Red Leaf Coffee Limited v Cooper No. 4 Limited (Formerly Hutt Valley Ssangyong Limited t/a Hutt Valley LDV) Reference No. MVD 292/2023 [2023] NZMVDT 233 (9 November 2023)

Last Updated: 19 January 2024

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL

I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA

MVD 292/2023
[2023] NZMVDT 233

UNDER APPEAL

BETWEEN RED LEAF COFFEE LIMITED

Purchaser

AND COOPER NO4 LIMITED (FORMERLY HUTT VALLEY SSANGYONG LIMITED TA HUTT VALLEY LDV)

First Respondent

AND COOPER NO2 LIMITED (FORMERLY GREAT LAKE MOTOR DISTRIBUTORS LIMITED)

Second Respondent

AND INCHCAPE AUTOMOTIVE RETAIL (NZ) LIMITED

Third Respondent

AND INCHCAPE AUTOMOTIVE DISTRIBUTION (NZ) LIMITED

Fourth Respondent

HEARING at WELLINGTON on 29 September 2023
MEMBERS OF TRIBUNAL

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

APPEARANCES

C L Hart, Director of Purchaser
B Williams, Purchaser’s Partner
K Pugh, Employee and delegated representative of First and Second Respondents
N Hodgson, Witness for First and Second Respondents (by phone)
R Ymker, Representative of Third Respondent (by VMR)
G Ford, Representative of Fourth Respondent (by VMR)

DATE OF DECISION 9 November 2023

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DECISION OF THE TRIBUNAL

___________________________________________________________________

Red Leaf Coffee Ltd’s application is dismissed.

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REASONS

Introduction

[1] Red Leaf Coffee Ltd seeks to reject its 2022 LDV T60, which it purchased brand-new on or around 18 January 2023 for $42,990. The vehicle was purchased from Hutt Valley SsangYong Ltd trading as Hutt Valley LDV.
[2] Red Leaf Coffee purchased the vehicle to tow a coffee cart. Its director, Chalmaine Hart, and her partner Barry Williams, are also involved in 4x4 off-road club activities, for which the vehicle is used for its business purpose to provide coffee for other attendees. These purposes were made known by Ms Hart to the dealer when she purchased the vehicle.
[3] According to Ms Hart, the main problem with the vehicle is a mechanical bang, sounding like a gunshot, when the vehicle is in four-wheel-drive mode in the 4L setting.[1]
[4] Ms Hart argues that a reasonable consumer would not find this acceptable. She seeks a full refund of the purchase price, plus damages in respect of the cost of the tow bar she had installed, insurance, Road User Charges, servicing costs, additional funds needed to buy an equivalent vehicle, emotional stress, anxiety and time lost in respect of preparation of the Tribunal application and taking the vehicle for diagnosis.
[5] The respondents argue that the vehicle has no proven ongoing faults and that the noise about which Ms Hart complains is an ordinary characteristic of this model.
[6] Since the vehicle was purchased, the businesses of Hutt Valley SsangYong, and LDV’s distributor Great Lake Motor Distributors Ltd have been sold to two Inchcape Automotive companies, which have been joined as third and fourth respondents respectively. Obligations under the manufacturer’s warranty in respect of Red Leaf Coffee’s vehicle will continue to be met by the fourth respondent. However, it was accepted at the hearing that any liabilities under the Consumer Guarantees Act 1993 (CGA) in respect of the sale of the vehicle will continue to be the responsibility of the company which sold the vehicle and the manufacturer’s distributor, which have now been renamed Cooper No4 Ltd and Cooper No2 Ltd respectively (the first and second respondents).
[7] From this brief background, the following issues arise for the Tribunal’s determination:

• (a) Did the parties validly agree to contract out of the CGA?
• (b) Did the vehicle fail to comply with the guarantee of acceptable quality?

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

[8] In the vehicle offer and sale agreement dated 18 January 2023 between Red Leaf Coffee and Hutt Valley LDV there is the following exclusion clause:

I confirm that the goods to be supplied are being acquired for the purpose of the Purchasers business, in terms of sections 2 and 43 of the CGA, and accordingly the parties agree that the provisions of the CGA will not apply.

[9] Next to that exclusion clause is a space for the purchaser’s signature. This was apparently signed by Ms Hart. However, she denies having signed this clause or indeed the vehicle offer and sale agreement, at all. Ms Hart alleges that her signature has been forged in various documents and she has complained to the Police about that. However, despite her concerns that her signature was forged on some of the relevant documents, Ms Hart accepts that Red Leaf Coffee agreed to purchase the vehicle.
[10] 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 subss (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.

[11] Subsections (2) and (2A) of s 43 were substituted for the former s 43(2), when it was repealed on 17 June 2014, to mirror the equivalent provision in the Fair Trading Act 1986 (FTA).[2] The repealed former provision allowed a supplier to contract out of the provisions of the CGA in respect of “a consumer who acquires, or holds himself or herself out as acquiring...goods or services for the purposes of a business...”. The main differences between the pre and post-2014 amendment versions of s 43 are that, in the current provisions (as applied to motor vehicles):

• (a) The focus is now on whether the contracting parties are in trade and whether the vehicle was supplied and acquired in trade, rather than the old focus on whether consumers acquired (or held themselves out as acquiring) the vehicle for business purposes.
• (b) The agreement must always be in writing and the Tribunal needs to specifically consider whether the parties agreed to contract out of the CGA.
• (c) The Tribunal must assess whether it is fair and reasonable that the parties are bound by the contracting out provision in the agreement, taking into account the factors in subs (2A).

[12] As to whether the parties agreed, by the provision set out above, to contract out of the CGA, and putting to one side the issue of whether Ms Hart’s signature has been forged (which I cannot resolve in this proceeding), there was no evidence advanced in this proceeding to help establish whether either party specifically turned their minds to the issue of whether the CGA should be excluded from applying to the sale of the vehicle to Red Leaf Coffee.
[13] Without such evidence, I am not easily able to find that the parties agreed to contract out of the CGA. However, I will proceed with the analysis required under s 43 on the basis that the clause set out above records an agreement to contract out of the CGA.
[14] Before determining whether the agreement to contract out of the CGA was valid, I turn to consider, in terms of s 43(2)(d), whether it is fair and reasonable that the parties be bound by their written agreement to contract out of the CGA. I will refer to the factors set out in subs (2A) (above).

The subject matter of the agreement

[15] The subject matter of this agreement is a medium-sized ute. This is a vehicle that is ordinarily acquired for personal, domestic or household use and may also be acquired for commercial use, as is the case in respect of Red Leaf Coffee’s vehicle. There was no evidence that Red Leaf Coffee acquired the vehicle for the purposes of resupplying it in trade. Accordingly, for the purposes of the present dispute, Red Leaf Coffee appears to fall within the definition of “consumer” in s 2 of the CGA.

The value of the goods

[16] Red Leaf Coffee paid $42,990 for the vehicle. On its own, this is a neutral factor in determining whether it is fair and reasonable that the CGA is excluded. However, I note that there was no evidence that any reduction in the purchase price was negotiated by the parties in return for exclusion of the CGA.

Respective bargaining power of the parties

[17] My assessment is that the exclusion clause set out above was tucked into the agreement on the mistaken assumption that it would be valid for Hutt Valley LDV to unilaterally contract out of the CGA if a vehicle it sold was acquired for business purposes, as it may have been possible to do under the pre-2014 law. But unilateral contracting out of the CGA in respect of consumer goods solely based on the purpose for which the goods were acquired is no longer possible since the amendments to the CGA in that year. Rather, a negotiated agreement that is fair and reasonable is now expressly required.
[18] There was no evidence of any specific discussion between the parties relating to contracting out of the CGA, as the post-2014 amended law now requires. In this sense, I consider that the respective bargaining power of the parties was unequal. In particular:

• (a) There was no evidence to suggest that Red Leaf Coffee was invited to consider and negotiate the small print CGA exclusion provision in the vehicle offer and sale agreement.
• (b) Rather, it appears that Red Leaf Coffee was required to either accept or reject the agreement on the terms and conditions presented by Hutt Valley LDV.

Whether the parties received legal advice or were represented by a lawyer

[19] There is no evidence that either party was represented by a lawyer or that Red Leaf Coffee received legal advice in connection with the purchase of the vehicle.

Other relevant circumstances

[20] The list of matters in s 43(2A) is not exclusive. The Tribunal may consider additional relevant factors, consistent with the consumer protection purpose of the CGA, in determining whether it is fair and reasonable that the parties are bound by exclusion clauses. Here, I consider it relevant that the formulation of the exclusion clause, and in particular the use of the word “accordingly”, assumes that if a vehicle is being acquired for business purposes then it logically follows that the CGA should not apply. While this may be a fair reflection of the pre-2014 law, as described above, it is no longer a valid assumption. Since the 2014 amendment, a party seeking to rely on an exclusion is unlikely to be able to show that it is fair and reasonable that parties are bound by that exclusion provision if the party cannot show that the provision was reached through a process involving genuine negotiation and agreement. It is no longer adequate for motor vehicle traders to insert these exclusion clauses into the small print of a vehicle offer and sale agreement in the hope that uninformed consumers can be persuaded to sign them without giving the matter the consideration required to establish that the exclusion is fair and reasonable.

Conclusion

[21] I conclude that it is not fair and reasonable that the parties are bound by the contracting out provisions in the vehicle offer and sale agreement. Therefore, the CGA applies to the sale of the LDV to Red Leaf Coffee.
[22] Accordingly, I will proceed to consider whether the vehicle failed to comply with the guarantee of acceptable quality in the CGA.

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

[23] 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”. According to s 2 of the CGA, “goods” includes vehicles.
[24] “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.

...

[25] 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.
[26] Ms Hart first heard the mechanical bang from the vehicle about two weeks after taking delivery of it, as she was reversing it up a steep, slippery driveway. She thought that the noise had occurred merely because the vehicle was new, so she did not complain to the dealer at first.
[27] A few weeks later, Ms Hart reported that the four-wheel-drive selector control “died” and the “check four-wheel-drive system” warning light came on. This fault cleared itself after Ms Hart parked up the vehicle for an hour.
[28] Around Easter 2023, Ms Hart heard the mechanical bang noise again as she was reversing her trailer.
[29] On 24 May 2023, the four-wheel-drive selector control “died” again while Ms Hart was at an event. The vehicle had to be towed as it became inoperable.
[30] A Hutt Valley LDV invoice dated 1 June 2023 describes what was done to address Ms Hart’s concern that the check four-wheel-drive system warning message was displayed, the four-wheel-drive selector lights were off and it was not possible to take the vehicle out of 4L mode. The vehicle was test-driven and the fault was able to be replicated. A scan revealed several diagnostic codes relating to the transfer case control unit (TCCU). After consulting with LDV technical assistance, Hutt Valley LDV replaced the TCCU, cleared the fault codes and, on a further test drive, no TCCU fault codes returned. However, some faults, believed to be unrelated, were present for the trailer control module (TCM). The vehicle was returned to Red Leaf Coffee with advice that it should be brought back for assessment if further problems arose.
[31] A Hutt Valley LDV invoice dated 15 June 2023 describes what was done to address Red Leaf Coffee’s concern about the loud mechanical bang/clunk from the 4WD system after 4L is engaged. The invoice records that the workshop found the transfer case to be moving when the clunk/bang occurs. With direction and assistance from LDV technical specialists, Hutt Valley LDV determined that the transfer case was likely to have an internal fault. Hutt Valley LDV replaced the transfer case assembly, filled it with gear oil and test drove the vehicle. The invoice reports that the concern was found to have gone.
[32] However, Ms Hart continued to hear the loud mechanical bang from the vehicle.
[33] Red Leaf Coffee produced several reports to support its submission that the vehicle does not comply with the guarantee of acceptable quality

That Car Place

[34] Ms Hart produced two reports from That Car Place:

• (a) The first report dated 4 August 2023 recorded a test drive with Ms Hart seeking to replicate an abnormal noise when in 4L. The vehicle was test-driven extensively on a loose gravel road and wet muddy grass. The noise occurred numerous times on turning in both forward and reverse. A loud bang was heard at both the front and rear of the vehicle and a binding sensation was felt prior to the noise occurring. The report writer determined that either the front and rear differentials were binding and then releasing built up tension, causing a loud banging noise, or the four-wheel-drive transfer case was at fault. No visual fault was observed when the vehicle was raised on a hoist and inspected underneath. The front and rear differentials appeared to be open, indicating a possible fault in the four-wheel-drive transfer case causing driveline wind-up. The report writer said this would require the transfer case to be removed and stripped to determine the cause of fault. The report writer concluded that they suspected the transfer case had a manufacturing fault, given that it had already been replaced by LDV for the same fault previously. The writer noted that differential and CV joint damage could occur if the fault was not remedied. That Car Place recommended that further investigation should take place.
• (b) The second That Car Place report is dated 5 September 2023 and states that the transmission felt “very notchy in gear shifts from cold” and that there was a “possible whine” heard as well. The report noted that shifting improved after a period of time driving and the transmission had warmed up. The report states that the “check four-wheel-drive” warning light illuminated three times during the test drive. When this occurred, the four-wheel-drive control knob no longer functioned and the backing light to the control knob no longer illuminated. The report also noted a vibration noise that was heard from the passenger’s side of the vehicle when the engine speed is at 2,000 rpm and higher. The origin of this vibration was traced to fuel lines. Three fault codes were obtained from a diagnostic scan:

P1009-00 double mass flywheel speed protection indication

2701 no ID found

2023 no ID found

Wellington Automotive Gearbox Specialists

[35] At the Tribunal’s request, Ms Hart obtained a further report from Wellington Automotive Gearbox Specialists (WAGS) dated 20 September 2023. WAGS road-tested the vehicle for binding/knocking/noises when in 4L. It noted “lots of vibrations and smaller noises”. WAGS noted slight movement in the driveshaft splines. It fitted a missing bolt in an underbody panel and replaced two plastic clips missing in the engine bay. It carried out an approximate ratio check on the differentials and reported that they appeared acceptable. WAGS carried out a further road test in both 2WD, 4WD, Auto, 4H and 4L settings on both sealed and unsealed roads. It noted vibration engine speed noise from the left side and that the vehicle graunched twice into second gear when cold. The only time the knocking noise was experienced was when turning very tightly under load in 4L. The report writer noted that the vehicle “feels like wind up in the 4WD unit caused by no-slip, a common characteristic on selectable 4WD vehicles”. The report writer noted that inconsistent knocking was present as the wind-up let go, but they were unable to pinpoint where the audible knock came from without stripping parts for further investigation. The report writer also referred to a passage in the vehicle owner’s manual which states “large angle turning is prohibited under 4L/4H mode.”

4 Motion Automotive

[36] A further report dated 26 September 2023 was received from 4 Motion Automotive Ltd, the business of Mr Williams, Ms Hart’s partner. This report described the “audible clunk” noticed while test driving the vehicle on a large open gravel yard in 4L mode. The report describes the clunk as occurring when the “windup within the driveline releases”. Mr Williams confirmed that there was no audible clunk when the vehicle was in 4H mode. Nor did Mr Williams notice the audible clunk when trying to replicate the issue in an automatic LDV T60. Mr Williams reported that he observed spline play in the driveshafts and rotational play within the inner CV joints. His report also refers to an audible vibration from fuel lines that are not held securely on the vehicle and that are vibrating against the lower firewall floor area at the left front of the vehicle. He also mentions that the gearbox has a whine and is quite notchy when cold. Mr Williams expressed his opinion that the noise indicated that the vehicle has a manufacturing fault that will cause excessive wear and possible failure.

Respondents’ submissions

[37] The respondents acknowledged that this vehicle had a fault with its TCCU, resulting in that module being replaced in June 2023.
[38] However, the respondents’ position in relation to the mechanical bang/audible clunk has changed. They say now that the Hutt Valley LDV diagnosis that led to replacement of the transfer case was mistaken and the repair was unnecessary.
[39] The respondents’ primary defence to this proceeding is that the mechanical noise experienced by Ms Hart is an ordinary characteristic of the vehicle.
[40] In a series of emails in June 2023, Jason Wiggan, who was then National Service Manager – LDV, explained to Ms Hart the reason for the noise. He said the vehicle has fully locked front hubs and that this locks the centre differential. Mr Wiggan said that some other types of 4WD vehicle do not make this noise because they have open differentials and non-locking front hubs or permanent all-wheel drive, rather than part time four-wheel-drive, as in the T60.
[41] As illustrated in a video provided by Mr Wiggan, when the vehicle is driven over changing surfaces, from full grip to a slip situation, the differential rapidly shifts from positive load to negative load, resulting in the noise as the differential rapidly unwinds. Mr Wiggan explained that it is not a fault, but a characteristic of this type of system. He said that it was not unique to the LDV T60 and is a feature of other vehicles of this type. This effect is exaggerated the more steering lock is applied. Mr Wiggins said that SsangYong and LDV use the same Borg-Warner part-time four-wheel-drive system and they all have this characteristic, as do some Toyotas.
[42] Neil Hodgson, who was previously Aftersales Manager for Great Lake Motor Distributors, attended the hearing by telephone to give evidence on behalf of the first and second respondents. He said the mechanical bang/audible clunk noise is the result of an electromagnetic clutch release in the transfer case. He said that when the vehicle was operating in 4WD, the front wheel hubs lock and there is no slip in the differential. In this setting, when the vehicle is turned, tension builds up which is periodically released, resulting in the mechanical banging/clunking noise. As such, Mr Hodgson confirmed that this is a characteristic of the vehicle, namely the releasing of tension from the whole driveline by releasing of the electromagnetic clutch in the transfer case.
[43] Mr Hodgson said that the automatic transmission is “softer than the manual” because of the dampening effect of the torque converter that is present in the automatic transmission which, with its fluid coupling, absorbs some of the tension. This explains why the noise may not have been noticeable when Ms Hart and Mr Williams drove an automatic version of the vehicle, compared to Red Leaf Coffee’s vehicle, which is manual.
[44] In relation to Mr Williams’ concerns that release of tension might lead to increased wear and tear on mechanical parts, in Mr Hodgson’s experience the bind-up release and resulting noise is not likely to lead to drivetrain failure. But if there were any problems the purchaser would be covered by the vehicle’s five year, 130,000 km warranty.
[45] Mr Hodgson acknowledged that the transmission had a “notchy” gear selection when cold and that if the driver pulled on the gear stick too abruptly it could produce a graunch. He said that the vehicle is equipped with a robust industrial gearbox and that some of the notchiness comes from the thickness of the transmission oil used in it.
[46] Mr Hodgson said that driving for a long period on a hard surface could cause the electromagnetic clutch to overheat. The heat protection system will cause the TCCU to shut down. In that case, the vehicle will go into two-wheel-drive and a warning light will appear on the dashboard. Mr Hodgson said he suspected this might have occurred during That Car Place’s test drives. He observed that no fault codes relating to the TCCU were brought up according to That Car Place’s report.
[47] Mr Hodgson said that the fuel line vibration can be remedied by the simple addition of a clip, under warranty, if the vehicle were brought back to the third respondent’s Hutt Valley branch. Likewise, he said if there are any concerns about play in the driveshaft splines, Ms Hart will need to bring the vehicle back for assessment. However, Mr Hodgson said that some movement in the splines (especially vertical movement) is normal.
[48] On behalf of the fourth respondent, Mr Ford encouraged Ms Hart to bring the vehicle back for any further workshop assessment that she considers may be required. The fourth respondent will continue to meet the manufacturer’s obligations under the vehicle warranty.
[49] At the end of the hearing, I had told the parties that the Tribunal would make a decision based on the evidence supplied before and at the hearing and that no further evidence was required. Notwithstanding this, after the hearing, Ms Hart produced a further video which she wanted the Tribunal to take into account. I asked the respondents to indicate their position on whether the Tribunal should take the new evidence into account. On behalf of the first and second respondents, Ms Pugh responded that there were certain issues validating aspects of the new video and she would prefer that the Tribunal did not take it into account.
[50] I share Ms Pugh’s concerns about the video and confirm that it was not taken into account in my decision. However, to some extent the same point that Mr Hodgson and Mr Ford made is relevant here too. If Ms Hart has ongoing concerns in relation to the vehicle she is free to bring those concerns directly to the attention of the third respondent and give it an opportunity to assess and diagnose the vehicle and determine if there are any faults that require repairs.

Tribunal’s assessment

[51] In my view, and that of the Tribunal’s Assessor, Mr Cate, Mr Hodgson and the emails of Mr Wiggan have effectively explained the reason for the mechanical banging/audible clunk noise while the vehicle is in 4L mode. Although this noise is clearly disconcerting to Ms Hart, she has not established that it is the result of any fault or that a reasonable consumer would not consider it to be an acceptable feature of the vehicle.
[52] In relation to the other concerns of Ms Hart for example relating to the vibration attributable to the fuel lines, she should give the third and fourth respondents an opportunity to assess and address those concerns under the vehicle’s warranty.

Conclusion

[53] Red Leaf Coffee Ltd’s application is dismissed.

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] The LDV T60 has part-time four-wheel-drive. Four options can be selected from a rotary dial in the centre console, 2H and 4H for high-speed driving, Auto mode which automatically switches between 2H and 4H, and 4L, for low-speed 4WD.

[2] Consumer Guarantees Amendment Act 2013, s 13.