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Motor Vehicles Disputes Tribunal of New Zealand |
Last Updated: 22 January 2022
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BETWEEN PRENTICE ROBB
Applicant
AND CNB 1 LTD
Respondent
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MEMBERS OF TRIBUNAL
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B R Carter, Barrister – Adjudicator
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S Haynes, Assessor
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HEARING at Auckland on 28 October 2021 (by audio-visual link)
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APPEARANCES
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P Robb, Applicant
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C Broadhurst, for the Respondent
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DATE OF DECISION 16 November 2021
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_________________________________________________________________
DECISION OF THE TRIBUNAL
_________________________________________________________________
_________________________________________________________________
REASONS
Introduction
[1] Prentice Robb wants to reject the 2011 BMW X3[1] he purchased for $24,400 from CNB 1 Ltd on 23 April 2021. Mr Robb says the vehicle suffered significant engine damage due to a broken timing chain, which is a failure of a substantial character for the purposes of the Consumer Guarantees Act 1993 (the CGA). Mr Robb wants to recover all amounts paid in respect of the vehicle and be relieved of his ongoing obligations under the loan he entered into with AA Finance Ltd dated 23 April 2021 to purchase the vehicle (the collateral credit agreement).
[2] CNB 1 Ltd says that Mr Robb should not be entitled to reject the vehicle. It agrees that the vehicle suffered significant engine damage and has replaced the engine at its cost. However, it says that Mr Robb is not entitled to reject the vehicle under the CGA because the engine damage was caused by substandard repairs to the vehicle, rather than any inherent defect.
Relevant background
[3] The vehicle had numerous pre-existing defects, which were identified by Mr Robb during a pre-purchase test drive and in a pre-purchase inspection report performed by Car Inspection Services Ltd. The Vehicle Offer and Sale Agreement dated 8 April 2021 (the VOSA) records that CNB 1 Ltd agreed to fix issues identified with the glove box, the vehicle’s coolant and a shudder when driving.
[4] Mr Robb says that these issues were not rectified before sale. He collected the vehicle on 24 April 2021 and almost immediately noticed a shudder from the vehicle, together with a high-pitched engine noise. The low coolant level warning message also illuminated.
[5] Mr Robb returned the vehicle to CNB 1 Ltd on 5 May 2021 for repairs to be performed. Information provided by the parties shows that over the ensuing seven weeks, the following repairs were performed:
- (a) On about 19 May 2021, Alert Auto Air Ltd replaced the drive belt (which it found to be frayed), the air conditioning pump and an idler pulley.
- (b) On about 27 May 2021, United Autolion Ltd replaced the vehicle’s spark plugs and airflow sensor. It also found that the electric water pump was faulty.
- (c) On about 5 June 2021, Auto Connection replaced the vehicle’s water pump. It also investigated the cause of a noise from the vehicle’s engine. It removed the radiator fan and wiring accessories to access the crankshaft area and found broken pieces of drive belt behind the crankshaft pulley. It removed those broken pieces of drive belt, tested the vehicle and found the noise was gone.
- (d) On about 19 June 2021, Penrose Motors Ltd replaced the coolant level sensor and radiator cap.
[6] Mr Robb then collected the vehicle on 23 June 2021. That day, the vehicle’s drivetrain warning light illuminated, and the vehicle lost all power. Mr Robb arranged for the vehicle to be transported by A1 Onehunga Towing Service Ltd to BM Workshop Ltd, at a cost of $160. The vehicle was then assessed by BM Workshop on 28 June 2021. An invoice of that date records that BM Workshop found that the timing chain was broken, possibly due to drive belt fragments being sucked into the sump and either blocking the oil pump or jamming the timing chain. It considered that the engine needed to be stripped to determine the extent of damage caused.
[7] CNB 1 Ltd has since assessed the vehicle and concluded that the engine did require replacement. It purchased a replacement secondhand engine from Euro1 Auto Spares for $6,325 on 8 June 2021 and that engine was installed by United Autolion on 5 August 2021, at an additional cost of $5,683.56.
The issues
[8] 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 Mr Robb entitled to under the CGA?
Issue 1: Has the vehicle been of acceptable quality?
[9] 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.
[10] 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.
[11] 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 vehicle’s defects
[12] The evidence presented by the parties shows that the vehicle has had the following defects since purchase:
- (a) a worn drive belt;
- (b) worn spark plugs;
- (c) a faulty air conditioning pump, idler pulley, airflow sensor, electric water pump, coolant level sensor and radiator cap;
- (d) an unusual engine noise caused by fragments of the worn drive belt being trapped behind the crankshaft pulley; and
- (e) significant engine damage, caused by a broken timing chain.
[13] These defects mean the vehicle has not been of acceptable quality for the purposes of s 6 of the CGA, because the vehicle has not been as free of minor defects or as durable as a reasonable consumer would consider acceptable in a recently purchased, $24,200 10-year-old BMW X3.
[14] CNB 1 Ltd submitted that the broken timing chain and engine damage do not breach the guarantee of acceptable quality in s 6 of the CGA because those defects were not inherent in the vehicle, but were instead caused by a substandard repair, either when the worn drive belt was replaced by Alert Auto Air or when the drive belt fragments were removed by Auto Connection.
[15] This submission is of significance because defects that are caused by poor post-sale repairs rather than any defect inherent in the vehicle do not breach s 6 of the CGA, but instead raise issues under s 28 of the CGA, which provides that services (including repairs) must be provided with reasonable care and skill. Most importantly for the outcome of this case, a breach of s 28 does not give rise to any right to reject the vehicle.
[16] The evidence shows that the broken timing chain and subsequent engine were ultimately caused by fragments from the worn drive belt being sucked into the sump, blocking the oil pump or jamming the timing chain. That was the diagnosis from BM Workshop, and CNB 1 Ltd agreed with this diagnosis. Mr Haynes, the Tribunal’s Assessor, also advises that this diagnosis is consistent with the evidence presented and the symptoms described by Mr Robb.
[17] The vehicle’s drive belt was worn and damaged at the time of sale. The vehicle was assessed by Alert Auto Air in May 2021, less than one month after purchase, and it found that the drive belt had frayed. The vehicle also made an unusual engine noise at the time of sale, and I am satisfied that this pre-existing noise was caused, at least partly, by fragments of the drive belt being stuck in engine components. That noise was not rectified when Alert Auto Air replaced the frayed drive bell and idler tensioner pulley and appears to have continued until Auto Connection found drive belt fragments behind the crankshaft pulley. Once Auto Connection removed those drive belt fragments, the noise stopped. That is evidence that fragments from the frayed drive belt were present in the engine at the time of sale.
[18] Those drive belt fragments were not removed when the vehicle was repaired. Alert Auto Air replaced the drive belt, but did not find or remove the fragments from the frayed drive belt and although Auto Connection found fragments of the worn drive belt behind the crankshaft pulley, it does not appear to have removed all of the drive belt fragments, including those in the sump. The remaining drive belt fragments in the sump then caused the broken timing chain and engine damage when the vehicle was subsequently driven.
[19] Against that background, I am satisfied that the broken timing chain and engine damage were ultimately caused by fragments from the frayed drive belt, which were present at the time of sale. Consequently, those defects breach the guarantee of acceptable quality in s 6 of the CGA, because the cause of the defects was inherent in the vehicle at the time of sale and means the vehicle was not as free of minor defects or as durable as a reasonable consumer would consider acceptable.
Issue 2: Are the vehicle’s defects a failure of a substantial character?
[20] Under s 18(3) of the CGA, Mr Robb may reject the vehicle if its defects amount 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.
[21] Section 21(a) of the CGA applies to this case and I am satisfied that the broken timing chain and subsequent engine damage is a failure of a substantial character. That defect made the vehicle unusable and the engine required replacement as a result, at a cost of more than $12,000. A reasonable consumer would not have purchased this vehicle if they had known that such a significant defect would arise so shortly after purchase.
Issue 3: What remedy is Mr Robb entitled to under the CGA?
[22] The relevant remedies are contained in s 18 of the CGA, which provides:
(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.
[23] Under s 18(3)(a), Mr Robb is entitled to reject the vehicle because its defects are a failure of a substantial character for the purposes of s 21(a). Under s 23(1)(a) of the CGA, because Mr Robb has exercised his right to reject the vehicle, he is entitled to recover the following amounts paid with respect to the vehicle:
- (a) $500 — the cash deposit paid to purchase the vehicle;
- (b) $349.04 — the capital component of all payments (i.e. all payments less interest, and default interest and fees imposed) made by Mr Robb under the collateral credit agreement as from the date the collateral credit agreement was entered into until 23 June 2021, when Mr Robb rejected the vehicle; and
- (c) $3,099.75 — all payments paid since 24 June 2021, excluding default interest charges.
[24] Under s 18(4) of the CGA, Mr Robb is also entitled to recover the following costs he incurred with respect to the vehicle and the diagnosis of its defects:
- (a) $215 – the cost of the Car Inspection Services pre-purchase inspection;
- (b) $160 – the cost of having the vehicle towed to BM Workshop on 23 June 2021; and
- (c) $71.73 – the cost of the BM Workshop assessment of the engine damage.
[25] By incurring these costs, Mr Robb has suffered losses that were all reasonably foreseeable as liable to result from the vehicle’s failure to comply with the guarantee of acceptable quality.
The collateral credit agreement
[26] Under ss 89(2) and (3) of the Motor Vehicle Sales Act 2003 (the MVSA), Mr Robb is also entitled to have his ongoing rights and obligations under the collateral credit agreement assigned to CNB 1 Ltd:
89 Jurisdiction of Disputes Tribunal
...
(2) A Disputes Tribunal may order that the rights and obligations of the buyer of a motor vehicle under a collateral credit agreement vest in a motor vehicle trader if—
(a) the collateral credit agreement is associated with the contract for the sale of that motor vehicle; and
(b) the motor vehicle trader is a party to that contract for sale; and
(c) either one of the following circumstances applies:
(i) the buyer exercises the right conferred by the Consumer Guarantees Act 1993 to reject that motor vehicle and, on a claim by the buyer under section 47(1) of that Act, the Disputes Tribunal orders the motor vehicle trader to refund any money paid, or other consideration provided, for that motor vehicle; or
(ii) the Disputes Tribunal finds that the buyer has suffered, or is likely to suffer, loss or damage by the conduct of the motor vehicle trader that constitutes, or would constitute, any of the conduct referred to in section 43(1) of the Fair Trading Act 1986 and the Disputes Tribunal makes an order under section 43(2) of that Act declaring the whole or any part of the contract for sale to be void.
(3) For the purposes of subsection (2), collateral credit agreement, in relation to a contract for the sale of a motor vehicle, means a contract or agreement arranged or procured by the motor vehicle trader or the buyer for the provision of credit by a person other than by the motor vehicle trader to enable the buyer to pay the price reserved by the contract for sale in respect of the motor vehicle.
[27] The criteria in s 89(2) of the MVSA for the assignment of rights and obligations under a collateral credit agreement to CNB 1 Ltd are all met in this case:
- (a) the agreement between Mr Robb and AA Finance Ltd is a collateral credit agreement for the purposes of s 89(2) of the MVSA. The agreement was arranged or procured by Mr Robb for the provision of credit by AA Finance Ltd to enable Mr Robb to purchase the vehicle;
- (b) CNB 1 Ltd sold the vehicle to Mr Robb, so it is a party to the contract to purchase the vehicle; and
- (c) Mr Robb has exercised the right conferred by the CGA to reject the vehicle and the Tribunal has ordered that CNB 1 Ltd must refund any money paid, or other consideration provided, for the vehicle.
[28] Accordingly, under s 89(2) of the MVSA, all of Mr Robb’s rights and obligations under the collateral credit agreement are assigned to CNB 1 Ltd from the date of this decision.
Outcome
[29] The Tribunal therefore upholds Mr Robb’s rejection of the vehicle and further orders that:
DATED at AUCKLAND this 16th day of November 2021
B.R. Carter
Adjudicator
[1] Registration plate number NLS201.
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URL: http://www.nzlii.org/nz/cases/NZMVDT/2021/232.html