Oliver v Precision Enterprises Limited t/a Precision Autos Ltd - Reference No. MVD 111/2014 (Auckland) [2014] NZMVDT 77 (10 July 2014)

Last Updated: 20 August 2014

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Decision No. AK 66 /2014

Reference No. MVD 111/2014

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN ADRIANA JARMILA OLIVER

Purchaser

AND PRECISION ENTERPRISES LIMITED T/A PRECISION AUTOS LTD

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr G Middleton, Assessor

HEARING at AUCKLAND on 7 July 2014

APPEARANCES
Miss A J Oliver, the purchaser

Mr D Tomovski, partner and witness for the purchaser

Mr A Ramadan, director for the trader

DECISION

Background

[1] On 16 February 2014 Ms Oliver (“the purchaser”) bought a 2008 Suzuki Escudo registration number HHA994 (“the vehicle”) for $18,891 (including on road costs) from Precision Enterprises Limited (“the trader”). The purchaser has rejected the vehicle because she says its engine seized on 22 April 2014. The purchaser wants the Tribunal to uphold her rejection and order the trader to refund her purchase price and some other costs she has incurred.

[2] The trader denies that the purchaser is entitled to reject the vehicle. It says the vehicle has been driven by the purchaser without oil and the purchaser should have noticed an engine warning light showing the vehicle had no oil. The trader has offered to either share the cost of replacing the engine with the purchaser or replace the vehicle with a similar 2009 Suzuki Escudo with 54,000kms on its odometer.

[3] Pursuant to clause 10 of Schedule 1 of the Motor Vehicle Sales Act 2003 the Tribunal has appointed Mr Middleton as expert assessor to assist in the determination of the complaint. Mr Middleton took the oath required by cl 10(2) of Schedule 1 to that Act. As an assessor Mr Middleton 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 complied with the guarantee of acceptable quality in s.6 of the Consumer Guarantees Act 1993?
[b] If not, whether the vehicle’s engine failure is a failure of substantial character?
[c] 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 Consumer Guarantees Act 1993 (“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 or the Consumer Guarantees Act 1993, as applicable to the circumstances of the case. In this application the Consumer Guarantees 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 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:
(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 purchasers’ 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 s 21, or if the faults cannot be remedied, the Tribunal is directed to ask whether the purchaser exercised her right to reject the vehicle within a reasonable time.

Application of law to facts
[10] The purchaser test drove the vehicle before she agreed to buy it from the trader on 16 February 2014 for $18,891 (including on road costs). The purchaser also bought a mechanical breakdown warranty from the trader for a further $1,095. The trader’s director, Mr Hanodi, who sold the vehicle to the purchaser orally promised the purchaser his personal guarantee of the vehicle for 100 days from the date of purchase. The vehicle is a Japanese import which had travelled 57,000kms at the time of sale. After the purchaser paid for the vehicle on 16 February the trader arranged to have it serviced by a mechanic, obtained number plates for the vehicle and delivered it to the purchaser.

[11] Within two months of buying the vehicle the purchaser noticed a crack in the left rear door panel. Her partner returned the vehicle to the trader who promised to repair the crack after the Easter holidays.

[12] On 22 April 2014 the purchaser was driving the vehicle when the vehicle’s engine warning light lit up on the instrument panel and within a few seconds the engine stopped. The purchaser called the AA who sent a tow truck which towed the vehicle to Criss X Cars Ltd in Ponsonby. Criss X Cars Ltd’s mechanic,Mr A J Sweeny, gave sworn evidence by telephone conference call to the Tribunal during the hearing. Mr Sweeny said he put the vehicle on a hoist and inspected the engine. He says it had been fitted with the incorrect oil filter and the seal had leaked engine oil. As a result the engine had no oil in it when it was inspected by Criss X Cars Ltd and there was oil over the base of the engine. Mr Sweeny says he fitted a new oil filter of the correct size, added four litres of engine oil, and the engine turned over but would not start and was making noises from the big end and/or crankshaft (main) bearings. Criss X Cars Ltd charged the purchaser $95 for the oil and filter.

[13] The purchaser’s partner, Mr Tomovski telephoned the trader on 23 April after the vehicle had been inspected by Criss X Cars Ltd and informed the trader’s salesman Mr Ryan what had happened. Mr Ryan asked Mr Tomovski if the purchaser had mechanical breakdown insurance and he told Mr Ryan he did, but expected the repairs to be covered by the trader because its mechanic who had serviced the vehicle had caused the engine failure by fitting the incorrect oil filter to the vehicle before it was supplied to the purchaser. The trader promised to sort it out and arranged to have the vehicle towed from Criss X Cars Ltd to its repairer the following day. The trader promised to contact Mr Tomovski on 28 or 29 April but failed to do so.

[14] On 2 May Mr Tomovski called Mr Ryan who promised that someone would call him back. Two hours later a mechanic from Autometrix, Mr Fazil Hussein telephoned Mr Tomovski saying he was waiting for instructions from an insurance company. On 3 May the purchaser sent the trader an email rejecting the vehicle on the grounds that the vehicle had a serious fault; namely a seized engine caused by being fitted with an incorrect part before purchase. The purchaser sent the trader a copy of the Criss X Cars Ltd report with her letter of rejection and asked for the return of her purchase price within two working days.

[15] On 7 May the trader replied by email saying the engine was not seized and the defect was capable of being repaired. Its email said that its mechanic and Autosure were working to repair the fault however the purchaser had refused to allow the vehicle to be fixed. The trader claimed the purchaser had acted contrary to the Act by not complying with Autometrix’s instructions and denying them the opportunity to repair the fault with the vehicle. The trader’s email ended saying that it was aware of the fault and was “happy to repair the defect immediately”.

[16] Mr Tomovski replied by email on 8 May saying he would contact the trader’s mechanic, Fazil Hussein that day and ask him to go ahead with the inspection but the purchaser still wanted a full refund of the purchase price. On 20 May Mr Tomovski sent the trader an email saying he had talked to Fazil the previous day and he confirmed the engine is seized and the vehicle will need a new engine so the fault is serious. Mr Tomovski’s email said that he had given the trader a reasonable time to remedy the defect and he wanted to reject the vehicle and have a full refund. The trader did not respond.

[17] The trader failed to contact the purchaser or Mr Tomovski to attempt to mediate the dispute after receiving the purchaser’s application on or soon after 4 June 2014 with a letter from the Tribunal requiring it to do so. On 3 July 2014, two working days before the hearing, the trader sent the Tribunal a submission attaching a copy of the VTNZ compliance report, an invoice from Autometrix for the cost of compliance and the replacement of the vehicle’s rear brake pads as required for compliance, and an invoice from Autometrix dated 21 February 2014 for the servicing of the vehicle. The servicing invoice does not identify the vehicle’s registration number or odometer reading nor does it say what part number or size oil filter was fitted to the vehicle or what quantity or grade of oil was replaced in the vehicle’s engine when Autometrix did the oil change. In view of the lack of detail on Autometrix’s service invoice the Tribunal cannot even be sure whether Autometrix filled the engine with the correct quantity of oil when they fitted the oil filter. Certainly their charge of $39.13 for an engine oil change, a replacement oil filter and the labour content to service the vehicle is extremely low.

[18] The trader’s submission claims that Criss X Cars Ltd fitted a F01037 filter which according to the box the trader photographed is interchangeable with a FZ386 filter. The trader also produced a letter from Autometrix in which that company claims its mechanic would have consulted a catalogue book to obtain the correct part number for the oil filter and Autometrix claim they fitted the new filter recommended when they removed the old filter. Their letter also states that they checked for oil leaks and also checked the oil lamp in the vehicle.

[19] The trader was represented at the hearing by its director, Mr Ramadan, who says that Autometrix did the pre-delivery oil and filter change and that they used an oil filter model FZ386. However the Tribunal notes that there is no evidence to show they did so. Mr Ramadan produced two used oil filters. One which he said was fitted by Autometrix and was on the vehicle when it was supplied to the purchaser and the other fitted by Criss X Cars Ltd. The oil filters appear to the Tribunal’s Assessor to be of different design. Mr Ramadan says the trader rejects the purchaser’s claim because the vehicle was driven without oil and the purchaser should have noticed evidence of either:
a) oil leaking from the vehicle on the ground; or
b) the smell of burning oil when the oil dripped onto the engine subframe; or
c) an oil warning light showing the vehicle’s engine’s oil level was low.
The purchaser told the Tribunal that she had not noticed the engine was leaking oil and she did not smell any burning odour or see an oil warning light before the engine stopped on 22 April.

[20] The factors to be considered by the Tribunal in deciding if the vehicle was of acceptable quality at the time of sale are that the vehicle supplied to the purchaser on 17 February 2014 is a five year old imported Suzuki Escudo with 57,000kms on its odometer which was sold for $18,891. The trader promised the purchaser on 16 February when it sold her the vehicle that it would have it serviced before it was supplied. The trader did so and had its mechanic, Autometrix, change the engine oil and oil filter on 17 February 2014.

[21] The Tribunal prefers the evidence given by Mr Sweeny of Criss X Cars Ltd who inspected the vehicle immediately after its engine failed to that given by Mr Hussein of Autometrix. Mr Sweeny’s evidence was that the oil filter on the vehicle which the Tribunal accepts was fitted by the trader’s mechanic, Mr Hussein of Autometrix was probably the wrong filter or it was improperly fitted. Its seal did not mate with the oil filter housing and the thread did not match. The consequence of this was that the vehicle probably lost oil over the two months and the 2,552kms the purchaser used the vehicle so that by 22 April the engine was starved of oil and seized. Surprisingly Mr Hussein told the Tribunal that when he got the vehicle back on 24 April the oil filter he had fitted was in the vehicle but he did not attempt to fit it to see if it fitted properly. Autometrix’s letter confirms that the engine is seized. The Tribunal notes that the cost of a replacement second hand engine will be approximately $6,422 to purchase and fit according to a written quotation from Criss X Cars Ltd dated 22 May produced by the purchaser.

[22] The Tribunal considers the vehicle was supplied to the purchaser with a fault by the trader, namely the wrong oil filter or an incorrectly fitted oil filter. The consequence of this was that the engine lost its engine oil and seized two months and 2,500kms after it was supplied. The Tribunal also considers the vehicle was not as durable as a reasonable consumer would regard as acceptable for a five year old $18,891 vehicle with 57,000kms on its odometer.

Conclusion on issue [a]
[23] The vehicle did not comply with the guarantee of acceptable quality in section 6 of the Act.

Issue [b]: Whether the vehicle’s engine failure is a failure of substantial character?

Relevant law
[24] 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."

Application of law to facts
[25] The consequence of the vehicle being starved of oil is that the engine has now seized and needs to be replaced. The evidence shows the cost of replacing the engine will be about $6,400 equivalent to a little more than one third of the cost price of the vehicle. The vehicle in its current state is useless. The Tribunal therefore concludes that no reasonable consumer would have acquired the vehicle if they had been aware that its engine would seize and require replacement two months after the vehicle had been supplied.

Conclusion on issue [b]:
[26] The failure of the vehicle to comply with the guarantee of acceptable quality is of substantial character within the definition in s21(a) of the Act.

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

Relevant law
[27] 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."

[28] Section 22(1) of the Act provides that a consumer who wishes to exercise the right to reject goods under the Act must notify the supplier of the decision to reject the goods and of the ground or grounds for rejection.

[29] Section 20 of the Act provides that the right to reject goods under the Act shall not apply if it is not exercised within a reasonable time. Section 20(2) defines what the term “reasonable time” means.

Application of law to facts
[30] The purchaser exercised her right under s18(3)(a) of the Act to reject the vehicle because of what she claimed was a failure of substantial character. The Tribunal agrees with the purchaser that the vehicle’s engine seizure is a failure of substantial character. However the purchaser would have also been entitled to reject the vehicle under s18(2)(b)(ii) because the trader also failed to repair or replace the seized engine within a reasonable time of being required to do so by the purchaser.

[31] Rejection was communicated to the trader first, in an email dated 3 May and again in another email dated 20 May. Hence rejection occurred within one month of the vehicle’s engine failure on 22 April 2014 and within three months after the date of supply of 17 February 2014. The Tribunal therefore finds the purchaser exercised her right to reject the vehicle in accordance with s 22(1) and did so within a reasonable time of the time of supply in accordance with s20 of the Act.

Conclusion on issue [c]:
[32] The purchaser was entitled to reject the vehicle on 3 May 2014 and did so in accordance with the Act and within a reasonable time. The purchaser’s rejection of the vehicle will be upheld with effect from 3 May 2014. The trader will be ordered to refund the purchaser her full purchase price of $18,891 as well as the amount paid to Criss X Cars Ltd for the oil and filter of $95; a total of $18,986.

Costs
[33] 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.”

[34] The Tribunal considers that the matter ought reasonably to have been settled before proceeding to a hearing but the trader refused without a reasonable excuse to take part in the discussions referred to in clause 5(1)(b) of the Schedule to the Motor Vehicle Sales Act. The trader will therefore be ordered to pay the reasonable costs of the Tribunal’s hearing of $500.

Orders

1. The purchaser’s application to reject the vehicle under the Consumer Guarantees Act 1993 is upheld with effect from 3 May 2014.

2. The trader shall pay the purchaser $18,986 immediately.

3. 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.

DATED at AUCKLAND this 10th July 2014

C.H Cornwell
Adjudicator