Hendricks v I Do Group Ltd - Reference No. MVD 109/2023 [2023] NZMVDT 109 (9 June 2023)

Last Updated: 12 August 2023

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 109/2023 [2023] NZMVDT 109 BETWEEN DEAN HENDRICKS Applicant AND I DO GROUP LTD Respondent

HEARING at AUCKLAND on 18 May 2023 MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator S Haynes – Assessor

APPEARANCES

D Hendricks, Applicant

S An for the Respondent (by audio-visual link)

DATE OF DECISION 9 June 2023

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DECISION OF THE TRIBUNAL

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A Dean Mr Hendricks’ application to reject the vehicle is dismissed.

2. I Do Group Ltd shall, within 10 working days of the date of this decision, pay $1,500 to Mr Hendricks.

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REASONS

Introduction

[1] Dean Hendricks wants to reject the 2011 Volkswagen Polo GTI he purchased for $10,690 from I Do Group Ltd[1] on 9 June 2022. Mr Hendricks says that the vehicle has had wheel bearing and wheel speed sensor faults, including faults that caused the vehicle’s ABS, traction control and tyre pressure warning lights to illuminate and the vehicle to shudder under braking in early 2023. Mr Hendricks also says that he paid a deposit of $1,500 that has not been accounted for in the Vehicle Offer and Sale Agreement and the loan agreement he entered into with Finance Now Ltd to purchase the vehicle
[2] Mr Hendricks has therefore applied to the Tribunal seeking to recover all amounts he paid for the vehicle (including the $1,500 deposit), all amounts paid under the loan he entered into with Finance Now Ltd to purchase the vehicle and all repair and diagnosis costs incurred.
[3] I Do Group denies misleading Mr Hendricks about the $1,500 deposit. It says that Mr Hendricks knew that the $1,500 payment was made to compensate I Do Group for faults that were found in his trade in vehicle.
[4] I Do Group also denies liability for this vehicle’s faults. It says the vehicle was supplied with a fresh warrant of fitness, so was of acceptable quality at the time of sale. It also says that the faults experienced by Mr Hendricks are consistent with the vehicle’s age and mileage and occurred too long after purchase for it to have liability. Finally, it says that, even if it should have had liability for those faults, Mr Hendricks did not give it a reasonable opportunity to repair the vehicle before incurring the repair costs.

Relevant background

[5] The vehicle’s odometer reading at the time of sale was 92,515 km. In early November 2022, Mr Hendricks noticed a knocking noise from the vehicle. Mr Hendricks had the vehicle assessed by Motor Works Group Ltd on 22 November 2022. Motor Works Group replaced the wheel bearings on both front wheels, at a cost of $1,325.38. Mr Hendricks did not contact I Do Group before performing this repair.
[6] Mr Hendricks says that he travelled to Wellington on 26 December 2022. While driving in Wellington he noticed that the speedometer did not appear to be working properly, so he had the vehicle assessed by Sparkle Auto Mobile Services Ltd, which found that the front left wheel speed sensor was faulty. An invoice dated 15 January 2023 records that it removed and replaced the faulty wheel speed sensor. Mr Hendricks was charged $340 for that assessment. The vehicle’s odometer reading at that time was 98,411 km. Mr Hendricks did not contact I Do Group before authorising this repair.
[7] Mr Hendricks then returned to Auckland. He says that Sparkles Auto Mobile Services had advised him to have the vehicle assessed by an auto electrician, so on 25 January 2023 he had the vehicle assessed by North Harbour Auto Air & Electrical, which performed a diagnostic scan. Despite the left wheel speed sensor having been replaced by Sparkle Auto Mobile Services only 10 days earlier, it found that the left front wheel speed sensor was not correctly reading the speedometer. Rather than performing a deeper diagnosis, it replaced the recently replaced wheel speed sensor, at a cost of $642.78 to Mr Hendricks. Again, Mr Hendricks did not contact I Do Group before authorising this repair.
[8] By this time, Mr Hendricks had become concerned about the repair costs he was incurring so he contacted I Do Group and asked it about the Autosure mechanical breakdown insurance policy he purchased with the vehicle. I Do Group provided the requested information to him.
[9] Mr Hendricks says that the vehicle’s issues continued. In March 2023, the ABS, traction control and tyre pressure warning lights began to illuminate. Mr Hendricks also says that the vehicle’s brakes became difficult to engage. Mr Hendricks contacted I Do Group on 22 March 2023 and asked to reject the vehicle due to its issues. I Do Group refused that request, advising Mr Hendricks that the vehicle was of acceptable quality and suggested that Mr Hendricks should bring a claim to the Motor Vehicle Disputes Tribunal.
[10] Despite rejecting the vehicle, Mr Hendricks then had the vehicle assessed again by North Harbour Auto Air & Electrical on 17 April 2023. It performed a further diagnostic scan and again found fault codes relating to the left front wheel speed sensor.
[11] This time, North Harbour Auto Air & Electrical removed and inspected the sensor and found metal shavings in and around the bearing housing. It then stripped and inspected the drive shaft and found that the bearing was moving inside the hub housing. It then replaced the hub housing and wheel bearing. This repair was performed using the Autosure mechanical breakdown insurance policy purchased by Mr Hendricks. Mr Hendricks contributed $350 (the insurance excess) toward the cost of the repair.

The issues

[12] 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) Did I Do Group engage in misleading conduct in breach of s 9 of the Fair Trading Act 1986 (the FTA)?
• (c) What remedy is Mr Hendricks entitled to under the FTA?

Issue 2: Has the vehicle been of acceptable quality?

[13] 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”.
[14] “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.

..

[15] 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.
[16] Mr Haynes, the Tribunal’s Assessor, advises that all the issues experienced by Mr Hendricks are likely to have been caused by one underlying issue – the worn hub unit on the left front of the vehicle, as eventually diagnosed by North Harbour Auto & Electrical on 17 April 2023. That worn hub unit had excessive play, which will have caused premature wear to the wheel bearings and damage that caused the wheel speed sensor to read inaccurately.
[17] Mr Haynes considers it likely that the workshops who had earlier assessed the vehicle and replaced the wheel bearings and wheel speed sensors are likely to have missed the underlying cause of the problem. That is because, although the wheel bearings and wheel speed sensors were replaced, related problems continued to occur until the hub unit itself was replaced. I therefore find it likely that all the issues experienced by Mr Hendricks are due to a worn hub unit on the left front of the vehicle, that has now been fixed by North Harbour Auto Air & Electrical.
[18] Symptoms of that worn hub unit – including the worn wheel bearings – first became apparent in November 2022, about four months after purchase. It is unclear precisely how far Mr Hendricks had driven in the vehicle by that time, but given the odometer reading at the time of sale in June 2022 (92,515 km) and the reading recorded by Sparkle Auto Mobile Services in January 2023 (98,411 km), I consider that the odometer reading was about 96,000 km when the fault first became apparent.
[19] Mr Hendricks paid $10,690 for an 11-year-old Volkswagen Golf GTI with an odometer reading of 92,515 km. A reasonable consumer should understand that vehicles of this price, age and mileage can develop defects and require ongoing maintenance that can sometimes be expensive to repair or perform. They should also understand that a supplier’s obligations under s 6 of the CGA are finite and, at some point, the risk of the vehicle developing defects must transfer from the supplier to the purchaser. The point in time at which that risk transfers is determined with reference to the factors in s 7(1)(f) to (j) of the CGA.
[20] Considering the age of the vehicle, the length of Mr Hendricks’ ownership and the distance he has travelled since purchase, I find that the vehicle’s faults arose too long after purchase for the protections in s 6 of the CGA to continue to apply and that the vehicle has been as free of minor defects, fit for purpose and durable as a reasonable consumer would consider acceptable.
[21] Mr Hendricks is therefore entitled to no remedy under the CGA, and his claim is dismissed.
[22] For completeness, I note that even if I had found that the vehicle was not of acceptable quality, Mr Hendricks would not have been entitled to any remedy under the CGA. The vehicle’s defects are not a failure of a substantial character, they did not make the vehicle unsafe, and once properly diagnosed were easily remedied. Further, Mr Hendricks would not have been entitled to recover the repair costs he has incurred. Under s 18(2)(b)(i) of the CGA, a consumer must first give the supplier a reasonable opportunity to remedy a failure before having it rectified elsewhere and recovering the cost of repairs from the supplier.[2] Mr Hendricks did not give I Do Group an opportunity to remedy the vehicle’s defects before incurring those costs, so he cannot recover those costs under the CGA.

Issue 2: Has I Do Group engaged in conduct that breached s 9 of the FTA?

[23] Section 9 of the FTA provides:

9. Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[24] The test for establishing a breach of s 9 was set out by the Supreme Court in Red Eagle Corp Ltd v Ellis:[3]

The question to be answered in relation to s 9 ... is ... whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived. If so, a breach of s 9 has been established.

The evidence

[25] Mr Hendricks says that he thought that the $1,500 payment was a deposit towards the purchase price. I Do Group agrees that Mr Hendricks paid $1,500. However, it says that the $1,500 payment from Mr Hendricks was not a deposit towards the purchase price. It says that Mr Hendricks agreed to pay that amount to I Do Group as compensation for defects identified in the 2011 BMW 116i that he traded in to purchase the Volkswagen Golf.
[26] I Do Group says that those defects were found on 8 June 2022, after finance had already been arranged with Finance Now, so rather than adjust the Vehicle Offer and Sale Agreement and renegotiate the loan agreement to reflect the lower value of the trade in vehicle, the parties agreed that Mr Hendricks would instead pay $1,500 to I Do Group.
[27] None of the correspondence provided by the parties clearly explains the reason for the $1,500 payment. The only mention of that amount is contained in a text message from I Do Group dated 9 June 2022, which states:

[28] After the hearing, I Do Group provided a signed statement from Vincent Li, the salesperson who dealt with Mr Hendricks. Mr Li says that he spoke with Mr Hendricks after I Do Group’s mechanics had identified faults with the trade in vehicle, and Mr Hendricks agreed that the $1,500 payment would be made to reflect the faults found in the trade in vehicle. I Do Group also provided a statement from its mechanic to show that defects were found when it inspected the vehicle.
[29] Mr Hendricks says that he did not agree to pay $1,500 as compensation for repairs that needed to be performed on the trade in vehicle. He says that he was only told that the vehicle had two oil leaks, and he would never have agreed to pay $1,500 in compensation for such minor issues. Instead, Mr Hendricks says that he thought that the amount was paid as a deposit towards the purchase price and “in the rush of the day” he did not check the paperwork to confirm that the deposit was reflected in the Vehicle Offer and Sale Agreement.

The Tribunal’s assessment

[30] It is clear from the evidence and submissions provided by the parties that they disagree on the purpose of the $1,500 “deposit” paid by Mr Hendricks. However, I prefer Mr Hendricks’ evidence for two reasons.
[31] First, the only document that records the purpose of the payment is the text message of 9 June 2022 from I Do Group to Mr Hendricks. That text message describes the payment as a “deposit”. I consider that to be evidence that Mr Hendricks was told that the $1,500 was a deposit, which a reasonable person would believe was a payment towards the purchase price of the vehicle.
[32] Second, I Do Group had a legal obligation to document the payment of $1,500 by Mr Hendricks. Under s 21(2)(a) of the Motor Vehicle Sales Act 2003 and clause 4 of the Motor Vehicle Sales Regulations 2003, I Do Group was required to ensure that the contract of sale with Mr Hendricks included a record of all consideration for the sale of the vehicle. Regardless of whether the $1,500 payment was a deposit towards the purchase price or a contribution towards repairs to the trade in vehicle, that payment formed part of the consideration for the vehicle and had to be documented on the contract of sale.
[33] I Do Group has not complied with that obligation. The Vehicle Offer and Sale Agreement makes no mention of any $1,500 payment. If I Do Group had complied with its obligation under s 21(2)(a) of the MVSA, there could then be no dispute one way or the other as to what the purpose of the $1,500 payment was. However, given its failure to comply with its legal obligation to properly document the consideration for this transaction, I am not persuaded by its evidence that the payment was compensation for the trade in vehicle’s faults rather than a deposit towards the purchase price.
[34] Consequently, I prefer Mr Hendricks’ evidence that I Do Group led him to believe that the $1,500 deposit was a payment towards the purchase of the vehicle. By doing so, I am satisfied that I Do Group has engaged in misleading conduct, in breach of s 9 of the FTA, because it has not treated the payment as a deposit.

Issue 3: What remedy is Mr Hendricks entitled to under the FTA

[35] The remedies available for a breach of the FTA are set out in s 43 of the FTA which is as follows:

43 Other orders

...

(3) The orders are as follows:

(a) an order declaring all or part of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) to be void; and

(ii) if the court or the Disputes Tribunal thinks fit, to have been void at all times on and after a date specified in the order, which may be before the date on which the order is made:

(b) if an order described in paragraph (a) is made in respect of a contract that is associated with a collateral credit agreement, an order vesting in person B all or any of the rights and obligations of person A under the collateral credit agreement:

(c) an order in respect of a contract made between person A and person B, or a collateral arrangement (for example, a collateral credit agreement) relating to such a contract,—

(i) varying the contract or the arrangement in the manner specified in the order; and

(ii) if the court or the Disputes Tribunal thinks fit, declaring the varied contract or arrangement to have had effect on and after a date specified in the order, which may be before the date on which the order is made:

(d) if an order described in paragraph (c) is made in respect of a contract that is associated with a collateral credit agreement, and if that order results in person A no longer having property in the goods that are the subject of the contract, an order vesting in person B the rights and obligations of person A under the collateral credit agreement:

(e) an order directing person B to refund money or return property to person A:

(f) an order directing person B to pay to person A the amount of the loss or damage:

(g) an order directing person B, at person B’s own expense, to repair, or to provide parts for, goods that have been supplied by person B to person A:

(h) an order directing person B, at person B’s own expense, to supply specified goods or services to person A.

[36] The Supreme Court in Red Eagle sets out the approach to be taken in applying s 43.[4] The Tribunal must consider whether:

• (a) Mr Hendricks was in fact misled or deceived;
• (b) Mr Hendricks has suffered, or is likely to suffer, loss or damage; and
• (c) I Do Group’s conduct was the effective cause or an effective cause of their loss or damage.

[37] I find that Mr Hendricks was misled. He was led to believe that the $1,500 payment would be treated by I Do Group as a deposit towards the purchase price of the vehicle when it was not. Mr Hendricks has also suffered loss, because he has paid $1,500 more for the vehicle as the deposit was not accounted for on the Vehicle Offer and Sale agreement. I Do Group’s conduct was the effective cause of that loss, as I am satisfied that Mr Hendricks only made the $1,500 payment because he was led to believe that it was a deposit.
[38] Mr Hendricks is therefore entitled to a remedy under s 43(3) of the FTA. The remedies in s 43(3) are discretionary, and the discretion is to be exercised so as to give effect to the policy of the FTA, which includes to protect the interests of consumers. The object of the remedies in s 43(3) of the FTA is to do justice to the parties in the particular circumstances of the case.[5]
[39] In the circumstances of this case, I consider that the appropriate remedy is an order under s 43(3)(e) that I Do Group refund the $1,500 payment to Mr Hendricks.

Outcome

[40] Mr Hendricks’ application to reject the vehicle is dismissed and I Do Group shall, within 10 working days of the date of this decision, pay $1,500 to Mr Hendricks.

B R Carter
Adjudicator

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[1] When this application was processed by the Ministry of Justice, I Do Cars Ltd was named as the respondent, although all relevant documents and information were then sent to I Do Group Ltd. When I noticed that the wrong party had been identified as the respondent, I joined I Do Group Ltd as a party to this application, and the matter proceeded with it as the named respondent.

[2] Acquired Holdings Ltd v Turvey [2007] NZHC 1251; (2008) 8 NZBLC 102,107 (HC).

[3] Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

[4] Red Eagle Corporation Ltd, above n 2.

[5] Red Eagle Corporation Ltd, above n 2, at [31].