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Anderson v Hazleton Grove Limited t/a The Wheel Deal Reference No. MVD 048/2018 [2018] NZMVDT 82 (17 April 2018)

Last Updated: 21 May 2018

BEFORE THE MOTOR VEHICLE DISPUTES TRIBUNAL



Reference No. MVD 048/2018


IN THE MATTER
of the Motor Vehicle Sales Act 2003


AND



IN THE MATTER
of a dispute


BETWEEN
TASHA ANDERSON


Purchaser


AND
HAZLETON GROVE LIMITED T/A THE WHEEL DEAL


Trader


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

HEARING at Auckland on 21 March 2018

DATE OF DECISION 17 April 2018

APPEARANCES
T A Anderson, Purchaser
L P Shepherd, for the Trader
Y Pokharel, Witness for the Trader


ORDERS

  1. Tasha Anderson’s application to reject the vehicle is upheld.
  2. The collateral credit agreement, dated 2 November 2017, between Tasha Anderson and Finance Now Limited shall vest in Hazleton Grove Limited as from the date of this decision and Hazleton Grove Limited shall, as from that date, discharge all of Tasha Anderson’s obligations under the collateral credit agreement.
  1. Hazleton Grove Limited shall, within 10 working days of the date of this decision, pay Tasha Anderson:

DECISION

[1] The vehicle had pre-existing faults with its timing chain and catalytic converter that breached the acceptable quality guarantee in s 6 of the Consumer Guarantees Act 1993 (“the Act”). Those faults are a failure of a substantial character for the purposes of s 21(a) of the Act.
[2] Under s 18(3) of the Act, Tasha Anderson is therefore entitled to reject the vehicle and obtain a refund of all amounts paid in respect of the vehicle. Under s 23A(2) of the Act, the Tribunal also assigns all of Ms Anderson’s obligations under the collateral credit agreement to Hazleton Grove Limited.

REASONS

Introduction

[3] On 2 November 2017, Ms Anderson purchased a 2008 Holden Captiva SX, registration number EIA107, for $7,990 from Hazleton Grove. The vehicle had an odometer reading of 266,000 kms at the time of sale. Ms Anderson also purchased a 36 month extended mechanical warranty from Janssen Insurance for $1,895.
[4] On 2 November 2017, Ms Anderson entered into a loan with Finance Now Limited (“the collateral credit agreement”) to purchase the vehicle.
[5] Ms Anderson uplifted the vehicle on 4 November 2017. Before she took possession of the vehicle, Hazleton Grove informed her that the vehicle’s engine warning light had illuminated. Hazleton Grove advised Ms Anderson that the vehicle was likely to require minor repairs and asked Ms Anderson to return the vehicle on 6 November 2017 for those repairs to be performed.
[6] Ms Anderson has subsequently discovered that the vehicle had a stretched timing chain, which cost more than $2,800 to repair, and a damaged catalytic converter, which is yet to be repaired. Ms Anderson rejected the vehicle on 30 November 2017, claiming that the vehicle was not of acceptable quality, that it was unfit for purpose and that she was misled about the condition of the vehicle.
[7] Hazleton Grove says that Ms Anderson is not entitled to reject the vehicle. It says that Ms Anderson agreed to have the timing chain repaired and the damaged catalytic converter is not sufficient to justify rejection.

The Issues

[8] The issues requiring consideration in this case are:
[9] In light of my finding that the stretched timing chain and damaged catalytic converter are a failure of a substantial character justifying rejection, I have not considered the other aspects of Ms Anderson’s claim, as she would have been entitled to no further remedy under the Act.

Does the vehicle have a fault that breaches the acceptable quality guarantee?

[10] Section 6 of the Act imposes on suppliers and manufacturers of consumer goods "a guarantee that the goods are of acceptable quality." Section 2 of the Act defines "goods" as including vehicles.
[11] 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.”

[12] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements as set out in s 7(1)(a)-(e) of the Act as modified by the factors set out in s 7(1)(f)-(j), from the perspective of a “reasonable consumer”. The test is an objective one; it is not a view of those factors from Ms Anderson’s subjective perspective.

The stretched timing chain

[13] When Ms Anderson took possession of the vehicle on 4 November 2017, she was advised that the engine warning light had illuminated. She returned the vehicle to Hazleton Grove on 6 November 2017 for repairs to be performed. Ms Anderson stated that the vehicle was low on power and sluggish when she drove it. Hazleton Grove could not perform repairs on that day, so asked Ms Anderson to return the vehicle on 13 November 2017.
[14] Hazleton Grove then sent the vehicle to Kingsway Motors 2012 Limited, who found that the vehicle had a stretched timing chain. Kingsway Motors repaired the stretched timing chain, at a cost of $2,826.16.
[15] Mr Haynes, the Tribunal’s Assessor, advises that a stretched timing chain will significantly affect the performance of a vehicle. It can cause a vehicle to lose power, particularly under acceleration, and lead to increased fuel consumption, which is consistent with the symptoms described by Ms Anderson.
[16] I am satisfied that the stretched timing chain is a breach of the acceptable quality guarantee in s 6 of the Act. In reaching this conclusion, I acknowledge that the vehicle was a $7,990, nine-year-old vehicle that had an odometer reading of 266,000 kms at the time of sale. A reasonable consumer would have realistic expectations about the quality and durability of a vehicle of this price, age and mileage. However, I am satisfied that a reasonable consumer simply would not have expected this vehicle to have a pre-existing stretched timing chain, that would cost $2,826.16 to repair.

The damaged catalytic converter

[17] Within two days of uplifting the vehicle following the stretched timing chain repair, the engine warning light again illuminated. The vehicle was again assessed by Kingsway Motors, who found that the vehicle had a damaged catalytic converter. Kingsway Motors considered that the damaged catalytic converter was caused by the stretched timing chain.
[18] Mr Haynes advises that a catalytic converter is a device used to reduce the emissions from an internal combustion engine. The vehicle’s catalytic converter is necessary to ensure that the vehicle complies with New Zealand Transport Agency emission requirements.
[19] Kingsway Motors provided an estimate of $500 to replace the catalytic converter, which Mr Haynes considers to be a reasonable estimate for the replacement of the catalytic converter with second hand parts.
[20] I am satisfied that the faulty catalytic converter is a breach of the acceptable quality guarantee in s 6 of the Act. I am satisfied that a reasonable consumer would not expect a vehicle of this price, age and mileage to have a damaged catalytic converter at the time of sale.

Are the faults a failure of a substantial character?

[21] Under s 18(3) of the Act, Ms Anderson may reject the vehicle if it has a fault that amounts to a failure of a substantial character. A failure of a substantial character is defined in s 21 of the Act:

“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.”

[22] Section 21(a) of the Act 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.
[23] The stretched timing chain and catalytic converter fault are related. As noted above, Kingsway Motors considers that the damage to the catalytic converter was caused by the stretched timing chain.
[24] I am satisfied that a reasonable consumer would not have purchased this vehicle if it had known that the vehicle had a pre-existing fault with its timing chain, which caused it to be low on power and sluggish, and which had caused damage to the catalytic converter, particularly where the repairs required to make the vehicle of acceptable condition would cost more than $3,000. I consider that a reasonable purchaser of a $7,990, nine-year-old vehicle would simply have walked away from this vehicle and sought to purchase a similar vehicle that was free of such significant and expensive defects. I am therefore satisfied that the faults amount to a failure of a substantial character for the purposes of s 21(a) of the Act.

What remedy is Ms Anderson now entitled to under the Act?

[25] The remedies relevant to this case are set out in s 18 of the Act, which 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.”

[26] Hazleton Grove says that Ms Anderson cannot reject the vehicle because of the stretched timing chain. It says that Ms Anderson has already chosen her remedy under the Act by authorising the repair of the stretched timing chain. Hazleton Grove says that Ms Anderson cannot now reject the vehicle because of this fault, and that the faulty catalytic converter is too minor to justify rejection.
[27] Ms Anderson says that she did not understand the true nature and extent of the stretched timing chain fault when she authorised that repair. Ms Anderson says that, on 4 November 2017, she was initially told by Hazleton Grove that the fault was a minor sensor fault, which should take one day to repair. She was told the same thing when she returned the vehicle for repairs on 13 November 2017. It was only after Hazleton Grove contacted her on 16 November 2017 that she became aware that the vehicle had a fault with its timing chain. However, Ms Anderson did not know the significance of a stretched timing chain and says that Hazleton Grove never explained the nature and extent of this fault, leaving her to believe that the fault was minor.
[28] Hazleton Grove produced no meaningful evidence to rebut Ms Anderson’s version of events. Mr Shepherd, who appeared for the trader, had no involvement in this matter and was in the rather invidious position of being the mouthpiece for others, who for one reason or another, did not attend the hearing. Although I found Mr Shepherd to be credible and honest in what he could provide to the Tribunal, he was not able to provide evidence to rebut Ms Anderson’s version because he was not involved in the relevant conversations.
[29] I found Ms Anderson to be a careful, thorough and honest witness. I accept her evidence that Hazleton Grove led her to believe that the fault was minor, and then failed to correct that misapprehension when it became aware that the vehicle had a more significant fault.
[30] In circumstances such as this, I consider that Hazleton Grove had an obligation to provide sufficient information to Ms Anderson to enable her to make a fully informed decision as to which of the Act’s remedies she should choose once it became apparent that the vehicle had a stretched timing chain. Certainly, it had an obligation to tell Ms Anderson that the stretched timing chain was a much more significant fault than was initially suspected. Hazleton Grove did not do this, and I am satisfied that Ms Anderson therefore did not make a fully informed decision to repair the stretched timing chain. Accordingly, I am satisfied that under s 18(3) of the Act, Ms Anderson is entitled to reject the vehicle and that she has not lost the right to reject the vehicle.
[31] Under s 23A of the Act, having rejected the vehicle, Ms Anderson is entitled to have her obligations under the collateral credit agreement assigned to Hazleton Grove. 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.

[32] I am satisfied that Hazleton Grove arranged or procured the collateral credit agreement and the agreement was entered into to enable Ms Anderson to purchase the vehicle. Under s 23A(2) of the Act, I therefore assign all of Ms Anderson’s obligations under the collateral credit agreement to Hazleton Grove.
[33] Under s 23(1)(a) of the Act Ms Anderson 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.
[34] Ms Anderson is also entitled to recover costs incurred in connection with diagnosing the vehicle’s faults. In that regard, Ms Anderson had the vehicle diagnosed by Davie Motors Holden on 18 January 2018, at a cost $232.90. Ms Anderson is entitled to recover that amount.

Conclusion

[35] The vehicle had pre-existing faults with its timing chain and catalytic converter that breached the acceptable quality guarantee in s 6 of the Act. Those faults are a failure of a substantial character for the purposes of s 21(a) of the Act.
[36] Under s 18(3) of the Act, Ms Anderson is entitled to reject the vehicle and obtain a refund of all amounts paid in respect of the vehicle. Under s 23A(2) of the Act, the Tribunal also assigns all of Ms Anderson’s obligations under the collateral credit agreement to Hazleton Grove Limited.
[37] Accordingly, the Tribunal orders that the collateral credit agreement, dated 2 November 2017, between Ms Anderson and Finance Now Limited shall vest in Hazleton Grove as from the date of this decision and Hazleton Grove shall, as from that date, discharge all of Tasha Anderson’s obligations under the collateral credit agreement.
[38] Hazleton Grove Limited shall, within 10 working days of the date of this decision, pay Tasha Anderson:
[39] Ms Anderson must then make the vehicle available to be uplifted by Hazleton Grove.

DATED at AUCKLAND this 17th day of April 2018

B.R. Carter
Adjudicator



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