Hosking v Cactus Cars Limited - Reference No. MVD 408/2021 [2022] NZMVDT 35 (21 March 2022)

Last Updated: 24 April 2022

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL

I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 408/2021
[2022] NZMVDT 035
UNDER APPEAL

BETWEEN SARAH MAY HOSKING

Purchaser

AND CACTUS CARS LIMITED

Trader

HEARING at Wellington on 15 February 2022, further submissions received on 22 and 24 February and 8 and 14 March 2022
MEMBERS OF TRIBUNAL

J S McHerron, Barrister – Adjudicator
A B Cate – Assessor

APPEARANCES (via Microsoft Teams)

S M Hosking, Purchaser
P D Burbidge, Director of Trader

DATE OF DECISION 21 March 2022

___________________________________________________________________

DECISION OF THE TRIBUNAL

___________________________________________________________________

1. Sarah Hosking’s rejection of her Mini is upheld.
2. Cactus Cars Ltd must pay Ms Hosking $8,647.90 no later than 4 April 2022. If it wishes, by arrangement with Ms Hosking, Cactus Cars may pay part of this amount directly to Oxford Finance, in satisfaction of Ms Hosking’s loan in respect of the vehicle.

100. Once Cactus Cars has made the payment in B in full, Ms Hosking must immediately ensure that any security interests are removed and make the vehicle (with clear title) available for Cactus Cars to collect. Cactus Cars is responsible for payment of any transport costs, if any.

___________________________________________________________________

REASONS

Introduction

[1] Sarah Hosking has rejected the 2007 Mini Cooper that she purchased from Cactus Cars on 17 August 2020 for $7,995. Ms Hosking says that, within a very short time after she purchased the vehicle, it developed serious faults. Although Cactus Cars attempted to fit the faults, they have returned “multiple times”.
[2] As well as having her rejection of the vehicle upheld, Ms Hosking seeks an order refunding her loan repayments in respect of the vehicle, and for the remainder of her vehicle loan debt to be transferred to Cactus Cars.
[3] From this brief background, the following issues arise for the Tribunal to determine:

• (a) Did the vehicle fail to comply with the guarantee of acceptable quality?
• (b) If so, was the failure of a substantial character?
• (c) What, if anything, is the appropriate remedy?

Issue 1: Did the vehicle fail to comply with the guarantee of acceptable quality?

[4] Section 6(1) of the Consumer Guarantees Act 1993 (the Act) 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 Act, “goods” includes vehicles.
[5] “Acceptable quality” is defined in s 7 of the Act (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.

...

[6] 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.
[7] It is convenient to set out the history of repairs to the vehicle in some detail.
[8] Within a few days after Ms Hosking purchased the vehicle, she and her husband experienced difficulty starting its engine. They took the vehicle back to Cactus Cars for assessment. Cactus Cars attributed the starting difficulties to a problem with the vehicle’s battery. Cactus Cars replaced the battery. At this time, apparently, Cactus Cars scanned the vehicle for fault codes, but no written record of this scan or of the battery replacement was produced.

1. About three weeks after the battery was replaced (four weeks after the date of purchase), an orange check engine light appeared on the vehicle’s dashboard, as well as a red sensor light. Around this time, an oxygen sensor was replaced by Cactus Cars at its expense. No record of this work was produced, apart from a receipt for the purchase of an oxygen sensor.[1]

[10] Ms Hosking and her husband continued to have problems with the car, so they took it back to Cactus Cars on 5 October 2020. They were given a loan car to use. Their own car was not returned to them until 17 December 2020. Not all of the records of what happened to the car in that period were provided to the Tribunal, which made it difficult to piece together what repairs occurred. After the hearing, Ms Hosking supplied some additional records sourced from Janssen Insurance which allowed the Tribunal’s Assessor, Mr Cate, and I to fill in a few more pieces of the puzzle.
[11] Janssen Insurance’s records suggest that Cactus Cars initially found a fault with the vehicle’s engine control unit (known as an ECU or DME). Cactus Cars recommended this component be removed and sent to GET Electronics to see if they could repair it. From the Janssen Insurance record it appears that this request was approved. This ECU fault and attempted repair was not previously mentioned by Mr Burbidge in his written report to the Tribunal dated 29 November 2021. No records relating to an ECU repair were provided to the Tribunal by Cactus Cars, despite the Tribunal’s direction to Cactus Cars to “provide any additional invoices for repairs carried out after sale of the vehicle to Ms Hosking.”
[12] According to the Janssen Insurance records, by 15 October 2020 Vantage Auto Diagnostics had the vehicle. It appears the vehicle remained there for the next two months, until 17 December 2020. The repair work carried out by Vantage Auto Diagnostics is summarised in an invoice for $3,242.60 dated 17 December 2020 from Vantage Auto Diagnostics to Janssen Insurance. In its description of the work carried out, Vantage Auto Diagnostics records that the vehicle arrived with “AFM plausibility faults”.[2] The invoice records that an oxygen sensor had already been replaced and that the vehicle’s ECU had been the subject of attempted repairs also. Vantage Auto Diagnostics noted its surprise that such repairs were needed as “these ECU are not known to have issues ...”.
[13] Vantage Auto Diagnostics replaced the oxygen sensor but then discovered that the replacement sensor it used was incorrect, so the sensor had to be replaced again. Vantage Auto Diagnostics also recorded that the original sensor that had been fitted to the engine by Cactus Cars, prior to the vehicle being brought to Vantage Auto Diagnostics, was damaged.
[14] Vantage Auto Diagnostics described the vehicle as having “intermittent rough running and stalling” with a persistent fault code referring to AFM plausibility.
[15] A vehicle diagnostic report dated 3 December 2020 also shows the vehicle’s oxygen sensors both upstream and downstream of the catalytic converter were also faulting.
[16] Vantage Auto Diagnostics ran through a test procedure using its BMW scanning tool. This diagnostic scan indicated the potential causes for the vehicle’s rough running and stalling were:

• Blocked exhaust.
• Oxygen sensor.
• Air leaks.
• Carbon buildup.
• Cam actuator (head).
• Fuel pump.
• VANOS solenoid malfunction.[3]

[17] Vantage Auto Diagnostics’ report noted that it worked through all possibilities and found that the engine timing tools did not line up, and that the chain guides were worn with the tensioner being “out a lot”. Vantage Auto Diagnostics also noted in a report dated 27 October 2020 that the engine had previously been retimed without the timing chain itself being replaced.
[18] Vantage Auto Diagnostics replaced the vehicle’s worn timing chain and road-tested the vehicle further. It continued to stall randomly. Vantage Auto Diagnostics continued to work through the cam actuator test procedure and noted that the inlet cam head was sticking open during the test, causing rough running and stalling.
[19] Vantage Auto Diagnostics removed the cam cover and replaced both solenoids.[4] Vantage Auto Diagnostics tested the vehicle and found that its engine did not stall any longer or run poorly.
[20] The vehicle’s odometer reading at the time of this repair was recorded on Vantage Auto Diagnostics’ invoice as 111,842 km, about 1,400 km more than on the date of purchase.
[21] When the vehicle left Vantage Auto Diagnostics in December 2020 it was reported as not stalling or running poorly. However, the stalling problem recurred approximately seven months later in July 2021, when the dashboard sensor light illuminated again. Ms Hosking and her husband also reported an oil leak under the engine and a burning smell. Between December 2020 and July 2021, they had only travelled less than 3,000 km in the vehicle.
[22] Ms Hosking advised Cactus Cars and, with its approval, the vehicle was taken to Christchurch BMW & Mini. It found leaking sump and oil filter housing gaskets, which it replaced. It connected the vehicle to the diagnostic scanner and checked fault codes, finding an oxygen sensor fault and a catalytic converter fault. It found that the oxygen sensor situated after the catalytic converter had failed and that the catalytic converter itself was worn or blocked. Christchurch BMW & Mini report that it “inspected vehicle Catalytic converter, found no filter”. Another fault code was found to be stored for the exhaust VANOS adjuster. Christchurch BMW & Mini checked for an engine rattle saying it suspected the timing chain but would need to strip and inspect the vehicle.
[23] Christchurch BMW & Mini noted that the heat shields around the catalytic converter were damaged and the bolts and nuts were missing.
[24] Christchurch BMW & Mini advised the Hoskings that a new catalytic converter would cost them approximately $2,500. They could not afford this. They paid Christchurch BMW & Mini’s invoice of $382.70 which was the amount that was not covered under their insurance policy.
[25] Christchurch BMW & Mini told the Hoskings that without a replacement catalytic converter the vehicle would run satisfactorily but they would still see a warning light on the dashboard. They were concerned that they would not be able to tell if it was a different or new fault, so they searched for a cheaper repair option, which led them to Pitstop Hornby.
[26] Pitstop Hornby fitted what is described as a “mini-cat” to the vehicle. This is in effect a device designed to fool the vehicle’s electronic sensors into thinking that a catalytic converter is installed, when it is not. Mr and Ms Hosking paid $504.79 for this repair; however, it did not appear to work.
[27] By this stage, Ms Hosking and her husband had exhausted their reserves of savings and patience. They sent a letter rejecting the vehicle to Cactus Cars on 21 October 2021. The Hoskings reported that at this stage the car was actually running very well. The only issue was the orange sensor warning light on the dashboard continued to illuminate due to the missing catalytic converter.
[28] At this point, Cactus Cars agreed to pay for a replacement second-hand catalytic converter. This repair took place in November 2021. However, Mr Burbidge reported that while replacing the catalytic converter, another fault emerged which Cactus Cars traced to the cam actuator.
[29] At this point, Cactus Cars said that the wiring in the engine bay had been unprofessionally altered. He denied that this was anything to do with Cactus Cars and said he would not fix it but would instead recommend an auto electrician to carry out repairs at Ms Hosking’s cost.
[30] By the time of the hearing, notwithstanding this extensive history of faults and repairs, Mr Cate and I did not know what was currently wrong with the vehicle. We directed Ms Hosking to take the vehicle back to Christchurch BMW & Mini for further assessment. Because Ms Hosking wished to limit the expense involved in this further assessment, she was asked to request Christchurch BMW & Mini to spend no more than an hour of diagnostic time and to prepare a brief report indicating the vehicle’s current faults and likely repairs and to provide a detailed diagnostic fault code printout.
[31] This was supplied to the Tribunal in February 2022. Christchurch BMW & Mini confirmed that the replacement catalytic converter that Cactus Cars put into the vehicle was satisfactory. However, it found the vehicle’s VANOS exhaust solenoid was unplugged. It reconnected this. Christchurch BMW & Mini then road-tested the vehicle and found that it drove better after the VANOS solenoid had been plugged back in, but it was still storing VANOS faults. Christchurch BMW & Mini indicated that further diagnostic assessment would be required to confirm, but it listed the possible causes of the VANOS fault as follows:

• defective VANOS solenoid;
• engine oil quality and pressure;
• VANOS hub or wiring to the unit;
• timing chain.

[32] Christchurch BMW & Mini also noted that the VANOS wiring showed signs of previous repair and that the oxygen sensor wiring was in poor condition also.
[33] Christchurch BMW & Mini’s service manager, Craig Grange, further commented that the time spent changing the vehicle’s oxygen sensors over may account for why that wiring is in poor condition.
[34] Mr Grange also provided photos showing a large amount of pitting and corrosion on the vehicle’s camshafts. Mr Grange said that this may highlight issues with the intermediate levers which run on these and would warrant further inspection in this area. This was especially so if the vehicle is still storing VANOS system faults after so much work has been done in this area already.
[35] On behalf of Cactus Cars, Mr Burbidge claimed that the VANOS solenoid had been plugged in correctly when the vehicle left Cactus Cars after the catalytic converter installation. Mr Burbidge also claimed that the wiring had not been left in an “unprofessional state” by Vantage Auto Diagnostics either.
[36] Mr Burbidge also asked the Tribunal to infer that the vehicle’s catalytic converter had been removed some time after Vantage Auto Diagnostics completed the work on the vehicle. He said this inference was justified because the vehicle would have presented with an engine check light if it had been driven with no catalytic converter. Yet the vehicle went for about eight months without presenting an engine check light after Vantage Auto Diagnostics completed the repair.
[37] Cactus Cars’ recommendation is that the vehicle should be sent to an auto electrician, at Ms Hosking’s cost, to have the altered wiring assessed and repaired. Cactus Cars submits that the evidence is consistent with these wiring issues occurring post-sale.

Tribunal’s assessment

[38] Mr Cate’s assessment of the post-hearing evidence from Christchurch BMW & Mini is that there are signs Ms Hosking’s vehicle has serious ongoing issues that are likely to require expensive repairs.
[39] First, in Mr Cate’s view, the VANOS fault is liable to be expensive to repair. Moreover, Mr Cate expressed concern about the photos provided by Mr Grange showing a large amount of pitting and corrosion on the camshafts. To Mr Cate, this indicates that the hardening on the camshafts has been compromised which will, in due course, lead to their destruction. Mr Cate has observed such pitting in corrosion on engines that have been sitting outside in wrecking yards. This may indicate that a replacement second-hand motor has been installed in Ms Hosking’s vehicle earlier in its life. Mr Cate considers the existing issues are likely to be expensive to repair and there is a high likelihood of further problems down the track.
[40] Overall, the combination of issues Ms Hosking has experienced with her vehicle can be traced back to a short time after she purchased it. There have been periods of rough running, starting issues and stalling at various times through her ownership of the vehicle. VANOS issues were first diagnosed by Vantage Auto Diagnostics in December 2020, after Ms Hosking had only possessed the vehicle for a short time. The latest diagnosis shows that these issues have not been fixed (despite an earlier replacement of the VANOS solenoids). The vehicle has serious underlying issues, with uncertain repair costs. However, it is likely that the cost of further repairs needed will be a significant proportion of the vehicle’s purchase price.

Conclusion

[41] I conclude that the vehicle did not comply with the guarantee of acceptable quality. I do not accept Cactus Cars’ invitation to infer that the current faults have been introduced to the vehicle after Ms Hosking purchased it. Rather, the evidence suggests that the vehicle has had a serious underlying issue with its VANOS system and degradation of its camshafts since the date of purchase or very soon afterwards.

Issue 2: Is the failure of a substantial character?

[42] A failure to comply with the guarantee of acceptable quality will be of a substantial character in the circumstances set out in s 21 of the Act, which provides:

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.

[43] I find that, in terms of s 21(a), a reasonable consumer would not have acquired this vehicle. I arrive at this conclusion from the nature and extent of the problems Ms Hosking has experienced with this vehicle, which can be traced to either the date of purchase or very soon afterwards. During her ownership, she and her family have only been able to put the vehicle to relatively limited use.
[44] A point can be reached where a vehicle purchaser can “say convincingly that he or she had no ‘confidence in the reliability of the vehicle’”. [5] That point has been reached by Ms Hosking in respect of her Mini.

Conclusion

[45] The failure of the Mini to comply with the guarantee of acceptable quality is a failure of a substantial character.

Issue 3: What is the appropriate remedy?

[46] The remedies available to a consumer where a vehicle does not comply with the guarantee of acceptable quality are set out in s 18 of the Act, 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.

[47] Ms Hosking seeks to reject the vehicle. There are three reasons why I conclude that she is entitled to do so:

• (a) Ms Hosking has allowed Cactus Cars to attempt to remedy the vehicle’s failures, but it has not succeeded in doing so in respect of the vehicle’s outstanding faults: s 18(2)(b).
• (b) Cactus Cars has now refused to remedy the vehicle’s outstanding faults: s 18(2)(b).
• (c) Ms Hosking has established that the vehicle’s failure to comply with the guarantee of acceptable quality is of a substantial character: s 18(3)(a).

[48] There were about 14 months between the date of purchase and Ms Hosking’s rejection of the vehicle. In the particular circumstances of the present case, I do not consider this was an unreasonably long time.[6] There was a period in the first half of 2021 when it seemed the vehicle’s faults may have been fixed, but this later proved not to be the case. And Cactus Cars has only recently refused to assist with further repairs.
[49] Ms Hosking has asked to have her payments to Oxford Finance in respect of the vehicle refunded and the remainder of the debt transferred to Cactus Cars to repay. When it upholds a purchaser’s rejection of a vehicle, the Tribunal can order that a purchaser’s loan agreement is vested in a trader.[7] However, I am unable to make such an order in the present case. That is because Ms Hosking refinanced the vehicle in December 2020 to take advantage of better loan terms offered by a different lender from the original lender. It is a prerequisite for exercise of the power to vest a purchaser’s loan in the trader that the loan agreement must have been “associated with the contract for the sale of that motor vehicle”.[8] That prerequisite cannot be met, because Ms Hosking entered into a new loan agreement with Oxford Finance, some time after the date of purchase.
[50] For that reason I am restricted to making an order for refund of the purchase price,[9] $7,995, plus any foreseeable losses resulting from the vehicle’s failures.[10]
[51] I do not propose to order Cactus Cars to compensate Ms Hosking for the failed attempt by Pitstop to remedy the vehicle’s catalytic converter fault.
[52] However, I consider that it is reasonable to order Cactus Cars to pay Ms Hosking $382.70 in respect of Christchurch BMW & Mini’s repairs in October 2021 and $270.20 for its post-hearing assessment of the vehicle.

Conclusion

[53] Sarah Hosking’s rejection of her Mini is upheld.
[54] Cactus Cars Ltd must pay Ms Hosking $8,647.90 no later than 4 April 2022. If it wishes, by arrangement with Ms Hosking, Cactus Cars may pay part of this amount directly to Oxford Finance, in satisfaction of Ms Hosking’s loan in respect of the vehicle.
[55] Once Cactus Cars has made this payment in full, Ms Hosking must immediately ensure that any security interests are removed and make the vehicle (with clear title) available for Cactus Cars to collect at its transport cost. if any.

J S McHerron
Adjudicator

This decision has been appealed. The outcome of that appeal was unknown at the date of the publication of this decision.

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1. [1] A document was produced after the hearing by Ms Hosking that apparently came from Janssen Insurance, the underwriter of a mechanical breakdown insurance policy that was supplied with the vehicle when Ms Hosking purchased it. The document relates to a claim dated 15 October 2020 and gives the following “description of event”:

Cactus Cars – Kaiapoi has the vehicle. A wire has shorted out on the heat shield and this has cause[d] the ECU. O2 sensor has failed/fired also.

[2] The AFM plausibility fault relates to the mass air flow sensor, which sits between the air filter and the intake manifold of the engine. It measures the amount of air (or the air flow) entering the engine.

[3] VANOS is the name given to BMW’s variable valve timing system. The system uses two solenoids that control the flow of pressurised oil to the VANOS gears on the intake and exhaust camshafts. The engine control unit directs the VANOS system to advance or retard timing to improve idling quality and engine power delivery.

[4] Presumably the cam actuator (or VANOS) solenoids which are installed in the front of each cylinder head and are used to precisely control the flow of oil into the cam shaft actuator which changes the rotation of the camshaft to adjust valve timing and valve overlap,

[5] Cooper v Ashley & Johnson Motors Ltd (1996) 7 TCLR 407 (DC) at p 417.

[6] Consumer Guarantees Act 1993, s 20(1)(a).

[7] Motor Vehicle Sales Act 2003, s 89(2).

[8] Section 89(2)(a).

[9] Consumer Guarantees Act 1993, s 23(1)(a).

[10] Section 18(4).