Darroch v LW Motors Limited Reference No. MVD 156/2017 [2017] NZMVDT 143 (20 September 2017)

Last Updated: 16 November 2017

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
		[2017] NZMVDT 143 Reference No. MVD 156/2017
	IN THE MATTER	of the Motor Vehicle Sales Act 2003
	AND
	IN THE MATTER	of a dispute
	BETWEEN	SIMON DARROCH
		Purchaser
	AND	LW MOTORS LIMITED
		Trader
MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Haynes, Assessor
HEARING at Hamilton on 20 September 2017
DATE OF DECISION 4 October 2017
APPEARANCES
Mr S Darroch, Purchaser
Mr D Wan, for the Trader

ORDERS

1. LW Motors Limited shall, within five working days of the date of this decision, pay $5,850 to Mr Darroch.
2. Mr Darroch shall then make the vehicle available to be uplifted by LW Motors.

DECISION

[1] LW Motors failed to adequately disclose the true nature of the damage to the vehicle. In particular, although it described the vehicle as “hail damaged”, LW Motors failed to disclose that the vehicle had also suffered a broken rear window, which meant it must be treated as water damaged for compliance purposes.
[2] Mr Darroch was misled by the failure to disclose the true nature of the damage to the vehicle. LW Motors’ failure to disclose this information was a breach of s 9 of the Fair Trading 1986 (“the FTA”).
[3] Mr Darroch has suffered loss as a result of being misled. He would not have purchased the vehicle if he had known of its true history. Further, because of the true nature of the damage to the vehicle, it will now cost substantially more to repair than Mr Darroch had been led to believe.

REASONS

Introduction

[4] On 31 March 2017, Simon Darroch purchased a 2013 Ford Falcon from LW Motors for $5,850.
[5] This was an unusual transaction in many regards. The vehicle had recently been imported from Australia, where it had been written-off for insurance purposes. It appears that the vehicle had suffered dents to its panels and a broken rear window in a hail storm in New South Wales in November 2016. This was sufficient for the vehicle to be written-off in Australia.
[6] LW Motors had purchased the vehicle from a damaged vehicle auction in January 2017 and imported the vehicle into New Zealand. At the border, the vehicle was flagged as having hail damage. This meant that LW Motors was required to have the vehicle repaired and to have those repairs certified before it could be registered in New Zealand.
[7] LW Motors then replaced the broken rear window and took the vehicle to a Hamilton based repairer for certification. The Hamilton based repairer declined to perform the compliance work necessary to certify the vehicle, and advised LW Motors that no repair certifier in Hamilton would perform the necessary compliance and certification work.
[8] As a result, LW Motors offered the vehicle for sale on Trade Me on an “as is where is” basis. LW Motors advised prospective purchasers that the vehicle had been written off in Australia due to hail damage and that any purchaser would be responsible for repairing the vehicle and obtaining the certification necessary for the vehicle to be used in New Zealand.
[9] Mr Darroch saw the Trade Me listing and was interested in the vehicle. He made inquiries of LW Motors as to the nature of the damage to the vehicle and was told that the vehicle had suffered hail damage only. Mr Darroch spoke with an engineer who advised that it would cost between $2,000 and $3,000 to have a hail damaged vehicle assessed and complied. Mr Darroch then agreed to purchase the vehicle.
[10] Mr Darroch then discovered that, as well has having damaged panels, the vehicle had also suffered a broken rear window. This fact was not disclosed on the Trade Me listing nor at any time before Mr Darroch purchased the vehicle.
[11] Mr Darroch claims that he has been misled by LW Motors’ failure to disclose that the vehicle had a broken rear window, which meant that it would be treated as water damaged for compliance and certification purposes, and would require much more extensive, and expensive, repair and certification work before it could legally be used on New Zealand roads. Mr Darroch has applied to the Tribunal seeking a refund of the purchase price of the vehicle, claiming that he would not have purchased the vehicle had the true nature of the damage been disclosed.
[12] LW Motors says that it did not mislead Mr Darroch. It accepts that it did not disclose that the vehicle had suffered a broken window. However, it says that it was not required to disclose that fact and that it disclosed all the information it was required to disclose. LW Motors also says that the Trade Me listing was clear that any prospective purchaser was responsible for any repair and certification work required on the vehicle.

The Issues

[13] The issues for consideration in this case are:

• (a) Has LW Motors breached s 9 of the FTA by failing to disclose that the vehicle had suffered a broken window and would be treated as a water damaged vehicle for compliance and certification purposes?
• (b) What loss, if any, has Mr Darroch suffered as a result of any misleading conduct?

Did LW Motors mislead Mr Darroch in breach of s 9 of the FTA?

[14] Section 9 of the Fair Trading Act provides;

“9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

[15] The primary issue in this case is to determine whether Mr Darroch has proved the trader breached s 9 of the FTA. The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corporation v Ellis:[1]

“The question to be answered in relation to s 9 ... is ... whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive a hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed.”

[16] To succeed in a claim under the FTA, Mr Darroch must show that LW Motors’ failure to disclose that the vehicle had suffered a broken window, meaning it would be treated as a water damaged vehicle was misleading or deceptive conduct in breach of s 9 of the FTA. This requires the Tribunal to consider the extent to which non-disclosure or silence can be a breach of s 9 and, if so, whether s 9 was breached on the facts of the present case.
[17] Under the common law principle of caveat emptor (let the buyer beware), a claimant needed to show that the other party had made a positive representation before it could succeed in any claim. Silence, or the failure to disclose a material fact, could not give rise to a claim.[2]
[18] This principle of caveat emptor has now been displaced by the FTA. Under the FTA, silence or the failure to disclose a material fact, can constitute misleading or deceptive conduct.[3] In Des Forges v Wright, Elias J (as she then was) stated:[4]

“Silence may constitute misleading or deceptive conduct, but whether it does is to be objectively assessed in all the circumstances ... Conduct may be misleading or deceptive within the meaning of s 9 of the Fair Trading Act 1986 by an omission to provide information even if no obligation to provide such information exists as a matter of general law, outside the standards of conduct required by the Fair Trading Act.”

[19] Since Des Forges, the Courts have developed a “reasonable expectation of disclosure” test in several other cases.[5] Under that test, silence, or the failure to disclose a material fact can be misleading where, taking account of the circumstances of the particular case, a reasonable consumer would expect the information to have been disclosed.
[20] In the circumstances of this case, I am satisfied that a reasonable consumer would have expected the fact of the broken rear window to be disclosed.
[21] This is because the broken rear window was a material fact to any prospective purchaser of this vehicle. Due to recent changes made to the New Zealand Transport Agency vehicle inspection requirements manuals (“VIRMs”), all vehicles imported into New Zealand that have been written off due to hail damage and have suffered broken glazing must be treated as a water damaged vehicle.[6]
[22] Mr Haynes, the Tribunal’s Assessor, says that the repair and compliance work required to certify a water damaged vehicle is far more extensive and expensive than that for a hail damaged vehicle that does not have broken glazing.
[23] This is because vehicles purchased on or after 7 September 2016 and/or border checked on or after 7 October 2016 must be treated as fully submerged. To obtain compliance, these vehicles must have a number of their safety related components replaced with new genuine parts which include all seat belts and seat belt pre-tensioners, airbags, SRS module including loom, clock spring and sensors, all vehicle ECUs, and ABS/ESC control modules and actuator. Mr Haynes advises that replacement of these items alone would render most vehicles uneconomic to repair. A raft of other components must also be replaced, although second hand parts can be used.
[24] Mr Darroch says that it will cost him approximately $8,000 to $10,000 more to have the vehicle certified due to its water damaged status.
[25] LW Motors did make some disclosure about the vehicle’s damage, in that it disclosed that the vehicle had suffered hail damage. However, that disclosure was misleading because it significantly understated the true nature of the damage to the vehicle and gave Mr Darroch a misleading impression as to the amount of work required to have the damage repaired and certified.
[26] I am therefore satisfied that, by describing the vehicle as hail damaged, but failing to disclose that the vehicle had also suffered a broken window, meaning it would treated as a water damaged vehicle, LW Motors has engaged in misleading or deceptive conduct in breach of s 9 of the FTA. A reasonable consumer would, in the circumstances of this case, have had a reasonable expectation of being told about the true nature of the damage to the vehicle.

What remedy is available to Mr Darroch?

[27] The remedies available for a breach of the FTA are discretionary. They are set out in s 43 of the FTA which is as follows:

43 Other orders

(1) This section applies if, in proceedings under this Part or on the application of any person, a court or a Disputes Tribunal finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute any of the following:

(a) a contravention of a provision of Parts 1 to 4A (a relevant provision):

(b) aiding, abetting, counselling, or procuring a contravention of a relevant provision:

(c) inducing by threats, promises, or otherwise a contravention of a relevant provision:

(d) being in any way directly or indirectly knowingly concerned in, or party to, a contravention of a relevant provision:

(e) conspiring with any other person in the contravention of a relevant provision.

(2) The court or the Disputes Tribunal may make 1 or more of the orders described in subsection (3)—

(a) whether or not the court grants an injunction, or the court or the Disputes Tribunal makes any other order, under this Part; and

(b) whether or not person A made the application or is a party to the proceedings.

(3) The orders are as follows:

(a) an order declaring all or part of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) to be void; and

(ii) if the court or the Disputes Tribunal thinks fit, to have been void at all times on and after a date specified in the order, which may be before the date on which the order is made:

(b) if an order described in paragraph (a) is made in respect of a contract that is associated with a collateral credit agreement, an order vesting in person B all or any of the rights and obligations of person A under the collateral credit agreement:

(c) an order in respect of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) varying the contract or the arrangement in the manner specified in the order; and

(ii) if the court or the Disputes Tribunal thinks fit, declaring the varied contract or arrangement to have had effect on and after a date specified in the order, which may be before the date on which the order is made:

(d) if an order described in paragraph (c) is made in respect of a contract that is associated with a collateral credit agreement, and if that order results in person A no longer having property in the goods that are the subject of the contract, an order vesting in person B the rights and obligations of person A under the collateral credit agreement:

(e) an order directing person B to refund money or return property to person A:

(f) an order directing person B to pay to person A the amount of the loss or damage:

(g) an order directing person B, at person B’s own expense, to repair, or to provide parts for, goods that have been supplied by person B to person A:

(h) an order directing person B, at person B’s own expense, to supply specified goods or services to person A.

(4) In subsection (3) (a) to (d), collateral credit agreement, in relation to a contract for the supply of goods, means a contract or an agreement that—

(a) is arranged or procured by the supplier of the goods; and

(b) is for the provision of credit by a person other than the supplier to enable person A to pay, or defer payment, for the goods.

(5) An order made under subsection (3) (a) to (d) does not prevent proceedings being instituted or commenced under this Part.

(6) This section does not limit or affect—

(a) the Illegal Contracts Act 1970; or

(b) section 317 of the Accident Compensation Act 2001.

[28] The Supreme Court in Red Eagle sets out the approach to be taken in applying s 43. The Tribunal must consider whether:

• (a) Mr Darroch was in fact misled or deceived; and
• (b) if so, was LW Motors’ conduct the effective cause or an effective cause of Mr Darroch’s loss or damage?

[29] As set out above, I find that Mr Darroch was in fact misled.
[30] Mr Darroch has suffered loss as a use on New Zealand roads than for a hail damaged vehicle. Mr Darroch estimates the extra cost at between $8,000 and $10,000. Mr Haynes agrees that this estimate is realistic.
[31] I am also satisfied that LW Motors’ conduct was an effective cause of Mr Darroch’s loss. Had Mr Darroch not been misled by LW Motors, I very much doubt that Mr Darroch would have purchased the vehicle.
[32] In all the circumstances of this case, I consider that the appropriate remedy is to declare the contract between the parties to purchase the vehicle to be void as at the date of this decision under s 43(3)(a)(ii) of the FTA and to direct LW Motors to refund the full purchase price under s43(3)(e) of the FTA.
[33] I therefore order that LW Motors must, within five working days of the date of this decision, pay $5,850 to Mr Darroch. Mr Darroch must then make the vehicle available to be uplifted by LW Motors.

DATED at AUCKLAND this 4th day of October 2017

B.R. Carter
Adjudicator

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[1] Red Eagle Corporation v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

[2] Smith v Hughes (1871) LR 6 QB 597; March Construction v Christchurch City Council (1995) 5 NZBLC 99,356.

[3] Des Forges v Wright [1996] 2 NZLR 758 (HC).

[4] Ibid, at 764.

[5] Hieber v Barfoot & Thompson (1996) 5 NZBLC 99, 384; Tuiara v Frost & Sutcliffe [2003] 2 NZLR 833 at [91]; Guthrie v Taylor Parris Group Cossey Ltd (2002) 10 TCLR 367 at [21] and [32].

[6] See Technical Bulletin 7 to the Light Vehicle Repair Certification VIRM at https://vehicleinspection.nzta.govt.nz/virms/light-vehicle-repair/technical-bulletins/certification-of-vehicles-written-off-for-hailmaliciousvandalism-damage.