Smith v GM Cars Ltd - Reference No. MVD 242/2020 [2020] NZMVDT 185 (28 October 2020)

Last Updated: 24 November 2020

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 242/2020 [2020] NZMVDT 185 BETWEEN TAYLA SMITH Purchaser AND GM CAR LTD Trader

MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator

S D Gregory, Assessor

HEARING at Auckland on 20 October 2020

APPEARANCES

T Smith, Purchaser R Cooper, Witness for the Purchaser

G M C Meher, for the Trader

DATE OF DECISION 28 October 2020

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DECISION OF THE TRIBUNAL

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1. Tayla Smith’s application is dismissed.

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REASONS

Introduction

[1] Tayla Smith purchased a 2008 BMW 320i for $15,500 from GM Car Ltd on 27 August 2019. Ms Smith says that the vehicle has had several faults since purchase, including undiagnosed transmission and engine problems, excessive oil consumption, a steering fault, oil leaks, a leaking brake hose and a water leak. Ms Smith has applied to the Tribunal to reject the vehicle, relying upon the provisions in the Consumer Guarantees Act 1993 (the CGA) and the Fair Trading Act 1986 (the FTA).

The issues

[2] The issues requiring the Tribunal’s consideration in this case are:

• (a) Has the vehicle been of acceptable quality for the purposes of s 6 of the CGA?
• (b) Are the vehicle’s defects a failure of a substantial character?
• (c) What remedy is Ms Smith entitled to under the CGA?
• (d) Has GM Cars engaged in misleading conduct in breach of s 9 of the FTA?

Issue 1: Has the vehicle been of acceptable quality?

[3] 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.
[4] 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.

[5] 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 Ms Smith’s subjective perspective.

Ms Smith’s evidence

[6] Ms Smith was told by Salman Mustafa, a salesman at GM Car, that the vehicle was reliable and suitable as her first car. Less than two weeks after purchase, the vehicle began to surge and misfire. The vehicle was returned to GM Car, which replaced an ignition coil. Ms Smith says that the vehicle continued to surge, which she thought was related to a fault with the transmission.
[7] In the ensuing months, Ms Smith used the vehicle extensively, regularly driving between Auckland and Tauranga. Ms Smith says that from September 2019 onwards, her brother was regularly topping the vehicle up with oil. Ms Smith also says that the vehicle continued to surge, which she thought was caused by a fault with the vehicle’s transmission.
[8] On 24 December 2019, the vehicle was serviced by Hometune, which found minor oil leaks and “fine cracks” on all four tyres. The vehicle continued to consume oil and Ms Smith became increasingly concerned about its performance. On 1 February 2020 she had the vehicle assessed by Manukau Vehicle Servicing 2014 Ltd, which found, among other things:

• (a) the vehicle was emitting smoke due to worn valve stem seals and positive crankshaft ventilation (PCV) valve;
• (b) both rear tyres were badly cracked and the front tyres were starting to crack;
• (c) a front brake hose was starting to crack;
• (d) “bad” engine oil leaks;
• (e) the steering lock was faulty; and
• (f) the intake manifold “has oil”.

[9] Ms Smith then contacted GM Car, advising it of the faults found by Manukau Vehicle Servicing 2014 Ltd. GM Car advised Ms Smith to make a claim against the Provident Insurance mechanical breakdown insurance policy that she purchased with the vehicle. GM Car also suggested that Ms Smith should have the vehicle repaired by I-Tech Automotive Ltd.
[10] Ms Smith then took the vehicle to I-Tech and made a claim against her mechanical breakdown insurance policy. Between late March and July 2020, I-Tech replaced the rocker cover gasket, eccentric shaft seal, valve stem seals, oil filter housing gasket, oil cooler filter housing gasket, cam solenoid seals, vacuum pump seals, PCV valve, inlet manifold gasket, steering column assembly, front brake hose and auxiliary electric water pump. I-Tech charged Provident Insurance $5,206.35 for those repairs, with Ms Smith paying insurance excesses of $800. GM Car contributed a further $500 towards those excesses.
[11] Ms Smith says that these repairs have not fixed the vehicle’s faults. She says that the vehicle continued to emit excess smoke, that the transmission remained faulty and there is still an oil leak. The presence of an oil leak was confirmed by Manukau Service Centre on 7 July 2020 and by an AA Motoring inspection performed on 17 August 2020. Ms Smith also replaced the vehicle’s tyres on 7 July 2020, at a cost of $897.
[12] Ms Smith then rejected the vehicle on 19 August 2020 and has returned it to GM Car.

GM Car’s response

[13] Ghulam Meher, who appeared for GM Car, says that it has complied with its obligations to Ms Smith. Mr Meher says that GM Car immediately replaced the ignition coil when that fault arose shortly after purchase and that Ms Smith did not contact GM Car again until March 2020, after the vehicle had been assessed by Manukau Vehicle Service Centre 2014 Ltd.
[14] Mr Meher also says that the defects identified by Manukau Vehicle Service Centre 2014 Ltd arose too long after purchase for it to have liability. Mr Meher says that if some of the defects had arisen earlier as alleged by Ms Smith, then Ms Smith would have contacted it. She did not. Nonetheless, Mr Meher says that GM Car assisted Ms Smith in making a claim against her mechanical breakdown insurance policy and contributed $500 towards the excess payable. GM Car has also repaired the oil leak identified by Manukau Service Centre and AA Motoring and had the transmission assessed by Kaspa Transmissions – although no fault with the transmission was found.

The Tribunal’s assessment

The transmission fault

[15] As the applicant, Ms Smith must prove that the vehicle has the alleged defects. With respect to the alleged transmission fault, I do not believe that she has done so.
[16] None of the technicians who have inspected this vehicle has found a fault with the transmission. Manukau Vehicle Servicing Centre 2014 Ltd, I-Tech, AA Motoring and Kaspa Transmission (a transmission specialist) found no sign of any fault. Manukau Service Centre did note in its invoice dated 7 July 2020 that the “transmission may need a relearn hesitating on shifts”, but that is not a conclusive diagnosis of any transmission fault.
[17] Accordingly, in the absence of evidence proving that the vehicle has any fault that affects the operation of its transmission, I am not satisfied that such a fault exists.

The faulty ignition coil

[18] The faulty ignition coil, which occurred within two weeks of purchase, clearly meant that the vehicle was not of acceptable quality for the purposes of s 6 of the CGA. A reasonable consumer would not expect such a fault, which caused the vehicle to surge and misfire, to occur so shortly after purchase in an 11-year-old $15,500 vehicle.

The worn valve stem seals and PCV valve and various oil leaks

[19] I am also satisfied that the faults that caused the vehicle to consume an excessive amount of oil (the worn valve stem seals, PCV valve and oil leaks from the rocker cover gasket, eccentric shaft seal, oil filter housing gasket, oil cooler filter housing gasket, cam solenoid seals, vacuum pump seals and inlet manifold gasket) also breach the guarantee of acceptable quality.
[20] I accept Ms Smith’s evidence that the vehicle began to consume an excessive amount of oil in about September 2020, a little more than a month after purchase, and that the oil consumption worsened before the vehicle was finally assessed by Manukau Vehicle Servicing Centre 2014 Ltd on 1 February 2020. I found Ms Smith to be a clear and consistent witness, and although she did not advise GM Car about the vehicle’s oil consumption until March 2020, I am nonetheless satisfied that the vehicle was consuming an excessive amount of oil before then.
[21] Although the purchaser of an 11-year-old BMW 320i should understand that such a vehicle can be prone to oil leaks and other faults that will cause excessive oil consumption, this vehicle began to consume excessive amounts of oil about one month after purchase. That oil consumption means the vehicle was not of acceptable quality for the purposes of s 6 of the CGA because the vehicle has not been as durable as a reasonable consumer would consider acceptable. That is particularly the case when Mr Mustafa represented that the vehicle was reliable and a suitable first car. Such a representation would have increased the expectations of a reasonable consumer as to the reliability and durability of the vehicle, which were disappointed in this case.

The remaining faults

[22] The remaining alleged defects ― the faulty steering column assembly, front brake hose, auxiliary electric water pump, worn tyres that required replacement and the transmission sump leak first identified in July 2020 ― do not breach the guarantee of acceptable quality because they arose too long after purchase.
[23] The guarantee of acceptable quality does not impose indefinite liability on the supplier of a motor vehicle, and at some point the risk of the vehicle developing defects must transfer from the supplier to the purchaser. The point in time at which that risk transfers from the supplier to the purchaser is determined with reference to the factors in s 7(1)(f) to (j) of the CGA.
[24] Ms Smith paid $15,500 for an 11-year-old BMW 320i with an odometer reading of approximately 61,000 km at the time of sale. She then drove the vehicle about 18,000 km before the faulty steering column assembly, front brake hose and auxiliary electric water pump were first identified in February 2020. The tyres were replaced and the ongoing oil leak were found in July 2020, by which time Ms Smith had driven approximately 1,000 km further.
[25] That extensive use is highly relevant to my conclusion that, with respect to these remaining defects, the vehicle has been as durable as a reasonable consumer would consider acceptable. Given the price, age and mileage of the vehicle at the time of sale and the length of time and the distance travelled before the vehicle’s defects arose, I am satisfied that the vehicle has been of acceptable quality because it was as free of minor defects and as durable as a reasonable consumer would consider acceptable.

Issue 2: Are the vehicle’s defects a failure of a substantial character?

[26] Ms Smith may reject the vehicle under s 18(3)(a) of the CGA if the defects that breach the guarantee in s 6 of the CGA amount to a failure of a substantial character, which is defined in s 21 of the CGA as:

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.

[27] Section 21(a) is relevant in this case, but I do not consider that the defects that breach the guarantee of acceptable quality, whether considered separately or cumulatively, amount to a failure of a substantial character.
[28] The defects that breached the guarantee of acceptable quality ― the faulty ignition coil and various faults that caused the vehicle to consume an excessive amount of oil ― are not unusual and are all the kind of fault that a consumer can expect to arise in a BMW 320i of this age and mileage, as parts like ignition coils and oil seals and gaskets degrade with time and use. Certainly, where those defects are present at the time of sale, or shortly thereafter, a consumer is entitled to expect that the seller would rectify those defects. However, I am not satisfied that the defects that breached the guarantee of acceptable quality in this case are such that a reasonable consumer would have refused to purchase the vehicle or that the faults are such that a reasonable consumer would have lost confidence in the vehicle’s ongoing reliability.

Issue 3: What remedy is Ms Smith entitled to under the CGA?

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

[30] Ms Smith is not entitled to reject the vehicle, as its defects do not amount to a failure of a substantial character and the vehicle’s defects have all been rectified, so orders for any further repairs are not required. Further, although GM Car refused to rectify the faults that caused the vehicle to consume an excessive amount of oil, GM Car did contribute $500 towards the cost of the repairs performed by I-Tech, which in my view is sufficient compensation for the cost Ms Smith incurred in rectifying those faults.
[31] Accordingly, Ms Smith is entitled to no remedy under the CGA and her application under that Act is dismissed.

Issue 4: Has GM Car engaged in conduct that breached s 9 of the FTA?

[32] Section 9 of the FTA provides;

9. 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.

[33] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corp 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.

[34] Ms Smith says that GM Car engaged in misleading conduct by:

• (a) representing that the vehicle was reliable; and
• (b) telling her that she would not be charged for the repairs performed by I-Tech.

[35] The representation that the vehicle was reliable was not misleading in breach of s 9 of the FTA. At best the representation was an expression of Mr Mustafa’s belief as to the reliability of the vehicle, and in the absence of any evidence to show that he did not genuinely hold that belief, I am not satisfied that the representation was misleading.
[36] Likewise, I am not satisfied that Mr Meher’s representation that Ms Smith would not be charged for the repairs performed by I-Tech was misleading. I am satisfied that, at the time he made that representation, Mr Meher genuinely intended that GM Car would pay any excess that applied to the repairs performed by I-Tech. He did so under the mistaken belief that only one excess of $500 would be payable. Mr Meher then retracted from this offer once it became apparent that I-Tech had charged four separate excesses for the repairs performed. The fact that GM Car changed its mind about its offer to pay any excess that applied, does not mean that its original offer was misleading.
[37] Ms Smith’s application under the FTA is therefore dismissed.

DATED at AUCKLAND this 28th day of October 2020

B.R. Carter
Adjudicator

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[1] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].