Valk v Autopride Cars Limited - Reference No. MVD 41/2015 (Auckland) [2015] NZMVDT 42 (9 April 2015)

Last Updated: 2 June 2015

Decision No. AK 42/2015

Reference No. MVD 41/2015

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN WENDY MARILYN VALK

Purchaser

AND AUTOPRIDE CARS LIMITED

Trader

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
Mr C H Cornwell, Barrister & Solicitor, Adjudicator
Mr G Middleton, Assessor

HEARING at Auckland on 7 April 2015

APPEARANCES

Ms W M Valk, the purchaser

Mrs A Thakur, manager, for the trader

DECISION

Background

[1] On 18 December 2014 Ms Valk (“the purchaser”) bought a 2007 Mazda Axela registration HUE874 (“the vehicle”) from Autopride Cars Limited (“the trader”) for $7,100. The purchaser has rejected the vehicle because she says it has a serious fault in its engine. The purchaser seeks the Tribunal’s orders upholding her rejection and ordering the trader to refund the purchase price and certain consequential losses.

[2] The trader says that it wants to have the opportunity to repair the vehicle but the purchaser has not returned the vehicle to it to allow it to do so.

[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 clause 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 requiring consideration 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 failure is of substantial character within the definition in s21 of the Act?
[c] Whether the purchaser is 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

Legal Principles
[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 Consumer Guarantees Act 1993 (“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 now 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 s7(1)(a) to (e) of the Act as modified by the factors set out in s 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 her right to reject the vehicle within a reasonable time.

Application of law to facts
[10] The purchaser admits she bought the vehicle in haste because her daughter was coming to visit her from Australia and she wanted a vehicle for the Christmas holidays. She took the vehicle for a short test drive of 1km before agreeing to buy it. She did not have it mechanically inspected. She signed her consent in the Vehicle Offer and Sale Agreement prepared by the trader to a special condition which reads: “SELLING AS IS WHERE IS NO AFTER SALES SERVICES.”

[11] The vehicle had travelled 99,993 kms at the date of sale according to the CIN signed by the purchaser. The trader says it had its own technician change the oil and oil filter before it sold the vehicle to the purchaser.

[12] Over the Christmas –New Year holiday period the purchaser drove the vehicle to Whitianga and up to Cape Reinga. On 23 January whilst heading south from Kaitaia she heard what she describes as a rattling noise from the vehicle’s engine. She had the vehicle towed from Lake Ohia 18kms north of Mangonui to Wiltons Garage at Mangonui who checked the rattle in the motor and told her they thought it might be caused by lifters or the variable valve timing unit. They noticed the vehicle’s engine oil was very dirty and change it and the oil filter. They recommended the purchaser not drive the vehicle. The purchaser and her daughter spent the night at Mangonui and caught a bus back to Auckland the following day.

[13] The purchaser notified the trader of the problem on 27 January in an email in which she rejected the vehicle claiming the rattle in the engine was serious. The trader replied by email on 30 January saying it did not accept the purchaser’s rejection and pointed out to her that she had bought the vehicle on an “as is where is” basis with “no after sales service” and claimed that legally they were not responsible for after sale faults or problems. They asked the purchaser to take the vehicle to a mechanic and get a quotation for its repair. The purchaser refused to do so in an email to the trader sent on 3 February.

[14] The purchaser filed her claim with the Tribunal who requested that she obtain a written quotation for the cost of repairing the vehicle. The purchaser did not do so. Instead she obtained an unsigned undated statement from Rowan Wilton of Wiltons Garage in an email saying that on removing the rocker cover they found a heavy carbon build up and two broken cam bearing caps and damage to the intake camshaft due to a lack of oil supply. Mr Wilton’s statement says to cost out an engine rebuild the engine would have to be completely stripped. Wiltons Garage also sent the purchaser six colour photographs of the vehicle’s engine which she produced which clearly show excessive build up of oil sludge contamination and varnishing of the majority of the upper engine components including the cylinder head, rocker cover, camshaft bearing caps and all fixed bolts that was so severe the hexagonal bolt heads can hardly be defined.

[15] The Tribunal took sworn evidence from Mr Paul Wilton of Wiltons Garage by telephone conference call during the hearing. He confirmed that he had inspected the engine after removing the rocker cover and he described it as “ very very yucky” caused by a build-up of oil as a result of inadequate servicing over a considerable period of time. He said that the motor was very sludgy and varnished and agreed with the Assessor that the approximate cost to replace the engine with another second hand engine was the most cost effective way of fixing the problem because the sludge cannot be effectively removed from the engine internals and internal damage will not be confined to just the cylinder head area. Mr Wilton agreed that the cost with labour, oil and GST to replace the engine with another second hand engine would be about $3,000 to $4,000. The Assessor also inspected an oil sample produced by the purchaser that was removed from the engine by Wiltons Garage of around 500mls in volume. The sample was very dirty and a large amount of contamination/sludge could be seen on the bottom of the clear sample canister

[16] The Tribunal, in deciding whether this vehicle was of acceptable quality at the time of sale, has had regard to the criteria specified in s7 of the Act to be taken into account in deciding if goods are of acceptable quality. First, the nature of the goods. In this case the vehicle was, at the time of sale on 18 December 2014, a seven year old Japanese imported Mazda Axela which had travelled 99,993kms according to the CIN. Second, the price of $7,100.

[17] The Tribunal notes that the trader’s attempt to sell the vehicle on an “as is where is basis” and to contract out of providing the purchaser with after sales service for the vehicle amounts, in the Tribunal’s view to a breach of s43(4) of the Act which provides as follows:
“(4) Every supplier and every manufacturer commits an offence against section 13(i) of the Fair Trading Act 1986 who purports to contract out of any provision of this Act other than in accordance with subsection (2) or section 43A.”
The Tribunal notes that the contracting out did not take place in accordance with either s43(2) or s43A of the Act.

[18] The Tribunal understands from the answer given by Mrs Thakur, the trader’s manager, that the trader has used the contracting out clause in other sales of vehicles it has transacted and the Commerce Commission may wish to investigate the trader’s conduct in detail. A copy of this decision will be sent to the Commission.

[19] The Tribunal accepts that the rattling noise heard by the purchaser within a little more than six weeks and 2,800kms of use shows that the vehicle’s engine is in a parlous state and was at the time of sale neither free from defects nor as durable as a reasonable consumer paying $7,100 for a vehicle of this age and mileage would regard as acceptable.

Conclusion on issue [a]:
[20] The vehicle did not comply with the guarantee of acceptable quality in s6 of the Act because it was not free from minor faults, and was not as durable as a reasonable consumer would regard as acceptable.

Issue [b]: Whether the failure to comply with s6 of the Act is of “substantial character” within the meaning of s21 of the Act?

Relevant law
[21] 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
[22] The Tribunal considers that the photographic evidence of the condition of the engine and in particular the camshaft, its fixings including bearing caps, camshafts and rocker cover, and the evidence given by Mr Wilton in this case shows that the vehicle’s engine is in a very poor condition. The engine is badly damaged by dirty congealed engine oil which has formed a thick sludge coating the interior of the engine. This congealed oil and subsequent contamination build up /varnishing of the engine lubrication system severely restricts lubrication to all critical components and the rattling sound is evidence of the imminence of the engine failing. Already the engine has two broken camshaft bearing caps and a damaged intake camshaft, identified by Mr Wilton. The Tribunal does not consider that any reasonable consumer would buy a $7,100 vehicle if they were aware that within six weeks and a few thousand kilometres of doing so they would be required to replace the vehicle’s engine at a cost of $3,000 to $4,000.

Conclusion on issue [b]:
[23] The vehicle’ failure is of substantial character in terms of s21(a) of the Act.

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

Relevant law
[24] Section 22(1) of the Act provides as follows:
“(1) The consumer shall exercise the right to reject goods under this Act by notifying the supplier of the decision to reject the goods and of the ground or grounds for rejection.”

Application of law to facts
[25] The purchaser notified the trader on 27 January 2015 by email of her decision to reject the vehicle and of her grounds for rejection. She did so within four days of becoming aware of the state of the engine after it was inspected by Wiltons Garage.

Conclusion
[26] The Tribunal will uphold the purchaser’s rejection of the vehicle because the vehicle’s failure to comply with the guarantee of acceptable quality is of substantial character as defined in s21(a) of the Act. The purchaser complied with the requirements for rejection; she gave the trader notice of and the grounds for rejection on 27 January 2015 and rejection took place within six weeks of the date of supply which is within a reasonable time from the time of supply.

Consequential Costs
[27] Section 18(4) of the Act provides as follows:
“(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] The purchaser has claimed the costs she has incurred in having of Wilton Garage examine the engine and replace the oil and oil filter of $206.88 which was reasonable and foreseeable. She has also claimed a further charge made by Wiltons Garage for storing the vehicle from 23 January 2015 at $5 a day, the cost of freighting oil and the filter to the purchaser for the hearing, and the cost to remove the covers and send digital images to the purchaser totalling $469.26. The Tribunal considers the storage charges from 23 January to 31 January should be borne by the purchaser but will allow her $335 for storage charges (inclusive of GST) and the other $99.25 of that bill for the freight and labour to remove the camshaft covers and send the purchaser the images. The Tribunal will also allow the purchaser her return bus fare to Auckland of $58 and the cost of a hire care for three days of $195. Her bus fares to and from work are probably less than she would pay in fuel and running costs for the vehicle so they are disallowed.

Orders

1. The purchaser’s rejection of the vehicle is upheld with effect from 27 January 2015 .

2. The trader shall refund the purchaser with the full purchase price of $7,100 and the purchaser’s consequential damages totalling $894.13 as set out in paragraph 28; a total of $7,994.13 immediately.

3. The trader shall at its cost arrange to collect the vehicle from Wiltons Garage in Mangonui as soon as the trader has made full payment to the purchaser of $7,994.13 ordered to be paid in order 2 (above).

DATED at Auckland this 9th day of April 2015.

C H Cornwell
Adjudicator