Munokoa v CM Holdings (NZ) Limited t/a NZ Motor Sport Imports - Reference No. MVD 251/2017 [2017] NZMVDT 189 (24 November 2017)

Last Updated: 25 March 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
		[2017] NZMVDT Auckland 189 Reference No. MVD 251/2017
	IN THE MATTER	of the Motor Vehicle Sales Act 2003
	AND
	IN THE MATTER	of a dispute
	BETWEEN	KAIRUA MUNOKOA
		Purchaser
	AND	CM HOLDINGS (NZ) LIMITED T/A NZ MOTOR SPORT IMPORTS
		Trader
MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Haynes, Assessor
HEARING at Auckland on 5 October 2017 and 8 November 2017
DATE OF DECISION 24 November 2017
APPEARANCES
Mr K Munokoa, Purchaser Ms E Wilson, Witness for the Purchaser
Mr P McPhail, for the Trader

ORDERS

1. The collateral credit agreement between Kairua Munokoa and Finance Now Limited shall vest in CM Holdings (NZ) Limited as from the date of this decision and CM Holdings Limited shall, as from that date, discharge all of Mr Munokoa’s obligations under the collateral credit agreement.
2. CM Holdings (NZ) Limited shall within, 10 working days of the date of this decision, pay Mr Munokoa the capital component of all payments made by Mr Munokoa under the collateral credit agreement as from the date the collateral credit agreement was entered into, until the date of this decision.

100. Upon receipt of the amount in Order B, Mr Munokoa shall immediately make the vehicle available for CM Holdings (NZ) Limited to uplift.

DECISION

[1] CM Holdings failed to adequately disclose that the vehicle had suffered significant flood damage in Australia and that the vehicle’s engine, wiring loom and fusebox assembly had been replaced because of that water damage.
[2] CM Holdings’ failure to disclose this information was a breach of s 9 of the Fair Trading Act 1986 (“the Act”).
[3] Mr Munokoa has suffered loss as a result of CM Holdings’ breach of s 9 of the Act. Mr Munokoa would not have purchased the vehicle if he had known of its history and the vehicle was not worth the amount he paid for it.
[4] The Tribunal declares the contract between the parties to be void, and orders that all of the rights and obligations under the collateral credit agreement between Mr Munokoa and Finance Now Limited should now vest in CM Holdings Limited.

REASONS

Introduction

[5] On 19 February 2017, Kairua Munokoa purchased a 2012 Holden Commodore SV6 Ute, from CM Holdings (NZ) Limited, trading as NZ Motor Sport Imports for $28,345. Mr Munokoa also purchased a GAP insurance policy for $895 and a four-year mechanical warranty from Autosure for $1,995. The vehicle had an odometer reading of 63,115 kms at the time of sale.
[6] Mr Munokoa entered into a consumer credit agreement with Finance Now Limited to purchase the vehicle (“the collateral credit agreement”) and to pay for the GAP insurance and extended warranty. The collateral credit agreement was arranged by CM Holdings.
[7] Since purchasing the vehicle, Mr Munokoa has experienced a succession of problems involving the vehicle’s electrical components. The vehicle’s engine light has been consistently illuminated, its catalytic converters have been replaced, and more recently the vehicle’s air flow sensor and Engine Control Unit (“ECU”) have been replaced.
[8] At the time of purchase, CM Holdings advised Mr Munokoa that the vehicle had been written off for insurance purposes in Australia, because the vehicle had suffered storm damage. Mr Munokoa has since discovered that the vehicle had in fact suffered flood damage while in Australia, with the water level being high enough to reach and damage important electrical components in the vehicle.
[9] Mr Munokoa has applied to the Tribunal, claiming that he was misled as to the nature of the past damage to the vehicle. Mr Munokoa says that he was led to believe that the damage to the vehicle was external only, and that he would not have purchased the vehicle if he had known that it had suffered flood damage. Mr Munokoa seeks a refund of all amounts paid in respect of the vehicle.
[10] CM Holdings denies that it misled Mr Munokoa about the past damage to the vehicle, and is willing to repair any fault that the vehicle has.

The Issues

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

• (a) Did CM Holdings adequately disclose the true nature of the past damage to the vehicle?
• (b) If not, has CM Holdings breached s 9 of the Act by this failure to disclose?
• (c) What loss, if any, has Mr Munokoa suffered as a result of purchasing this vehicle?

Did CM Holdings disclose the vehicle’s history?

What was the nature of the vehicle’s damage?

[12] All vehicles imported into New Zealand must pass compliance testing by a NZ Transport Agency certified inspector. When the vehicle was imported into New Zealand it was certified by Harris Certification Limited, who completed a light vehicle repair record of certification (“the repair record”) as part of its assessment.
[13] The repair record shows that the vehicle suffered flood damage before it was imported into New Zealand. The repair record notes that the vehicle was a statutory write-off because it was water affected, with the water level reaching 520 mm at the front, and 590 mm at the rear of the vehicle. The repair record also notes that the vehicle’s engine had been changed before it was imported into New Zealand because of water entering the air intake. Harris Certification Limited also required the wiring loom and fusebox assembly to be replaced, as those were flood damaged.
[14] Mr Haynes, the Tribunal’s Assessor, advises that water ingress to those levels is significant as it would saturate many of the vehicle’s important electrical components, which can cause those components to malfunction and fail.

What was Mr Munokoa told about the damage to the vehicle?

[15] Mr McPhail, who appeared for CM Holdings says that he does not know precisely what was said to Mr Munokoa about the nature of the damage to the vehicle. However, he says that the company has a policy of disclosing all relevant information to its customers. Mr McPhail says that he understands that Mr Munokoa was advised that the vehicle had been storm damaged and that its wiring loom had been replaced because of that damage. Mr McPhail says that, by telling Mr Munokoa that the vehicle was storm damaged, CM Holdings did disclose the true nature of the damage to the vehicle. That is because, in his view, the phrase “storm damaged” captures a range of different types of damage that can occur to a vehicle, including flood damage.
[16] Mr Munokoa says he was not told by CM Holdings that the vehicle had been written off in Australia because it had been flood damaged, or that the vehicle’s wiring loom had been replaced. Mr Munokoa says he was told that the vehicle had been storm damaged, but he was led to believe by the salesman he dealt with that the damage was external only.
[17] After weighing all of the evidence, I am satisfied that Mr Munokoa was not told the true nature and extent of the damage to the vehicle. Mr Munokoa and his wife Ms Wilson were adamant that they were not told that the vehicle was flood damaged or that its wiring loom had been repaired. I accept that evidence. CM Holdings did not call evidence from any person who spoke to Mr Munokoa about the nature of the damage to the vehicle. Instead, Mr McPhail gave evidence as to what he expected would have been said. In those circumstances, I prefer the evidence of Mr Munokoa and Ms Wilson, who were both credible witnesses, and who were both involved in the discussions as to the nature of the damage to the vehicle.

Has CM Holdings breached the Act?

[18] The question I must answer in this case is whether, by failing to adequately disclose the true nature of the damage to the vehicle, CM Holdings has engaged in conduct that breaches s 9 of the Act, which reads as follows:

“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.”

CM Holdings misled Mr Munokoa

[19] The fact that a vehicle has previously been flooded and suffered damage to its electrical components is an important and material fact that is relevant to any reasonable consumer’s purchasing decision. This is because there are ongoing risks with flood damaged vehicles - Mr Haynes advises that a flood or water damaged vehicle has a high risk of future electrical, rust and mechanical problems. Further, a stigma attaches to vehicles that have been subject to flood damage and have been written off, which significantly affects the resale value of those vehicles.
[20] In those circumstances, I consider that a consumer would have a reasonable expectation that any flood damage to a vehicle would be disclosed by a trader, and that a trader would engage in misleading conduct if it failed to disclose that information.
[21] CM Holdings failed to disclose the true nature and extent of the damage to this vehicle. It did not disclose that the vehicle had been flooded, with flood water reaching levels as high as 590 mm inside the vehicle. It also did not disclose that the vehicle’s wiring loom, fusebox assembly and engine had all been replaced because of that water damage.
[22] CM Holdings did tell Mr Munokoa that the vehicle had been written off because it had been “storm damaged”. However, I do not accept that the words “storm damaged” have the meaning claimed by CM Holdings. I do not consider this disclosure to have been sufficient to inform Mr Munokoa of the true nature and extent of the damage to the vehicle, or that a reasonable consumer would understand those words to mean that the vehicle has been inundated by flood waters, sufficient to cause the vehicle’s engine, wiring loom and fusebox assembly to be replaced.
[23] I am therefore satisfied that CM Holdings has engaged in misleading conduct in breach of s 9 of the Act by describing failing to disclose the true nature and extent of the damage to the vehicle.

What remedy is available to Mr Munokoa?

[24] The remedies available for a breach of the Act are discretionary. They are set out in s 43 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.”

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

• (a) Mr Munokoa was in fact misled or deceived;
• (b) if so, was CM Holdings’ conduct the effective cause or an effective cause of Mr Munokoa’s loss or damage?

[26] As set out above, I find that Mr Munokoa was in fact misled.
[27] I am satisfied that Mr Munokoa has suffered loss as a result of being misled. A stigma attaches to vehicles that have previously been flood damaged and written off and flood damaged vehicles often experience ongoing faults with their electrical components – which is evident in this case.
[28] Although the extent of that loss has not been quantified, I am satisfied it is significant. Mr Munokoa paid $28,345 for the vehicle. I am satisfied that, because the vehicle has been flood damaged and is now suffering ongoing electrical problems that are likely to be related to that flood damage, Mr Munokoa would receive substantially less than that amount if he now sought to sell the vehicle.
[29] I am also satisfied that CM Holdings’ conduct was an effective cause of Mr Munokoa’s loss. Had Mr Munokoa not been misled by CM Holdings, I doubt that Mr Munokoa would have purchased the vehicle.
[30] 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 Act and to order, under s 43(3)(b) of the Act, that the collateral credit contract between Mr Munokoa and Finance Now shall now vest in CM Holdings.
[31] I therefore order that:

• (a) The collateral credit agreement between Mr Munokoa and Finance Now, shall vest in CM Holdings as from the date of this decision and CM Holdings shall, as from that date, discharge all of Mr Munokoa’s obligations under the collateral credit agreement.
• (b) CM Holdings shall within, 10 working days of the date of this decision, pay Mr Munokoa the capital component of all payments made by Mr Munokoa under the collateral credit agreement as from the date the collateral credit agreement was entered into, until the date of this decision.
• (c) Upon receipt of that amount, Mr Munokoa shall immediately make the vehicle available for CM Holdings to uplift.
  

DATED at AUCKLAND this 24th day of November 2017

B.R. Carter
Adjudicator