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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 20 December 2019
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IN THE MOTOR VEHICLE DISPUTES TRIBUNAL
BETWEEN LITTLE AND FOX DESIGN LTD
Purchaser
AND KARDAN LTD
Trader
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MEMBERS OF TRIBUNAL
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B R Carter, Barrister – Adjudicator
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S Haynes, Assessor
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HEARING at Auckland on 29 October 2019
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APPEARANCES
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A Payton and J Payton, for the Purchaser
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No appearance for the Trader
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DATE OF DECISION 4 November 2019
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
Introduction
[1] Little and Fox Design Ltd (Little and Fox) seeks to reject the Volkswagen T5 Kombi 2.5 TDi, registration number EMY563, it purchased from Kardan Ltd, trading as Motorsport Garage in July 2018. Little and Fox paid $20,762.50, with a cash deposit of $4,600 and the balance being financed by Euro Finance Ltd under a credit contract dated 16 July 2018 (the collateral credit agreement).
[2] Little and Fox rejects the vehicle because it says the vehicle has not been of acceptable quality for the purposes of the Consumer Guarantees Act 1993 (the Act) because it had several pre-existing cosmetic defects and then developed a significant engine fault shortly after purchase, which Kardan Ltd has failed to rectify.
[3] Despite being sent a Notice of Hearing advising it of the time and location of the hearing, Kardan Ltd failed to attend and provided no reasonable explanation for its non-attendance. The hearing therefore proceeded without Kardan Ltd.
The issues
[4] Against this background, the issues requiring consideration are:
- (a) Issue 1: Does the vehicle have faults that breach the acceptable quality guarantee in s 6 of the Act?
- (b) Issue 2: Has Kardan Ltd refused to rectify the vehicle’s faults?
- (c) Issue 3: Are the faults a failure of a substantial character?
- (d) Issue 4: What remedy is Little and Fox entitled to under the Act?
Issue 1: Does the vehicle have a fault that breaches the acceptable quality guarantee?
[5] 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.
[6] The expression "acceptable quality" is defined in s 7(1) 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 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 Little and Fox’s subjective perspective.
The cosmetic defects
[8] Asha Payton, a director of Little and Fox, advised that she was initially attracted to a different Volkswagen Kombi advertised for sale by Kardan Ltd on Trade Me. She says that the Trade Me listing for that vehicle described it as being a “tidy example” that had been “religiously serviced and maintained”. The exterior was also described as being in good condition, “better than average for the age and mileage.” The interior was represented as being “very tidy”, with everything working as it should.
[9] Mrs Payton says that she then spoke with Daniel Chima, a director of Kardan Ltd, who told her that Kardan Ltd was selling another Volkswagen Kombi (the vehicle that Little and Fox ultimately purchased), which was in just as good, if not better, condition. On the basis of the advice it received from Mr Chima as to its condition, Little and Fox decided to purchase the vehicle.
[10] The vehicle was not in the condition represented by Kardan Ltd. Little and Fox provided clear colour photographs that show that various internal vents were either broken or missing, a seatbelt cover was missing, there were large stains on the front passenger seat, the driver’s seat belt adjuster was missing, the cup holder was broken, a internal door lock mechanism was missing and a window opening mechanism was broken. I also heard evidence from Craig Chandler, who is a mechanic at Team Auto Centre Clive. Mr Chandler inspected the vehicle shortly after purchase and confirmed that the vehicle was in the poor condition shown in the photographs provided by Little and Fox.
[11] On the basis of the evidence presented by Little and Fox and taking account of the pre-purchase representations made by Kardan Ltd, I am satisfied that the defects that were present the vehicle was not acceptable in appearance and finish at the time of sale, in breach of s 6 of the Act.
The significant engine fault
[12] One day after taking possession of the vehicle, Mrs Payton noticed a knocking sound from the engine. Little and Fox contacted Kardan Ltd and was advised to take the vehicle to Team Auto Centre Clive. Mr Chandler then inspected the vehicle and advises that he found damage to the number one cylinder bore. Team Auto Centre Clive subsequently replaced the vehicle’s engine with a secondhand engine supplied by Kardan Ltd in November 2018.
[13] That replacement engine was also faulty. Mrs Payton advised that she began to notice blue smoke from the vehicle’s exhaust and a strong smell of petrol fumes. Team Auto Centre Clive assessed the vehicle in June 2019 but could find no obvious fault. However, when Mrs Payton returned the vehicle to it in August 2019 complaining of the same symptoms, Team Auto Centre Clive then noticed excessive amounts of blue and brown smoke coming from the vehicle’s exhaust when in low gear.
[14] Mr Chandler advises that Team Auto Centre Clive then conducted further testing and found diesel present in the vehicle’s oil. Mr Chandler advises that he performed a further diagnosis and found excessive wear to the fuel injectors seals and cylinder head, with metal contamination present. Mr Chandler considered that diesel had been leaking past the fuel injector seals for some time, diluting the engine oil and causing damage to the cylinder head and injectors. Mr Chandler considers that, at the very least, the vehicle now requires a new cylinder head and fuel injectors.
[15] Mr Haynes, the Tribunal’s Assessor, advises that the diagnosis of Team Auto Centre Clive is consistent with the symptoms described by Mrs Payton. Mr Haynes advises that worn fuel injector seals can cause the vehicle’s oil to become diluted, which in turn causes damage to the engine due to the poor lubricating properties of the diluted oil. Mr Haynes agrees that, at a minimum, the vehicle requires a new cylinder head and fuel injectors. Mr Haynes also notes that more extensive repairs may be required once a more thorough assessment of the true extent of the engine damage is performed. Mr Haynes also agrees with Team Auto Centre Clive’s opinion that the replacement engine was likely to have been faulty when it was installed.
[16] I am satisfied that Little and Fox has proven that the vehicle was supplied with a significant pre-existing engine fault, which required the engine to be replaced shortly after purchase. This fault means the vehicle was not of acceptable quality for the purposes of s 6 of the Act at the time of supply. I am also satisfied that Little and Fox has proven that the replacement engine supplied by Kardan Ltd was defective and that it had a pre-existing fault that allowed diesel to dilute the vehicle’s oil, damaging the engine.
The battery
[17] Little and Fox also allege the vehicle’s battery was not sufficiently durable, as it had to replace the battery on 30 May 2019.
[18] I am not satisfied that the vehicle’s battery was of unacceptable quality. The protections in the Act are not indefinite, and apply for only as long as is reasonable, taking account of factors such as the price, age and mileage of the vehicle at the time of sale, the nature of the defect, the length of ownership before the defect arises and distance travelled in that time.
[19] I am satisfied that a reasonable consumer would understand the battery as a consumable item that will require replacement from time to time. Because the battery required replacement more than 10 months after purchase, by which time Little and Fox had travelled more than 10,000 km in the vehicle, I am satisfied that the vehicle’s battery has been as durable as a reasonable consumer would consider acceptable.
The heater
[20] Little and Fox also provided evidence to show that the vehicle’s heater developed a fault, which was repaired by Team Auto Centre Clive in May 2019. This appears to have been a minor fault, as the required repairs cost $146.65.
[21] On the basis of the minor nature of the fault, the length of time after purchase before the fault was rectified and the distance travelled in that time, I am satisfied that the heat fault does not breach the acceptable quality guarantee and that the vehicle has been as durable as a reasonable consumer would consider acceptable.
Issue 2: Did Kardan Ltd refuse to rectify the vehicle’s fault?
[22] Little and Fox may reject the vehicle under s 18(2)(b)(ii) of the Act if Kardan Ltd has failed to repair the vehicle’s faults within a reasonable time. Section 18 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.
[23] Kardan Ltd replaced the vehicle’s defective engine in November 2018. The evidence shows that the replacement engine was also defective, with a pre-existing fault that allowed diesel to enter the vehicle’s oil, damaging the engine.
[24] Kardan Ltd then refused to provide any remedy to Little and Fox in respect of the pre-existing fault with the replacement engine. In a text message dated 1 June 2019, Mr Chima declined to provide any remedy, advising Mrs Payton that it had been over six months since the engine had been replaced, with sign off from Team Auto Centre Clive, and nearly a year since Little and Fox had purchased the vehicle. Mr Chima noted that Little and Fox had purchased a Provident Insurance extended mechanical warranty policy with the vehicle, which I read as a suggestion that Little and Fox should make a claim against that policy because Kardan Ltd declined to provide any remedy.
[25] I am satisfied that Kardan Ltd had an obligation to rectify the fault with the replacement engine once contacted by Mrs Payton. Its refusal to do so, as evidenced by its text message of 1 June 2019 and the absence of any subsequent offer to rectify the defect, amounts to a refusal to rectify the fault, meaning Little and Fox is entitled to reject the vehicle under s 18(2)(b)(ii) of the Act.
Issue 3: Are the faults a failure of a substantial character?
[26] Under s 18(3) of the Act, Little and Fox may also 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.
[27] 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.
[28] Little and Fox paid more than $20,000 for a 10-year-old Volkswagen Kombi that had travelled approximately 172,000 km at the time of sale. Although I am satisfied that a reasonable consumer should have realistic expectations as to the quality and durability of a vehicle of this price, age and mileage, I am nonetheless satisfied that a reasonable consumer would not have purchased this vehicle if they had known that the vehicle would twice require significant and expensive engine repairs in such a short time. Accordingly, I am satisfied that the vehicle’s engine faults are a failure of a substantial character, and that Little and Fox is also entitled to reject the vehicle under s 18(3)(a) of the Act.
Issue 4: What remedy is Little and Fox entitled to under the Act?
[29] The remedies relevant to this claim are set out in s 18 of the Act (as set out above).
[30] Under s 18(2)(b)(i) of the Act, Little and Fox is entitled to recover the cost of rectifying the numerous defects that were present when the vehicle was delivered to it. I accept Mrs Payton’s evidence that Kardan Ltd agreed to rectify those faults, and in that regard, I note that Kardan Ltd paid for the interior to be cleaned and provided a number of replacement parts, to be installed by Team Auto Centre Clive, at its expense. I also accept Mrs Payton’s evidence that the replacement parts supplied by Kardan Ltd were unsuitable and that Kardan Ltd then agreed to pay for replacement parts to be sourced and installed by Team Auto Centre Clive. Accordingly, I am satisfied that Little and Fox is entitled to recover $739.74, being the amount that it has since paid to Team Auto Centre Clive in February 2019 for the required repairs.
[31] Under s 18(4) of the Act, Little and Fox is also entitled to recover the cost of having the defects that breached the acceptable quality guarantee diagnosed. In that regard, it is entitled to recover:
- (a) $60 — being the amount charged by Team Auto Centre Clive on 13 June 2019 for its attempted diagnosis of the pre-existing defects with replacement engine; and
- (b) $654.93 — being the amount charged by Team Auto Centre Clive for its further diagnosis of the pre-existing defects with the replacement engine.
[32] Little and Fox is also entitled to recover part of the cost of signwriting the vehicle. In December 2018, Little and Fox paid $971.01 to Molloy PSG Ltd to have the vehicle signwritten. I am satisfied that it will now suffer loss as a result of rejecting the vehicle, because it will not obtain the full benefit of the signwriting cost once it returns the vehicle. I am also satisfied that this loss was reasonably foreseeable to result from the vehicle’s defects. Mrs Payton gave evidence that she told Mr Chima that the vehicle was to be signwritten, meaning both parties were aware that this cost was to be incurred, and that this would be wasted expenditure if the vehicle developed significant faults sufficient to justify rejection, as has occurred. However, because Little and Fox has obtained some benefit from using the signwritten vehicle since December 2018, the amount awarded to it is reduced by $500. Accordingly, under s 18(4) of the Act, I am satisfied that Little and Fox is entitled to recover $471.01 for the cost of signwriting the vehicle.
[33] Under s 23(1)(a) of the Act, having rejected the vehicle, Little and Fox is also entitled to recover all amounts paid in respect of the vehicle. In that regard, Little and Fox is entitled to recover:
- (a) $4,600 — being the deposit paid for the vehicle;
- (b) $1,576.54 — being all payments of interest made by Little and Fox under the collateral credit agreement from 29 January 2019 until 1 September 2019 (when it rejected the vehicle); and
- (c) $827.30 — being all payments of principal and interest (less default fees and interest) made by Little and Fox under the collateral credit agreement from 2 September 2019 until the date of this decision.
[34] Little and Fox is also entitled to have its ongoing rights and obligations under the collateral credit agreement assigned to Kardan Ltd. The relevant provisions are set out in ss 89(2) and (3) of the Motor Vehicle Sales Act 2003 (the MVSA), which state:
89 Jurisdiction of Disputes Tribunal
...
(2) A Disputes Tribunal may order that the rights and obligations of the buyer of a motor vehicle under a collateral credit agreement vest in a motor vehicle trader if—
(a) the collateral credit agreement is associated with the contract for the sale of that motor vehicle; and
(b) the motor vehicle trader is a party to that contract for sale; and
(c) either one of the following circumstances applies:
(i) the buyer exercises the right conferred by the Consumer Guarantees Act 1993 to reject that motor vehicle and, on a claim by the buyer under section 47(1) of that Act, the Disputes Tribunal orders the motor vehicle trader to refund any money paid, or other consideration provided, for that motor vehicle; or
(ii) the Disputes Tribunal finds that the buyer has suffered, or is likely to suffer, loss or damage by the conduct of the motor vehicle trader that constitutes, or would constitute, any of the conduct referred to in section 43(1) of the Fair Trading Act 1986 and the Disputes Tribunal makes an order under section 43(2) of that Act declaring the whole or any part of the contract for sale to be void.
(3) For the purposes of subsection (2), collateral credit agreement, in relation to a contract for the sale of a motor vehicle, means a contract or agreement arranged or procured by the motor vehicle trader or the buyer for the provision of credit by a person other than by the motor vehicle trader to enable the buyer to pay the price reserved by the contract for sale in respect of the motor vehicle.
[35] The criteria in s 89(2) of the MVSA for the assignment of rights and obligations under a collateral credit agreement are all met in this case:
- (a) the agreement between Little and Fox and Euro Finance is a collateral credit agreement for the purposes of s 89(2) of the MVSA. The agreement was arranged or procured by Little and Fox for the provision of credit by Euro Finance to enable Little and Fox to purchase the vehicle;
- (b) Kardan Ltd sold the vehicle to Little and Fox, so it is a party to the contract to purchase the vehicle; and
- (c) Little and Fox has exercised the right conferred by the CGA to reject the vehicle and the Tribunal has ordered that Kardan Ltd must refund any money paid, or other consideration provided, for that vehicle.
[36] Accordingly, under s 89(2) of the MVSA, all of Little and Fox’s rights and obligations under the collateral credit agreement are assigned to Kardan Ltd from the date of this decision.
Costs
[37] Little and Fox is also entitled to recover the cost of bringing this application. Under cl 14(1)(b) of Sch 1 to the MVSA, the Tribunal may award costs against a party where, after receiving notice of the hearing, that party fails to attend without reasonable cause.
[38] I am satisfied that Kardan Ltd, after receiving notice of the hearing, failed to attend without reasonable cause. Under cl 14(2)(b) of Sch 1 to the MVSA, Little and Fox is therefore entitled to recover $50, being the filing fee for this application. Further, under cl 14(2)(a)(i) of Sch 1 to the MVSA, I also order that Kardan Ltd pay $650, being the reasonable costs of the Tribunal hearing.
DATED at AUCKLAND this 4th day of November 2019
B.R. Carter
Adjudicator
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2019/234.html