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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 15 November 2018
BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
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Reference No. MVD 341/2018
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IN THE MATTER
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of the Motor Vehicle Sales Act 2003
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AND
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IN THE MATTER
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of a dispute
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BETWEEN
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STUART DOUGLAS RUSSELL
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Purchaser
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AND
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LW MOTORS
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Trader
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MEMBERS OF TRIBUNAL
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B R Carter, Barrister – Adjudicator
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S D Gregory, Assessor
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HEARING at Hamilton on 27 September 2018
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DATE OF DECISION 3 October 2018
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APPEARANCES
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S D Russell, Purchaser
L Dixon, Witness for the Purchaser
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D Wan, for the Trader
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ORDERS
DECISION
[1] LW Motors Ltd (LW Motors), has engaged in misleading conduct that breaches s 9 of the Fair Trading Act 1986 (the FTA) by failing to comply with its legal obligation to disclose that the vehicle was classified as “imported as damaged” when imported into New Zealand.
[2] Mr Russell has suffered loss because of LW Motors’ misleading conduct. In the circumstances of this case, the appropriate remedy is to declare the contract between Mr Russell and LW Motors void under s 43(3)(a)(ii) of the FTA, for LW Motors to refund the purchase price under s 43(3)(e) of the FTA. Mr Russell is also entitled to recover costs incurred in improving the vehicle.
[3] The amount awarded to Mr Russell should be reduced to reflect depreciation of the vehicle’s value and the benefit Mr Russell has obtained from using the vehicle since October 2017, and to reflect the benefit Mr Russell has obtained from an Autosure warranty supplied to him as part of the purchase price.
REASONS
Introduction
[4] On 14 October 2017, Mr Russell purchased a 2014 Mercedes Benz ML350, registration number KYM492, for $52,000 from LW Motors. The vehicle had an odometer reading of 63,100 km at the time of sale. The purchase price included the cost of a three-year Autosure mechanical warranty, which cost LW Motors $1,300.
[5] When the vehicle was imported into New Zealand, the border inspector flagged the vehicle as “imported as damaged” due to collision damage to the front of the vehicle suffered while it was in Japan. The true extent of that damage is unknown, but because it has been flagged as imported as damaged, the vehicle will be permanently recorded in New Zealand Transport Agency (NZTA) records as having been damaged at the time of importation. This information is then publicly available and can be seen by any prospective purchaser of the vehicle and motor vehicle traders are required by law to then disclose that the vehicle has been classified as imported as damaged.
[6] Mr Russell says he was not informed that the vehicle was classified as imported as damaged. He says that he only became aware that the vehicle had been classified as imported as damaged when he had the vehicle valued in August 2018. Mr Russell says that the imported as damaged classification significantly affects the value of the vehicle and that he would not have purchased the vehicle had he known of this classification. He has applied to the Tribunal seeking to cancel the contract to purchase the vehicle and obtain a refund of the purchase price, together with costs incurred in purchasing accessories for the vehicle.
[7] LW Motors says that the vehicle suffered only minor damage in Japan, and the repairs required in New Zealand were also minor. It says that it told Mr Russell that the vehicle had been damaged and that it displayed a Consumer Information Notice (CIN) in the vehicle, which noted that the vehicle was imported as damaged. Further, it says that Mr Russell has suffered no loss in purchasing the vehicle, as he paid market value for it
The Issues
[8] Against this background, the issues requiring consideration in this case are:
- (a) Has LW Motors engaged in misleading conduct in breach of s 9 of the FTA?
- (b) What remedy is Mr Russell entitled to under the FTA?
Has LW Motors engaged in conduct that breached s 9 of the FTA?
[9] Section 9 of the FTA provides;
- 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.
[10] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corp Ltd 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.
[11] To succeed in a claim under the FTA, Mr Russell must show that:
- (a) LW Motors failed to disclose that the vehicle was classified as imported as damaged; and
- (b) that this failure was misleading or deceptive conduct in breach of s 9 of the FTA.
Did LW Motors failed to disclose that the vehicle was imported as damaged?
[12] Motor vehicle traders have an obligation to disclose, on a CIN that must be displayed on the vehicle and supplied to the purchaser, that a vehicle has been classified as imported as damaged. This obligation is set out in ss 14 to 16 of the Motor Vehicle Sales Act 2003, which impose an obligation on motor vehicle traders to display a CIN on all used vehicles and to obtain written acknowledgement from the purchaser of the vehicle that the purchaser has received a copy of the CIN.
[13] The CIN must contain all the information required by sch 2 to the Consumer Information Standards (Used Motor Vehicles) Regulations 2008 (the Regulations). The information required by sch 2 includes a requirement that the trader must indicate, by ticking the appropriate box, whether the motor vehicle is recorded on the motor vehicle register as being damaged at the time of importation. Failure to comply with these requirements is punishable by a fine of up to $10,000 for an individual, or $30,000 for a body corporate.[2]
[14] Da Wan, a director of LW Motors, says that a copy of the CIN was displayed in the vehicle and left in the vehicle when it was transported to Mr Russell. Mr Wan says that the CIN displayed on the vehicle noted that it was imported as damaged. Mr Wan accepted, despite having a legal obligation to do so, that LW Motors did not obtain written acknowledgement from Mr Russell that he received a copy of the CIN.
[15] Lawrence Dixon, who test drove the vehicle for Mr Russell, advised that he was not told that the vehicle was imported as damaged. He also advised that a CIN was not displayed when he test drove the vehicle and that LW Motors never showed him a copy of a CIN. Mr Russell also says that LW Motors never provided him with a copy of the CIN or told him that the vehicle was classified as imported as damaged.
[16] In deciding whether LW Motors disclosed that the vehicle was imported as damaged, I prefer the evidence of Mr Dixon and Mr Russell. I found both Mr Dixon and Mr Russell to be credible and reliable witnesses, who were consistent in their evidence as to what they had been told about the vehicle. I am satisfied that LW Motors did not display a CIN on the vehicle. I accept Mr Dixon’s evidence that there was no CIN displayed on the vehicle when he inspected it and neither was one present in the vehicle when he test drove it. I accept his evidence that he would have taken a photograph of the CIN and sent it to Mr Russell if one had been present. I am also satisfied that Mr Russell was not provided with a copy of the CIN either before or after he purchased the vehicle. In that regard, I accept Mr Russell’s evidence that a CIN was never provided to him.
[17] Likewise, I am satisfied that LW Motors did not otherwise disclose that the vehicle was imported as damaged. Mr Wan gave evidence that he advised Mr Dixon that the vehicle had suffered damage and had been repaired. He says he pointed Mr Dixon to an AA repair certificate and other repair records that had been placed on the vehicle’s front seat. Mr Wan also says that he advised Mr Russell of the damage to the front of the vehicle.
[18] Again, I prefer the evidence of Mr Dixon and Mr Russell. Mr Dixon denied that Mr Wan told him that the vehicle had suffered damage and had been repaired. He said Mr Wan simply said that one of the vehicle’s sensors and its badge had been damaged, but made no mention of more extensive damage. Mr Russell also says that Mr Wan never advised him of any damage to the vehicle, other than that the badge was damaged.
[19] Further, I note that the content of the Trade Me listing for this vehicle, published after LW Motors was aware that the vehicle had been classified as imported as damaged and required repair, is consistent with Mr Dixon and Mr Russell’s evidence that LW Motors did not disclose the damage to the vehicle, or that it had been imported as damaged. The Trade Me makes no mention whatsoever of any history of damage to the vehicle, or that the vehicle was classified as imported as damaged. Instead, the Trade Me listing focuses on the positive aspects of the vehicle, and despite LW Motors knowing that this was an imported as damaged vehicle, states that purchasers can “bid with confidence”.
[20] Accordingly, I am satisfied that, despite having a legal obligation to do so, LW Motors failed to disclose that the vehicle was classified as imported as damaged.
Was this failure misleading or deceptive?
[21] In determining whether LW Motors’ failure to disclose that the vehicle was imported as damaged breaches the FTA, the Tribunal is required to consider the extent to which non-disclosure or silence can be a breach of s 9 of the FTA.
[22] 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.[3]
[23] 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. 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.
[24] 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.
[25] Having regard to the “reasonable expectation of disclosure” test in light of the overall test for whether conduct is misleading and deceptive in Red Eagle, I consider that a reasonable person in Mr Russell’s situation would have expected LW Motors to advise it that the vehicle had classified as important as damaged. That is because LW Motors had a legal obligation to provide a copy of the CIN to any purchaser and to disclose on that CIN that the vehicle was imported as damaged. A reasonable consumer would expect LW Motors to comply with that obligation.
[26] By failing to disclose that the vehicle was imported as damaged, in circumstances where it had a legal obligation to do so, I consider that LW Motors has engaged in misleading conduct in breach of s 9 of the FTA.
What remedy is available to Mr Russell under the FTA
[27] The remedies available for a breach of the FTA 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.[6] The Tribunal must consider whether:
- (a) Mr Russell was in fact misled or deceived;
- (b) Mr Russell has suffered loss or damage; and
- (c) LW Motors ’s conduct was the effective cause or an effective cause of their loss or damage.
Mr Russell was misled
[29] As set out above, I am satisfied that Mr Russell was misled by LW Motors failure to disclose that the vehicle was imported as damaged. He was not told that the vehicle had been imported as damaged, in circumstances where he had a reasonable expectation of that occurring.
Mr Russell has suffered loss as a result of being misled
[30] Mr Russell paid $52,000 for the vehicle, and given the stigma that attaches to vehicles that have been classified as imported as damaged, I am satisfied that the vehicle is likely to be worth much less if it were to be sold with its history disclosed.
[31] The Tribunal commonly encounters cases involving vehicles that have been imported as damaged. Common to those cases is evidence that the vehicle is worth much less because it has been classified as imported as damaged. In this case, the reduction in this vehicle’s value is evident in the valuation Mr Russell obtained from Armstrong Prestige, which valued the vehicle at $29,990 given its history. Armstrong Prestige considered that, without its history as an imported as damaged vehicle, the vehicle would have a market value of $59,990.
[32] LW Motors says that Mr Russell suffered no loss and that the purchase price he paid is reflective of the market value of the vehicle as an imported as damaged vehicle. It says that it reduced the purchase price once it became aware that the vehicle was imported as damaged.
[33] In support of its contention that Mr Russell has suffered no loss, LW Motors also provided an indicative valuation from the New Zealand Automotive Association (AA), which shows that the market value of a vehicle of this age, make and model in very good condition was as much as $81,150. It says that the price paid by Mr Russell is much less than this market value and is reflective of the vehicles classification as imported as damaged.
[34] I am not satisfied that the AA valuation is a reliable indication of this vehicle’s value. Firstly, the AA valuation appears to be automatically generated, without any inspection of the vehicle. Secondly, the valuation proceeds on the basis that the vehicle is in “very good” condition. No indication is given what is meant by very good, or whether the condition of this vehicle would meet those criteria.
[35] In determining the value of the vehicle, I prefer the valuation from Armstrong Prestige, and although I do not necessarily accept that the precise value of the vehicle is $29,990, I am nonetheless satisfied that the Armstrong Prestige valuation shows that the vehicle is worth much less than the price paid by Mr Russell.
LW Motors’ conduct was an effective cause of Mr Russell’s loss
[36] I am also satisfied that LW Motors’ conduct was an effective cause of Mr Russell’s loss. I accept that Mr Russell would not have purchased the vehicle if LW Motors had complied with its obligation to disclose that the vehicle was classified as important as damaged.
Refund is the appropriate remedy
[37] The remedies in s 43(3) of the FTA are discretionary and the discretion is to be exercised so as to give effect to the policy of the FTA, which includes to protect the interests of consumers. The object of the remedies in s 43(3) of the FTA is to do justice to the parties in the particular circumstances of the case.[7]
[38] In all the circumstances of this case, I consider that the appropriate remedy under the FTA is to declare the contract between the parties to purchase the vehicle void as at the date of this decision under s 43(3)(a)(ii) of the FTA, for Mr Russell to return the vehicle and for LW Motors to refund the purchase price under s 43(3)(e) of the FTA.
[39] I am persuaded by two factors in declaring the contract void under s 43(3)(a)(ii) of the FTA and ordering a refund of the purchase price.
[40] First, because LW Motors failed in its legal obligation to disclose the imported as damaged classification, Mr Russell was denied the opportunity to make an informed decision about purchasing the vehicle. Given the structural damage to the vehicle at the time of import, I consider that a reasonable consumer would not have purchased this vehicle without performing extensive pre-purchase checks to satisfy itself of the structural integrity and durability of the vehicle. In this case, Mr Russell was not given that opportunity because LW Motors failed in its obligation to disclose that crucial information to him. Second, as set out above, the vehicle is worth much less than Mr Russell paid for it because of its status as an imported as damaged vehicle.
[41] In those circumstances, I consider it appropriate that Mr Russell should be entitled to return the vehicle and obtain a refund of the purchase price.
Mr Russell is entitled to recover other costs
[42] In addition to recovering the purchase price, Mr Russell also seeks to recover $4,937.64, being the cost of accessories purchased for the vehicle. Those accessories are:
- (c) new mag wheels and tires costing $2,060.80;
- (d) new running boards costing $725;
- (e) a towbar costing $675.30;
- (f) a GPS update costing $747.50; and
- (g) new suspension components costing $729.
[43] Under s 43(3)(f) of the FTA, I am satisfied that Mr Russell is entitled to recover these costs. These are reasonably foreseeable costs, in that LW Motors would have understood that the purchaser of this vehicle may well spend money upgrading it by purchasing accessories. Because Mr Russell is entitled to cancel the contract and obtain compensation, the money spent on these accessories will now be wasted expenditure, because Mr Russell will not receive any continuing benefit from that expenditure. I am satisfied that Mr Russell is entitled to compensation for this wasted expenditure. Mr Russell is also entitled to recover $258.75, being the cost of having the vehicle valued by Armstrong Prestige.
Reduction of amount to be refunded
[44] Although Mr Russell is entitled to obtain a refund of the purchase price, I consider a reduction of the amount to be paid to Mr Russell is appropriate. Mr Russell has owned the vehicle for nearly 12 months and has driven more than 21,000 km in that time. That is extensive use, and Mr Russell has clearly obtained some value from the use of the vehicle in that time, and the vehicle has depreciated in value because of that use. I would not be doing justice by the parties if I failed to take account of the extent and value of that use. Accordingly, I intend to reduce the amount payable to Mr Russell by $10,000 to reflect the benefit Mr Russell has received from his use of the vehicle and the depreciation caused by that use.
[45] Further, I intend to reduce the amount awarded to Mr Russell by $1,300, being the cost of the Autosure warranty provided by LW Motors. The evidence shows that Mr Russell has made a number of claims against that policy and has clearly obtained value from it. Accordingly, I do not think I would be doing justice between the parties to allow Mr Russell to recover any of the cost of that policy.
Conclusion
[46] LW Motors has engaged in misleading conduct in breach of s 9 of the FTA by failing to disclose that the vehicle was imported as damaged.
[47] Mr Russell has suffered loss because of LW Motors’ misleading conduct. In the circumstances of this case, the appropriate remedy is to declare the contract between Mr Russell and LW Motors void under s 43(3)(a)(ii) of the FTA, for LW Motors to refund the purchase price under s 43(3)(e) of the FTA, and for Mr Russell to return the vehicle.
[48] The amount awarded to Mr Russell should be reduced to reflect depreciation of the vehicle’s value and the benefit Mr Russell has obtained from using the vehicle since October 2017, and to reflect the benefit Mr Russell has obtained from an Autosure warranty supplied to him as part of the purchase price.
[49] The Tribunal therefore orders that LW Motors must, within 10 working days, pay $45,896.39 to Mr Russell. Mr Russell must then make the vehicle available to be uplifted by LW Motors.
DATED at AUCKLAND this 3rd day of October 2018
B.R. Carter
Adjudicator
[1] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
[2] Fair Trading Act
1986, s 40(1B).
[3]
Smith v Hughes (1871) LR 6 QB 597; March Construction v Christchurch
City Council (1995) 5 NZBLC 99,356.
[4] Des Forges v
Wright [1996] 2 NZLR 758 (HC) at
764.
[5] Hieber v
Barfoot & Thompson (1996) 5 NZBLC 104,179 (HC); Tuiara v Frost &
Sutcliffe [2003] 2 NZLR 833 (HC) at [91]; Guthrie v Taylor Parris
Group Cossey Ltd (2002) 10 TCLR 367 (HC) at [21] and [32].
[6] Red Eagle Corp Ltd v Ellis, above n 1 at [29]–[31].
[7] At [31].
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