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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 17 January 2020
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IN THE MOTOR VEHICLE DISPUTES TRIBUNAL
BETWEEN ALLEN THOMAS
Purchaser
AND GRANDAUTOS 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 Hamilton on 3 December 2019
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APPEARANCES
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A Thomas, Purchaser
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G Harrop, for the Trader
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DATE OF DECISION 12 December 2019
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
Introduction
[1] Allen Thomas wants to reject the 2008 Nissan Vanette, registration number GKT198, he purchased from Grandautos Ltd in August 2019. Mr Thomas says that the vehicle had a fault with its cooling system, which caused the vehicle to overheat about one month after purchase, damaging the engine. Mr Thomas says that this fault means the vehicle has not been of acceptable quality for the purposes of the Consumer Guarantees Act 1993 (the CGA). Mr Thomas also alleges that Grandautos engaged in misleading conduct in breach of the Fair Trading Act 1986 (the FTA) by making misleading representations about the quality and durability of the vehicle.
[2] Grandautos says that the CGA does not apply to this transaction, as Mr Thomas purchased the vehicle for use in his business and the vehicle offer and sale agreement dated 22 August 2019 (the VOSA) records that the parties agreed that the CGA would not apply. It also denies making any misleading representations as to the quality or durability of the vehicle.
The issues
[3] Against this background, the issues requiring consideration are:
- (a) Issue 1: Have the parties contracted out of the CGA?
- (b) Issue 2: If not, has the vehicle been of acceptable quality for the purposes of s 6 of the CGA?
- (c) Issue 3: Is the engine damage a failure of a substantial character?
- (d) Issue 4: What remedy is Mr Thomas entitled to under the CGA?
- (e) Issue 5: Has Grandautos engaged in misleading conduct in breach of the FTA?
Issue 1: Have the parties contracted out of the CGA?
[4] Parties who are in trade may contract out of the CGA, provided the provisions in s 43(2) of the CGA, which sets out the rules for contracting out of the CGA, are complied with:
43 No contracting out except for business transactions
(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.
[5] Many of these criteria are met. The agreement was in writing — as evidenced by the VOSA. The vehicle was supplied and acquired in trade and the vehicle was acquired as part of the business activities of both companies. Both parties are in trade. Grandautos is a motor vehicle dealer and Mr Thomas operates a commercial cleaning company, specialising in cleaning building sites, and he purchased the vehicle to use in that business. Finally, the VOSA contains an acknowledgement that the parties have agreed to contract out of the CGA. Specifically, the VOSA contains (in bold font) the following clause:
13. I confirm that the goods to be supplied are being acquired for the purposes of the Purchaser’s business, in terms of s 2 and 43 of the CGA, and accordingly the parties agree that the provisions of the CGA will not apply.
[6] Beneath that clause is a signature line that states:
Purchaser; ________________ (if clause applies Purchaser must sign)
[7] Mr Thomas signed that signature line.
Is it fair and reasonable that the parties are bound by the exclusion clause?
[8] Although the agreement between the parties complies with the many of the requirements in s 43(2) of the CGA, when I consider the criteria set out in s 43(2A) of the CGA, I am not satisfied that it is fair and reasonable that the parties should be bound by the exclusion clause.
The subject matter of the agreement
[9] The subject matter of the agreement is a Nissan Vanette. This vehicle is of a kind ordinarily acquired for commercial and personal, domestic or household uses, which Mr Thomas acquired principally to use in his business operation.
The value of the goods
[10] Mr Thomas paid $4,850 for the vehicle. I consider this to be a neutral factor in my consideration of whether it is fair and reasonable that the parties should be held to have contracted out of the CGA.
The respective bargaining power of the parties
[11] There was an imbalance in the bargaining power between Grandautos and Mr Thomas. The agreement was in Grandautos’ standard form, and its terms do not appear to have been subject to negotiation. Further, Grandautos is a registered motor vehicle dealer, whereas Mr Thomas does not have the same experience in dealing with, or negotiating, motor vehicle sale and purchase contracts.
Whether the parties received legal advice
[12] Neither party sought legal advice, although I acknowledge that it would be unusual for a buyer or seller to seek legal advice before purchasing a $4,850 motor vehicle. However, it is relevant to my assessment of fairness and reasonableness that Mr Thomas received no advice from a lawyer or any other independent person on the existence and effect of the exclusion clause.
[13] Grandautos knew of the existence and effect of the exclusion clause. It is contained in the fine print of the VOSA, which is the trader’s own standard form agreement. Mr Thomas did not have this extent of familiarity with the content of the VOSA, and it was clear from Mr Thomas’ evidence that he had no appreciation whatsoever of the effect of the exclusion clause.
[14] I do accept the evidence of Glenn Harrop, a manager at Grandautos, that he told Mr Thomas that the CGA would not apply, but I also note that Mr Harrop advised that this was a “rushed” transaction. Having had the benefit of hearing evidence from Mr Thomas, it is apparent that he suffers from cognitive difficulties, and I am satisfied that Mr Thomas simply did not understand the effect of the document he was signing and that he was agreeing to exclude the protections in the CGA. In that regard, I do not think that Grandautos went far enough to ensure that Mr Thomas understood that he was agreeing to exclude the operation of the CGA.
[15] Ultimately, the CGA is consumer protection legislation. Mr Thomas is a consumer — he purchased a vehicle of a kind ordinarily acquired for personal, domestic or household use. Given the imbalance in the respective bargaining power of the parties and the fact that Mr Thomas has not knowingly agreed to contract out of the provisions of the CGA, he is entitled to the protections contained within the CGA. I am therefore satisfied that the parties have not validly agreed to contract out of the CGA and that the protections of the CGA apply in this case.
Issue 2: Does the vehicle have a fault that breaches the acceptable quality guarantee?
[16] 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.
[17] 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.
[18] 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 Thomas’ subjective perspective.
[19] It is common ground between the parties that the vehicle has suffered extensive engine damage. Mr Thomas gave evidence that the vehicle broke down on 20 September 2019 and has since been inspected by AA Auto Centre in Manukau, which diagnosed significant engine damage caused by the vehicle “severely overheating”. AA Auto Centre considered that the vehicle had developed a water leak from a corroded steel pipe and from rubber hoses, which caused the engine to be starved of coolant fluid, leading to overheating.
[20] Grandautos agrees that the engine has been damaged because it overheated following a water leak. It says that its mechanics have tested the vehicle’s engine and found that it has no compression on three cylinders and a blown head gasket. It also agrees that the vehicle has a coolant leak from a steel pipe. Mr Harrop advised that a “T” shaped steel pipe has a pin hole sized hole in it, which allowed water to escape from the cooling system. Grandautos says that it has found no sign of any perished or leaking rubber hoses. I accept Mr Harrop’s evidence on this point and conclude that the vehicle overheated because of a small hole in a steel coolant pipe and that its engine is now extensively damaged.
[21] On its face, the vehicle’s significant engine damage would ordinarily breach the acceptable quality guarantee because the vehicle has not been sufficiently durable. That damage occurred about one month after purchase, and although this is an inexpensive, high mileage vehicle, I consider a reasonable consumer would ordinarily expect the vehicle’s engine to have been much more durable than this.
[22] However, Grandautos suggested that it should not be liable for the engine damage because the damage was caused by Mr Thomas continuing to drive the vehicle when obvious warning signs of the impending engine damage, such as an elevated temperature gauge or other signs of overheating were evident.
[23] Grandautos’ position is significant because, under s 7(4) of the CGA, the engine damage will not breach the acceptable quality guarantee if it was caused by the vehicle being 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 that use caused or contributed to the engine damage.
[24] Mr Thomas denied that there were any warning signs present. He says that, while driving near Rainbow’s End in Manukau, the vehicle overheated suddenly, without any warning that the vehicle had a coolant leak or that it was overheating. He says that he immediately pulled over and has not used the vehicle since.
[25] Mr Gregory, the Tribunal’s Assessor, advises that, given the nature of the water leak described by Mr Harrop, it is likely that coolant fluid was leaking from the vehicle at a steady rate during Mr Thomas’ journey between Avondale and Manukau. Mr Gregory advises that the engine’s temperature gauge would have been slowly rising during Mr Thomas’ journey, but there were likely to be no other visible signs of overheating until significant engine damage had already occurred.
[26] I therefore accept Mr Thomas’ explanation as to what happened on 20 September 2019. I accept his evidence that he did not notice any sign of overheating until immediately before he pulled over and that there were no obvious warning signs that would have put him on notice that the vehicle had a coolant leak or that it was overheating. The temperature gauge may have been steadily rising over that time, but I am not satisfied that a reasonable person would necessarily have seen that sign over the short distance driven by Mr Thomas, because most drivers do not continuously check a vehicle’s temperature gauge.
[27] It follows that I am not satisfied that Mr Thomas has caused or contributed to the engine damage by using the vehicle in a manner inconsistent with the manner in which a reasonable consumer would use the vehicle. Consequently, the significant engine damage breaches the acceptable quality guarantee in s 6 of the CGA because the vehicle has not been as durable as a reasonable consumer would consider acceptable.
Issue 3: Is the fault a failure of a substantial character?
[28] Under s 18(3) of the CGA, Mr Thomas 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 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.
[29] The vehicle’s engine has failed and requires replacement or reconditioning. Applying s 21(a) of the Act, I am satisfied that the engine fault is a failure of a substantial character. A reasonable consumer would not have purchased this vehicle if they had known that such a significant fault would develop so shortly after purchase.
Issue 4: What remedy is Mr Thomas now entitled to under the CGA?
[30] 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.
[31] Under s 18(3)(a) of the CGA, Mr Thomas is entitled to reject the vehicle because the engine damage amounts to a failure of a substantial character. Under s 23(1)(a) of the CGA, having rejected the vehicle, Mr Thomas is entitled to recover all amounts paid in respect of the vehicle. In that regard, Mr Thomas is entitled to recover $2,070.40 being all payments of principal and interest made by Mr Thomas under the credit agreement he entered into with Troy Lister Ltd, trading as MTF Finance Hamilton (MTF), to purchase the vehicle (the collateral credit agreement) from 22 August 2019 until the date of this decision.
[32] Mr Thomas is also entitled to have his ongoing rights and obligations under the collateral credit agreement assigned to Grandautos. 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.
[33] 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 Mr Thomas and MTF is a collateral credit agreement for the purposes of s 89(2) of the MVSA. The agreement was arranged or procured by Mr Thomas for the provision of credit by MTF to enable Mr Thomas to purchase the vehicle;
- (b) Grandautos sold the vehicle to Mr Thomas, so it is a party to the contract to purchase the vehicle; and
- (c) Mr Thomas has exercised the right conferred by the CGA to reject the vehicle and the Tribunal has ordered that Grandautos Ltd must refund any money paid, or other consideration provided, for that vehicle.
[34] Accordingly, under s 89(2) of the MVSA, all of Mr Thomas’s rights and obligations under the collateral credit agreement are assigned to Grandautos from the date of this decision.
Issue: Has Grandautos engaged in conduct that breached s 9 of the FTA?
[35] Mr Thomas alleges that Grandautos engaged in misleading conduct by making representations to the effect that the vehicle was a “good van”, that it had “nothing wrong with it” and by telling him that Grandautos had used the vehicle for a number of years, which led Mr Thomas to believe that Grandautos was familiar with the vehicle and its opinion as to the vehicle’s quality and durability could be trusted. Mr Thomas also alleges that he was told that the vehicle had recently had a full service, which led him to believe that no matters of concern had been identified.
[36] 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.
[37] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corporation 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.
[38] I am not satisfied that Grandautos engaged in conduct in breach of s 9 of the FTA. To succeed in his claim that Grandautos engaged in misleading conduct by failing to advise him of the vehicle’s pre-existing faults, Mr Thomas must prove that Grandautos knew, or should have known, of those faults. The evidence simply does not show that Grandautos knew of any such fault. Accordingly, the Tribunal makes no orders under the FTA.
DATED at AUCKLAND this 12th day of December 2019
B.R. Carter
Adjudicator
[1] Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2019/276.html