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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 20 July 2020
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IN THE MOTOR VEHICLE DISPUTES TRIBUNAL
BETWEEN ROBERT THOMAS PINDER
Purchaser
AND CARNATION LTD
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 9 June 2020
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APPEARANCES
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R T Pinder, Purchaser
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G McPheat, for the Trader
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DATE OF DECISION 23 June 2020
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
Introduction
[1] Robert Pinder wants to reject the 2004 Toyota Camry,[1] he purchased for $3,400 from Carnation Ltd on 28 December 2019. He says that the vehicle’s engine is heavily contaminated, or “gummed up” with oil, which is causing the vehicle to emit smoke from its exhaust and consume too much oil. Mr Pinder says that this fault will be expensive to repair and wants to return the vehicle and obtain a refund of the purchase price and other costs he has incurred.
[2] Carnation Ltd says that Mr Pinder is not entitled to reject the vehicle. It says that it has not been able to find any defect with the vehicle and that Mr Pinder knew that the vehicle required servicing and maintenance before he purchased it, so he should now bear the cost of performing that servicing and maintenance. It also alleges that Mr Pinder may caused or contributed to the vehicle’s defects by tampering with the engine.
Relevant background
[3] A-Grade Vehicle Inspection performed a pre-purchase inspection on 27 December 2019 and found, among other things, that the vehicle was overdue for a service and that its battery required charging and retesting. Mr Pinder also test drove the vehicle for approximately 20 minutes and found no obvious defects with the vehicle. Mr Pinder then agreed to purchase the vehicle for $3,400, which Graham McPheat, a director of Carnation Ltd, advises was a $400 discount on the vehicle’s listed price because of the various issues identified by A-Grade Vehicle Inspection.
[4] The day after purchase, Mr Pinder replaced the vehicle’s battery at a cost of $245. Mr Pinder also says that he noticed excessive smoke from the vehicle’s exhaust. He appears to have had the vehicle assessed by a friend (who Mr Pinder advises is a mechanic), who considered that the vehicle may have had faulty exhaust sensors. Mr Pinder then replaced the exhaust sensors at a cost of $348.50.
[5] That repair did not rectify the smoke from the vehicle’s exhaust, and Mr Pinder also noticed that the vehicle was consuming excessive amounts of oil. On 15 January 2020, Mr Pinder’s mechanic friend removed the rocker cover and took photographs of the vehicle’s engine. Those photographs show that the engine is heavily contaminated with coagulated oil.
[6] Mr Pinder then had the vehicle assessed by Scotty’s Repairs & Maintenance on about 21 January 2020, which found the engine to be “sludged up and smoking on startup”. Scotty’s Repairs & Maintenance considered that the engine requires stripping and cleaning to determine the extent of the fault and provided an estimate of $1,750.66 for the required work.
[7] Mr Pinder then contacted Carnation Ltd advising it of Scotty’s Repairs & Maintenance’s findings and asking to return the vehicle and obtain a full refund of the purchase price. In an email of 21 January 2020, Carnation Ltd declined to accept Mr Pinder’s rejection of the vehicle because:
- (a) the pre-purchase inspection showed that the vehicle was (among other things) due for a service;
- (b) Mr Pinder purchased the vehicle accepting any faults, and signed a sale and purchase agreement which stated “purchaser accepts vehicle including all faults raised on A-Grade Vehicle Inspection Report”; and
- (c) Mr Pinder knew that the vehicle required a service and had faults, as detailed in the A-Grade Vehicle Inspection report, yet he decided to proceed regardless.
[8] Carnation Ltd compared Mr Pinder’s request to reject the vehicle as being like “buying a bicycle with a flat tyre then taking the bike back to the bike shop asking to fix the flat tyre you knew was there when you bought it”.
[9] After further email correspondence with Mr McPheat, the vehicle was delivered to Carnation Ltd on 30 January 2020 to allow Carnation Ltd to inspect it. Mr McPheat then drove the vehicle from Glenfield to Hauraki Corner and says that he noticed no smoke from the vehicle’s exhaust during or after that drive. The vehicle was then inspected by another mechanic, which serviced the vehicle and performed an engine flush. The vehicle was then returned to Mr Pinder.
[10] Despite this service and engine flush, the vehicle continues to emit large amounts of smoke from its exhaust and consume an excessive amount of oil.
The issues
[11] Against this background, the issues requiring consideration are:
- (a) Has the vehicle been of acceptable quality for the purposes of s 6 of the Consumer Guarantees Act 1993 (the CGA)?
- (b) Is the fault a failure of a substantial character?
- (c) What remedy is Mr Pinder entitled to under the CGA?
Issue 1: Has the vehicle been of acceptable quality?
[12] 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.
[13] 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.
[14] 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 Mr Pinder’s subjective perspective.
[15] I am satisfied that Mr Pinder has proven that the vehicle has a pre-existing engine defect – caused by the engine being contaminated with old, coagulated oil – which is causing the vehicle to emit excessive smoke and consume too much oil.
The contaminated engine
[16] Mr Pinder has provided photographs of the condition of the engine, taken before and after the vehicle was assessed and serviced by Carnation Ltd, which show that the engine is contaminated with old oil. Although Carnation Ltd submits that the vehicle did not have a pre-existing defect, those photographs clearly show that this was a pre-existing defect because it is impossible for the level of contamination shown in the photographs to occur during Mr Pinder’s ownership. Instead, the contamination has been caused by the vehicle being poorly serviced in the past, which has allowed old oil to congeal inside the rocker cover and around the oil control rings.
The oil consumption
[17] Mr Pinder has proven that the vehicle consumes an unacceptable amount of oil. At the direction of the Tribunal, Mr Pinder performed an oil consumption test between 6 May and 2 June 2020. That test was conducted by Scotty’s Repairs & Maintenance, which found that the vehicle consumed 5.5 litres of oil during 1,000 km of driving. That is extreme oil consumption.
The excessive smoke
[18] Mr Pinder has also proven that the vehicle emits an excessive amount of smoke. Mr Pinder provided photographs and a video taken on 15 February 2020 (after Carnation Ltd had assessed the vehicle), which show excessive amounts of grey/black smoke from the vehicle’s exhaust. Mr Pinder also produced a video filmed on the morning of the hearing which clearly shows a significant plume of grey/black smoke from the exhaust, which is more pronounced under acceleration. Scotty’s Repairs & Maintenance also considered that the vehicle would most likely not pass a warrant of fitness inspection due to excessive smoke emissions.
[19] The excessive smoke (and the excessive oil consumption) are consistent with an engine that has a poor service history and is contaminated with a buildup of old oil residue. If oil is not regularly changed, it coagulates, blocking oil galleries and affecting the operation of the oil control rings. This causes oil consumption because the oil control rings can become stuck inside the pistons as the coagulated oil restricts the movement of those rings. When the engine reaches operating temperature, oil can then bypass the rings and enter the combustion chamber, burning the oil and causing excessive smoke from the exhaust.
[20] Carnation Ltd says that the vehicle does not smoke excessively. It provided a video filmed on 1 February 2020, which shows no smoke coming from the vehicle’s exhaust. Mr McPheat also submitted that A-Grade Vehicle Inspections found no sign of excessive smoke and that the vehicle did not emit excessive smoke during Mr Pinder’s 20 minute test drive of the vehicle, during Mr McPheat’s drive between Glenfield and Hauraki Corner or when the vehicle was in the possession of Carnation Ltd’s mechanic.
[21] Mr Gregory, the Tribunal’s Assessor, advises that there may be times when the vehicle does not emit excessive smoke. Mr Gregory advises that the excessive smoke and oil consumption may only occur when the vehicle’s oil is at operating temperature, which can take as long as 20 minutes of driving to achieve. Mr Gregory says that the lower viscosity of the warm oil allows it to bypass the rings and enter the combustion chamber, causing the smoke and oil consumption. Conversely, when the oil is not at operating temperature, it is thicker and will struggle to bypass the rings.
[22] On the basis of the evidence I heard, it appears that each of the instances relied upon by Carnation Ltd to prove that the vehicle did not smoke excessively occurred when the engine was cold, which explains why no excessive smoke was detected at those times.
The required repair
[23] Mr Gregory considers that the engine needs to be stripped down and cleaned and the compression and oil control rings will require replacement. Mr Gregory also considers it likely that the valve stem seals will be leaking and will require replacement and that the cylinder bores will need to be honed.
[24] Mr Gregory also considers that the repairs suggested by Scotty’s Repairs & Maintenance are likely to be inadequate to rectify the vehicle’s faults and its estimate of $1,750.66 is a significant underestimate of the actual cost of rectifying the faults. Instead, Mr Gregory considers that the required repairs will cost at least $3,000.
The contaminated engine means the vehicle is not of acceptable quality.
[25] Carnation Ltd considers that the vehicle has been of acceptable quality given its price, age and mileage at the time of sale. I do not agree. Notwithstanding the realistic expectations that a reasonable consumer must have for a vehicle of this price, age and mileage, a reasonable consumer would not consider this vehicle to be of acceptable quality. Its engine was heavily contaminated at the time of sale, and now requires expensive repair. This is not the type of fault that a purchaser of a vehicle of this price, age and mileage could reasonably expect to be present in such a vehicle.
[26] Carnation Ltd also considers that it should not have liability because A-Grade Vehicle Inspection identified that the vehicle was overdue for a service during the pre-purchase inspection. In that regard, Carnation Ltd appears to consider that A-Grade Vehicle Inspection’s finding should have put Mr Pinder on notice as to the potential existence of the poor condition of the vehicle’s engine. Carnation Ltd also considers that the engine contamination can be rectified by servicing the vehicle and performing an engine flush and that if Mr Pinder had serviced the vehicle after he purchased it, that may well have addressed the underlying cause of the fault.
[27] I do not accept Carnation Ltd’s submission for two reasons:
- (a) First, there is no evidence to show that Mr Pinder knew, or should have known, of the extent of the engine contamination at the time of sale. A-Grade Vehicle Inspections identified that the vehicle required servicing, but there is no evidence to show that Mr Pinder was ever advised that the vehicle’s service history was so poor that its engine was now heavily contaminated with old oil.
- (b) Second, the engine contamination cannot be rectified by a service or engine flush. The engine requires stripping and cleaning and parts such as the compression and oil control rings and valve stems seals will likely require replacement. That is not routine servicing or maintenance.
[28] In submissions filed after the hearing, Carnation Ltd also suggested that Mr Pinder may have tampered with the engine by removing the rocker cover, thus causing or contributing to the defect that is causing the vehicle to emit smoke and consume excessive amounts of oil. Mr Gregory advises that it is not possible for the contamination present in the engine to have been caused by Mr Pinder removing the rocker cover. There is also no evidence to prove that any other damage has been caused by the removal of the rocker cover.
[29] A reasonable consumer purchasing a 15-year-old, $3,400 Toyota Camry with an odometer reading exceeding 171,000 km should understand that such a vehicle will not be free of minor defects and that it will require, often expensive, ongoing maintenance and repairs consistent with its age and mileage. Nonetheless, I am satisfied that the vehicle has not been of acceptable quality for the purposes of s 6 of the CGA. It was not as free of minor defects at the time of sale as a reasonable consumer would consider acceptable because it has a pre-existing engine defect – caused by the engine being contaminated with old, coagulated oil – which is causing the vehicle to emit excessive smoke and consume too much oil.
Issue 2: Is the fault a failure of a substantial character?
[30] Under s 18(3) of the CGA, Mr Pinder 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 CGA:
- 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.
[31] Section 21(a) of the CGA applies to this case, and I consider that the vehicle’s defects are a failure of a substantial character. A reasonable consumer would not have purchased this vehicle if they had known of the pre-existing engine contamination that would require the engine to be stripped, cleaned and reassembled at a cost of at least $3,000.
Issue 3: What remedy is Mr Pinder entitled to under the CGA?
[32] The remedies relevant to this claim are set out in s 18 of the CGA, 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.
[33] Because the vehicle’s defects are a failure of a substantial character, Mr Pinder is entitled to reject the vehicle under s 18(3)(a) of the CGA. Under s 23(1)(a) he is therefore entitled to recover a full refund of the purchase price of $3,400. Under s 18(4) of the CGA, Mr Pinder is also entitled to recover $122.55, being the cost of the oil consumption test performed by Scotty’s Repairs & Maintenance in May and June 2020.
[34] The Tribunal therefore orders that Carnation Ltd shall, within 10 working days of the date of this decision pay $3,522.55 to Mr Pinder.
[35] Mr Pinder also seeks to recover the cost of replacing the vehicle’s battery and exhaust sensors. He is not entitled to do so because he did not first give Carnation Ltd an opportunity to rectify those faults before having the repairs done elsewhere.
[36] In Acquired Holdings Ltd v Turvey, the High Court found that, under s 18(2) of the CGA, a consumer must first give the supplier an opportunity to remedy a failure before having it rectified elsewhere and recovering the cost of repairs from the supplier.[2] Mr Pinder did not contact Carnation Ltd before having either repair performed, so he is not entitled to recover those costs.
DATED at AUCKLAND this 23rd day of June 2020
B.R. Carter
Adjudicator
[1] Registration number HPY417
[2] Acquired Holdings Ltd v Turvey [2007] NZHC 1251; (2008) 8 NZBLC 102,107 (HC).
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2020/83.html