000 for a 9 year old Mazda Bounty with this odometer reading would regard as acceptable, and particularly in view of Eastland’s representation that there was “lots of life” in the vehicle. It therefore concludes that the vehicle did not comply with the guarantee of acceptable quality in s 6 of the Act at the time of sale.

Issue [c]: What amount is Automotive able to recover from Eastland for the engine repairs?

[20] Section 18 of the Act provides that where a failure to comply with a guarantee can be remedied the consumer must require the supplier to do so within a reasonable time and if the supplier refuses or neglects or fails to do so the consumer may then have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in having the failure remedied, or the consumer may reject the goods.

[21] The Tribunal notes from the evidence given by Automotive in the correspondence with Eastland that it required Eastland to repair the vehicle’s engine. The parties agreed that replacing the engine with another second hand engine was the most cost effective way of curing the failure. However Eastland took the view, unreasonably in the Tribunal’s opinion, that Automotive should pay one half of the cost of the replacement engine.

[22] The Tribunal finds that Automotive are entitled to recover the cost of crack testing the cylinder head of $120, because it was necessary and also because Eastland promised to pay for that testing, as well as the full cost of the replacement engine of $2,639.25. The Tribunal also believes that Eastland should be reimbursing Automotive for its labour costs of 16 hours at $65 per hour (less a discount of 10% for trade rate work); a further $1,040 and the cost to Automotive of engine oil, an oil filter, antifreeze and freight; of another $250. However in the course of the hearing Mr McClunie said he would be satisfied with Automotive being reimbursed with the cost of the cylinder head testing and the replacement engine. Therefore the Tribunal has not included the cost of labour and consumables in its order.

[23] The Tribunal does not accept Eastland’s claim that Automotive will get betterment from having to replace the vehicle’s faulty engine with another second hand engine. The Tribunal’s reasons are first, because the replacement engine may prove to be no more reliable than the engine in the vehicle supplied by Eastland. Second, because the replacement engine would have no service history. Third, because the mileage the replacement engine had travelled is usually unreliable.

Order
Eastland Ssangyong Limited shall pay L M Automotive Limited $2,759.25 immediately.

DATED at AUCKLAND this 16th November 2012

C.H.Cornwell
Adjudicator