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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 ANNA HOOTON
Purchaser
AND KARDAN LTD (in liquidation)
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 5 November 2019
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APPEARANCES
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A E Hooton, Purchaser
B Harrison, Witness for the Purchaser
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K Weber, for the Trader
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DATE OF DECISION 16 December 2019
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
[1] I heard this matter on 5 November 2019. While preparing this decision, I discovered that Kardan Ltd was placed in liquidation on 8 November 2019, with Jeffrey Philip Meltzer and Rachel Mason-Thomas appointed as liquidators.
[2] Under s 248(1)(c)(i) of the Companies Act 1993, a person can only continue legal proceedings against a company in liquidation with the consent of the liquidators or an order of the High Court. Because these were continuing legal proceedings when Kardan Ltd was placed in liquidation (as a proceeding continues until judgment is delivered) I could not issue a decision without the consent of the liquidators or an order from the High Court.
[3] On 13 December 2019, after a telephone conference involving the Tribunal and the parties (including the liquidators), the Tribunal received an email from Rachel Mason-Thomas advising that the liquidators consented to the continuation of these proceedings. I issue this decision accordingly.
Introduction
[4] On 15 March 2019, Anna Hooton purchased a 2009 Audi Q5, registration number KBE790, for $22,000 from Kardan Ltd. The vehicle had an odometer reading of approximately 76,000 km at the time of sale. Ms Hooton and her husband Beau Harrison entered into a consumer credit contract with Finance Now Ltd dated 14 March 2019 (the collateral credit agreement) to purchase the vehicle.
[5] Ms Hooton now seeks to reject the vehicle, claiming that it has not been of acceptable quality for the purposes of the Consumer Guarantees Act 1993 (the Act). She says that the vehicle was supplied with an insecure windscreen, which allowed water to enter the vehicle, damaging the vehicle’s upholstery and electronics. Ms Hooton also alleges that the vehicle has a fault that causes it to consume an excessive amount of oil.
[6] Kardan Ltd accepts that the vehicle’s windscreen leaked shortly after purchase and that the vehicle has developed a fault that causes it to consume an excessive amount of oil. It has rectified the windscreen leak and is prepared to rectify the cause of the excessive oil consumption. However, it disputes whether the vehicle has suffered any significant damage because of the windscreen leak says that Ms Hooton should not be entitled to reject the vehicle. It also submits that Ms Hooton has taken too long to reject the vehicle.
The Issues
[7] 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: Are the faults a failure of a substantial character?
- (c) Issue 3: Has Ms Hooton lost the right to reject the vehicle?
- (d) Issue 4: What remedy is Ms Hooton entitled to under the Act?
Issue 1: Does the vehicle have faults that breach the acceptable quality guarantee?
[8] 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.
[9] 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.
[10] 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 Hooton’s subjective perspective.
The windscreen leak
[11] About two weeks after Ms Hooton took possession of the vehicle, water leaked through the windscreen. Ms Hooton had the vehicle assessed by Smith and Smith, who believed that the windscreen had no seal. Ms Hooton and Mr Harrison also say that Smith and Smith considered that the vehicle’s structural integrity was compromised by the missing seal. They therefore allege that the vehicle has not been of acceptable quality because it had a missing windscreen seal, which compromised the vehicle’s structural integrity and allowed water to enter the vehicle’s interior.
[12] Although it does not dispute that the windscreen leaked shortly after purchase, Kardan Ltd does dispute whether the vehicle’s windscreen seal was missing. It says that the vehicle had passed two warrant of fitness inspections in the six months before it was purchased by Ms Hooton, which it would not have passed if the windscreen had no seal. Further, it says that the vehicle did not leak before it was sold to Ms Hooton. Karl Weber, who was a director of Kardan Ltd at the time, also used the vehicle for a number of months before it was sold to Ms Hooton. He says that the vehicle did not leak.
[13] I accept Kardan Ltd’s evidence on this point and I am not satisfied that Ms Hooton and Mr Harrison have proven that the vehicle’s windscreen seal was missing or that the vehicle was leaking before it was sold to them. I accept that the vehicle passed two warrant of fitness inspections before it was supplied to Ms Hooton, which the vehicle would have failed if it had any significant defect with its windscreen seal. Further, given the extent of water ingress shown in the photographs provided by Ms Hooton, I am satisfied that there would have been obvious signs of water ingress within the vehicle at the time of sale if the fault was pre-existing. There were no such signs.
[14] Nonetheless, I am satisfied that the vehicle developed a fault with its windscreen seal shortly after purchase, which allowed a significant amount of water to enter the vehicle. A reasonable consumer not expect a vehicle of this price, age and mileage to develop such a fault, and I am satisfied that the vehicle was therefore not of acceptable quality for the purposes of s 6 of the Act.
The water damage
[15] The vehicle has suffered water damage as a result of water leaking through the windscreen seal. Ms Hooton provided colour photographs, which show water present on the dashboard, dashboard display and centre console. The photographs also show that the driver’s seat is stained and Ms Hooton and Mr Harrison advise that leak left the driver side carpet “soaked”. Ms Hooton and Mr Harrison say that the vehicle’s interior remains damp, with condensation accumulating when the vehicle’s windows are left closed.
[16] Ms Hooton alleges that the water ingress has already caused, and that it is highly likely to continue to cause, damage to the vehicle’s electronic components. In support of this submission, Ms Hooton and Mr Harrison allege that the vehicle now has faults with the following components:
- the push button ignition;
- the electronic driver’s seat control;
- the passenger door;
- the stereo, which works intermittently;
- the boot, which does not lock; and
- the petrol tank flap, which does not lock.
[17] Kardan Ltd submitted that there is no evidence to show that the vehicle has, or that it is likely to have, any damage to electronic components. It is notable that it made that submission before it provided the Tribunal with the results of a diagnostic scan performed by Vodis, an Auckland based Audi specialist, on 10 October 2019, which show fault codes consistent with the evidence of Ms Hooton and Mr Harrison.
[18] In light of the fault codes found during the diagnostic scan conducted by Vodis, which are consistent with the evidence of Ms Hooton and Mr Harrison, I accept their evidence as to the existence of the alleged electrical faults. I found Ms Hooton and Mr Harrison to be clear and credible witnesses, and I accept their description of those faults.
[19] Further, Mr Gregory advises that the faults alleged by Ms Hooton and Mr Harrison are entirely consistent with the water ingress they have described and as shown in the photographs. Mr Gregory considers that the water ingress was of such significance that the vehicle should be treated as if it was a flood damaged vehicle. Mr Gregory advises that many of the vehicle’s important electrical components and wiring are located in the area affected by the water ingress – in particular beneath the dashboard and under the driver’s seat. Mr Gregory advises that the vehicle’s wiring and electronics, associated components (including the front air bags, the air bag control module, the stability/traction control module and the body control module) all require inspection, and if necessary, replacement.
[20] Accordingly, on the basis of the evidence presented by the parties and the advice I have received from Mr Gregory, I am satisfied that the vehicle has suffered, and is likely to continue to suffer, damage to electronic components caused by water ingress when the windscreen leaked. That water ingress means the vehicle has not been of acceptable quality for the purposes of s 6 of the Act. A reasonable consumer would not consider damage of this nature acceptable.
The excessive oil consumption
[21] Ms Hooton also alleges that the vehicle has a fault that causes it to consume an excessive amount of oil. The existence of this fault was confirmed by Vodis, which performed an oil consumption test in September and October 2019. It found that the vehicle consumes 900 ml of oil for every 1,000 km driven. Although it has not diagnosed the precise cause of the fault, fault codes found by Vodis led it to believe that the vehicle had a fault that was causing its engine to run rich.
[22] Kardan Ltd accepts that the vehicle has an undiagnosed fault that causes it to consume an excessive amount of oil. It is prepared to rectify that fault.
[23] The extent of oil consumption found by Vodis is excessive and unusual for a vehicle of this age and mileage. Although the evidence does not prove the precise cause of the fault, I consider that the vehicle could have leaking valve stem seals or worn oil control rings, which are allowing oil to enter the combustion chamber, to be burnt during the combustion process.
[24] Consequently, I am satisfied that the vehicle has a fault that causes it to consume an excessive amount of oil that breaches the acceptable quality guarantee in s 6 of the Act, which manifested itself shortly after purchase. A reasonable consumer would not expect a vehicle of this price, age and mileage to develop such a fault so shortly after purchase.
Issue 2: Are the faults a failure of a substantial character?
[25] Under s 18(3) of the Act, Ms Hooton 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.
[26] 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.
[27] Irrespective of whether any of the vehicle’s faults, when considered separately, amounts to a failure of a substantial character for the purposes of s 21(a) of the Act, I am satisfied that the vehicle’s accumulated defects are such that a reasonable consumer, fully acquainted with the nature and extent of those faults, would not have purchased the vehicle. In Cooper v Ashley & Johnson Motors Ltd, the District Court stated that a purchaser may also reject a vehicle where there has been an accumulation of defects, even when those defects may not amount to a failure of substantial character in their own right.[1] The Court noted that a point will eventually be reached where the purchaser could “say convincingly that he or she had no ‘confidence in the reliability of the vehicle’”.[2]
[28] In this case, I am satisfied that the existence of the water leak through the windscreen seal, the water damage to the driver’s seat and electrical components and the undiagnosed fault causing the vehicle to consume an excessive amount of oil would cause a reasonable consumer to reach the point where they would no longer have confidence in the ongoing reliability of this vehicle. A reasonable consumer would not expect a vehicle of this price, age and mileage to accumulate faults to this extent in such a short period of time. Accordingly, I am satisfied that the vehicle’s accumulated defects amount to a failure of a substantial character for the purposes of s 21(a) of the Act.
Issue 3: Has Ms Hooton lost the right to reject the vehicle?
[29] Kardan Ltd submitted that Ms Hooton has lost the right to reject the vehicle by waiting until August 2019 to reject the vehicle. It says that Ms Hooton became aware of the water damage and the potential risk of future electrical problems in March 2019 and the oil consumption fault in May 2019, but then took too long to reject the vehicle.
[30] The law relating to the loss of the right to reject goods is set out in s 20 of the Act, which states:
20 Loss of right to reject goods
(1) The right to reject goods conferred by this Act shall not apply if—
(a) the right is not exercised within a reasonable time within the meaning of subsection (2); or
(b) the goods have been disposed of by the consumer, or have been lost or destroyed while in the possession of a person other than the supplier or an agent of the supplier; or
(c) the goods were damaged after delivery to the consumer for reasons not related to their state or condition at the time of supply; or
(d) the goods have been attached to or incorporated in any real or personal property and they cannot be detached or isolated without damaging them.
(2) In subsection (1)(a), the term reasonable time means a period from the time of supply of the goods in which it would be reasonable to expect the defect to become apparent having regard to—
(a) the type of goods:
(b) the use to which a consumer is likely to put them:
(c) the length of time for which it is reasonable for them to be used:
(d) the amount of use to which it is reasonable for them to be put before the defect becomes apparent.
(3) This section applies notwithstanding section 170 of the Contract and Commercial Law Act 2017.
[31] Under s 20(1)(a) of the Act, Ms Hooton will lose the right to reject the vehicle if she has not exercised that right within a reasonable time. For the purposes of s 20(1)(a) of the Act, a "reasonable time" is a period from the time of supply of the goods in which it would be reasonable for the defect to become apparent, having regard to the factors set out in s 20(2)(a)–(d) of the Act.
[32] In Nesbit v Porter, the Court of Appeal shed some light on the statutory words in s 20(2) of the Act.[3] The Court observed that: [4]
... A reasonable time under s 20 must accordingly be one which suffices to enable the consumer to become fully acquainted with the nature of the defect, which, where the cause of a breakage or malfunction is not apparent, the consumer can be expected to do by taking the goods to someone, usually and preferably the supplier, for inspection.
[33] Although it is arguable that Ms Hooton would not be entitled to reject the vehicle because of the damage caused by the water leaking through the windscreen, because she took approximately six months to then reject the vehicle, she has not lost the right to reject the vehicle because of its accumulated faults. In that regard, I consider that Ms Hooton’s right to reject the vehicle because of its accumulated faults only crystallised once the oil consumption fault became apparent. I do not consider that she could lose the right to reject the vehicle for defects that had not yet accumulated.
[34] Further, although Mr Weber suggested that Ms Hooton should have rejected the vehicle earlier because of the oil consumption fault, I cannot be critical of the methodical approach taken by Ms Hooton and Mr Harrison in determining the existence and extent of the vehicle’s oil consumption before rejecting it. Ms Hooton first noticed that the vehicle was using oil in May 2019. She responsibly topped up vehicle’s oil levels and continued to use the vehicle. I consider that any attempt to reject the vehicle at this stage would have been premature, as one instance of low oil levels is not necessarily evidence of any fault.
[35] When the vehicle’s oil level warning light illuminated again in June 2019, Ms Hooton again topped up the oil levels and continued to use the vehicle. She then rejected the vehicle in August 2019 when she reached the point where she had lost all confidence in the vehicle because of its accumulated defects. Against this background, I am satisfied that Ms Hooton has not lost the right to reject the vehicle. I consider that Ms Hooton waited until she was reasonably satisfied that the vehicle had an oil consumption fault, and then exercised her right to reject the vehicle because of its accumulated defects within a reasonable time.
Issue 4: What remedy is Ms Hooton entitled to under the Act?
[36] The remedies relevant to this claim are set out in s 18 of the Act, 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.
[37] Under s 23(1)(a) of the Act, having rejected the vehicle, Ms Hooton is also entitled to recover all amounts paid in respect of the vehicle. In that regard, Ms Hooton is entitled to recover:
- (a) $719 — being all payments of interest (less dishonour fees) made by Ms Hooton under the collateral credit agreement from 14 March 2019 until 12 August 2019 (when she rejected the vehicle); and
- (b) $1,593.40 — being all payments of principal and interest (less default fees and interest) made by Ms Hooton under the collateral credit agreement from 13 August 2019 until the date of this decision.
[38] Ms Hooton and Mr Harrison are also entitled to have their 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.
[39] 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 Ms Hooton, Mr Harrison and Finance Now Ltd is a collateral credit agreement for the purposes of s 89(2) of the MVSA. The agreement was arranged or procured by Ms Hooton and Mr Harrison for the provision of credit by Finance Now Ltd to enable Ms Hooton to purchase the vehicle;
- (b) Kardan Ltd sold the vehicle to Ms Hooton, so it is a party to the contract to purchase the vehicle; and
- (c) Ms Hooton 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.
[40] Accordingly, under s 89(2) of the MVSA, all of Ms Hooton and Mr Harrison’s rights and obligations under the collateral credit agreement are assigned to Kardan Ltd from the date of this decision.
DATED at AUCKLAND this 16th day of December 2019
B.R. Carter
Adjudicator
[1] Cooper v Ashley & Johnson Motors Ltd (1996) 7 TCLR 407 (DC).
[2] At 417.
[3] Nesbit v Porter [2000] NZCA 288; [2000] 2 NZLR 465 (CA).
[4] At [39].
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2019/282.html