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New Zealand Motor Vehicles Disputes Tribunal |
Last Updated: 19 June 2024
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BETWEEN SEBY VARGHESE
Applicant
Respondent
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HEARING at CHRISTCHURCH on 15 February and 14 March 2024 (by
audio-visual link)
MEMBERS OF TRIBUNAL
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D M Jackson, Barrister – Adjudicator
S Cousins – Assessor
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APPEARANCES
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S Varghese, Applicant
A George, Partner of and Witness for the Applicant
T Crowther, Witness for the Applicant
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B Meenattoor, Director for the Respondent
M John and M Jesudas, Interpreters (Malayalam)
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DATE OF DECISION 7 May 2024
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_________________________________________________________________
DECISION OF THE TRIBUNAL
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A Mr Varghese’s rejection of the vehicle is upheld as from 27 June 2023.
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REASONS
Introduction
[1] On 26 May 2023 Mr Varghese purchased a 2016 Mitsubishi Outlander (ex Japan) from in United Trading 2019 Limited trading as Auto Nest (in liquidation) (the Trader) for $33,300. Mr Varghese paid a cash deposit of $2,300 and financed the balance of the purchase through Finance Now Limited. He also purchased a Mechanical Breakdown Insurance Policy (MBI policy) via the Trader from Janssen Insurance for $2,177.56. The vehicle had travelled 85,000 kms at the time of purchase. As at 14 February 2024, the vehicle’s odometer read 87,229 kms travelled. As at 4 April 2024 the vehicle’s odometer read 88,396 kms. It has not travelled far in the time that Mr Varghese has owned the vehicle.
[2] That is because Mr Varghese complains that he experienced problems with the vehicle’s hybrid battery from the very start. He raised these with the Trader who advised him that because it is a Japanese import, it will take time for the battery to charge. Despite his patience and efforts to charge the battery, it would not charge and Mr Varghese complained frequently to the Trader.
[3] Eventually the Trader arranged for an inspection of the hybrid battery by a third party. On 26 June 2023 the third party repairer advised Mr Varghese that the battery state of health was 43 per cent. He asked how much a replacement battery might cost and was told approximately $22,000. Incensed, Mr Varghese took the vehicle back to the Trader and rejected it. He says the Trader asked for time to resolve the issue and offered to meet Mr Varghese’s vehicle finance commitments in the interim.
[4] On 27 June 2023 Mr Varghese confirmed his rejection of the vehicle in an email to the Trader. There were discussions about the hybrid battery being repaired or replaced with a refurbished battery but Mr Varghese would not allow the repairs to be carried out using his MBI policy.
[5] The Trader entered voluntary liquidation on 12 March 2024. Under s 248(1)(c)(i) of the Companies Act 1993, a person can only continue legal proceedings against a company in liquidation with the consent of the liquidators or an order of the High Court. Because these were continuing legal proceedings when the Trader was placed in liquidation (as a proceeding continues until judgment is delivered) I could not issue a decision without the consent of the liquidators or an order from the High Court.
[6] On 22 March 2024 the liquidator gave permission for these proceedings to continue against the Trader and authorised its director appear as its agent. The Trader disputes Mr Varghese’s claim and says he declined it the opportunity to repair the vehicle and therefore can have no remedy.
The issues
[7] 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 Mr Varghese entitled to under the CGA?
Issue 1: Has the vehicle been of acceptable quality?
[8] 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”.
[9] “Acceptable quality” is defined in s 7 of the CGA (as far as is relevant) as follows:
- 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.
[10] 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.
[11] Mr Varghese produced an inspection and diagnosis report prepared by Mr T Crowther of St Kilda Automotive dated 22 February 2024. Mr Crowther reports that
- [11.1] A replacement battery ex Japan will cost $26,835 to obtain and install;[1]
- [11.2] There is no doubt the hybrid battery requires replacement noting that the battery state of health is a mere 38 per cent at three-quarter charge (whereas the manufacturer says 65 per cent is an acceptable state of health level); and
- [11.3] The hybrid battery has compromised range regardless as evidenced by Mr Crowther’s photographs, which show it travelled a mere 4.8 kms fully charged (whereas new, a hybrid battery should last 54 kms before needing charging).
[12] Mr Cousins, the Tribunal’s Assessor,[2] has read the material filed by both parties and agrees with Mr Crowther. He says the 43 per cent state of health of this battery and its limited range are faults which were undoubtedly present at the time of sale. There can be no credible argument over this because Mr Varghese could not charge the battery properly from the outset and complained to the Trader immediately.
[13] I am satisfied that no reasonable consumer of a hybrid vehicle, who is aware of a defective hybrid battery, requiring its replacement, would regard that as acceptable. Indeed, as I will go on to explain, I find that no reasonable consumer would purchase such a vehicle. I find that the vehicle breaches the guarantee of acceptable quality by virtue of its entirely defective hybrid battery.
Issue 2: Are the vehicle’s defects a failure of a substantial character?
[14] 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.
[15] Mr Crowther and Mr Cousins are agreed that this hybrid battery is beyond repair or refurbishment. It must be replaced. I cannot contemplate a scenario where the purchaser of a hybrid vehicle would purchase said vehicle despite knowing that the hybrid battery was defective and required replacement. The cost of the replacement alone leads me to find that no reasonable consumer would have acquired the vehicle fully acquainted with the nature and extent of the failure. I find the failure to comply with the statutory guarantee to be of substantial character.
Issue 3: What remedy is Mr Varghese entitled to under the CGA?
[16] The relevant remedies are set out in s 18 of the CGA, which provides:
- 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.
[17] I find Mr Varghese is entitled to reject the vehicle. The breach of the guarantee is of substantial character, which means rejection is an automatic remedy under s 18(3). Mr Varghese gave notice of rejection of the vehicle promptly and resisted any efforts on the part of the Trader to force a repair on him, especially noting that the Trader wanted to use Mr Varghese’s MBI policy to pay for said repairs. Mr Varghese gave notice of rejection on 27 June 2023 and I will uphold his rejection as at that date.
[18] I will order the Trader, even if in liquidation, to refund Mr Varghese the $2,300 deposit paid by him at the time of purchase. I will likewise order the Trader to refund Mr Varghese the cost of the MBI policy, which Mr Varghese has paid by way of instalments in the amount of $2,177.56. These are to be paid within ten working days of the date of this decision.
The Tribunal can vest Mr Varghese’s loan in the Trader
[19] Mr Varghese and his partner, Ms George, financed the purchase of his vehicle through a loan by Finance Now Limited. 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.
[20] As all these conditions are met in the present case, the Tribunal has jurisdiction to vest the loan between Mr Varghese and Ms George 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 Mr Varghese rejected the vehicle, 27 June 2023.
[21] While I appreciate that the prospect of recovery of the amounts ordered to be paid to Mr Varghese may be limited, I will leave the liquidator to liaise with him as to recovery options as a creditor in the liquidation and otherwise the possible agreed repossession of the vehicle by Finance Now Limited to bring matters to a close.
Conclusion
[22] For the above reasons, I make the following orders:
- (a) Mr Varghese’s rejection of his 2016 Mitsubishi Outlander is upheld as from 27 June 2023.
- (b) The collateral credit agreement between Mr Varghese and Ms George and Finance Now Ltd dated 26 May 2023 is vested in United Trading 2019 Limited trading as Auto Nest (in liquidation) as from 27 June 2023. Mr Varghese and Ms George have no further obligation to make any payments under that agreement.
- (c) United Trading 2019 Limited trading as Auto Nest (in liquidation) must pay Mr Varghese the monthly payments made by him to Finance Now Ltd since the date of rejection. Mr Varghese 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) United Trading 2019 Limited trading as Auto Nest (in liquidation) must also pay Mr Varghese the principal component of his payments prior to 27 June 2023 under the collateral credit agreement. Mr Varghese 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 ten working days United Trading 2019 Limited trading as Auto Nest (in liquidation) is to pay Mr Varghese $2,300 (being a refund of his cash deposit) and $2,177.56 (being the cost of the MBI policy purchased by him).
- (f) Once these sums have been paid in full to Mr Varghese, United Trading 2019 Limited trading as Auto Nest (in liquidation) must collect the vehicle from him at its cost (if any).
D M Jackson
Adjudicator
[1] Although Mr Crowther did mention that a new market entrant was offering refurbished batteries at significantly less cost but could provide no further details.
[2] 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 sch1 cl 10of 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.
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