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Joyce v Smith Reference No. MVD 222/2018 [2018] NZMVDT 175 (26 July 2018)

Last Updated: 17 August 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL



Reference No. MVD 222/2018


IN THE MATTER
of the Motor Vehicle Sales Act 2003


AND


IN THE MATTER
of a dispute


BETWEEN
JOHN ROGAN ARNOLD JOYCE


Purchaser


AND
BRENT SMITH


Trader


MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Gregory, Assessor

HEARING at Auckland on 17 July 2018

DATE OF DECISION 26 July 2018

APPEARANCES
J R A Joyce, Purchaser
No appearance for the Trader


ORDERS

  1. John Joyce’s application to reject the vehicle is upheld.
  2. The collateral credit agreement, dated 10 January 2018, between Mr Joyce and Finance Now Ltd, shall vest in Brent Smith as from the date of this decision and Brent Smith shall, as from that date, discharge all of Mr Joyce’s obligations under the collateral credit agreement.
  1. Brent Smith shall, within 10 working days of the date of this decision, pay to Mr Joyce:
  1. Brent Smith shall pay costs of $650 to the Crown (payable to Ministry of Justice, Tribunals Unit, Level 1, Chorus House, 41 Federal Street, Auckland 1010).

DECISION

[1] The vehicle has several faults that mean it has not been of acceptable quality as required by s 6 of the Consumer Guarantees Act 1993 (the CGA).
[2] Under s 18(2)(b)(ii) and s 18(3)(a) of the CGA, Mr Joyce is entitled to reject the vehicle. Brent Smith has refused to rectify the vehicle’s faults, and the vehicle’s faults, when considered together, amount to a failure of a substantial character for the purposes of s 21(a) of the CGA.
[3] Under s 23A of the CGA, having rejected the vehicle, Mr Joyce is entitled to have his obligations under the collateral credit agreement assigned to Brent Smith. Mr Joyce is also entitled to recover interest and capital payments made against the collateral credit agreement and the cost of assessing and rectifying the vehicle’s faults.
[4] Brent Smith has also engaged in conduct that breached s 9 of the Fair Trading Act 1986 (the FTA) by misrepresenting the Guaranteed Asset Protection (GAP) insurance sold to Mr Joyce.

REASONS

Introduction

[5] On 10 January 2018, Mr Joyce purchased a 2008 Audi A4, registration number LDK424, for $15,490. Mr Joyce also purchased GAP insurance for $595 and a 36-month mechanical breakdown insurance policy for $1,590. Mr Joyce also entered into a consumer credit contract with Finance Now Ltd (the collateral credit agreement) to purchase the vehicle. The collateral credit agreement was arranged by Brent Smith.
[6] Mr Joyce now seeks to reject the vehicle. The vehicle has developed faults, which Mr Joyce says are sufficient to warrant rejection. Mr Joyce also says that he was misled about the mechanical breakdown insurance sold with the vehicle.
[7] Brent Smith, despite receiving a Notice of Hearing, failed to attend. The hearing proceeded without Brent Smith.

The Issues

[8] The issues requiring consideration in this case are:

Does the vehicle have faults that breach the acceptable quality guarantee?

[9] Section 6 of the CGA imposes on suppliers and manufacturers of consumer goods "a guarantee that the goods are of acceptable quality". Section 2 of the CGA defines "goods" as including vehicles.
[10] 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.

[11] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements set out in s 7(1)(a)–(e) of the CGA 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 Mr Joyce’s subjective perspective.
[12] The vehicle has, or has had, the following faults that breach the acceptable quality guarantee:

Faulty ignition coil

[13] In April 2018, the vehicle lost power and was “jerking badly”. Mr Joyce had the vehicle assessed by Birchall & Maunder Automotive Ltd in Rotorua, who found that the vehicle was misfiring on the number one cylinder. Birchall & Maunder found that the misfire was caused by a faulty ignition coil, which it replaced. Birchall & Maunder also recommended replacing all four ignition coils and spark plugs, which Mr Joyce did in May 2018.

The faulty high pressure fuel pump

[14] In May 2018, the vehicle again lost power. The vehicle was again assessed by Birchall & Maunder, who found that the vehicle’s high pressure fuel pump was faulty. Birchall & Maunder replaced the high pressure fuel pump.

Broken engine mounts

[15] Mr Joyce advises that the vehicle has made a knocking noise since shortly after purchase. He initially thought the noise may have been made by a buckled mag wheel, but has since had the vehicle inspected by Ash Mansel Motors Ltd in Rotorua, who found that the vehicle had broken engine mounts.
[16] After the hearing, at the direction of the Tribunal, Mr Joyce had the vehicle inspected by Vehicle Testing New Zealand (VTNZ), who performed a warrant of fitness inspection of the vehicle. VTNZ found that the vehicle’s engine mounts were damaged and required replacement before the vehicle could pass a warrant of fitness inspection.

Excessive play in suspension control arms

[17] Ash Mansel Motors also found fault with the vehicle’s suspension control arms. VTNZ has confirmed that the vehicle’s suspension control arms require replacement to enable the vehicle to pass a warrant of fitness inspection.

Leaking rear park light

[18] VTNZ also found moisture in the left rear park light. Although this may seem like a minor fault, it is nonetheless a fault that will cause the vehicle to fail a warrant of fitness inspection.
[19] I am satisfied that these faults all mean the vehicle is not of acceptable quality as required by s 6 of the CGA. I consider that a reasonable consumer would not expect a vehicle of this price, age and mileage to have these faults so shortly after purchase. In particular, a reasonable consumer would not expect this vehicle to have faults that would cause it to fail a warrant of fitness inspection so shortly after purchase.
[20] I note that, notwithstanding NZ Transport Agency requirements that vehicles sold to consumers must come with a warrant that is issued within one month of sale, this vehicle did not have a recent warrant of fitness when it was sold to Mr Joyce. The warrant of fitness was issued in October 2017, approximately three months before the vehicle was sold to Mr Joyce. This perhaps explains why this vehicle has faults that cause it to fail a warrant of fitness inspection so shortly after purchase.

The other alleged faults do not breach the acceptable quality guarantee

[21] Mr Joyce also alleges that the vehicle has worn brake pads and rotors, undiagnosed electrical issues and a buckled mag wheel.
[22] I am not satisfied that the vehicle’s brake pads and rotors require replacement. A vehicle will fail a warrant of fitness assessment if it has worn brake pads and rotors that make it unsafe. Although Ash Mansel Motors considered that the brake pads and rotors required replacement, VTNZ did not consider that the vehicle’s brake pads and rotors required replacement, and the vehicle will pass a warrant of fitness with the brake pads’ and rotors’ current condition. Accordingly, I am not satisfied that the vehicle’s brake pads and rotors require replacement.
[23] Mr Joyce has not proven the existence of undiagnosed electrical issues. The evidence he provided from Ash Mansel Motors is not sufficient to conclude that the vehicle has actual electrical faults. Ash Mansel Motors certainly found fault codes relating to potential electrical issues, but the existence of a fault code does not prove the existence of a fault, and in the absence of any other evidence, I am not satisfied that Mr Joyce has proven that the vehicle has electrical faults.
[24] Finally, Mr Joyce alleged that the vehicle had a buckled mag wheel. Mr Joyce provided no evidence to prove the existence of a buckled wheel, so I cannot be satisfied that this fault exists.

Has Brent Smith refused to rectify the faults?

[25] Mr Joyce seeks to recover the cost of replacing the vehicle’s ignition coils, spark plugs and high pressure fuel pump. Under s 18(2)(b)(i) of the Act, he will only be able to recover those costs if Brent Smith refused or neglected to perform those repairs.
[26] Section 18 provides:
  1. Options against suppliers where goods do not comply with guarantees

(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), the 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.

[27] I am satisfied that Brent Smith has refused to perform repairs to the vehicle.
[28] Brent Smith has been banned from trading as a motor vehicle dealer by the Registrar of Motor Vehicles. It seems that Brent Smith then shut down his business without making any arrangements for dealing with customers, such as Mr Joyce, who had ongoing issues with the vehicles he sold to them.
[29] Mr Joyce says he attempted to telephone Brent Smith before having the repairs performed. He says that nobody answered his calls and as a result, he decided to have the vehicle’s faults repaired.
[30] These circumstances satisfy me that Brent Smith, by shutting down his business without making arrangements for dealing with ongoing issues that might arise with the vehicles he has sold, has engaged in conduct that amounts to a refusal to rectify any faults that arise. In this case, I am satisfied that he has refused to rectify the faults with Mr Joyce’s vehicle.

Are the faults a failure of a substantial character?

[31] A failure of a substantial character is defined in s 21 of the CGA:
  1. 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.

[32] Section 21(a) of the CGA applies to this case. The question I must answer is whether the faults that this vehicle has are such that a reasonable consumer, fully acquainted with the true nature and extent of the faults, would not have purchased the vehicle.
[33] None of these faults on their own amount to a failure of a substantial character. Each has been or can be easily repaired. However, I am satisfied that the accumulated defects with this vehicle amount to a failure of a substantial character. That is because a reasonable consumer would not have purchased the vehicle if they were fully acquainted with the nature and extent of the accumulated faults that existed in this vehicle or that would arise shortly after purchase.
[34] In Cooper v Ashley & Johnson Motors Ltd, the District Court stated that a purchaser may reject a vehicle where there has been an accumulation of minor defects, which in themselves could not be described as substantial.[1] The Court noted that a point will eventually be reached where the purchaser could “say convincingly that he or she had no ‘confidence in the reliability of the vehicle’”.[2]
[35] This is such a case. This vehicle has five faults that breach the acceptable quality guarantee, three of which caused it to fail a warrant of fitness inspection. I consider that consumers can reasonably expect that any vehicle they purchase from a registered motor vehicle trader will be free of defects that would cause the vehicle to fail a warrant of fitness inspection, and that consumers will quickly lose confidence with the vehicle if it is subsequently shown that the vehicle has faults that will cause it to fail a warrant of fitness inspection. That is why it is incumbent on traders to ensure that vehicles are of warrantable standard when sold.
[36] In this case, I am satisfied that the vehicle’s faults are such that a reasonable consumer would have reached the point of losing all confidence in the reliability of the vehicle. Consequently, the vehicle’s faults amount to a failure of a substantial character for the purposes of s 21(a) of the CGA.

What remedy is Mr Joyce entitled to under the CGA?

[37] Under s 18(2)(b)(ii) and s 18(3)(a) of the CGA, Mr Joyce is entitled to reject the vehicle. Under s 23A of the CGA, having rejected the vehicle, Mr Joyce is also entitled to have his obligations under the collateral credit agreement assigned to Brent Smith. Section 23A states:

23A Goods subject to collateral credit agreement

(1) This section applies if—

(a) a consumer acquires goods under a contract for the supply of goods; and

(b) the contract is associated with a collateral credit agreement; and

(c) the supplier is a party to the contract; and

(d) the consumer exercises the right to reject the goods under this Act.

(2) A court or the Disputes Tribunal may order that all or any of the rights and obligations of the consumer under the collateral credit agreement vest in the supplier.

(3) In this section,—

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 the consumer to pay, or defer payment, for the goods

supplier does not include a creditor within the meaning of the Credit Contracts and Consumer Finance Act 2003 who has lent money to a consumer, if the whole or part of the price of the goods is to be paid out of the proceeds of the loan and if the loan was arranged by a person who, in trade, supplied the goods.

[38] I am satisfied that Brent Smith arranged or procured the collateral credit agreement and it was entered into to enable Mr Joyce to purchase the vehicle. Mr Joyce confirmed that Brent Smith arranged the loan. Under s 23A(2) of the CGA, I therefore assign all of Mr Joyce’s obligations under the collateral credit agreement to Brent Smith.
[39] Under s 23(1)(a) of the CGA, Mr Joyce is also entitled to recover all amounts paid in respect of the vehicle, which in this case includes principal and interest repayments under the collateral credit agreement. Further, under s 18(2)(b)(i) of the CGA, Mr Joyce is entitled to recover:
[40] Under s 18(4) of the CGA, Mr Joyce is also entitled to recover the cost of having the vehicle’s faults diagnosed. In that regard, Mr Joyce is entitled to recover $149.50, being the cost of the diagnosis performed by Ash Mansel Motors on 2 July 2018.

Has Brent Smith engaged in conduct that breached s 9 of the FTA?

[41] Section 9 of the FTA provides:
  1. 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.

[42] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corporation v Ellis:[3]

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 the 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.

[43] I am satisfied that Brent Smith has engaged in misleading conduct in breach of s 9 of the FTA by misrepresenting the GAP insurance policy purchased by Mr Joyce.
[44] The Vehicle Offer and Sale Agreement between the parties records that Mr Joyce purchased a Protecta insurance policy for $595 and a 36-month mechanical warranty for $1,590. Mr Joyce advises that the salesperson employed by Brent Smith told him that both policies were mechanical breakdown insurance policies. Mr Joyce was not advised that the $595 product was GAP insurance. Indeed, Mr Joyce did not seem to be aware that he had agreed to purchase GAP insurance and has not received any policy documents for such insurance.
[45] This evidence satisfies me that Brent Smith engaged in misleading conduct by purporting to sell a mechanical warranty to Mr Joyce, but instead taking payment for a GAP insurance policy that was never provided.
[46] Mr Joyce also claimed that he was misled about the 36-month mechanical warranty. He says that he was told that there was no excess payable to the policy. On the evidence I heard, I cannot be satisfied that this representation was made to Mr Joyce, and accordingly, I cannot be satisfied that Brent Smith misled Mr Joyce in relation to the 36-month mechanical warranty.

What remedy is available to Mr Joyce under the FTA?

[47] Under s 43(3)(e) of the FTA, Mr Joyce is entitled to recover $595, being the amount he paid for the GAP insurance policy that he has not received. However, because I have assigned Mr Joyce’s obligations under the collateral credit agreement to Brent Smith and ordered that Brent Smith compensate Mr Joyce for capital and interest payments already made, no further orders are required to compensate Mr Joyce for the loss suffered by purchasing the GAP insurance.

Costs

[48] Under cl 14(1)(a)(ii) and (b) of sch 1 to the Motor Vehicle Sales Act 2003 (the MVSA), the Tribunal may award costs against a party where that party either fails to participate in pre-hearing settlement discussions or, after receiving notice of the hearing, fails to attend without reasonable cause.
[49] I am satisfied that Brent Smith, after receiving notice of the hearing, failed to attend without reasonable cause. Indeed, Brent Smith provided no excuse for non-attendance. Accordingly, under cl 14(2)(b) of sch 1 to the MVSA, Mr Joyce is entitled to recover $50, being the filing fee for this application.
[50] Further, under cl 14(2)(a)(i) of sch 1 to the MVSA, I also order that Brent Smith pay $650 to the Crown, this being the reasonable costs of the Tribunal hearing.

Conclusion

[51] The vehicle has several faults that mean it has not been of acceptable quality as required by s 6 of the CGA.
[52] Under s 18(2)(b)(ii) and s 18(3)(a) of the CGA, Mr Joyce is entitled to reject the vehicle. Brent Smith has refused to rectify the vehicle’s faults. Further, the vehicle’s faults, when considered together, amount to a failure of a substantial character for the purposes of s 21(a) of the CGA.
[53] Under s 23A of the CGA, having rejected the vehicle, Mr Joyce is entitled to have his obligations under the collateral credit agreement assigned to Brent Smith. Mr Joyce is also entitled to recover interest and capital payments made against the collateral credit agreement and the cost of assessing and rectifying the vehicle’s faults.
[54] Brent Smith has engaged in conduct that breached s 9 of the FTA by misrepresenting the GAP insurance sold to Mr Joyce.
[55] Accordingly, Mr Joyce’s application to reject the vehicle is upheld and the Tribunal orders that:

DATED at AUCKLAND this 26th day of July 2018

B.R. Carter
Adjudicator


[1] Cooper v Ashley & Johnson Motors Ltd (1996) 7 TCLR 407 (DC) at 417.

[2] At 417.

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

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