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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 17 June 2017
BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
[2017] NZMVDT Auckland 48
Reference No. MVD 020/2017
IN THE MATTER of the Motor Vehicle Sales Act 2003
AND
IN THE MATTER of a dispute
BETWEEN PONGOLA LIMITED
Purchaser
AND CORPORATE CARS LIMITED
Trader
MEMBERS OF TRIBUNAL
B R Carter, Barrister - Adjudicator
S Gregory, Assessor
HEARING at Auckland on 18 April 2017
DATE OF DECISION 3 May 2017
APPEARANCES
Mr J N Burns, for the purchaser
Mr L Nel, witness for the purchaser
Mr D
Khan, for the trader
Mr G Tulloch, witness for the trader
The Tribunal makes the following orders:
DECISION
[1] The vehicle did not comply with the guarantee as to acceptable quality in s 6 of the Consumer Guarantees Act 1993 (“the Act”). The vehicle has an undiagnosed fault, which causes the vehicle to go into limp mode under acceleration (“the undiagnosed fault”). The undiagnosed fault is also the likely cause of damage to the vehicle’s engine, which required the vehicle’s engine to be rebuilt. See paragraphs [12] to [23].
[2] The purchaser has the right to reject the vehicle on two grounds:
(a) The trader has not repaired the undiagnosed fault in a reasonable time. See paragraphs [24] to [27]; and
(b) The undiagnosed fault is a failure of a substantial character. See paragraphs [28] to [29].
[3] The purchaser is entitled to a refund of the purchase price under s 23(1)(a) of the Act, as set out in the orders above. The purchaser is not entitled to recover its claimed consequential losses. See paragraphs [30] to [35].
REASONS
Introduction
[4] On 8 September 2016, Pongola Limited (“the purchaser”) bought a 2014 BMW M5, registration number KBF861 (“the vehicle”) for $87,923 from Corporate Cars Limited (“the trader”). The vehicle had travelled 39,627 kms at the time of sale. Mr Justin Burns is a director of the purchaser and gave evidence on behalf of the purchaser at the hearing.
[5] On 8 September 2016, the vehicle went into limp mode. An error message appeared on the vehicle’s display advising of a drivetrain malfunction and that maximum drivetrain output was not available. Mr Burns says this fault arose when he accelerated from a standstill in a 50km/h zone.
[6] The purchaser returned the vehicle to the trader, who sent the vehicle to Cook European Limited (“Cook European”), a European vehicle service centre, to be assessed. The vehicle was returned to the purchaser on 13 September 2016. Mr Burns says he was told that the fault he had experienced with the vehicle going into limp mode and displaying the drivetrain malfunction message was caused by old fuel and would remedy itself when the vehicle was refuelled.
[7] The same fault recurred the next day, again while the vehicle was accelerating in a restricted speed zone. The purchaser returned the vehicle to the trader. The vehicle was again sent to Cook European for assessment. Cook European could only replicate the fault when the vehicle was driven above 160 km/h in second gear.
[8] On about 29 September 2016, while assessing the vehicle, Cook European discovered that the vehicle’s engine appeared to have “run a bearing”. The trader arranged for the vehicle’s engine to be rebuilt. The trader spent more than $26,000 on those repairs and returned the vehicle to the purchaser on 16 December 2016.
[9] On 25 January 2017 the vehicle again went into limp mode and displayed the drivetrain malfunction message. The vehicle has since been sent to Auckland BMW for assessment. Auckland BMW has been able to replicate the fault, but only when the vehicle is driven at high speed in second gear. As at 13 February 2017 Auckland BMW had been unable to repair the fault.
[10] On 13 February 2017 the purchaser rejected the vehicle. The purchaser had previously sought to reject the vehicle on at least two occasions, but following discussions with the trader had not vigorously pursued those rejections. The purchaser now seeks an order from the Tribunal upholding its latest rejection of the vehicle. The trader refuses to accept the rejection. The trader says that Auckland BMW has now repaired the vehicle.
The Issues
[11] The following issues arise:
(a) Did the vehicle comply with the guarantee of acceptable quality?
(b) Has the trader remedied the defect within a reasonable time?
(c) Was the vehicle’s failure of a substantial character?
(d) What remedy is the purchaser entitled to under the Act?
Did the vehicle comply with the guarantee of acceptable quality?
Relevant law
[12] Section 6 of the Act imposes on suppliers and manufacturers of consumer
goods "a guarantee that the goods are of acceptable quality."
Section 2 of the Act defines "goods" as including
vehicles.
[13] 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.”
[14] 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.
[15] In Stephens v Chevron Motor Court Limited,[1] 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 its right to reject the vehicle within a reasonable time.
The vehicle was not free from minor defects or durable
[16] The vehicle did not comply with the guarantee of acceptable quality in s 6 of the Act because it was not free of defects at the time of sale and has not been durable. The vehicle has an undiagnosed fault, which causes the vehicle to intermittently go into limp mode under acceleration. The undiagnosed fault is also the likely cause of damage to the vehicle’s engine, which required the vehicle’s engine to be rebuilt.
[17] The Tribunal’s assessor considers it likely that the vehicle has been “running lean” due to a fuel system, sensor or tuning problem. An engine runs lean when there is too much air in the fuel/air mixture, causing damage to the engine due to the engine detonating. Detonation is the spontaneous combustion of the end-gas (the remaining fuel/air mixture) in the chamber.
[18] The assessor considers that the vehicle “running lean” is the cause of the vehicle going into limp mode under acceleration, the drivetrain malfunction message and the engine damage, with the engine being damaged by detonation. The assessor also considers that the undiagnosed fault is likely to have existed when the purchaser bought the vehicle, although there is no evidence to suggest that the trader knew of this fault.
[19] The trader says that it, or rather Cook European and Auckland BMW, could only replicate the fault when the vehicle was driven at speeds above 160km/h. I take from the trader’s submission that it considers that:
(a) The fault is a result of the purchaser’s unreasonable use of the vehicle, in that the purchaser has driven the vehicle at speeds in excess of 160km/h; and
(b) The fault is minor, as it only manifests itself when the vehicle is being driven at speeds well in excess of the speed limit.
[20] I do not accept that the vehicle was being driven at 160km/h or more when the fault manifested itself. Mr Burns says he was driving the vehicle at speeds much lower than 160km/h when the faults occurred. Mr Burns says the fault first occurred when he accelerated from a standstill and next occurred while accelerating from a 50km/h road onto a highway with an 80km/h speed limit. Applying the trader’s theory, Mr Burns would have to have driven at a speed at least twice the speed limit when the faults occurred.
[21] I accept Mr Burns’ evidence that the vehicle was not being driven at this speed. I am satisfied that, although he was accelerating, and quite possible accelerating heavily, on each occasion that the fault occurred, Mr Burns was not driving at a speed near 160km/h and his use of the vehicle was consistent with the manner of use that a reasonable consumer would expect to obtain from this type of high performance vehicle.
[22] Further, for the reasons set out at paragraph [29] below I do not consider the fault to be minor as suggested by the trader.
[23] The purchaser paid $87,923 for a two year old high performance BMW M5 with low mileage. I consider that a reasonable consumer would not expect a vehicle of this price, age and mileage to have an undiagnosed fault that causes the vehicle to intermittently go into limp mode under acceleration and that is also the likely cause of damage to the vehicle’s engine.
Has the trader remedied the defect within a reasonable time?
Relevant law
[24] Section 18 of the Act provides as follows:
(1) Where a consumer has a right of redress against the supplier in accordance with this Part in respect of the failure of any goods to comply with a guarantee, the consumer may exercise the following remedies.
(2) Where the failure can be remedied, the consumer may—
(a) require the supplier to remedy the failure within a reasonable time in accordance with section 19:
(b) where a supplier who has been required to remedy a failure refuses or neglects to do so, or does not succeed in doing so within a reasonable time,—
(i) have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in having the failure remedied; or
(ii) subject to section 20, reject the goods in accordance with section 22.
(3) Where the failure cannot be remedied or is of a substantial character within the meaning of section 21, the consumer may—
(a) subject to section 20, reject the goods in accordance with section 22; or
(b) obtain from the supplier damages in compensation for any reduction in value of the goods below the price paid or payable by the consumer for the goods.
(4) In addition to the remedies set out in subsection (2) and subsection (3), he 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.”
The trader has not remedied the undiagnosed fault in a reasonable time
[25] The trader repaired the engine damage within a reasonable time.
[26] However, the trader has not remedied the underlying undiagnosed fault within a reasonable time. I consider the trader has been given a reasonable opportunity to repair the fault. The purchaser first returned the vehicle to the trader on 13 September 2016. The fault had not been remedied when the purchaser rejected the vehicle on 13 February 2017, five months later.
[27] The trader says that the fault has now been remedied. I have seen no conclusive evidence that the fault has been remedied, but even if it has, the purchaser was entitled to reject the vehicle on 13 February 2017 because, by that date, the trader had been provided with a reasonable opportunity to remedy the undiagnosed fault and had not done so.
Was the vehicle’s failure of a substantial character?
Relevant law
[28] 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:
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.
There was a failure of a substantial character
[29] The vehicle’s defects are of a substantial character in terms of s 21(a) of the Act. I am satisfied that a reasonable consumer would not have paid $87,923 for a two year old BMW M5 with low mileage if it had known that the vehicle had an undiagnosed fault that:
(a) Intermittently caused the vehicle to go into limp mode under acceleration;
(b) Was difficult to diagnose;
(c) Caused damage to the vehicle’s engine requiring repairs costing more than $26,000; and
(d) Would lead to the vehicle being out of its possession for at least five of the first eight months following purchase.
What remedy is the purchaser entitled to under the Act?
[30] The purchaser has the right to reject the vehicle on two grounds:
(a) Under s 18(2)(b)(ii) of the Act, because the trader has not repaired the undiagnosed fault within a reasonable time; and
(b) Under s 18(3)(a) of the Act because the undiagnosed fault is a failure of a substantial character.
[31] The Tribunal upholds the purchaser’s rejection. Under s 23(1)(a) of the Act, the purchaser is entitled to a refund of any money paid in respect of the rejected vehicle. Accordingly, the Tribunal orders that the trader should refund the vehicle’s purchase price within 10 working days of this decision. In reaching this conclusion I have some sympathy for the trader. There is no evidence to suggest that it was aware of the undiagnosed fault when it sold the vehicle to the purchaser. The trader has also made genuine efforts to find and remedy the undiagnosed fault, including by incurring more than $26,000 in rebuilding the vehicle’s engine. It cannot be fairly criticised for the way it has conducted itself in this matter. However, despite its efforts, the trader cannot avoid the consequences of the vehicle’s failure to comply with the important consumer protections provided for in the Act.
[32] The purchaser has also applied to recover other legal and insurance costs. Under s 18(4) of the Act the purchaser may recover damages for any loss or damage resulting from the vehicle’s failure which was reasonably foreseeable as liable to result from the failure.
[33] The purchaser seeks to recover $4,830 in legal fees. I am not satisfied that these costs result from the vehicle’s failure. They are a result of the purchaser pursuing its dispute with the trader and the cost of bringing its claim to the Tribunal. Costs of this nature are governed by cl 14 of sch 1 to the Motor Vehicle Sales Act 2003. Under cl 14(1)(a)(ii) the Tribunal may order costs where, in the opinion of the Tribunal:
the matter ought reasonably to have been settled before proceeding to a hearing but that the party against whom an award of costs is to be made refused, without reasonable excuse, to take part in the discussions referred to in clause 5(1)(b) or acted in a contemptuous or improper manner during those discussions.
[34] I find that the trader did not refuse, without reasonable excuse, to discuss the application with the purchaser. Indeed, there has been much discussion; the parties simply disagreed on the extent of the defect with the vehicle and the remedy that was available to the purchaser. Accordingly, I decline to award costs against the trader.
[35] The purchaser has also claimed $706.92 for the cost of car insurance for the period between 8 September 2016 and 8 March 2017. The purchaser has quite responsibly maintained current insurance over the vehicle during this dispute, but I am not satisfied that it is entitled to a refund for the period up to the date of this decision. It has received the benefit of that insurance policy, and undoubtedly would have claimed on the insurance policy if anything had happened to the vehicle during this time.
DATED at AUCKLAND this 3rd day of May 2017
B.R. Carter
Adjudicator
[1] Stephens v Chevron Motor Court Limited [1996] DCR1.
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