Scott v Turners Auctions Limited - Reference No. MVD 92/2014 (Auckland) [2014] NZMVDT 87 (25 August 2014)

Last Updated: 24 September 2014

Decision No. AK 71 /2014

Reference No. MVD 92/2014

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN PAUL JOHN SCOTT

Purchaser

AND TURNERS AUCTIONS LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

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

HEARING at Hamilton on 21 August 2014

APPEARANCES

Mr P J Scott, the purchaser

Mrs K Scott, spouse and witness for the purchaser
Mr D Brindle, Regional Manager for the trader
Ms N Hildreth, support person for the trader

DECISION

Background

[1] On 3 December 2013 Mr Scott (“the purchaser”) bought a 2003 VW Golf registration ETE310 (“the vehicle”) for $5,100 from Turners Auctions Limited (“the trader”). Within one month of the date of purchase the vehicle’s transmission failed and the cost to repair it is estimated to be $4,385.03. The purchaser says that the vehicle was faulty at the time of sale, that the vehicle has not complied with the guarantee of acceptable quality in the Consumer Guarantees Act 1993 (“the Act”) and he has rejected the vehicle. He seeks the Tribunal’s order upholding his rejection and ordering the trader to refund the purchase price and some consequential costs he has incurred.
[2] The trader says that the vehicle was supplied to the purchaser by auction and that accordingly the provisions of the Act do not apply to the sale of the vehicle.

[3] Prior to the commencement of the Tribunal’s inquiry, the Tribunal appointed Mr Clough who 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.

Issues
[4] The Issues raised by this application are:
[a] Whether the sale of the vehicle to the purchaser was a sale by auction (so that the Act does not apply)?
[b] If the Act does apply, whether the vehicle failed the guarantee of acceptable quality provided for in the Act?
[c] If the vehicle failed to comply with the guarantee of acceptable quality is the failure of “substantial character”?
[d] If so, what remedies are available to the purchaser? In particular is he entitled to reject the vehicle and obtain a refund of the purchase price?

Issue (a): Whether the sale of the vehicle to the purchaser was a sale by auction?

Relevant law

[5] One of the exceptions to the Act is the supply of goods by auction. Section 41(3) of the Act sets out the supply by auction exception as follows:
“(3) Nothing in this Act shall apply where goods are supplied-
(a) by auction; or
(b) by competitive tender.”

[6] The term “auction” is not defined in the Act. The Auctioneers Act 1928 defines “Sales by auction” or “sell by auction” as:
“means the selling of property of any kind, or any interest or supposed interest in any property, by outcry, by the auctioneer saying “I’ll take” and commencing at a higher figure and going to a lower figure , by what is known as Dutch auction, knocking down of hammer, candle, lot, parcel, instrument, machine, or other mode whereby the highest, the lowest, or any bidder is the purchaser, or whereby the first person who claims the property submitted for sale at a certain price named by the person acting as auctioneer is the purchaser, or where there is a competition for the purchase of any property or any interest therein in any way commonly known and understood to be by way of auction; and shall be deemed to include the selling of any property by outcry in any public place, as the same is defined in the Summary Offences Act 1981, or in any room, or mart, or place to which the public are admitted or have access, whether or not the sale of the goods has been advertised to take place.”

Application of law to facts

[7] The purchaser’s spouse gave evidence that she had test driven the vehicle over a short distance on 2 December 2013. She then authorised the trader to arrange a pre-purchase mechanical inspection of the vehicle on the same day and this was carried out by VTNZ at the purchaser’s cost. A copy of VTNZ’s inspection report (“the VTNZ report”) was emailed to the purchaser’s spouse on 2 December 2013. It recorded the inspector’s comments on the vehicle as follows:
“Overall the vehicle is in very good condition for its age
The vehicle has been found to have some mechanical issues. Refer to Inspection results for more information
The vehicle has been found to be structurally sound
This vehicle has engine performance or condition issues. Refer to Inspection Results for more information.
Transmission has been repaired
Drives well at test speed
Would recommend to get whine on motor and transmission investigated”

[8] On the second page of the VTNZ report under a heading “Inspection results- Items for your consideration” the following item appears under “Driveline”: “Slight whine from transmission.” The other faults recorded in the VTNZ report were: roller pulleys noisy, no record of the cam belt having been changed, the brake fluid required replacement, worn front brake pads, minor fluid leaks at the sump area and the right hand inner boot was leaking.

[9] The purchaser and Mrs Scott both say they read the VTNZ report before they attended the auction on 3 December 2013 but they did not contact the Inspector who wrote the report whose name and contact telephone number was on the front page of the VTNZ report because they did not think that was the process. The purchaser said his reasoning for not investigating the transmission whine as recommended by the Inspector who wrote the VTNZ report was that he thought that the faults listed in the VTNZ report were only minor issues. He said he believed that if he bought the vehicle cheaply enough he could attend to the faults listed in the VTNZ report later.

[10] Both the purchaser and Mrs Scott attended the auction of the vehicle on 3 December 2013 at the trader’s premises. They inspected and briefly test drove the vehicle together. The vehicle was listed as Lot 16 and the trader’s live report shows it was offered for sale by auction at 6-12pm and attracted seven bids from $4,000 to the highest bid, that of the purchaser, of $5,100. The vehicle was declared by the trader’s auctioneer not to have reached the reserve price set by the vendor, whom the Tribunal understands was Turners Fleet Limited. The vehicle was not sold at that time but was “passed in”. The trader’s auctioneer then proceeded to auction other vehicles.

[11] The purchaser says that immediately following the passing in of the vehicle the trader’s sales consultant, Mr Hazelton, invited him as the highest unsuccessful bidder of the vehicle to go into a quiet room to discuss the purchase of the vehicle and he and Mrs Scott did so. Only Mr Hazelton the purchaser and Mrs Scott were present at that time and although the Tribunal requested the trader to arrange for Mr Hazelton to attend the hearing so that his evidence as to what was said at that meeting could be received and considered by the Tribunal, the trader elected not to arrange for Mr Hazelton to attend the hearing.

[12] Mr Scott says that at that meeting Mr Hazelton told him that the vehicle had not reached its reserve price and asked the purchaser if he was willing to increase the price he was prepared to pay to buy the vehicle. Mr Scott said that he was not prepared to increase the price he was prepared to offer for the vehicle whereupon Mr Hazelton said that he had authority to accept the purchaser’s offer price of $5,100 and an oral agreement to purchase the vehicle at that price was concluded with the parties. Their agreement was then recorded in documentation prepared by the trader, following which the purchaser arranged to pay for the vehicle. He collected it the following day. The purchaser says he agrees he was probably offered the opportunity to buy a mechanical breakdown insurance policy by the trader but declined that offer.

[13] The documentation that was produced by the trader was a Consumer Information Notice, signed by the purchaser, an unsigned Auctioneer Sell Sheet & Buyer Acknowledgement and the unsigned Auction Terms referred to in the Auction Sell Sheet. The Auction Sell Sheet & Buyer Acknowledgement contains the following acknowledgement initialled by the purchaser:
“The buyer understands and acknowledges that the Vehicle has been purchased on the Auction Terms attached to this form and specifically that:
a) The Vehicle was purchased on an “as is”, where is” basis without any statutory or common law or condition expressed or implied.
b) In addition to the Purchase Price I am liable to pay Buyer Fees
c)If the Vehicle does not have at the time of delivery a current certificate or warrant of fitness issued within one month before the date of sale the Buyer undertakes not to operate the Vehicle except for the purpose of obtaining a certification.
The Auction Terms define “Buyer” as follows:
“means the person who has made the highest or winning bid at the fall of the gavel or where the person is not present at the auction, the person is notified by Turners that they are the highest bidder by email or telephone.”

[14] The Auction Terms also contain the following provisions:
“3.0 Sale: Once the reserve has been achieved or exceeded the highest bidder shall be the Buyer. On the fall of the gavel or any other similar act which concludes the bidding the buyer shall have entered into an unconditional agreement to purchase the Vehicle on the terms set out in this Agreement.
and
“3.2 No Warranties: Subject to clause 4 all Goods including any parts and accessories to Vehicles are offered for sale “as is, where is” and no representations or warranties, either express or implied are given by Turners or the Owner:
(a) as to merchantability or fitness for purpose or quality or condition; and
(b) where the Goods are Vehicles as to:

(i) the condition, mileage, description or performance characteristics of the Vehicle notwithstanding information published in any catalogue or advertisement;

(ii) either the distance travelled or the accuracy of the odometer reading of any Vehicle;
(iii) the past use of any Vehicle;

(iv) whether the Vehicle has or has not suffered flood or water damage, structural, chassis or other repair.”

[15] The trader acknowledges that the vehicle did not meet its reserve price and the sales consultant had taken the purchaser and Mrs Scott to a quiet environment. Mr Brindle says that in this situation a negotiation process “kicks in” to see if the buyer can come up to the reserve price set by the seller. The seller in this case was Turners Fleet Ltd and $5,100 was the highest price the purchaser would agree to pay for the vehicle so the trader’s sales consultant let the sale go through at that price. Mr Brindle says that Lot 16 would not have been re-introduced into the auction process again but he says that the trader considers that if a vehicle is sold by a negotiation after the reserve price is not met and the vehicle is passed in, the purchaser is still considered by the trader to have bought the vehicle by auction provided the Auctioneer announces during the same auction that the vehicle has been sold giving the lot number and price. Mr Brindle says he understood (without providing any proof such as a transcript of the auction proceedings) that Mr Hazelton reported to the Auctioneer that Lot 16 had been sold for $5,100 and that the Auctioneer announced the sale of the vehicle at that price and felled his gavel.

[16] Mr Brindle produced a “To Whom it May Concern” letter from Mr Hazelton. The first paragraph of that letter is relevant to the issue. It states:
“Re: VW Golf ETE310
On the night of the auction, 3 December 2013, this vehicle was top bid at $5100, it had a reserve of $5500. Kelly and Paul did not want to go any higher than $5100 for the vehicle so we were able to agree on a sale price of $5100 as per their top bid. I took them through to the payments/reception team to finalise the transaction and then proceeded back to the auction stand where I announced ‘lot 16’ had been sold. The auctioneer fell the gavel to confirm this and then carried on with the auction.”

[17] Was the sale of the vehicle to the purchaser a sale by auction? If it was then the Act does not apply. The question that arises here is when is an auction complete? The trader says that the term “auction” is broad enough to include a negotiation which follows a vehicle not meeting its reserve price and being passed in. It says that where that negotiation results in a price being agreed between the owners agent and the buyer the vehicle has been sold by auction provided that, before the auction is completed, the auctioneer announces that the lot has been sold and drops his gavel. The purchaser says that the auction of a lot is over once the bidding has concluded and either the goods are sold or passed in and that any subsequent negotiations are outside the auction process.

[18] The Tribunal considers that whether or not a sale is in fact a sale by auction is a question of fact to be determined having regard to all the circumstances surrounding the sale and having regard to the agreement entered into by the parties. Of course if the matter were to be determined solely on the basis of the parties written agreement suppliers could effectively contract out of the Act by including a clause in an agreement for the sale of goods that simply acknowledged a sale was a sale by auction.

[19] In this case at the end of the bidding process the reserve price was not reached and bidders were advised the lot was closed. The purchaser could have left the trader’s premises at that time without buying the vehicle. He did not do so because he was persuaded by the trader’s agent to enter into a negotiation with the trader’s sales consultant for the purchase of the vehicle. The trader’s sales consultant no doubt sought to get the purchaser to agree to pay more for the vehicle than he had bid at the auction but it would have been equally open for the purchaser in the course of that negotiation to have offered the trader less than his $5,100 unsuccessful bid. Mr Brindle for the trader conceded when asked by the Tribunal that if the purchaser had paid more or less than $5,100 that would have resulted in a sale by negotiation and that as a consequence the Act would have applied. The Tribunal sees no material difference between that situation and one where in the course of a negotiation the purchaser indicates he is prepared to pay no more than the sum he was prepared to offer whilst the auction was in progress and before the vehicle was passed in for failing to reach its reserve price. In short, the negotiation which followed the vehicle being passed in was exactly that- a sale by negotiation and not part of the auction process.

Conclusion on issue [a]

[20] The sale of the vehicle to the purchaser was not a sale by auction and so the Act applies to the sale of the vehicle to the purchaser.

Issue [b]: Whether the vehicle failed to comply with the guarantee of acceptable quality in the Act?

Relevant law

[21]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.”

[22] The expression "acceptable quality" was, at the time this transaction took place defined in s7 of the Act as follows ( from 17 June 2014 s7 been amended by inserting a new sub-paragraph, s7(1)(ha) by s8 of the Consumer Guarantees Amendment Act 2013) :

“7 Meaning of acceptable quality

(1) For the purposes of section 6, goods are of acceptable quality if they are as –

(a) fit for all the purposes for which goods of the type in question are commonly

supplied; and

(b ) acceptable in appearance and finish; and

(c) free from minor defects: and

(d) safe; and

(e ) durable, ¾

as a reasonable consumer fully acquainted with the state and condition of the

goods, including any hidden defects, would regard as acceptable, having

regard to ¾

(f) the nature of the goods:

(g ) the price (where relevant):

(h) any statements made about the goods on any packaging or label on the

goods:

(i) any representation made about the goods by the supplier or the

manufacturer

(j) all other relevant circumstances of the supply of the goods.

(2) Where any defects in goods have been specifically drawn to the consumer’s

attention before he or she agreed to the supply, then notwithstanding that a

reasonable consumer may not have regarded the goods as acceptable with

those defects, the goods will not fail to comply with the guarantee as to

acceptable quality by reason only of those defects.

(3) Where goods are displayed for sale or hire, the defects that are to be treated

as having been specifically drawn to the consumer’s attention for the purposes

of subsection (2) of this section are those disclosed on a written notice

displayed with the goods.

(4) Goods will not fail to comply with the guarantee of acceptable quality if—

(a) The goods have been used in a manner, or to an extent which is

inconsistent with the manner or extent of use that a reasonable consumer

would expect to maintain from the goods; and

(b) The goods would have complied with the guarantee of acceptable quality if

they had not been used in that manner or to that extent.

(5) A reference in subsections (2) and (3) of this section to a defect means any

failure of the goods to comply with the guarantee of acceptable quality.”

[23] The guarantee of acceptable quality is in three parts. A set of quality

elements set out in s. 7(1)(a) to (e), a reasonable consumer test which applies

a consumer’s objective evaluation of those quality elements and a set of factors

in s.7(1)( f) to (j) which are to be taken into account by the reasonable

consumer to modify his or her assessment of the quality of the goods. The test

is an objective test, not a review of those factors from the purchaser’s subjective

perspective.

[24] 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 to facts

[25] After purchasing the vehicle the purchaser discovered that its rear door would not lock. He had the vehicle serviced on 13 December 2013 by AA Auto Service in Hamilton at a cost of $239. The purchaser also replaced the battery at a cost of $239 when it failed on 23 December 2013.

[26] Mrs Scott drove the vehicle to her work on a daily basis without noticing any issues. About Christmas 2013 the purchaser and Mrs Scott drove the vehicle from Hamilton to Auckland. When they were near Manukau they noticed the vehicle’s automatic transmission had disengaged momentarily. The purchaser had his father test drive the vehicle later after the transmission had cooled without finding any fault. On the trip back to Hamilton on 2 January 2014 an engine warning light in the vehicle’s instrument panel lit up and the vehicle went into “limp home” mode of second gear from Huntly to Hamilton.

[27] On 6 January 2014 the purchaser took the vehicle into Ebbett Waikato Ltd to investigate the engine warning light and why the vehicle was holding in gear. Ebbett’s report was produced to the Tribunal. It states they found a fault stored for the transmission control module, and there was also a fault stored for the torque converter lock-up clutch. They recommended that further investigation by a transmission specialist was required to identify what had caused the faults. Their report notes the gearbox had been overhauled before and the fluid was in new condition. Ebbetts charged the purchaser $165.50 for their report.

[28] On 8 January 2014 Mrs Scott telephoned the trader to inform it of the vehicle’s transmission fault and also the fault with the rear door lock. On 10 January 2014 Mrs Scott sent an email to the trader notifying it of the faults and that she had telephoned Marshall Transmissions and booked an appointment for the vehicle to be inspected on 13 January 2014. On 13 January Marshall Transmissions inspected the vehicle and confirmed there was a transmission fault but told the purchaser they would need to remove the transmission from the vehicle, dismantle and assess it before they could quote for its repair. They informed the purchaser that the cost of removing and examining the transmission would be $586.50. The trader, on being provided with a copy of the VTNZ report offered to contribute $1,000 towards the transmission repair costs but the purchaser rejected that offer. The purchaser had Marshall Transmissions remove the transmission and assess it. Marshall Transmissions have prepared a quotation of $4,385.03 to overhaul the vehicle’s transmission.

[29] On 29 January 2014 the purchaser wrote an email to the trader rejecting the vehicle on the basis of the cost they had been quoted of $1800 plus GST to replace the transmission valve body.

[30] The vehicle supplied to the purchaser by the trader is a Japanese imported 2003 VW Golf which had travelled 119,000kms at the date of sale and was sold for $5,100. It was driven a further 1,757kms from the date of supply until the engine warning light lit up and the vehicle’s transmission went into “limp home” mode on 2 January 2014. The Tribunal acknowledges that the rear door did not lock, a window did not work and the vehicle’s windscreen wipers and battery failed within a month of the date of supply. All those are fairly minor faults which the buyer of a cheap 10 year old imported vehicle with 119,000kms on its odometer might reasonably expect to occur in a vehicle of this type purchased from the trader. However, the Tribunal has no hesitation in finding that the failure of the vehicle’s transmission within one month of the date of sale and after only 1,757kms of use shows this vehicle was neither fit for purpose, free from minor defects or as durable as a reasonable consumer paying $5,100 would regard as acceptable.

Conclusion on issue [b]:

[31] The vehicle did not comply with the guarantee of acceptable quality at the time of sale because it was not fit for purpose, free of minor faults or as durable as a reasonable consumer would regard as acceptable.
Issue [c]: Is the vehicle’s failure a substantial failure in the guarantee of acceptable quality?

[32] 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 section 18(3). Section 21 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."

[33] The Tribunal is satisfied that no reasonable consumer would have bought this vehicle knowing that it had a significant transmission fault which required the expenditure of `$4,385 to rectify within one month of the date of purchase. For that reason the failure is a substantial failure as defined in s.21 of the Act.

Issue [d]: What are the remedies available to the purchaser?

[34] 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."

[35] In circumstances where the failure in the guarantee of acceptable quality is substantial, the consumer (here the purchaser) may elect whether to reject the vehicle and obtain a refund of the full purchase price paid or whether to require the trader to remedy the problem as its cost. The purchaser has exercised his right in favour of rejection and sent the trader a letter rejecting the vehicle and giving the grounds for doing so within two months of the date of sale. The Tribunal will therefore uphold the purchaser’s rejection of the vehicle with effect from 29 January 2014 and order the trader to reimburse the purchaser with the following amounts:
a) the purchase price of $5,100;
b) the Buyers fee of $380;
c) the cost of the Ebbett Waikato Ltd inspection fee of $165.50;
d) the Marshall Transmissions assessment fee of $586.50;
a total of $6,232. The Tribunal will also order the trader to uplift the vehicle from Marshall Transmissions at its expense.

Orders

1. The purchaser’s rejection of the vehicle is upheld as from 29 January 2014.

2. The trader shall pay the purchaser $6,232 immediately.

3. The trader shall after it has paid the purchaser $6,232 arrange at its cost to collect the vehicle from Marshall Transmissions Ltd.

DATED at AUCKLAND this 25 August 2014

C.H Cornwell
Adjudicator