(2001) 7 NZBLQ 3

Defining a Consumer and the Right to Reject Under the

Consumer Guarantees Act 1993: The Long Road to the Court of
Appeal
Citation: (2001) 7 NZBLQ 3
Publication: New Zealand Business Law Quarterly
Author(s): Telfer, Thomas G W
Year: 2001
Classification: Trade practices > Consumer guarantees

Document Path:

Defining a Consumer and the Right to Reject Under the Consumer Guarantees Act 1993:
The Long Road to the Court of Appeal
(2001) 7 NZBLQ 3
Thomas G W Telfer Faculty of Law, The University of Auckland

1 Introduction
The Court of Appeal, in its first ruling on the Consumer Guarantees Act 1993, has clarified the scope of the legislation
by elaborating on the definition of consumer in the Act. In addition, Nesbit v Porter provides guidance on what is a
reasonable time for rejection. While the Court concluded that the Nissan Nivara 720 double cab 4-wheel drive utility
vehicle was within the scope of the Act, the buyers were found to have lost their right to reject the goods due to a
lapse in reasonable time. The result in the case raises the issue of whether the Act should be amended so as to
strengthen the rejection rights of consumers, and poses the question of whether private litigation is the most effective
means of resolving consumer disputes.
The success of the Consumer Guarantees Act might be measured against the original aims of the government that
introduced the legislation in Parliament in 1993. During the parliamentary debates the government claimed that the
Ministry of Consumer Affairs was guided by four principles in drafting the bill.
The first principle is accessibility. Consumer law should be accessible to consumers and suppliers, and
the best place to achieve that is in a statute. The second principle is understandability. Consumers and suppliers
should be able to gauge their rights without recourse to professional guidance. Therefore a plain English statute
is required. The third principle is promotion of compliance. Consumers and suppliers should be able to resolve
complaints with direct reference to the statute. The fourth principle is enforceability. When a dispute arises
consumers and suppliers must have easy access to enforcement.

In Nesbit v Porter, access to justice and the principle of understandability required an amazing sequence of steps. On
the discovery of several defects, Mr and Mrs Nesbit began their ordeal with the legal system by lodging a complaint
with the Motor Vehicle Disputes Tribunal. As it transpired, the Motor Vehicle Disputes Tribunal had no jurisdiction,
since the vehicle was classified under the Motor Vehicle Dealers Act 1975 as a commercial vehicle. They then lodged
a complaint with the Disputes Tribunal only to discover that the judgment in their favour issued by that body was of
no effect as the Tribunal had exceeded its jurisdiction. The matter then proceeded to a hearing in the District Court,
an [(2001) 7 NZBLQ 3, 4] appeal to the High Court, and a further appeal to the Court of Appeal. In a remarkable
sequel to the case, the Nesbits recalled the Court of Appeal judgment in order to clarify the decision on the issue of
damages. As noted recently by Rex Ahdar, the Nesbits travail does quench the optimistic aspiration of the
parliamentarians.
While the Consumer Guarantees Act 1993 empowers consumers with new rights and remedies, without the
cooperation of the supplier these rights must ultimately be enforced by private litigation. During the parliamentary
debates, the Minister of Consumer Affairs clearly signalled that the model being proposed was a private enforcement
model. The Minister pointed out that the Bill does not create another bureaucracy. The courts, not the Ministry, will
police the Bill. While Parliament sought to create a plain English statute, two key provisions were ambiguous
enough to merit clarification by the Court of Appeal. This paper discusses the definition of consumer and the issue of
rejection.

2 The Consumer Test

In the design of any piece of consumer protection legislation, a key issue is how to define or limit the scope of the
legislation. Professor Harland argues that if Parliament makes a decision to give special protection to a given class of
buyers of goods and services, it is clearly essential to define as precisely as possible that class of buyers. While a
clear test is desirable, Harland concludes that most legislatures have frequently experienced considerable difficulty
in devising an appropriate definition of consumers. In what way should the legislation distinguish between a
consumer transaction and a non-consumer transaction? If one accepts that non-commercial buyers require greater
legislative protection than commercial buyers, the question is how to define the group needing special protection.
The Vernon Report, a 1987 report prepared for the Ministry of Justice on Post-sale Consumer Legislation in New
Zealand, noted that no wholly satisfactory definition has emerged elsewhere.
In the design of an appropriate consumer test, four general models have emerged. The tests all depend on a different
means of excluding commercial transactions from the statute.
(1) Character of purchaser of goods and services. This technique would exclude corporations, partnerships, or

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a person carrying on business or trade.

(2) Monetary amount of goods. The legislation may pose a threshold amount of value. All transactions below
that level would be deemed to be a consumer transaction regardless of form. Transactions above the threshold
would be determined on some other objective or subjective test.

(3) Character of the goods or ordinary use test. The ordinary use test would protect purchasers of goods that are
ordinarily acquired for personal, household, or domestic use. Actual use or character of purchaser is irrelevant.
Thus, a company that purchases a sofa of a kind ordinarily acquired for personal use to locate in its office would
be considered a consumer. An individual buying an industrial circular saw for home use would be excluded.

(4) Actual use or buyers purpose. A test focusing on the actual use, or buyers purpose, would exclude all
transactions which were not for personal use or consumption from the perspective of the actual consumer. Thus,
a couch purchased for use in the dentists office would be excluded. An individual buying an industrial circular
saw would be included and covered by the legislation.

The legislative choice is really between a rule and a standard. Options 1 and 2 are fixed rules which create an arbitrary
distinction between consumer and non-consumer transactions based either on a [(2001) 7 NZBLQ 3, 5] fixed
monetary limit, or by excluding a defined list of different types of buyers. In contrast, options 3 and 4 are more
open-ended standards. An ordinary use test is based on objective criteria while a purpose test depends on the
subjective use of the buyer.
The Consumer Guarantees Act combines the approach in option 3 and with a variation on option 4. Under s , a
consumer is defined as a person who:
(a) Acquires from a supplier goods or services of a kind ordinarily acquired for personal, domestic, or
household use or consumption; and

(b) Does not acquire the goods or services, or hold himself or herself out as acquiring the goods or
services, for the purpose of
(i) Resupplying them in trade; or

(ii) Consuming them in the course of a process of production or manufacture; or

(iii) In the case of goods, repairing or treating in trade other goods or fixtures on land:

The consumer test broadly conforms to the recommendations of the Vernon Report, which recommended an ordinary
use test as the starting point with some limitation to ensure that the statute offered protection to those who needed
it the most, ie non-commercial buyers. The exclusion in subs (b) is designed to exclude many commercial buyers from
the scope of the Act.
The Consumer Guarantees Act opted to differentiate between consumer and non-consumer transactions by way of a
generally worded standard, rather than adopting an arbitrary rule of a threshold monetary amount. Standards, while
flexible, create more uncertainty than a fixed and arbitrary rule. It will not always be easy to predict the outcome of
a legal dispute using a general standard. Each transaction must be analysed first in terms of the ordinarily acquired
test and, secondly, with respect to the exclusion in subs (b).
Under the first subsection, one must look at the nature or type of good or service being supplied rather than ask what
is the particular use of, or who will be using, the good or service. Only after analysing the character of the good or
service, and determining that it is ordinarily acquired for personal, domestic, or household use or consumption, does
one then examine the particular use to see if it falls within one of the limited exclusions under subs (b).
These subsections are designed clearly to separate out personal from business use. In many instances the dividing
line will be relatively obvious. The design of the goods themselves or their inherent nature will dictate whether the Act
will govern. Thus, an industrial drill press commonly used in the manufacture of boats will be excluded while a
modestly sized television set will be covered.
The definition is relatively straightforward to apply in instances of goods or services that are acquired exclusively for
personal use. However, in many instances the same products or services may regularly be acquired for personal and
business use. A product, as originally designed, may have been exclusively acquired for business use. Advances in
technology and the lowering of costs may transform what was originally a business tool into a commonly used
personal good. Cellphones and personal computers are but two examples. Many other products have both business
and personal applications and there was some uncertainty as to how to apply the consumer test in instances of this
overlap. It was this issue that required a ruling by the Court of Appeal in Nesbit v Porter.
Mr and Mrs Nesbit purchased a Nissan Nivara 720 double cab 4-wheel drive utility vehicle for $10,990. The vehicle
was 11 years old and had been recently imported from Japan. The Nissan [(2001) 7 NZBLQ 3, 6] franchise dealer
described the particular vehicle as multi-use. Evidence of a dealer provided a profile of the buyers and the Court found
that of all the Navara sales over the period, only 20% could be regarded as entirely for personal use.
As the vehicle turned out to be defective, the Nesbits sought to rely on the remedies provided by the Consumer
Guarantees Act. Both the District Court and the High Court ruled that the Act did not apply. Under the approach of the
two lower Courts, evidence of commercial use excluded a finding that the goods were ordinarily acquired for personal
use and thus precluded the Act from applying.
The Court of Appeal reversed the findings of the two lower Courts and held that the purchase of the Navara was a

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consumer transaction and that accordingly the Consumer Guarantees Act applied. The Court concluded that from the
definition it was clear that Parliament intended that goods could have several uses:
(1) some buyers might acquire goods exclusively for a business use; or

(2) some buyers might acquire goods exclusively for private use; or

(3) some might intend to use goods for both business and private use.

Although in the present instance only 20% of the sales were for personal use, the Court of Appeal, nevertheless,
concluded that the transaction was a consumer transaction. In reaching its conclusion, the Court stated that: if more
purchases are for a commercial use it does not follow that the goods in question cannot also be said to be ordinarily
acquired for private use by the minority of buyers. Citing the example of a ball point pen, Blanchard J noted that pens
are frequently acquired for private use but it seems probable that much greater numbers are bought by business.
Relying on the Oxford English Dictionary definition of ordinarily, the Court concluded:
We consider that ordinarily is used in the Acts definition of consumer in the sense of as a matter of
regular practice or occurrence or in the ordinary or usual course of things.

The fact that there was an incidence of 20% private use and 189 sales to private buyers was a regular practice or
occurrence of such vehicles being purchased for private use. It is in the ordinary or usual course of things.
The ruling is significant in that it now clarifies what approach is to be taken in respect of goods or services that are
acquired for business and personal use. The Court did not set any minimum percentage of sales level. However, the
Courts willingness to find a consumer sale in the instance of a 20% personal use level and Blanchard Js example of
ball point pens suggests that the Court has set a low threshold and a wide scope for the application of the Act.
The wide scope of s and the interpretation of the Court of Appeal suggests that the power to contract out of the Act,
in the instances of sales for business purposes, will have to be used on a regular basis. Suppliers of goods that can be
used for both business and personal purposes may well now find that the Act applies where those goods are
purchased for regular private use. Although the Court of Appeals clarification of the business/personal use issue is
welcome, one wonders whether the overall approach of the ordinary use test can be justified. If the Ministry of
Consumer Affairs wanted to create a statute that could be easily understood without recourse to legal advice, surely
the Nesbit case illustrates the disadvantages of the ordinary use standard. If Parliament does not wish to consider
imposing an arbitrary monetary limit to capture all transactions below a fixed monetary limit, then it [(2001) 7
NZBLQ 3, 7] should consider the possibility of imposing a presumption in favour of the consumer, that the
transaction is within the consumer test.

3 Remedies Against Suppliers of Goods

The design of a remedy regime must balance the interests of the consumers expectations with the suppliers need for
finality in the transaction. In designing a remedy regime for consumer legislation, the Ontario Law Reform
Commission considered several variations:
(1) permit rejection of the goods without any claim for damages, in all cases; or

(2) permit rejection of the goods combined with a claim for damages over and above the purchase price if such
damages have been suffered; or

(3) restrict the claim to damages or a reduction in the purchase price, in all cases.

Rejection and a full refund will often be the preferred option for the consumer. However, rejection of the goods may
be harsh from the suppliers perspective, particularly where the breach or defect is minor and the supplier may be
willing to repair the goods or offer a free replacement. Restricting a remedy to damages, as in the third option, will not
fully compensate a consumer in many instances, particularly when there has been a safety problem and the buyer has
lost confidence in the goods. Suppliers may not take their contractual obligations seriously if they can only be held
liable for a remedy in damages rather than a remedy of rejection. Rejection is a more significant remedy for the
consumer buyer who will rarely be able to resell goods in the market place.
Rather than adopting an either-or approach, the Consumer Guarantees Act has adopted a flexible regime which
preserves the right to claim damages in some instances, while allowing buyers to reject goods for more serious
breaches of the guarantees. However, these two remedies are often premised on litigation, and the Act tries to avoid
this by providing the primary remedy of repair. A consumer may require that the supplier repair the goods. Where a
supplier has been required to remedy a failure and neglects to do so, or does not succeed within a reasonable time,
the consumer may either reject the goods or have them repaired by a third party and claim compensation for the
costs. Where the failure is of substantial character, the Act permits the consumer to reject the goods. Finally, claims
for consequential loss are permitted as an additional remedy.
A key question is whether or not the inclusion of the right to require a repair has actually changed the behaviour of
suppliers without requiring the consumer to initiate an action. Does either the sanction of rejection, or the prospect of
a suit for third party repair costs, provide sufficient incentive for creditors to repair goods? In some respects the Act
still relies on market forces as a further incentive for suppliers to comply with repair requests. The government
acknowledged this much in Parliament:
The Government is to some extent flying on an act of faith here. It is trusting that common sense will

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prevail in the market place that suppliers will acknowledge the failure and speedily put it right.

In the Ministry of Consumer Affairs 1996 Report to the OECD, the ministry claimed that its work is based on the
premise that competitive markets are best for both consumers and business when consumers can affect the range
and quality of goods and services available to them. Whether the Act has empowered consumers to affect the quality
of goods and services remains to be seen. [(2001) 7 NZBLQ 3, 8]

3.1 Rejection
Given that the Act permits rejection for cases of serious failure, a particular issue arises as to how long this right of
rejection should survive. The right of a consumer to reject and obtain a refund must be balanced against the interests
of a supplier who may face a claim long after the original sale. The Act does not proscribe an arbitrary rule for the cut
off of the right of rejection, but rather adopts a reasonable time test. Section provides that:
(1) The right to reject goods conferred by this Act shall not apply if
(a) The right is not exercised within a reasonable time within the meaning of subsection (2) of this
section

The term reasonable time is defined in s 20(2) as:

(2) a period from the time of supply of the goods in which it would be reasonable to expect the defect
to become apparent having regard to
(a) The type of goods:

(b) The use to which a consumer is likely to put them:

(c) The length of time for which it is reasonable for them to be used:

(d) The amount of use to which it is reasonable for them to be put before the defect becomes
apparent.

The Court of Appeal in Nesbit v Porter recognised the practical use to a consumer of the right to reject. Counsel for Mr
and Mrs Nesbit noted that while damages survived a loss of the right to reject, a consumer may face substantial
litigation costs where the claim exceeds the jurisdiction of the Disputes Tribunal. Rejection is a more user friendly
solution to a consumers problem. However, the Court of Appeal also recognised that the consumers position had to
be balanced against the rights of the supplier. A lengthy delay before rejection imposed a burden on suppliers
particularly where depreciation is increased by further usage, as it is for motor vehicles. The policy choice between
the interests of the supplier and those of the consumer is made even sharper by the fact that where rejection is
exercised by a consumer the Act does not permit any deduction from the refund for use of the good.
At issue in Nesbit v Porter was whether a consumer had lost the right to reject a vehicle with latent defects where the
rejection occurred some 9 months after the original purchase. During that time it had been driven 16,000 kms prior
to the defect becoming apparent, when the vehicle failed a Warrant of Fitness test, and was driven for a further 5,000
kms thereafter.
The Court of Appeal concluded that the factors in s required the purchasers actual use to be considered against the
more objective criteria of the use expected from a notional consumer of that type of vehicle. In assessing s , the
Court identified some further interpretative factors and reasoned that the period will be longer for new goods than it
will be for second-hand goods. Further, the period will be longer if goods are to be used infrequently or at particular
time of the year. In addition, the Court held it was relevant whether regular inspections of the goods for defects are
customary or are required by law, as is the case with motor vehicles. Indeed, it was the lack of rejection on the
vehicles failing the mandatory Warrant of Fitness test which was critical to the Courts conclusion that the right of
rejection had been lost: [(2001) 7 NZBLQ 3, 9]
In our view the motor vehicle dealer should generally be freed from the burden of having to accept
rejection of a vehicle of this age and pedigree after the time for the next mandatory six monthly Warrant of
Fitness check has passed. If, at the latest, a defect of the kind found in the Navara has not manifested itself on
such an inspection, it would be an unfair burden upon the supplier if a buyer of such a vehicle, which must be
assumed to have been in daily use, sometimes in rough conditions, should thereafter be able to reject it
Additional time may be allowed if the particular defect is one unlikely to be revealed by the kind of checking
which occurs when a Warrant of Fitness is applied for.

The difficulty with the right of rejection as currently framed under the Act is that time begins to run from the date of
supply not from the date on which any defect was, or ought to have been detected. Further, the adoption of a general
reasonable standard will ensure that suppliers will challenge this open-ended provision on each occasion.
This note was accepted for publication on 18 December 2000

Footnotes

1 I would like to thank Chapman Tripp for their support of the Chapman Tripp Research Scholar programme. The
author assisted counsel for the Nesbits in this case.

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2 [2000] 2 NZLR 465. The judgment of the Court was recalled and para 53 was amended: see, Nesbit v
Porter 11/7/00, CA165/99. The original judgment is discussed in R Ahdar, Consumer Guarantees in the New Zealand
Court of Appeal (2000) 28 ABLR 313.
3 NZPD, 29 July 1993, p 17034.
4 Nesbit v Porter 1/4/98, Judge Thomas, DC Tauranga NP54/96.
5 Nesbit v Porter (1998) 8 TCLR 493.
6 The Nesbits obtained leave to appeal the High Court ruling.
7 Nesbit v Porter (2000) 9 TCLR 410.
8 R Ahdar, Consumer Guarantees in the New Zealand Court of Appeal (2000) 28 ABLR 313, 316.
9 NZPD, 11 August 1993, p 17409.
10 NZPD, 17 March 1992, p 903.
11 D Harland, Post-Sale Consumer Legislation for New Zealand A Discussion of the Report to the Minister of Justice
by Professor David H Vernon (1988) 3 Canterbury LR 410, 414.
12 D Vernon, An Outline for Post Sale Consumer Legislation in New Zealand, Wellington, Department of Justice,
1987, p 11.
13 Ibid.
14 See, eg Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of
the sale of consumer goods and associated guarantees. Article 1(2)(a) states: consumer: shall mean any natural
person who, in the contracts covered by this Directive, is acting for purposes which are not related to his trade,
business or profession.
15 A pure purpose test was rejected by the Vernon Report on the basis that it imposed unnecessary burdens on
suppliers who sell goods that are used almost exclusively for commercial purposes: see, D Vernon, An Outline for
Post Sale Consumer Legislation in New Zealand, Wellington, Department of Justice, 1987, p 13. See also, K Tokely,
Unprotected Consumers Under the Consumer Guarantees Act (1997) 3 NZBLQ 254.
16 D Vernon, An Outline for Post Sale Consumer Legislation in New Zealand, Wellington, Department of Justice,
1987, p 13. One author suggests that the Act incorporates an end user approach: R Nield, Consumer Warranty
Law: Consumer Law Theory and the Consumer Guarantee Act 1993 (Mjur Thesis, University of Auckland, 1977) p 75.
17 On the distinction between rules and standards see, R Posner, The Problems of Jurisprudence, Cambridge,
Harvard UP 1990, pp 44-45.
18 For earlier literature on this issue see, K Tokely, Unprotected Consumers Under the Consumer Guarantees Act
(1997) 3 NZBLQ 254, 255; T Telfer, The Consumer Guarantees Act 1993 (1995) 1 NZBLQ 46, 47.
22 [2000] 2 NZLR 465, 473.
23 Ibid p 468.
24 Ibid p 473.
25 Ibid.
26 Report on Consumer Warranties Guarantees in the Sale of Goods, Toronto, Department of Justice 1972, p 42.
27 T G W Telfer, The Right of Rejection and the Consumer Guarantees Act 1993 (1997) 3 NZBLQ 263.
28 See, NZPD extract cited in T Telfer, The Consumer Guarantees Act 1993 (1995) 1 NZBLQ 46, 49.
29 Ministry of Consumer Affairs 1996 Annual Report to the OECD. The Report may be obtained on the OECD web
page: Consumer Policy in OECD Countries: http://www.oecd.org/dsti/sti/it/consumer.
30 See further, T G W Telfer, The Right of Rejection and the Consumer Guarantees Act 1993 (1997) 3 NZBLQ 263.
31 [2000] 2 NZLR 465, 470.
32 U Jagose, Rejection of Goods [1996] NZLJ 133; Stephens v Chevron Motor Services [1996] DCR 1.
33 [2000] 2 NZLR 465, 475.
34 Ibid p 477.
35 Ibid p 474.

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