Distribution HQ Limited v Vision Auto Sales Limited - Reference No. MVD 34/2014 (Auckland) [2014] NZMVDT 36 (11 April 2014)

Last Updated: 25 May 2014

Decision No. AK 33 /2014

Reference No. MVD 34/2014

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN DISTRIBUTION HQ LIMITED

Purchaser

AND VISION AUTO SALES LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Auckland on 7 April 2014

APPEARANCES

Mr M D O’Dea, representing the purchaser
Ms D Bethell, witness for the purchaser
Mr W G Reid, representing the trader
Mr J Singh, Service Manager for the trader

DECISION

Background

[1] On 15 August 2013 Distribution HQ Limited (“the purchaser”) bought a 2006 Volvo XC90 registration HAQ29 (“the vehicle”) from Vision Auto Sales Limited (“the trader”) for $23,990. The purchaser says the vehicle has failed to comply with the guarantee of acceptable quality and it rejected the vehicle on 26 February 2014 because it claims the trader has failed to remedy the vehicle’s faults within a reasonable time.

[2] The trader denies that the purchaser is entitled to reject the vehicle.

[3] Prior to the commencement of the hearing the Tribunal appointed Mr Gregory 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 Mr Gregory assisted the adjudicator but the application was determined by the adjudicator alone.

The Issues
[4] The issues raised by this application are:
[a] Whether the vehicle was of acceptable quality when it was sold to the purchaser?
[b] If not, whether the trader has remedied the faults within a reasonable time of being required to do so?
[c] If not whether the purchaser is entitled to reject the vehicle?

Issue [a]: Whether the vehicle was of acceptable quality when it was sold to the purchaser?

Relevant Law

[5] Section 6 of the Consumer Guarantees Act 1993 (“the Act”) imposes on a supplier "a guarantee that the goods are of acceptable quality." Section 2 defines "goods" as including "vehicles.”

[6] The expression "acceptable quality" is defined in s 7(1) 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 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.”

Application of law to facts

[7] Mr O’Dea for the purchaser says he bought the vehicle in the purchaser’s name for tax purposes but that it was purchased and has been used for family use as he has three children and needs a seven-seater vehicle. The sales agreement was dated 5 August 2013 and the copy provided to the Tribunal shows the purchaser paid a deposit of $500 on 6 August 2013 and the agreement was “subject to no defects AA Appraisal”. The trader also agreed to replace the dash grill and fix a cup holder. The trader had a wheel alignment done on 14 August 2013 by Mag and Turbo Tyre and Service Centre. The vehicle’s odometer was recorded on the Consumer Information Notice dated 15 August 2013 as 105,831kms.

[8] The trader supplied the purchaser with an AA vehicle appraisal dated 16 August 2013 which had been prepared for the trader although of course it had already sold the vehicle to the purchaser at that time. It is a one page document the heading of which provides that the report was prepared by the AA as “Technical consultant” for the trader and “not for any prospective purchaser of the vehicle”. The report found no defects in this seven year old Japanese import and records on the vehicle’s general condition: “Sound: Vehicle is in above average condition for age and mileage” and has a large red “PASSED” stamp on it.

[9] Mr O’Dea says that on 26 August 2013 he contacted the trader concerning the vehicle’s brakes which were squealing and there was also what he refers to as a “clunk” in the suspension. The trader had the vehicle from 30 September until 1 October according to its job and cost card during which it replaced the front and rear brake pads and machined the rear brake rotors. It attempted to find the cause of the “clunk” and inspected and tightened the suspension bolts, lubricated all bushes and mounts and renewed a window washer T-piece.

[10] On 12 October Mr O’Dea sent an email to Mr Bennie of the trader saying the brake squeal had been fixed but the suspension “clunk” was still present and he intended to return the vehicle the following Monday to have that fixed and also asked the trader to remove some dirty marks its mechanics had left on the sun visor and driver’s pillar. There is no record of what work the trader had done on the vehicle when it was returned on that occasion but Mr Bennie of the trader sent Mr O’Dea an email on 21 October 2013 saying:
“We got there, ALL FIXED!
JANEN OUR SERV DIRECTOR HAS SORTED.
Apologies for the delay
Would you like Graham to drop the car off Tuesday
If so...Please let Geoff know
Ph Geoff 827 1080
Thankyou
Regards”.

[11] The vehicle’s air conditioning system ceased working in October and a serviceman was sent out to fix it on 25 October 2013.

[12] On 9 December Mr O’Dea says the “clunk” from the suspension had returned but he says he was “fobbed off” again when he called the trader’s service department. He contacted the service department on 21 December but nothing could be done until after the Christmas holiday period. Over the holiday period the power steering hose failed and the purchaser had to have the vehicle towed back to Auckland.

[13] In mid-January 2014 Mr O’Dea took the vehicle back to the trader who, after the hearing sent the Tribunal a copy of a tax invoice from Archibald & Shorter Ltd showing they supplied parts totalling $516.14 to the trader on 21 January 2014. The trader purchased additional parts (two lower arm ball joints which cost $91.68 plus GST) and did the following work using its own mechanics according to an internal workshop invoice of the same date:
“Removed front lower control arm, press and fit new rear suspension bushes, press and fit new front suspension bushes, new front lower ball joints, new clamps for power steering pipes.”

[14] The vehicle was returned to Mr O’Dea on 24 January 2014. There was a scratch on the vehicle below the fuel cap which the trader repaired at its cost after initially denying responsibility for it.

[15] Mr O’Dea says the “clunk” was still present in the suspension after he got the vehicle back and on 3 February 2014. He took the vehicle to Enterprise Motor Services in Birkenhead who gave him a report saying both front inner suspension arm bushes require replacement. The cost of the bushes is around $100-$120 a bush plus labour to fit and freight. The estimated total cost to replace the bushes is $500 to $700. Enterprise Motor Services also inspected the brakes and found the right front brake pads had been packed in carriers with cardboard. In their opinion this was carried out in an un-tradesman like manner and required rectification for the vehicle to be roadworthy. Enterprise Motor Services sent three colour photographs of the front brake caliper and radius arm bushes.

[16] On 26 February 2014 the purchaser lodged its application with the Tribunal and included with the application an undated letter of rejection which the Tribunal sent to the trader. The purchaser’s grounds for rejecting the vehicle set out in that letter are first, for the ongoing “clunk” in the suspension which the purchaser claims it has given the trader sufficient time to fix. Second, because the vehicle pulls to the right under braking. Third, because the front brake pads are packed with cardboard and fourth because the inner suspension arm bushes need replacement according to Enterprise Motor Service.

[17] The trader failed to file a statement of the trader’s defence although requested in writing to do so by the Tribunal two weeks before the hearing. Mr Reid, the trader’s representative at the hearing, did not offer any real defence but gave a chronology of events which was similar to that already given by Mr O’Dea. When asked if it was his submission that no fault was present in the vehicle Mr Reid said he did not know because he had never driven the vehicle.

[18] The trader’s service manager Mr Singh said that when he drove the vehicle he did not feel a clunk in the suspension. He described the work that had been done on the vehicle in September 2013 and said he thinks the reason the car is drifting under braking is because the tyres are now badly worn.

[19] On 19 March 2014 the purchaser took the vehicle to VTNZ for a warrant of fitness inspection. The vehicle passed its WOF. Its odometer was recorded by VINZ as 114,911kms showing the vehicle has travelled 9,080kms in the last seven months. The Tribunal notes that all of the vehicle’s tyres are marginal for tread depth at 1.6mm. Mr O’Dea also produced an email dated 28 March 2014 from Mr Bull the Service Advisor at Roverland who have identified the fault which causes the “clunk” in the suspension as the coil spring slipping on the top strut mount. This noise can be cured by inserting an insulator costing $27.01 plus GST each in between the spring and upper strut mount. Mr Bull also recommended replacing the tyres because they are worn on the outer edge.

[20] The Tribunal, in deciding if this vehicle complied with the guarantee of acceptable quality in s6 of the Act has had regard to the following facts. First, the vehicle was a seven year old Japanese import which had travelled 105,831kms when it was sold to the purchaser. Second, the price paid was $23,990. Third, the trader represented the vehicle as being free of defects and in above average condition for its age and mileage by providing the purchaser with the AA vehicle appraisal prepared for the trader that it had obtained on 16 August 2013. Fourth, the trader also gave the purchaser a delivery inspection list which its technician had completed which showed the vehicle was free of any mechanical faults. However, significantly in the Tribunal’s view, that check list omitted key information such as the vehicle’s odometer at the date of inspection and when the last service had been carried out. The delivery inspection list also ticks as “good” the operation of the brakes which Mr O’Dea subsequently found squealed as soon as he took delivery of the vehicle.

Conclusion on issue [a]:

[21] The facts show the vehicle was neither free of minor faults nor as durable as a reasonable consumer would regard as acceptable after paying $23,990 for a seven year old car for the following reasons. First, because within two weeks of the date of sale Mr O’Dea noticed there was a “clunk” coming from the vehicle’s suspension, which the Tribunal thinks is probably caused, as Roverland have diagnosed, by the coil spring slipping on the top strut mount. Second, the vehicle’s brakes squealed until the brake pads were replaced by the trader and the rear brake rotors were machined. Third, the vehicle’s air conditioning required a re-gas in October. Fourth, the vehicle’s power steering hose failed in December. Accordingly, the Tribunal therefore finds that the vehicle did not comply with the guarantee of acceptable quality.

Issue [b]: Whether the trader remedied the vehicle’s faults within a reasonable time of being required to do so?

Relevant law

[22] 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."

Application of law to facts

[23] Mr O’Dea first required the trader to fix the “clunk” in the suspension in September 2013. The trader’s Job and Cost Card dated 30 September 2013 records that as a fault to be fixed with the words “attempt to diagnose “clunk”. The trader did not diagnose or fix the noise on the first occasion it attempted to do so. At that time the vehicle’s brake squeal was rectified but for some reason the technician who did the job packed the brake pads with cardboard. The second time the trader attempted to rectify the “clunk” noise was in October 2013. Mr Bennie’s email of 21 October 2013 to Mr O’Dea claimed the trader had done so with the statement that: “We got there, ALL FIXED!”. The trader had not fixed the noise at all. It did not produce any documentation to the Tribunal to show what if anything it had done to the vehicle when it was returned to have the noise fixed in October. The third attempt the trader made to fix the “clunk” noise was in January 2014. The trader spent $540.50 for parts and five hours of its employees’ time in replacing various parts of the suspension. The “clunk” noise remained. The noise has now been diagnosed by Roverland as probably the coil spring slipping on the top strut mount. The fault is not a serious one but it should have been identified and fixed within two attempts. The trader failed to find it after three attempts over five months. It should have been diagnosed and repaired by the trader at the first or second visit. The Tribunal therefore finds that the trader failed to remedy the fault with the coil spring slipping on the top mount- even after a reasonable time.

[24] To its credit the trader repaired the squealing brakes when required to do so by the purchaser in September 2013 although the use of cardboard as a packer in the front brake pads is not what a competent tradesman would do. The trader also rectified the air conditioning fault when required to do so. The Tribunal considers the fault with the worn suspension arm bushes identified by Enterprise Motor Services in February 2014 at 112,837kms some 7,000kms and six months after the vehicle was sold is probably a wear and tear item in a vehicle of this age and mileage. It is not a fault the trader should be expected to have to pay to repair. The same consideration applies to the worn tyres which are probably the reason that the vehicle lacks stability on braking at speed. That should have been obvious to Mr O’Dea and the Tribunal is surprised he allowed his family to ride on such worn tyres.

Conclusion on issue [b]:

[25] The trader failed to remedy the “clunk” in the suspension after the purchaser had required it to do so on three occasions over a period of five months. The Tribunal therefore finds the trader did not remedy that fault within a reasonable time.

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

Relevant law

[26] Section 18(2) of the Act (reproduced in paragraph 22 above) provides that where a supplier fails to remedy a fault within a reasonable time the consumer has the option of either having the goods repaired and claiming the reasonable cost of doing so from the supplier, or, subject to s 20 rejecting the goods in accordance with s22 of the Act.

[27] 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.”

(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.”

[28] The period of time within which rejection must occur runs from the date of supply (here 15 August 2013), not from the date any defect was, or ought to have been, detected. The purchaser did not reject the vehicle until 26 February 2014 a period of a little more than six months after the date of supply.

[29] 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.”

[30] Section 22(1) of the Act requires a consumer to exercise the right of rejection by notifying the supplier of the decision to reject the goods and of the ground or grounds for rejection.

Application of law to facts

[31] In this application the goods were supplied to the purchaser on 15 August 2013 and the defect of the “clunk” in the suspension became apparent to Mr O’Dea, he said on 26 August 2013. The trader first attempted to diagnose and fix the fault in September but the clunk remained and, according to Mr O’Dea’s evidence became worse by 12 October 2013. He returned the vehicle a second time for the trader to rectify the fault but it must have been obvious to Mr O’Dea by 9 December 2013 that the “clunk” was back because it had not been diagnosed and fixed by the trader after two attempts. Mr O’Dea should have rejected the vehicle at that time. He did not do so but continued to use the vehicle and gave the trader a third opportunity to fix the fault on 21 January 2014 which again was not successful. He continued to use the vehicle and finally rejected it when he filed his application with the Tribunal on 26 February 2014. The Tribunal thinks that given the fact that the vehicle was being driven frequently by Mr O’Dea and his partner and the fault was apparent to Mr O’Dea by 26 August 2013 and was not fixed after two attempts, Mr O’Dea should have rejected the vehicle on 9 December 2013. He continued to drive the vehicle until he rejected it on 26 February 2014 which the Tribunal considers is beyond a reasonable time after the date of supply. The Tribunal is therefore unable to uphold the purchaser’s rejection of the vehicle because it was not exercised within a reasonable time.

[32] The purchaser is however entitled to damages under s18(3) of the Act for any reduction in value of the goods below the price paid for them. The Tribunal considers the compensation Mr O’Dea should receive is the cost he will incur to fix the “clunk” noise which, in the Assessors view requires the fitting of insulators between the spring and the upper strut mount. The Assessor has advised the Adjudicator that although this will probably remedy the fault there is a small chance the top strut mount bearings could be worn and would rapidly wear out the insulators again. The Tribunal has therefore decided to order the trader to pay the cost quoted by Archibald & Shorter in its quotation dated 28 March 2014 to replace the upper strut mount, the support plates and the insulators, with labour and GST totalling $1,950.77.

Conclusion

[33] The purchaser proved the existence of a minor fault causing a “clunk” in the suspension. It also proved the trader had not succeeded in repairing that fault within a reasonable time. The purchaser became entitled to either have the fault repaired or claim the reasonable costs of doing so from the trader, or to reject the vehicle. The purchaser chose the latter option. However the Tribunal does not think the purchaser rejected the vehicle within a reasonable time of the time of supply and instead of upholding the purchaser’s rejection the Tribunal has ordered the trader to pay compensation to the purchaser equivalent to the cost of fixing the clunk which appears to the Tribunal to be $1,950.77 for parts, labour and GST.

Orders

1. The purchaser’s application to reject the vehicle is dismissed.

2. The trader shall pay the purchaser the sum of $1,950.77 as compensation.

DATED at Auckland this 11th day of April 2014

C.H.Cornwell
Adjudicator