Khoo v Autolink Cars Ltd - Reference No. MVD 104/2019 [2019] NZMVDT 108 (27 May 2019)

Last Updated: 20 June 2019

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 104/2019 [2019] NZMVDT 108 BETWEEN JEFFREY KHOO Purchaser AND AUTOLINK CARS LTD Trader

MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator

S D Gregory, Assessor

HEARING at Auckland on 16 May 2019

APPEARANCES

J Khoo, Purchaser S Fan, Witness for the Purchaser

S Ryan and H Schmidt, for the Trader

DATE OF DECISION 27 May 2019

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DECISION OF THE TRIBUNAL

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1. Jeffrey Khoo’s application is dismissed.

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REASONS

Introduction

[1] On 21 July 2018, Jeffrey Khoo purchased a 2011 Nissan Leaf electric vehicle, registration number LNB609, from Autolink Cars Ltd for $12,500. The vehicle had an odometer reading of 46,600 km at the time of sale.
[2] Mr Khoo now seeks to return the vehicle and obtain a refund of the purchase price. He is concerned that the vehicle has not been of acceptable quality for the purposes of the Consumer Guarantees Act 1993 (the CGA) because its battery state of health (SOH) has deteriorated more quickly than is reasonable. He also considers that Autolink engaged in misleading conduct in breach of the Fair Trading Act 1986 (the FTA) by overstating the vehicle’s battery SOH at the time of sale.
[3] Autolink Cars says that Mr Khoo is not entitled to the remedy he seeks. It says that the vehicle’s SOH is consistent with a Nissan Leaf of this age and mileage. It also denies overstating the vehicle’s battery SOH at the time of sale.

The Issues

[4] Against this background, the issues requiring consideration in this case are:

• (a) Does the vehicle have a fault that breaches the acceptable quality guarantee in s 6 of the CGA?
• (b) Has Autolink Cars engaged in misleading conduct in breach of s 9 of the FTA by making misleading representations regarding the vehicle’s battery SOH?
• (c) If so, what if any remedy is Mr Khoo entitled to under the FTA?

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

[5] 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.
[6] 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.

[7] 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 Mr Khoo’s subjective perspective.
[8] The vehicle is an electric vehicle. The batteries in electric vehicles degrade over time, due to a range of factors including environmental conditions, the charging behaviour of the owners and the manner in which the vehicle has been used.
[9] The vehicle has a battery capacity indicator, which is designed to give an indication of battery capacity and health. The battery capacity indicator in a 2011 Nissan Leaf has 12 bars, with all 12 bars being illuminated indicating that the battery capacity exceeds 85 per cent of a new battery’s capacity. As the battery ages, its capacity (ie its ability to hold charge) diminishes, meaning each full charge results in a slightly reduced range compared to when the car was new. With time, the battery capacity indicator slowly drops, representing that reduction in capacity.
[10] Mr Khoo was attracted to this vehicle because of the state of its battery capacity and health. Mr Khoo says he approached Autolink seeking to purchase a vehicle that had at least 10 bars showing on its battery capacity indicator. Mr Khoo says he was told by Henry Schmidt, a director of Autolink, that the vehicle had 10 bars showing on its battery capacity indicator and that its SOH was 78 per cent, which Mr Khoo says put the vehicle in the 95th percentile of 2011 Nissan Leafs. Relying on this information, Mr Khoo purchased the vehicle.
[11] Mr Khoo advises that he tested the vehicle’s SOH one month after purchase using the Leafspy application (which is a common tool used to measure battery SOH in Nissan Leafs) and found that the vehicle’s SOH had reduced to 73 per cent. Mr Khoo says that he has tested the SOH several times since, and although the rate at which the SOH has depleted has stabilised, the vehicle’s SOH continues to drop and is now at 69 per cent, representing a 9 per cent decrease in battery health over a 10 month period. Mr Khoo also says that the battery capacity indicator has also dropped to nine bars.
[12] Mr Khoo says that this rate of depletion is unacceptable. He submitted that the battery SOH of a Nissan Leaf should deplete by no more than 4 per cent to 5 per cent per year, with some customers reporting depletion as low as 1 per cent per year.
[13] Autolink queries the reliability of the Leafspy application relied upon by Mr Khoo and instead considers that the battery capacity indicator on the vehicle’s dashboard display is a much more reliable indicator of the vehicle’s SOH. Notwithstanding its view on the unreliability of the Leafspy application (which I note appears to be widely used by motor vehicle dealers, including Autolink, when advertising the SOH of a Nissan Leaf), Autolink appears to accept that the vehicle’s SOH has depleted significantly.
[14] However, it says that the battery depletion experienced by Mr Khoo is not unusual or unacceptable. Autolink says that it is common for the battery SOH in a Nissan Leaf to reduce when a vehicle is imported into New Zealand from Japan due to a number of factors including the previous owners’ driving and charging habits and differences in weather conditions and temperature. Autolink advises that the fluctuation between a vehicle’s SOH in Japan and in New Zealand can be as high as 8 per cent. In support of this submission, Autolink referred me to an article published on the flipthefleet.org website, dated 1 November 2018, which it says confirms that battery SOH can decrease significantly after importation from Japan.
[15] Mr Gregory, the Tribunal’s Assessor, advises that the explanation provided by Autolink is entirely plausible. He agrees that a vehicle’s battery SOH can reduce substantially when a vehicle is imported into New Zealand from Japan because of factors such as the time taken to import the vehicle into New Zealand, changes in weather conditions and temperature and changes in the vehicle owner’s driving and charging habits.
[16] As applicant, Mr Khoo must prove on the balance of probabilities that the depletion of the vehicle’s battery SOH means that it has not been of acceptable quality. On the basis of the evidence presented at the hearing, I am not satisfied that Mr Khoo has done so. I acknowledge that the evidence shows that the vehicle’s SOH, as recorded by the Leafspy application, depleted rapidly after purchase. However, I am not satisfied that the depletion is indicative of any defect with the vehicle. Instead it appears to be a consequence of the battery degradation that can occur when an electric vehicle is imported into New Zealand from Japan.
[17] I also note that the vehicle’s SOH has stabilised and the vehicle’s batteries are now depleting at a rate consistent with a Nissan Leaf of this age and mileage, meaning that there appears to be no underlying fault with the vehicle’s batteries. Accordingly, I am not satisfied that Mr Khoo has proven that the vehicle has any defect that breaches the acceptable quality guarantee in s 6 of the CGA, and Mr Khoo’s application for relief under the CGA must be dismissed.

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

[18] Mr Khoo also alleges that Autolink engaged in misleading conduct in breach of s 9 of the FTA by representing that the vehicle had a battery SOH of 78 per cent at the time of sale.
[19] Section 9 of the FTA provides;

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.

[20] 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.

[21] The representation that the vehicle had a SOH of 78 per cent at the time of sale was true. That is evident from the Leafspy report obtained when the vehicle was sold by auction in Japan. On that basis, I do not agree with Mr Khoo’s submission that Autolink misrepresented the vehicle’s SOH at the time of sale.
[22] However, in light of the evidence presented, I must also consider whether Autolink engaged in misleading conduct in breach of s 9 of the FTA by then failing to advise Mr Khoo that, although the vehicle’s current SOH was 78 per cent, that reading could deplete significantly once the vehicle was imported into New Zealand.
[23] This assessment 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.
[24] 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]
[25] This principle of caveat emptor has now been displaced by the 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 (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.

[26] 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.
[27] As noted above, the evidence presented by the parties shows that the SOH of a Nissan Leaf imported from Japan can reduce by up to 8 per cent when the vehicle is imported into New Zealand. As Mr Khoo quite rightly pointed out, battery SOH is important to the purchasing decision of any prospective purchaser of an electric vehicle. Given the importance of this information, I consider that a reasonable consumer would expect that, where a motor vehicle trader makes a representation as to the vehicle’s SOH before it is imported to New Zealand, the trader would then tell it that the battery SOH could reduce by as much as 8 per cent when the vehicle was imported into New Zealand.
[28] I accept that Autolink did tell Mr Khoo that the 78 per cent SOH reading was unreliable. Nonetheless, I do not think that Autolink went far enough in advising Mr Khoo as to quite how unreliable that reading could be. Having told Mr Khoo that the vehicle’s SOH was 78 per cent, I consider that Autolink then had an explicit obligation to tell Mr Khoo that there was a real risk that the battery SOH could be much lower once the vehicle was imported into New Zealand. By failing to clearly advise Mr Khoo of this risk, I consider that Autolink has engaged in misleading conduct in breach of s 9 of the FTA.
[29] I appreciate that this finding is likely to have significant ramifications for traders who sell electric vehicles imported from Japan and who use the vehicle’s pre-import SOH reading in their marketing. And so it should. If traders want to use this type of potentially unreliable information in their marketing, they must make it clear to prospective purchasers that there is a real risk that the battery SOH could be significantly lower once the vehicle is imported into New Zealand. Failure to do so will expose those traders to potential liability under the FTA.

What remedy is available to Mr Khoo under the FTA?

[30] The remedies available for a breach of the FTA are discretionary. They 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) subpart 5 of Part 2 of the Contract and Commercial Law Act 2017; or

(b) section 317 of the Accident Compensation Act 2001.

[31] 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.[6]
[32] Under s 43 of the FTA, the normal measure of loss is the “difference between the value of what was acquired and the price paid”.[7] That means Mr Khoo will have suffered loss if he paid more for the vehicle than it was worth.
[33] Mr Khoo has not proven paid more than the vehicle was worth. Mr Khoo paid $12,500 for the vehicle, and the evidence does not show that the vehicle was worth less than $12,500 because of its depleted battery SOH once it was imported into New Zealand.
[34] In support of his claim, Mr Khoo provided evidence as to the price of other Nissan Leafs, but I am not satisfied that the evidence he provided is sufficiently robust to enable me to draw any conclusion as to the market price of such a vehicle or whether Mr Khoo paid too much for this particular vehicle. Further, the evidence provided by Autolink suggests that Mr Khoo is likely to have paid a fair market price for the vehicle. After the hearing, Autolink provided details of similar vehicles it has sold since 1 May 2018. That information shows that the price paid by Mr Khoo is consistent with the price paid by other purchasers for similar vehicles.
[35] Mr Khoo also pointed me to a previous decision of this Tribunal, Loveland v Motor 1 Ltd T/A City Motor Group, in support of his submission that the circumstances of this case were such that he should be entitled to a refund of the purchase price under the FTA.[8] In that case, I found that Motor 1 Ltd had made misleading representations as to the vehicle’s battery capacity, because the vehicle’s battery capacity indicator was faulty and the capacity was not as represented. I concluded that Mr Loveland was entitled to a refund of the vehicle’s purchase price because of the loss he suffered as a result of this misleading representation.
[36] Although there are similarities between the two cases, there are also important differences, which justify different outcomes. In Mr Loveland’s case, the vehicle had an underlying fault with its battery capacity indicator that significantly reduced the resale value of the vehicle below the amount paid by Mr Loveland. In those circumstances, Mr Loveland was entitled to a refund of the purchase price. In this case, Mr Khoo’s vehicle has no underlying fault that has reduced its resale value below the amount he paid for it, and Mr Khoo has not proven that he paid more for the vehicle than it was worth.
[37] Accordingly, I am not satisfied that Mr Khoo has proven that he has suffered any loss recoverable under the FTA, and his application for a remedy under the FTA is dismissed.

DATED at AUCKLAND this 27th day of May 2019

B.R. Carter
Adjudicator

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[1] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

[2] Smith v Hughes (1871) LR 6 QB 597 (QB); March Construction Ltd v Christchurch City Council (1995) 5 NZBLC 103,878 (HC).

[3] Des Forges v Wright [1996] 2 NZLR 758 (HC).

[4] At 764.

[5] Hieber v Barfoot & Thompson (1996) 7 TCLR 301 (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 [31].
[7] Narayan v Arranmore Developments Ltd [2011] NZCA 681, (2011) 13 NZCPR 123 at [49].

[8] Loveland v Motor 1 Ltd T/A City Motor Group [2017] NZMVDT 209 (11 December 2017)