Puluno v Merchants Ltd - Reference No. MVD 271/2021 [2022] NZMVDT 14 (18 February 2022)

Last Updated: 19 March 2022

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 271/2021 [2021] NZMVDT 014 BETWEEN FAKAPULIA PULUNO Applicant AND MERCHANTS LTD Respondent

MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator

S Haynes, Assessor

HEARING at Auckland on 9 December 2021 (by audio-visual link) and 10 February 2022

APPEARANCES

F Puluno, Applicant L Puluno, Witness for the Applicant

S Merchant and P Goward for the Respondent

DATE OF DECISION 18 February 2022

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DECISION OF THE TRIBUNAL

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Fakapulia Puluno’s application is dismissed.

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REASONS

Introduction

[1] Fakapulia Puluno wants to reject the 2013 Holden Captiva he purchased for $11,000 from Merchants Ltd on 9 July 2020. Mr Puluno says that the vehicle has had several defects since purchase and now has significant engine damage. Mr Puluno wants to return the vehicle, obtain a refund of all amounts he has paid and to be relieved of his ongoing obligations under the loan he entered into with Thorn Group Financial Services Ltd to purchase the vehicle.
[2] Merchants Ltd says Mr Puluno should not be entitled to reject the vehicle. It agrees that the vehicle has had defects since purchase but says that it has rectified the defects that it should have responsibility for. It also considers that the most serious of the vehicle’s defects – the engine damage – has occurred too long after purchase and may have been caused by Mr Puluno driving the vehicle when he should not have.

Relevant background

The initial defects

[3] The vehicle’s odometer reading at the time of sale was about 237,700 km. Mr Puluno almost immediately had concerns about the condition of the vehicle, and:

• (a) on 13 July 2020, Merchants Ltd paid to have two tyres replaced. Merchants Ltd say that the vehicle had a recently issued warrant of fitness and the tyres did not require replacement, but it paid for those tyres to appease Mr Puluno;
• (b) on about 20 July 2020, the vehicle’s oil pressure warning light seems to have illuminated. An invoice dated 20 July 2020 states that John Edwards Motors Ltd reset the oil light and replaced the fuel injector on cylinder number two.[1] It also installed new bonnet struts. Merchants Ltd paid $262.75 for those repairs; and
• (c) on 27 July 2020, Merchants Ltd paid to have the right front headlight bulb replaced.

[4] In August 2020, a different warning light illuminated on the dashboard display. Merchants Ltd told Mr Puluno to have the vehicle assessed by Tyreworx & Automotive Ltd, which found that the drive belt required replacement. An invoice dated 24 August 2020 records that Tyreworx & Automotive replaced the vehicle’s drive belt at a cost of $166.75 to Merchants Ltd.
[5] Mr Puluno was also concerned that the vehicle was leaking oil. He says that Tyreworx & Automotive cleaned oil from the engine but was unable to determine the source of any oil leak. Mr Puluno says that he was advised to continue to drive the vehicle and then return the vehicle to see if the source of the leak could be identified.
[6] The oil leak continued. The vehicle was then taken to John Edwards Motors Ltd. An invoice dated 25 November 2020 records that it removed the cylinder head, cleaned all surfaces and replaced the “headset” and timing cover seal to rectify what appears to have been a significant oil leak. The detail of that invoice is consistent with the vehicle having a significant oil leak from the timing cover seal, and potentially from other gaskets and/or seals.
[7] On 22 December 2020, John Edwards Motors then replaced the intercooler boost pipe, which had failed, causing the vehicle to lose power. In about January or February 2021 (the evidence was not clear on the precise timing), John Edwards Motors also replaced the rocker cover gasket, which was still leaking oil despite being replaced during the timing cover seal repair.

The oil pressure warning light

[8] Mr Puluno and his wife Lei Puluno say that a warning light began to appear in about January 2021 and has continued to intermittently illuminate. Mr and Mrs Puluno struggled to describe the warning light during the first hearing, but afterwards Mrs Puluno advised that the warning light was the same as the symbol below:

[9] Mr Haynes, the Tribunal’s Assessor, advises that this is the oil pressure warning symbol, which illuminates when there is an issue with the vehicle’s oil pressure system. Mr and Mrs Puluno did not have the cause of the oil pressure warning light diagnosed and continued to drive the vehicle.

The VINZ assessment

[10] In early March 2021, Mrs Puluno was driving the vehicle on the motorway and says the vehicle started to shake and slow down. She had three children in the vehicle with her and had real concern about whether the vehicle was safe to drive.
[11] On 9 March 2021, when the odometer reading was 245,006 km, the vehicle was assessed by Vehicle Inspection New Zealand Ltd (VINZ), which considered:

• the battery is weak and needs replacing;
• the front and rear wiper blades are split;
• the air conditioning has a foul smell when switched on;
• the interior door cards and seats are deteriorating;
• the road user charges have expired;
• there is no sign that the water pump has been replaced;
• there are excessive oil leaks, including a leak onto the exhaust;
• the front lower control arm and rear suspension bushes are perishing; and
• there is minor damage to the front floor jacking points.

The ongoing oil leak

[12] Mr and Mrs Puluno continued to use the vehicle and then returned it to John Edwards Motors on about 14 April 2021, for the ongoing oil leaks to be assessed. An email of that date from Caron Edwards of John Edwards Motors to Shamsuddin Merchant of Merchant Motors states that the vehicle has an oil leak from the oil filter housing, which is unrelated to the leak from the timing cover seal repaired by John Edward Motors. John Edwards Motors considered that the oil leak was minor, but nonetheless believed that the vehicle needs a new oil filter housing. John Edwards Motors estimated that the repair will cost about $3,700.

The noise from the engine bay

[13] Mr Puluno says that the vehicle then began to make an unusual noise from its engine bay. He had the vehicle assessed by First Class Automotive in April 2021. First Class Automotive did not perform a thorough diagnosis but, in an undated letter, stated that found there was a noise coming from the bottom of the engine. It thought that the noise could be caused by a failed main bearing or rod bearing. Mr Puluno says that he has barely used the vehicle since.
[14] At the Tribunal’s request, Mr Puluno provided videos showing the noise from the engine bay. The videos show that the noise is prominent when the vehicle is stationary but less evident when the vehicle is moving and under load. Mr Haynes advises that the noise from the engine bay is evidence that the vehicle is likely to have significant engine damage – most likely failed main bearings due – to oil starvation.

The vehicle’s odometer

[15] Mr Puluno was also concerned that the vehicle’s odometer is faulty and providing inconsistent readings. He pointed to the vehicle offer and sale agreement (the VOSA) and Consumer Information Notice (CIN), which both state that the odometer is inaccurate.
[16] Mr Merchant advised the Tribunal that the statement on the VOSA and CIN that the odometer was inaccurate was a mistake, caused by a staff member selecting the wrong option from a database drop down menu, which then automatically populated the VOSA and CIN with that incorrect information. During the hearing, Mr Merchant presented internal records from Merchants Ltd, which show that the vehicle’s odometer reading at the time of sale was approximately 237,700 km. I accept Mr Merchant’s evidence on this point and conclude that the vehicle’s odometer is not defective.
[17] Mrs Puluno also claimed that the odometer has been unreliable and referred to an odometer reading on a window sticker, which she considered to be much lower than the vehicle’s actual odometer reading. It seems that Mrs Puluno was referring to the road user charges card attached to the windscreen, which shows an odometer reading much lower than the vehicle’s current odometer reading. That lower reading is evidence that the road user charges may require updating (as noted by VINZ) rather than any fault with the odometer.

The issues

[18] Against this background, 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 Consumer Guarantees Act 1993 (the CGA)?
• (b) Are the vehicle’s defects a failure of a substantial character?
• (c) What remedy is Mr Puluno entitled to under the CGA?

Issue 1: Has the vehicle been of acceptable quality?

[19] 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.
[20] 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.

[21] 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 Puluno’s subjective perspective.

The vehicle had defects that meant it was not of acceptable quality

[22] Mr Puluno paid $11,000 for a seven-year-old Holden Captiva with an odometer reading of about 237,700 km at the time of sale. A reasonable consumer who has purchased a vehicle of this price, age and mileage must have realistic expectations as to its quality and durability and should understand that the vehicle will have pre-existing wear and tear consistent with its age and mileage and that defects, which may be expensive to repair, may arise from time to time.
[23] Nonetheless, the evidence presented by Mr Puluno shows that the vehicle had the following defects that mean the vehicle has not been of acceptable quality for the purposes of s 6 of the CGA because it has not been as free of minor defects or as durable as a reasonable consumer would consider acceptable:

• (a) the defective fuel injector, headlight bulb and intercooler boost pipe;
• (b) the worn drive belt; and
• (c) the oil leaks from the timing cover seal and rocker cover gasket.

[24] The defective fuel injector, headlight bulb and worn drive belt are all minor and easily repaired defects, but those defects were all required to be repaired within a few weeks of purchase and should not have been present in a vehicle of this price, age and mileage so shortly after purchase.
[25] The leaks from the timing cover seal and rocker cover gasket and the faulty intercooler pipe are more significant defects and were discovered within six months of purchase. Given the nature of those defects and the length of Mr Puluno’s ownership before the defect became apparent, I am satisfied that these defects mean the vehicle was not as durable as a reasonable consumer would consider acceptable.

The engine damage does not breach the guarantee of acceptable quality

[26] The evidence shows that the vehicle now has significant engine damage. Although the precise nature of that damage has not been diagnosed, Mr Haynes advises that the audible knocking noises from the engine are clear evidence that the engine has suffered damage and will require replacement or reconditioning.
[27] Mr Haynes advises that it is likely that the engine damage is due to a lack of lubrication in the engine caused by a restriction in the vehicle’s oil supply, most likely due to the oil pickup in the sump being partially blocked with congealed oil or debris.
[28] The oil pickup has a gauze filter that stops large particles entering the oil system. Over time this gauze can become blocked, restricting the supply of oil to the engine. When the pickup becomes blocked, the vehicle’s oil pressure warning light will illuminate. If the pickup is only partially blocked (as appears to be the case here) some oil will still enter the oil system and the oil pressure light may only intermittently illuminate, as has occurred with this vehicle. Importantly, the oil pressure warning light will illuminate whenever there is insufficient oil or oil pressure in the engine.
[29] Mr and Mrs Puluno advised that the oil pressure warning light first illuminated in January 2021. As with any red coloured warning light, Mr and Mrs Puluno should have immediately stopped driving the vehicle until the cause of that warning light was diagnosed and rectified. They did not do so, and the evidence shows that they continued to use the vehicle for at least two and a half months, travelling more 3,000 km, while the oil pressure warning light continued to intermittently appear.
[30] Mr Haynes says that it is likely the engine damage was caused by progressive oil starvation between January and March 2021. If Mr and Mrs Puluno had stopped driving the vehicle once the oil pressure warning light first appeared it is likely that the engine damage would have been avoided and the cause of the warning light would have been repaired by simply flushing the oil system and clearing the blocked pickup. However, they continued to drive the vehicle, and in doing so have caused significant engine damage.
[31] Applying s 7(4) of the CGA, although the engine is damaged and requires expensive repair or replacement, I am not satisfied that the engine damage breaches the guarantee of acceptable quality because it was caused by Mr and Mrs Puluno continuing to drive the vehicle after the oil pressure warning light first illuminated. By doing so they have used the vehicle in a manner inconsistent with the manner in which a reasonable consumer would have used it, meaning that the damaged then caused does not breach the guarantee of acceptable quality.

The remaining defects

[32] The remaining defects complained of by Mr Puluno and identified by VINZ and John Edwards Motors do not breach the guarantee of acceptable quality because: they either occurred too long after purchase, are not as serious as Mr Puluno has been led to believe, are consistent with the vehicle’s age and mileage, or the evidence presented simply does not prove that they exist, in particular:

• (a) the oil leak from the oil filter housing, the weak battery, split wiper blades, deteriorating door cards, worn lower control arm and rear suspension bushes and damage to the front floor jack points are all consistent with the age and mileage of the vehicle and were identified too long after purchase for the protections in s 6 of the CGA to apply;
• (b) the road user charges have expired, but it is Mr Puluno’s obligation to ensure that road user charges are up to date;
• (c) although the water pump may not have been replaced since purchase, there is no evidence to show that the water pump is faulty or requires replacement; and
• (d) the smell from the air conditioning was identified too long after purchase for the protections in s 6 of the CGA to continue to apply. Mr Haynes also advises that this smell can be easily rectified by adding a deodoriser to the air conditioning.

Issue 2: Are the vehicle’s defects a failure of a substantial character?

[33] A failure of a substantial character is defined in s 21 of the CGA:

21. 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.

[34] Mr and Mrs Puluno cannot reject the vehicle for any of the defects that do not breach the guarantee of acceptable quality (including the engine damage) because they can only get a remedy under the CGA for defects that breach the guarantees in the CGA.
[35] The defects that do breach the guarantee of acceptable quality are not a failure of a substantial character. Those defects have all been rectified and did not make the vehicle substantially unfit for purpose or unsafe. The defects are also largely consistent with the age and mileage of the vehicle and are the kinds of faults that a reasonable consumer may expect to occur in a used vehicle of this age and mileage. In those circumstances, I am not satisfied that the defects that breached the guarantee of acceptable quality suggest that the vehicle has any abnormal underlying unreliability or frailty or that the frequency or extent of the defects is such that a reasonable consumer would have declined to purchase the vehicle or lost confidence in its ongoing reliability.

Issue 3: What remedy is Mr Puluno entitled to under the CGA?

[36] The relevant remedies are set out in s 18 of the CGA, 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.

[37] Mr Puluno is not entitled to reject the vehicle because its defects are not a failure of a substantial character. Further, because each of the defects that breached the guarantee of acceptable quality have been rectified, Mr Puluno is entitled to no further remedy under the CGA. His application is therefore dismissed.
[38] In dismissing this claim, the Tribunal acknowledges Mr and Mrs Puluno’s personal circumstances and the significant financial harm they will now suffer as a result of borrowing a large amount of money to purchase a vehicle that now requires expensive repair. This Tribunal cannot provide Mr and Mrs Puluno with any relief, but suggests that Mr and Mrs Puluno seek assistance from a community organisation such as a budget advisory service and that they consider contacting Thorn Group Financial Services Ltd to explain their situation and seek hardship relief, which they may be entitled to under the Credit Contracts and Consumer Finance Act 2003.

DATED at AUCKLAND this 18th day of February 2022

B.R. Carter
Adjudicator

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[1] The fuel injector on the number one cylinder had been replaced shortly before purchase.