Van Der Sman v HMC Kapiti Limited - Reference No. MVD 74/12 (Wellington) [2012] NZMVDT 70 (17 July 2012)

Last Updated: 27 August 2012

Decision No. WN 10/2012

Reference No. MVD 74/12

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN ANGELA AND PETER VAN DER SMAN

Purchasers

AND HMC KAPITI LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

N J Wills - Barrister, Adjudicator
N Barrett - Assessor

HEARING at Wellington on 27 June 2012

APPEARANCES

Angela Van der Sman, purchaser
Peter Van der Sman, purchaser
David Liddle, Branch Manager for the trader
Kelly McKay, Service Manager for the trader

DECISION

Background

[1] On 22 June 2011 Angela and Peter Van der Sman (the purchasers) purchased a 2011 Holden Captiva (registration FYE 277) (the car) for $58,515 from HMC Kapiti Limited trading as HMC Kapiti (the trader). The car broke-down and was taken to the trader for repair. Before the repair was completed the purchasers rejected the car and asked for a refund of the purchase price.

[2] The trader does not accept that the purchasers are entitled to reject the car.

[3] Prior to the commencement of the hearing the tribunal appointed Mr Barrett 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 appointed pursuant to the Motor Vehicle Sales Act 2003 Mr Barrett assisted the adjudicator but the application was determined by the adjudicator alone.

Summary

[4] The break-down was a substantial failure in the guarantee of acceptable quality under the Consumer Guarantees Act 1993.

[5] The purchasers are therefore entitled to reject the car and obtain a refund of the purchase price under section 18(3) of the Consumer Guarantees Act 1993.

[6] The tribunal’s findings of fact and reasoning are set out below.

Facts

[7] The purchasers bought the car from the trader on 22 June 2011 for $58,515. The car was new – it had an odometer reading of 30 kilometres. Shortly after purchasing the car, the engine warning light illuminated. The purchasers took the car to the trader. The car’s computer was scanned and no fault found. The trader reset the engine light.

[8] In March 2012 the purchasers noticed the engine was “hunting” (ie the engine revs were surging) when travelling at around 100 kilometres per hour. The problem went away and the purchasers noted the issue so they could mention it at the next service.

[9] On 2 April 2012 the car broke down. Mr Van der Sman was driving home from work, he started the car normally but after a few seconds the car stopped and he was unable to start it. The car was towed to the trader and the next day the purchasers were provided with a courtesy car. At the time of the breakdown the car’s odometer reading was 26,280 kilometres.

[10] From the purchasers’ perspective, time passed (around three weeks), the car was not fixed and the purchasers had not been advised what was wrong with the car or what was needed to fix it. The purchasers decided to reject the car and did so by email on 26 April 2012. Their grounds were that the trader had had the car for three weeks and not repaired it. The purchasers also advised that they did not consider the problem to be “minor”.

[11] The trader does not dispute that the car was not fixed on 26 April 2012 or that the purchasers had not been told what was wrong with the car and what would be required to fix it. The trader does not accept that the time that elapsed between 2 April and 26 April was unreasonable. In essence, the trader says that they were unable to progress repairs very far in the first week of April because it was the week leading up to Easter, they were fully booked and short-staffed. The Easter break was from 6 to 9 April and the trader was advised by Mr Van der Sman that there was no urgency to the repair because the purchasers were going away on holiday from 12 April for ten days.

[12] While the Van der Smans were away on holiday, the trader carried out some diagnostic checks and formed the preliminary view that there was a problem with either the fuel injectors or fuel pump. A fuel flow tester was required to formalise that diagnosis but the trader did not have that piece of equipment. The trader took advice from Holden and it was suggested that a fuel contamination test be undertaken (this being a common cause of fuel injector/fuel pump problems. On April 17 a basic test for fuel contamination was carried out and proved negative.

[13] Notwithstanding this negative result, the same day Ms McKay left a message on the purchasers’ answer-phone (Mr Van der Sman did not have a mobile phone) asking Mr Van der Sman to confirm whether the hunting problem started after he had re-fueled the car. The intent was that the message would be waiting for the purchasers when they arrived back home from their holiday on 22nd.

[14] The tribunal was told that trader wanted to know the answer to this question because a positive response would have indicated a likelihood of fuel contamination. This was not explained in the message, nor was the fact that the trader was now reluctant to carry out any further work until it could be determined who was responsible for the problem. Ms McKay told the tribunal that if the problem was caused by fuel contamination the trader wanted to obtain authorisation from the purchasers for any necessary work. This was also not explained in the message.

[15] Notwithstanding the trader’s evidence of reluctance to carry out any further work, on April 18 an actuator test was carried out on the manifold and a fault was detected which was remedied by repairing the vacuum actuator. This did not fix the original problem so on April 20 the trader made arrangements to obtain an injector flow tester from another dealer. This tester was received on April 23. Mr Liddle told the tribunal that this tester was now a part of the trader’s standard equipment (for a cost of $360).

[16] On 23 April Mr Van der Sman called the trader and later that day came into the trader’s premises. He told the trader that the fault had not occurred straight after he had fuelled the car. Mr Liddle told the tribunal that this indicated to him that it was not a fuel contamination problem and so he concluded it was a problem that should be remedied under the warranty. He did not tell Mr Van der Sman of the trader’s concern that the problem may have been caused by fuel contamination.

[17] When he visited the yard that day, Mr Van der Sman told Ms McKay that he was concerned about the amount of time taken to fix the problem and that he had lost confidence in the car. Ms McKay told Mr Van der Sman that the trader was committed to fixing the problem, but did not explain what had been done to the car to date or what the trader intended to do to fix it. Nor did she explain that the trader had concerns that the problem may have been caused by fuel contamination.

[18] The next day the injector flow meter was received, a problem with one of the injectors was diagnosed and new injectors were ordered from Australia. Ms McKay said that she called Mr Van der Sman but there was no answer and the answer-phone was not on so she could not leave a message.

[19] April 25 was a public holiday (ANZAC day) and the following day the trader received Mr Van der Sman’s email rejecting the car (it was sent just before midday) Mr Van der Sman gave notice that he was exercising his right to reject the car, asked for a refund of the purchase price and said “After having the vehicle in your workshop for more than 3 weeks I don’t consider the problem to be minor and I have lost all confidence in the vehicle”.

[20] The injectors arrived from Australia on the 27th April and were fitted to the car by that afternoon. The car was ready to drive the next Monday (30 April) after it had an oil change and was road tested.

[21] Mr Van der Sman’s firm evidence was that the only information that he was given throughout the repair process was that further testing was being carried out. Ms McKay told the tribunal that Mr Van der Sman was told on 1 May that the car was now running and could be collected. Mr Van der Sman did not recollect being told that. The parties did agree that on 1 May the trader made an offer of two free services and to re-start the manufacturer’s warranty which was not accepted by the purchasers.

[22] Mr Liddle explained that the cause of the breakdown was low fuel pressure due to the Number 1 injector leaking allowing excessive oil into the combustion chamber. In early May the trader sent the injectors to Holden to be tested. The trader was advised that the fault was caused by fuel contamination but no report of that test was available for the tribunal. At the hearing the trader produced a report from a Wellington testing laboratory that had tested the fuel for contamination. The report was dated 26 June 2012 and indicated that the fuel had been sampled, tested and reported on during the course of that day. No contamination was found. This is consistent with a letter the purchasers obtained from Mobil confirming that there had been no fuel contamination complaints received at Mobil Otaki notwithstanding around 10KL of sales on the same day the fuel was sold to the purchasers. Mobil also confirmed they had not had any problems with their underground tanks or any flow issues (which would be consistent with dirt blocking the filters).

[23] At the hearing the trader provided a written submission setting out the time-line of events and the trader’s position regarding the purchasers’ claim. The submission pursued the argument that the fuel was contaminated however that aspect of the trader’s defence was dropped at the hearing following receipt of the fuel contamination report the day before the hearing.

[24] At the hearing Mr Liddle was asked whether a car of the age and mileage and price of the purchasers’ car that suffered an injector failure was of acceptable quality. He said that failure of an injector was unusual but not unheard of but conceded that it was possibly not acceptable.

The Consumer Guarantees Act 1993

The guarantee of acceptable quality

[25] Section 6 of the Consumer Guarantees Act 1993 provides a guarantee as to the acceptable quality of goods sold:

"6 Guarantee as to acceptable quality

(1) Subject to section 41 of this Act, where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality.

(2) Where the goods fail to comply with the guarantee in this section,—

(a) Part 2 of this Act may give the consumer a right of redress against the supplier; and

(b) Part 3 of this Act may give the consumer a right of redress against the manufacturer."

[26] Section 7 sets out a definition of the guarantee of acceptable quality:

"7 Meaning of “acceptable quality”
(1) For the purposes of section 6 of this Act, 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,—
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—
(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 obtain 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] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements as set out in section 7(1)(a) to (e) as modified by the factors set out in section 7(1)(f) to (j) from the perspective of a “reasonable consumer”. This test is an objective test. It is not a review of those factors from the purchaser’s subjective perspective.

[28] The reasonable consumer test is derived from the statement of Dickson J in Australian Knitting Mills Limited v Grant [1933] HCA 35; (1937) 50 CLR 387:

"The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist, and not being limited to their apparent condition would buy them without abatement or price ... and without special terms".

[29] In this case the goods are a new car sold for $58,515 with an odometer reading of just 30 kilometres. The breakdown occurred when the car was about nine months old and had travelled 26,280 kilometres (which is quite a high mileage for a nine month old car). The faults identified were a failed injector and vacuum actuator. The trader did not pursue the argument that the injector failure was caused by fuel contamination. The tribunal concludes that these components were not sufficiently durable and for that reason the car has failed the guarantee of acceptable quality. No reasonable purchaser would regard such failures as acceptable having paid $58,515 for a new car and having only travelled 26,280 kilometres.

Was the failure a substantial failure in the guarantee of acceptable quality?

[30] 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 section 21 has ramifications for the remedies available to the purchasers.

[31] Section 21 provides:

“21 Failure of substantial character

For the purposes of section 18(3) of this Act, a failure to comply with a guarantee is of a substantial character in any case where—

(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 one 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) of this Act 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 of this Act because they are unsafe.”

[32] Would a reasonable consumer have purchased this car knowing that the injector and vacuum actuator would fail after having travelled only 26,280 kilometres? The tribunal concludes that the answer to that question is no. A reasonable consumer would have significantly higher expectations for a new car sold for $58,515. The trader’s job-sheets (no invoice was provided) show that many hours were spent diagnosing and repairing the problems. Replacement parts were required. Although a cost of repair was not provided, the tribunal is satisfied that the costs involved were not insignificant.

What are the remedies available to the purchaser?

[33] Section 18 of the Consumer Guarantees Act 1993 sets out the remedies available to the purchaser in respect of a failure in the guarantee of acceptable quality. It provides:

"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 of this Act 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—
(a) Require the supplier to remedy the failure within a reasonable time in accordance with section 19 of this Act:
(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,—
(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 of this Act, reject the goods in accordance with section 22 of this Act.
(3) Where the failure cannot be remedied or is of a substantial character within the meaning of section 21 of this Act, the consumer may—
(a) Subject to section 20 of this Act, reject the goods in accordance with section 22 of this Act; 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) of this section, 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."

[34] The purchasers rejected the car because the problem with the car was not “minor” and because they had lost all confidence in the car. The purchasers reached that conclusion essentially because the trader had the car for three weeks without repairing it. Given that the failure that occurred was substantial, the purchasers were entitled to reject. Although the purchasers did not know what the problem was and so made a somewhat instinctual decision to reject, they were entitled to do so because the failure in the guarantee of acceptable quality was substantial.

[35] It is worth noting the tribunal’s view that a different outcome may have been possible had the trader communicated fully and openly about the process of diagnosis and repair. The tribunal accepts the purchasers’ evidence that they were not informed of progress but rather were just told that tests were being carried out. This appears to have been a key factor in the purchasers’ loss of confidence. As far as they were concerned the trader had the vehicle for three weeks and hadn’t been able to determine what was wrong with it. It is possible that had the purchasers been aware of the details of the diagnosis and repair process they may well have accepted repair as an appropriate outcome instead of deciding to reject the car.

Orders

1. The trader shall refund the purchaser $58,515.
   

DATED at WELLINGTON this 17th day of July 2012

N Wills
Adjudicator