Kennedy v B N Financial Limited t/a Prestige Cars - Reference No. MVD 83/2024 [2024] NZMVDT 116 (3 July 2024)

Last Updated: 24 February 2025

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 83/2024 [2024] NZMVDT 116 BETWEEN BROOKE KATALIN KENNEDY Applicant AND B&N FINANCIAL LIMITED trading as Prestige Cars Respondent

HEARING at CHRISTCHURCH on 14 June 2024 (by audio-visual link) MEMBERS OF TRIBUNAL

D M Jackson, Barrister – Adjudicator S Cousins – Assessor

APPEARANCES

B Kennedy, Applicant J Winter, Witness for the Applicant

P Naylor, Director for the Respondent

DATE OF DECISION 3 July 2024

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DECISION OF THE TRIBUNAL

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1. Ms Kennedy’s rejection of her 2012 BMW ActiveHybrid is upheld as from 20 October 2023.
2. The collateral credit agreement between Ms Kennedy and Finance Now Limited dated 19 April 2023 is vested in B&N Financial Limited as from 20 October 2023. Ms Kennedy has no further obligation to make any payments under that agreement.

100. B&N Financial Limited must pay Ms Kennedy the monthly payments made by her to Finance Now Limited since the date of rejection. Ms Kennedy is directed to obtain this information from the lender and supply it to the case manager. The Tribunal will make a further order based on the information supplied.

4. B&N Financial Limited must also pay Ms Kennedy the principal component of her payments prior to 13 November 2023 under the collateral credit agreement. Ms Kennedy is directed to obtain this information from the lender and supply it to the case manager. The Tribunal will make a further order based on the information supplied.
5. Within 10 working days B&N Financial Limited is to pay Ms Kennedy $398.
6. Once these sums have been paid in full to Ms Kennedy, B&N Financial Limited must collect the vehicle from her at its cost (if any).

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REASONS

Introduction

• [1] On 19 April 2023 Ms Kennedy purchased a 2012 BMW ActiveHybrid 3 from B&N Financial Limited, trading as Prestige Cars (the Trader), for $32,890. Her purchase involved the trade-in of an earlier model BMW vehicle, also purchased from the Trader, which had had ongoing problems of its own. The purchase also included various “performance” upgrades, which I will return to. The vehicle’s odometer read 68,000 kms at the date of purchase, was at 76,555 kms when this application was filed in the Tribunal, and as of 1 May 2024, read 77,904 kms.
• [2] Ms Kennedy complains that the vehicle had ongoing problems, which caused her to lose all confidence both in the vehicle and in the Trader. She gave notice of rejection of the vehicle on 20 October 2023 and by this application seeks orders that her rejection be upheld.
• [3] The Trader resists rejection. It says it has carried out repairs or otherwise expressed a willingness to carry out more repairs, if necessary. It says there is a lack of diagnostic information available upon which to determine both breach and remedy. For this reason, the Trader submits that Ms Kennedy has failed to prove a breach on the balance of probabilities. It says no one can be sure what is wrong with the vehicle, if anything, unless and until the performance upgrades are removed and the vehicle is tested further.
• [4] The parties, especially Ms Kennedy, filed extensive written material and evidence. The Tribunal has read all of the material filed.

The issues

• [5] 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) Are the vehicle’s defects a failure of a substantial character?

(c) What remedy is Ms Kennedy entitled to under the CGA?

Issue 1: Has the vehicle been of acceptable quality?

• [6] 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”.
• [7] “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.

(2) Where any defects in goods have been specifically drawn to the consumer’s attention before he or she agreed to the supply, then notwithstanding that a reasonable consumer may not have regarded the goods as acceptable with those defects, the goods will not fail to comply with the guarantee as to acceptable quality by reason only of those defects.

(3) Where goods are displayed for sale or hire, the defects that are to be treated as having been specifically drawn to the consumer’s attention for the purposes of subsection (2) are those disclosed on a written notice displayed with the goods.

(4) Goods will not fail to comply with the guarantee of acceptable quality if—

(a) the goods have been used in a manner, or to an extent which is inconsistent with the manner or extent of use that a reasonable consumer would expect to obtain from the goods; and

(b) the goods would have complied with the guarantee of acceptable quality if they had not been used in that manner or to that extent.

(5) A reference in subsections (2) and (3) to a defect means any failure of the goods to comply with the guarantee of acceptable quality.

[8] 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. Ms Kennedy’s written material was extensive and, at times, prone to repetition. In the paragraphs that follow I will outline the core allegations made by her.

• [9] Ms Kennedy has experienced numerous concerns with the vehicle, which included:

(a) the failure of the Car Information Computer (CIC);

(b) a stop/start operation/fault message;

(c) an engine warning light illuminating on numerous occasions;

(d) a grinding and high-pitched squeal sound and poor shift quality.

• [10] The Trader submits that those concerns, which are clear and accepted by it, have been repaired at its cost, but that any further repairs have been impeded by the deterioration of the parties’ relationship.
• [11] At the heart of this dispute are various performance tune upgrades, which - as part of the purchase - Ms Kennedy requested the Trader to supply and install.
• [12] The performance upgrade was not documented properly, but the essence (about which there was no dispute) was that Ms Kennedy would have near-identical upgrades to those carried out for another purchaser of a similar vehicle (which both parties knew). This package included the removal of the catalytic converter, a modified software tune to the engine control module, upgraded spark plugs and a modified intake.
• [13] Importantly, the modification to the exhaust and engine control module tune required additional compliance to meet in-service WOF requirements.
• [14] The removal of a catalytic converter requires a Metered Exhaust Emissions Test Certificate to be issued by an entry certifier to confirm it complies with relevant emissions standards.
• [15] Further, the tuning/re-chipping of the engine control module of a turbocharged engine requires low volume certification.
• [16] Mr Naylor, on behalf of the Trader, gave evidence that this certification had been carried out by the Canterbury Compliance Centre. However, the invoices supplied by him, dated 24 February 2023 and 12 April 2024, from the Canterbury Compliance Centre, make no reference to the engine modifications, only to the fitting and certification of the adjustable suspension.
• [17] During the hearing, Mr Naylor provided the LLV plate number, 0098183. The certification attached to this plate number does not detail any engine, exhaust or tune modifications either. In addition to this, I note that the shipping information supplied by Mr Naylor confirmed the parts for the engine modifications arrived on 26 April 2024, some two weeks after the work carried out by the Canterbury Compliance Centre. Regardless, it is clear that the catalytic converter modification has not been removed in such a way as to ensure compliance within service WOF standards and the engine tune modification is likewise uncertified.
• [18] Mr Naylor acknowledged during the hearing that these modifications required certification, although it was his belief they had been certified. The catalytic convertor sits at the Trader’s premises.
• [19] An assessment carried out by Christchurch BMW on 1 May 2024 at 77,904 kms recommended reverting the vehicle back to a standard exhaust system and intake, and to remove all performance software before continuing further inspection and diagnosis of any concerns, if in fact any issues persisted once the vehicle is restored to its original state.
• [20] The Trader largely supported this approach and argued that the only issue that Christchurch BMW can confirm with certainty is that the auxiliary and 12-volt battery require replacement. Otherwise, it says the problems complained of are limited to the failed iDrive unit (now repaired) and the failed batteries (outstanding but it will repair or replace, if allowed), but that all other issues complained of cannot be substantiated pending further works to the vehicle.
• [21] The Trader submits that, as per Christchurch BMW’s advice, the only way to confirm if there are any more faults with the vehicle is to do the following:

(a) Refit the original catalytic convertor;

(b) Fit new 12-volt and AUX batteries;

(c) Update the software to the latest BMW software.

• [22] It submits that only at this point can a technician confirm if the vehicle is experiencing any other issues. The Trader is prepared to do this work at its expense.
• [23] Mr Cousins, the Tribunal’s Assessor,^[1] has reviewed all of the evidence filed and questioned the parties during the hearing.
• [24] Mr Cousins agrees with Christchurch BMW’s assessment and opines that the performance modifications were carried out illegally, rendering the vehicle in an unroadworthy condition, which is non-complaint with in-service WOF standards.
• [25] Ms Kennedy requested these modifications as part of a performance upgrade package. That said, I find that she would have had a reasonable and legitimate expectation that any modifications carried out would be performed properly and in accordance with in-service compliance standards. That is, I am not satisfied that she was aware the modifications were illegal and agreed to them knowing that she would be left with a vehicle which was unroadworthy.
• [26] Mr Cousins advises me that he has a particular concern with the air conditioning faults identified by Christchurch BMW and the effect this may have on the high voltage system, noting that the correct and safe operation of the high voltage windings in the air-conditioning compressor are reliant on correct refrigerant charge and oil grade. Mr Cousins informs me that damage and failure can occur with less than 3 per cent contamination, which could be catastrophic in terms of safety and system integrity. In addition, there have been numerous occurrences stored for the HV battery voltage being too high. He recommends that following the restoration of the engine tune software, the high-voltage systems, including peripheries, should be tested to confirm there are no lasting issues due to the modifications and that the vehicle remains safe.

Assessment

• [27] While I acknowledge that the modifications were carried out at Ms Kennedy’s direction, and that, as with any performance-modified vehicle, the owner should have a reasonable expectation that the modification will exert additional stress and runs the conscious risk that they may impact the vehicle systems involved, I do not consider that Ms Kennedy bargained for the problems she has experienced here. I do not consider the reasonable consumer would bargain for ongoing problems of this nature either. They go beyond the odd tweak here or there, as represented to her at the time of sale.
• [28] Regardless, the modifications – which formed part of the purchase – have rendered the vehicle unroadworthy and incapable of WOF certification. The catalytic convertor sits on the Trader’s workshop floor.
• [29] The fact remains that the vehicle is not legally allowed to be driven on the road. The Trader had an obligation to carry out the modifications with reasonable care and skill and to a WOF-worthy standard. I find it is clear based on the evidence and the Christchurch BMW report (which Mr Cousins endorses) that these modifications are causing issues of their own, in addition to the vehicle not being road legal. The result is a can of worms, which the Trader expressly bargained and assumed the risk for, but which Ms Kennedy did not.
• [30] I find that the vehicle fails the guarantee of acceptable quality because the modifications have not left the vehicle as free from minor defects, safe or durable as a reasonable consumer fully acquainted with the state and condition of the goods, including any hidden defects, would regard as acceptable.

Issue 2: Are the vehicle’s defects a failure of a substantial character?

• [31] A failure of a substantial character is defined in s 21 of the CGA:
  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.

• [32] For all the reasons set out above in my analysis of issue 1, I am further satisfied that the vehicle and its modifications would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure. Further, I find that the vehicle is neither fit for purpose or safe because the modifications have caused problems which are undoubtedly present but which are extremely difficult to diagnose as a result of the modifications themselves. This means the modifications must be removed in order for the vehicle to be inspected and assessed further. Ms Kennedy did not purchase an unmodified vehicle. Rather, she agreed to purchase a vehicle which was modified but road legal and otherwise fully functioning.

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

• [33] 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.

• [34] I find Ms Kennedy is entitled to reject the vehicle as modified. She tried to reject it by email to 20 October 2023, which was rebuffed by the Trader. The breach of the guarantee is of substantial character, which entitles Ms Kennedy to reject the vehicle under s 18(3). Ms Kennedy gave notice of rejection of the vehicle promptly, and although she acquiesced in the further diagnosis and/or repair of the vehicle, they were unsuccessful (in that problems with the vehicle remain).^[2] I will uphold her rejection as of 20 October 2023.
• [35] I will order the Trader to refund Ms Kennedy the $398 paid by her to Christchurch BMW to diagnose the breach. This is to be paid within 10 working days of the date of this decision.

The Tribunal can vest Ms Kennedy’s loan in the Trader

• [36] Ms Kennedy financed the purchase of her vehicle through a loan by Finance Now Limited dated 19 April 2023. This is a “collateral credit agreement” for the purposes of s 89(2) of the Motor Vehicle Sales Act 2003. Under that provision, the Tribunal has jurisdiction to order that the rights and obligations of the buyer of a motor vehicle under a collateral credit agreement vest in a motor vehicle trader, if the collateral credit agreement is associated with the contract for the sale of that motor vehicle, that the trader is a party to that contract for sale of the motor vehicle and the Tribunal upholds a rejection of the vehicle and orders the trader to refund the purchase price.
• [37] As all these conditions are met in the present case, the Tribunal has jurisdiction to vest the loan between Ms Kennedy and Finance Now Limited in the Trader. The operative date for the vesting of the collateral credit agreement in the Trader is the date I have found to be the date on which Ms Kennedy rejected the vehicle, 20 October 2023.

Conclusion

• [38] For the above reasons, I make the following orders:

(a) Ms Kennedy’s rejection of her 2012 BMW ActiveHybrid is upheld as from 20 October 2023.

(b) The collateral credit agreement between Ms Kennedy and Finance Now Limited dated 19 April 2023 is vested in B&N Financial Limited as from 20 October 2023. Ms Kennedy has no further obligation to make any payments under that agreement.

(c) B&N Financial Limited must pay Ms Kennedy the monthly payments made by her to Finance Now Limited since the date of rejection. Ms Kennedy is directed to obtain this information from the lender and supply it to the case manager. The Tribunal will make a further order based on the information supplied.

(d) B&N Financial Limited must also pay Ms Kennedy the principal component of her payments prior to 13 November 2023 under the collateral credit agreement. Ms Kennedy is directed to obtain this information from the lender and supply it to the case manager. The Tribunal will make a further order based on the information supplied.

(e) Within 10 working days B&N Financial Limited is to pay Ms Kennedy $398.

(f) Once these sums have been paid in full to Ms Kennedy, B&N Financial Limited must collect the vehicle from her at its cost (if any).

DATED at CHRISTCHURCH this 3rd day of July 2024

David Jackson

Adjudicator

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^[1] Assessors are appointed by the Minister of Commerce and Consumer Affairs under s 88(2) of the Motor Vehicle Sales Act 2003, having regard to the Assessor’s personal attributes, qualifications and skills and knowledge of, or experience in, the different aspects of matters likely to come before the Tribunal. Under cl 10 of Sch 1 of the Motor Vehicle Sales Act, an Assessor sits as a member of the Tribunal and has a duty to assist the Adjudicator in the determination of the claim, although the Adjudicator alone determines the claim.
^[2] In Stephens v Chevron Motor Court Ltd [1996] DCR 1, (1996) 5 NZBLC 104,024 (DC), a consumer purchased a vehicle which had a breach of substantial character of the guarantee of acceptable quality. The supplier remedied the breach although the consumer had given him notice of her intention to reject the vehicle. The District Court held that the consumer was entitled to make this choice.