Jones v G Pearce Ltd - Reference No. MVD 162/2023 [2023] NZMVDT 139 (5 July 2023)

Last Updated: 25 August 2023

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD162/2023 [2023] NZMVDT 139 BETWEEN CAMERON JONES First Applicant AND AUGUSTUS ENTERTAINMENT LTD Second Applicant AND G PEARCE LTD Respondent

HEARING at AUCKLAND on 20 June 2023 MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator S Gregory – Assessor (by audio-visual link)

APPEARANCES

C Jones for the Applicants

D Ravji and E Green, for the Respondent

DATE OF DECISION 5 July 2023

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DECISION OF THE TRIBUNAL

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G Pearce Ltd shall, within a reasonable time from the date of this decision, rectify the vehicle’s underbody structural corrosion. That repair should include, at a minimum, sandblasting, rust treating and undersealing all corrosion affected areas.

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REASONS

Introduction

[1] Augustus Entertainment Ltd (AEL) purchased a 2014 Ford Ranger XLT for $29,500 from G Pearce Ltd (GPL) on 10 March 2022. AEL says that the vehicle has defects, including structural corrosion, that means it is not of acceptable quality. AEL seeks orders requiring GPL to remedy those defects.
[2] GPL says that AEL should not be entitled to any remedy. It says that AEL agreed to contract out of the Consumer Guarantees Act and that the vehicle remains in acceptable condition as it recently passed a warrant of fitness inspection.
[3] Cameron Jones, who is the sole director of AEL, completed the Tribunal application form and named only himself as Applicant. The Ministry of Justice staff who processed this claim then named both Mr Jones and AEL (which owns the vehicle) as the Applicants, and all relevant documents were sent to both.
[4] Given the uncertainty as to who the Applicant was, I exercised my power to join AEL to these proceedings to ensure that all relevant parties were involved.[1] AEL, as the owner of the vehicle, has sufficient connection to these proceedings to justify joining it as a party to enable the Tribunal to determine effectively and completely this application. All parties agreed that it was appropriate to join AEL to these proceedings.

Relevant background

[5] The vehicle passed a warrant of fitness inspection about 12 days before it was purchased by AEL. Its odometer reading at that time was 157,424 km.

The light bar

[6] Mr Jones says that, shortly after purchase, the vehicle’s light bar stopped working. He returned the vehicle to GPL, which performed repairs. Daniel Ravji who appeared for GPL at the hearing, advised that GPL found that the electrical connection was loose. Mr Jones says that the light bar stopped working again shortly thereafter, although he did not raise that concern with GPL until many months later.

The air conditioning

[7] Mr Jones says that the vehicle developed an air conditioning fault in December 2022. Mr Jones says that the driver’s side vent is not blowing cold air.

The underbody corrosion

[8] The vehicle’s warrant of fitness was due for renewal in early March 2023, so Mr Jones took the vehicle to AA Motoring in Newmarket. The vehicle passed that warrant of fitness inspection, but AEL is concerned by comments made by the inspector on the warrant of fitness inspection sheet that the vehicle had “surface corrosion developing undercarriage may require attention soon”. Mr Jones says the warrant of fitness inspector also advised him that the vehicle would not pass its next warrant of fitness inspection due to that corrosion.
[9] Mr Jones then took the vehicle to Panel Zone in Onehunga, in the hope that it could apply a protective spray. He says that Panel Zone advised him that a more extensive “full rust treatment” was required. AEL has since had the vehicle assessed by Autoblast Ltd and Stoprust and Towbars. AEL has obtained two estimates for the repair it believes is required:

• (a) Autoblast Ltd says that the affected areas need to be sandblasted to bare metal, primed, top coated at a cost of $3,250 plus GST.
• (b) Stoprust and Towbars says that the corrosion will need to be “scraped back, rust converted and waxed” at a cost of $750 plus GST.

[10] AEL also provided photographs of the corrosion taken by Autoblast Ltd. During the hearing, Mr Gregory, the Tribunal’s Assessor, advised the parties that he considered that the photographs taken by Autoblast Ltd showed that the vehicle has structural corrosion that should have caused it to fail the warrant of fitness inspection performed by AA Motoring.
[11] The Tribunal then gave GPL an opportunity to provide any written submission it would like to make as to whether the vehicle would fail a warrant of fitness inspection due to the corrosion shown in those photographs. GPL then asked for an opportunity to assess the vehicle, as it says that it would have dealt with this claim much differently if it had known that the corrosion may be a warrant of fitness failure. AEL has refused that request and the Tribunal does not have the power to require that AEL give GPL an opportunity to assess the vehicle.
[12] GPL then provided further information in response to Mr Gregory’s view that the rust would fail a warrant of fitness inspection. GPL showed the recent photographs of the corrosion affected parts of the vehicle’s structure to Rangitoto Motors and has provided an email from Mike at Rangitoto Motors. In that email, Rangitoto Motors says that it would issue a warrant of fitness with the vehicle in this condition. It says that the warrant of fitness inspection is a visual inspection, and it considers that “NO corrosion has eaten away at the metal more than 50mm. The rest is surface rust”.

The issues

[13] Because it entered into the agreement to purchase the vehicle with GPL and because it is the owner of the vehicle, I consider that AEL is the appropriate Applicant, and that Mr Jones has no basis upon which he can bring a claim in his personal capacity. I therefore dismiss Mr Jones’ application and will determine this claim on the basis that AEL is the proper Applicant.
[14] Consequently, the issues requiring the Tribunal’s consideration in this case are:

• (a) Did the parties validly agree to contract out of the Consumer Guarantees Act 1993 (the CGA)?
• (b) Has the vehicle been of acceptable quality for the purposes of s 6 of the CGA?
• (c) What remedy is AEL entitled to under the CGA?

Issue 1: Did the parties validly agree to contract out of the CGA?

[15] GPL says that the CGA does not apply, as AEL purchased the vehicle for business purposes and the Vehicle Offer and Sale Agreement (the Agreement) contains a clause signed by AEL stating that the CGA does not apply.
[16] The circumstances in which parties are permitted to contract out of the guarantees in the CGA are set out in s 43. The general rule is that contracting out is prohibited. However, a limited exception is offered where the requirements of subsections (2) and (2A) are met:

43. No contracting out except for business transactions

(1) Subject to this section and to sections 40, 41, and 43A, the provisions of this Act shall have effect notwithstanding any provision to the contrary in any agreement.

(2) However, despite subsection (1), parties to an agreement may include a provision in their agreement to the effect that the provisions of this Act will not apply to that agreement, provided that—

(a) the agreement is in writing; and

(b) the goods or services are, or (in connection only with the guarantee of acceptable quality in section 7A) the gas or electricity is, supplied and acquired in trade; and

(c) all parties to the agreement—

(i) are in trade; and

(ii) agree to contract out of the provisions of this Act; and

(d) it is fair and reasonable that the parties are bound by the provision in the agreement.

(2A) If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (2)(d), the court must take account of all the circumstances of the agreement, including—

(a) the subject matter of the agreement; and

(b) the value of the goods, services, gas, or electricity (as relevant); and

(c) the respective bargaining power of the parties, including—

(i) the extent to which a party was able to negotiate the terms of the agreement; and

(ii) whether a party was required to either accept or reject the agreement on the terms and conditions presented by another party; and

(d) whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.

[17] The Agreement complies with many of the requirements in s 43(2) of the CGA:

• (a) The Agreement was in writing – as evidenced by the Vehicle Offer and Sale Agreement dated 10 March 2022.
• (b) The vehicle was supplied and acquired in trade and both parties are in trade – GPL is a motor vehicle trader and AEL is a company that Mr Jones has created to use to contract for acting work.
• (c) The Agreement contains the following clause (the exclusion clause), which was signed by Mr Jones on behalf of AEL:[2]
  

[18] However, I am not satisfied that it is fair and reasonable that the parties should be bound by the exclusion clause, in terms of s 43(2)(d), because the vehicle was purchased principally for personal use, the exclusion clause was not subject to negotiation and AEL was required to accept the Agreement on the terms and conditions presented by GPL.
[19] I accept Mr Jones’ evidence that the vehicle was purchased mainly for personal use and that the vehicle has been used for that purpose. I found Mr Jones to be a straightforward and reliable witnesses and I accept their evidence on this point. In those circumstances, I am not satisfied that it would be fair and reasonable to exclude the CGA, which is intended to protect the interests of consumers who acquire goods for personal use.
[20] There are other reasons why the CGA should not be excluded. The exclusion clause is contained in a standard form agreement used by GPL, and I am satisfied that the exclusion clause was not subject to any negotiation and AEL was required to accept the exclusion clause without negotiation. In that regard, I accept Mr Jones’ evidence that he was told by an employee of GPL that he had to sign the clause to complete the transaction. That evidence was not disputed by GPL.
[21] The fact that a party is required to either accept or reject the agreement on the terms and conditions presented by another party, as in the present case, is a relevant "circumstance of the agreement" that the Tribunal must take into account, under s 43(2A)(c)(ii). Accordingly, I conclude that it is not fair and reasonable that the parties should be bound by the exclusion clause and AEL is entitled to the protections in the CGA.

Issue 2: Has the vehicle been of acceptable quality?

[22] 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”. “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.

[23] 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.

The corrosion

[24] The warrant of fitness requirements for corrosion are set out in part 8-1 of the In-service Certification (WoF and CoF) Vehicle Inspection Requirements Manual for general vehicles (the VIRM). Relevantly, under part 3-1 of the VIRM, corrosion will cause a vehicle to fail a warrant of fitness inspection where the structure of the vehicle has visible corrosion damage larger than 50mm in diameter. At Note 2 of part 3-1 of the VIRM, corrosion damage is defined as:

Corrosion damage is where the metal has been eaten away, which is evident by pitting. The outward sign of such corrosion damage is typically displayed by the lifting or bubbling of paint. In extreme cases, the area affected by the corrosion damage will fall out and leave a hole.

[25] A vehicle’s structure is shown in the shaded areas of the diagram below:[3]

[26] Mr Gregory advises that the photographs taken by Autoblast Ltd show corrosion damage affecting the structure of the vehicle that is much worse than AEL was told by AA Motoring. Mr Gregory says that the photographs show corrosion damage that is larger than 50mm in diameter on the rear transmission cross member, driver side front chassis rail and the front cross member. Mr Gregory says those areas are all part of the vehicle’s structure and the vehicle should have failed the AA Motoring warrant of fitness inspection due to the corrosion affecting those components.
[27] GPL disagrees with Mr Gregory’s assessment. It points to the fact that the vehicle passed a warrant of fitness inspection performed by Rangitoto Motors in March 2022, where no structural corrosion was found. It also points to the recent email from Rangitoto Motors, in which Rangitoto Motors says that it would issue a warrant of fitness with the vehicle in this condition.
[28] I have seen the relevant photographs. I have also considered the relevant definitions and tests in the VIRM, and I am satisfied that the vehicle has corrosion damage that will cause it to fail a warrant of fitness inspection. The photographs are of a high quality and clearly show visible corrosion damage (as that term is defined in the VIRM) that exceeds 50mm in diameter in several structural areas, including the rear transmission cross member, driver side front chassis rail and the front cross member. That corrosion damage is not surface rust only – there is clear evidence of pitting and bubbling.
[29] I find it highly likely that the structural corrosion was pre-existing. Mr Gregory advises that corrosion to the extent present on this vehicle does not develop quickly and it is likely that the vehicle has been exposed to salt water at some time prior to AEL’s ownership, which has led to the corrosion on structural components beneath the vehicle.
[30] I am therefore satisfied that the vehicle had pre-existing structural corrosion, that has worsened to the extent that it should fail a warrant of fitness. That corrosion means the vehicle is not of acceptable quality for the purposes of s 6 of the CGA because it was not as free of minor defects as a reasonable consumer would consider acceptable.

The light bar and air conditioning

[31] I am not satisfied that AEL has proven that the vehicle has faults with the light bar and air conditioning. Regarding the light bar, AEL provided no corroborative evidence to prove that the light bar is faulty, so I cannot avoid the possibility that any fault may be minor and not in breach of the guarantee.
[32] Likewise, even if AEL had presented evidence to show that the air conditioning was faulty – which it has not – that fault would not breach the guarantee of acceptable quality because it occurred too long after purchase for GPL to have liability.
[33] The protections in 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. The alleged air conditioning fault became apparent in about December 2022, approximately nine months after purchase, by which time AEL had travelled thousands of kilometres in the vehicle. In my view, that is too long for the protections in the CGA to continue to apply to a relatively minor fault of this nature.

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

[34] 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.

[35] The structural corrosion breaches the guarantee of acceptable quality, so under s 18(2)(a) of the CGA, AEL is entitled to have that corrosion remedied within a reasonable time. The Tribunal therefore orders that GPL shall, within a reasonable time from the date of this decision, rectify the underbody structural corrosion. That repair should include, at a minimum, sandblasting, rust treating and undersealing all corrosion affected areas.

B R Carter
Adjudicator

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[1] Under Schedule 1 clause 7 of the Motor Vehicle Sales Act 2003 the Tribunal may join a person to existing proceedings if the Tribunal is satisfied that the person has sufficient connection to the proceedings. A person will have sufficient connection with the proceedings if that person’s presence as a party is necessary to enable the Tribunal to determine effectively and completely the issues arising.

[2] Mr Jones’ signature has been redacted from the exclusion clause in this decision for privacy reasons.

[3] In-service Certification (WoF and CoF) Vehicle Inspection Requirements Manual, Figure 3-1-2.