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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 27 September 2021
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BETWEEN MARK LEONARD
Applicant
AND INFINITY AUTO IMPORT LTD
Respondent
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MEMBERS OF TRIBUNAL
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B R Carter, Barrister – Adjudicator
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S Gregory, Assessor
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HEARING at Auckland on 27 July 2021
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APPEARANCES
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M Leonard, Applicant
P Ratcliffe, Witness for the Applicant
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G Li for the Respondent
T You, Witness for the Respondent
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DATE OF DECISION 10 August 2021
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
._________________________________________________________________
REASONS
Introduction
[1] Mark Leonard wants to reject the 2012 Nissan Elgrand he purchased for $15,500 from Infinity Auto Import Ltd in July 2020. Mr Leonard says that the vehicle developed a significant transmission fault in about November 2020, which Infinity Auto Import refused to rectify. Mr Leonard then paid for the transmission to be assessed and overhauled, but the transmission fault remains so he now wants to return the vehicle and recover the purchase price.
[2] Infinity Auto Import says that it should have no liability for the transmission fault because Mr Leonard has used the vehicle for commercial purposes and because Mr Leonard had driven the vehicle for more than 8,000 km before the transmission failed. It also says that it offered to assist Mr Leonard to have the fault repaired, but he declined that offer.
Relevant background
[3] Mr Leonard owns and operates FTTH Networks Ltd, which according to the New Zealand Companies Register provides communications network construction and maintenance services. Although this vehicle was purchased in Mr Leonard’s name, he purchased it to be used for personal use and to be used by FTTH Networks in its business activities. Photographs provided by Infinity Auto Import shows extensive FTTH Networks related signwriting on its panels and windows.
[5] In early November 2020, Mr Leonard returned the vehicle to Infinity Auto Import for assessment. He says that Infinity Auto Import performed a diagnostic scan and found a fault code relating to the vehicle’s transmission. Infinity Auto Import advised Mr Leonard to have the transmission serviced and suggested that he should take the vehicle to Bakerfield Automatics Ltd (which trades as Transco).
[6] The transmission was then serviced by Transco on 13 November 2020. Mr Leonard was charged $345. He continued to use the vehicle without incident until about 3 February 2021, when the prior symptoms returned. Mr Leonard took the vehicle to Infinity Auto Import and test drove the vehicle with Todd You, who performs mechanical work for the company. Mr Leonard says that the vehicle went into limp mode during that test drive. Mr You says that the vehicle was “running rough” but it did not enter limp mode. Mr You also says that he had also performed a diagnostic scan on the vehicle and found no fault codes.
[7] The vehicle was then assessed by Transco on 5 February 2021, which diagnosed a significant transmission fault. In a Quote dated 5 February 2021, Transco estimated that the cost of replacing the transmission with a secondhand unit would be $4,600. Alternatively, it estimated the cost of reconditioning the transmission at around $5,500 plus GST.
[8] Mr Leonard says that Infinity Auto Import then advised him that the vehicle was “out of warranty” and any repairs would be at Mr Leonard’s cost. Infinity Auto Import says that it did not refuse to assist. It agrees that it declined to cover the full cost of repair but was prepared to assist Mr Leonard to have the repair performed at trade rates, which would be much cheaper than a repair at usual retail rates.
[9] Mr Leonard then decided not to use Transco, as he was concerned that the transmission had failed so shortly after it was serviced. The vehicle was then transported to Kaspa Transmissions Otahuhu 2005 Ltd (at Infinity Auto Import’s expense) on about 18 February 2021. Kaspa Transmissions removed the transmission pan and found metal shavings in the transmission fluid. It considered that the transmission required overhaul or replacement. Kaspa Transmissions then removed the transmission and sent it to CVT NZ (a Tirau-based transmission reconditioner) to be reconditioned.
[10] The transmission was returned to Kaspa Transmission in March 2021, which reinstalled it. Mr Leonard collected the vehicle on 2 April 2021 but discovered that the transmission fault remained. The vehicle was returned to CVT NZ. There was no evidence as to precisely what further work was performed by CVT NZ, but the vehicle was returned to Mr Leonard on about 21 April 2021. The transmission fault remained. Kaspa Transmission again removed the transmission and considered that no obvious repair had been performed to the transmission and that it remains faulty. CVT NZ has since refunded the $3,015 it charged Mr Leonard for the transmission repair.
[11] The transmission remains dismantled and unrepaired. Mr Leonard then spoke with Infinity Auto Import and asked it to take responsibility, but it declined to do so saying that Mr Leonard had used the vehicle for business purposes, and he had driven the vehicle for more than 8,000 km before the transmission failed. Mr Leonard then filed this claim.
The issues
[12] The issues requiring the Tribunal’s consideration in this case are:
- (a) Does the Consumer Guarantees Act 1993 (the CGA) apply?
- (b) Has the vehicle been of acceptable quality for the purposes of s 6 of the CGA?
- (c) What remedy is Mr Leonard entitled to under the CGA?
Issue 1: Does the CGA apply?
[13] Infinity Auto Import says that Mr Leonard purchased the vehicle for business purposes, so the CGA should not apply.
[14] There is no law that says that the CGA does not apply simply because the purchaser acquires a vehicle for commercial purposes. Instead, parties who are in trade may agree to contract out of the CGA, but only if the provisions in s 43 of the CGA are complied with. Section 43 provides:
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.
[15] The agreement to purchase the vehicle was in writing and contained an acknowledgement that the CGA would not apply if the vehicle was acquired for business purposes. At clause 7.1 in the fine print at the bottom of the vehicle offer and sale agreement (the VOSA) signed by both parties is a provision that states:
“I agree that if I am acquiring this vehicle for business purposes in terms of sections 1 and 43 of the Consumer Guarantees Act 1993, the provisions of the Act will not apply accordingly.”
[16] Nonetheless, Infinity Auto Import’s argument that the CGA does not apply must fail for two reasons.
[17] First, all parties to the agreement were not in trade as required by s 43(2)(c) of the CGA. Mr Leonard, who purchased the vehicle, is not in trade. The VOSA names him as the purchaser, the vehicle was registered in his name and Mr Leonard personally borrowed money to purchase the vehicle. Consequently, regardless of the use the vehicle was put to after sale, because Mr Leonard was not in trade the parties cannot validly contract out of the CGA.
[18] Second, even if Mr Leonard was in trade, the Tribunal is not satisfied that it is fair and reasonable that the parties should be bound by the clause that purports to exclude the CGA.
[19] When determining what is fair and reasonable for the purposes of s 43(2)(d) of the CGA, the Tribunal must consider the criteria set out in s 43(2A).
The subject matter of the agreement
[20] The subject matter of the agreement is a Nissan Elgrand vehicle. This vehicle is of a kind ordinarily acquired for personal, domestic or household use and may also be acquired for commercial uses, which Mr Leonard acquired to use for both business and personal reasons.
The value of the goods
[21] Mr Leonard paid $15,500 for the vehicle. The Tribunal considers this to be a neutral factor in its consideration of whether it is fair and reasonable that the parties should be held to have contracted out of the CGA.
The respective bargaining power of the parties
[22] There was an imbalance in the bargaining power between Infinity Auto Import and Mr Leonard. The agreement was in Infinity Auto Import’s standard form, and its terms do not appear to have been subject to negotiation. Further, Infinity Auto Import is a registered motor vehicle dealer, whereas Mr Leonard does not have the same experience in dealing with, or negotiating, motor vehicle sale and purchase contracts.
Whether the parties received legal advice
[23] Neither party sought legal advice, although the Tribunal acknowledges that it would be unusual for a buyer or seller to seek legal advice before purchasing a $15,500 motor vehicle. However, it is relevant to the Tribunal’s assessment of fairness and reasonableness that Mr Leonard received no advice, either from a lawyer or Infinity Auto Import, on the existence and effect of the exclusion clause.
[24] Infinity Auto Import knew of the existence and effect of the exclusion clause. It is contained in the fine print of the VOSA, which is the trader’s own standard form agreement. Mr Leonard did not have this extent of familiarity with the content of the VOSA. There is also a much clearer, and more obvious, exclusion clause in the body of the VOSA that the purchaser is required to sign to acknowledge that it agrees to contract out of the CGA. Mr Leonard did not sign that clause.
[25] Against this background, the Tribunal is satisfied that there was a real risk that Mr Leonard did not consciously agree to exclude the protections in the CGA.
[26] Ultimately, the CGA is consumer protection legislation. Mr Leonard is a consumer – he purchased a vehicle of a kind ordinarily acquired for personal, domestic or household use. Given the imbalance in the respective bargaining power of the parties and the absence of clear evidence that Mr Leonard has knowingly agreed to contract out of the provisions of the CGA, Mr Leonard is entitled to the protections contained within the CGA. The Tribunal is therefore satisfied that the parties have not validly agreed to contract out of the CGA and that the protections of the CGA apply in this case.
[27] Infinity Auto Import says that Mr Leonard failed to disclose that he was purchasing the vehicle for a business purpose and that he should not therefore be entitled to the protections of the CGA. The law imposes no obligation on Mr Leonard to disclose that he was purchasing the vehicle for a business purpose. If a motor vehicle trader wants to exclude the operation of the CGA, it needs to make enquiries as to whether the vehicle is being acquired to be used in trade. There is no obligation on the purchaser to volunteer that information.
[28] The CGA therefore applies to this transaction.
Issue 2: Has the vehicle been of acceptable quality?
[29] 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.
[30] 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.
[31] 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”.
[32] The evidence shows that the transmission was faulty by November 2020 at the latest, by which time Mr Leonard had noticed the transmission performance issues and the vehicle had entered limp mode. Mr Gregory, the Tribunal’s Assessor, advises that those symptoms are consistent with the early stages of transmission failure. By that time Mr Leonard had owned the vehicle for less than four months.
[33] The transmission was then serviced by Transco, and that service lessened the symptoms until February 2021, when the symptoms returned. Transco and Kaspa Transmissions have both since assessed the vehicle and concluded that the transmission now needs to be replaced or overhauled. The vehicle’s odometer reading is now 141,500 km, meaning Mr Leonard had driven a little more than 8,000 km since purchase.
[34] Based on the evidence presented by Mr Leonard and the advice the Tribunal has received from Mr Gregory, it is satisfied that the transmission fault first became apparent in November 2020, less than four months after purchase. Taking account of the factors in s 7(1)(f) to (j) of the CGA, the Tribunal is satisfied that a reasonable consumer would have expected the transmission in a vehicle of this price, age and mileage to have been much more durable. The Tribunal is therefore satisfied that the vehicle was not of acceptable quality for the purposes of s 6 of the CGA.
Issue 3: What remedy is Mr Leonard entitled to under the CGA?
[35] The relevant remedies 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.
[36] Mr Leonard seeks to reject the vehicle, but any right that Mr Leonard may have had to reject the vehicle has now been lost because he did not exercise that right within a reasonable time.
[37] The law relating to the loss of the right to reject goods is set out in s 20 of the CGA, which states:
20 Loss of right to reject goods
(1) The right to reject goods conferred by this Act shall not apply if—
(a) the right is not exercised within a reasonable time within the meaning of subsection (2); or
(b) the goods have been disposed of by the consumer, or have been lost or destroyed while in the possession of a person other than the supplier or an agent of the supplier; or
(c) the goods were damaged after delivery to the consumer for reasons not related to their state or condition at the time of supply; or
(d) the goods have been attached to or incorporated in any real or personal property and they cannot be detached or isolated without damaging them.
(2) In subsection (1)(a), the term reasonable time means a period from the time of supply of the goods in which it would be reasonable to expect the defect to become apparent having regard to—
(a) the type of goods:
(b) the use to which a consumer is likely to put them:
(c) the length of time for which it is reasonable for them to be used:
(d) the amount of use to which it is reasonable for them to be put before the defect becomes apparent.
(3) This section applies notwithstanding section 170 of the Contract and Commercial Law Act 2017.
[38] As set out above, Mr Leonard initially attempted to repair the transmission because Infinity Auto Import had refused to take responsibility for the required repairs. He arranged for the vehicle to be transported to Kaspa Transmissions, which then sent the transmission to CVT NZ for reconditioning. Whatever repairs (if any) performed by CVT NZ have not rectified the transmission fault. Indeed, it seems that the transmission is now in worse condition following CVT NZ’s efforts.
[39] Mr Leonard then contacted Infinity Auto Import and asked it to take responsibility for reconditioning or replacing the vehicle’s transmission and to compensate him for the costs he has incurred in diagnosing and unsuccessfully repairing the transmission. Mr Leonard did mention the prospect of returning the vehicle at that time, but on the evidence presented, he never stated that rejection was his preferred option. Instead, the evidence presented shows that Mr Leonard was always prepared to give Infinity Auto Import an opportunity to rectify the transmission. During the hearing, and for the first time, Mr Leonard advised Infinity Auto Import and the Tribunal that his preferred remedy was to reject the vehicle.
[40] Mr Leonard may have been entitled to reject the vehicle as the faulty transmission is a failure of a substantial character for the purposes of s 21(a) of the CGA. It is a significant fault that will be expensive to rectify, and the Tribunal is satisfied that a reasonable consumer would not have purchased this vehicle if they had known that such a fault would arise so shortly after purchase.
[41] However, under s 20(1)(a) of the CGA, Mr Leonard will lose the right to reject the vehicle if he has not exercised that right within a reasonable time. For the purposes of s 20(1)(a) of the CGA, a "reasonable time" is a period from the time of supply of the goods in which it would be reasonable for the defect to become apparent, having regard to the factors set out in s 20(2)(a)–(d) of the CGA.
[42] In Nesbit v Porter, the Court of Appeal shed some light on the statutory words in s 20(2) of the CGA.[2] The Court observed that: [3]
A reasonable time under s 20 must accordingly be one which suffices to enable the consumer to become fully acquainted with the nature of the defect, which, where the cause of a breakage or malfunction is not apparent, the consumer can be expected to do by taking the goods to someone, usually and preferably the supplier, for inspection.
[43] Mr Leonard became aware of the significant transmission damage in early February 2021, when the transmission damage was diagnosed by Transco. He did not unequivocally reject the vehicle until 27 July 2021, when he advised Infinity Auto Import and the Tribunal that his preferred remedy was to reject the vehicle.
[44] The law imposed an obligation on Mr Leonard to exercise his right to reject the vehicle with reasonable haste once he became acquainted with the nature of the vehicle’s defects. Mr Leonard knew of the nature of the vehicle’s defects by early February 2021. He did not unequivocally reject the vehicle until more than five months later, by which time the transmission had been removed and at least two unsuccessful repair attempts had been performed by CVT NZ. Applying Nesbit v Porter, by choosing to attempt to repair the vehicle and then waiting so long to reject it, Mr Leonard has now lost that right.
[45] The Tribunal is also concerned that the transmission has now suffered further damage as a result of the unsuccessful repair attempts by CVT NZ. Mr Leonard says that the symptoms relating to the transmission fault were worse when he drove the vehicle after the second repair attempt by CVT NZ, and in those circumstances, the Tribunal does not consider it appropriate that Mr Leonard should be entitled to reject the vehicle.
[46] Instead, under s 18(2)(a) of the CGA, Mr Leonard is entitled to have the transmission fault rectified within a reasonable time by Infinity Auto Import.
[47] Mr Leonard also seeks to recover the cost he has incurred in having the transmission diagnosed and twice dismantled by Kaspa Transmission. He will be entitled to do so under s 18(4) of the CGA if those costs were a reasonably foreseeable consequence of the vehicle’s failure to comply with the guarantee of acceptable quality.
[48] Applying the test in s 18(4), I am not satisfied that Mr Leonard is entitled to recover all the amounts charged by Kaspa Transmission. Instead, I consider that Mr Leonard is entitled to recover the cost of having the transmission removed and dismantled on one occasion only. That cost was necessarily incurred to determine the nature and extent of the transmission fault. Mr Gregory advises that the reasonable cost of that work is $750 (plus GST) as set out in Kaspa Transmission’s invoice of 20 May 2021.
[49] All other costs charged by Kaspa Transmission are wasted expenditure incurred due to the substandard repair attempt by CVT NZ and are not a reasonably foreseeable consequence of the vehicle’s failure to comply with the guarantee of acceptable quality or a cost for which Infinity Auto Import should otherwise bear liability. Mr Leonard should consider attempting to recover that cost from CVT NZ or Kaspa Transmissions, which appears to have instructed CVT NZ.
Outcome
[50] The Tribunal therefore dismisses Mr Leonard’s application to reject the vehicle and orders that Infinity Auto Import shall, within a reasonable time:
- (a) replace or recondition the vehicle’s transmission; and
- (b) pay $954.50 to Mr Leonard.
DATED at AUCKLAND this 10th day of August 2021
B.R. Carter
Adjudicator
[2] Nesbit v Porter [2000] NZCA 288; [2000] 2 NZLR 465 (CA).
[3] At [39].
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2021/148.html