White v Turners Group NZ Ltd - Reference No. MVD 240/2023 [2023] NZMVDT 188 (29 August 2023)

Last Updated: 3 October 2023

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 240/2023 [2023] NZMVDT 188 BETWEEN NIGEL WHITE Applicant AND TURNERS GROUP NZ LTD Respondent

HEARING at AUCKLAND on 17 August 2023 (by audio-visual link) MEMBERS OF TRIBUNAL

B R Carter, Barrister – Adjudicator S Haynes – Assessor

APPEARANCES

N White, Applicant

D Mason for the Respondent

DATE OF DECISION 29 August 2023

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DECISION OF THE TRIBUNAL

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A Nigel White’s application to reject the vehicle is allowed.

2. Turners Group NZ Ltd shall, within 10 working days of the date of this decision, pay $14,300 to Mr White

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REASONS

Introduction

[1] The 2013 Audi A4 that Nigel White purchased for $14,300 from Turners Group NZ Ltd in January 2023 now has extensive engine damage. Mr White believes that Turners should have liability for the engine damage. Turners denies liability. Mr White has therefore applied to the Tribunal seeking to reject the vehicle and obtain a refund of the purchase price.
[2] Turners believes that Mr White is not entitled to any remedy because he has used the vehicle for commercial purposes and agreed to contract out of the Consumer Guarantees Act 1993 (the CGA). It also says that Mr White has failed to adequately service the vehicle and that Mr White has had fair and reasonable use of the vehicle and the engine damage occurred too long after purchase for it to have liability.

The issues

[3] The issues requiring the Tribunal’s consideration in this case are:

• (a) Does the CGA apply?
• (b) Has the vehicle been of acceptable quality for the purposes of s 6 of the CGA?
• (c) Are the vehicle’s defects a failure of a substantial character?
• (d) What remedy is Mr White entitled to under the CGA?

Relevant background

[4] The vehicle’s odometer reading at the time of sale was 109,007 km. The vehicle had a service sticker in its window, which stated that the vehicle was next due to be serviced before 116,585 km or 16 June 2023.
[5] Mr White did not service the vehicle at 116,585 km. He says that the vehicle’s electronic service reminder stated that the next service was not yet due, and Mr White had not seen the service sticker on the window.
[6] On 25 May 2023, when the vehicle’s odometer reading was 121,187 km, Mr White noticed that the engine was performing unusually. He then had the vehicle assessed by BC Automotive in Hamilton, which performed a compression test and found no compression on the number 4 cylinder. The vehicle was then assessed by Bosch and Sons Ltd, which confirmed the BC Automotive assessment. Bosch and Sons provided an estimate of $5,761.50 to replace the engine with a secondhand unit. No further assessment was performed, as any further testing would require dismantling the engine, which is an expensive task.
[7] Mr White contacted Turners, which declined to assist because it considered that Mr White had failed to properly service the vehicle. Mr White then filed this claim.

Issue 1: Does the CGA apply?

[8] Turners says that the CGA does not apply, as Mr White purchased the vehicle for business purposes.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 following requirements of subsections (2) and (2A) are met:

43. No contracting out except for business transactions

...

(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.

[9] The agreement between Mr White and Turners complies with many of the requirements in s 43(2) of the CGA:

• (a) The agreement was in writing – as evidenced by the “Buyer Tax Invoice” signed by both parties on 20 January 2023.
• (b) The Buyer Terms and Conditions annexed to the Buyer Tax Invoice contains an exclusion clause at 11.1 (the exclusion clause) to the effect that, where the buyer has acquired the goods in trade, the parties agree to contract out of the Consumer Guarantees Act 1993.

[10] 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 Mr White was required to accept the agreement on the terms and conditions presented by Turners.
[11] I accept Mr White’s evidence that the vehicle was purchased mainly for his personal use and that it was the only vehicle that he owned. He says that he did drive it for his real estate work and that the vehicle had a personalised numberplate relating to that work, but the vehicle was mainly purchased for his personal use. I found Mr White to be a clear and consistent witness and I accept his 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.
[12] There are other reasons why it is not fair and reasonable to exclude the CGA. The exclusion clause is contained in a standard form agreement used by Turners, and I am satisfied that the exclusion clause was not subject to any negotiation and Mr White was required to accept the exclusion clause without negotiation. 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 consider, 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 Mr White is entitled to the protections in the CGA.
[13] I also note that the requirements in s 43 of the CGA do not lend themselves to boilerplate, opt-out clauses of the type Turners attempted to rely on in the present case. Sections 43(2A)(c) and (d) suggest that contracting out will ordinarily require a specifically negotiated provision that is tailored to the particular circumstances, accompanied by legal advice where that is appropriate. Where a standard form clause is used, or where legal advice is not taken, there should be clear evidence to show that the purchaser has understood the effect of the exclusion clause and has freely agreed to its inclusion after negotiation. That has not occurred in this case.

Issue 2: Has the vehicle been of acceptable quality?

[14] 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.

[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 White purchased a 10-year-old vehicle with an odometer reading of 109,007 km. The engine suffered significant damage about four months after purchase, by which time Mr White had driven approximately 12,000 km.
[17] It is unlikely that the engine damage was caused by any inadequate servicing by Mr White. Mr Haynes, the Tribunal’s Assessor, advises that the fact that the engine has no compression on the number 4 cylinder only is inconsistent with engine damage caused by inadequate servicing. Instead, Mr Haynes considers it likely that the piston rings have failed, or the piston has cracked on the number 4 cylinder, leading to the loss of compression.
[18] In that regard, Turners provided an email chain showing correspondence between David Mason of Turners and Richard Wren, a Service Manager at Ebbett Audi in Hamilton. Mr Mason had sought Mr Wren’s advice as to the possible cause of the engine damage. Mr Wren appears to share Mr Haynes’ view that the damage present in this vehicle is inconsistent with inadequate servicing. Mr Wren considered that inadequate servicing:

Shouldn’t cause a compression issue unless the oil level was low or the condition very dirty, the car would tell you if it was low, a lack of oil or poor condition would cause issues with bearings, cam shafts a lack of lubrication, engine seizure?

[19] There is no evidence that the oil was low when the engine failed or that the oil was “very dirty”. Further, as noted by Mr Wren, problems with low oil levels or dirty oil would lead to damage caused by a lack of lubrication, such as worn bearings and/or camshafts or seizure of the engine. That has not occurred here.
[20] I therefore find that the engine has failed due to an inherent fault that was not caused by any failure by Mr White to service the vehicle. Taking account of the significant nature of the engine damage, the vehicle’s price, age and mileage at the time of sale, the length of Mr White’s ownership and the distance travelled before the engine failed, I am satisfied that the vehicle has not been of acceptable quality for the purposes of s 6 of the CGA because it was not as free of minor defects and as durable as a reasonable consumer would consider acceptable.

Issue 3: Are the vehicle’s defects a failure of a substantial character?

[21] 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.

[22] The engine damage is a failure of a substantial character. The vehicle is unusable, and the engine requires expensive replacement or refurbishment. I am satisfied that a reasonable consumer would not have purchased the vehicle if they had known that such extensive engine damage would occur so shortly after purchase in a vehicle of this price, age and mileage.

Issue 4: What remedy is Mr White entitled to under the CGA?

[23] 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.

[24] Under s 18(3)(a), Mr White is entitled to reject the vehicle because the engine damage is a failure of a substantial character. He is therefore entitled to a refund of the purchase price.[1]

Outcome

[25] Mr White’s application to reject the vehicle is allowed and Turners shall, within 10 working days of the date of this decision, pay $14,300 to Mr White. The vehicle then belongs to Turners.

B R Carter
Adjudicator

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