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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 23 August 2019
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IN THE MOTOR VEHICLE DISPUTES TRIBUNAL
BETWEEN FALEOSINA VA’A
Purchaser
AND ENTERPRISE MOTOR GROUP (NEW LYNN) LTD
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 Auckland on 2 July 2019
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APPEARANCES
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F Va’a, Purchaser
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D R Kwok, for the Trader
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DATE OF DECISION 8 July 2019
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
Introduction
[1] On 29 September 2016, Faleosina Va’a purchased a 2013 Holden Cruze for $13,999 from Enterprise Motor Group (New Lynn) Ltd. Mrs Va’a entered into a consumer credit contract with Community Financial Services Ltd dated 26 September 2016 (the collateral credit agreement) to purchase the vehicle.
[2] The vehicle’s engine failed shortly after purchase and was replaced with a secondhand engine. The vehicle then developed faulty engine coils and its battery went flat a number of times. Mrs Va’a says that the vehicle’s faults are so serious that she should be entitled to reject the vehicle under the Consumer Guarantees Act 1993 (the CGA). She also alleges that Enterprise Motor Group misled her by representing that the replacement engine would be new. Mrs Va’a wants to obtain a refund of the money she has paid in respect of the vehicle and be relieved of her ongoing obligations under the collateral credit agreement.
[3] Enterprise Motor Group accepts that the vehicle’s engine failed and that its engine coils required replacement. However, it does not agree that Mrs Va’a should be entitled to reject the vehicle. It says that the engine has been replaced, with no ongoing issues and the faulty engine coils occurred too long after purchase for the protections in the CGA to continue to apply. It also says that Mrs Va’a has failed to service the vehicle as required, which could have contributed to the problems she has experienced.
The Issues
[4] Against this background, the issues requiring consideration are:
- (a) Does the vehicle have faults that breach the acceptable quality guarantee in s 6 of the CGA?
- (b) Are the faults a failure of a substantial character?
- (c) Has Mrs Va’a lost the right to reject the vehicle?
- (d) What remedy is Mrs Va’a entitled to under the CGA?
- (e) Has Enterprise Motor Group engaged in misleading conduct in breach of s 9 of the Fair Trading Act 1986 (the FTA)?
Does the vehicle have faults that breach 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.
[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 Mrs Va’a’s subjective perspective.
[8] Mrs Va’a says the vehicle has not been of acceptable quality because its engine failed in October 2016, its engine coil pack required replacement in September 2017 and its battery developed a fault and required replacement. Mrs Va’a says that these faults are not acceptable for a $13,999 vehicle, particularly as she will ultimately pay nearly $25,000 for the vehicle once finance costs are added.
The engine fault
[9] The vehicle’s engine failed within a month of purchase and was replaced in November 2016. Although neither party was able to provide me with detailed information as to the cause of the engine failure, there appeared to be no dispute that the engine was damaged to the extent that it required replacement.
[10] Mrs Va’a paid $13,999 for a three-year-old vehicle. Although the vehicle had travelled more than 142,000 km, which is extensive use for a three-year-old vehicle, I am satisfied that a reasonable consumer would not expect such a vehicle to develop a significant engine fault so shortly after purchase. In respect of this engine fault, the vehicle was therefore not of acceptable quality for the purposes of s 6 of the CGA because it was not sufficiently durable.
The engine coil pack
[11] Mrs Va’a says that the vehicle then developed a fault that caused it to shudder at low and high speeds and that the vehicle did not have the same fuel economy as before the engine was replaced. Mrs Va’a says this fault first became apparent when the vehicle was returned to her in November 2016 after the engine replacement. However, because of her personal circumstances and the unavailability of a courtesy car from Enterprise Motor Group, she did not have this fault rectified until September 2017.
[12] Mrs Va’a says that, on 1 September 2017, the vehicle began to shake and rattle badly, with the symptoms worsening when she attempted to accelerate. She took the vehicle to Spurdle Auto Electrical 2011 Ltd (who had replaced the engine in November 2016), who found that the engine was running rough because the vehicle required a new engine coil pack. Spurdle Auto Electrical replaced the coil pack and returned the vehicle to Mrs Va’a.
[13] Enterprise Motor Group agrees that the coil pack required replacement in September 2017 but says that this fault occurred too long after purchase for the protections in the CGA to apply to such a minor fault.
[14] Although Mrs Va’a did not have this fault diagnosed until September 2017, nearly one year after purchase, I accept her evidence that this fault developed shortly after the vehicle was returned to her following the engine replacement in November 2016. On that basis, although this was a minor and easily repairable fault, I am satisfied that the vehicle was not as durable as a reasonable consumer would consider acceptable, in breach of s 6 of the CGA. I consider that a reasonable consumer would not expect a vehicle of this price, age and mileage to develop a fault that caused it to shudder at low and high speeds so shortly after purchase.
The battery fault
[15] Around September 2017, the vehicle became hard to start due, it would seem, to a fault with the vehicle’s battery. Mrs Va’a has not had this fault diagnosed, although Enterprise Motor Group advises that they have replaced the battery and have noticed no ongoing starting issues.
[16] I am prepared to accept that the vehicle had a faulty battery, which required replacement in September 2017. However, that fault does not breach the acceptable quality guarantee. A reasonable consumer should understand that consumable components, such as a vehicle’s battery, will require replacement from time to time. In this case, the battery required replacement nearly 12 months after purchase, by which time Mrs Va’a had driven more than 30,000 km in the vehicle. In those circumstances, I am satisfied that the vehicle’s battery was sufficiently durable.
Are the faults a failure of a substantial character?
[17] Under s 18(3) of the CGA, Mrs Va’a may reject the vehicle if it has faults that amounts to a failure of a substantial character. A failure of a substantial character is defined in s 21 of the CGA:
- 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.
[18] Section 21(a) of the CGA 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.
[19] The fault that caused the engine to fail is a failure of a substantial character. A reasonable consumer would not have purchased the vehicle if they had known that the vehicle’s engine would fail within one month of purchase and require replacement.
[20] The faulty coil pack is not a failure of a substantial character. It was a minor and easily repairable fault, and although a reasonable consumer would expect that fault rectified within a reasonable time, I am not satisfied that a reasonable consumer would have declined to acquire the vehicle if they had been fully acquainted with the nature and extent of this fault.
Has Mrs Va’a lost the right to reject the vehicle?
[21] Section 20 of the CGA sets out the circumstances in which a purchaser loses the right to reject a vehicle. Relevant to this case, s 20(1)(c) of the CGA states:
20 Loss of right to reject goods
(1) The right to reject goods conferred by this Act shall not apply if—
...
(c) the goods were damaged after delivery to the consumer for reasons not related to their state or condition at the time of supply.
[22] Mrs Va’a drove the vehicle approximately 30,000 km over a 10-month period between November 2016 and September 2017 without having the vehicle serviced. Mr Gregory, the Tribunal’s assessor, advises that the vehicle should be serviced at least every 15,000 km or 12 months, whichever occurs earlier.
[23] Regular servicing of a vehicle is essential to prevent premature wear to the engine’s internal components, which can happen when the vehicle’s oil and oil filter are not frequently changed. Mr Gregory advises that this premature wear damages the engine’s internal components and, if the vehicle is not regularly serviced, the lifespan of the engine can be significantly shortened.
[24] In this case, I am satisfied that internal components of the vehicle’s engine have been worn prematurely and are likely to be damaged because the vehicle has been driven extensively without servicing. I am therefore satisfied that Mrs Va’a has lost the right to reject the vehicle under s 20(1)(c) of the CGA because it has been damaged after delivery to her for reasons not related to its state or condition at the time of supply.
What remedy is Mrs Va’a entitled to under the CGA?
[25] The remedies relevant to this claim are set out in s 18 of the CGA, which provides:
- 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), the 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] Mrs Va’a is entitled to no remedy in respect of the engine coil pack and battery faults. The coil pack has been replaced and the battery fault does not breach any of the CGA’s guarantees.
[27] Further, although the engine fault is a failure of a substantial character, Mrs Va’a is not entitled to reject the vehicle because of that fault for two reasons.
[28] First, as set out above, Mrs Va’a has lost the right to reject the vehicle because it has been damaged due to lack of servicing. Second, even if Mrs Va’a had not lost the right to reject the vehicle, she is not entitled to reject the vehicle because she chose to allow Enterprise Motor Group to repair that fault and having chosen that remedy, is not now entitled to reject the vehicle.
[29] Mrs Va’a says that she was misled into consenting to this repair. Mrs Va’a says that she only agreed to the engine replacement in October 2016 because Enterprise Motor Group told her that the replacement engine would be new. She says that once she discovered that the replacement engine was secondhand, not new, she promptly rejected the vehicle.
[30] To succeed in this aspect of her claim, I consider that Mrs Va’a must prove, on the balance of probabilities, that Enterprise Motor Group made representations that would have led a reasonable consumer to believe that the faulty engine would be replaced with a brand-new engine.
[31] Enterprise Motor Group denies making such representations, and I am not satisfied that Mrs Va’a has proven that Enterprise Motor Group made representations that would have led a reasonable person to believe that the replacement engine would be brand-new. Instead, I consider it likely that Mrs Va’a has assumed, on the basis of discussions she had with Enterprise Motor Group, that the replacement engine would be brand-new, without making sufficient attempts to verify whether her assumption was correct. On that basis, I am not satisfied that Mrs Va’a has proven that Enterprise Motor Group misrepresented that the replacement engine would be new.
[32] Because Mrs Va’a is not entitled to reject the vehicle, and because the engine fault has been rectified, her claim under the CGA is therefore dismissed.
Has Enterprise Motor Group engaged in conduct that breached s 9 of the FTA?
[33] Although her application was not expressed in these terms, I also understood Mrs Va’a to allege that Enterprise Motor Group engaged in misleading conduct in breach of the FTA by telling her that the replacement engine was new.
[34] 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.
[35] 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.
[36] For the reasons set out at paragraphs [29]–[31] above, I am not satisfied that Mrs Va’a has proven that Enterprise Motor Group made misleading representations about the replacement engine. Her misunderstanding that the faulty engine would be replaced with a brand-new one was not caused by any misleading representation made by Enterprise Motor Group.
[37] Accordingly, Mrs Va’a’s application under the FTA is dismissed.
Referral to the Commerce Commission
[38] It became apparent during the hearing that Mrs Va’a is confronting significant challenges in her life, some of which are related to the financial burden incurred in purchasing this vehicle.
[39] There are aspects of this case relating to the way in which the collateral credit agreement and associated credit related insurance products were sold to Mrs Va’a that raise potential issues under the responsible lending and credit related insurance provisions of the Credit Contracts and Consumer Finance Act 2003 (the CCCFA).
[40] Of particular concern was Mrs Va’a’s evidence that:
- (a) She purchased a more expensive vehicle (and accordingly took on more debt at an interest rate of 16.99 per cent) because of a requirement imposed by Community Financial Services. Mrs Va’a was initially looking to purchase an earlier model vehicle that cost approximately $6,000. Enterprise Motor Group obtained pre-approved finance for Mrs Va’a and then advised her that Community Financial Services required that she purchase a newer vehicle. Mrs Va’a then agreed to purchase a vehicle costing $13,999, more than twice her initial budget.
- (b) She was required to purchase more than $3,600 worth of credit related insurance products. Mrs Va’a says she did not want to purchase these insurance products but was told by the salesman employed by Enterprise Motor Group that those products were a mandatory requirement of Community Financial Services. During the hearing, Enterprise Motor Group stated that such products are not mandatory.
[41] The Tribunal has no power to consider these matters under the CCCFA, but I intend to refer those matters to the Commerce Commission, which does.
DATED at AUCKLAND this 8th day of July 2019
B.R. Carter
Adjudicator
[1] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2019/139.html