Vilhelmsen v Fuzhou Holding Co Limited - Reference No. MVD 501/2023 [2024] NZMVDT 53 (27 March 2024)

Last Updated: 25 April 2024

IN THE MOTOR VEHICLE DISPUTES TRIBUNAL I TE RŌPŪ TAKE TAUTOHENGA Ā-WAKA MVD 501/2023 [2024] NZMVDT 053 ...........................................................UNDER APPEAL BETWEEN SANDRA VILHELMSEN Applicant AND FUZHOU HOLDING CO. LIMITED Respondent

MEMBERS OF TRIBUNAL

D Watson, Adjudicator

S Gregory, Assessor

HEARING on 19 March 2024 (by audio-visual link)

APPEARANCES

S Wilhelmsen, Applicant

K Yu, for the Respondent

DATE OF DECISION 27 March 2024

_________________________________________________________________

DECISION OF THE TRIBUNAL

_________________________________________________________________

A Sandra Vilhelmsen’s claim for rejection is dismissed.

B Fuzhou Holding Co. Ltd must uplift the vehicle and replace the damaged engine within a reasonable time of the date of this decision.

_________________________________________________________________

REASONS

Introduction

[1] Sandra Vilhelmsen purchased a 2012 diesel turbo Mazda CX 5 from Fuzhou Holding Co. Ltd (FHL) on 21 August 2022 for $13,990. The vehicle had then travelled 108,000 km. The vehicle has recently been diagnosed as in need of a new engine at a replacement cost of $16,000. She wants an order for rejection of the vehicle.
[2] FHL denies any liability. It says that the faulty engine has occurred too long after purchase for it to be responsible for repairs under the Consumer Guarantees Act 1993 (the CGA).

The issues

[3] 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 Vilhelmsen entitled to under the CGA?

Relevant background

[4] On 14 October 2022, Ms Vilhelmsen noticed some smoke coming out of the vehicle. The vehicle was seen by Te Kauwhata Mechanical & Towing Services Ltd. Its opinion was that the oil was contaminated. It found diesel and oil mixing in the engine and recommended that the vehicle be seen by a Mazda dealership. It put 5.1 L of oil in the vehicle. It arranged for the vehicle to be towed to Fairview Motors, a Mazda dealership.
[5] Fairview Motors replaced the turbocharger assembly and related parts. Ms Vilhelmsen claimed the cost of those repairs under her mechanical breakdown insurance policy but the shortfall including an excess was $1,502.50. The invoice records that the vehicle had then travelled 108,928 km.
[6] Fairview Motors does not appear to have checked the vehicle’s injector seals at that time.
[7] Ms Vilhelmsen did not contact FHL for any remedy regarding this issue.

Engine failure

[8] On 2 October 2023 an engine and oil light came on when Ms Vilhelmsen started the car. The next day, she drove the vehicle to Fairview Mazda in Hamilton to have it diagnosed. It advised her that the vehicle had a suspected blocked oil strainer. It found the oil pressure was too low and upon removing the oil strainer it found metal fragments and large pieces of metal in the oil sump. It has diagnosed the vehicle as having an internal engine failure and recommended replacing it with a new engine. Its estimate is $16,000. Its estimate has recorded that the current odometer reading on the vehicle is now 120,462 km.
[9] Ms Vilhelmsen is only able to claim $4,000 towards the cost of that repair under her MBI policy and so has made this claim.

Issue 1: Was the vehicle of acceptable quality?

[10] Section 6 of the CGA imposes on suppliers and manufacturers of consumer goods a guarantee that the goods are of acceptable quality. Section 2 of the CGA defines “goods” as including vehicles.
[11] The expression "acceptable quality" is defined in s 7 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.

[12] In considering whether or not goods meet the guarantee of acceptable quality, the Tribunal must consider the quality elements as set out in s 7(1)(a)-(e) of the CGA as modified by the factors set out in s 7(1)(f)-(j), from the perspective of a “reasonable consumer”. The test is an objective one; it is not a view of those factors from a purchaser’s subjective perspective.
[13] 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.

The Tribunal’s assessment

[14] I am satisfied that the evidence presented in this case establishes that this vehicle has suffered from leaking injector seals, from or at least very close to the date of purchase of the vehicle, and that this fault has most likely then caused the failure of the turbo and the subsequent engine failure.
[15] In October 2022, when the turbo was replaced, there was evidence that the oil in the vehicle was contaminated at that time. The invoice from Te Kauwhata Mechanical & Towing Services Ltd made reference to diesel and oil mixing in the engine. Indeed it recommended that the vehicle be seen by a Mazda dealership.
[16] This was the initial tell tale sign of the possibility of leaking injector seals. Mr Gregory, the Tribunal’s Assessor, advises that leaking fuel injector seals allow combustion gases and unburnt diesel to enter the vehicle’s oil. Over time, this causes the oil to become diluted with diesel and so weakening the oil’s lubricating properties, causing accelerated and premature engine wear. The material from the worn engine components then ends up blocking and restricting the operation of the oil pickup and serious engine failure then follows. The turbo is often the first component to fail because it requires a constant high-quality oil supply.
[17] Mr Gregory also advises that diesel turbo Mazda CX5’s of this age are known to be prone to fuel injector seal leaks, which can lead to much more significant engine damage if the leaking injector seals are not identified early and rectified. He advises that the fact that this vehicle is prone to this issue is something that would be known to a reasonable repairer.
[18] There is no evidence, however, that the injector seals were checked and repaired by Fairview Mazda when the turbo was replaced. This would generally be considered a prudent step, although there may have been good explanation for it. More probably than not the explanation was that the engine oil had been freshly replaced by Te Kauwhata Mechanical & Towing Services Ltd before the vehicle was taken to Fairview Mazda. This would have masked the presence of any oil contamination issues when Fairview Mazda was inspecting the vehicle.
[19] In the absence of the fuel injector seals being checked and replaced at that time, Mr Gregory advises that the seals would have then continued to leak after the turbo was replaced, causing further carbon build-up and oil dilution in the engine, which, in turn, caused worn engine components to block the oil pickup and then caused the engine to fail, due to oil starvation.
[20] I accept all of the foregoing advice of Mr Gregory. Given the close proximity of the initial evidence of diesel and oil mixing in the engine in October 2022 to the date of purchase, I conclude that this vehicle was more probably than not suffering premature engine wear and damage at the time Ms Wilhelmsen purchased it or shortly thereafter.
[21] The CGA provides a guarantee of reasonable durability, as part of the acceptable quality guarantee.[1] It is that guarantee of durability which I consider to be primarily at issue in the present case.
[22] FHL submits that it was not approached when the turbo was replaced for repair and that, had it been approached, it would have been able to replace the injector seals at that time and thus avoid the consequent engine damage.
[23] This argument has some logical force, but it is weakened by two evidential flaws. The first is that Mr Gregory’s advice is that by the time that the turbo had suffered damage, it is likely that there was already premature wear and tear to the engine which could well have meant the engine required replacement even at that point. Second, there is no evidence that FHL’s mechanic would necessarily have identified the seals as needing replacement. By the time the vehicle went to Fairview Mazda, the oil had been freshly replaced. FHL’s mechanic may well have reached the same conclusion that Fairview Mazda reached, namely that with the oil being uncontaminated, there was no issue with the injector seals at that time.
[24] This vehicle has suffered from premature engine failure caused by leaking injector seals. I find that there was most likely evidence of premature engine failure at or close to the time of sale. I conclude that the premature engine failure caused by leaky injector seals has meant that the vehicle has not been as durable as a reasonable consumer would regard as acceptable, given the age, price and milage of the vehicle.
[25] I therefore conclude that the vehicle failed to comply with the guarantee of acceptable quality.

Issue 3: Is the vehicle’s defect a failure of a substantial character?

[26] Under s 18(3) of the CGA, Ms Vilhelmsen may reject the vehicle if its defect amounts to a failure of a substantial character. 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.

[27] Section 21(a) of the CGA applies to this case. The question I must answer is whether the faults that this vehicle has, are such that a reasonable consumer, fully acquainted with the true nature and extent of the faults, would not have purchased the vehicle.
[28] I have no difficulty in concluding that a reasonable consumer fully acquainted with the true nature and extent of the fault would have declined to purchase the vehicle. This is a serious fault. It has rendered the vehicle undrivable and will cost a significant amount of money to repair. I find that the premature engine failure amounts to a failure of a substantial character.
[29] It follows that Ms Vilhelmsen had the right to reject her vehicle. The question now arises however whether she has lost the right to reject.

Issue 4: Has Ms Vilhelmsen lost the right to reject the vehicle?

[30] Section 20 of the CGA sets out the circumstances in which a purchaser loses the right to reject a vehicle. It specifies, however, that a right to rejection must be exercised within a “reasonable time”. Section 20(2) provides:

In subsection (1)(a), the term reasonable time means a period from the time of supply of the goods in which it would be reasonable to expect the defect to become apparent having regard to—
(a) the type of goods:
(b) the use to which a consumer is likely to put them:
(c) the length of time for which it is reasonable for them to be used:
(d) the amount of use to which it is reasonable for them to be put before the
defect becomes apparent.

[31] The period of time within which rejection must occur runs from the date of supply, not from the date any defect was, or ought to have been discovered.
[32] The Court of Appeal in Nesbit v Porter,[2] in considering s 20 and what was a “reasonable time” under the CGA, in respect of an 11-year-old Nissan Navarro which was sold for $10,990.00 and rejected because of rust nine months after purchase, said:

[36] In many, if not most, cases the period will be longer for new goods, which a buyer is entitled to expect to be defect free when first used, then it will be for second hand goods of the same type. As a general rule, the older the goods, the shorter is likely to be the reasonable time. The period may also be longer if the goods are likely to be used infrequently or only at a particular time of the year. For example, one would not expect any defect in skis purchased during summer to become apparent until the next winter.

[37] Another factor which will influence the period to be allowed for exercise of the writer rejection is whether regular inspections of the goods for defects are customary, or, as in the case of motor vehicles, required by law. But for defects which cannot be expected to be revealed by such inspections the reasonable time may be longer.

[33] Mr Gregory advises that in this case the contaminated oil and turbo damage indicate that there would have been some premature wear and tear to the engine either at the time of sale or closely thereafter. I accept this advice and find that this particular fault would have been apparent no later than October 2022, when the turbo damage was discovered.
[34] Ms Vilhelmsen did not however reject the vehicle at that time. She has not done so until considerably later.
[35] I find that the rejection was therefore not exercised within a reasonable time.
[36] Ms Vilhelmsen may consider this conclusion harsh, but the Court of Appeal in Nesbit v Porter considered that there are good policy grounds for requiring the right to reject goods to be exercised within a reasonable time. The Court of Appeal noted:[3]

... the Court should not lose sight of the burden which may be imposed upon a supplier by a lengthy delay in rejecting the goods during a time when their value is likely to depreciate, particularly where depreciation is increased by further usage, as it is for motor vehicles.

Issue 5: What remedy is Ms Vilhelmsen entitled to under the CGA?

[37] 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.

[38] Ms Vilhelmsen has lost the right to reject the vehicle, but she is nevertheless entitled to the remedy of repairing the engine.
[39] I find that FHL must replace the faulty engine within a reasonable time of the date of this decision.

[40] The parties have leave to apply to the Tribunal should any aspect of the above orders require verification.

DATED at AUCKLAND this 27 th day of March 2024

D Watson
Adjudicator

This decision has been appealed. The outcome of that appeal was unknown at the date of the publication of this decision.

---

[1] Consumer Guarantees Act 1993, s 7(1)(e).

[2] Nesbit v Porter [2000] NZCA 288; [2000] 2 NZLR 465 (CA).

[3] At [42].