Jones v Scott Henry Pemberton T/A SP Auto Sales - Reference No. MVD 008/2020 [2020] NZMVDT 41 (13 March 2020)

Last Updated: 20 May 2020

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL

I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 008/2020
[2020] NZMVDT 41

BETWEEN PETER JAMES JONES

Purchaser

AND SCOTT HENRY PEMBERTON T/A SP AUTO SALES

Trader

HEARING at Palmerston North on 5 March 2020 and telephone conference on 6 March 2020
MEMBERS OF TRIBUNAL

J S McHerron, Barrister – Adjudicator

D Binding – Assessor
APPEARANCES

P J Jones, Purchaser (by AVL)
C Hart, Witness for Purchaser (by AVL)
S H Pemberton, Trader

DATE OF DECISION 13 March 2020

___________________________________________________________________

DECISION OF THE TRIBUNAL

___________________________________________________________________

1. Peter Jones’s rejection of his Toyota Hilux is upheld.
2. Scott Pemberton must refund Mr Jones the full purchase price of the vehicle, $12,995, no later than 27 March 2020. Once the purchase price has been refunded in full, Mr Jones must make the vehicle available for Mr Pemberton to collect at his cost.

___________________________________________________________________

REASONS

Introduction

[1] Peter Jones wishes to reject the 1990 Toyota Hilux he purchased from Scott Pemberton (trading as SP Auto Sales) on 18 September 2019 for $12,995. The vehicle has failed its warrant of fitness inspection just over two months after Mr Jones took delivery of it. The vehicle failed for a range of reasons. Of most significant concern to Mr Jones is corrosion in the front left and right inner guard structure which will require repairs costing several thousand dollars.
[2] Mr Pemberton acknowledges that repairs are required to enable the vehicle to pass a warrant of fitness inspection. However, Mr Pemberton argues that the cost of the repairs has been exaggerated by Mr Jones.
[3] Moreover, Mr Pemberton argues that he is not liable to pay for the cost of repairs, as Mr Jones agreed to exclude the provisions in the Consumer Guarantees Act 1993 (“the Act”) as, according to Mr Pemberton, Mr Jones purchased the vehicle to use for his firewood business.
[4] However, Mr Pemberton has offered to contribute to the cost of repairs as long as these repairs are carried out by his chosen repairer in Palmerston North. Having the vehicle repaired in Palmerston North would be inconvenient for Mr Jones, who lives some distance away in Whangamata.
[5] From this background, the following issues arise for the Tribunal’s determination:

• (a) Did the parties agree to contract out of the Act?
• (b) If not, did the vehicle fail to comply with the guarantee of acceptable quality?
• (c) If so, was the failure of a substantial character?
• (d) Is Mr Jones entitled to reject the vehicle?

Issue one: Did the parties agree to contract out of the Act?

[6] Following his agreement to purchase the vehicle online through the Trade Me platform, Mr Pemberton sent Mr Jones a copy of the vehicle offer and sale agreement (“VOSA”) and consumer information notice (‘CIN”) which Mr Pemberton had signed and highlighted relevant spaces for Mr Jones to sign. These included standard form exclusion clauses which will be described further below.
[7] Mr Jones signed the VOSA and CIN in the spaces highlighted by Mr Pemberton and returned these documents to Mr Pemberton on the evening of 18 September 2019.
[8] Mr Jones and his witness Crystelle Hart, who was present during the discussions between Mr Jones and Mr Pemberton, including those discussions which took place over the telephone, told the Tribunal that Mr Jones had not discussed the use to which he intended to put the vehicle, in particular any intended business use, during his initial discussions with Mr Pemberton regarding the vehicle leading up to his purchase of it and his signature of the VOSA and CIN on 18 September 2019.
[9] Furthermore, Mr Jones’s evidence was that he was not aware he had agreed to contract out of the Act. Mr Jones said that he and Mr Pemberton did not discuss whether the vehicle would be used privately or for his proposed firewood business until the date he took delivery of the vehicle, 28 September 2019, when Mr Pemberton asked him what he would be using the vehicle for.
[10] Mr Jones said he told Mr Pemberton that he was an aspiring arborist and needed a vehicle to get him to and from his job sites. As well, he wanted the vehicle to get to Wintec in Hamilton for his studies. Mr Jones also mentioned that he was taking some wood from his work which he planned to sell locally. This venture did not proceed after the local council revoked the permit to store wood on his family’s residential property. Currently, Mr Jones is selling the remaining wood using his other vehicle and a trailer. Mr Jones confirmed that he never intended the running costs for the Hilux would be attributed as a business expense.
[11] The law relating to contracting out of the Act is set out in s 43 of the Act, which provides (as far as is relevant):

43. No contracting out except for business transactions

(1) Subject to this section and to sections 40, 41, and 43A, the provisions of this Act shall have effect notwithstanding any provision to the contrary in any agreement.

(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.

....

[12] The first requirement for any purported contracting out of the Act to be valid is that the agreement must be in writing: s 43(2)(a). The VOSA signed by Mr Jones and Mr Pemberton contains two standard form exclusion clauses. The first of these clauses is contained in a box just below the middle of the printed page of the VOSA. The first exclusion clause provides:

THE PURCHASER ACKNOWLEDGES AND CERTIFIES THAT:

The goods to be supplied are being acquired for the purposes of the purchasers business and accordingly the parties agree that the provisions of the Consumer Guarantees Act 1993 will not apply

PURCHASER

...................................

IF CLAUSE APPLIES, PURCHASER MUST INITIAL.

[13] This clause was signed by Mr Jones.
[14] The second exclusion clause is in small print down the bottom of the VOSA next to the heading “Consumer Guarantees Act 1993”. It provides:

7. The Consumer Guarantees Act 1993, applicable to this agreement, provides the purchaser with rights and remedies on the sale of new or used motor vehicles of a type ordinarily acquired for personal, domestic or household use.

7.1 I agree that if I am acquiring this vehicle for business purposes in terms of sections 2 and 43 of the Consumer Guarantees Act 1993, and the provisions of the Act will not apply accordingly. [sic]

[15] The second exclusion clause had no specific place for a signature apart from the general signature line at the bottom of the VOSA. The second exclusion clause was not separately initialed by either party in the VOSA between Mr Jones and Mr Pemberton.
[16] Neither of the two clauses reflects the current wording of s 43 of the Act. Rather, it reflects the wording of s 43 as it was prior to 2014. The earlier wording of s 43 referred to an acquisition of goods “for the purposes of a business” rather than the current wording of s 43 which stipulates that:

• (a) the goods must be “supplied and acquired in trade”; and
• (b) the parties to the agreement must be “in trade”.

[17] The former s 43 also lacked any requirement for the Tribunal to assess whether it is fair and reasonable for the parties to be bound by the contracting out provision in the agreement:

Section 43 of the Act (prior to its amendment on 17 June 2014)
43 No contracting out except for business transactions

(1) Subject to this section and to sections 40, 41, and 43A, the provisions of this Act shall have effect notwithstanding any provision to the contrary in any agreement.

(2) Nothing in subsection (1) shall apply to an agreement made between a supplier and a consumer who acquires, or holds himself or herself out as acquiring, under the agreement, goods or services for the purposes of a business provided either—

(a) that the agreement is in writing; or

(b) where it is not possible to conclude an agreement in writing because the supplier is unaware of the acceptance by the consumer of the supplier's offer at the time of acceptance, that the supplier has clearly displayed the terms and conditions of the service at every place of the supplier's business.

...

[18] In terms of the (current) requirements of s 43(2) of the Act, the agreement was in writing, the vehicle was supplied in trade and, on the face of the document, it is arguable that all parties agreed to contract out of the Act’s provisions in writing.
[19] However, there was insufficient evidence to establish that the vehicle was “acquired in trade” by Mr Jones or that he was “in trade” when he purchased the vehicle. The evidence was only that he was an aspiring arborist and that he intended to start a firewood business in the future, not that he was engaged in those activities at the time he purchased the vehicle.
[20] Moreover, before upholding an agreement that the Act’s provisions do not apply, the Tribunal needs to find that “it is fair and reasonable that the parties are bound by the provision” in the VOSA, according to s 43(2)(d) of the Act. As is clear from s 43(2A), in assessing whether the provision should be binding, the Tribunal needs to take into account the respective bargaining power of the parties, including the extent to which a party was able to negotiate the terms of the agreement to contract out of the Act, and whether a party was required to either accept or reject the agreement on the terms and conditions presented by another party. In addition, s 43(2A)(d) provides that the Tribunal must take into account 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.
[21] From these provisions, it is clear that for a contracting out agreement to be considered “fair and reasonable”, it generally must be one that is freely negotiated between the parties.
[22] Mr Jones’s evidence was that there was no negotiation between the parties about contracting out of the Act and that Mr Pemberton did not explain the exclusion clauses to him. Nor did Mr Jones take any legal advice about contracting out. Indeed, he told the Tribunal that at the time he agreed to buy the vehicle, he did not know anything about the Act of the protections it affords. He was not aware he had contracted out of the Act and it was a surprise to Mr Jones to learn that Mr Pemberton did not accept the Act applied.
[23] Mr Pemberton’s evidence was that, on 18 September 2019, he explained to Mr Jones on the phone what he would draw up in the VOSA for his signature. Mr Pemberton said he told Mr Jones that the Act does not apply when vehicles are purchased for business use.
[24] Mr Jones’s and Mr Pemberton’s respective accounts of what was discussed clearly contradicted one another. According to Mr Jones there was no discussion at all about exclusion of the Act. By contrast, in Mr Pemberton’s account there was. However, even if Mr Pemberton’s account is the correct one. I do not accept it was sufficient to meet the requirements of s 43 of the Act. Therefore, I cannot conclude that the parties have validly contracted out of the Act.
[25] As is clear from the text of s 43 as set out above, the provision requires the Tribunal to take into account “the extent to which a party was able to negotiate the terms of the agreement” and “whether a party was required to either accept or reject the agreement on the terms and conditions presented by another party”.
[26] Mr Pemberton’s evidence (in the telephone conference on 6 March 2020) was that he “told” Mr Jones the Act does not apply when a vehicle is purchased for business use. That, to me, equates to Mr Jones being required to accept the agreement on the terms presented by Mr Pemberton, namely that the Act did not apply, rather than any freely negotiated exclusion of the Act’s protections. As well, the way in which the second exclusion provision in clause 7.1 of the VOSA is expressed suggests that even if the other specific opt-in exclusion was not initialled by the purchaser to acknowledge that the “goods to be supplied are being acquired for the purposes of the purchaser’s business” then as long as the vehicle was being acquired for business purposes then the provisions of the Act would not apply. Clause 7.1 is tantamount to a unilateral “take it or leave it” exclusion of the Act rather than a freely negotiated agreement to contract out.
[27] In any event, the language of the exclusion provisions in the VOSA themselves, reflects the former language in the pre-2014 s 43, rather than the current law. Since 2014, the elements of s 43 of the Act are much harder for a trader to establish because s 43 now requires the Tribunal to consider whether it is fair and reasonable for parties to be bound by any exclusion provision, by reference to the factors in s 43(2A).
[28] Having regard to these factors, in particular the fact that the exclusion clauses in the VOSA were not negotiated, but instead appear to have been presented on a take it or leave it basis, and Mr Jones’s denial that he considered or understood those clauses before signing the agreement, I conclude that, under s 43(2)(d) of the Act, it is not fair and reasonable that the parties be bound by those clauses.

Conclusion

[29] The Act applies to this dispute. Mr Jones is not bound by the clauses in the VOSA purporting to disapply the provisions of the Act.
[30] I will proceed to consider whether the vehicle failed to comply with the guarantee of acceptable quality.

Issue two: did the vehicle fail to comply with the guarantee of acceptable quality?

[31] Section 6(1) of 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.
[32] “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.

...

[33] 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.
[34] The Trade Me listing for the vehicle states “this is certainly a nice vehicle and will give the new owner years of reliability and enjoyment”. Prior to agreeing to purchase the vehicle through the Trade Me platform Mr Jones rang Mr Pemberton and asked him a number of questions, including about the presence of rust and the condition of the chassis. Mr Jones’s evidence was that Mr Pemberton told him that although a 30-year-old vehicle should be expected to start showing some rust, this vehicle had been well looked after and that the whole of the chassis had been resprayed by the previous owner.
[35] Ms Hart also recalled Mr Jones asking Mr Pemberton over the phone whether there were any major rust problems with the ute. Ms Hart recalled Mr Pemberton replying that the man who previously owned the vehicle had lived and worked on a farm and took good care of it, and that it had just been painted underneath so there were no rust issues and that it was in good condition for a car of its age. Ms Hart said Mr Pemberton mentioned that the seat belts may need replacing in the near future due to their age. She also said Mr Pemberton indicated that some components may be worn and require replacement, for example the brakes, which Mr Pemberton said would likely need some attention before the warrant of fitness was due for renewal.
[36] Mr Jones and Ms Hart travelled to Mr Pemberton’s premises on 28 September 2019 to collect the vehicle. On arrival, Mr Jones inspected the vehicle and paid particular attention to whether it had any significant rust. Mr Jones said that he asked Mr Pemberton again about whether the vehicle had rust and that Mr Pemberton told him that a vehicle of this age would be likely to be starting to show signs of rust, however this vehicle was in good condition and that the previous owner had had the whole chassis and underbody resprayed.
[37] On his visual inspection of the vehicle, Mr Jones agreed that it had some minor rust issues which he noticed on the vehicle’s tray and seat belt mounts. (These are not the areas of present concern.) Mr Jones said that Mr Pemberton did not tell him about any previous rust repairs to the vehicle.
[38] Mr Jones said that on leaving Mr Pemberton’s premises on 28 September 2019 he believed he had bought a vehicle for his own private use that was in good working order with the only matter requiring attention in the near future being the rear brakes.
[39] Just over two months after he collected the vehicle, on 6 December 2019, Mr Jones took the vehicle to Vehicle Testing New Zealand (VTNZ) to get a new warrant of fitness.
[40] The warrant of fitness that was supplied with the vehicle expired on or around 29 November 2019. This was contrary to the requirement that a person who sells a vehicle must ensure that it has a new warrant of fitness obtained a month prior to delivery of the vehicle to the purchaser.[1] In fact, the vehicle had been certified for its last warrant of fitness approximately four months prior to the delivery of the vehicle to Mr Jones. The only exception to this requirement is if the purchaser undertakes to the seller in writing at the time of delivery of the vehicle that they accept that the vehicle has been certified more than one month previously.[2] Mr Jones gave no such written (or oral) undertaking that he accepted that the vehicle had been certified more than one month previously.
[41] VTNZ failed the vehicle on its warrant of fitness inspection for the following reasons:

Reasons vehicle failed its inspection

Rear suspension leaf spring rust heave excessive left and right

Right front steering drag link play as marked

Front inner guard structure corrosion left and right

Right front cab mounts rust developing as marked

Left and right direction indicator lamp exceeding limits – flash rate too fast (LED light)

[42] The VTNZ inspection report contained the following additional comments:

Left front floor structure rust developing requires attention soon

Left engine bay firewall corrosion previous repairs evident

Right front cab mounts corrosion previous repairs evident

[43] Mr Jones obtained an assessment of the vehicle from Peninsula Panel and Paint (2019) Ltd. Panel beater Dayne Shearman advised that to repair the left and right inner guard corrosion and chassis rails to warrant of fitness standard would cost $9,029.23.
[44] Mr Jones also produced photographs of the affected areas in the left and right inner guards which indicated to the Tribunal’s Assessor, Mr Binding, and me that significant repairs will be required. Mr Pemberton acknowledged that the pictures indicated that corroded areas in the left and right inner front guards will need to be cut out and inserts welded in.
[45] After reviewing the photographs, as well as the VTNZ inspector’s report, Mr Binding advised that the serious corrosion evident in the vehicle are likely to have been pre-existing at the time Mr Jones purchased the vehicle. Mr Binding accepted that the quote from Peninsula Panel and Paint was pricey but noted that some of Mr Pemberton’s criticism of this estimate seemed to be based on a misunderstanding that the panel beater was recommending various parts be replaced, whereas in fact the quote was to remove those parts. Mr Pemberton produced an alternative quote from his own panel beater, Spectrum Auto Painters 2010 Ltd, which indicated that to repair the left and right inner guard corrosion and the cab mounts, plus a full sand blast and paint underneath, would cost $2,600.

Tribunal’s assessment

[46] Whether or not Mr Jones or Mr Pemberton’s quotation for the cost of repairs is correct, or the true cost is something in between, it is not disputed that several thousand dollars will be required to repair this vehicle so that it meets warrant of fitness standard. Based on this undisputed evidence, and Mr Binding’s advice that from his observations of the photographs and the chronology, it is clear that this rust was pre-existing at the time of purchase, I conclude that even in the light of the fact that this vehicle is 30 years old, a reasonable consumer would not find this vehicle to be acceptable in terms of the guarantee in s 6 of the Act.
[47] Accordingly, I find that the vehicle failed to comply with the guarantee of acceptable quality.

Issue three: Was the failure of a substantial character?

[48] Whether or not a failure to comply with the guarantee of acceptable quality is of a substantial character is assessed according to s 21 of the Act, which provides:

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.

[49] In my view, three of the paragraphs of s 21 apply in the present case.
[50] First, I do not consider that a reasonable consumer would have gone ahead and purchased this vehicle for $12,995 knowing that, within approximately two months after purchase, it would require several thousand dollars in repairs to corrosion just to ensure that it could get a new warrant of fitness.
[51] Secondly, ever since it failed the warrant of fitness assessment on 6 December 2019, the vehicle has been substantially unfit for the primary purpose for which vehicles of this type are commonly supplied, namely to be driven. The fact that it has no current warrant of fitness indicates that it cannot currently be driven at all until the repairs that are required are made. Accordingly, s 21(c) also applies.
[52] Finally, the presence of such severe corrosion in this vehicle renders it structurally unsound and potentially dangerous in an accident. Accordingly, the vehicle is, in its current state, unsafe in terms of s 21(d) of the Act.

Conclusion

[53] For these three reasons, I conclude that the vehicle’s failure to comply with the guarantee of acceptable quality is of a substantial character.

Issue four: Is Mr Jones entitled to reject the vehicle?

[54] The week after the VTNZ inspection, Mr Jones contacted Mr Pemberton to make him aware of what had happened. Mr Jones told Mr Pemberton that he was seeking a full refund because the vehicle had corrosion causing it to fail its warrant of fitness assessment. Mr Jones invoked s 21(d) (above) of the Act in his rejection of the vehicle.
[55] Mr Pemberton referred Mr Jones to the terms of the VOSA and the exclusion clauses described above. I have already found that these exclusion clauses do not apply. Rather, the Act applies and so the Tribunal needs to consider what remedy is available to Mr Jones under 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.

[56] As is clear from s 18(3)(a), where a failure is of a substantial character it is open to a consumer to reject the vehicle. Accordingly, Mr Jones is entitled to reject his Hilux unless he has lost the right to reject the vehicle for any of the reasons set out in s 20 of the Act. I consider that Mr Jones has exercised his right to reject the vehicle within a reasonable time. His evidence is that he orally rejected the vehicle in a phone conversation with Mr Pemberton approximately one week after receiving the VTNZ warrant of fitness inspection report. There is no evidence that the vehicle has been damaged after its delivery to Mr Jones.
[57] Accordingly, I conclude that Mr Jones has not lost his right to reject the vehicle and that his rejection complied with s 22 of the Act as he notified Mr Pemberton of his decision to reject the vehicle and of the grounds for doing so.

Conclusion

[58] Mr Jones’s rejection of his vehicle is upheld. Scott Pemberton must refund Peter Jones the full purchase price of the vehicle, $12,995, within 14 days of the date of this decision. Once the purchase price has been refunded in full, Mr Jones must make the vehicle available for Mr Pemberton to collect at his cost.

J S McHerron
Adjudicator

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[1] Land Transport Rule: Vehicle Standards Compliance 2002, r 9.12(3).

[2] At r 9.12(4)(b).