Brunner v NC Motor Workshop Limited t/a NC Motors - Reference No. MVD 389/2017 [2018] NZMVDT 28 (22 February 2018)

Last Updated: 16 March 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL
		[2018] NZMVDT 028 Reference No. MVD 389/2017
	IN THE MATTER	of the Motor Vehicle Sales Act 2003
	AND
	IN THE MATTER	of a dispute
	BETWEEN	STEPHANIE LAURA BRUNNER
		Purchaser
	AND	NC MOTOR WORKSHOP LIMITED T/A NC MOTORS
		Trader
MEMBERS OF TRIBUNAL
B R Carter, Barrister – Adjudicator
S Gregory, Assessor
HEARING at Auckland on 23 January 2018
DATE OF DECISION 22 February 2018
APPEARANCES
Ms S L Brunner, Purchaser Mrs S Brunner, Witness for the Purchaser
Mr R Wallace, for the Trader Ms K Sun, Witness for the Trader

ORDERS

1. Stephanie Brunner’s application to reject the vehicle is dismissed.
2. NC Motors Limited shall, within 10 working days of this decision, pay $4,190.25 to Stephanie Brunner

DECISION

[1] The vehicle had a fault with its clutch that breached the acceptable quality guarantee in s 6 of the Consumer Guarantees Act 1993 (“the CGA”). NC Motor Workshop Limited, trading as NC Motors, refused to repair the fault. Stephanie Brunner is now entitled to recover the cost of that repair from NC Motors.
[2] NC Motors has engaged in conduct that breaches s 9 of the Fair Trading Act 1986 (“the FTA”) by failing to disclose that the vehicle was a statutory write-off from Australia.
[3] Ms Brunner has suffered loss as a result of NC Motors’ failure to disclose that the vehicle had been a statutory write-off. Under s 43(3)(f) of the FTA, Ms Brunner is entitled to be compensated for that loss.

REASONS

Introduction

[4] On 3 June 2016, Stephanie Brunner purchased a 2011 Hyundai IX35 for $14,385 from NC Motors. The vehicle had an odometer reading of 92,045 kms at the time of sale.
[5] Ms Brunner asked NC Motors whether the vehicle had been previously damaged. She was reassured by NC Motors that the vehicle had not been imported as damaged.
[6] Ms Brunner has since discovered that the vehicle was damaged, and written off, in Australia before it was imported into New Zealand and sold to her.
[7] Further, the vehicle developed a fault with its clutch in September 2016. NC Motors refused to repair the clutch fault, and Ms Brunner paid $1,190.25 to have the fault repaired.
[8] Ms Brunner has applied to the Tribunal seeking to reject the vehicle and obtain a refund of the purchase price. She also seeks to recover the cost of the repairs to the vehicle’s clutch.
[9] NC Motors says that Ms Brunner is not entitled to reject the vehicle or obtain a refund. Further, it says it should not be liable for the clutch repair.

The Issues

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

• (a) Is the clutch fault a breach of the acceptable quality guarantee in s 6 of the CGA?
• (b) What remedy is Ms Brunner entitled to under the CGA?
• (c) Did NC Motors engage in conduct that breached s 9 of the FTA by failing to disclose that the vehicle was a statutory write off from Australia?
• (d) What remedy is Ms Brunner entitled to under the FTA?

Is the clutch fault a breach of the acceptable quality guarantee?

[11] 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.
[12] 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.”

[13] 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 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 Ms Brunner’s subjective perspective.
[14] The vehicle developed a fault with its clutch in September 2016, three months after Ms Brunner purchased the vehicle. Ms Brunner says that the clutch failed and she was unable to change gear.
[15] Ms Brunner contacted NC Motors and was advised that the vehicle was outside of “the three month warranty period” and accordingly NC Motors declined to perform any repair on the vehicle. Ms Brunner then transported the vehicle to Autoshop Limited, who replaced the clutch at a cost of $1,190.25.
[16] Ms Brunner brought the damaged clutch to the hearing for inspection. Mr Gregory advises that the clutch plate appears to have had a manufacturing defect, as the centre of the plate has become detached from the linings, making it unserviceable.
[17] The evidence from Ms Brunner, and the advice from Mr Gregory, satisfies me that the vehicle had a fault with its clutch, sufficient that the clutch required replacement.
[18] The question I must then answer in determining whether the clutch fault breached the acceptable quality guarantee is whether Ms Brunner has caused or contributed to the damage to the clutch.
[19] That is because, under s 7(4) of the Act, the vehicle will not breach the acceptable quality guarantee if the vehicle has 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 the clutch damage was caused by that use.
[20] In this regard, NC Motors suggested that the clutch damage was caused by Ms Brunner not knowing how to drive a manual vehicle.
[21] I am satisfied that Ms Brunner did not cause or contribute to the clutch fault. I note that Ms Brunner is an experienced driver of manual vehicles and there is no evidence to show that the clutch fault was caused by the way in which she drove the vehicle.
[22] Further, there is no evidence to show that Ms Brunner should have been aware that the clutch had a fault, or that she continued to drive the vehicle after a fault was evident. I accept Ms Brunner’s evidence that there was no sign of a fault with the clutch before it failed. Mr Gregory also advises that the clutch failure would have been sudden, with little or no warning.
[23] I therefore consider that the clutch fault breaches the acceptable quality guarantee in s 6 of the CGA. A reasonable consumer would not expect a vehicle of this price, age and mileage to develop a fault with its clutch within three months of purchase that cost more than $1,000 to repair. This vehicle has not been as durable as a reasonable consumer would find acceptable.

What remedy is Ms Brunner entitled to under the CGA?

[24] Section 18 of the CGA provides:

“18 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), 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.”

[25] Under s 18(2)(b)(i) of the CGA, Ms Brunner is entitled to recover the cost of having the clutch repaired by Autoshop Limited. The fault breached the acceptable quality guarantee and Ms Brunner required NC Motors to remedy the fault. It refused to do so. Ms Brunner is therefore entitled to recover $1,190.25, being the cost incurred in having that fault remedied.

Has NC Motors engaged in conduct that breached s 9 of the FTA?

[26] When Ms Brunner purchased the vehicle, she asked NC Motors whether the vehicle had previously been damaged. She was reassured that the vehicle had not been imported as damaged.
[27] The vehicle had previously been damaged in Australia. Records from the Personal Property Securities Register operated by the Australian Financial Services Authority, show that the vehicle suffered impact damage in March 2016. Specifically, it suffered light structural damage to the floor pan and chassis rails and minor mechanical damage to the engine and transmission case. That damage was sufficient for it to be written off by the owner’s insurance company.
[28] The vehicle was also inspected for certification when it was imported into New Zealand. The certifier found a damaged windscreen, a damaged right front tyre and minor damage to the vehicle’s floor supports. I understand that the windscreen was replaced and the chassis was straightened to enable the vehicle to be certified.
[29] This evidence satisfies me that the vehicle had been damaged and written off in Australia.
[30] The question I must answer in this case is whether, by failing to disclose that the vehicle was damaged a statutory write off in Australia, NC Motors has engaged in conduct that breaches s 9 of the FTA, 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.”

[31] The appropriate approach to determining whether conduct is misleading and deceptive has been considered by the Supreme Court in Red Eagle Corporation Ltd v Ellis[1], where the Court said:

“It is, to begin with, necessary to decide whether the claimant has proved a breach of s 9. That section is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. ... The question to be answered in relation to s 9 in a case of this kind is accordingly 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.”

Did NC Motors have an obligation to disclose that the vehicle was a statutory write off?

[32] To succeed in her claim, Ms Brunner must show that NC Motors’ failure to disclose that the vehicle was a statutory write off in Australia is a 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.
[33] 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]
[34] This principle of caveat emptor has now been displaced by the Fair Trading Act. Under the Act, silence or the failure to disclose a material fact, can constitute misleading or deceptive conduct.[3] In Des Forges v Wright, Elias J 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.”

[35] 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.
[36] In McBride Street Cars Limited v The District Court (Dunedin Registry) and Loach,[6] the High Court recognised that a motor vehicle trader’s failure to disclose that a vehicle was a statutory write off from Australia was misleading where that information was material to the buyer’s purchasing decision.
[37] In this case, the fact that a vehicle has previously suffered damage and written off for insurance purposes was an important and material fact relevant to Ms Brunner’s purchasing decision. Ms Brunner expressly asked whether this vehicle had previously been damaged, because she did not want to buy a previously damaged vehicle. She has an unwell young child, and was looking for a safe, reliable vehicle to transport her child in. NC Motors withheld the fact that this vehicle was a statutory write off from her.
[38] Further, the information that the vehicle was a statutory write off is important because a stigma attaches to vehicles that have previously been written off, which significantly affects the resale value of those vehicles. This stigma is evident in the two valuations obtained by Ms Brunner. Hyundai Manukau and Buy Right Cars have valued the vehicle, as a trade in, at between $4,000 and $5,000, substantially less than the vehicle would be worth if it had not been damaged and written off. I consider that any reasonable consumer would want to know of the vehicle’s write off status on this basis alone.
[39] I therefore consider that NC Motors had an obligation to disclose that the vehicle was a statutory write off. I also consider that NC Motors’ failure to disclose that information was misleading. Ms Brunner was led to believe that the vehicle had suffered no previous damage, or at least none known to NC Motors. That was not the case.
[40] NC Motors submits that it has not engaged in misleading conduct, because the vehicle was not imported as damaged, in that the vehicle was not recorded as having been imported as damaged in official NZ Transport Agency records. Further, it submitted that the damage was minor.
[41] That submission somewhat misses the point. NC Motors’ had an obligation to disclose that the vehicle was a statutory write off because that information is material to a reasonable consumer’s purchasing decision. It failed to do so. The fact that the vehicle was not imported as damaged, and that the damage was only, in NC Motors’ opinion, minor, does not excuse NC Motors from its obligation to provide information that is material to a reasonable consumer’s purchasing decision.
[42] I am therefore satisfied that a reasonable consumer would have expected NC Motors to disclose that the vehicle was a statutory write off in Australia. NC Motors failed to do so, and as a result has engaged in misleading conduct that breaches s 9 of the FTA.

What remedy is available to Ms Brunner

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

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

• (a) Ms Brunner was in fact misled or deceived.
• (b) Whether Ms Brunner has suffered loss or damage as a result of being misled.
• (c) If so, was NC Motors’ conduct the effective cause or an effective cause of Ms Brunner’s loss or damage?

[45] As set out above, I find that Ms Brunner was in fact misled.
[46] I am also satisfied that Ms Brunner has suffered loss as a result of being misled. She paid $14,385 for the vehicle and the vehicle is now worth substantially less than that.
[47] NC Motors has had the vehicle valued at a retail value $10,000, but I consider that valuation to be too high. I prefer the valuation from Hyundai Manukau who, as a Franchise dealer of Hyundai vehicles, can be taken to have some expertise in valuing used Hyundai vehicles. I note though that Hyundai Manukau’s valuation appears to be of the wholesale value of the vehicle, and is reflective of a retail value of approximately $8,000. Accordingly, this vehicle is now worth approximately $6,300 less than Ms Brunner paid for it.
[48] I am also satisfied that NC Motors’ conduct was an effective cause of Ms Brunner’s loss. Had Ms Brunner not been misled by NC Motors, I very much doubt that Ms Brunner would have purchased the vehicle.
[49] I am therefore satisfied that Ms Brunner is entitled to a remedy under s 43(3) of the FTA. She has suffered loss due to misleading conduct by NC Motors.
[50] I had considered declaring the contract between the parties void, and allowing Ms Brunner to obtain a refund of the purchase price. However, given the damage that caused this vehicle to be written off was relatively minor, and the vehicle appears to have no ongoing performance or safety issues relating to that damage, I am not satisfied that a refund is the appropriate remedy in this case. Instead, in all the circumstances of this case, I consider that the appropriate remedy is to award damages to Ms Brunner under s 43(3)(f) of the FTA for the loss she has suffered as a result of purchasing a statutory write off.
[51] As a starting point, I consider Ms Brunner’s loss to be no more than $6,300, being the difference between what she paid for the vehicle and what it is now worth. In then fixing the actual damages to be awarded to Ms Brunner, I must take account of the fact that she has owned the vehicle for 19 months, over which time she has driven approximately 28,000 kms. Ms Brunner has obtained significant value from this vehicle during that time, and I would not be doing justice by the parties if I failed to take account of the value of that use.
[52] Accordingly, I intend to reduce the damages award by $3,300 to reflect the benefit Ms Brunner has received from her use of the vehicle, meaning that Ms Brunner is entitled to recover $3,000 in damages as a result of being misled about the history of this vehicle.

Conclusion

[53] The vehicle had a fault with its clutch that breached the acceptable quality guarantee in s 6 of the CGA. NC Motors refused to repair the fault. Ms Brunner is now entitled to recover the cost of that repair from NC Motors.
[54] NC Motor Workshop Limited, trading as NC Motors, has engaged in conduct that breaches s 9 of the FTA by failing to disclose that the vehicle was a statutory write-off from Australia.
[55] Stephanie Brunner has suffered loss as a result of NC Motors’ failure to disclose that the vehicle had been a statutory write-off. Under s 43(3)(f) of the FTA, Ms Brunner is entitled to be compensated for that loss.
[56] Consequently, I order that NC Motors Limited shall, within 10 working days of this decision, pay $4,190.25 to Ms Brunner

DATED at AUCKLAND this 22nd day of February 2018

B.R. Carter
Adjudicator

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[1] Red Eagle Corporation Ltd v Ellis [2010] NZLR 492

[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] McBride Street Cars Limited v The District Court (Dunedin Registry) and Loach [2018] NZHC 111 [12 February 2018].