Chernishov v Auto Auctioneers (Hamilton) Limited Reference No. MVD 282/2016 (Auckland) [2016] NZMVDT 164; [2016] NZMVT Auckland 164 (13 December 2016)

Last Updated: 26 January 2017

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

[2016] NZMVT Auckland 164

Reference No. MVD 282/2016

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN MATTHEW DAVID CHERNISHOV

Purchaser

AND AUTO AUCTIONEERS (HAMILTON) LIMITED

Trader

MEMBERS OF TRIBUNAL
Mr C H Cornwell, Barrister & Solicitor, Adjudicator

Mr S D Gregory, Assessor

HEARING at Hamilton on 8 December 2016

DATE OF DECISION 13 December 2016
APPEARANCES

Mr M D Chernishov, the purchaser

Mr Q C Hayward, Company Director representing the trader
Mr K P Moss, Salesman, witness for the trader
Mrs K Hayward, support person for the trader

DECISION

The Tribunal makes the following orders:

1. The purchaser’s rejection of the vehicle is upheld with effect from 1 September 2016.
2. The trader shall pay the purchaser $5,396.60 by Bank Cheque immediately.

REASONS

Background

[1] On 4 June 2016, Mr Chernishov (“the purchaser”) bought a 2004 Toyota Avensis vehicle registration number CAK904 (“the vehicle”) for $5,300 from Auto Auctioneers (Hamilton) Limited (“the trader”). The vehicle had travelled 198,136kms at the time of sale.

[2] The purchaser claims that the vehicle’s engine consumes oil at a rate of one litre for every 1,000kms travelled and that the vehicle requires its engine to be reconditioned for which he has been quoted a total of $5,600 approximately. The purchaser claims the vehicle is not of acceptable quality under the Consumer Guarantees Act 1993 (“the Act”) and he has rejected it and seeks a refund of his purchase price and assessment cost of $96.60.

[3] The trader says the vehicle was in good condition when it was sold to the purchaser, that the purchaser has travelled 9,240kms in the vehicle over a three month period, and that the oil consumption according to a test it has carried out is about 500mls of oil for each 1,000kms travelled, which it considers to be acceptable for a vehicle of this age and mileage. The trader says that it should not be required to accept rejection of the vehicle.

[4] Pursuant to cl 10 of Schedule 1 of the Motor Vehicle Sales Act 2003 the Tribunal has appointed Mr Gregory as expert assessor to assist in the determination of the complaint. Mr Gregory took the oath required by cl 10(2) of Schedule 1 to that Act. As an assessor Mr Gregory assisted the adjudicator but the Tribunal’s decision was made by the adjudicator.

The issues

[5] The issues requiring consideration are:

(a) Whether the vehicle complied with the guarantee of acceptable quality in s 6 of the Act?
(b) If not, was the failure to comply of substantial character entitling the purchaser to reject the vehicle?

Issue [a]: Whether the vehicle complied with the guarantee of acceptable quality in s 6 of the Act?

Relevant law

[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 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,—

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—

(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) 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) 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 s 7(1)(a)-(e) of the Act as modified by the factors set out in s 7(1)(f)-(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 s 19 of the Act. If the failure to comply with the guarantee of acceptable quality is 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 his right to reject the vehicle within a reasonable time.

Application of law to facts

[10] The Sale and Purchase Agreement between the purchaser and the trader dated 4 June 2016 for the sale of the vehicle purports in paragraph 8 to contract out of the Act in the following wording:

“8. ALL VEHICLES ARE SOLD ON AN “AS IS – WHERE IS” BASIS WITHOUT ANY STATUTORY OR COMMON LAW WARRANTY EXPRESSED OR IMPLIED.”

[11] The trader’s attention is drawn to the provisions of s 43(4) of the Act which makes it an offence against s 13(i) of the Fair Trading Act 1986 for a supplier to purport to contract out of any provision of the Act other than in accordance with s 43(2) or s 43A of the Act - neither of which apply in this case.

[12] The trader’s Sale and Purchase Agreement also contains other incorrect, outdated terms, and unlawful provisions, some of which were drawn to the trader’s attention during the hearing. The Commerce Commission are responsible for enforcing the Fair Trading Act. A copy of this decision is to be sent to the Commerce Commission, for possible enforcement action against the trader.

[13] The purchaser says that soon after he bought the vehicle he changed the engine oil and filter. The purchaser says he used the vehicle to travel from Titirangi to Pukekohe daily, and also to travel to building sites in that area in the course of his work; a total distance of about 1,000kms a week. The purchaser obtained a copy of the vehicle’s service history from Nicholsons, the mechanics who had serviced it for the previous owner, and says this shows two long gaps in the vehicle’s service history. The Tribunal has no way of knowing if another service provider carried out oil services on the vehicle during the periods in which the purchaser says the vehicle missed regular engine oil changes.

[14] The purchaser says he regularly checked the vehicle’s engine oil and coolant and soon after buying the vehicle he became aware the engine was consuming oil. He says he changed the engine oil and filter a second time but he had no record of the date on which he did so. The trader produced a photograph of a service sticker which shows the vehicle was serviced on 15 August 2016 at 205,504kms, which I think was probably the second occasion the purchaser changed the engine oil and filter.

[15] The purchaser says he had not kept and was thus unable to provide any records of the date(s) that he topped up the engine oil, the volumes he topped the engine up with, or the odometer readings on each occasion he topped up the engine with oil, so it was not possible for the purchaser to establish with any certainty what quantity of oil the vehicle’s engine was consuming. The purchaser claimed it was a litre for each 1,000kms travelled but there was no proof of that.

[16] The purchaser took the vehicle to Mechanix on 31 August 2016, when the vehicle’s odometer was recorded as 206,939kms (8,803kms after sale). Whilst Mechanix’s invoice states: “Oil consumption 1 litre per 1000kms” there is no evidence, that they carried out an oil consumption test on the vehicle. The Mechanix invoice states that they found heavy oil deposits on the ceramic tips of spark plugs. They also did a compression test which showed all cylinders were within 10% of each other. A leak down test showed all cylinders were within specification at less than 20% leakage. Mechanix’s invoice says they discussed the findings with an engine reconditioner who recommended the engine would need to be removed, its bores honed, the rings replaced and bearings and gaskets refitted. Mechanix estimated the total cost of this work at $5,600.

[17] On 1 September the purchaser sent the trader an email rejecting the vehicle and asking for a refund of his purchase price claiming the vehicle had a serious fault, namely, that it was using 1 litre of oil for every 1,000kms travelled. The purchaser sent a copy of the Mechanix invoice dated 31 August to the trader with his email. The purchaser delivered the vehicle back to the trader in Hamilton on 4 September 2016.

[18] The trader’s witness, Mr Moss, gave an account of the process he had followed to measure the vehicle’s engine oil consumption, commencing on 7 September 2016, during which he says the vehicle was driven 1,000kms and consumed 500mls of engine oil.

[19] Mr Hayward, the trader’s director, made the following submissions to the Tribunal. First, as the Tribunal has acknowledged, the vehicle could have been serviced by other mechanics in the past and those services would not have been recorded on the service history the purchaser obtained from Nicholsons. Second, there was no mention in the vehicle’s service history of the vehicle’s engine consuming oil. Third, the purchaser’s claim of an engine oil consumption level of one litre per 1,000kms is not supported by accurate measurements whereas the trader’s measurement confirms the vehicle is using 500mls per 1,000kms. Fourth, the incremental cost of the oil the vehicle is consuming would be insignificant if the purchaser was not travelling the usual distance most vehicles are used for in New Zealand of about 15,000kms a year, instead of the purchaser’s use of 1,000kms a week. Finally, a website shows that a Toyota engine of this type can consume up to one litre per 1,000kms.

[20] In determining whether the vehicle supplied by the trader complied with the guarantee of acceptable quality, I have had regard first, to the nature of the goods; in this case a 12-year-old Toyota Avensis which had travelled 198,136kms at the time of sale. Second, to the vehicle’s sale price of $5,300.

[21] Unfortunately, the purchaser did not do a proper oil consumption test and his evidence as to the quantity of oil the engine was consuming was imprecise and confused, and as a result it lacked credibility. The purchaser thus failed to prove, on a balance of probabilities, that the vehicle’s engine was consuming one litre per 1,000kms, as he claimed. However, fortunately for the purchaser, the trader has, I find, carried out an oil consumption test on the vehicle and has, with a reasonable probability of accuracy, established in my view that the engine is consuming oil at the rate of 500mls per 1,000kms travelled.

[22] The trader sought to argue that engine oil consumption of 500mls per 1,000km was acceptable for an old, high mileage, cheap vehicle of this nature. I do not accept the trader’s submission. My reasons are first, that the recommended service interval for this vehicle is 15,000kms although in a vehicle of this age and mileage a prudent owner should probably change the engine oil and filter every 10,000kms. The vehicle’s sump holds four litres of oil. If the engine is burning 500mls each 1,000kms it would consume the equivalent of seven and one half litres of oil between each scheduled service, or the equivalent of almost two complete oil changes. That, in my view is excessive. Second, the vehicle’s oil consumption is environmentally unacceptably high. Third, the prognosis for an engine burning this much oil is poor.

Conclusion on issue [a]

[23] I find that this vehicle did not comply with the guarantee of acceptable quality in s 6 of the Act because its engine was neither free of fault (excessive oil consumption) at the time of sale, or as durable as a reasonable consumer would regard as acceptable.

Issue [b]: Was the failure to comply of substantial character entitling the purchaser to reject the vehicle?

[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 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—

(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] I do not think that any reasonable consumer aware of the nature and extent of the vehicle’s engine issues would have acquired this vehicle. I consider the vehicle’s worn engine condition was a failure of substantial character within the meaning of s 21(a) of the Act because its repair is estimated to require reconditioning work costing $5,600, which makes the vehicle’s engine uneconomic to repair.

Conclusion on issue [b]

[26] The vehicle’s failure was of substantial character in terms of s 21(a) of the Act. The purchaser is entitled to have his rejection upheld and I will order the trader to immediately refund the full purchase price of $5,300 and the cost of the Mechanix report of $96.60; a total of $5,396.60, by Bank Cheque to the purchaser.

DATED at AUCKLAND this 13th day of December 2016

C. H. Cornwell
Adjudicator