Li v R & Y Mead Limited t/a Topcars Direct - Reference No. MVD 145/12 (Auckland) [2012] NZMVDT 130 (3 December 2012)

Last Updated: 15 January 2013

Under Appeal

Decision No. AK 103/2012

Reference No. MVD 145/12

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN JIANFEI LI

Purchaser

AND R & Y MEAD LIMITED T/A TOPCARS DIRECT

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr D Clough, Assessor

HEARING at Hamilton on 29 November 2012

APPEARANCES

Mr J Li, the purchaser

Mr A B Johnson, director of the trader
Mr R T Hudson, sales manager, witness for the trader

DECISION

Background

[1] On 7 July 2012 Mr Li of Wellington bought a 2005 Hyundai Sonata vehicle from R & Y Mead Limited trading as Topcars Direct in Hamilton for $10,990. Mr Li has rejected the vehicle because he says it fails to comply with the guarantee of acceptable quality and that the failure is of substantial character. He wants the Tribunal to order Topcars to refund the purchase price.

[2] Topcars say that they are and have always been willing to repair the vehicle at their cost but that Mr Li did not give their repairer sufficient time in which to repair the vehicle’s fault before taking the vehicle away. Had he allowed their repairer to do so the vehicle would have been fixed.

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

The Issues:
[4] The issues raised by this application are:
[a] Whether the vehicle is of acceptable quality?
[b] If not whether the failure is one of substantial character?
[c] Is Mr Li entitled to a refund of his purchase price?

Issue [a]: Whether the vehicle is of acceptable quality?

[5] Section 6 of the Consumer Guarantees Act 1993 (“the Act”) imposes on a supplier "a guarantee that the goods are of acceptable quality." Section 2 defines "goods” as including "vehicles.”

[6] 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.

[7] 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.

[8] The vehicle in this case is a 2005 New Zealand new Hyundai Sonata which had travelled 100,135kms at the time it was sold to Mr Li for $10,990. On 7 July Mr Li travelled to Hamilton to test drive the vehicle. The vehicle’s engine warning light came on 15 minutes into the pre-purchase test drive. Mr Li drew that fault to Topcars’ attention. He and Topcars’ representative then took the vehicle to Waikato Motor Group, the Hyundai franchisee in Hamilton who did a quick check on the vehicle. However as it was about noon on a Saturday they asked Topcars to bring the vehicle back the following Monday so that the fault could be fixed.

[9] Mr Li then drove the vehicle back to Topcars’ premises where he agreed to purchase it subject to Topcars having the cause of the engine warning light fixed. He withheld $5,640 of the purchase price to ensure the vehicle was fixed. Mr Li agreed to buy a 24 month Protecta mechanical breakdown insurance policy for the vehicle which cost him $700. On 13 July Topcars told him the vehicle was fixed. Mr Li also telephoned Waikato Motor Group and confirmed with its service manager that the vehicle had been fixed. Mr Li paid the balance of the purchase price on 16 July. The vehicle was then transported to Wellington and Mr Li collected it on 18 July. When Mr Li collected the vehicle ha says it drove well and its engine warning light was not on.

[10] Waikato Motor Group had, according to an email sent to Mr Li by Jared Cooney, its service advisor on 2 August 2012, carried out a diagnostic code scan on the vehicle on 23 April 2012. That scan showed there was a fault code with the output speed sensor on the automatic transmission. The wiring and voltage were both checked and found to be acceptable but the speed sensor was out of specification. When the vehicle was seen again on 13 July Waikato Motor Group had, according to Mr Cooney’s email, checked fault codes and once again found a fault with the output speed sensor. They checked the wiring to the sensors, cleaned and secured the plugs and road tested the vehicle. They charged Topcars $146.63 for labour on 13 July.

[11] On 1 August 2012 the engine warning light came on. Mr Li telephoned Topcars who suggested he take it to a Hyundai franchisee in Wellington. Brendan Foot Motors Ltd in Lower Hutt tested the vehicle and found fault code (PO722 A/T speed sensor output) had been stored in the vehicle’s computer as well as some history codes relating to low battery voltage. They cleared the fault codes, road tested the vehicle and their invoice dated 9 August which records the odometer as 101,975kms notes “may require further time to diagnose”. The vehicle was also scanned by Brendan Foot with a flight recorder but they were unable to fault the vehicle at that time.

[12] Mr Li says the engine warning light came on again and the engine cut out suddenly when he was attempting to park the vehicle on 12 August. He restarted the vehicle and drove it to his home where, for the second time, the engine cut out. The vehicle’s engine warning light remained lit.

[13] Mr Li, says he was fearful that the vehicle’s engine might cut out when it was being driven on the motorway by his pregnant wife. On 13 August he sent Topcars an email rejecting the vehicle saying it had a speed sensor problem and potential electrical problems which caused the ignition to cut off when parking the vehicle or driving it at low speed. His email says he had given Topcars a second chance to get the problem fixed but the problem had returned on 12 August.

[14] Mr Hudson, Topcars sales manager contacted, Mr Li and asked him to take the vehicle to Porirua Motors who are specialists in repairing Hyundai cars. Mr Hudson also sent an email to Mr Li on 15 August in which, after confirming details of the address and contact person at Porirua Motors he states:
“If Porirua Motors are unsuccessful in fixing the problem, by giving them enough time to check, fit & recheck in regard to this fault code “PO722 A/T speed sensor output” which was the original code at the time of purchase, we will be happy to refund you the full $11,690 for the vehicle purchase which includes the cost of the 2yr Protecta Insurance.”

[15] Mr Li took the vehicle to Porirua Motors on 17 August as he had been asked to do by Mr Hudson. He was supplied with a loan car. Porirua Motors had the vehicle for one week until 24 August when Mr Richard Pither from Porirua Motors told Mr Li that Porirua Motors had identified that there was nothing wrong with the input and output speed sensors on the transmission. Mr Pither told Mr Li, and confirmed his advice in an email he sent Mr Li on 25 August that :
“What is happening is the ECU is seeing a incorrect vehicle speed for a very short time. For example on one test the vehicle was stationery but vehicle speed was recorded as 225kph! The ECU logs a output speed sensor fault because this sensor is referenced against the vehicle speed and when there is a difference it sees it as a fault. Also because the ECU thinks the vehicle is travelling fast it stops controlling the idle, hence the engine cuts out. There is a vehicle speed sensor on the car but this checks ok as this just drives the speedo on the dash which read correctly when the vehicle faults. The vehicle speed data we are talking about is measured by the right front ABS wheel speed sensor and transmitted through the ABS module to the ECU. In our testing we have got to the point of believing the fault is either the ABS module or the ECU (or a wiring fault between, however this is unlikely). The difficulty is the fault is very intermittent and we need to be totally sure before very expensive components are replaced. A new ECU could be over $2000, the ABS module even more. The last 2 days the fault has not occurred which is very frustrating for everyone.”

[16] Mr Li then sent Topcars another email on 27 August rejecting the vehicle and claiming the fault was serious. His rejection email states that the cost of repair will be more than 20-30% of the purchase value of the vehicle.

[17] Topcars’ director, Mr Johnson, says that Mr Li removed the vehicle from Porirua Motors on 24 August before they had time to remove the ECU and ABS modules from the vehicle. They needed to do so to get the part number of each item so as to obtain prices for new or second hand parts. He says that Mr Li thereby frustrated Topcars attempt to rectify the fault. Mr Johnson says that Topcars have always agreed to pay to repair the vehicle and made prompt reimbursement to Mr Li of the amounts he incurred with Brendan Foot Motors Ltd as well as paying his airfare back to Wellington on 7 July when they kept the vehicle so that the fault could be repaired by Waikato Motor Group. Mr Johnson also says that one week’s investigation of the fault by Porirua Motors was insufficient time to fix an intermittent fault such as that which was present in the vehicle; that Mr Li should have allowed Porirua Motors a further two weeks to fix the fault.

[18] The Tribunal finds, first, that at the time of sale this 7 year old $10,990 vehicle had a fault. The fault was probably the same fault which Waikato Motor Group say they investigated in the vehicle in April 2012 and, at that time failed to rectify. The fault caused the engine warning light to come on when Mr Li test drove the vehicle. Topcars had Waikato Motor Group try and fix it on 13 July but they were unsuccessful. The fault was still present on 1 August after the vehicle was supplied to Mr Li. It’s presence was identified again but not cured by Brendan Foot Motors Ltd on 9 August. It presented yet again on 12 August and on that occasion caused the vehicle’s ignition to cut out causing a loss of power. Mr Li was, understandably, concerned about the safety aspects this loss of power could cause. He notified Topcars that he was rejecting the vehicle on 13 August. He was then persuaded by Mr Hudson that he should allow Topcars’ repairer, Porirua Motors to try and rectify the fault. Topcars have never denied that the vehicle had a fault and, to its credit, it has attempted to have it fixed and has paid the costs associated with getting it fixed. However, the issue the Tribunal has to decide is whether the vehicle was of acceptable quality at the time of sale. The Tribunal is in no doubt. The vehicle most certainly did not comply with the guarantee of acceptable quality because the fault was present at the time of sale and the Tribunal accepts, on the basis of Porirua Motors’s advice, is most probably a fault in the ECU or the ABS module.

Issue [b]: whether the failure is one of substantial character?

[19] 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 s18(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."

[20] The evidence on which Mr Li relied to prove that the failure was of substantial character was the email Mr Richard Pither of Porirua Motors sent to him on 25 August 2012. That email stated that the cost of a new ECU could be over $2000, the ABS module even more. The Tribunal considers that Mr Li was entitled to take from that email that the cost of repairing the vehicle could be in excess of 18% of the cost price of the vehicle. The second finding the Tribunal makes is that a reasonable consumer would not have acquired the vehicle if he or she were aware that it required repairs costing almost one fifth of its value. The Tribunal therefore finds that the vehicle’s failure to comply with the guarantee of acceptable quality was one of substantial character in terms of s 21(a) of the Act.

Issue [c]: Is Mr Li entitled to a refund of his purchase price?

[21] Mr Johnson argued that Mr Li did not allow Topcars’ repairer sufficient time to rectify the vehicle’s fault. Mr Johnson argued that Porirua Motors only had one week to work in finding the fault and that it was more reasonable that they be given about three weeks in which to fix an intermittent electronic fault. The Tribunal accepts that electronic faults in vehicles may need more time to identify and rectify them, than, say, a mechanical fault affecting a vehicle’s brakes. The Tribunal therefore might have had some sympathy with Mr Johnson’s argument if the fault with the vehicle was not a failure of substantial character. The flaw in Mr Johnson’s argument, however, is that the obligation that a consumer (here Mr Li) has to allow a supplier (here Topcars) a reasonable time to rectify a fault only exists where the failure is one which can be remedied or is not one of substantial character. In this application the Tribunal has found the failure was one of substantial character and so there was no need for Mr Li to allow Topcars any time to fix it.

[22] The evidence shows that Mr Li rejected the vehicle in writing and gave his reasons for doing so in his email of 27 August 2012 sent to Topcars. He thus complied with s22(1) of the Act. He rejected the vehicle within a reasonable time of the time of supply after becoming aware, through taking the vehicle to Topcars’ nominated repairer, Porirua Motors, of the cause of the fault and the likely cost to rectify it. The Tribunal therefore concludes :
a) Mr Li is entitled to a full refund of his purchase price; and
b) The Tribunal also considers that Mr Li is entitled to a refund of the $700 he paid to the trader for the Protecta mechanical breakdown policy (less any amount refunded to him by Protecta on the cancellation of the policy which he should do immediately); and
c) Mr Li is entitled to be reimbursed $464.03 he paid to Porirua Motors on 30 August 2012.
[23] The vehicle cannot be transported back to Topcars in Hamilton without significant cost to Mr Li so that Topcars will be ordered, at its expense, to collect the vehicle from Mr Li in Wellington.

Orders

1. Mr Li’s rejection of the vehicle on 27 August 2012 is upheld.

2. R&Y Mead Limited trading as Topcars Direct shall pay Mr Li $12,154.03 calculated as follows:
a) Refund purchase price $10,990.00
b) Refund Protecta premium
(less any amount refunded by Protecta to Mr Li) $700.00
c) Refund repair costs paid to Porirua Motors $464.03
TOTAL $12,154.03

3. When R & Y Mead Ltd have paid Mr Li $12,154.03 it shall, at its expense, arrange to collect the vehicle from Mr Li’s home at 25 Rangatira Road, Tawa, Wellington.

DATED at AUCKLAND this 3rd December 2012

C.H.Cornwell
Adjudicator