Dear v Fast Fours And Prestige Limited Reference No. MVD 201/14 (Auckland) [2014] NZMVDT 144 (18 December 2014)

Last Updated: 22 January 2015

Decision No: AK 128/2014 Reference No. MVD 201/14

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN THOMAS ANDREW DEAR

Purchaser

AND FAST FOURS AND PRESTIGE LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Auckland on 15 December 2014

APPEARANCES

Mr T A Dear, the purchaser

Mr S Melnychuk, Operations Manager for the trader.

DECISION

Background
[1] On 11 November 2013 Mr Dear (“the purchaser”) bought a 2008 Audi Q7 4.2 TDI vehicle registration number EHK116 (“the vehicle”) from Fast Fours and Prestige Limited (“the trader”) for $66,000. The purchaser rejected the vehicle by email to the trader on 6 November 2014 and he has applied to have the Tribunal uphold his rejection of the vehicle and the trader ordered to refund the purchase price and collect the vehicle from Christchurch.

[2] The trader acknowledges that the vehicle has a pre-existing fault. The trader says that it has offered the purchaser what it describes as “satisfactory options” to repair the vehicle at the trader’s cost and provide, free of charge, a three year mechanical breakdown warranty to the purchaser. The purchaser has rejected those offers. The trader says the vehicle did not have its engine oil changed by the purchaser in accordance with the manufacturer’s recommended service interval every 15,000kms and, had he done so, the vehicle’s fault could have been detected sooner and would not have been so expensive to repair.

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

The issues
[4] The issues requiring consideration are:
[a] Whether the vehicle complied with the guarantee of acceptable quality in s.6 of the Consumer Guarantees Act 1993 (“the Act”)?
[b] If it did not, is the failure of substantial character within the meaning of s21 of the Act?
[c] If so, is the purchaser entitled to reject the vehicle?

Issue [a]: Whether the vehicle complied with the guarantee of acceptable quality in s.6 of the Act?

Relevant law
[5] 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 Act is applicable.

[6] 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.”

[7] The expression "acceptable quality" was, at the time of the sale of this vehicle, defined in s7 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 to¾
(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.”

[8] 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.

[9] 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.

Application of law
[10] The purchaser told the Tribunal that he bought the vehicle for family use and to tow a boat. Although the vehicle offer and sale agreement contains a written acknowledgement signed by the purchaser that the purchaser acquired the vehicle for the purposes of the purchaser’s business and accordingly the provisions of the Act would not apply, the purchaser told the Tribunal he signed that acknowledgment by mistake and did not read it. He says that he was not in business when he bought the vehicle but was and is still employed as the Operations Manager for Countdown in the South Island. He says his employer pays him an allowance which he uses to run a VW car he owns and uses for his work. The trader did not offer any evidence to show that the purchaser had represented that he was in business at the time he bought the vehicle.

[11] The vehicle’s odometer at the time of its delivery to him on 11 November 2013 was 73,235kms. Nine months after buying the vehicle the purchaser says he noticed a rattle from the engine on hard acceleration and smoke being emitted from the exhaust. He took the vehicle to Archibalds Motors Ltd (“Archibalds”) who inspected the engine oil level and found it was overfull. By 2 September the purchaser says he knew there was a problem with the vehicle’s engine. Archibalds kept the vehicle until the end of September during which time they drained the sump and measured its contents which was 20 litres of oil/diesel. They changed the oil and filter and sent the vehicle for a specialist compression test. This showed the compression on all cylinders was between 235psi and 270psi (or 15.98 to 18.36 bar). The minimum factory specification allowed is 21 bar. Archibalds confirmed the vehicle has an internal engine fault in a written report they gave the purchaser dated 30 September 2014 which recorded the vehicle’s odometer at that time as 92,331kms or 19,096kms greater than at the time of delivery to him.

[12] The purchaser says that he first notified the trader of the issues with the vehicle’s engine on 2 September when he telephoned Mr Thane Murray the trader’s salesman with whom he had dealt when he bought the vehicle. Mr Murray said that he would speak to the trader’s operations manager, Mr Robin Gray. On 5 September the purchaser sent an email to Mr Murray confirming the matters discussed in his telephone call on 2 September.

[13] The purchaser says there was a lack of communication from the trader and he sent the trader an email on 19 September asking where they were going. He says he had been told by Archibalds that a new engine would cost $40,000. The replacement of the pistons, honing the bores, seals and labour would cost about $13,000. However Archibalds were unable to say what should be done until the engine was stripped and assessed which the purchaser was told would cost between $3,000 and $5,000.

[14] The purchaser approached Giltrap in Auckland to see if they had any details of the work previously done on the vehicle. Mr P R Smith, a service advisor at Giltrap told the purchaser that on 15 August 2013 the owner of the vehicle at that time had taken the vehicle to Giltrap to carry out diagnostic checks to the fuel system. Giltrap had found the vehicle’s fuel injectors were leaking and causing excess unburnt fuel to enter the oil sump. This resulted in intermittent overflow into the intake system. Giltrap carried out replacement of the fuel injectors with injectors supplied by the owner which were not Audi fuel injectors. They also replaced the seals and renewed the engine oil and filter. The cost of this work was $1,405.96 inclusive of GST. The vehicle’s odometer at the time was recorded by Giltrap as 72,841kms. Mr Smith gave sworn evidence of this to the Tribunal by telephone conference call during the hearing.

[15] The purchaser says that on 22 October he sent details of the work done by Giltrap on 15 August 2014 to Mr Robin Gray and received an almost immediate response from the trader that it was not prepared to repair the vehicle’s engine. The purchaser says he also spoke to the trader’s manager a man named Alex who repeated that advice in a telephone conversation on 30 October: that the trader was not willing to repair the vehicle.

[16] On 6 November 2014 the purchaser sent the trader a letter informing it that he was rejecting the vehicle and had lodged a claim with the MVDT. The letter the purchaser sent to the trader omitted the word “not” before the word “willing” in the opening sentence which read:
“As you indicated on the 30 October by phone and re confirmed by Alex when I spoke to him you are willing to repair the Audi Q7 I brought from you.
I therefore wish to formally inform you that I request you to refund my purchase price and I will return the vehicle to you at your cost.”

[17] The trader took no step to attempt to settle the dispute by engaging with the purchaser in mediation until the 10 December; a few days before the hearing and its solicitors even sought an adjournment of the hearing on Friday 12 December; a request the Tribunal refused on the grounds that the trader had more than adequate time since a copy of the purchaser’s application had been sent to it on 6 November 2014 to prepare for the hearing or to engage in settlement negotiations with the purchaser.

[18] The purchaser produced a letter from Archibalds dated 17 November 2014 in which they say that Audi NZ have agreed to discount the cost of a new exchange engine so that their estimate to replace the vehicle’s engine with parts, and labour is $39,032 including GST. Archibalds have charged the purchaser $799.40 plus GST or $919.31 for their work so far.

[19] In reply to a question from the Tribunal the purchaser confirmed that he had not had the vehicle serviced since he bought it. The vehicle’s recommended service interval specified in the Service Schedule supplied with the vehicle is 15,000km. The purchaser, having travelled 19,096kms in the vehicle has exceeded the last service due interval by 4,490kms. He says that he was aware from a “service due” warning light in the vehicle’s instrument panel that he was doing so.

[20] At the hearing Mr Melnychuk produced a single sheet of paper containing four bullet pointed submissions:
* A “satisfactory option” had already offered to the purchaser but had been declined;
* The purchaser did not adhere to the vehicle’s servicing intervals and the trader believes the problem has occurred in part through the purchaser’s negligence;
* If the servicing requirements had been adhered to the problem could have been identified and resolved at minimal expense;
*The trader can see there was a pre-existing fault and that it may have cost $3000 to $5000 to rectify if it had been detected within the manufacturer’s servicing requirements.

[21] The trader has made an offer to the purchaser to repair the vehicle’s engine at its cost and has also offered to provide the purchaser with a three year Janssen mechanical breakdown policy covering claims up to $10,000.

[22] The trader has been quoted $14,499 (inclusive of GST) by Taylor Automotive Ltd to recondition the engine (not including fuel equipment) provided the engine will take new rings and bearings, timing chains and gaskets.

The Tribunal’s findings
[23] The Tribunal, in determining the first issue: whether the goods supplied by the trader complied with the guarantee of acceptable quality, has had regard to the nature of the goods, in this case a six year old New Zealand new Audi Q7; a luxury European built vehicle with 73,235kms on its odometer at the time of sale, and in particular to the price paid for it of $66,000. The purchaser’s evidence, which the trader did not dispute, is that the vehicle had an over-fuelling issue in August 2013 at 72,841kms or 394kms before the vehicle was sold by the trader to the purchaser. The trader had only owned the vehicle for 11 days before it sold it to the purchaser on 11 November 2013 so the Tribunal does not suggest that the trader knew about the over-fuelling fault when it sold the vehicle to the purchaser but nevertheless the vehicle was not free of fault at the time of sale. Within nine months and 19,096kms of use the over-fuelling fault became apparent to the purchaser and was manifest by a rattling noise from the engine on hard acceleration and by excessive exhaust smoke being emitted by the engine.

[24] The Tribunal has considered the trader’s defence that the lack of servicing by the purchaser in the nine months he owned the vehicle and his conduct in continuing to drive the vehicle for 4,490kms beyond the 15,000 service interval was negligent. The Tribunal agrees that the purchaser was unwise to continuing to drive the vehicle after the service warning light lit up but it does not think, on the advice of its Assessor, that it is likely that the additional 4,490kms driven by the purchaser beyond the service requirement would have had any material effect on the vehicle. This is because the damage to the engine had very probably already occurred whilst the vehicle was in the ownership of the previous private owner.

Conclusion on issue [a]
[25] The vehicle did not comply with the guarantee of acceptable quality in s6 of the Act because it was neither free of fault at the time of sale (the over-fuelling issue) nor was its engine as durable as a reasonable consumer would regard as acceptable for a vehicle of this age, type, mileage and price.

Issue [b]: Is the failure of “substantial character” within the meaning of s21 of the Act?

Relevant law
[26] 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 s 18(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."

Application of law to facts
[27] The purchaser’s evidence as to the cost of repairing the fault, contained in the letter from Archibalds dated 17 November 2014, was that Audi NZ consider, on the basis of the technical report sent to them by Archibalds, that the base engine requires replacement and that it will cost $39,032 including GST. The trader obtained a quotation from Mr Taylor of Taylor Automotive Ltd of the cost to recondition the engine. This quotation is $14,499 inclusive of labour and GST although it does not include the cost of “fuel equipment” which the Tribunal understands probably refers to replacement injectors. Mr Taylor’s quote appears to be based on the vehicle taking new rings and bearings, timing chains and gaskets. In summary, the cost of repairing the fault is a substantial sum equivalent to between 22% and 59% of the cost of the vehicle. In either case the Tribunal considers that the vehicle would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the engine failure.

Conclusion on issue [b]
[28] The Tribunal considers that the failure to comply with the guarantee of acceptable quality is of substantial character in terms of s21(a) of the Act.

Issue [c]: Was the purchaser entitled to reject the vehicle?

Relevant law

[29] Section 18 of the Act provides as follows:
“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 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 ¾
(a) require the supplier to remedy the failure within a reasonable time in accordance with section 19:
(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, ¾
(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, reject the goods in accordance with section 22.

(3) Where the failure cannot be remedied or is of a substantial character within the meaning of Section 21, the consumer may ¾
(a) subject to section 20, reject the goods in accordance with section 22; 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), 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."

[30] Section 20 of the Act provides that a consumer will lose his or her right to reject goods under the Act if the right to reject is not exercised within a reasonable time of the time of supply. What is a reasonable time is defined in s 20(2) and requires consideration of several factors such as the type of goods, their use, the length of time it is reasonable for the goods to be used and the amount of use it is reasonable for them to be put before the defect becomes apparent. The relevant section is 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.”

(2) In subsection (1)(a), the term reasonable time means a period from the time of supply of the goods in which it would be reasonable to expect the defect to become apparent having regard to—
(a) the type of goods:
(b) the use to which a consumer is likely to put them:
(c) the length of time for which it is reasonable for them to be used:
(d) the amount of use to which it is reasonable for them to be put before the defect becomes apparent.
(3) This section applies notwithstanding section 37 of the Sale of Goods Act 1908.”

[31] The Court of Appeal in Nesbit v Porter [2000] NZCA 288; (2000) 9 TCLR 395 in considering s20 and what was a “reasonable time” under the Act in respect of an 11 year old Nissan Navarra sold for $10,990 and rejected because of rust nine months after purchase said:
“In many, if not most cases the period will be longer for new goods, which a buyer is entitled to expect to be defect free when first used, than it will be for second hand goods of the same type. As a general rule, the older the goods, the shorter is likely to be the reasonable time.” The Court in Nesbit also said:
“Another factor which will influence the period to be allowed for exercise of the right of rejection is whether regular inspections of the goods for defects are customary or, as in the case of motor vehicles, required by law. But for defects which cannot be expected to be revealed by such inspections the reasonable time may be longer.” And later in the same decision the Court said:
“A reasonable time under s20 must accordingly be one which suffices to enable the consumer to become fully acquainted with the nature of the defects, which, where the cause of a breakage or malfunction is not apparent the consumer can be expected to do by taking the goods to someone, usually and preferably the supplier, for inspection. In this context therefore, a defect is not “apparent” until its cause has been identified and the buyer knows what has to be done to fix it, and what that will cost; in other words, until the buyer is in a position to determine whether the defect is substantial.” Finally and probably most relevantly to the present fact situation the Court said:
“We consider that in a vehicle the age and type of this Navara it is reasonable to expect defects of the kind actually encountered by the Nesbits, latent at the time
of the supply, to become apparent relatively soon after the supply. (We do not understand there to have been an allegation that there was any concealment on the part of Porter Motors.) In our view the motor vehicle dealer should generally be freed from the burden of having to accept rejection of a vehicle of this age and pedigree after the time of the next mandatory six monthly Warrant of Fitness check has passed. If, at the latest, a defect of the kind found in the Navara has not manifested itself on such an inspection, it would be an unfair burden upon the supplier if a buyer of such a vehicle, which must be assumed to have been in daily use, sometimes in rough conditions, should thereafter be able to reject it. Bearing in mind, however, that most people do not have their vehicles tested until the six month period is expiring; there is a need for some latitude to give time to decide whether to exercise that right.”
Application of law to facts
[32] The period of time within which rejection must occur runs from the date of supply; in this application 11 November 2013. The purchaser became aware that the vehicle had a fault which caused an engine rattle and excessive engine smoking on 11 August 2014 some nine months after the supply date and he immediately had it investigated by Archibalds and as soon as he was told by Archibalds that the fault appeared to be serious on 2 September 2014 he notified the trader.

[33] The Tribunal takes the view that this fault was probably not “apparent” to the purchaser in the sense that he realised how serious it was until about 2 September at which point he attempted to get some agreement from the trader to repair the engine. The trader’s former operations manager Mr Robin Gray appears to have ignored the purchaser but the purchaser was having none of it. The purchaser discovered the “smoking gun” - the Giltrap Repair Order History from 15 August 2013 and sent a copy of it to the trader on 22 October telling it he believed the trader had a strong obligation to either have the engine replaced or refund the purchase price. Once again the trader refused to accept responsibility and on 30 October it refused the purchaser’s request to repair the engine and informed the purchaser that it did not accept responsibility for the vehicle. The purchaser, having attempted to persuade the trader to accept responsibility then rejected the vehicle in writing on 6 November 2014. Under the circumstances the Tribunal considers that rejection took place within a reasonable time. The trader did not attempt to argue at the hearing that the purchaser had lost his right of rejection by delay.

Conclusion on issue [c]
[34] The purchaser was entitled to reject the vehicle and did so within a reasonable time and in accordance with s22(1) of the Act. The Tribunal will therefore uphold the purchaser’s rejection of the vehicle.

Orders
1. The purchaser’s rejection of the vehicle is upheld.

2. The trader shall immediately pay to the purchaser $67,265.31comprising the following amounts:
[a] the purchase price of $66,000; and
[b] the cost of Archibalds assessment and compression test $919.31
[c] the purchaser’s return airfare from Christchurch to Auckland to attend the hearing of $346.

3. As soon as the trader has reimbursed the purchaser with $67,265.31 the trader shall, at its expense, collect the vehicle from the purchaser in Christchurch.

DATED this 18th day of December 2014

C.H Cornwell
Adjudicator