Pai v 101 Enterprises Limited T/A Quantum Motors Reference No. MVD 207/14 (Auckland) [2014] NZMVDT 145 (19 December 2014)

Last Updated: 22 January 2015

Decision No: AK 127/2014 Reference No. MVD 207/14

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN CYNTHIA ESTELLE PAI

Purchaser

AND 101 ENTERPRISES LIMITED T/A QUANTUM MOTORS

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

Mrs C E Pai, the purchaser

There was no appearance by the trader.

DECISION

Background
[1] On 3 July 2014 Mrs Pai (“the purchaser”) agreed to buy a 2003 Ford Fairmont registration DMN807 (“the vehicle”) from 101 Enterprises Limited trading as Quantum Motors (“the trader”) for $8,700. The purchaser rejected the vehicle by letter to the trader sent on 29 October 2014. She has applied to have the Tribunal uphold her rejection of the vehicle and the trader ordered to refund her purchase price.

[2] The trader did not appear at the hearing. The Tribunal is satisfied that the trader was sent written notice of the date, time and place of the hearing by the Tribunal and chose not to attend the hearing.

[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, was 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" is 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:
(ha) the nature of the supplier and the context in which the supplier supplies 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/her right to reject the vehicle within a reasonable time.

[10] The purchaser paid $8,700 for the vehicle and $1217.18 for a three year Mainstream mechanical breakdown warranty despite the policy recording the total premium was only $708.56 inclusive of GST. The vehicle’s odometer was 171,063kms. The purchaser financed the purchase price and the cost of the mechanical breakdown premium by trading in a 1989 Mercedes car for which she received $500 from the trader and the balance of $9,417.18 was provided by a collateral loan to the purchaser from MTF Finance (“the collateral loan”).

[11] The purchaser used the vehicle to travel the 20km round trip from her home to her workplace four days a week. On 17 October after the purchaser had travelled only 295kms in the vehicle it began to shudder. She took it to South Auckland Motors (“SAM”), a Ford franchised dealer, to have the cause assessed. SAM test drove the vehicle with her and scanned it for stored fault codes. They found the engine was knocking and told her it was caused by a faulty engine oil pump and that the oil pickup had failed. The purchaser says no warning lights lit up before the engine began to knock. SAM told her the vehicle needed a replacement second hand engine costing $6,000. The purchaser called on Mainstream to repair the engine under her mechanical breakdown warranty but they have refused to do so claiming the fault was not a sudden failure but an existing fault.

[12] The purchaser contacted the trader who promised to sort something out to obtain a cheaper engine. The trader has since failed to answer the purchaser’s telephone calls or return her messages and she has had no contact from the trader since October 2014.

[13] On 29 October 2014 Mr Wilkinson-Smith a barrister sent a letter to the trader rejecting the vehicle on the grounds that it has a serious fault namely an oil pump failure and engine damage. Mr Wilkinson-Smith apparently received no response and sent another letter to the trader rejecting the vehicle on 13 November 2014.

The Tribunal’s findings
[14] The Tribunal, in determining 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 an 11 year old Ford Fairmont V8 which had travelled 171,063kms at the time of sale and was sold for $8,700. The vehicle’s oil pickup pump failed within 295kms of use over about three months from the date of supply. The damage to the engine is so serious that the vehicle needs an engine replacement costing about $6,000.

[15] Having regard to the vehicle’s faults the Tribunal considers that the vehicle was not of acceptable quality at the time of sale because it was not as durable as a reasonable consumer would regard as acceptable, even for a moderately high mileage 11 year old Ford Fairmont costing $8,700.

Conclusion on issue [a]
[16] The vehicle did not comply with the guarantee of acceptable quality in s6 of the Act because it was not as durable as a reasonable consumer would regard as acceptable for a vehicle of this age, type and price.

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

Relevant law
[17] 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
[18] The evidence of the purchaser and the quote she produced from SAM for the parts show that the vehicle has suffered serious damage to such an extent that it needs a replacement engine costing $6,000. The Tribunal does not think that this vehicle would have been acquired by a reasonable consumer fully aware of the nature and extent of the vehicle’s poor engine condition and its failure within three months of supply.

Conclusion on issue [b]
[19] 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
[20] 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."

[21] The purchaser exercised her right to reject the goods by having her barrister send a letter to the trader on 27 October 2014 and the letter complied with the requirements of s22(1) of the Act.

[22] The Tribunal is satisfied that the purchaser rejected the vehicle in accordance with the requirements of the Act and within a reasonable time of the date of supply. It will therefore uphold the purchaser’s rejection, vest the collateral finance agreement in the trader, order the trader to return the purchaser’s deposit of $500 and the capital component of all payments made by the purchaser to MTF Finance from 7 July to 29 October 2014 and to refund in full all payments made by the purchaser to MTF Finance since 29 October 2014.

Costs
[23] The Tribunal has limited power to make an award of costs to or against a party to any proceedings under clause 14(1) 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.”

[24] The trader, after receiving notice of the hearing, failed without to attend the hearing without good cause. The Tribunal will therefore order the trader to pay to the Crown the reasonable costs of the Tribunal’s hearing of $500.

Orders

1.The purchaser’s rejection of the vehicle is upheld with effect from 29 October 2014.

2. The collateral finance agreement between the purchaser and MTF Finance is vested in the trader with effect from 29 October 2014 and the trader shall as from that date discharge all the obligations of the purchaser under that agreement.

3. The trader shall immediately pay to the purchaser the aggregate of the following amounts:
[a] the purchaser’s deposit of $500; and
[b] the capital component of all payments made by the purchaser to the trader from 8 July 2014 until 29 October 2014; and
[c] All payments (both of interest and principal) under the collateral finance agreement made by the purchaser to MTF Finance after 29 October 2014.
If there is any dispute as to the amount payable to the purchaser under this order 3, leave is granted to either party to refer that matter to the Tribunal for determination.

4. The trader shall within ten days of the date of this order pay the Tribunal’s reasonable hearing costs of $500 to the Crown at the Ministry of Justice Tribunal’s Unit, Level 1 Chorus House, 41 Federal Street Auckland.

5. The trader shall be responsible for collecting the vehicle and paying any storage or other charges payable to SAM.

DATED this 19th day of December 2014

C.H Cornwell
Adjudicator