Tai v Nardus Holdings Ltd t/a Affordable Cars - Reference No. MVD 042/2019 [2019] NZMVDT 91 (3 May 2019)

Last Updated: 20 June 2019

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 042/2019 [2019] NZMVDT 091 BETWEEN PERRY TAI Purchaser AND NARDUS HOLDINGS LTD T/A AFFORDABLE CARS Trader

MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator

S D Gregory, Assessor

HEARING at Whakatane on 23 April 2019

APPEARANCES

P Tai, Purchaser A Tito, Witness for the Purchaser

J Maynard, for the Trader

DATE OF DECISION 3 May 2019

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DECISION OF THE TRIBUNAL

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1. Perry Tai’s application to reject the vehicle is dismissed.
2. Nardus Holdings Ltd, trading as Affordable Cars, shall, within 10 working days of the date of this decision, pay $3,200 to Perry Tai.

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REASONS

Introduction

[1] On 21 December 2018, Perry Tai purchased a 2005 Toyota Hilux for $25,000 from Nardus Holdings Ltd, trading as Affordable Cars (Affordable Cars). The vehicle had an odometer reading of 191,331 km at the time of sale.
[2] The vehicle now has significant engine damage, with the engine requiring overhaul or replacement. Mr Tai has rejected the vehicle and seeks a refund of the purchase price.
[3] Affordable Cars agrees that the vehicle has significant engine damage but denies that it should have responsibility for that damage. It says that Mr Tai caused or contributed to the engine damage by continuing to drive the vehicle after its oil warning light illuminated. It also says that the engine damage may have been caused by Mr Tai using contaminated diesel.

The Issues

[4] Against this background, the issues requiring consideration in this case are:

• (a) Does the vehicle have a fault that breaches the acceptable quality guarantee in s 6 of the Consumer Guarantees Act 1993 (the Act)?
• (b) If so, is the fault a failure of a substantial character?
• (c) Has Mr Tai lost the right to reject the vehicle?
• (d) What remedy is Mr Tai entitled to under the Act?

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 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.

[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 Mr Tai’s subjective perspective.
[8] The day after he purchased the vehicle, Mr Tai drove to Rere Falls, approximately 150 km from his home in Opotiki. While driving to Rere Falls, Mr Tai noticed the oil warning light flicker. Mr Tai advises that the oil warning light flickered on two or three occasions during this journey.
[9] Two days later, Mr Tai drove the vehicle to Te Kaha to obtain seafood for his family for Christmas. During this journey, Mr Tai noticed the dashboard display unexpectedly brighten and then dim. The next day the vehicle’s engine seized.
[10] Mr Tai has since had the vehicle assessed by Wakelin Motors Parts & Service in Opotiki (Wakelin Motors), which found that the oil pickup has become blocked due to leaking fuel injector seals. Wakelin Motors removed the big end bearings and found that all bearings had scoring/marks and that the number one bearing had “spun”, causing the engine to seize. Wakelin Motors also found that there is a large amount of carbon deposit in the sump, which it considers shows that the injector seals have been leaking for “quite some time”.

The vehicle has pre-existing engine damage that breaches the acceptable quality guarantee

[11] The evidence from Mr Tai and Wakelin Motors satisfies me that the vehicle had a pre-existing defect with its engine that caused its oil pickup to become blocked and carbon deposits to accumulate in the engine. Mr Gregory, the Tribunal’s Assessor, advises that this pre-existing engine damage will have been significant. Mr Gregory advises that the engine would likely to have needed to be removed and stripped, its bottom end bearings replaced, crank polished and its injector seals and gaskets replaced at a cost of approximately $3,200.
[12] I am therefore satisfied that the vehicle has not been of acceptable quality for the purposes of s 6 of the Act because of this pre-existing engine damage. A reasonable consumer would not expect a vehicle of this price, age and mileage to have pre-existing engine damage that will cost approximately $3,200 to rectify.

The subsequent engine damage does not breach the acceptable quality guarantee

[13] The vehicle now has much more significant engine damage after it was driven by Mr Tai. As set out above, the vehicle’s engine seized on 25 December 2018 and now requires substantial overhaul or replacement. Mr Gregory advises that the blocked oil pickup has caused the engine to become starved of oil and seize. He considers that the required repairs will cost at least $6,000.
[14] Affordable Cars submits that it should not be responsible for this damage as Mr Tai caused or contributed to the much more significant engine damage by using contaminated diesel in the vehicle and by continuing to drive the vehicle after the oil warning light illuminated.
[15] I do not accept Affordable Cars’ submission that Mr Tai used contaminated fuel in the vehicle. Although I am prepared to accept that the vehicle’s fuel was contaminated, the evidence does not show that Mr Tai was responsible for that contamination. In that regard, I accept Mr Tai’s evidence that he purchased between half and one quarter of a tank of diesel from Mobil Opotiki on 24 December 2018. I also accept evidence from Mobil Opotiki that it regularly tests its diesel and its diesel was not contaminated at the relevant time. Instead, I consider it more likely that the fuel was contaminated before Mr Tai purchased the vehicle. Ultimately though, this is not a significant point to the outcome of this case because Mr Gregory advises that contaminated fuel was not the cause of the engine damage present in this vehicle.
[16] I do, however, accept Affordable Cars’ submission that Mr Tai’s continued use of the vehicle after the oil warning light illuminated on 22 December 2018 is likely to have caused much more significant engine damage than was present in the vehicle when he purchased it.
[17] Mr Gregory advises that the oil warning light in a Toyota Hilux will only illuminate when the vehicle has low oil pressure, meaning the engine is being starved of oil. If the vehicle continues to be driven after the oil warning light has illuminated, further significant engine damage, as occurred in this case, is almost inevitable.
[18] In this case, Mr Tai used the vehicle for approximately 300 to 400 km after the oil warning light first illuminated, with the engine then seizing. The evidence presented at the hearing shows that the oil warning light illuminated because the oil pickup was blocked, meaning the vehicle’s engine was not receiving sufficient oil.
[19] Mr Gregory advises that the further significant engine damage was caused by the vehicle continuing to be driven, and if Mr Tai had immediately stopped using the vehicle once the oil warning light first illuminated, the further significant damage would have been avoided, as the engine had not seized by that time. However, Mr Tai continued to drive the vehicle and the subsequent damage resulted.
[20] I consider that Mr Tai should immediately have stopped using the vehicle once its oil warning light illuminated to determine the cause of the oil warning light illuminating, and if necessary, to cease driving altogether until the cause was rectified. Because he did not, I consider that the subsequent engine damage does not breach the acceptable quality guarantee because it was caused by Mr Tai continuing to use the vehicle when he should not have.

Is the pre-existing engine damage a failure of a substantial character?

[21] Under s 18(3) of the Act, Mr Tai may reject the vehicle if the pre-existing engine damage amounts to a failure of a substantial character. A failure of a substantial character is defined in s 21 of the Act:

21. 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.

[22] 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.
[23] Although the most serious engine damage was caused by Mr Tai’s continued use of the vehicle, I am satisfied that the pre-existing engine damage nonetheless amounts to a failure of a substantial character for the purposes of s 21(a) of the Act. A reasonable consumer would not have bought a Toyota Hilux of this price, age and mileage if they had known that it had pre-existing engine damage that would cost approximately $3,200 to rectify.

Has Mr Tai lost the right to reject the vehicle?

[24] Section 20 of the Act 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 Act 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.

[25] I am satisfied that the vehicle has been damaged since it was sold to Mr Tai. As set out above, the vehicle now has more extensive engine damage caused by Mr Tai continuing to drive the vehicle after the oil warning light illuminated, in circumstances where he should not have continued to use the vehicle. That damage will now cost at least six thousand dollars to rectify.
[26] Because that damage was caused by Mr Tai’s use of the vehicle, under s 20(1)(c) of the Act, Mr Tai has lost the right to reject the vehicle.

What remedy is Mr Tai now entitled to under the Act?

[27] The remedies relevant to this claim are set out in s 18 of the Act, 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.

[28] As set out above, Mr Tai is not entitled to reject the vehicle because it has been damaged since it was supplied to him. Mr Tai is, however, entitled to a remedy under s 18(3)(b) of the Act. The pre-existing engine damage was a failure of a substantial character, so under s 18(3)(b) of the Act, Mr Tai is able to obtain damages in compensation for any reduction in value of the vehicle below the price he paid for it.
[29] I am satisfied that the pre-existing engine damage caused a reduction in value of the vehicle below the price paid by Mr Tai. I consider that the reasonable cost of repair is an indication of the reduction in value caused by the fault because, if Mr Tai had tried to sell the vehicle without repairing the pre-existing damage, the reasonable cost of repairing that defect would have been taken into account by any prospective buyer.
[30] As set out above, Mr Gregory considers the cost of rectifying the pre-existing damage would have been approximately $3,200. Under s 18(3)(b) of the Act, I am satisfied that Mr Tai is entitled to recover this amount from Affordable Cars.

DATED at AUCKLAND this 3rd day of May 2019

B.R. Carter
Adjudicator