Morton v Major Motors Limited - Reference No. MVD 471/2018 [2019] NZMVDT 5 (22 January 2019)

Last Updated: 19 February 2019

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL

I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 471/2018
[2019] NZMVDT 05

BETWEEN BRIDGET VICTORIA MCCLEAN MORTON

Purchaser

AND MAJOR MOTORS LIMITED

Trader

HEARING at Christchurch on 14 December 2018
MEMBERS OF TRIBUNAL

J S McHerron, Barrister – Adjudicator

R C Dixon – Assessor
APPEARANCES

B V McC Morton, Purchaser (by AVL)
A E Eliseeva, Manager of Trader
M Potapov, Assistant Manager of Trader
J S Singh, Operations Manager, Auto Finance Direct

DATE OF DECISION 22 January 2019

___________________________________________________________________

DECISION OF THE TRIBUNAL

___________________________________________________________________

Major Motors Ltd must pay Bridget Morton $149.50 no later than 5 February 2019.

___________________________________________________________________

REASONS

Introduction

[1] Bridget Morton’s 2005 BMW 320i broke down outside Cooke Howlison BMW on 31 October 2018. Ms Morton sought the assistance of Major Motors Ltd, which had sold her the vehicle on 28 September 2018 for $5,495. After failing to reach agreement with Major Motors on the terms of assistance that it would provide, Ms Morton authorised Cooke Howlison to repair the vehicle. She now seeks to recover the repair costs from Major Motors.
[2] From this background, the following issues arise:

• (a) Did the vehicle fail to comply with the guarantee of acceptable quality?
• (b) What remedy, if any, is Ms Morton entitled to?

[3] In her application, Ms Morton sought to join Auto Finance Direct Ltd as a party. Jasvinder Singh, Auto Finance Direct’s Operations Manager, attended the hearing. However, I did not consider that it was necessary to join Auto Finance Direct as a party to the proceeding to enable the Tribunal to determine effectively and completely the questions arising on Ms Morton’s application, or to grant the relief that the Tribunal considers to be due.[1]

Issue one: Did the vehicle fail to comply with the guarantee of acceptable quality?

[4] Section 6(1) of the Consumer Guarantees Act 1993 (the Act) provides that "where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality”. According to s 2 of the Act, “goods” includes vehicles.
[5] "Acceptable quality" is defined in s 7 of the Act (as far as is relevant) 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.

[6] Whether a vehicle is of acceptable quality is considered from the point of view of a reasonable consumer who is fully acquainted with the state and condition of the vehicle, including any hidden defects.
[7] Ms Morton claims that she was told when purchasing the vehicle that it had no known mechanical faults and that it was “under dealer warranty for three months”. In relation to her being told that the vehicle had no known mechanical faults, Ms Morton suggested this statement amounted to misleading and deceptive conduct on the part of Major Motors, in breach of the Fair Trading Act 1986. However, Ms Morton produced no evidence to prove that Major Motors knew that the vehicle had any faults when it was sold to her. Accordingly, I have proceeded to consider this dispute solely in terms of whether Ms Morton has established that the vehicle failed to comply with the guarantee of acceptable quality under the Consumer Guarantees Act and, if so, whether any remedy is available under that Act.
[8] Ms Morton reports that when she took possession of the vehicle, it was sluggish to start, the spare key was missing and there was a loud noise coming from the engine when it was turned on. Ms Morton also reports that, on 30 October 2018, the car “died” when she was driving home from work. She thought it might be low on petrol, so she walked home.
[9] The next day, 31 October 2018, after Ms Morton put more petrol in the car, the vehicle broke down outside Cooke Howlison, the BMW franchise dealer in Dunedin, which is situated on Andersons Bay Road. The vehicle would not start. With the assistance of Cooke Howlison, Ms Morton pushed the vehicle off the road and into its workshop.
[10] Ms Morton told Cooke Howlison’s technician that the vehicle would not start and asked him if he knew why. Cooke Howlison initially advised Ms Morton that the vehicle's alternator was at fault and that its starter motor was drawing too much power from the battery and needed to be replaced. It emailed her a quote for these repairs in the sum of $1,625 including GST, parts and labour. This was slightly at variance with a diagnostic report completed the previous day in which Cooke Howlison reported that there were “a lot of faults logged” following a diagnostic scan and that it suspected the “crankshaft” was faulty. On the diagnostic invoice, Cooke Howlison priced repairs at $960 including GST. It invoiced her for the diagnostic test in the sum of $149.50. Ultimately, it appears that the alternator pulley (rather than the alternator itself) needed to be replaced, as well as the starter motor and crank sensor.
[11] In the course of carrying out the repairs, Cooke Howlison found the vehicle's engine control unit (DME) was full of water as was the area where the DME was located. Cooke Howlison advised that the water damage to the DME was caused by a blocked drain causing water to build up over time and flood the compartment where the DME was located. The overall cost of repairs by Cooke Howlison, including for a replacement DME, was $5,206.84.
[12] In light of the fact that the vehicle had broken down and could not be restarted just over one month after purchase, and after Ms Morton had apparently only travelled just over 150 km in the vehicle, I have no hesitation in concluding that a reasonable consumer would not find the vehicle to be of acceptable quality in terms of s 6 of the Act. It is important to emphasise, however, that this was not disputed by Major Motors. Rather, the real dispute in this case is whether Ms Morton is entitled to any remedy under the Act. To determine that issue, it is necessary to consider the way in which Ms Morton went about seeking Major Motors’ assistance after her vehicle broke down.

Issue two: What remedy, if any, is Ms Morton entitled to?

[13] The options against suppliers where goods do not comply with guarantees under the Act are set out in s 18, which provides:

18. 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.

[14] It has been established by the High Court that the steps necessary to obtain a remedy under s 18 must be followed in a particular order.[2] The Court held that a purchaser must first follow the requirement in s 18(2)(a) to allow the supplier an opportunity to remedy a failure within a reasonable time.[3] It held that the subsequent “self-help” remedy in s 18(2)(b), in which a consumer may have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in doing so, is exercisable only if the supplier refuses or fails to remedy the failure under s 18(2)(a).[4] The High Court explained that there are “good reasons why s 18(2) should be interpreted to require a consumer to provide the supplier with an opportunity to repair or replace before commissioning such repairs him or herself”.[5] Those "good reasons" include to allow the supplier to "assess whether the goods have been subjected to unreasonable use, whether the defect has caused the problem and, in particular, to control the quality of the remedy, which would not necessarily be the case if repairs are carried out by an unauthorised repairer".[6]
[15] Ms Morton did not initially tell Major Motors that, when she took possession of the vehicle, it was sluggish to start and that there was a loud noise coming from its engine when it was turned on. Nor did Ms Morton inform Major Motors straight away that the vehicle had "died" on 30 October 2018. Her evidence was that the first time she contacted Major Motors was at 2.08 pm on 31 October, when she texted Max Potapov, Major Motors’ Assistant Manager, after the car had broken down outside Cooke Howlison.
[16] When Ms Morton informed Mr Potapov that the car had broken down, he replied that she would need to send him a quote for repairs before any repairs were carried out. Mr Potapov sent a further text later that afternoon confirming that Major Motors’ compliance facility had a branch in Dunedin, Magnum Compliance Centre. Mr Potapov told Ms Morton “we’ll have to get the vehicle checked out through them”. He provided her with the address of Magnum Compliance, 4 Turakina Road, and its phone number. According to Google Maps, Magnum Compliance is situated only 500 m away from Cooke Howlison.
[17] Ms Morton phoned the number provided to her by Mr Potapov, but she said there was no answer. She then forwarded to Major Motors an email from Cooke Howlison quoting $1,625 to replace the vehicle's alternator and starter motor. On 1 November 2018, Ms Morton phoned Major Motors and was told that Mr Potapov was away. The person she spoke to said he could not authorise any repairs. Ms Morton then spoke to Magnum Compliance, who said that they would be able to do the repair, but that they use after-market parts rather than “genuine BMW parts”. Cooke Howlison told Ms Morton that not using genuine parts would likely cause problems with the vehicle and that the parts currently in her vehicle were genuine parts.
[18] On 2 November 2018, Ms Morton phoned Major Motors again. She agreed to have the vehicle repaired by Major Motors’ mechanic on the condition that Major Motors pay for Cooke Howlison’s charges for diagnosing the vehicle’s problems ($149.50). However, Major Motors refused to pay for Cooke Howlison’s diagnostic costs. This caused Ms Morton to change her mind about allowing Magnum Compliance to carry out the repairs. She instead authorised Cooke Howlison to do the work.
[19] Cooke Howlison advised Ms Morton by email on 7 November 2018 that the initial work (replacing the starter motor and crank sensor, as well as the alternator pulley) was mostly completed, but they had found that the DME was floating in water and it needed to be checked for damage.
[20] Major Motors said that it organised Magnum Compliance to pick up the vehicle from Cooke Howlison and repair it, but that Ms Morton would have to pay for the diagnostic costs already incurred by her at Cooke Howlison ($149.50). Major Motors confirmed in an email dated 9 November 2018 to Ms Morton that it had not authorised Cooke Howlison to undertake any work on her vehicle and that the vehicle needed to go to Magnum Compliance in Dunedin. The repairs then needed to be quoted by Magnum Compliance and authorised by Major Motors.
[21] Major Motors’ account was consistent with an email from Scotty Cain at Magnum Compliance which stated that he was contacted by Major Motors to uplift the vehicle from Cooke Howlison. There was also a further email from Mr Cain which stated that Magnum Compliance had the all-clear to pick up the vehicle from Cooke Howlison on 2 November 2018. Magnum Compliance was subsequently advised not to pick up the vehicle by Major Motors after Ms Morton revoked her agreement that Magnum Compliance would complete the repairs and authorised Cooke Howlison to repair the vehicle instead.
[22] Cooke Howlison invoiced Ms Morton for the work that it carried out on the vehicle. Its invoice was for $5,206.84, which includes the diagnostic costs of $149.50 plus parts (starter motor, alternator pulley, speed sensor, a set of gaskets and a replacement DME) and 8.5 hours of labour. According to the date on the invoice, it appears that all of the work was completed by 8 November 2018.

The Tribunal’s assessment

[23] From the above chronicle of events it is apparent that the fundamental problem with Ms Morton’s claim is that she went ahead and authorised Cooke Howlison to repair the vehicle, even though Major Motors had not refused to remedy the vehicle's failure. According to the test set out by the High Court in Acquired Holdings Limited v Turvey (as described above), Ms Morton went about things in the wrong order – she proceeded to exercise the self-help remedies under s 18 of the Act, without giving the trader an adequate opportunity to remedy the failure itself.
[24] Ms Morton’s primary concern, which motivated her to revoke her initial agreement to allow Magnum Compliance to complete the repairs, was the fact that Magnum Compliance did not use “genuine BMW parts”. The Tribunal’s Assessor, Mr Dixon, did not think that Ms Morton had established any genuine basis for refusing to allow Magnum Compliance to do the repairs solely because it proposed to use after-market parts. Magnum Compliance appears to have attempted to explain to Ms Morton that its parts come from a reliable source and that they would come with a standard parts warranty. Mr Dixon does not consider that there is any justification for rejecting the use of after-market parts on a blanket basis, as Ms Morton appears to have done. It is necessary to have regard to the fact that her vehicle was 13 years old at the date of purchase, and was sold for the relatively low price of $5,495, reflecting its age and relatively high mileage of 135,352 km. Just because the vehicle that was sold to her may have had original genuine BMW parts in it does not provide any justification for Ms Morton to have insisted on the replacement of those parts with genuine BMW parts on a like-for-like basis either. Indeed, there is nothing under the Act that precludes a supplier from using after-market parts, as long as they are reasonably reliable and fulfil the same function as the original parts do. In Mr Dixon’s experience, it is not uncommon for franchise dealers themselves to use after-market parts in appropriate situations, such as when genuine parts are unavailable, or are significantly more expensive.
[25] Accordingly, I do not consider that Ms Morton had any reasonable basis for rejecting Major Motors’ offer to repair the vehicle solely on the basis that Magnum Compliance would not use genuine parts. Nor did she have any basis for concluding that Major Motors had refused to remedy the failure in her vehicle. Rather, all the evidence points to Major Motors’ willingness to carry out the repairs that were needed as long as it could use its own repairer.
[26] Ms Morton also argued that Major Motors had refused to pay for Cooke Howlison’s diagnostic costs and that this provided her with a further justification for allowing Cooke Howlison to do the repairs, but I do not believe this is correct either. Ms Morton is entitled to recover her diagnostic costs as reasonably foreseeable consequential losses under s 18(4) of the Act (above). However, because Major Motors did not refuse to remedy the failure, she was not entitled to exercise the self-help remedy under s 18(2)(b)(i), because that remedy is only available if a supplier refuses or fails to remedy the failure under s 18(2)(a). Major Motors was within its rights to have the opportunity to use its chosen repairer to inspect and repair the vehicle. Ms Morton failed to allow it an adequate opportunity to do so.
[27] It follows that Ms Morton is not entitled to recover the costs of repair of the vehicle by Cooke Howlison. However, under s 18(4) of the Act, Major Motors must pay Ms Morton $149.50 for her diagnostic costs.

J S McHerron
Adjudicator

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[1] Motor Vehicle Sales Act 2003, sch 1, cl 7.

[2] Acquired Holdings Ltd v Turvey [2007] NZHC 1251; (2008) 8 NZBLC 102,107 (HC).

[3] At [11].

[4] At [11].

[5] At [13], citing Ian Gault and others Gault on Commercial Law (Thomson Reuters) at CG 18.09.

[6] Above n 5.