4 Security Limited v Hutchinson Motors Limited t/a Team Hutchinson Ford Reference No. MVD 404/2017 [2018] NZMVDT 74 (9 April 2018)

Last Updated: 21 May 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL

[2018] NZMVDT 74
Reference No. MVD 404/2017

IN THE MATTER of the Motor Vehicle Sales Act 2003

AND

IN THE MATTER of a dispute

BETWEEN 4 SECURITY LIMITED

Lessee

AND HUTCHINSON MOTORS LIMITED T/A TEAM HUTCHINSON FORD

Trader

MEMBERS OF TRIBUNAL

J S McHerron, Barrister – Adjudicator

R C Dixon – Assessor

HEARING at Christchurch on 7 March 2018

DATE OF DECISION 9 April 2018
APPEARANCES

T M Dein, Director of Lessee
J O Hutchinson, CEO of Trader
G W Barnard, Service Manager of Trader
J N Woods, Workshop Foreman of Trader
D T Baldwin, Automotive Technician for Trader

DECISION

4 Security Limited's application is dismissed.

REASONS

Introduction

[1] 4 Security Limited, acting through its director Tariq Dein, leased a new Ford Transit van from Hutchinson Motors Limited in November 2016. Since then, Mr Dein has had a number of problems with the vehicle. He sent a letter of rejection to Hutchinson Motors in October 2017. Hutchinson Motors acknowledges that various repairs to the van have been required, but it says that all of those repairs have now been completed, the van is in good running order and there are no grounds to reject it.
[2] From this background, the following issues arise:

• (a) Have the parties contracted out of the Consumer Guarantees Act 1993 (CGA)?
• (b) If not, did the van fail to comply with the guarantee of acceptable quality?
• (c) If so, is 4 Security entitled to reject the van?

Issue one: Have the parties contracted out of the CGA?

[3] At the hearing, Mr Dein conceded that the CGA did not apply because the vehicle offer and sale agreement (VOSA) and finance lease for the van record that 4 Security and Hutchinson Motors agreed to contract out of the CGA. Possibly for that reason, Mr Dein's letter of rejection seeks to reject the vehicle under the Fair Trading Act 1986. However, in the present context, the Fair Trading Act principally deals with misleading and deceptive conduct. Mr Dein advanced no evidence of any misleading and deceptive conduct by Hutchinson Motors. Therefore, it is the CGA, not the Fair Trading Act, that governs whether Mr Dein may reject the vehicle. I will proceed to evaluate his claim within the context of the CGA.
[4] The reason why Mr Dein acknowledged the CGA does not apply is because of various clauses in the VOSA and lease documentation purporting to exclude the CGA’s operation.
[5] The VOSA provides:

13. I confirm that the goods to be supplied are being acquired for the purposes of the purchaser’s business, in terms of sections 2 and 43 of the CGA, and accordingly the parties agree that the provisions of the CGA will not apply.

[6] That clause was separately initialed by Mr Dein when he signed the VOSA on 8 November 2016.
[7] As well, the finance lease agreement for the vehicle contains the following provision:

Consumer Guarantees Act 1993

The goods and services supplied pursuant to this Agreement are of the type requested by the Lessee, and that supply is for the Lessee’s business use, and the Lessee acknowledges that:

(a) Nothing in the Consumer Guarantees Act 1993 shall apply to that supply; ...
[8] Section 43 of the CGA provides (as far as is relevant):

43 No contracting out except for business transactions

(1) Subject to this section and to sections 40, 41, and 43A, the provisions of this Act shall have effect notwithstanding any provision to the contrary in any agreement.

(2) However, despite subsection (1), parties to an agreement may include a provision in their agreement to the effect that the provisions of this Act will not apply to that agreement, provided that—

(a) the agreement is in writing; and
(b) the goods or services are, or (in connection only with the guarantee of acceptable quality in section 7A) the gas or electricity is, supplied and acquired in trade; and
(c) all parties to the agreement—
(i) are in trade; and
(ii) agree to contract out of the provisions of this Act; and
(d) it is fair and reasonable that the parties are bound by the provision in the agreement.

(2A) If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (2)(d), the court must take account of all the circumstances of the agreement, including—

(a) the subject matter of the agreement; and
(b) the value of the goods, services, gas, or electricity (as relevant); and
(c) the respective bargaining power of the parties, including—
(i) the extent to which a party was able to negotiate the terms of the agreement; and
(ii) whether a party was required to either accept or reject the agreement on the terms and conditions presented by another party; and
(d) whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.

...

[9] There is no dispute about the first three of the requirements in subs (2) (above). Both parties agreed in the VOSA and the finance lease agreement to contract out of the CGA. Their agreement to do so was recorded in writing. Moreover, it was accepted that the vehicle was supplied and acquired in trade and that all parties are in trade. Mr Dein acknowledged that the vehicle is used for the purposes of his business.
[10] In assessing whether it is fair and reasonable that the parties are bound by the provisions in their agreement, under s 43(2)(d), I must take into account all of the circumstances of the agreement, including the matters set out in subs (2A) (above). In particular, I have regard to the fact that this was a Ford Transit van, a vehicle commonly used in trade and indeed so used by 4 Security in the present case. The value of the vehicle, reflected by its price, $39,610, is, in my view, a neutral factor in this case. There was no evidence that the price was discounted to reflect that the CGA did not apply. Likewise, there was no specific evidence of the disparity in respective bargaining power of the parties. That said, nor was there any evidence that Mr Dein was given the opportunity to negotiate the small print in the agreement. Rather, Mr Dein said he was invited to “tick, tick, tick” the relevant provisions, including the provisions by which he agreed to contract out of the CGA. Equally, there is no specific evidence that he was required to either accept or reject the agreement on the terms and conditions presented by Team Hutchinson Ford. For example, Mr Dein did not ask if he could refrain from signing the exclusion clauses. So, there is, strictly speaking, no evidence that it was presented to him by Hutchinson on a "take it or leave it" basis. In terms of paragraph (2A)(d), neither party took advice from or was represented by a lawyer in relation to this specific transaction.
[11] I consider (by a narrow margin) that the CGA has been fairly and reasonably excluded in this case. This was very clearly a business transaction and Mr Dein appears on behalf of 4 Security to have willingly accepted the CGA's exclusion. In doing so, he would undoubtedly have been reassured that the van is covered by a comprehensive new vehicle warranty which has meant that all the repairs that have been needed have been carried out at Hutchinson Motors' expense.
[12] I do not consider that Hutchinson Motors placed Mr Dein under any particular pressure to sign the exclusion clauses. However, by the same token, there is no evidence of any specific negotiation by the parties to exclude the provisions of the CGA. It the lack of any specific negotiation which is the most influential factor against the parties being bound by the agreement to contract out of the CGA, explaining why I have only upheld the exclusion of the CGA by a narrow margin.
[13] Accordingly, I conclude that the parties have contracted out of the CGA.
[14] However, because I have only accepted that the CGA is contractually excluded by a narrow margin, and because Hutchinson Motors did not press the point firmly in the hearing, I will proceed to consider whether 4 Security Limited would have been entitled to reject the vehicle if the parties had not contracted out of the CGA. In this way, Mr Dein will not be prejudiced by my finding that the CGA does not apply to the transaction. He will be able to see my assessment of how the CGA would have applied to his company, even if it had not agreed to contract out of the protections offered by the CGA when it leased the vehicle.

Issue two: Did the vehicle fail to comply with the guarantee of acceptable quality?

[15] Section 6(1) of the CGA provides that where goods are supplied to a consumer there is a guarantee “that the goods are of acceptable quality”. According to s 2 of the CGA, “goods” includes vehicles.
[16] "Acceptable quality" is defined in s 7 of the CGA (as far as is relevant) 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.

[17] The question whether a vehicle is of acceptable quality is considered from the point of view of a reasonable consumer who is fully acquainted with the state and condition of the vehicle, including any hidden defects.
[18] Mr Dein has undoubtedly experienced a number of problems with the vehicle. These problems began about five months after the lease began. In April 2017, Mr Dein noticed a rattle from the engine. The rattle gradually became louder. He took the vehicle to Hutchinson Motors for assessment. It diagnosed a variation in spring tension within the camshaft drive gear, between the crankshaft and the fuel injection pump gears. This variation was causing the timing gears to rattle. Hutchinson Motors assured the Tribunal, by reference to material supplied by Ford, that this defect would not affect the running of the engine or its durability. However, Hutchinson Motors acknowledged that the rattle would have been annoying to Mr Dein.
[19] Hutchinson Motors checked FordEtis (an online technical information and services website). It found a field service action for the vehicle, relating to the engine noise. The recommended repair was to replace the camshaft drive gear to correct the variation in spring tension. This repair was done at Hutchinson Motors/Ford’s expense.
[20] Although Hutchinson Motors initially thought it had successfully addressed the issue, the repair had to be repeated in August 2017. That was because Ford had supplied Hutchinson Motors with the wrong parts for the initial repair.
[21] Around the same time, minor repairs were carried out to the driver’s door lock button. Mr Dein was concerned about the van's surging engine speed, but no fault was found. And Mr Dein also told Hutchinson Motors that the reverse sensors were sounding more often than they should be. Hutchinson Motors concluded this was because the vehicle had been fitted with an aftermarket tow bar.
[22] Then, in October 2017, Mr Dein noticed a noise coming from the oil filler area in the engine bay. The noise occurred because the oil filler had been cracked while the camshaft drive gear was being replaced the second time. Instead of being replaced, the cracked part had been glued to secure it. Hutchinson Motors acknowledged this was a workmanship error and admitted that the part should have been replaced instead of just glued together. It has now been properly fixed.
[23] More seriously, in October 2017 the vehicle went into limp mode while Mr Dein was driving it. An engine management light came on and then the “ad blue system management”[1] fault warning came up on the dashboard. Mr Dein called Ford road assistance and the AA attended. The vehicle was towed into Hutchinson Motors the next day. Hutchinson Motors diagnosed a turbo failure. There was a delay while a new turbo was ordered, during which Mr Dein was provided a loan vehicle.
[24] At the hearing, Greg Barnard (Hutchinson Motors’ Service Manager) explained that the turbo failure was unusual. A bearing had seized in the turbocharger. It proved difficult to get a replacement turbo from overseas quickly. Mr Dein became frustrated by the delay.
[25] Before the turbo was replaced, Mr Dein sent a letter to Hutchinson Motors rejecting the vehicle. He stated in his letter that, although repair works had been carried out as and when required to the vehicle, the "level of issues experienced from a brand new vehicle has proved it not to be a robust vehicle which I thought was being sold by Ford and which I was buying into."

Discussion

[26] The vehicle has experienced several defects that would amount to a breach of the guarantee of acceptable quality if the CGA applied. A reasonable consumer would not regard those defects as acceptable in a new vehicle.
[27] It is important to note, however, that all of these defects have been fixed by Hutchinson Motors at its expense.
[28] I checked with Mr Dein whether there were any current issues with the vehicle. He said he had noticed a white residue from the ad blue product and thought this indicated a leak. He took the vehicle to Hutchinson Motors to assess it. It replaced the cap and then replaced the filler tube for the ad blue liquid. Mr Dein did not notice any more leaks. He also mentioned another rattle, which he thought was coming from the roof rack. Hutchinson Motors acknowledged it had been asked to assess a rattle in the cabin, but it denied Mr Dein had told it about a roof rack rattle. I am not persuaded that this is a failure that Mr Dein has disclosed adequately to Hutchinson Motors prior to making his claim to the Tribunal. If he has any ongoing issues with a rattle he should raise those now with Hutchinson Motors. It indicated at the hearing that it would be happy to assess this issue further and attempt to assist Mr Dein.
[29] While I have concluded that several of the defects experienced by Mr Dein amounted to failures of the vehicle to comply with the guarantee of acceptable quality, I do not accept that any of those failures amounted to a failure of substantial character for the purposes of s 21 of the CGA. None of those failures are of a sufficient degree that I consider the vehicle would not have been acquired by a reasonable consumer or was unfit for a purpose for which vehicles of this type are commonly supplied or was unsafe. This finding has implications for 4 Security's application to reject the vehicle, which I will now explain.

Issue three: Is 4 Security entitled to reject the vehicle?

[30] A right to reject a vehicle arises 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.[2] In addition, a right to reject arises if a failure cannot be remedied or is of a substantial character.[3]
[31] In Stephens v Chevron Motor Court Ltd, the District Court criticised a trader for pre-empting a vehicle purchaser’s right of rejection, by going ahead and repairing a vehicle before the purchaser was in an informed position to decide whether a failure should be remedied.[4] The Court held that “it was not for the respondent to decide that rejection was unnecessary and proceed to carry out repairs”.
[32] In the present case, there is no evidence that Mr Dein expressly told Hutchinson Motors not to repair the vehicle. And, after the repairs were completed, he has continued to use the vehicle, even up to the date of the hearing. Mr Dein told the Tribunal he has driven the vehicle about 30,000km. The fact that Mr Dein has continued to use the vehicle shows his acquiescence with the repairs. In my view, this means he should be seen as having waived any right of rejection that would otherwise have existed.
[33] Moreover, as set out above, I do not consider Mr Dein has established any failure of a substantial character. The failures in his vehicle were remediable by replacing the turbo and camshaft drive gear, as well as other minor repairs.
[34] I note, however, that a trader must always proceed cautiously after receiving a notice of rejection. There is always the risk that, if upheld, the trader will be required to keep the vehicle and refund the purchase price, even after completing repairs on it. The facts of this case do not justify such an outcome. I have concluded that 4 Security had no right to reject the vehicle, so this possibility does not arise.

Conclusion

[35] I have found that the parties contracted out of the CGA. However, I have also found that, while the vehicle would have failed to comply with the guarantee of acceptable quality, Hutchinson Motors has remedied the failure. The failure was not of a substantial character and so 4 Security Ltd would have had no right to reject the vehicle. Accordingly, its claim must be dismissed.

J S McHerron
Adjudicator

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[1] "Ad blue" is a trade name for an aqueous urea solution that is used as a consumable in a vehicle's emission control system in order to reduce NO_x concentration in diesel exhaust emissions.

[2] Section 18(2)(b)(ii) of the CGA.

[3] Section 18(3)(a) of the CGA.

[4] Stephens v Chevron Motor Court Ltd [1996] DCR 1.