Vince Taskovski & Anor v Otomobile Shoppe Pty Ltd

The Facts

1. The material facts are: 1. The respondent is a motor dealer carrying on the business of selling motor vehicles in trade and commerce; 2. The respondent advertised a used Audi Q7 Quattro Wagon motor vehicle built 2006 (the Vehicle) on its website and Carsales.com.au for sale at $39,999.00, see exhibit H, which included "Vehicle Comments" and "Other Comments" relevantly describing the vehicle as "comes with outstanding reliability", "makes this prestige motor car tick all the boxes when safety and comfort matters", and the "Features" includes "18in Alloy Wheels"; 3. The applicants are consumers, who saw and responded to the advertisement; 4. On 12 July 2014 the applicants made an agreement with the respondent to purchase the Vehicle under the MDA Form 4 for $39,186.00 (the Agreement); 5. There was no evidence of the terms of the Agreement before me which establish that the Agreement contained any terms concerning the ACL, and particularly to limit the respondent's obligations as it is entitled to do: see ACL ss64 and 64A. 6. On 12 July 2014 the applicant took delivery; 7. As Mr Taskovski, one of the applicants who had travelled from Melbourne to collect the vehicle, drove out of the respondent's yard, he noticed a number of defects and immediately returned the vehicle to the respondent and demanded a refund. This action was clearly within the 5,000 km and 3 months as required by MDA schedule 1 clause 3 for a consumer to exercise the statutory rights; 8. A dispute then arose, and the matter came before the Tribunal on 20 October 2014 when the parties made a new agreement recorded by way of consent orders, in which the respondent agreed to rectify the defects before delivering the vehicle to the applicant in Melbourne, including relevantly, replacement of the engine which the respondent said had already been done (the Second Agreement). The respondent did not reveal that the replacement engine was a VW engine and not an Audi engine; 9. However, when the Vehicle was delivered to the applicants in Melbourne, on inspection by the applicants they noticed that the defects had not all been rectified; 10. On 29 October 2014 the applicants took the vehicle to the Audi Centre Doncaster Service for an inspection report at a cost of $680.00, which identified the following substantive defects (other than wear and tear or cosmetic matters) (exhibit C): 1. Engine number (BWS006273) different from Audi Australia system, and engine block appears to be from a Volkswagen; 2. Engine oil leaks from left side of engine; 3. Small tears in side walls of left front and right rear tyres; 4. Right front wiper hitting A pillar, requires adjustment; 5. Navigation inoperative; 6. Wheel rims non-genuine made in China, diameter 22 inch (maximum allowed 20 inch); 7. Transmission under tray torn; 8. Left rear mudflap missing; 9. Left and right hand side mirror inoperative; 10. Right and left headlight assembly dull, faded and scratched 11. Engine under tray broken; and the report estimates the cost of rectification with genuine parts at $16,954.82 plus the cost of repainting; 1. On 7 November 2014 the applicants obtained a search certificate number 2664107912670001 for the engine from the Personal Property Securities Register (PPSR), exhibit E, which shows that the engine was from a Queensland registered VW Passat which had been written off; 2. On 7 November 2014 the applicants requested the respondent to refund $40,000.00 plus the inspection cost, but the respondent has declined to do so; 3. On 24 November 14 the applicants obtained a written expert opinion from Mr Graeme Cuthbert of Cuthbert Automotive Consulting, exhibit F, which opines (in summary) the replacement of the Audi engine with a VW engine devalues the Vehicle and reputable dealers will generally not deal with vehicles of unknown history and questionable provenance; the VW engine power output is different, and the Vehicle is un-roadworthy; 4. On 2 December 2014 the applicants obtained a Certificate of Roadworthiness from VicRoads number G307677 showing the Vehicle had travelled 68,278 kms (exhibit A), which lists roadworthiness defects, including: 1. Wheels too big 22 inch, should be 20 inch; 2. Top ball joint LHS; 3. Engine oil leaks; 4. Windscreen wiper LHS; 5. Mudflap missing LHS rear; 6. Door trim damaged and not secure; 7. Under stone tray broken and not secure; 8. Front side mirrors inoperative; 9. Sun roof slide cover lock broken; 10. Tyre sidewalls damaged; 11. Headlight assemblies x 2 damaged; 12. Headlights faded, dull and scratched. 1. The repairs were not carried out in so as to rectify all the defects which continued.

CATA renewal

1. CATA Schedule 4 clause 8 concerns an application to renew proceedings if an Order of the Tribunal has not been complied with, to be made within 12 months of when the Order was made. Once an application has been validly made, the Tribunal may make any other appropriate order as it could have made at the time of originally determining the matter: see clause 8(4) which relevantly provides: (1) If the Tribunal makes an order in exercise of a Division function in proceedings, the Tribunal may, when the order is made or later, give leave to the person in whose favour the order is made to renew the proceedings if the order is not complied with within the period specified by the Tribunal. (emphasis added) (2) If an order has not been complied with within the period specified by the Tribunal, the person in whose favour the order was made may renew the proceedings to which the order relates by lodging a notice with the Tribunal, within 12 months after the end of the period, stating that the order has not been complied with. (3) The provisions of this Act apply to a notice lodged in accordance with subclause (2) as if the notice were a new application made in accordance with this Act. (4) When proceedings have been renewed in accordance with this clause, the Tribunal: (a) may make any other appropriate order under this Act or enabling legislation as it could have made when the matter was originally determined, or (b) may refuse to make such an order. (5) This clause does not apply if: (a) the operation of an order has been suspended, or (b) the order is or has been the subject of an internal appeal.
2. I am satisfied that an application for renewal can be made later, the interests of justice require an order granting leave to make the renewal, and determination of the real issues in dispute in accordance with the CATA s36 (Guiding principle to be applied to practice and procedure) to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
3. The matter proceeded at hearing based on a breach of the Second Agreement, and in my opinion it can be determined on that basis as the Second Agreement concerns the terms of original supply of the Vehicle, the repairs which the respondent agreed to do before delivery of the Vehicle in Melbourne, and replacement of the engine. .

MDA -Statutory warranty

1. A statutory warranty is provided with the purchase of a second hand vehicle: Motor Dealers Act (MDA) s27 (Obligations of dealer to repair defects) pursuant to MDA Schedule 1 clause 3; subject to MDA s28 (Exceptions); and MDA s29 (Excluded defects) which latter exceptions and exclusions do not apply to these facts.
2. In my opinion, the MDA does not apply to this application as it is based on a claim which was resolved and recorded in the Second Agreement, which went beyond the respondent's obligations under MDA s27, and now come for determination under ACL.

ACL - Statutory guarantees

1. The ACL statutory guarantees apply to a consumer claim involving a consumer contract for the supply of goods or services to an individual whose interest is wholly or predominantly for personal, domestic or household use or consumption: ACL s3; and involves consumer goods for personal, domestic or household use or consumption or for any purpose and the goods have a value of less than $40,000.00: see ACL s3 and the Fair Trading Act ss27, 28, 30 and 32. The claim must be brought within six years after the applicant became aware of the alleged loss or damage: ACL s236 (Actions for damages) arising from a contravention of matters in Chapters 2 (including ACL s18) and 3 (the ACL Consumer Guarantees). The Australian Consumer Law (NSW) relevantly applies to this matter as the respondent was a person carrying on business within NSW: FTA s32(1)(a).
2. I am satisfied that the applicant was a consumer with a consumer contract involving consumer goods, the purchase price of the Vehicle did not exceed $40,000.00, and the claim was brought within time.
3. There are a number of relevant provisions, including ACL ss18 (Misleading and deceptive conduct); 54 (Guarantee as to acceptable quality) and 56 (Guarantee relating to the supply of goods by description); 57 (Guarantees relating to the supply of goods by description) which are discussed in the following paragraphs.

Misleading and deceptive conduct

1. ACL s18 prohibits conduct that is, or likely to be misleading or deceptive and by s236 gives the Tribunal power to award damages, discussed later.
2. The Second Agreement contained a representation about the vehicle's engine, namely that it had been replaced. This was clearly a representation relied on by the applicants and which induced them to make the Second Agreement. There was no dispute that the engine had been replaced, but relevantly, the respondent did not reveal that the Audi engine had been replaced with a Volkswagen (VW) engine. I accept the opinion of Mr Cuthbert, exhibit F; that the engine replacement devalues the Vehicle and reputable dealers will generally not deal with vehicles of an unknown history and questionable provenance. The engine is a crucial and fundamental part of the Vehicle. An Audi vehicle can be expected to come with an Audi engine, not VW engine and the consumer should not have to accept this engine substitution unless it was revealed to the consumer and the consumer agreed to accept the vehicle with a third party engine. This was not revealed to the applicant when the Second Agreement was made, and they did not find out until later when they commissioned the Audi report on the vehicle.
3. Relevantly, a statement about the vehicle's condition such as is this matter is conduct in trade or commerce to which ACL s18 applies. The respondent's failure to disclose this fact was conduct capable of being misleading or deceptive, by omission. Some examples concerning motor vehicles are found in the cases: Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80 the Full Court declined to overturn a decision in the Federal Magistrates Court that the dealer had engaged in misleading conduct by failing to advise the consumer that the new vehicle was the previous model; Treloar v Ivory (1991) ASC 56-076; ATPR 41-123 a second hand vehicle was represented as having travelled 9,000km but no disclosure was made that it had been in a major accident requiring it to be completely rebuilt. The substitution of an Audi engine with a VW engine is a significant, and not merely a trivial matter. The respondent's conduct was misleading or deceptive and caused them to make the Second Agreement.
4. I find that the respondent's conduct was a breach of ACL s18. This section involves strict liability and the intention of the respondent is not relevant.
5. In addition, the respondent's conduct was a breach of the Second Agreement, as it was an implied and fundamental term that the replacement engine would be an Audi engine, not a third party engine. On this basis, the condition of the Vehicle is not what the applicants bargained for and was a breach of the Second Agreement which also gives the applicants a remedy in the form of a money pursuant to CCA s8, which will produce the same outcome as ACL s236, although the time limitation is only three years.

Acceptable quality

1. There was a further breach of ACL s54 (Guarantee as to acceptable quality) which relevantly provides: (1) If: (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are of acceptable quality. (2) Goods are of acceptable quality if they are as: (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 the matters in subsection (3). (3) The matters for the purposes of subsection (2) are: (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. (4) If: (a) goods supplied to a consumer are not of acceptable quality; and (b) the only reason or reasons why they are not of acceptable quality were specifically drawn to the consumer's attention before the consumer agreed to the supply; the goods are taken to be of acceptable quality. (5) … (6) … (7) …
2. Applying ACL s54 to the facts, the sale was not by auction, and the matters in s54(2) and (3) are to be considered.
3. The Vehicle was sold as coming "with outstanding reliability", and was a prestige vehicle which ticked "all the boxes when safety and comfort matters". The Vehicle odometer showed it had travelled only about 68,000 kms, (see exhibit A) which appeared to be considered with those representations as it was un-roadworthy, the Audi report and the many identified repairs shows that it could not be described as having "outstanding reliability" and it did not tick all the boxes for safety either, as it was un-roadworthy and the road wheels were unsuitable and noted by VicRoads as a defect.
4. The Vehicle was not roadworthy and was not fit for registration as it had been identified as defective by the VicRoads Certificate of Roadworthiness no G307677 dated 2 December 2014, exhibit A; which establishes it was not free from defects as it has the many defects identified in the Audi report, (exhibit C). The Vehicle is a road vehicle which should be able to be registered and lawfully driven on public roads in Victoria as well as NSW. It was not.
5. Relevantly, for s54(3)(d) and (e) the respondent's representation that the Audi engine had been replaced, but without also revealing the VW replacement engine is a matter which a reasonable consumer would not regard as acceptable. The respondent presented no evidence that the engines met the same technical and performance specifications as the Audi engine it replaced, or that the VW engine was compatible with the Audi electronic engine management system. The respondent asserted they were as they came from the same factory and only the engine number prefix was different. This assertion was not supported by technical or independent evidence and cannot be accepted on the balance of probabilities in the absence of expert evidence.
6. The engine substitution involves the finish of the Vehicle, and may constitute a hidden defect until discovered. It is not obvious to a lay person and the applicant's did not know until they were told by the Audi inspection report that the engine number was different to the engine number in the Audi Australia system and the engine block appeared to be out of a VW, Exhibit C, which caused them to make enquiries, finally identifying the source of the engine on PPS, exhibit E. I find that a reasonable consumer fully acquainted with the state and condition of the Vehicle (including any hidden defects such as VW engine replacing the Audi engine), would not regard the Vehicle as acceptable, and that accordingly, the Vehicle was not of acceptable quality.
7. A further matter is the poor condition of the Vehicle which was represented as having done only about 68,000 kms. It was nine years old, but a vehicle of this make with so few kms would not be expected by a consumer to be in such poor condition as evidenced by the Audi service report.
8. The engine substitution raises ACL s56 (Guarantee relating to the supply of goods by description). The sale of an Audi vehicle is a sale by description, namely that the Vehicle is an Audi. The replacement of the Audi engine with a VW engine detracts from the description of the vehicle as an Audi as it is no longer an Audi but has become in fact a hybrid or perhaps modified vehicle better described as an Audi with a VW engine. On this analysis the Vehicle does not correspond with the description of an Audi Vehicle; and the respondent has breached this statutory guarantee for the purposes of ACL s56.

The credit contract

1. The evidence shows that there was a credit contract, the details of which are not identified. It is impossible for me to determine whether it was a linked or unlinked credit contract pursuant to ACL ss278 to 287. In any case, the applicants have not sought orders in respect of the credit contract other than the loan establishment fee of $500.00 and loan repayments. When these amounts are added to the claim it exceeds the monetary jurisdiction for a consumer claim, and an award greater than $40,000.00 cannot be made.

Limitation of liability

1. There is no evidence that the respondent has limited its liability if there is a failure to comply with a guarantee: ACL s64A; to the replacement of the goods or equivalent goods, repair, payment of the cost of replacing the goods or of acquiring equivalent goods, or the cost of having the goods repaired.
2. The Second Agreement did not contain a limitation clause which entitled the respondent to replace, repair the Vehicle or of acquiring an equivalent vehicle, or the cost of having the Vehicle repaired. In the circumstances, the applicant is entitled to a monetary remedy.

Compensation

1. The applicants claim for the following amounts: 1. Purchase price $39,186.00; 2. Loan establishment fee $500.00; 3. Loan repayments to date of this application $3,850.00; 4. Audi Report $700.00; 5. Application fees to Tribunal $1,008.00; 6. Flights to Sydney $1,000.00; 7. Car rental 120 days $4,000.00; 8. Accommodation $500.00; 9. Transport of Vehicle $100.00.00; 10. Time off work $800.00; 11. Taxi fares $400.00; totalling $52,044.00.
2. The applicants are entitled to a monetary award for economic loss as ACL damages, but the amount claimed exceed the statutory limit of this Tribunal which is $40,000.00.
3. In addition, the applicant cannot recover the costs of bringing this application in items (e) to (k); but is entitled to recover (a) to (d), however, not in excess of $40,000.00.

Conclusion

1. In all the circumstances, I am satisfied it is in the interests of justice to make the Orders. J Levingston General Member Civil and Administrative Tribunal of New South Wales 3 March 2015

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: 06 May 2015