Schaaf v APB Auto Limited - Reference No. MVD 53/12 (Auckland) [2012] NZMVDT 41 (24 May 2012)

Last Updated: 15 June 2012

Decision No. AK /2012

Reference No. MVD 53/12

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN NICOLE SCHAAF

Purchaser

AND APB AUTO LIMITED

Trader

BEFORE THE AUCKLAND MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Auckland on 21 May 2012

APPEARANCES
Ms N Schaaf, the purchaser
Mr GM Stevenson, purchaser’s father and witness
Mr A P Brown, director representing the trader
Mr P Brown, director and witness for the trader
Mr M Hatch, investigator, witness for the trader

DECISION

Background

[1] On 3 September 2011 Ms Schaaf (“the purchaser”) purchased a 2007 Hyundai Santa Fe registration number EFN308 (“the vehicle”) for $25,000 from APB Auto Limited (“the trader”). The vehicle’s odometer at the time of sale was 129,697kms according to the Vehicle Offer and Sale Agreement signed by the parties.

[2] The purchaser wants to reject the vehicle because she says it has a serious fault, namely, a badly damaged engine and turbo charger and that the cost of repairs will exceed the cost price of the vehicle.

[3] The trader says first, that the purchaser has owned and used the vehicle for 7 months and has driven 10,403kms in it and the trader does not consider that it has any responsibility to the purchaser for the vehicle’s current condition. Second, the trader says that the purchaser used the vehicle for the purpose of her business of selling real estate and failed to disclose her intention to do so to the trader at the time she purchased the vehicle so that the guarantees in the Consumer Guarantees Act 1993 should not apply to the transaction because the purchaser bought the vehicle for business purposes. Third, the trader says that the vehicle’s engine might have been damaged by or as a result of an unknown third party working on it at some time from January to April 2012. The trader says it would like to have the opportunity to have the vehicle examined by a diesel technician of its choice.

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

Facts

[5] The purchaser gave evidence that she purchased the vehicle for private use at a time when she was unemployed. The Vehicle Offer and Sale Agreement (“VOSA”) is a standard form printed document which provides spaces for the trader to complete the purchaser’s occupation, employer, home and business phone numbers and bank. However none of that information was included in the copy of the VOSA signed by both parties which was produced to the Tribunal. The VOSA also provides a space for the purchaser to acknowledge that the goods are being acquired for the purpose of the purchaser’s business and that the provisions of the Consumer Guarantees Act 1993 will not apply. That part of the agreement has not been completed by being signed or initialled by the purchaser.

[6] On 15 November 2011 the purchaser says she smelt burning oil and found “a sea” of oil on the intercooler. She notified the trader and Mr Adam Brown went to her home and inspected the intercooler and says he noticed a small crack in the intercooler which he had repaired by North Harbour Service Centre Ltd (“NHSCL”) and also had the vehicle’s battery replaced. The repair invoice dated 18 November 2011 from NHSCL to the trader for $379.62 fails to record the vehicle’s odometer reading at that time.

[7] The vehicle’s immobiliser developed a fault and the trader had the fault repaired by North Harbour Hyundai on 21 November 2011 at a cost of $175. The vehicle’s odometer reading at that time was 133,285kms.

[8] On 24 December 2011 the purchaser was driving the vehicle towards Rotorua when the oil warning light lit up. The purchaser had the vehicle towed to Ngatea and the trader arranged for it to be transported to NHSCL who were unable to find what caused the oil warning light to come on. The vehicle was returned to the purchaser on 10 January 2012 when its odometer reading was 134,963kms. Before they returned the vehicle to the purchaser NHSCL checked the oil pressure and found the pressures were 60psi cold and 45psi hot which is within normal tolerances. NHSCL also changed the oil and oil filter and invoiced the trader $459.77.

[9] On 28 March 2012 the purchaser had Ashfield Automotive Ltd replace the vehicle’s cam belt at a cost of $379.27. The invoice does not record the odometer reading at that time but the Tribunal spoke by teleconference call to Mr Antony Ryan who did the work and he confirmed that the only work he did was to replace the cam belt and he says the sticker he put on the cam belt cover records that and the vehicle’s odometer was 140,000kms at the time.

[10] On 2 April 2012 the vehicle’s oil warning light lit up again and the vehicle was towed to NHSCL who informed the purchaser that the turbo charger had failed and the engine was in a bad state. The purchaser had the vehicle towed to North Harbour Hyundai on 4 April. The vehicle’s odometer was then and remains 140,100kms showing it has been driven a total of 10,403kms in the 7 months the purchaser used the vehicle before its engine failed.

[11] The purchaser produces a report from North Harbour Hyundai dated 12 April 2012 which states:
“Hyundai Santa Fe 5WGa 2.25S EFN308 Odometer 140100
Work Done
Vehicle towed in because of oil light coming on intermittently.

Findings on inspection.

We noticed No1 injector and a locking tab for that injector not secured. We also noticed marks on injector pipe and injector clamp indicating that at some time the injector or injectors had been removed.
On removing No1 injector for inspection we found that when the injectors had been previously removed the copper seals at the bottom of the injector chamber had not been replaced which was evident by the build up of carbon around the base of the injector. This is the cause of the problems.
If these washers are not replace the seal between the injector and the cylinder head is compromised and allows exhaust gases to flow into the rocker cover and mix with the engine oil, over time this causes a carbon build up in the oil which in turn blocks the oil pick up pipe resulting in poor oil pressure. This was confirmed once we removed the engine sump for inspection. There is also evidence of bearing material in the engine sump.
The Turbo Charger relies on oil pressure to operate and because of the lack of pressure the Turbo Charger has also failed.
From what we have seen so far and that fact that you reported the oil light coming on, on two separate occasions it is our opinion that the engine would need to be removed stripped and inspected as we suspect there will be further damage.”

[12] The purchaser also produced three A4 size colour photographs taken by North Harbour Hyundai showing first, an injector removed from the cylinder block, second, the injector in situ showing a build-up of carbon around the base of No1 injector, due to combustion blow by past the injector sealing washer, compared with a clean area around the base of No 2 injector, and third, a photograph of the inside of the sump showing the extent that the contaminated oil had blocked the oil pick up gauze.

[13] The Tribunal, prior to the hearing requested the purchaser to produce the vehicle’s service book showing the service history since new. The purchaser produced this and from it the Tribunal notes that the vehicle was serviced on 5 December 2009 at 88,680kms by Rotorua Hyundai and the next service was on 29 April 2010 at 104,744kms a service interval of 16,064kms. The trader purchaser the vehicle from Custom Fleet NZ on 16 February 2011 at 126,268kms and continued to use the vehicle for a little over a month before it had NHSCL service it on 31 March 2011 when its odometer was 128,113kms so that from the service record it appears that the vehicle was driven 23,369kms between the last service it was given by the previous owner and the service given by the trader. The maximum service interval for a common rail diesel vehicle of this type is 15,000kms or 7,500kms between services in extreme conditions.

[14] The purchaser produced a written quotation from North Harbour Hyundai dated 14 May 2012 to recondition the engine and turbocharger with new parts, labour and GST totalling $32,696.90.

[15] The purchaser sent the trader an email rejecting the vehicle on 16 April 2012.

[16] Mr A Brown for the trader says that the purchaser was introduced to it by a Mr McPheat of U Sell North Shore Ltd who advised the trader that the vehicle was being purchased for personal use by the purchaser. Mr Brown reviewed the faults the vehicle had experienced in November and December 2011 and the steps the trader had taken to remedy them. He says that after the vehicle’s engine failed in April 2012 at 140,100kms (which he notes was 5,137kms after it was inspected and its oil changed by NHSCL on 10 January 2012 at 134,963kms) the trader was provided with a copy of the North Harbour Hyundai report dated 12 April 2012. However he says that the trader is unsure if the purchaser has had any other work done on the vehicle since January 2012 other than the replacement of the cam belt by Ashfield Automotive Ltd on 28 March 2012. The trader wants to have the engine investigated by Alltech Diesel Services. Mr A Brown says that he made an arrangement for the vehicle to be towed from North Harbour Hyundai to Alltech on 13 April 2012 but the purchaser would not agree to the vehicle being taken away from North Harbour Hyundai and in an email dated 16 April 2012, a copy of which he produces the purchaser states she feels the trader has been given enough chances to rectify the vehicle.

[17] Mr A Brown says that in summary, the trader’s position is first, that the vehicle was sold in sound condition. Second, that the minor faults the vehicle has had have been repaired by the trader. Third, the last time the trader’s repairer, NHSCL saw the vehicle in early January 2012 its oil pressure was tested and found to be OK. Fourth, that the purchaser has since had work done on the vehicle by Ashfield Automotive Ltd. Fifth, that the trader has discovered that the vehicle overheated and was fixed under warranty by Rotorua Hyundai on 5 October 2010 at 102,000kms. Finally he says that the costings produced by the purchaser are for a new motor which may not need to be replaced.

[18] Mr P Brown gave evidence that he drove the vehicle during the 7 month period the trader owned it before selling it to the purchaser and that the vehicle did not show any faults.

[19] Mr Hatch the trader’s witness said that he had inspected the injector at North Harbour Hyundai but when he asked the person he spoke to, Mr Botha, the Parts Manager if North Harbour Hyundai would strip the engine Mr Botha told him that they did not strip engines at North Harbour Hyundai but sent them out for such work. Mr Hatch also said that he had met the purchaser and her father in late April 2012 and asked them for permission to strip the engine but that had been refused.

[20] Mr Hatch said that an insurance claim had been lodged by the trader against Rotorua Hyundai in respect of their work done in repairing the vehicle in May 2010 when a stone went through the radiator and caused the engine to overheat. It appears from the correspondence tabled by Mr Hatch that at that time the cylinder head was cracked around two cylinder head injector ports and that the cylinder head was replaced due to overheating as a result of coolant loss. There may have also been a second incident involving the vehicle’s engine overheating in December 2010. Hence there may have been two occasions in the past when major repair work was done on the vehicle before it was purchased by the trader from Custom Fleet NZ on 16 February 2011. Mr Hatch says the question he would like resolved is whether Ashfield Automotive Ltd put oil in the engine when they serviced the vehicle on 28 March 2012. In reply to the Tribunal’s Assessor Mr Hatch acknowledged that he was unable to offer any evidence to show that the purchaser or any repairer instructed by her had caused the damage to the vehicle’s engine.

[21] In the course of replying to the evidence given by the trader the purchaser told the Tribunal that in the three months she had driven the vehicle from mid- January 2012 when it was returned to her by NHSCL and 2 April 2012 when the oil warning light lit up for the second time, that nobody other than Ashfield Automotive Ltd had done any work on the vehicle and that Ashfield Automotive Ltd had not changed the oil but simply replaced the cam belt.

Issues

[22] The facts raise the following issues:
[a] Whether the provisions of the Consumer Guarantee Act 1993 (“the Act”) have been lawfully excluded or should be excluded from applying to the purchaser’s purchase of the vehicle?
[b] If not, whether the vehicle was of “acceptable quality” at the time of sale?
[c] If not, whether the failure is one of substantial character?
[d] If so, whether the purchaser is entitled to reject the vehicle and recover her purchase price?

The Consumers Guarantee Act 1993 (“the Act”)

Issue [a]: Whether the provisions of the Act have been lawfully excluded or should be excluded from applying to the purchaser’s purchase of the vehicle?

[23] Section 43(1) and (2) 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.
(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.”

[24] The Tribunal is satisfied first, on the purchaser’s evidence, that she was unemployed at the time she bought the vehicle and that she probably did not acquire the vehicle for the purposes of a business. There was no evidence offered by the trader that she had held herself out as acquiring the vehicle for the purpose of a business. Second, the purchaser and trader did not make any agreement in writing to exclude the provisions of the Act. The trader claimed that the purchaser had, since purchasing the vehicle, used it for her work as a real estate agent but the trader produced no reliable evidence of that. However, even if the trader had proved that the purchaser had used the vehicle from the day she bought it for the purposes of a business the Tribunal does not consider that it would have any legal basis to exclude the Act from applying to the parties’ transaction. That is because the Tribunal considers s43(2) of the Act is unambiguous; it provides that in order to exclude the statutory guarantees in the Act two requirements must be satisfied; first, an agreement must have been made between the consumer and the supplier that the consumer is acquiring (or holding him or herself out as acquiring) the goods or services for the purposes of a business, and, secondly that agreement must be in writing. The Tribunal indicated in the course of the hearing that its view was that the Act had not been excluded and that remains the Tribunal’s view for the reasons given above.

Issue [b]: Whether the vehicle was of “acceptable quality” at the time of sale?

[25] 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.”

[26] The expression "acceptable quality" is defined in s 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.”

[27] 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.

[28] 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.

[29] The goods sold to the purchaser on 3 September 2011 were a 4 year old $25,000 second hand Hyundai Santa Fe car which had then travelled 129,697kms. Whilst the vehicle showed no indication at that time of any damage to its engine the indicia of a possibly serious fault were present on 24 December 2011 when the oil warning light first lit up on the purchaser’s trip to Rotorua that day. The vehicle had travelled only 5,266kms in the 4 month period that she had used it. The trader’s repairer, NHSCL checked the oil pressure on the vehicle, but unfortunately did not delve deeply enough into the oil light fault to discover that the sump oil pick up at that stage was partially blocked and causing fluctuations in oil pressure. NHSCL changed the oil and filter but unfortunately, in the Tribunal’s Assessor’s experience, it was already too late to prevent the damage which at that time had occurred to the engine. The failure of whoever had last worked on the engine in 2010 to put a small copper washer probably costing no more than $5 into the bottom of the injector chamber in No1 injector had a serious consequence. The absence of the replacement washer allowed exhaust gas, confined by the rocker cover, to mix with the engine oil and cause carbon to build up in the oil which in turn blocked the oil pickup pipe and resulted in spasmodically poor oil pressure (indicated by the oil warning light coming on) which in turn caused the failure of the turbo charger and resultant wear on the bearings. The Tribunal believes that this was a gradual process which might have been avoided if the engine oil had been changed regularly by the previous owner. The service records show that the oil was not changed regularly and indeed it appears the oil was not changed from 29 April 2010 until 31 March 2011 over a period when the vehicle travelled 23,369kms. The Tribunal’s conclusion is that the vehicle was not as durable as a reasonable purchaser would regard as acceptable for a 4 year old $25,000 diesel engine vehicle, even allowing that it had travelled 129,697kms at the time of sale. The Tribunal finds that no reasonable purchaser of such a vehicle would regard it as acceptable to have to replace the turbocharger and the engine in a $25,000 vehicle after only 10,403kms of travel over a 7 month period. Accordingly the Tribunal concludes that the vehicle was not of acceptable quality because it was not reasonably durable and thus did not comply with the guarantee in s6 of the Act.

[30] Mr A Brown raised the possibility that someone had worked on the vehicle between 10 January 2012 and 2 April 2012. The purchaser’s evidence was that nobody apart from Ashfield Automotive Ltd had done any work on the vehicle. Mr Antony Ryan and his father Mr Tony Ryan both gave evidence that the only work Ashfields had done on the vehicle was to replace the cam belt and that they had not changed the oil. There was no evidence provided by the trader that anyone other than Ashfields had or might have worked on the vehicle during that three month period and the Tribunal accepts the purchaser’s evidence that apart from Ashfields changing the cam belt no other work was done during that three month period. Had Ashfields done any other work on the vehicle the Tribunal expects their invoice would have shown a charge for oil and an oil filter. The invoice only contains a charge for the cam belt, labour and GST.

[31] Mr Hatch suggested, in giving evidence, that Ashfields may (without charging for the work on their invoice) have done an oil service on the vehicle and failed to put oil back in the vehicle’s engine. That suggestion was unsupported and the Tribunal, for the reasons given in the previous paragraph, finds it highly unlikely.

Issue [c]: Whether the failure is one of substantial character?

[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 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."

[33] The Tribunal does not think that any reasonable consumer would have acquired the vehicle if they were fully acquainted with the nature and extent of the condition of the failure and in particular of the need within a little more than 10,000kms and 7 months use to replace the turbocharger and most probably replace the engine at a total cost greater than the original cost price of the vehicle. The Tribunal considers, on the basis of the North Shore Hyundai report dated 12 April 2012 and the advice of the Tribunal’s Assessor that the engine failure is one of substantial character and that accordingly the purchaser is entitled to reject the vehicle under s 18(3)(a) of the Act. The Tribunal finds that the vehicle cannot be transported back to the trader without significant cost to the purchaser. It will therefore order the trader to uplift the vehicle from North Harbour Hyundai as soon as it has refunded the purchaser with her purchase price of $25,000 and the $434 inspection and report fee she has been charged by North Harbour Hyundai.

Orders

1. The purchaser’s rejection of the vehicle on 16 April 2012 is upheld and the vehicle is vested in the trader as from that date.

2. The trader will refund the purchaser with the purchase price of $25,000 and the inspection and report fee of $434; a total of $25,434.00.

3. As soon as the trader has refunded the purchaser with the sum of $25,434 the trader shall, at its expense, arrange to uplift the vehicle from North Harbour Hyundai.

DATED at Auckland this 24th May 2012

C.H.Cornwell
Adjudicator