ACQUIRED HOLDINGS LTD V TURVEY HC AK CIV 2006-404-7284

ACQUIRED HOLDINGS LTD V TURVEY HC AK CIV 2006-404-7284 14 November 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-7284BETWEEN ACQUIRED HOLDINGS LIMITED Appellant AND KEVIN JAMES TURVEY Respondent Hearing: 29 October 2007 Appearances: Mr Swan & Ms Nield for appellant Ms MacMillan for respondent Judgment: 14 November 2007 at 5.00 pmJUDGMENT OF WINKELMANN JThis judgment was delivered by me on 14 November 2007 at 5.00 pm pursuant to Rule540(4) of the High Court Rules. Registrar/ Deputy RegistrarBergseng & Co, Auckland Wardell Pasley & Associates, Whangaparoa Counsel Andrew M Swan, Auckland Alison MacMillan, Albany[1] Acquired Holdings Ltd issued proceedings in the District Court for the sum of $6,250, the balance owed by Mr Turvey for the purchase of a Skyline motor vehicle. Mr Turvey filed a counterclaim seeking $4,299 for costs he alleged that he incurred in repairing the vehicle and $20,000 for general damages for stress in defending the claim. Essentially Acquired Holdings' claim for the purchase price was undefended and the proceeding before the District Court focused upon the counterclaim made under s 18 of the Consumer Guarantees Act 1993 (the Act). Judgment was entered in Acquired Holdings' favour for the claim and in Mr Turvey's favour for the counterclaim relating to the cost of repairs of $4,299. The claim for $20,000 was disallowed by the District Court Judge. Acquired Holdings says that in entering judgment on the counterclaim, the District Court Judge applied an incorrect interpretation of s 18 of the Act. Acquired Holdings also appeals against the award of costs, and there is also a cross-appeal by Mr Turvey in respect of costs. [2] The key issues in this proceeding therefore turn upon the proper construction of s 18 of the Act which provides in material part: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 of this Act 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 of this Act: (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 of this Act, reject the goods in accordance with section 22 of this Act.(3) Where the failure cannot be remedied or is of a substantial character within the meaning of section 21 of this Act, the consumer may— (a) Subject to section 20 of this Act, reject the goods in accordance with section 22 of this Act; 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) of this section, 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.Relevant background[3] In early December 2004 Acquired Holdings, a registered motor vehicle dealer, sold a Skyline GTR motor vehicle to Mr Turvey for $15,000. It was agreed that Acquired Holdings would deliver a copy of the deregistration papers for the vehicle to Mr Turvey. Mr Turvey withheld the balance of the purchase price until those had been delivered to him. The deregistration papers were not delivered until 8 June 2006, well after Acquired Holdings had issued these proceedings seeking judgment for the balance of the purchase price. [4] The District Court Judge accepted Mr Turvey's evidence that in the course of making the sale a representative of Acquired Holdings made representations that the engine gauges and computer in the vehicle were in good working order, and that the car was ready to race, and it was on that basis that Mr Turvey bought the car. About six months after Mr Turvey took delivery of the vehicle he had repair work performed on the vehicle and the District Court Judge accepted his evidence that that work related directly to the oral warranties given by the representative of Acquired Holdings. [5] In relation to the claim for recovery of the costs of repair, the Judge noted Acquired Holdings' argument that Mr Turvey had failed to exercise his rights under s 18 of the Act because he had not given Acquired Holdings an opportunity to remedy the defects under s 18(2) and therefore could not claim under the Act. TheDistrict Court Judge rejected that submission. He found that the notice was optional, because Mr Turvey retained the additional remedy under s 18(4) to obtain reasonably foreseeable damages. Accordingly he entered judgment for Mr Turvey for costs incurred of $4,299.57. [6] The District Court Judge rejected the claim for general damages, noting the absence of any cogent evidence in relation to stress or adverse effects on the business of Mr Turvey. He also noted that counsel for Mr Turvey made limited reference to the issue in her oral submissions and referred to no authority for the figure claimed. [7] Acquired Holdings applied for increased or indemnity costs under r 47C of the District Court Rules. It argued that because there was no dispute over the balance of the purchase price its claim could not be and was not issued in the Disputes Tribunal. Notwithstanding that, the proceeding would in the normal course have been transferred to the Tribunal by the Registrar. But once Mr Turvey had included the unmeritorious claim for general damages in his counterclaim, the proceedings were outside the Disputes Tribunal's jurisdiction. [8] Judge Wilson said that although he had commented adversely on some aspects of Acquired Holdings' case and conduct, he took into account that Acquired Holdings' counsel had assisted the court with helpful written submissions, whereas counsel for Mr Turvey had advanced only oral submissions. On balance he concluded that it was appropriate to award costs on a conventional basis, awarding each party costs on a 2A basis as follows: (a) For the plaintiff on the claim for $6,250 and on the dismissed counterclaim for general damages of $20,000, and (b) for the defendant on the counterclaim for $4,299.57.Interpretation of s 18[9] Acquired Holdings argues that the District Court Judge erred in his interpretation of s 18. It emphasises that Mr Turvey's counterclaim was only forbreach of the Act. It was alleged that Acquired Holdings guaranteed under the contract that the engine gauges and computers were in good working order, but in breach of the Act they were not. In such circumstances Acquired Holdings says that the Judge was incorrect to hold that Mr Turvey could recover the cost of repairs under s 18(4). Such relief was available under the provisions of s 18(2) but in circumstances only where the consumer first provides the supplier with an opportunity to remedy the defect itself. [10] Counsel for Mr Turvey argues that the Judge's interpretation was correct. Section 18(4) applies to allow recovery both of the direct cost of expenses and also consequential loss. She points out that the wording of 18(4) is wide, allowing recovery for any loss or damage to the consumer resulting from the failure. Only one item is specifically excluded from that, and that is loss or damage through reduction in the value of the goods. She says that it can be inferred from the fact that one item was expressly excluded from s 18(4) that all other types of loss or damage are included within it, including recovery of the direct costs of repair. [11] I consider that on a plain reading of s 18 in circumstances where the defect can be remedied and is not of a substantial character, the purchaser must follow the requirement in s 18(2) to allow the supplier an opportunity to remedy the failure within a reasonable time in accordance with the provisions of s 19. Although the first sentence in s 18(2) uses the word "may", that word does not connote that the procedure in s 18(2) is optional in the sense that it is an option available to a consumer who wishes the supplier to remedy the failure but who may equally decide to recover the cost of repair under s 18(4). Rather the word "may" is used because two alternative remedies are set out in s 18(2), with the second self-help remedy in s 18(2)(b) exercisable only if the supplier refuses or fails to remedy the failure under s 18(2)(a). It is difficult to see the reason for the inclusion of the stepped procedure in s 18(2) and the related provisions in s 19 (which details how the supplier may meet its obligations under s 18(2)(a)) if the scheme set out there is purely optional. [12] Section 18(4) provides additional rather than alternative relief to the purchaser. It enables the recovery of consequential rather than direct loss. The fact that it excludes from its ambit loss or damage through reduction of the value ofgoods does not signal that the costs of remedying the defects are intended to fall within s 18(4). That exclusion was necessary to make clear the statutory scheme that was intended to apply, which is that direct losses are recoverable for remediable faults under s 18(2) (using the procedure there), and for faults of a substantial character under s 18(3). The exclusion makes clear that damages for loss in value cannot be recovered as an additional amount to the remedies provided for in s 18(2). This scheme emerges more clearly in s 27 which provides consumers with "options against manufacturers where goods do not comply with guarantees". Section 27(1) provides for the recovery of damages for diminution in value, and consequential loss (the wording mirroring that in s 18(4)). However s 27(2) provides that damages for diminution in value are not available if the manufacturer has repaired or replaced the goods. [13] There are, as set out in Gault on Commercial Law, good reasons why s 18(2) should be interpreted to require a consumer to provide the supplier with an opportunity to repair or replace before commissioning such repairs him or herself (at CG 18.09):Where a consumer exercises rights under s 18(2), he or she is required to first give the supplier the opportunity to remedy the defect in the goods. As well as the practicality of this remedy, the supplier is able to assess whether the goods have been subjected to unreasonable use, whether the defect has caused the problem, and, in particular, to control the quality of the remedy, which would not necessarily be the case if repairs are carried out by an unauthorised repairer. The supplier is also in a better position than a third party repairer to negotiate its own remedy with the manufacturer. Section 19 sets out options for suppliers as to how defects are to be remedied.[14] The policy underlying the Act is that suppliers of goods are liable not because of their own default, but because businesses and not consumers, should bear the risk where the goods and services they supply fail to comply with consumers' reasonable expectations: Kerry Stone Ltd v Knowles (2006) 11 TCLR 768 at [44]. Given the burden this places on the supplier, it is only reasonable that the legislation requires the consumer to first allow the supplier to remedy the defects. [15] As an alternative argument, counsel for Mr Turvey submitted that the costs of repairs could be recoverable on the basis that the defects were of a substantial character within the meaning of s 21 of the Act, so that the notice requirements unders 18(2) did not apply. It does not seem to have been argued before the District Court Judge that the defects were of a substantial character because he makes no reference to that argument in his judgment. However, even if it had been argued, the loss claimed by Mr Turvey is not of a kind which he might recover in such circumstances. Compensation under s 18(3) is only for any reduction in the value of the goods below the price paid or payable by the consumer for the goods. [16] Finally, counsel for Mr Turvey argued that the District Court Judge's finding in her client's favour on the counterclaim could be upheld using the reasoning applied in Cooper v Ashley & Johnson Motors Ltd (1996) 7 TCLR 407. In that case District Court Judge Hubble held that a consumer who had failed to give notice under s 18(2) could not obtain recovery of the cost of repairs under the Act, but could nevertheless succeed under a misrepresentation cause of action. That does not assist counsel for Mr Turvey as no cause of action other than that under the Act is pleaded. In Cooper, misrepresentation was specifically pleaded. [17] For these reasons the appellant must succeed in its appeal against the judgment in Mr Turvey's favour on his counterclaim. That judgment is set aside, and judgment is entered in favour of Acquired Holdings.Costs judgment[18] Acquired Holdings submits that it should be entitled to increased costs because the claim should never have been in the District Court, but in the Disputes Tribunal, and was only kept in the District Court because Mr Turvey pursued his claim for general damages. That claim was meritless and was, so the District Court Judge commented, designed to "swamp" Acquired Holdings' claim. Counsel for Mr Turvey accepts that she presented no submissions in support of the claim at trial, did not formally abandon the claim, and answered questions from the bench when asked in relation to the claim, thus maintaining the claim right up until judgment. [19] Mr Turvey cross-appeals on the issue of costs. He submits that Acquired Holdings' claim for costs should be reduced or refused under r 48D of the District Court because it pursued proceedings for recovery of the sum outstanding in respectof the car when it was refusing to provide the required documentation. It thereby incurred legal fees to the respondent unnecessarily. [20] I can discern no error of principle in the manner in which the District Court Judge approached the issue of costs. The District Court Judge considered the same arguments as are advanced by Acquired Holdings in this Court and was still of the view that costs should be in accordance with the ordinary scale. That was a finding within his discretion. [21] In relation to Mr Turvey's arguments, I consider that they have no merit. He proceeded with his counterclaim after receiving the deregistration papers. It is difficult to see how much additional cost would have been incurred by Mr Turvey in relation to the limited issue of the availability of the deregistration papers. [22] Now that Acquired Holdings has been successful in its appeal, Acquired Holdings is also entitled to costs on a 2A scale in the District Court in respect of the counterclaim as it related to Mr Turvey's claim for $4,399.57. [23] If counsel are unable to agree costs in this Court, they may file memoranda by 30 November 2007. Winkelmann J