Loi v Lambo Wholesale Limited Reference No. MVD 274/2021 [2021] NZMVDT 205 (22 October 2021)

Last Updated: 25 November 2021

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL

I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 274/2021
[2021] NZMVDT 205

BETWEEN CHEOK IAN LOI

Purchaser

AND LAMBO WHOLESALE LIMITED

Trader

HEARING at Christchurch on 7 October 2021
MEMBERS OF TRIBUNAL

J S McHerron, Barrister – Adjudicator
R C Dixon – Assessor

APPEARANCES

C I Loi, Purchaser
A Kim, Purchaser’s son
R J M Lambert, Director of Trader

DATE OF DECISION 22 October 2021

___________________________________________________________________

DECISION OF THE TRIBUNAL

___________________________________________________________________

Cheok Ian Loi’s application is dismissed.

___________________________________________________________________

REASONS

Introduction

[1] Cheok Ian Loi’s 2010 BMW 750i needs to have its engine replaced or rebuilt. Its engine became damaged approximately 10 months after Ms Loi purchased the vehicle from Lambo Wholesale Ltd on 10 July 2020. The vehicle had only been driven less than 3,000 km in that time. Ms Loi seeks a refund of the purchase price, $18,400 (plus $2,900 for a Provident mechanical breakdown insurance policy), or the costs of repair of the vehicle.
[2] Ms Loi also raised a concern about the manner in which Lambo Wholesale sold her the mechanical breakdown insurance policy for the vehicle.
[3] The primary issue raised in Ms Loi’s application is whether the vehicle failed to comply with the guarantee of acceptable quality. Lambo Wholesale denies it is liable. It says Ms Loi or her son Alister Kim’s unreasonable use of the vehicle triggers the defence under s 7(4) of the Consumer Guarantees Act 1993 (CGA).
[4] But first, I will address the complaint about the insurance policy.

Ms Loi’s complaint about the mechanical breakdown insurance

[5] The day before Ms Loi purchased the vehicle, the trader’s director Richard Lambert emailed Mr Kim to say that he could arrange a “premium Provident 3 year Unlimited Mileage, Mechanical Warranty for $1,900”. Ms Loi says it was on this basis that she agreed to purchase the vehicle and to pay the agreed purchase price of $20,000. However, after the payment was made in two separate $10,000 transactions, Mr Lambert told Ms Loi and Mr Kim that the Provident three-year unlimited mileage warranty he had attempted to purchase was not available for this vehicle and that they would need to buy a “luxury class” insurance from Provident Mechanical instead. That explains why the vehicle offer and sale agreement (VOSA), dated 10 July 2020, refers to a Provident Insurance 24-month mechanical breakdown insurance policy sold for $2,900, bringing the total vehicle price to $21,300. The VOSA was signed by both Ms Loi and Mr Lambert.
[6] Mr Lambert told the Tribunal that after he made a mistake about the insurance policy that was available, he gave Ms Loi an opportunity to cancel the vehicle transaction, but that she decided to proceed with the transaction, knowing that the insurance policy was different from the policy that was initially advertised with the vehicle. This was not disputed.
[7] However, Ms Loi said that she had understood from Mr Lambert’s comments that the insurance policy would cover anything that was wrong with the vehicle and would not have a maximum claim limit. Therefore, she says it was a surprise to her and Mr Kim to find out that the insurance policy was capped at a maximum claim limit of $5,000 with a $600 excess.
[8] Mr Lambert denied that he misled Mr Kim and Ms Loi in any way. To the contrary, Mr Lambert argued that he had complied with his disclosure obligations in respect of the insurance policy.
[9] Section 36U of the Fair Trading Act 1986 sets out various disclosure requirements in respect of extended warranty agreements such as the Provident mechanical breakdown insurance policy. That section provides:

36U Disclosure requirements relating to extended warranty agreements

(1) A warrantor must ensure that—

(a) every extended warranty agreement—

(i) is in writing; and

(ii) is expressed in plain language; and

(iii) is legible; and

(iv) is presented clearly; and

(v) complies with the requirements of subsection (2); and

(b) a copy of the agreement is given to the consumer—

(i) at the time the agreement is entered into; or

(ii) in the case of an agreement entered into over the telephone, within 5 working days after the date on which the agreement was entered into.

(2) The requirements referred to in subsection (1)(a)(v) are that—

(a) the following information is set out on the front page of the agreement:

(i) a summarised comparison between the relevant Consumer Guarantees Act 1993 guarantees and the protections provided by the extended warranty agreement; and

(ii) a summary of the consumer’s rights and remedies under the Consumer Guarantees Act 1993; and

(iii) a summary of the consumer’s right to cancel the agreement under section 36V; and

(iv) the warrantor’s name, street address, telephone number, and email address; and

(b) all the terms and conditions of the agreement are included in the agreement, including—

(i) the rights and obligations of the warrantor and the consumer; and

(ii) the duration and expiry date of the agreement (including whether or not the agreement expires when a claim is made); and

(c) the total price payable under the agreement is disclosed in the agreement; and

(d) the agreement is dated.

(3) In addition to the requirements for written disclosure under subsections (1) and (2), the warrantor must, where reasonably practicable (for example, where the agreement is entered into between a warrantor and consumer in each other’s presence or by telephone), give the consumer oral notice, before the agreement is entered into, of—

(a) the consumer’s right to cancel the agreement within 5 working days after the date on which the consumer receives a copy of the agreement; and

(b) how the consumer may cancel the agreement.

[10] On the evidence before the Tribunal, I consider that Lambo Wholesale complied with its disclosure obligations in respect of the insurance policy. In particular, I note that the policy registration certificate states the start date of the policy, 10 July 2020, the end date of the policy, 9 July 2022, the premium, $2,900, the excess, $600, and the claim limit, $5,000. In addition, Lambo Wholesale provided Ms Loi and Mr Kim with the detailed terms of the policy in the form of a brochure summarising the customer’s rights and remedies under the CGA, and the right to cancel the insurance agreement within five working days after the date on which the consumer received a copy of the agreement, as provided in s 36U(3).

Conclusion

[11] In light of these factors, I do not consider that Ms Loi has established any failure by Lambo Wholesale to comply with its disclosure obligations in respect of the mechanical breakdown insurance policy, or that it was misleading and deceptive in the manner in which it sold that policy. It is acknowledged that there was an unfortunate mistake in the description of the policy with which the vehicle would be sold. However, when Mr Lambert corrected that mistake, he explained, as he was required to do, the correct terms of the policy to be sold with the vehicle. He gave Ms Loi an opportunity to withdraw from purchasing the vehicle and the insurance. But she elected to proceed.

Did the vehicle fail to comply with the guarantee of acceptable quality?

[12] Section 6(1) of the CGA 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 CGA, “goods” includes vehicles.
[13] “Acceptable quality” is defined in s 7 of the CGA (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.

...

(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.

...

[14] 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.
[15] On 27 August 2020, Mr Kim took the vehicle to Christchurch BMW & Mini for an engine oil service. Various minor repairs were also carried out in respect of control buttons on the seats, a new right rear valve cap was replaced on one of the tyres, the key batteries were replaced, Christchurch BMW & Mini carried out a diagnosis for a battery discharge warning in which it found a “poor driving profile” and there were various “consumer switch on” faults. Notwithstanding these minor issues, no significant issues, including any engine issues, were identified when the vehicle was serviced in August 2020.
[16] On or around 29 January 2021, Mr Kim presented the vehicle to Christchurch BMW & Mini because its engine was misfiring. Christchurch BMW & Mini also further investigated a low battery voltage fault and determined that the vehicle’s battery needed to be replaced. Christchurch BMW & Mini also found the vehicle had a “rich mixture” in Bank 2, which comprises cylinders 5–8, and that cylinders 5, 6 and 8 were misfiring. It carried out a test plan for the misfire and rich mixture. The vehicle failed a pressure test Christchurch BMW & Mini noted that the fuel low pressure sensor was an “old version”. Christchurch BMW & Mini could not find any specific injector was leaking, but it concluded that all the injectors, battery and fuel feed, needed to be replaced.
[17] The Tribunal asked Ms Loi to arrange for the Christchurch BMW & Mini garage technician who assessed the vehicle to be available by telephone during the hearing of this matter. However, according to Mr Kim, no one from Christchurch BMW & Mini garage was available.
[18] The Tribunal was told that following its diagnosis, Christchurch BMW & Mini contacted Ms Loi’s insurer, Provident, which agreed to pay for four new injectors, those in Bank 2 of the engine where the rich mixture was found and where the misfire was occurring. Mr Lambert produced a service estimate from Christchurch BMW & Mini made out to Provident Insurance and describing the replacement of the fuel feed and four injectors in the estimated sum of $3,381.45. Mr Lambert submitted that despite this estimate and Provident’s approval to carry out this work, Mr Kim uplifted the vehicle without any repairs being done and drove it home from Christchurch to Timaru.
[19] Mr Kim and Ms Loi explained that they had been told the estimated repair costs were in the order of $8,000 and that only $5,000 of this, minus the insurance policy excess, would be covered by Provident. They said that was the reason why they did not proceed with the repairs and that, instead Mr Kim drove the vehicle back home. Unfortunately, because no one from Christchurch BMW & Mini attended the hearing or provided any further information it was not possible for the Tribunal to verify Mr Kim and Ms Loi’s submission that they had been told the repair cost was $8,000. It is possible that this cost may have been the estimate for replacing all of the injectors, as had been initially recommended in Christchurch BMW & Mini’s invoice. However, it seems from the documentation that Provident was only prepared to pay for replacing the injectors in Bank 2 because that was where the rich fuel mixture had been identified and that was where the misfiring cylinders were located. In any event, there was no written evidence to confirm that an $8,000 estimate had been communicated to Mr Kim and Ms Loi.
[20] Furthermore, Mr Lambert said that at no point during this diagnosis and recommended repair did Mr Kim or Ms Loi contact Lambo Wholesale to ask it to assist with any repairs that might be required.
[21] Based on the evidence of Mr Kim driving the vehicle back to Timaru, and then back to Christchurch again subsequently, Mr Lambert alleges that Mr Kim negligently failed to follow Christchurch BMW & Mini’s recommendation and the Provident Insurance claim that had been accepted.
[22] Subsequently, on or around 4 May 2021, Mr Kim presented the vehicle to Christchurch BMW & Mini again reporting engine noise. Christchurch BMW & Mini’s invoice dated 4 May 2021 states as follows:

Carried out diagnosis for engine noise. Removed oil filter and found oil filter has swarf in it. Oil is also very thin and smells heavily of petrol. Drained and measured oil, found 11.5–12L in engine. Should only have 9 Litres. There is 2.5 litres of petrol in the oil. Refilled engine and started. Noise is loudest underneath engine. Suspect damage to engine bearings, crankshaft and possibly pistons. Requires new or recondition[ed] engine. Will also require new injectors as these are leaking fuel badly which has caused the oil to thin and damage the engine.

[23] This invoice records the vehicle’s odometer at 76,542 km, some 672 km more than at the date of the recommended replacement of the injectors in Bank 2.
[24] Mr Lambert said that in respect of the damage to the engine, Provident Insurance closed its claim as Ms Loi had not proceeded with the recommended repair.
[25] Mr Kim then emailed Mr Lambert on 4 May 2021 to ask for Lambo Wholesale’s assistance. Mr Lambert said this was the first time Mr Kim had contacted him since purchasing the vehicle.
[26] Mr Lambert submitted that Ms Loi and Mr Kim’s failure to have the repairs done as recommended had caused the engine damage. For that reason Lambert Wholesale denies liability.

Tribunal’s assessment

[27] The Tribunal’s Assessor, Mr Dixon, agreed with Mr Lambert’s conclusion that the engine failure was brought about by the owner’s failure to address a serviceable fault with the vehicle’s injectors, which would have been covered under the mechanical warranty in place.
[28] This brings into play s 7(4) of the CGA (above). Section 7(4) provides a defence against an allegation that a vehicle does not comply with the guarantee of acceptable quality where there has been contributory negligence in the form of unreasonable use of the vehicle by the consumer. However, s 7(4) has two elements, both of which must be established for the defence to operate:

• (a) that the vehicle was used unreasonably; and
  • (b) that the vehicle would otherwise have complied with the guarantee of acceptable quality, if it had not been used unreasonably.

[29] In the present case, Mr Lambert’s submission, with which Mr Dixon agreed, was that Mr Kim had used the vehicle unreasonably by continuing to drive it, notwithstanding Christchurch BMW & Mini’s recommendation to replace the injectors. Mr Kim’s only excuse for this was that the work was going to cost more than would be covered under his insurance policy. However this does not square with the evidence, and nor did Mr Kim attempt to seek any assistance from Mr Lambert at that point. Rather, he has driven the vehicle for several hundred kilometres with faulty injectors, which has led to a likely catastrophic engine failure.
[30] By contrast, if Mr Kim had gone ahead with the recommended repairs, the evidence suggests that the vehicle would otherwise have complied with the guarantee of acceptable quality if it had not been used unreasonably in this way.

Conclusion

[31] For these reasons, Ms Loi’s application must be dismissed.

J S McHerron
Adjudicator