Burnard v Capital City motors Limited - Reference No. MVD 218/2017 [2017] NZMVDT 142 (29 September 2017)

Last Updated: 17 October 2017

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
		[2017] NZMVDT 142 Reference No. MVD 218/2017
	IN THE MATTER	of the Motor Vehicle Sales Act 2003
	AND
	IN THE MATTER	of a dispute
	BETWEEN	ROBERT DRUMMOND BURNARD
		Purchaser
	AND	CAPITAL CITY MOTORS LIMITED
		Trader
MEMBERS OF TRIBUNAL
J S McHerron, Barrister – Adjudicator
D Binding, Assessor
HEARING at Wellington on 21 August 2017 FURTHER SUBMISSIONS on 28, 31 August and 1 September 2017
DATE OF DECISION 29 September 2017
APPEARANCES
R D Burnard, Purchaser D Lavington, Group Service Manager of Trader E Wardlow, Field Service Engineer, Ford New Zealand

DECISION

Mr Burnard's rejection of the vehicle is not upheld and his claim is dismissed.

REASONS

Introduction

[1] Robert Burnard and his wife Catharina Burnard own a Ford Kuga. Since Mr Burnard purchased the vehicle in September 2014, they have driven it about 45,000 km. In April 2017, Ford New Zealand advised them that their vehicle was subject to a safety recall, requiring repairs to its cooling system. If not addressed, Ford advised that an engine fire could occur. Following receipt of the recall notice, Mr Burnard decided he wished to reject the vehicle. Capital City Motors Limited denies Mr Burnard is entitled to reject the vehicle. Mr Burnard has asked the Tribunal to uphold his rejection.
[2] From this background, the following issues arise:

(a) Did the vehicle fail to comply with the guarantee of acceptable quality?

(b) If so, is the failure of a substantial character?

(c) What remedy (if any) is Mr Burnard entitled to?

Issue one: Did the vehicle fail to comply with the guarantee of acceptable quality?

[3] Section 6(1) of the Consumer Guarantees Act 1993 (the Act) provides that where goods are supplied to a consumer there is a guarantee “that the goods are of acceptable quality”. According to s 2 of the Act, “goods” includes vehicles.
[4] The meaning of acceptable quality is defined in s 7 of the Act (as far as is relevant) 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.

[5] The question whether a vehicle is of acceptable quality is considered from the point of view of a reasonable consumer who is fully acquainted with the state and condition of the vehicle, including any hidden defects.

Background to the Ford recall

[6] Early in 2017, Mr and Mrs Burnard saw a story on the TV news regarding a Ford Kuga engine fire in Auckland. Concerned about whether their own vehicle might be at risk of a fire, Mrs Burnard made enquiries with Capital City Motors' Kapiti branch, but no further information was available.
[7] Then, in April 2017, Mrs Burnard received a safety recall notice from Ford New Zealand. It specified the vehicle identification number and registration number of Mr and Mrs Burnard’s vehicle and stated that Ford New Zealand had “discovered a potential issue” with it. The letter described the problem as follows:

In affected vehicles, localised overheating of the engine cylinder head, due to a lack of coolant circulation (coolant loss), may cause the cylinder head to crack, causing an oil leak. An oil leak may result in a fire in the engine compartment.

[8] The letter described the repair work that was required, which would occur in two stages. However, parts were not immediately available to carry out repairs on affected vehicles. Accordingly, the recall repair work was expected to commence in the second quarter of 2017. Vehicle owners were asked to book their vehicles in to have each stage of the repair work completed. At the hearing, we were told that 911 Ford Kuga vehicles are subject to the recall in New Zealand.
[9] Until the parts were available, Ford advised vehicle owners to maintain proper engine coolant levels by following the coolant check procedure in the maintenance section of the vehicle owner manual. Doing so would “substantially reduce the risk of a fire in the engine compartment”. Vehicle owners were also advised that if their vehicle exhibited symptoms of overheating or coolant loss or frequently needed coolant added, they should contact their Ford dealer and request a service appointment for diagnosis and repair.
[10] Mr Burnard confirmed at the hearing that he had never had problems with his vehicle overheating or showing signs of abnormal coolant loss. Nevertheless, he was sufficiently concerned about the vehicle safety recall that he visited the Kapiti branch of Capital City Motors on 27 April 2017. He told the salesman that he wished to reject the vehicle due to a breach of the guarantee of acceptable quality in the Act. Mr Burnard said he wanted a refund of the purchase price he paid for the vehicle in September 2014, $38,990.
[11] Capital City Motors’ Group Service Manager, Mr David Lavington telephoned Mr Burnard on 3 May 2017. He said that Capital City Motors did not accept Mr Burnard’s rejection as it did not consider the vehicle had a defect. Mr Lavington invited Mr Burnard to email him setting out his position, which Mr Burnard did on 24 May.
[12] In his 24 May 2017 email, Mr Burnard stated that he did not consider a reasonable consumer would regard as acceptable in a vehicle costing $38,990, a potential issue that could result in a fire in the engine compartment. The repairs outlined in the recall notice involved re-routing the turbo coolant return line, as well as the installation of a new warning system. That, in Mr Burnard's view, pointed to the present routing of the turbo coolant return line being an “unsafe feature of the vehicle”.
[13] Mr Lavington replied on 26 May 2017, stating that the work Ford recommended in its safety recall notice was a “precaution to avoid any issues arising with Kuga vehicles” and that it did not mean that Mr Burnard’s vehicle posed a safety risk.

The problem the recall is designed to address

[14] In its submission to the Tribunal, Ford New Zealand gave a precise description of the potential chain of events that the recall was designed to address. Ford indicated that during testing (presumably after the occurrence of engine fires either overseas or in New Zealand), it found that the routing of the coolant return hose from the turbo could lead to super-heated coolant entering the coolant degas bottle.[1] The super-heated coolant could cause the degas bottle to prematurely weaken, causing cracking and possible leakage in some cases. This leakage, if not recognised, could cause a loss of coolant sufficient to lower the coolant level below the cylinder head. If that occurred, on engine start-up the cold engine could immediately overheat. This “excessive thermal load” could cause the cylinder head to crack. If the cracking occurred directly in front of the engine’s oil gallery, it could result in a fine mist of oil spraying directly onto the exhaust manifold in such a way that a fire could result.

Stage one of the repair

[15] Stage one of the repair is designed to re-route the coolant return hose from the turbo, thereby lowering the temperature of the coolant being returned to the degas bottle. In addition, the degas bottle and hose are replaced with materials better designed to withstand high temperatures. This will, according to Ford, significantly reduce the possibility of coolant loss.
[16] In the hearing, Mr Ehrin Wardlow, a field service engineer for Ford New Zealand, emphasised that, as long as coolant remains in the engine, there is no risk of the cylinder head cracking or any resulting engine fire.
[17] Stage one repairs were carried out on Mr and Mrs Burnard's vehicle in August 2017.

Stage two of the repair

[18] The second stage of repair work, which is expected to be carried out in the fourth quarter of 2017, will involve fitting a coolant level sensor system which will notify the driver of coolant loss. In addition, the vehicle's powertrain control module will be updated to recognise coolant loss/overheating conditions and restrict the engine output, effectively placing the vehicle into "limp mode". This would prevent the engine from developing sufficient heat in its cylinder head to initiate a crack.
[19] In addition to these repairs, Ford also emphasised that it is “imperative [vehicle owners] continue to maintain proper engine coolant level by following the coolant check procedure in the maintenance section of [their] owner’s manual”.
[20] Capital City Motors and Ford submitted that there was no evidence that Mr and Mrs Burnard's vehicle had ever overheated or shown signs of coolant loss. In their submission, there was no evidence of the circumstances that could potentially lead to cylinder head cracking. On this basis, they denied the presence of any defect in Mr and Mrs Burnard’s vehicle. Rather, they submitted the repairs are merely precautionary, to reduce the risk of overheating, cracking and a potential fire occurring in the future.

Mr Burnard’s expert evidence

[21] Mr Burnard obtained a report from Mr John Harcourt, an experienced mechanical engineer (and former Motor Vehicle Disputes Tribunal Assessor).
[22] Mr Harcourt stated that, in his opinion, the design fault described in Ford’s recall notice was a “serious fault in the cooling system”. In his view, the failure of the cooling system causing the cylinder head to crack would not cause the head to crack and leak oil suddenly. Rather, a crack in the cylinder head would start very slowly in the early stages and only be identified with the very best non-destructive testing equipment after the cylinder head was removed. In Mr Harcourt’s opinion, the failure of the cylinder head could occur anywhere between 5-20,000 km after the crack started in the cylinder head, depending on whether the vehicle was used for short or long runs, hill or town driving. In Mr Harcourt’s view, if a crack in the cylinder head had started before the re-routing of the turbo coolant return line was done, any crack would still continue to develop and get larger as time went by. The crack would develop further from normal expansion of the metal every time the engine heated up, cooled down, and heated up again with normal motoring. Mr Harcourt considered that the metal of the cylinder head would already have been weakened. While the crack could take longer to reach the external side of the head where oil started leaking onto the exhaust, a serious fire would still result.
[23] Before completing his report, Mr Harcourt discussed his views with Mr K K Rout, a long term employee of Air New Zealand at the company’s Christchurch engine centre. Mr Rout also prepared a brief report, stating that:

Constant overheating in an area of the cylinder head on Ford Kuga 1600cc vehicles has had a detrimental effect on the material in this area. It has resulted in a material (molecular) change which reduces its strength.

[24] Mr Rout concluded that such damage would be permanent. Fatigue cracking would result, resulting in further significant loss of strength. As cracking extended, the strength of the material would decrease until its ultimate failure. Mr Rout concluded that, even when the water temperature was corrected, normal temperature changes from cold to normal running would still lead to an ultimate failure, due to previous overheating and material change.

Ford’s response to Mr Burnard’s expert evidence

[25] Ford criticised Mr Harcourt’s report in the following respects:

(a) Mr Harcourt did not inspect Mr Burnard’s vehicle and therefore had no factual basis on which to comment on its performance.

(b) Mr Harcourt had not identified any specific fault with Mr Burnard’s vehicle.

(c) Mr Harcourt did not identify any factors that would indicate the cylinder head in Mr Burnard’s particular vehicle was at risk of cracking. The cylinder head cracking was solely the result of the thermal stress created by coolant loss. The engine would have to be started with a “dry” cylinder head for any cracking to occur. By Mr Burnard's own admission, his vehicle had never exhibited coolant loss or had an overheat condition of any kind.

(d) Mr Harcourt’s comments on the recall were outside the scope of his expertise. This is shown by the fact that his report omits reference to the intent of re-routing the coolant return hose. The re-routing is intended to reduce the temperature of the coolant flowing through the coolant degas bottle, eliminating the likelihood of the bottle or its connections from becoming brittle and causing a significant loss of coolant from the engine, thereby mitigating the risk of the cylinder head cracking. Ford argues that his omission of this detail suggests that Mr Harcourt misunderstood the purpose of re-routing the coolant return line.

(e) Mr Harcourt’s assertion that a cylinder head crack develops slowly over time is not substantiated by any testing or evidence, and was incorrect. Ford’s position is that a crack that could eventuate from the thermal stress associated with loss of coolant in the scenario dealt with by the recall would not develop slowly but would be a sudden event.

(f) Moreover, Mr Harcourt’s assertion that the recall “will not stop the crack from continuing” was both misleading and irrelevant with respect to Mr Burnard’s vehicle because no crack had been identified in the cylinder head of the vehicle, nor was there any evidence that the vehicle had ever experienced any of the factors that would put it at risk of having a cracked cylinder head.

(g) Ford also considered Mr Harcourt’s report to be misleading with respect to the intent of the recall as it was not to “stop the crack from continuing” but was a precautionary exercise to mitigate the risk of the cylinder head cracking in the first place.

[26] Although Ford’s response does not specifically address aspects of Mr Rout’s report, it appears that many of the same criticisms mounted against Mr Harcourt’s report could also be stated against Mr Rout's.

The Tribunal’s Assessor's view

[27] Mr Binding, the Tribunal’s Assessor, reviewed the evidence and submissions of Capital City Motors and Ford, Mr Burnard and his experts Mr Harcourt and Mr Rout. Mr Binding acknowledged Messrs Harcourt and Rout's expertise, but considered that several of Ford's criticisms of their evidence had validity. In particular, and put in obvious terms, Mr Binding agreed that a crack in the cylinder head needed to start for it to continue. The vehicle’s engine would have had to overheat before that could happen. That is because the problem arises from a thermal shock, which is a sudden event rather than a gradual emergence of a crack from the normal temperature levels of the vehicle. As there is no evidence that Mr Burnard’s vehicle has overheated, there is, in Mr Binding’s view, no basis for considering that any crack has started to form. Mr Harcourt's and Mr Rout's reports both assume that a crack has started to form in Mr Burnard's vehicle. This is most starkly evident from Mr Rout's report which states:

Constant overheating in an area of the cylinder head on Ford Kuga 1600cc vehicles has had a detrimental effect on the material in this area. It has resulted in a material (molecular) change which reduces its strength.

[28] Mr Harcourt's report also states "Ford's call back will not stop the crack from continuing as the metal of the cylinder head has already been weakened".
[29] These statements are, in Mr Binding's view, based on a flawed assumption that Mr Burnard's vehicle has overheated, where the evidence shows that is not the case.

Findings on acceptable quality

[30] Having reviewed all the evidence including reports of experts, submissions and evidence of Ford New Zealand and submissions and evidence of the parties themselves, and having had regard to Mr Binding's advice, I conclude there is no basis for finding that Mr Burnard’s vehicle has a crack in the cylinder head. That is because there is no evidence that the vehicle has overheated. At best, Mr Burnard has demonstrated that there is defect in the way in which coolant was being returned to the degas bottle, such that there was an increased risk of the bottle failing as a result of contact with fluid at a higher temperature than it was designed to receive. This defect amounts to the vehicle having an increased susceptibility to developing a leak in its cooling system that could set off a chain of consequences leading to a crack in the cylinder head and potentially an engine fire.
[31] I accept that a reasonable consumer fully acquainted with this defect would not regard it as acceptable in light of the vehicle's age, mileage and price. A reasonable consumer, when presented with the information that Ford presented in the vehicle safety recall letter of 12 April 2017, would consider that the cooling system required repairs to mitigate the risk of overheating and engine fire. A reasonable consumer with the information provided by Ford would not regard the existing state of the vehicle's cooling system, prior to the repairs described, as being of acceptable quality.
[32] I emphasise that my finding that the vehicle failed to comply with the guarantee of acceptable quality is limited to the matters that cause the degas bottle to have an increased likelihood of failing, causing coolant loss. I repeat that I do not consider that Mr Burnard has established that his vehicle’s engine has a crack in the cylinder head. Nor do I consider that he has established that his vehicle was unsafe or lacked durability. Rather, my finding is limited to accepting that he has established it had a minor defect with its cooling system that a reasonable consumer would not regard as acceptable.

Issue two: If so, is the failure of a substantive character?

[33] Mr Burnard argued that he was entitled to reject the vehicle because it had a failure of a substantial character. Section 18(3) of the Act provides that where a failure is of a substantial character, a consumer may reject the vehicle.
[34] Section 21 of the Act defines what is a failure of a substantial character:

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.

[35] In his submissions, Mr Burnard focused on paragraphs (a) and (d) of the definition of a failure of substantial character in s 21. He argued that the vehicle would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure. In addition, he argued that the vehicle was unsafe and lacked durability.
[36] I do not accept Mr Burnard’s submission that the failure of the vehicle to comply with the guarantee of acceptable quality was of a substantial character.
[37] The primary difficulty with Mr Burnard's submission is that a reasonable consumer who was “fully acquainted with the nature and extent of the failure” would realise that the problem was capable of being fixed by Ford free of charge and with minimal inconvenience. Mr Lavington told the Tribunal that the stage one repair was estimated to take 1.6 hours. Stage two was estimated to take less than an hour.
[38] Once the repairs have been carried out, the cause for concern about cylinder head cracking or engine fires is removed, on the evidence that was before the Tribunal. Similarly, I do not consider Mr Burnard has established that the vehicle is unsafe. He has not established that, if he continues to take care to monitor the vehicle's coolant levels, it has any greater chance of catching fire. Mr Burnard told the Tribunal that he was careful to check the coolant levels and to monitor the vehicle’s temperature gauge. Furthermore, Mr Burnard only purported to reject the vehicle after he had been advised of the recall and repair plan that Ford had advised to its Ford Kuga consumers.
[39] Indeed, Mr Burnard has gone ahead with the stage one repairs, which were completed on his vehicle on 3 August 2017.
[40] Since then, Mr Burnard has continued to drive the vehicle, demonstrating a lack of personal concern that the vehicle is too unsafe to use.
[41] For these reasons, I conclude that Mr Burnard has not established that the vehicle’s failure to comply with the guarantee of acceptable quality was of a substantial character.

Issue three: What remedy (if any) is Mr Burnard entitled to?

[42] Section 18(2)(a) of the Act provides the primary remedy for breach of a guarantee under the Act, namely that the consumer may require the supplier to remedy the failure within a reasonable time. This, the supplier may do, by repairing the vehicle: s 19(1)(a)(i).
[43] As indicated above, Mr Burnard has already taken advantage of his right to a remedy under s 18, in having the stage one repairs completed on his vehicle on 3 August 2017. He will presumably go ahead and have the stage two repairs completed in the fourth quarter of 2017.
[44] There is no evidence of any other damage to Mr Burnard’s vehicle as a result of the cooling system defect. Nor is there any evidence that he incurred any other expenses associated with the defect. To the contrary, as indicated, he has enjoyed over 45,000 km of relatively trouble-free motoring in this vehicle over a period of three years. To allow him a full refund of the purchase price, after such a long period of time has elapsed and he has obtained such a substantial amount of use from the vehicle, is not justified on the facts, and in light of the consumer protection purposes underlying the Act.
[45] Accordingly, Mr Burnard has already obtained the only remedy to which he is entitled. It follows that his application to the Tribunal must be dismissed.

J S McHerron
Adjudicator

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[1] A degas bottle is part of an engine's cooling system. It is used to remove entrapped gases/air from the coolant to improve its effectiveness. The bottle also functions as an overflow reservoir for coolant.