Harris v Adopt a Car Limited - Reference No. MVD 62/12 (Auckland) [2012] NZMVDT 74 (25 July 2012)

Last Updated: 16 August 2012

Decision No: AK 60/2012
Reference No. MVD 62/12

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN STEPHEN ERIC HARRIS & REBECCA HARRIS

Purchasers

AND ADOPT A CAR LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Palmerston North on 6 July 2012

APPEARANCES

Mr & Mrs Harris, the purchasers

Mr M L McQuade, director for the trader

DECISION

Background

[1] On 22 October 2011 Mr & Mrs Harris (“the purchasers”) who live in Christchurch purchased a 1996 Isuzu Bighorn (“the vehicle”) from Adopt A Car Limited (“the trader”) in Palmerston North for $8,500. The purchasers have rejected the vehicle because they say the vehicle has serious engine damage. They seek the Tribunal’s order upholding their rejection and ordering the trader to refund the purchase price and other consequential damages and costs.

[2] The trader says first, that the vehicle’s engine was not using oil when it sold it to the purchasers. Second, that the methodology used by Edgeware Automotive Ltd to determine the vehicle’s oil usage was flawed and thus unreliable. Third, the trader says it suspects the vehicle’s engine has been overfilled with oil. Finally, that the trader says it asked the purchasers to take the vehicle to have it assessed by the trader’s repairer in Christchurch but the purchasers have refused to do so.

[3] Pursuant to clause 10 of Schedule 1 of the Motor Vehicle Sales Act 2003 the Tribunal has appointed Mr Gregory as expert assessor to assist in the determination of the complaint. Mr Gregory took the oath required by (2) of Schedule 1 to that Act. As an assessor Mr Gregory assisted the adjudicator but the application was determined by the adjudicator alone.

Facts

[4] On 15 October 2011 the purchasers saw the trader’s advertisement for the vehicle on TradeMe. They telephoned the trader to express interest and ask the trader to have an AA pre-purchase inspection done on the vehicle. The trader refused the purchasers’ request for an AA inspection because its director Mr McQuade claimed he and the AA had “fallen out” because the AA were too picky and their adverse reports had resulted in the trader loosing sales. The parties then agreed to have the vehicle sent to a garage of the trader’s choice to have a compression test, a leak down test and a chassis and an underbody check done at the purchasers’ cost.

[5] The trader had Mastertune Ltd inspect the vehicle on 19 October 2011. A copy of their report to the trader records they did a compression test, a cylinder leakage test check, set the tappet clearance and advised the customer of results. There is no record of the result of the cylinder leakage test and if Mastertune inspected the chassis and underbody there is no reference to their having done so in their report. Mastertune’s report shows the following results of the compression test and their comments:
“Cyl psi
1 390
2 390
3 400
4 370
The results of the cylinder leakage test showed a small amount of leakage through number 4 inlet valve probably due to carbon temperarally traped (sic) under the valve. I don’t consider this to be a problem as the engine starts, runs and performs as normal.”

[6] When this information was given to the purchasers they decided to travel to Palmerston North to buy the vehicle. They booked flights and a return ferry crossing and arranged to collect and pay for the vehicle on 22 October 2011. When they got to the trader’s premises the purchasers noted the odometer was 118,828kms which they say is 328kms more than the trader’s advertisement represented the odometer to be. The Tribunal considers this is insignificant. The vehicle had a new warrant of fitness and went well. The purchasers completed the purchase of the vehicle for $8,500 which included the premium for a 12 month Protecta Mechanical Breakdown insurance cover. The purchasers signed a Consumer Information Notice which recorded the expiration date of the warrant of fitness, vehicle licence and the odometer reading incorrectly. The purchasers were handed a receipt for the vehicle and started to drive the vehicle to Wellington to catch the ferry.

[7] The purchasers say that on the way home the turbocharger became noisy and they telephoned the trader about it. When they arrived back in Christchurch they took the vehicle to a turbocharger specialist, Diesel Pumps Ltd, who thought there was a hole in the exhaust rather than a faulty turbocharger. The purchasers contacted the trader who suggested they wait three months and then make a claim against their Protecta policy. The purchasers would not agree to that because to do so would have involved making a fraudulent insurance claim to Protecta. There was no evidence provided by the purchasers to show the turbocharger needed replacement. They were told by Scott of Diesel Pumps Ltd that there was excess play in the turbo. The Tribunal’s Assessor believes the diagnosis of Diesel Pumps Ltd of a hole in the exhaust was probably correct. However the purchasers insisted that the turbocharger be replaced. The trader was only willing to pay for a second hand turbocharger and the purchasers decided to pay the extra $757 cost of having a new turbocharger fitted. The turbocharger was replaced at 119,646kms on 10 November 2011 at which time the purchasers had driven 1,146kms in the vehicle.

[8] On 24 December 2011 the vehicle’s battery failed and the purchasers paid $200 to replace it. They did not notify the trader of this fault before doing so.

[9] On 2 February 2012 the radiator top tank split and was replaced using the Protecta policy with the purchasers paying the $450 excess. They did not notify the trader before having the top tank replaced.

[10] Since having the turbocharger replaced the purchasers say they have had to top up the engine oil regularly. The purchasers’ written statement lodged with the Tribunal states in para 26:
“Since the Turbo was replaced, Steve had been needing to top the engine up with oil, about half a litre per 1000km.” However at the hearing Mr Harris gave evidence that he had topped up the engine with 5 litres of oil in the 5,000kms the vehicle had been driven between purchasing it and when he took it to be serviced.

[11] The purchasers took the vehicle to be serviced by Edgeware Automotive Ltd (“Edgeware”) on 9 March 2012 at 123,874kms (5,374kms after sale). They reported this oil usage to Edgeware and Edgeware’s invoice records the following:
“Customer instructions- Service, black smoke from exhaust.
Work Recommended- Address oil leak, seems to be coming from wastegate
Carried out B diesel lube service as following;
Changed engine oil and oil filter (set price allows for up to 5.5 litres of oil and std filter).
Checked all fluid levels and carried out general under bonnet and under body inspection.
Checked tyres and pressures. Removed all wheels and checked brakes, cleaned and adjusted rear brakes and handbrake and reassembled Roadtest OK
Service 1 each $159.95
Extra oil 1 each $19.50
Total $179.45”

[12] The purchaser was advised by Edgeware that the vehicle’s engine was consuming oil excessively and a claim was made by Edgeware under the purchasers’ Protecta policy to have the engine repaired. Protecta required an oil consumption test to be done on the vehicle and the purchaser produces a letter dated 20 June 2012 from Edgeware which states the odometer was 123,874 on 9 March 2012 and that the engine has required topping up as follows:
1 litre of oil was put in on 23/3/12 @ 124,780km
1 litres of oil was put in on 24/4/12 @ 125,960
Edgeware’s letter states: “Each time this vehicle was checked the oil was down on level by a litre. This is more than an engine should use- oil consumption high.
Vehicle must have internal problem with engine.”

[13] On 2 April 2012 the purchasers sent the trader an email listing the vehicle’s previous faults and rejecting it claiming “It has now been determined that there is a significant fault with the engine.”

[14] The trader replied to the purchasers’ email on 3 April asking the purchasers to take the vehicle back to “Scott at Diesel Turbo” [the Tribunal understands that to be a reference to Diesel Pumps Ltd] who did the turbocharger replacement so that the trader could have an independent inspection done before it talked to Protecta about the warranty claim. The purchasers refused to do so and Mrs Harris gave evidence that she had spoken to Scott at Diesel Pumps Ltd who told her that he was not an engine specialist but a turbo specialist and he was not interested in looking at the engine.

[15] Mrs Harris told the Tribunal that the vehicle has now travelled about 128,000kms or 13,000kms in the 8.5 months the purchasers have owned it. Mrs Harris said the vehicle had been involved in an accident in which a Scout leader had backed into the vehicle’s front fender pushing back the bumper and doing some damage to the right hand side of the vehicle which has now been repaired and returned to the purchasers.

[16] Mr McQuade for the trader says the vehicle was sold for $8,500 after being advertised for sale on TradeMe for $9,990. The compression test done by Mastertune Ltd on 19 October 2011 when the odometer was 118,782kms showed there was only a 30psi difference between cylinders #3 and #4. The vehicle was sold with a new VTNZ warrant of fitness after repairs had been done by Mastertune Ltd on 20 October to the lock mechanism, an adjustment to the fog lights and front wheel bearings and the rear muffler supplied by the trader was replaced and welded in place by Mastertune Ltd.

[17] Mr McQuade says he was not told the vehicle was using excessive oil until the purchasers sent him their letter of rejection. He says he asked the purchasers to take the vehicle back to Diesel Pumps Ltd but they refused to do so.

[18] Mr McQuade says that Edgeware’s invoice of 9 March 2012 shows the price for the service allowed for 5.5 litres of oil and that Edgeware charged for a further litre of oil. However the specification sheet for the vehicle which he produces shows that its engine oil capacity is only 6 litres and if the vehicle was filled with 6.5 litres of oil it would have burnt it off.

[19] The trader says the purchasers’ claim the vehicle is using 1 litre of oil for every 1,000kms travelled but if that volume of oil is being consumed the vehicle should be blowing black smoke and there would be blowby.

[20] The purchasers, in reply to questions from the Assessor say there have been no performance issues with the vehicle, it does not blow excessive smoke except on start up and the back of the vehicle is not contaminated with oil.

[21] Following the hearing on 6 July 2012 the Tribunal decided that it needed an independent report on the vehicle’s current condition. It issued a Minute to the parties on 9 July asking the purchasers to take the vehicle for inspection by Diesel Doctor Ltd.

[22] On 11 July 2012 the purchasers took the vehicle to Diesel Doctor Ltd who have reported as follows. The vehicle’s current odometer is 128,209kms.
“Remove intercooler etc. Check turbo for oil leakage.
Found air intake very oily. Turbo not leaking oil. Found engine breathing excessively. Remove glow rail and glow plugs.
Compression test engine. Leakage bypassing rings/pistons.
Reassemble and test drive.
1-335
2-340
3-330
4-280
Engine has a misfire.
In my experience #4 piston will self destruct.
This is an Isuzu problem due to poor maintenance
Alternator belt is loose.
Power steering pump top washer is incorrectly fitted.
No timing belt sticker
Warning
With excessive amounts of oil in air intake the engine will take off and run on the oil uncontrollable (sic)
Estimate
To remove and strip engine. Engine will need to be overhauled.
Injectors and injector pump will need to be overhauled.
Approx estimate to overhaul, between $6,000 and $8,500.”

[23] The Tribunal sent the trader a copy of the Diesel Doctor Ltd’s report on 13 July and invited the trader to send any comments on it to the Tribunal by 20 July 2012. The trader has not sent the Tribunal any comments on the Diesel Doctors’s Report.

The issues before the Tribunal

[24] Having considered the facts, the Tribunal concludes that the following issues require consideration:
[a] Whether the vehicle sold to the purchasers was of acceptable quality at the time of sale?
[b] If it was not, is the failure one of substantial character?
[c] Whether the purchasers are entitled to reject the vehicle?

Legal Principles

[25] In terms of s.89 of the Motor Vehicle Sales Act 2003 the Tribunal has jurisdiction to inquire into and determine applications or claims between a Motor Vehicle Trader and the purchaser of a motor vehicle. In doing so, it may apply the provisions of the Sale of Goods Act 1908, the Fair Trading Act 1986, the Contractual Remedies Act 1979 or the Consumer Guarantees Act 1993, as applicable to the circumstances of the case. In this application the Consumer Guarantees Act is applicable.

Issue [a]: whether the vehicle sold to the purchasers was of acceptable quality at the time of sale?

[26] 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.”

[27] The expression "acceptable quality" is defined in s 7 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.
(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.”

[28] 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) of the Act as modified by the factors set out in section 7(1)(f) to
(j) from the perspective of a “reasonable consumer”. The test is an objective
one; it is not a view of those factors from the purchaser’s subjective perspective.

[29] 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 right to reject the vehicle within a reasonable time.

[30] The vehicle sold to the purchasers is a 15 year old Japanese imported Isuzu Bighorn truck which had travelled 118,828kms and was sold for $8,500. The purchasers are somewhat naïve and travelled from Christchurch to Palmerston North to look at an old vehicle without first obtaining a thorough inspection of it by an independent diesel expert of their choice.

[31] When it was test driven by the purchasers the vehicle appeared to run satisfactorily. However on the way back to Christchurch a leak developed in the exhaust which the purchasers believed was a failure of the turbocharger. The exhaust leak was repaired and in doing so the turbo charger specialist informed the purchasers that he had also found that the turbocharger was worn. The purchasers decided that they needed to replace the turbocharger with a new one and were aggrieved when the trader would only contribute a sum equivalent to a second hand turbocharger. Since they purchased the vehicle it has required two other minor repairs; the replacement of the battery and a radiator top tank. Both these faults reflect the vehicle’s age and mileage and in the Tribunal’s view both were wear and tear items which any reasonable purchaser of a vehicle like this would expect to encounter. In neither case did the purchasers contact the trader and ask it to pay for those two items before having them replaced.

[32] The only serious issue the vehicle has is that its engine consumes a great deal more oil than it should and, based on the contents of the Diesel Doctor Ltd’s report, the Tribunal considers the vehicle’s engine requires urgent remedial work. The Tribunal does not consider that a reasonable purchaser of a vehicle of this age, mileage and price would regard the vehicle as being durable where, within 5 months and 10,000kms of the date of sale the vehicle’s oil consumption is 1 litre per 1000kms and the vehicle’s engine requires overhauling at an estimated cost of $6000 to $8,500. Accordingly the Tribunal finds that the vehicle did not at the time of sale comply with s6 of the Act because it is not as durable as a reasonable purchaser of it would regard as acceptable.

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

[33] 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) of the Act. Section 21 of the Act 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."

[34] The Tribunal is satisfied, on the basis of the Diesel Doctor Ltd’s report that the condition of the engine is such that the goods would not have been acquired by a reasonable consumer fully aware of the nature and extent of the failure costing between 70% and 100% of the cost price of the vehicle to remedy. Therefore the Tribunal finds the failure is one of substantial character as defined in s 21(a) of the Act.

Issue [c]: Whether the purchasers are entitled to reject the vehicle?

[35] Section 20(1) of the Act provides as follows:
“20 Loss of right to reject goods
(1) The right to reject goods conferred by this Act shall not apply if-
(a) the right is not exercised within a reasonable time within the meaning of subsection (2); or
(b) the goods have been disposed of by the consumer, or have been lost or destroyed while in the possession of a person other than the supplier or an agent of the supplier; or
(c) the goods were damaged after delivery to the consumer for reasons not related to their state or condition at the time of supply; or
(d) the goods have been attached to or incorporated in any real or personal property and they cannot be detached or isolated without damaging them.”

[36] Mrs Harris gave evidence at the hearing that the vehicle had been damaged when a Scout leader had backed into the vehicle. Applying s20(1)(c) of the Act the Tribunal finds that the purchasers have lost their right to reject the vehicle because of that accident. The Tribunal accepts the purchasers’ assurance that the vehicle has been repaired since the accident but there does not appear to be any discretion available to the Tribunal in the wording of s20(1)(c) to ignore the fact that the vehicle was damage by the accident and permit the purchasers to reject the vehicle.

[37] Although the purchasers may not exercise the right to reject the vehicle they may still, pursuant to s 18(3)(b) of the Act obtain from the trader damages in compensation for any reduction in value of the vehicle below the price paid for it because of the faulty engine. The Tribunal understands from the Diesel Doctor Ltd report that the cost to repair the vehicle’s engine will be $6,000 to $8,500. The Tribunal considers that when the vehicle’s engine is repaired the purchasers will obtain betterment equivalent to 50% of the cost of repairs by virtue of getting, in effect, a reconditioned engine in a 16 year old vehicle. The Tribunal will therefore order the trader to pay to the purchaser, on presentation of a GST invoice for the repairs, a sum equivalent to 50% of the cost of the repairs (including GST) after allowing for (a) any sum contributed to the cost of repairs by Protecta Insurance New Zealand Ltd and (b) any insurance excess paid by the purchasers.

[38] The purchasers submitted as part of their claim a list of the costs they had incurred totalling $4,749.88. These costs relate to the purchasers’ pre-purchase compression test inspection, finance fees, flights to collect the vehicle and ferry crossing charge to take it back to Christchurch, turbo repair, oil purchases, battery replacement, radiator repair, service cost, warrant of fitness cost, Tribunal filing fee and the cost to fly to Palmerston North for the hearing. The Tribunal is unable to order the trader to pay any of those costs because first, none of them fall into the category of “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” which is the test the Tribunal is required to apply in terms of s 18(4) of the Act. Second, the Tribunal is unable to order the trader to pay the costs claimed for the turbocharger repair because the purchasers agreed with the trader to pay for the additional cost of $757.50 in consideration of the trader paying the sum of $800 to repair the exhaust and for a second hand turbocharger. Third, the purchasers did not, as s18(2)(a) of the Act provides, “require the supplier to remedy the failure” with the battery and radiator before having the battery replaced and the radiator repaired themselves. They cannot now claim the cost of doing so from the trader. Finally, the Tribunal only has power to award costs such as the cost of the purchasers travelling to the hearing in very limited situations. These situations are covered by clause 14 of Schedule 1 to the Motor Vehicle Sales Act 2003. The relevant provision is as follows:
“14 Disputes Tribunal may award costs in certain circumstances
(1)The Disputes Tribunal may award costs to or against a party to any proceedings before it only if,-
(a) in the opinion of the Disputes Tribunal,-
(i) the proceedings are frivolous or vexatious or ought not to have been brought:
(ii) the matter ought reasonably to have been settled before proceeding to a hearing but that the party against whom an award of costs is to be made refused, without reasonable excuse, to take part in the discussions referred to in clause 5(1)(b) or acted in a contemptuous or improper manner during those discussions; or
(b) any party after receiving notice of a hearing, fails to attend the hearing without good cause.

(2) In any case to which subclause (1) applies, the Disputes Tribunal may order a party to pay---
(a) to the Crown all, or any part of either or both of the following:

(i) the reasonable costs of the Disputes Tribunal hearing:
(ii) the fees and expenses of any witness that have been paid or are payable by the Crown; or

(b) to another party all, or any part of the reasonable costs of that other party in connection with the proceedings.”
The Tribunal does not consider that the limited circumstances in which it can order the trader to pay the purchaser’s cost apply here.

[39] The only item of cost which the purchasers incurred which was reasonably foreseeable was the charge of $103.50 paid for Diesel Doctor Ltd’s report. The Tribunal will order the trader to pay that to the purchasers immediately.

Orders

1. The trader shall pay to the purchasers within seven days of their providing the trader with a GST invoice a sum equivalent to 50% of the cost of the repairs (including GST) after allowing for:
(a) any sum contributed to the cost of repairs by Protecta Insurance New Zealand Ltd; and
(b) any insurance excess paid by the purchasers.

2. If there is any dispute as to the amount payable to the purchasers in terms of Order 1 (above) leave is granted to either party to refer that matter back to the Tribunal to be determined by the Tribunal.

3. The trader shall pay $103.50 to the purchasers immediately.

DATED at AUCKLAND this 25th July 2012

C.H Cornwell
Adjudicator