KENNY v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2019] NZCA 435 [17 September

2019]

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA515/2018

[2019] NZCA 435

BETWEEN

GEOFFREY BRIAN KENNY

Appellant

AND

MINISTRY OF BUSINESS, INNOVATION

AND EMPLOYMENT

Respondent

Hearing:

5 August 2019

Court:

Kós P, Woolford and Dunningham JJ

Counsel:

A O’Connor for Appellant

P H Courtney and S P Connolly for Respondent

Judgment:

17 September 2019 at 3 pm

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The respondent is entitled to costs for a standard appeal on a band A basis

and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Kós P)

[1] Must a finance company that resells repossessed vehicles register as a motor

vehicle trader under the Motor Vehicle Sales Act 2003?

[2] It is common ground that the appellant, Mr Kenny, is in the business of

motor vehicle finance and is a “finance company” for the purposes of the Act.1

The question is whether he is also a “motor vehicle trader” under the Act.2 If so, he

must register.3 That carries with it certain transactional costs.

[3] The question arises because Mr Kenny sells about 100 cars annually, following

repossession. Purchasers find cars at a dealership, in the ordinary way. Financing is

undertaken by Mr Kenny. The dealer sells the car to Mr Kenny. He then enters into a

finance 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 can

refinance 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 repossessed

vehicle on the online auction platform, TradeMe. He prefers to sell repossessed

vehicles himself, rather than selling them via other registered traders.

Because repossessed vehicles are frequently in poor condition, they are unattractive to

motor vehicle traders. They offer little for them. Obliged by both statute and contract

to obtain the best price for the purchaser after repossession, Mr Kenny considers his

business model best achieves that object.4

[5] In the course of his usual TradeMe advertisements, Mr Kenny (trading as

“geoff134”) states:

Finance Company Repossession

No warranty.

We are not registered traders.

The question and answer section of the advertisement will sometimes state that

the vehicle may be inspected at MTF’s premises in Petone. An inquiring purchaser

may 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 of

Motor Trade Finance Ltd. It trades as “MTF Finance Lower Hutt”. Nothing material turns on

exact 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 Declaratory

Judgments Act 1908 for a declaration that he is not a motor vehicle trader under

the Act.5 Mallon J however concluded that he was.6

[7] The competing contentions were neatly captured by the Judge at the outset of

her judgment:

[3] Mr Kenny contends the [Act] makes a distinction between finance

companies and motor vehicle traders and that selling a repossessed vehicle

under a security is finance company business and not motor vehicle trading

business. He says that when he is selling repossessed vehicles he does not

hold himself out as a registered trader under the [Act]. He also says his

primary purpose in selling repossessed vehicles is compliance with the [CCCF

Act]. He can obtain a better price for the vehicle than if he sells through a

registered trader and this is to the benefit of the debtor.

[4] The Ministry contends that a finance company selling repossessed

motor 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 sell

repossessed vehicles through a trader, he holds himself as a motor vehicle

trader, and his primary purpose in selling repossessed vehicles is for gain (by

minimising his losses).

[8] Some misconceptions on Mr Kenny’s part were cleared up early in the hearing

before this Court. Regardless of whether he must be registered as a motor vehicle

trader or not, it is accepted that he is “in trade” for the purposes of the Fair Trading

Act 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 a

motor vehicle trader would also bring Mr Kenny within the ambit of the Consumer

Guarantees Act 1993. But that Act applies generally to suppliers “in trade”. Mr Kenny

is 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 both

the Fair Trading and Consumer Guarantees Acts.

[10] It follows also that the direct transactional costs associated with registration as

a registered motor vehicle trader were these: the $456 annual registration fee, and the

5 Declaratory Judgments Act 1903, s 3. 6 Kenny v Ministry of Business, Innovation and Employment [2018] NZHC 1984, (2018) 15 TCLR

114 [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 of

the Motor Vehicle Disputes Tribunal under s 89 of the Act. However, in the absence

of evidence otherwise, we consider that submission to be cost-neutral. The Disputes

Tribunal or District Court would have jurisdiction otherwise in the event of consumer

disputes.

[12] Mr O’Connor also submitted that an effect of registration would be to require

Mr 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 accept

the probability that the incorporation of a separate legal entity for trading purposes

would be a prudent course. It is not evident how registration as a motor vehicle trader

necessitates that course, as opposed to the act of being in the business of selling

repossessed 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 of

the Motor-Vehicle Dealers Act 1958. That Act was based on existing legislation

regulating real estate agents. A major concern underlying the 1958 Act was, as

the then-Attorney-General put it, motor vehicle dealing was “a field that the false

pretences artists have made a happy hunting ground”.8 Apart from licensing, that Act

required the payment of a £2,000 bond.9 It also implied a warranty as to title being

held by the vendor, and the absence of prior encumbrances.10

[15] It may be noted that “motor-vehicle dealer” under that Act was defined as

a person who “carries on business as a dealer in motor vehicles, whether new or

7 Consumer Information Standards (Used Motor Vehicles) Regulations 2008, made under the

Fair 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 previous

definition, “every person shall be deemed to be a motor-vehicle dealer who acts, or

holds 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 the

business of a motor-vehicle dealer or separately therefrom”.12

The 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 vehicle

dealer” 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 months

commencing after the commencement of this Act, purchases, sells,

exchanges, or leases more than 6 motor vehicles shall be presumed to

be a motor vehicle dealer for the purposes of this Act, unless he proves

that he did not purchase, sell, exchange, or lease the motor vehicles

for 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 an

offence to carry on the business of motor vehicle dealing without a licence.

Licencing involved an application process and a hearing before

a Motor Vehicle Dealers Board. The application process was protracted.

There was a public notification process, and members of the public or the

Motor Vehicle Dealers Institute could object to the granting of a licence of

certain grounds and had an entitlement to be heard. Further, an applicant was

required to be a registered salesman with at least two years’ experience in the

previous three years working for a licence holder.

(footnotes omitted)

As the Judge noted, the 1975 Act predated fundamental consumer legislation in

the Fair Trading Act and the Consumer Guarantees Act.13 Those pan-trading statutes

diminished 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”.14

The explanatory note to the Bill preceding the present Act noted that the 1975 Act’s

coverage was limited; it was inflexible and imposed unnecessary restrictions;

it imposed significant compliance costs on motor vehicle dealers; it attracted high

levels of non-compliance; and it duplicated consumer protection provisions in

the other statutes.15

The current Act

[19] The Motor Vehicle Sales Act 2003 was intended to broaden the range of

motor vehicle sales caught by the new regime, now expressly including importers,

wholesalers, auctioneers, car consultants and (although later repealed) car market

operators.16 The most significant change was to include auctioneers, who had been

excluded under the 1975 Act.17 In addition to the consumer protection provisions

provided by other legislation, the main consumer protection provided by the new Act

was the consumer information notice governed by the Consumer Information

Standards (Used Motor Vehicles) Regulations 2008. As noted earlier, those

regulations were in fact promulgated under the Fair Trading Act. As the Judge

observed:

[43] … The notice must include the trader’s contact information, sale

information, information about overseas registration and whether it had any

obvious structural damage when it was imported, and a short statement of the

buyer’s rights under the Consumer Guarantees Act and the Fair Trading Act

and the buyer’s obligations about registering a change of ownership. The sales

information in the notice includes the vehicles make and model, year, engine

capacity, actual distance [travelled] and warrant of fitness and registration

status amongst other things.

(footnotes omitted)

[20] Additionally, as noted, the Motor Vehicle Disputes Tribunal has jurisdiction

over consumer disputes governed by the Act, whereas the Disputes Tribunal or

14 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 if

the 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 of

the Act “is to promote and protect the interests of consumers in relation to

motor vehicle sales”.

[23] “Motor vehicle trader” is defined as having the meaning given in s 7 of

the Act:18

7 Meaning of motor vehicle trader

In 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 this

appeal:

8 Who is treated as motor vehicle trader

(1) A person is treated as carrying on the business of motor vehicle trading

for the purposes of this Act if—

(a) the person holds out that the person is carrying on the business

of motor vehicle trading; or

18 Motor Vehicle Sales Act, s 6. 19 This referred to a “car market operator”. It was repealed because it covered, for example, those

that merely provided a venue for motor vehicle trades, such as TradeMe, rather than those engaged

in the business of trading the vehicles: see (27 May 2010) 663 NZPD 11423.

(b) in any specified period, the person sells more than 6

motor vehicles, unless that person proves that those motor

vehicles were not sold for the primary purpose of gain; or

(c) in any specified period, the person imports more than 3 motor

vehicles, unless that person proves that those motor vehicles

were not imported to be sold for the primary purpose of gain.

(2) For the purposes of subsection (1)(a), a person holds out that

the person is carrying on the business of motor vehicle trading if that

person—

(a) advertises or notifies or states that the person carries on the

business of motor vehicle trading; or

(b) in any way represents that the person is ready to carry, or is

carrying, on the business of motor vehicle trading.

(3) Subsection (1)(b) does not apply to any trustee corporation (within the

meaning of section 2(1) of the Trustee Act 1956) acting in the capacity

of executor, administrator, trustee, guardian, committee, manager,

agent, attorney, or liquidator, or in any fiduciary capacity, unless the

trustee 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 vehicle

trading 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 any

motor vehicle unless that person is remunerated by

commission in addition to, or instead of, that person’s

professional charges; or

(d) a liquidator of a company that is a motor vehicle trader

registered 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 the

manufacturer; or

(ea) a car market operator; or

(f) a licensed car wrecker; or

(g) a finance company selling any motor vehicle under a

transaction in which a motor vehicle trader acts as an

intermediary between the finance company and the buyer

(whether or not the motor vehicle trader acts as an agent of

the finance company); or

(h) a finance company, an insurance company, a rental car

company, a storage provider (within the meaning of

section 2(1) of the Land Transport Act 1998), or any other

person, that sells any motor vehicle as an incidental part of the

person’s ordinary business; or

(i) carrying on any other business besides carrying on the

business of motor vehicle trading and who, in the course of

that other business,—

(i) buys any motor vehicle for use in connection with that

business, with or without the intention of reselling it

after such use; or

(ii) resells the vehicle after using it in connection with

that business.

(2) Subsection (1)(d), (h), and (i) applies only if the person sells motor

vehicles through a motor vehicle trader registered under this Act.

[26] “Finance company” is defined:20

finance company includes any person who carries on a business (except the

business of motor vehicle trading) and who, in the course of that person’s

ordinary business,—

(a) buys, exchanges, or takes by way of assignment any motor vehicle for

any of the following purposes:

(i) letting or hiring it to any other person under a hire purchase

agreement:

(ii) taking or enforcing a security over it:

(iii) leasing it to any other person without conferring on that

person the right to buy the motor vehicle; or

(b) sells any motor vehicle bought, exchanged, or taken by way of

assignment for any of the purposes specified in paragraph (a); or

(c) sells any motor vehicle under a right of sale conferred by a security

interest (within the meaning of section 17(1)(a) of the Personal

Property Securities Act 1999)

20 Motor Vehicle Sales Act, s 6.

[27] The judgment below contains a useful summary of the operative provisions of

the Act.21 It is unnecessary for us to repeat that summary here, as the issues we must

decide 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) of

the Act?

(b) Issue 2: Alternatively, is Mr Kenny a motor vehicle trader by reason of

s 8(1)(a) of the Act?

It is logical to address the issues in that order, as it is inherently more likely that

s 8(1)(b) applies here than s 8(1)(a). If the answer to Issue 1 is affirmative, Issue 2

then 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 of

s 8(1)(b).22

[30] It was common ground that Mr Kenny had sold more than six motor vehicles

in the last 12 months. The issue the Judge had to deal with under s 8(1)(b) was whether

he did so for the “primary purpose of gain”.23

[31] The Judge reasoned that the word “gain” was not restricted to pecuniary

commercial profit, but “encompasses some commercial advantage or improvement to

the seller’s position which may be something other than receiving in monetary terms

more than the costs involved in the sale”.24 The argument before the Judge had been

that the primary purpose in selling repossessed vehicles was not to receive a

21 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 selling

vehicles with the requisite method of sale.25 Repossession and sale was a

commercially advantageous means for Mr Kenny to obtain repayment. He was not

required 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 their

debt is reduced, does not alter the fact that [Mr Kenny] also benefits.

[96] … The requirement to take reasonable care to obtain the best price

reasonably obtainable for the vehicle is not inconsistent with and does not

override [Mr Kenny’s] obligations under the [Act] to either register as a

motor 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 not

so much a choice as an “industry standard in the event of default and does not occur

with a sale in mind”. Secondly, he submitted that where agreed possession has

occurred, the goods must then be offered for sale in accordance with s 83Y of

the CCCF Act. There is no choice in that respect, and any commercial benefit to

Mr 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 act

of repossession with which we are concerned, but the ensuing act of sale. The analysis

following 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 and

protect the interests of consumers in relation to motor vehicle sales”.26 That is the

overriding purpose. In context, however, many consumer legal obligations relating to

motor vehicles are now to be found instead in other legislation, such as

the Fair Trading Act and the Consumer Guarantees Act. Their application, as we have

seen, depends on whether the vendor was in trade. Registration as a motor vehicle

trader under the Act has little to do with that question. But significant consumer

25 At [94]. 26 Motor Vehicle Sales Act, s 3.

protection remains in the Act, in particular the requirements concerning registration of

proper persons only in s 24 (reflecting the original purpose of the 1958 Act), the

provision of information to purchasers, and the compulsory jurisdiction of the Motor

Vehicle Disputes Tribunal. These considerations must underlie the question of

whether a financier like Mr Kenny, who undertakes sales incidentally to his principal

business, 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 Cars

Ltd v Russell this Court held that provision to create a “simple prima facie numerical

test for limiting dealing in vehicles to licensed dealers”.27 In short, if you sell more

than 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 the

primary purpose of gain”.

[36] Thirdly, it is common ground that “primary” in that context means “principal

or 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 concept

than “profit”. We accept the conclusion reached by the Judge that it “encompasses

some commercial advantage or improvement to the seller’s position which may be

something other than receiving in monetary terms more than the costs involved in

the sale”.28

[38] Fifthly, applying the principles to the facts here, we accept the submission

made to us by Mr Connolly that the recoupment of monies outstanding under the

finance 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 of

course is it contested that the number of cars sold by Mr Kenny exceeds the trigger

point 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 of

the sale in the typical repossession sale instanced in this appeal. As Mr Connolly

submitted, the primary purpose of the sale is to recoup as much as possible of the

amount that the debtor has not otherwise paid. That is so regardless whether the CCCF

Act requires sale on a commercially reasonable basis for the best price reasonably

obtainable.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 a

surplus on sale to repay to the debtor. The relative allocation of the gain is immaterial

here: the sale is effected to maximise return to the vendor in the first instance, and

that alone brings it within s 8(1)(b). It is that fact, with its enhanced risk for members

of the public buying from a vendor thus-motivated, that require the protections of

the Act to be engaged.

[40] Finally, there is nothing inconsistent with the scheme of the Act in reaching

that conclusion. The Act relevantly is concerned with requiring registration, the

provision of a consumer information notice and submission to the jurisdiction of

the Tribunal in the event of dispute on sellers of more than six vehicles annually unless

they fall within the exemption. It is not evident why a finance company that sells as

many as 100 vehicles annually should be exempt. Rather, the contrary position seems

more consistent with the statutory purpose in s 3. Section 9(1)(h) provides that a

finance company (or an insurer, rental car company or storage provider) that sells a

motor vehicle as an incidental part of its ordinary business is not thereby to be treated

as a motor vehicle trader. But s 9(2) also makes it clear that that provision applies

only if the person sells motor vehicles through a registered motor vehicle trader.

The implication is plain enough: a finance company selling motor vehicles

incidentally but directly does not have the benefit of the exemption. The exemption

applies only if it is selling the vehicle through another registered trader. There is a

clear consumer protection purpose in that reading. A finance company that sells more

than six motor vehicles during a 12 month period, as principal, must register so those

who deal with it gain the consumer-related benefits of the Act in addition to those

arising under the Fair Trading Act and the Consumer Guarantees Act. That is the

simple 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 vehicle

trader 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) of

the Act?

[42] Given our conclusion on Issue 1, it is unnecessary to answer Issue 2. We note

that the Judge did not reach a firm conclusion on this issue either.30 Her decision also

rested 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 been

disposed to conclude that Mr Kenny’s TradeMe advertisements, referencing a number

of separate vehicle sales, would have led a “[person] in the street” to infer that he was

in the business of motor vehicle trading, in the sense of selling multiple vehicles in an

organised manner, and therefore holding himself out as a motor vehicle trader.31

The disclaimer, “We are not registered traders”, would have been insufficient to dispel

the impression otherwise created. The apparent focus of the disclaimer is on

non-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 and

usual disbursements.

Solicitors: Steve Gill Law, Lower Hutt for Appellant Crown Law Office, Wellington for Respondent

30 HC judgment, above n 6, at [87]. 31 Mutual Rental Cars Ltd v Russell, above n 27, at 15.