KENNY v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2019] NZCA 435

KENNY v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2019] NZCA 435 [17 September2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA515/2018[2019] NZCA 435BETWEEN GEOFFREY BRIAN KENNYAppellantAND MINISTRY OF BUSINESS, INNOVATIONAND EMPLOYMENTRespondentHearing: 5 August 2019Court: Kós P, Woolford and Dunningham JJCounsel: A O'Connor for AppellantP H Courtney and S P Connolly for RespondentJudgment: 17 September 2019 at 3 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The respondent is entitled to costs for a standard appeal on a band A basisand usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] Must a finance company that resells repossessed vehicles register as a motorvehicle trader under the Motor Vehicle Sales Act 2003?[2] It is common ground that the appellant, Mr Kenny, is in the business ofmotor vehicle finance and is a "finance company" for the purposes of the Act.1The question is whether he is also a "motor vehicle trader" under the Act.2 If so, hemust register.3 That carries with it certain transactional costs.[3] The question arises because Mr Kenny sells about 100 cars annually, followingrepossession. Purchasers find cars at a dealership, in the ordinary way. Financing isundertaken by Mr Kenny. The dealer sells the car to Mr Kenny. He then enters into afinance agreement with the purchaser by which title passes only on full payment.[4] Where the purchaser falls into default, Mr Kenny has three options: he canrefinance the deal, he can sue the purchaser, or he can repossess the vehicle. As noted,he takes the latter course about 100 times annually. He then sells the repossessedvehicle on the online auction platform, TradeMe. He prefers to sell repossessedvehicles himself, rather than selling them via other registered traders.Because repossessed vehicles are frequently in poor condition, they are unattractive tomotor vehicle traders. They offer little for them. Obliged by both statute and contractto obtain the best price for the purchaser after repossession, Mr Kenny considers hisbusiness model best achieves that object.4[5] In the course of his usual TradeMe advertisements, Mr Kenny (trading as"geoff134") states:Finance Company RepossessionNo warranty.We are not registered traders.The question and answer section of the advertisement will sometimes state thatthe vehicle may be inspected at MTF's premises in Petone. An inquiring purchasermay also find, from reviewing "geoff134"'s 98.3 per cent positive feedback, that"geoff134" clearly sells a substantial number of cars.1 Motor Vehicle Sales Act 2003, s 6(1). Mr Kenny's company Geoff Kenny Ltd is a franchisee ofMotor Trade Finance Ltd. It trades as "MTF Finance Lower Hutt". Nothing material turns onexact legal identity.2 Sections 7–9.3 Section 10.4 Credit Contracts and Consumer Finance Act 2003, s 83Z(1)(b) (hereafter, the CCCF Act).[6] Mr Kenny brought an application in the High Court under the DeclaratoryJudgments Act 1908 for a declaration that he is not a motor vehicle trader underthe Act.5 Mallon J however concluded that he was.6[7] The competing contentions were neatly captured by the Judge at the outset ofher judgment:[3] Mr Kenny contends the [Act] makes a distinction between financecompanies and motor vehicle traders and that selling a repossessed vehicleunder a security is finance company business and not motor vehicle tradingbusiness. He says that when he is selling repossessed vehicles he does nothold himself out as a registered trader under the [Act]. He also says hisprimary purpose in selling repossessed vehicles is compliance with the [CCCFAct]. He can obtain a better price for the vehicle than if he sells through aregistered trader and this is to the benefit of the debtor.[4] The Ministry contends that a finance company selling repossessedmotor vehicles may be a motor vehicle trader depending on the circumstances.The Ministry says Mr Kenny is a motor vehicle trader because he does not sellrepossessed vehicles through a trader, he holds himself as a motor vehicletrader, and his primary purpose in selling repossessed vehicles is for gain (byminimising his losses).[8] Some misconceptions on Mr Kenny's part were cleared up early in the hearingbefore this Court. Regardless of whether he must be registered as a motor vehicletrader or not, it is accepted that he is "in trade" for the purposes of the Fair TradingAct 1986. He is thus bound by the consumer protection provisions in that statute.A premise underlying the argument before us appeared to be that registration as amotor vehicle trader would also bring Mr Kenny within the ambit of the ConsumerGuarantees Act 1993. But that Act applies generally to suppliers "in trade". Mr Kennyis such a supplier, as his counsel accepted.[9] It follows that whether Mr Kenny is a registered motor vehicle trader or not,he is a supplier in trade and bound by the consumer protection provisions of boththe Fair Trading and Consumer Guarantees Acts.[10] It follows also that the direct transactional costs associated with registration asa registered motor vehicle trader were these: the $456 annual registration fee, and the5 Declaratory Judgments Act 1903, s 3.6 Kenny v Ministry of Business, Innovation and Employment [2018] NZHC 1984, (2018) 15 TCLR114 [HC judgment].requirement to provide a detailed consumer information notice to purchasers.Ironically, the latter is governed by regulations made under the Fair Trading Act.7[11] Registration also requires submission to the compulsory jurisdiction ofthe Motor Vehicle Disputes Tribunal under s 89 of the Act. However, in the absenceof evidence otherwise, we consider that submission to be cost-neutral. The DisputesTribunal or District Court would have jurisdiction otherwise in the event of consumerdisputes.[12] Mr O'Connor also submitted that an effect of registration would be to requireMr Kenny to register for GST, his finance company activities being GST-exempt.This argument being an afterthought, there was no evidence on the subject. We acceptthe probability that the incorporation of a separate legal entity for trading purposeswould be a prudent course. It is not evident how registration as a motor vehicle tradernecessitates that course, as opposed to the act of being in the business of sellingrepossessed cars. We put it to one side.[13] So the proven marginal costs of registration are those stated in [10] above.Statutory scheme[14] Motor vehicle trading has been directly regulated since enactment ofthe Motor-Vehicle Dealers Act 1958. That Act was based on existing legislationregulating real estate agents. A major concern underlying the 1958 Act was, asthe then-Attorney-General put it, motor vehicle dealing was "a field that the falsepretences artists have made a happy hunting ground".8 Apart from licensing, that Actrequired the payment of a £2,000 bond.9 It also implied a warranty as to title beingheld by the vendor, and the absence of prior encumbrances.10[15] It may be noted that "motor-vehicle dealer" under that Act was defined asa person who "carries on business as a dealer in motor vehicles, whether new or7 Consumer Information Standards (Used Motor Vehicles) Regulations 2008, made under theFair Trading Act 1986, s 27(1).8 (14 August 1958) 317 NZPD 1204. See also (2 October 1958) 318 NZPD 2185.9 Motor-Vehicle Dealers Act 1958, s 5.10 Section 27.secondhand".11 An extended definition provided that, without limiting the previousdefinition, "every person shall be deemed to be a motor-vehicle dealer who acts, orholds himself out to the public as ready to act, for reward as a dealer in motor vehicles,notwithstanding that he may carry on any other business either in conjunction with thebusiness of a motor-vehicle dealer or separately therefrom".12The 1975 Act[16] Before the present Act, the relevant legislation was the (unhyphenated)Motor Vehicle Dealers Act 1975. That Act enlarged the definition of "motor vehicledealer" by giving further flesh to the earlier meaning of "dealer". Relevantly, s 4(3)provided:(3) Every person who, in any period of 12 consecutive monthscommencing after the commencement of this Act, purchases, sells,exchanges, or leases more than 6 motor vehicles shall be presumed tobe a motor vehicle dealer for the purposes of this Act, unless he provesthat he did not purchase, sell, exchange, or lease the motor vehiclesfor the primary purpose of gain.[17] There are some common provisions between that Act and the present one.But, as the Judge observed, the 1975 Act regime was significantly different:[34] Motor vehicle dealers were required to be licensed and it was anoffence to carry on the business of motor vehicle dealing without a licence.Licencing involved an application process and a hearing beforea Motor Vehicle Dealers Board. The application process was protracted.There was a public notification process, and members of the public or theMotor Vehicle Dealers Institute could object to the granting of a licence ofcertain grounds and had an entitlement to be heard. Further, an applicant wasrequired to be a registered salesman with at least two years' experience in theprevious three years working for a licence holder.(footnotes omitted)As the Judge noted, the 1975 Act predated fundamental consumer legislation inthe Fair Trading Act and the Consumer Guarantees Act.13 Those pan-trading statutesdiminished the need for specific warranties in motor vehicle trading legislation.11 Section 2(1).12 Section 2(2).13 HC judgment, above n 6, at [37].[18] The licensing regime under the 1975 Act was, the Judge observed,"complicated and burdensome and imposed significant costs on licensees".14The explanatory note to the Bill preceding the present Act noted that the 1975 Act'scoverage was limited; it was inflexible and imposed unnecessary restrictions;it imposed significant compliance costs on motor vehicle dealers; it attracted highlevels of non-compliance; and it duplicated consumer protection provisions inthe other statutes.15The current Act[19] The Motor Vehicle Sales Act 2003 was intended to broaden the range ofmotor vehicle sales caught by the new regime, now expressly including importers,wholesalers, auctioneers, car consultants and (although later repealed) car marketoperators.16 The most significant change was to include auctioneers, who had beenexcluded under the 1975 Act.17 In addition to the consumer protection provisionsprovided by other legislation, the main consumer protection provided by the new Actwas the consumer information notice governed by the Consumer InformationStandards (Used Motor Vehicles) Regulations 2008. As noted earlier, thoseregulations were in fact promulgated under the Fair Trading Act. As the Judgeobserved:[43] The notice must include the trader's contact information, saleinformation, information about overseas registration and whether it had anyobvious structural damage when it was imported, and a short statement of thebuyer's rights under the Consumer Guarantees Act and the Fair Trading Actand the buyer's obligations about registering a change of ownership. The salesinformation in the notice includes the vehicles make and model, year, enginecapacity, actual distance [travelled] and warrant of fitness and registrationstatus amongst other things.(footnotes omitted)[20] Additionally, as noted, the Motor Vehicle Disputes Tribunal has jurisdictionover consumer disputes governed by the Act, whereas the Disputes Tribunal or14 At [39].15 Motor Vehicle Sales Bill 2001 (167–1) (explanatory note) at 1.16 Motor Vehicle Sales Act, s 7(b).17 Motor Vehicle Dealers Act, s 5.the District Court would be the relevant tribunal to resolve consumer disputes ifthe Act did not apply.[21] We turn now to the specific provisions of the current Act.[22] Part 1 contains preliminary provisions. Section 3 provides that the purpose ofthe Act "is to promote and protect the interests of consumers in relation tomotor vehicle sales".[23] "Motor vehicle trader" is defined as having the meaning given in s 7 ofthe Act:187 Meaning of motor vehicle traderIn this Act, motor vehicle trader—(a) means any person who carries on the business of motor vehicle trading(whether or not that person carries on any other business); and(b) includes—(i) [Repealed]19(ii) an importer:(iii) a wholesaler:(iv) a car auctioneer:(v) a car consultant.[24] The drafting is then somewhat tortuous. Section 8 provides, essentially,an extension of the s 7 definition. It is s 8(1)(a) and (b) that are most relevant to thisappeal:8 Who is treated as motor vehicle trader(1) A person is treated as carrying on the business of motor vehicle tradingfor the purposes of this Act if—(a) the person holds out that the person is carrying on the businessof motor vehicle trading; or18 Motor Vehicle Sales Act, s 6.19 This referred to a "car market operator". It was repealed because it covered, for example, thosethat merely provided a venue for motor vehicle trades, such as TradeMe, rather than those engagedin the business of trading the vehicles: see (27 May 2010) 663 NZPD 11423.(b) in any specified period, the person sells more than 6motor vehicles, unless that person proves that those motorvehicles were not sold for the primary purpose of gain; or(c) in any specified period, the person imports more than 3 motorvehicles, unless that person proves that those motor vehicleswere not imported to be sold for the primary purpose of gain.(2) For the purposes of subsection (1)(a), a person holds out thatthe person is carrying on the business of motor vehicle trading if thatperson—(a) advertises or notifies or states that the person carries on thebusiness of motor vehicle trading; or(b) in any way represents that the person is ready to carry, or iscarrying, on the business of motor vehicle trading.(3) Subsection (1)(b) does not apply to any trustee corporation (within themeaning of section 2(1) of the Trustee Act 1956) acting in the capacityof executor, administrator, trustee, guardian, committee, manager,agent, attorney, or liquidator, or in any fiduciary capacity, unless thetrustee corporation is acting on behalf of the same person or estate.[25] Section 9 then narrows the extension:9 Who is not treated as motor vehicle trader(1) A person is not treated as carrying on the business of motor vehicletrading for the purposes of this Act only because that person is—(a) an employee or an agent of a motor vehicle trader; or(b) under a contract for services with a motor vehicle trader; or(c) a solicitor who acts in that capacity as an agent for selling anymotor vehicle unless that person is remunerated bycommission in addition to, or instead of, that person'sprofessional charges; or(d) a liquidator of a company that is a motor vehicle traderregistered under this Act; or(e) a manufacturer who sells any motor vehicle to—(i) the Crown; or(ii) a motor vehicle trader registered under this Act; or(iii) any person who is or has been employed by themanufacturer; or(ea) a car market operator; or(f) a licensed car wrecker; or(g) a finance company selling any motor vehicle under atransaction in which a motor vehicle trader acts as anintermediary between the finance company and the buyer(whether or not the motor vehicle trader acts as an agent ofthe finance company); or(h) a finance company, an insurance company, a rental carcompany, a storage provider (within the meaning ofsection 2(1) of the Land Transport Act 1998), or any otherperson, that sells any motor vehicle as an incidental part of theperson's ordinary business; or(i) carrying on any other business besides carrying on thebusiness of motor vehicle trading and who, in the course ofthat other business,—(i) buys any motor vehicle for use in connection with thatbusiness, with or without the intention of reselling itafter such use; or(ii) resells the vehicle after using it in connection withthat business.(2) Subsection (1)(d), (h), and (i) applies only if the person sells motorvehicles through a motor vehicle trader registered under this Act.[26] "Finance company" is defined:20finance company includes any person who carries on a business (except thebusiness of motor vehicle trading) and who, in the course of that person'sordinary business,—(a) buys, exchanges, or takes by way of assignment any motor vehicle forany of the following purposes:(i) letting or hiring it to any other person under a hire purchaseagreement:(ii) taking or enforcing a security over it:(iii) leasing it to any other person without conferring on thatperson the right to buy the motor vehicle; or(b) sells any motor vehicle bought, exchanged, or taken by way ofassignment for any of the purposes specified in paragraph (a); or(c) sells any motor vehicle under a right of sale conferred by a securityinterest (within the meaning of section 17(1)(a) of the PersonalProperty Securities Act 1999)20 Motor Vehicle Sales Act, s 6.[27] The judgment below contains a useful summary of the operative provisions ofthe Act.21 It is unnecessary for us to repeat that summary here, as the issues we mustdecide turn on the provisions already stated.Issues[28] There are two issues arising on appeal:(a) Issue 1: Is Mr Kenny a motor vehicle trader by reason of s 8(1)(b) ofthe Act?(b) Issue 2: Alternatively, is Mr Kenny a motor vehicle trader by reason ofs 8(1)(a) of the Act?It is logical to address the issues in that order, as it is inherently more likely thats 8(1)(b) applies here than s 8(1)(a). If the answer to Issue 1 is affirmative, Issue 2then becomes moot.Issue 1: Is Mr Kenny a motor vehicle trader by reason of s 8(1)(b) of the Act?[29] The Judge concluded that Mr Kenny was a motor vehicle trader by reason ofs 8(1)(b).22[30] It was common ground that Mr Kenny had sold more than six motor vehiclesin the last 12 months. The issue the Judge had to deal with under s 8(1)(b) was whetherhe did so for the "primary purpose of gain".23[31] The Judge reasoned that the word "gain" was not restricted to pecuniarycommercial profit, but "encompasses some commercial advantage or improvement tothe seller's position which may be something other than receiving in monetary termsmore than the costs involved in the sale".24 The argument before the Judge had beenthat the primary purpose in selling repossessed vehicles was not to receive a21 High Court judgment, above n 6, at [25]–[31].22 At [98].23 At [88].24 At [92].commercial benefit, but rather to comply with the obligations under the CCCF Act.But the Judge concluded that submission conflated the purpose or object of sellingvehicles with the requisite method of sale.25 Repossession and sale was acommercially advantageous means for Mr Kenny to obtain repayment. He was notrequired to use that method of enforcement in the face of default. As the Judge put it:[95] That the debtor also benefits from the sale, in the sense that theirdebt is reduced, does not alter the fact that [Mr Kenny] also benefits.[96] The requirement to take reasonable care to obtain the best pricereasonably obtainable for the vehicle is not inconsistent with and does notoverride [Mr Kenny's] obligations under the [Act] to either register as amotor vehicle trader or to sell through another registered motor vehicle trader.Submissions[32] Mr O'Connor made two submissions. The first was that repossession was notso much a choice as an "industry standard in the event of default and does not occurwith a sale in mind". Secondly, he submitted that where agreed possession hasoccurred, the goods must then be offered for sale in accordance with s 83Y ofthe CCCF Act. There is no choice in that respect, and any commercial benefit toMr Kenny was a "secondary or third purpose, not the primary purpose".Analysis[33] We do not consider there is any force in the first submission. It is not the actof repossession with which we are concerned, but the ensuing act of sale. The analysisfollowing therefore engages with the second submission only. We make seven points.[34] First, it must be borne in mind that the purpose of the Act is to "promote andprotect the interests of consumers in relation to motor vehicle sales".26 That is theoverriding purpose. In context, however, many consumer legal obligations relating tomotor vehicles are now to be found instead in other legislation, such asthe Fair Trading Act and the Consumer Guarantees Act. Their application, as we haveseen, depends on whether the vendor was in trade. Registration as a motor vehicletrader under the Act has little to do with that question. But significant consumer25 At [94].26 Motor Vehicle Sales Act, s 3.protection remains in the Act, in particular the requirements concerning registration ofproper persons only in s 24 (reflecting the original purpose of the 1958 Act), theprovision of information to purchasers, and the compulsory jurisdiction of the MotorVehicle Disputes Tribunal. These considerations must underlie the question ofwhether a financier like Mr Kenny, who undertakes sales incidentally to his principalbusiness, is intended to fall within or without s 8.[35] Secondly, the relevant parts of s 8 are relatively straightforward.Section 8(1)(b) essentially replicates s 4(3) of the 1975 Act. In Mutual Rental CarsLtd v Russell this Court held that provision to create a "simple prima facie numericaltest for limiting dealing in vehicles to licensed dealers".27 In short, if you sell morethan six motor vehicles within 12 consecutive months, you are a "motor vehicle trader"(and must register) unless you prove that those motor vehicles "were not sold for theprimary purpose of gain".[36] Thirdly, it is common ground that "primary" in that context means "principalor of first rank or importance". It is to be contrasted with a purpose that is"secondary, incidental or ancillary". We agree.[37] Fourthly, we also agree with the Judge that "gain" involves a wider conceptthan "profit". We accept the conclusion reached by the Judge that it "encompassessome commercial advantage or improvement to the seller's position which may besomething other than receiving in monetary terms more than the costs involved inthe sale".28[38] Fifthly, applying the principles to the facts here, we accept the submissionmade to us by Mr Connolly that the recoupment of monies outstanding under thefinance contract from the sale of a repossessed vehicle represents relevant "gain".We did not understand that point seriously to be contested by Mr O'Connor. (Nor ofcourse is it contested that the number of cars sold by Mr Kenny exceeds the triggerpoint of six.)27 Mutual Rental Cars Ltd v Russell CA294/84, 14 August 1985 at 11.28 HC judgment, above n 6, at [92] (footnote omitted).[39] Sixthly, the remaining question is whether such gain is the primary purpose ofthe sale in the typical repossession sale instanced in this appeal. As Mr Connollysubmitted, the primary purpose of the sale is to recoup as much as possible of theamount that the debtor has not otherwise paid. That is so regardless whether the CCCFAct requires sale on a commercially reasonable basis for the best price reasonablyobtainable.29 Both self-interest and statutory obligation produce a parallel purpose.Both are focused on the maximisation of potential gain. There may or may not be asurplus on sale to repay to the debtor. The relative allocation of the gain is immaterialhere: the sale is effected to maximise return to the vendor in the first instance, andthat alone brings it within s 8(1)(b). It is that fact, with its enhanced risk for membersof the public buying from a vendor thus-motivated, that require the protections ofthe Act to be engaged.[40] Finally, there is nothing inconsistent with the scheme of the Act in reachingthat conclusion. The Act relevantly is concerned with requiring registration, theprovision of a consumer information notice and submission to the jurisdiction ofthe Tribunal in the event of dispute on sellers of more than six vehicles annually unlessthey fall within the exemption. It is not evident why a finance company that sells asmany as 100 vehicles annually should be exempt. Rather, the contrary position seemsmore consistent with the statutory purpose in s 3. Section 9(1)(h) provides that afinance company (or an insurer, rental car company or storage provider) that sells amotor vehicle as an incidental part of its ordinary business is not thereby to be treatedas a motor vehicle trader. But s 9(2) also makes it clear that that provision appliesonly if the person sells motor vehicles through a registered motor vehicle trader.The implication is plain enough: a finance company selling motor vehiclesincidentally but directly does not have the benefit of the exemption. The exemptionapplies only if it is selling the vehicle through another registered trader. There is aclear consumer protection purpose in that reading. A finance company that sells morethan six motor vehicles during a 12 month period, as principal, must register so thosewho deal with it gain the consumer-related benefits of the Act in addition to thosearising under the Fair Trading Act and the Consumer Guarantees Act. That is thesimple consequence of the scale of trading involved.29 CCCF Act, s 83Z(1)(b).Conclusion[41] In agreement with the Judge, we conclude that Mr Kenny is a motor vehicletrader by reason of s 8(1)(b) of the Act.Issue 2: Alternatively, is Mr Kenny a motor vehicle trader under s 8(1)(a) ofthe Act?[42] Given our conclusion on Issue 1, it is unnecessary to answer Issue 2. We notethat the Judge did not reach a firm conclusion on this issue either.30 Her decision alsorested on s 8(1)(b), rather than (a).[43] Had it been necessary for us to reach a view on Issue 2, we would have beendisposed to conclude that Mr Kenny's TradeMe advertisements, referencing a numberof separate vehicle sales, would have led a "[person] in the street" to infer that he wasin the business of motor vehicle trading, in the sense of selling multiple vehicles in anorganised manner, and therefore holding himself out as a motor vehicle trader.31The disclaimer, "We are not registered traders", would have been insufficient to dispelthe impression otherwise created. The apparent focus of the disclaimer is onnon-registration, rather than non-trading.Result[44] The appeal is dismissed.[45] The respondent is entitled to costs for a standard appeal on a band A basis andusual disbursements.Solicitors:Steve Gill Law, Lower Hutt for AppellantCrown Law Office, Wellington for Respondent30 HC judgment, above n 6, at [87].31 Mutual Rental Cars Ltd v Russell, above n 27, at 15.