High Court confirms legal protection for goods bought on credit after BMW turns into a lemon

The Gauteng division of the High Court has agreed that goods bought on credit also fall under the Consumer Protection Act (CPA) after a car dealer took the decision of the National Consumer Tribunal on review.

A consumer bought a BMW M5 for R 586 956, 52 from a dealer, who said the car is in good condition and that the salesperson would not sell him a car that is not. After the addition of the initiation fee, additional charges, value-added products and Value Added Tax, the financing company approved an amount of R705 9791, 87 so that he could also settle the outstanding amounts on the cars he traded in.

The M5 still had a motor plan and the consumer also bought an Extended Mechanical Protection Plan and Service Plan. The consumer complained to the dealer that he experienced several problems with the car and that the engine failed within four months. The car was taken for repairs every time, but the repairs failed to fix the defects or new defects were discovered.

The last time the car broke down, it was booked in to fix oil leaks and the quotation to fix the car came to R509 078,46. By then the consumer already complained to the Motor Industry Ombudsman of South Africa (MIOSA), but MIOSA could not resolve the dispute.

BMW SA was willing to contribute R253 295 towards the repairs of the vehicle and the extended warranty would pay R55 000, while the dealer first offered to pay R50 000 and then R100 000 as a gesture of goodwill.

This meant the consumer was left with the remaining amount of R100 782 to pay towards the repairs.

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The consumer refuses to pay for repairs

However, the consumer refused to pay the balance of R100 782 required to settle the remainder of the quotation for the repairs. The complaint was then referred to the National Consumer Commission (NCC), which referred it to the NCT after investigating.

The dealer submitted that the consumer directed his complaint to the wrong party, but the NCT disagreed, as his complaint is about the quality of goods he bought from the dealer, not the repairs that were done.

The NCT also said when repairs fail, whether the supplier of the goods or a third party did the repairs, the consumer can return the goods and the supplier is obligated to refund the consumers the price he or she paid.

In addition, the NCT also pointed out that although Section 5(2)(d) provides that the CPA does not apply to any transaction that constitutes a credit agreement under the National Credit Act, it also states that the goods or services that are the subject of the credit agreement are not excluded. Therefore, the CPA does apply to goods or services bought under a credit agreement.

The NCT found that the dealer contravened Sections 55(2)(c) and 56(3) of the CPA and declared it prohibited conduct, ordering that the dealer refunds the purchase of R679 500 to the consumer. In addition, the NCT imposed an administrative fine of R50 000 on the dealer.

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Safe goods of good quality – also on credit

According to Section 55(2)(c) a supplier must supply safe goods of good quality, that will be useable and durable for a reasonable time when used in a normal way. Section 56(3) provides that the supplier must replace the goods or refund the consumer the price paid for the goods.

The dealer then took the matter on review to the High Court, citing that the NCT did not have any jurisdiction to decide on the matter because the consumer entered into an agreement with a financial institution and not the dealer, which means that the transaction was a credit agreement and not a consumer protection-related matter and, therefore, excluded from the CPA.

The High Court dismissed the appeal with costs but set aside the order of the NCT and replaced it with a statement that the dealer contravened Sections 55(2)(c) and 56(3) of the CPA and that the dealer is interdicted from engaging in this prohibited conduct.

In addition, the dealer must refund the consumer an amount of R679 500 and pay an administrative fine of R50 000.