DRE Group Pty Ltd v PPT Investments t/as Kloster BMW

Jurisdiction

1. The Tribunal has jurisdiction to hear and determine consumer claims pursuant to s 79E of the Fair Trading Act 1987 (the FTA). The FTA adopts the definition of consumer in s 3 of The Australian Consumer Law: 3 Meaning of consumer Acquiring goods as a consumer (1) A person is taken to have acquired particular goods as a consumer if, and only if: (a) the amount paid or payable for the goods, as worked out under subsections (4) to (9), did not exceed: (i) $40,000; or (ii) if a greater amount is prescribed for the purposes of this paragraph--that greater amount; or (b) the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or (c) the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
2. Whilst the amount paid for the goods exceeded $40,000, I am satisfied that the goods (a luxury motor vehicle) are of a kind ordinarily acquired for personal use. I am therefore satisfied that the applicant is a consumer. The respondent supplies goods and services in trade and commerce. The claim arises from the supply of the goods by the respondent supplier and thus is a consumer claim.
3. Section 79S provides that the Tribunal has no jurisdiction to make an order or orders in respect of a consumer claim if the total under or because of the order or orders would exceed the prescribed amount ($40,000), unless the claim arises from the supply of a new motor vehicle that is used substantially for private purposes within the meaning of the Motor Vehicles Taxation Act 1988. I am satisfied that the vehicle was new when purchased, but s 3 (3) of the Motor Vehicles Taxation Act 1988 provides: "Unless Transport for NSW otherwise determines in a particular case or class of cases, a motor vehicle is not a motor vehicle used substantially for private purposes if it is registered otherwise than in the name of a natural person or natural persons".
4. As the vehicle is registered in the name of a company, and Transport NSW has not determined otherwise, the vehicle is not a motor vehicle used substantially for private purposes. The Tribunal cannot make an order or orders if the total of those orders exceeds $40,000.
5. The other constraint on the Tribunal's jurisdiction is found in s 79L of the Fair Trading Act 1987: (1) The Tribunal not have jurisdiction to hear and determine a consumer claim if any of the following apply-- (a) the cause of action giving rise to the claim first accrued more than 3 years before the date on which the claim is lodged, (b) the goods or services to which the claim relates were supplied (or, if made in instalments, were last supplied) to the claimant more than 10 years before the date on which the claim is lodged. (2) Nothing in this section affects any period of limitation under the Limitation Act 1969. .
6. The cause of action arises upon the rejection of the vehicle. This claim is lodged within time.

The facts

1. Many of the facts are not contested. I make the following findings: 1. The applicant purchased the X5 on 1 June 2015. The tax invoice discloses a purchase price, inclusive of GST, stamp duty and taxes of $148,999.99. 2. Anthony Di Nardo is a director of the applicant company. 3. The applicant had the vehicle serviced, on most occasions, by D&P Di Nardo, a business operated by Anthony Di Nardo's father and brother. 4. The tax invoices for the services conducted by D&P Di Nardo disclose that the vehicle was serviced at 16,445km, 35,878km, 48,295km, 63,168km, 88,180km, 118,060km and 139,554km. 5. The applicant says the X5 was also taken to Kloster BMW for a service at circa 100,000km. A copy of the service report has not been provided. The respondent says that the vehicle was presented to them at 81,041km, 84,348km, 86,894km and 115,100km, and on each of these occasions was overdue for servicing. 6. The applicant records no incidents with the X5 until 6 July 2018 when a knocking noise was detected. The applicant says that the X5 was returned to the respondent on 9 July 2018 and 31 July 2018 in respect of that issue, resulting in replacement of an engine seal and an engine mount. The respondent says that the noise was pinpointed to the driveshaft and further investigation was recommended, but the X5 was not returned. Nothing turns on this issue. 7. The applicant also notes issues with the driver's seat, which were addressed under warranty. Issues with an engine light and air conditioning light were attended to under warranty in July and October 2019. 8. On 30 October 2020 the rear left suspension bag was replaced because it was leaking. This was not covered by warranty and was repaired by D&P Di Nardo at the applicant's cost. 9. On 22 February 2021 the X5 was being driven by Mr Anthony Di Nardo when he noticed an engine noise and white smoke issuing from the exhaust. He phoned his mechanic, pulled over and had the vehicle towed to the Di Nardo workshop. 10. On 23 February 2021 D&P Di Nardo diagnosed a failure of "at least one" turbo. 11. Mr Anthony Di Nardo phoned the respondent. He was told that as the X5 was out of warranty and considering that it had not been serviced in the BMW network, BMW Australia would not cover the cost of repair of the turbo. The applicant instructed D&P Di Nardo to proceed. They replaced one turbo. 12. Between 6 March and 8 March 2021 Mr Anthony Di Nardo drove the X5. On 8 March 2018 the X5 lost power and stopped. It would not turn back on. It was towed to the Di Nardo workshop. 13. On 9 March 2021 the X5 ran again. D&P Di Nardo returned the X5 to the applicant and Mr Anthony Di Nardo drove it again. 14. On 11 March 2021 the X5 broke down. The X5 was towed to the respondent. The respondent assessed the X5 and found: "damage to 3 turbos and internal engine damage caused by metal debris and swarf present in the intake system damaging the turbo chargers and entering the combustion chambers". 1. On 1 April 2021 the applicant rejected the vehicle. He stated: "The X5 is not of an acceptable quality which is into (sic) in non-compliance with the consumer guarantees under the Australian Consumer Law. The three breakdowns and the fact that the engine has seized and will not even turn on means that the X5 is: unfit for the purpose for which it was supplied; and/or not free from defects; and/or unsafe as it came to an immediate and complete stop in the middle of heavy traffic; and not durable as it is only 5.5 years old, to the extent that a reasonable consumer fully acquainted with the state and condition of the X5 would consider the car to be unacceptable particularly having regard to: the nature of the car (such as its build date), the price of the car (circa $150,000); and the representations made by BMW about the quality of the car. As specified in your earlier emails the X5 suffered a total failure which constitutes a major failure. The total failure can only be remedied by a total replacement of the engine."

Expert evidence

1. The applicant relies upon a statement from John Di Nardo from D&P Di Nardo. He confirms that D&P Di Nardo serviced the X5. He says that he supervised the replacement of the failed turbo. He observed: "17. The failed turbo had completely disintegrated. 18. The exhaust side of the failed turbo fan blade had completely snapped off. The main shaft in the centre of the turbo has excessive play and engine oil had sprayed into the air ducts. There was some debris of metal from the turbo. 19. The damage looked like it happened all of a sudden and would account for the loud engine noise and the white smoke. 20. In my opinion the disintegration of the failed turbo to that extent could not have been related to wear and tear. 21. In any event, the X5 was a sports model and I expected that it ought to have an engine which would last more than 5.5 years. 22. When Robert and I replaced the failed turbo I noticed there was a significant amount of oil all over the engine, which validated Anthony's experience of saying there was a lot of white smoke pouring out the exhaust". 23. The oil present also indicated to me that there had already been interaction with the engine as the oil had come from the engine through the turbo. 24. I cleaned as much of the oil off the engine and air ducts as possible. We also pulled the old oil filter out and checked for metal fragments and debris. We drained and renewed the engine oil and oil filter (cleaning the system out). 25. We drove the car around to determine if it was using oil. It used approximately 300ml of oil in a day and a half, further indicating that the turbo failure had damaged the engine. 26. The big noise from the failed turbo had stopped but you could still hear some engine rattle. I told Anthony that could be the big ends bearings on the crank shaft being damaged from either debris or lack of oil. 27. I spoke to Anthony and informed him that the engine would likely need to be replaced. He said he was looking to trade the vehicle in."
2. Whilst John Di Nardo has qualifications and experience on which he can base his observations and conclusions, he is not an independent expert. His evidence is evidence of what he did for the applicant. I give it weight accordingly.
3. Neither party has provided any independent expert evidence which complies with the Tribunal's Procedural Direction for expert evidence. This affects the weight which I can give to the evidence relied upon.

The legal tests

1. Section 54 of the ACL provides a guarantee that goods will be of acceptable quality when sold to a consumer. Goods will be of acceptable quality if they are (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from 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 of the goods), would regard as acceptable having regard to (a) the nature of the goods; and (b) the price of the goods (if relevant); and (c) any statements made about the goods on any packaging or label on the goods; and (d) any representation made about the goods by the supplier or manufacturer of the goods; and (e) any other relevant circumstances relating to the supply of the goods.
2. In Prestige Auto Traders Australia Pty Ltd v Bonnefin [2017] NSWSC 149 (1 March 2017) the Supreme Court, when considering the purchase of a second hand BMW X5, found that the vehicle was not of acceptable quality at the time of its purchase. It articulated the test as follows: The relevant test in s 54(2) of the ACL of whether or not goods are of "acceptable quality" is an objective one based on whether a reasonable consumer who was aware of the "defects" in the goods at the time of the supply would have considered them to be of acceptable quality. There was no issue taken that the determination of what is objectively reasonable for a consumer to expect is to be made taking into account the relevant information known as at the time of the trial, including "after-acquired knowledge": Medtel v Courtney at [66] and [70].
3. The test as to acceptable quality is to be made at the date of supply, but evidence available at the date of the hearing can be relied upon to inform that finding (see Matamaini v Automobile Industries Pty Ltd [2017] NSWCATAP 93).
4. Section 54 (6) provides that goods do not fail to be of acceptable quality if the consumer causes them to be of unacceptable quality or fails to take reasonable steps to prevent them from being of unacceptable quality, and they are damaged by abnormal use.
5. If there is a failure to comply with the guarantees, the ACL provides several remedies. These were articulated with clarity in Barbour v Autosports Five Dock Pty Ltd [2020] NSWCATAP 141 as follows: "58 There are three potential causes of action under s 259 relevant to the facts of this appeal arising from breaches of these guarantees. 59 First, if the failure to comply with a guarantee can be remedied and is not a major failure, and the supplier fails or refuses to remedy the matter within a reasonable time the consumer may "by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied": ACL s 259(2)(b)(i). 60 Second, if the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may "by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods": ACL s 259(3)(b). 61 Third, if there is: (1) a failure which a supplier refuses to remedy or which is not remedied in a reasonable time; (2) a failure which is not a major failure which cannot be rectified; or (3) a failure is a major failure, subject to s 262 a consumer may "notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection": ACL subs s 259(2)(b)(ii) and s 259(3)(b). In this case, the consumer must return the goods subject to some exceptions (s263(2)) and "property in those goods reinvest in the supplier on the notification of the rejection" (s 263(6)). 62 In addition, at the election of the consumer, pursuant to s 263(4) the supplier must: (1) refund "any money paid by the consumer for the goods and an amount that is equal to the value of any other consideration provided by the consumer for the goods"; or (2) replace the rejected goods with goods of the same type and of similar value, if such goods are reasonably available to the supplier. 63 In relation to any loss or damage accruing by reason of the failure of a supplier to make good its obligations under s 263(4) of the ACL by refunding any money paid, s 259(4) would then permit a recovery action by the consumer against the supplier. This subsection provides: The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure."

Consideration

1. As articulated in Matamaini v Automobile Industries Pty Ltd [2017] NSWCATAP 93), the question which the Tribunal must first consider and answer is whether, at the time of the sale, the vehicle was of acceptable quality as that phrase is defined in s 54 (2) of the ACL NSW. It is not necessary to prove that at the time of the sale, there was a particular identified defect which caused the vehicle not to be of an acceptable standard.
2. The evidence in this matter is that the damage to the engine of the X5 was caused because of turbo failure. It is apparent that at least one turbo failed, work was carried out and a complete failure of the engine was identified thereafter. When the X5 was delivered to the respondent after the failure of the engine, the respondent identified that three turbo chargers had failed and there was subsequent internal engine damage.
3. There is very little evidence and no independent evidence as to why the first turbo failed. Mr John Di Nardo observed that the damage to the first turbo looked like it had happened "all of a sudden". He did not think that the disintegration of the turbo was consistent with wear and tear. He opined that, in his experience, turbos fail because they have not had oil available to the turbo, (for example because the vehicle has not been regularly serviced), or else there is a fault in the turbo and it just fails, in the same way that any mechanical item may just break. He reasoned that there was no evidence that the turbo had been starved of oil and concluded that it "just broke". He said that because the X5 was a sports model: "I expected that it ought to have an engine which would last more than 5.5 years".
4. I must take into consideration that the X5 is a top end motor vehicle, with a purchase price of $115,000 plus taxes, a total purchase price of almost $150,000. The question I must ask is whether a reasonable consumer, being acquainted with the fact that a turbo might fail after 5.5 years and 147,000 km, would have purchased the vehicle as a top end high performance vehicle for a price of almost $150,000?
5. In Morphy v Beaufort Townsville Pty Ltd (Civil Claims) [2018] VCAT 1520, the applicant purchased a luxury motor vehicle which displayed serious issues within the first year of purchase. It was first rejected by the applicant within 8 months of the purchase. It had travelled approximately 19,000 km. It had a fault, the cause of which was apparently identified and remedied, but which recurred when the vehicle was returned to the consumer. At the hearing the Tribunal accepted that the cause of the defect was a porous engine head, which could only be remedied by the replacement of the engine. The Tribunal found: "69 I find that the motor car was not fit for all the purposes that goods of that kind are commonly supplied, as required by s. 54(2)(a). The repetitive and undiagnosed failures made the car unreliable. That unreliability and the prospect of the defect leading to a sudden and catastrophic engine failure, rendered the motor car unfit for its basic purpose, that is to be driven on or off roads, let alone for any purpose such goods are commonly put to. 70 Whether the possibility of catastrophic engine failure also rendered the motor car unsafe, within the meaning of s. 54(2)(d), is a question of degree. 71 In Contact Energy Ltd v Jones [40] the High Court of New Zealand held that a "reasonable consumer" may be willing to accept a degree of risk. I consider that a "reasonable consumer", standing in the shoes of Mrs Morphy, would not accept this particular safety risk with respect to a motor car used for transporting children and towing horses over long stretches of country roads where there are limited or no facilities for dealing with the consequences of a catastrophic breakdown. In other words, it is reasonable not to expect a consumer to run the risk of a major mechanical breakdown and the risk of being stranded.[41] I find that the failure rendered the car unsafe within the meaning of s.54(2)(d). 72 I further find that the motor car was not durable as required by s. 54(2)(e). The term durable is not defined in the ACL. However, the context of the section clearly requires that the question of durability be determined by having regard to how long a "reasonable consumer" would expect the goods to last, taking into account the price paid, the nature of the goods and the representations made about the goods.[42] 73 That expectation is, in this case, amplified by the quantum of the purchase price and by the representations made by the manufacturer about the quality of the car.[43] These representations go beyond mere "puffery". They make it clear that this motor car is at the top-end of the quality motor car market, a matter reflected in, and reinforced by, the car's price.[44] 74 Bearing all these factors in mind, I cannot imagine any "reasonable" consumer, saying, "Well the car might not be perfect, but it is good enough." No, it is clearly not good enough, for in the words of another tribunal - a "reasonable consumer would be entitled to expect that such a high cost item would be durable, being capable of safe and effective use over a number of years or at least many thousands of kilometres".[45] 75 For the reasons stated above, I find that there has been non-compliance with s. 54 of the ACL by the Supplier."
6. Prestige Auto Traders Australia Pty Ltd v Bonnefin [2017] NSWSC 149 concerned the purchase of a 7-year-old BMW for a price of $37,750.00. The vehicle had travelled 91,000 km. The Court held that the supplier had breached the guarantee of acceptable quality and found that the breach was a major failure.
7. Safi v Heartland Motors Pty Ltd t/as Heartland Chrysler [2016] NSWCATAP 80 concerned the supply of a new Jeep Cherokee which had transmission problems resulting in the need to replace the transmission. The Appeal Panel was satisfied that the issues amounted to a major failure to comply with the guarantee of acceptable quality.
8. Whilst the X5 had travelled 147,437 km at the time of the failure of the turbo, and I have no expert evidence as to how long a turbo is expected to last, or whether it is to be expected that a turbo would "just break" after 147,000 km, I accept that a reasonable consumer would expect a luxury motor vehicle to last "a number of years or at least many thousands of kilometres" (Campbell v Caravan & RV Central Pty Ltd [2016] NSWCATCD 91). I am satisfied that, taking into account the matters in s 54 (2) of the ACL, the failure of the turbo meant that the X5 was not of acceptable quality when it was supplied. In particular, it was not durable, taking into account the price paid for the vehicle.

Did the applicant cause the X5 to be of unacceptable quality, or fail to take reasonable steps to prevent it from being of unacceptable quality? Has the X5 been damaged by abnormal use?

1. Section 54 (6) of the ACL provides that goods do not fail to be of acceptable quality if the consumer causes them to be of unacceptable quality or fails to take reasonable steps to prevent them from being of unacceptable quality, and they are damaged by abnormal use. The respondent's submissions go to this issue. The respondent argued: 1. That as the applicant did not have the services performed in the BMW service network, the applicant's mechanics did not have the specialised training in servicing BMW vehicles that the BMW network mechanics have. 2. That its records indicated that the X5 was late for several services. 3. That the damage to the engine may have been avoided if a different repair had been carried out after the failure of the first turbo, by BMW mechanics, and strictly in accordance with the manufacturer's recommendations.
2. The applicant has provided records of the services carried out by its mechanic, along with a copy of the BMW service history. The respondent gave evidence that services were required approximately every 20000 km or when the vehicle itself indicated that a service was required (usually between 15000 km and 30000 km). The applicant's records support a finding that the X5 was serviced regularly, and within these requirements.
3. The respondent submitted that its records indicate that the vehicle was not always serviced on time. For example, and perhaps most relevantly, the respondent says that on 3 October 2019, with the odometer reading 115,100, the vehicle was 6,000 km late for the engine oil service. This submission appears to be at odds with the BMW service record which confirms that a standard scope service was conducted by Kloster BMW on 1 March 2019, at 102,281 km. It would be reasonable to assume that this service would have included the engine oil service. If it did not, then the respondent's failure to carry out that service would not be a failure of the applicant, but rather of the respondent.
4. I therefore do not accept the respondent's submission that the failure of the turbo was caused by the applicant's failure to service the vehicle in accordance with the manufacturer's requirements.
5. There is also no evidence of abnormal use of the vehicle, required under s 54 (6).

What remedies are available to the applicant?

1. The remedies available for a failure to comply with the guarantees are found in s 259 of the ACL: "259 Action against suppliers of goods

(1) A consumer may take action under this section if: (a) a person (the supplier) supplies, in trade or commerce, goods to the consumer; and

(b) a guarantee that applies to the supply under Subdivision A of Division 1 of Part 3-2 (other than sections 58 and 59(1)) is not complied with. (2) If the failure to comply with the guarantee can be remedied and is not a major failure: (a) the consumer may require the supplier to remedy the failure within a reasonable time; or

(b) if such a requirement is made of the supplier but the supplier refuses or fails to comply with the requirement, or fails to comply with the requirement within a reasonable time--the consumer may: (i) otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or

(ii) subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection. (3) If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may: (a) subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection; or

(b) by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods. (4) The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.

(5) Subsection (4) does not apply if the failure to comply with the guarantee occurred only because of a cause independent of human control that occurred after the goods left the control of the supplier.

(6) To avoid doubt, subsection (4) applies in addition to subsections (2) and (3).

(7) The consumer may take action under this section whether or not the goods are in their original packaging."

1. Section 260 of the ACL provides: "260 When a failure to comply with a guarantee is a major failure

A failure to comply with a guarantee referred to in section 259(1)(b) that applies to a supply of goods is a major failure if: (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 one or more significant respects: (i) if they were supplied by description--from that description; or

(ii) if they were supplied by reference to a sample or demonstration model--from that sample or demonstration model; or (c) the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or

(d) the goods are unfit for a disclosed purpose that was made known to: (i) the supplier of the goods; or

(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made;

and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or (e) the goods are not of acceptable quality because they are unsafe."

1. When the turbo failed, the applicant contacted the respondent. He was advised that BMW would not cover the costs of the repair, as the vehicle was out of warranty, and had not been serviced through the BMW network. The respondent questioned why the applicant would not challenge this advice, but with respect, it is not required to do so.
2. The applicant instructed D&P Di Nardo to proceed to repair the vehicle. He was entitled to do so under s 259 (2) (b) of the ACL. One turbo was replaced, but within a very few days, the car stopped working. The respondent diagnosed damage to all three turbos and the engine, rendering the vehicle completely inoperable.
3. I am satisfied that the failure of the vehicle so soon after the replacement of the first turbo represented a major failure. The X5 is substantially unfit for purpose and it cannot, easily and within a reasonable time, be remedied to make it fit for purpose. The failure of the vehicle would not have occurred without the failure of the first turbo. I accept the respondent's submission that some of the damage may have been prevented if a full diagnosis and repair had been initiated upon the first failure, but it is obvious that the consequent breakdowns indicated that further work (in addition to the replacement of the first turbo) was required. Overall, I am satisfied that the damage to the engine was caused by the failure of the first turbo, and not by any shortcomings in the work carried out by the applicant's mechanics.
4. On 1 April 2021 the applicant rejected the vehicle. I am satisfied that he did so within the rejection period.

What orders can the Tribunal make

1. The Tribunal is limited to making orders, the total value of which must not exceed $40,000. I will therefore order the respondent to pay to the applicant the sum of $40,000 on account of the refund of the purchase monies. The applicant must return the vehicle to the respondent, at his cost.

Orders 1. PPT Investments t/as Kloster BMW is to pay to DRE Group Pty Ltd the sum of $40,000 on or before 10 January 2022. 2. Forthwith upon payment of the sum referred to in order 1, DRE Group Pty Ltd is to ensure that any registered interest over the vehicle is discharged. 3. DRE Group Pty Ltd is to deliver the BMW X5, the subject of this dispute, to Kloster BMW on or before 10 January 2022.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 February 2022