Vehicle Health Checks – The Legal View

In this article, I deal with the application of a relatively new piece of legislation, the Consumer Protection from Unfair Trading Regulations 2008 (“the Regulations”) and its impact upon free vehicle health checks, which can be variously described as e.g. free vehicle health checks, visual health checks, 25 point safety checks.

For reasons which will later become clear, I shall also touch upon the potential impact of the Fraud Act 2006. Breaches of the legislation give rise to potential criminal convictions and fines and (in extreme cases) potential imprisonment for dealers, their employees, and their management.

Vehicle Health Checks (VHCs)

VHCs are in widespread and frequent use and are typically offered by dealers when a customer books his or her vehicle in for repair, service, MOT or manufacturer recall.

VHCs may have the effect of fostering customer loyalty to the dealer. They are a free service and demonstrate care and concern on the part of the dealer for a customer’s vehicle   Of course, there is also a perfectly legitimate underlying commercial purpose. The health check also provides a means whereby a dealer may be instructed to do work which otherwise may not come to the dealership for which the customer may be charged. As service intervals have lengthened with the improvement in vehicle quality and durability, the use of VHCs as a means to highlight and generate after-sales work has increased.

Most customers are in favour of free VHCs. Few turn down the opportunity to have such a check carried out. It provides them with free expert reassurance that there are no obvious faults with important parts of their vehicle’s systems and it also operates as a free advisory procedure in relation to any problems that may exist or which may require future attention.

Typically a VHC is a visual check carried out by a technician in a relatively limited period of time. It covers e.g. warning lights/lights/electrics, under bonnet, underside, wheels, tyres and brakes. It usually does not involve any dismantling of the vehicle and may or may not include removal of wheels.

Most dealers use a pre-printed report, either home or franchisor generated, for completion by the technician who carries out the health check. Such forms sometimes use a traffic light system red, amber, green, which denote urgent work, recommended work and satisfactory condition respectively .Others provide space for recommendations and comments to be handwritten. Some contain a disclaimer that the report is based upon a visual inspection only and that further checks may be necessary to determine the full extent of any works. The report may or may not be accompanied by a written quotation or estimate for the cost of any urgent or recommended works.

The report is usually discussed with the customer by service advisers.

The case

In order to demonstrate how the regulations can apply to VHCs, I would like to share with you the facts of an actual case I dealt with for a client concerning VHCs, the facts of which have been suitably anonymised to protect my client’s confidentiality.

It is a sobering and cautionary tale and one which may lead you to re-evaluate how you deploy the VHC in your respective businesses. At the very least it may make you more aware of the potential for serious financial and criminal consequences, if things go wrong and how best to position your businesses to alleviate such consequences.

An elderly gentleman received a recall letter from the manufacturer of his motor car.  The letter made clear that it was important that he contact his local dealer immediately to make an appointment and to have a part on his car replaced free of charge.  The gentleman arranged for an appointment with his local dealer, a business trading as a limited company, for the required works to be carried out.

The dealership was a modern state of the art, well run and well managed award winning dealership.

The gentleman took his vehicle into the dealer and had the recall works carried out free of charge.  In accordance with the practice of the dealer, the gentleman was also offered, and accepted, a free VHC.

When the gentleman later attended the dealership to collect his vehicle, the service reception adviser drew his attention to various points raised on the written VHC report and he was advised (on his case) that he needed to get these matters seen to as “the car was unsafe to drive”.  He was informed that he needed new rear indicator bulbs, new rear brakes and new tyres.

The gentleman declined to have the work recommended completed by the dealer on the basis that he had not some months  previously had an MOT and service completed on the vehicle by a different dealer and had not used his car much since.

He was troubled by having been told allegedly that the car was “unsafe to drive” and drove it carefully to the dealer which carried had carried out the MOT and service to have it check the car.  He was assured by that dealer that there was nothing wrong with the vehicle and that the car was not unsafe to drive.

On the next day the gentleman went to a dedicated tyre supplier and asked them to check the tyres on the car.  He was assured that the tyres were in a satisfactory condition and that they did not need replacing.  Later that day the gentleman went to the local police for help as he felt that he had been misled by the dealer over the work needed to be carried out on his vehicle.  The Police contacted the local Trading Standards Service on his behalf.

The gentleman did not raise any of these concerns with the dealer, which remained unaware of the concerns for two further months.

During this intervening period the local Trading Standards Service arranged for a VOSA vehicle examiner to inspect the gentleman’s vehicle.

The VOSA examiner reached the conclusion that the rear discs of the vehicle which had been identified by the dealer, based upon a visual check, in its report as “badly scored and lipped” had only a small area of mild minor score lines on the outer edge of the rear nearside brake disc and that the rear brake pads were approximately 30% worn and would not require any form of component replacement for several years.

The VOSA examiner also concluded that, whereas the dealer had described the front brakes of the vehicle as “lipped and scored”, the front brakes showed only a minor degree of wear in the front braking discs and that the wear would not prompt the replacement of the components for at least another 10,000 to 12,000 miles.

Based on this evidence, the Trading Standards Service appeared to form the preliminary (but entirely mistaken) view that there may be a causal link between the manufacturer product recalls, the use of free health checks and the work as a result recommended to be done by the dealer.

Without warning or prior contact with the dealer, officers from the Trading Standards Service visited the dealer’s business premises and, under their powers, served a notice under the Police and Criminal Evidence Act 1984 (PACE) requiring the dealer to produce any documents in its possession relating to the gentleman’s vehicle and also any other such documents for any warranty and recall work which had been completed by the dealer on vehicles in a two month period covering the gentleman’s visit.  The Trading Standards service officers seized a substantial number of documents which had involved work being recommended on vehicles subject to product recalls as a result of the completion of VHCs. They took away documents relating to approximately 40 vehicles.

The owner of the dealer, who had not been onsite when the Trading Standards officers initially attended and seized documents , spoke with the senior officer to see if he could assist their enquiry in any way. The owner was left with the understanding that if there was a concern the TSS would be back in touch to raise this informally.

Unbeknown to the dealer, having considered the documents which they had seized, the Trading Standards Service made contact with a number of its customers where work had been listed as recommended by the dealer on the health check report but which the customers had not instructed the dealer to carry out.  Of those customers, approached three agreed with the Trading Standards Service to have their vehicles examined by a VOSA vehicle examiner. In relation to each of those vehicles the VOSA examiner reached conclusions at odds with those set out by the dealer’s technicians in the VHC  reports. The VOSA examiner concluded that the alleged faults or deficiencies were either not present in the vehicles or that the recommended works did not yet need to be carried out.

Two months later, the dealer received a letter from the Trading Standards Service in which it indicated that it considered the dealer had committed ten offences, six under the Consumer Protection from Unfair Trading Regulations 2008 and four under the Fraud Act 2006 and invited the Company to attend a formal interview under caution, not only in relation to the gentleman’s vehicle but also in relation to three other vehicles…………..  .

 Consumer Protection from Unfair Trading Regulations 2008 (the Regulations)

The Regulations implement the EU Unfair Commercial Practices Directive.  They came into force just over three years ago.  They protect consumers from unfair, misleading or aggressive selling practices.  Amongst other things, the Regulations substantially replaced and expanded upon provisions of the Trade Descriptions Act 1968, of which dealers will have “fond” memories.

The Regulations have not received much publicity, although it may be recalled that on 1^st July last year the Office of Fair Trading introduced specific guidelines under the Regulations and the Sale of Goods Act 1979 (as amended) for used car dealers. The Motor Codes to which many dealers subscribe also make references to the Regulations.

The Regulations introduced a general prohibition against unfair commercial practices and specific prohibitions against misleading and aggressive practices as well a black list of 31 practices that will be deemed unfair in all circumstances.  The Regulations apply to business to consumer transactions and apply to conduct before, during and after any contract is made.  They are extremely wide ranging and their effects are to an extent still unknown and unappreciated by trading businesses. There have been very few reported cases as yet concerning the Regulations showing how the courts will apply them.

As will be readily appreciated, the Regulations apply to practically all dealings between dealers and customers from car sales to after sales and, of particular relevance to this article, to vehicle health checks.

In the Regulations, as noted above, there is a general prohibition of unfair “commercial practices” (Regulation 3(1)).

“Commercial Practice” is defined as any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader which is directly connected with the promotion, sale or supply of a product to or from consumers whether occurring before, during or after a commercial transaction (if any) relating to a product.

This includes representations made both orally (e.g. service advisers) and in writing (the health check report itself and any quotation or estimate for the carrying out of recommended works).

A commercial practice is “unfair” if:

a)                 It is a misleading action under the provisions of Regulation 5.

b)                 It is listed in Schedule 1 (Regulations 3(40)(b) and (d)).

Regulation 5 defines “misleading actions”.

Commercial practices are misleading if they give false information which deceives (or is likely to deceive) the average consumer and causes or is likely to cause him to take a transactional decision that he would not otherwise have taken (even if the information given is factually correct) in relation to a whole host of matters including, relevantly:-

a)                  The need for a service part or repair (Regulation 5 (4)(i)).

b)                  The consumer’s rights or the risks he may face (Regulation 5 (4)(k)).

Schedule 1 to the Regulations contains a long list of absolutely prohibited actions including:-

a)                  Making a materially inaccurate claim concerning the nature and extent of the risk to the personal security of the consumer or his family if the consumer does not purchase any product (Regulation 3(4) (d) (para 12)).Offences

A person is guilty of an offence if he engages in a commercial practice which is a misleading action under Regulation 5 (Regulation 9).

A person is guilty of an offence if he engages in a commercial practice set out in any of paragraphs 1 to 10, 12 to 27 and 29 to 31 of Schedule 1 (Regulation 12).

If a trader is a limited company and it is proved that the trader committed an offence with the consent order connivance of an officer of the limited company or is attributable to any neglect on his part, the officer is guilty of the offence.

Officer includes a reference to a director, manager, secretary or other similar officer.

Accordingly prosecutions may be brought against a dealer, the individuals who make the false or inaccurate claims (technicians and service advisers) and the management of the limited company, resulting in criminal convictions and punishment not only against the limited company dealer but also personal criminal convictions and punishment of individuals.

Penalties

On a summary conviction (i.e. if the matter is dealt with in a Magistrates Court) – a fine per offence not exceeding the statutory maximum (currently £5,000).

On an indictment (i.e. if the matters is dealt with in the Crown Court– a fine or up to 2 years imprisonment or both (Regulation 13).

Regulation 5 is a “strict liability” offence.  This means that it will not be necessary for a specific state of mind on behalf of the dealer to be proven e.g. an intention to mislead or a dishonest intention to mislead.

Narrow statutory defence

Rather like under the former Trade Descriptions Act, the Regulations provide a narrow defence to a charge that a trader has committed an offence under Regulations 9 and 12 – the “due diligence defence”.

Under Regulation 17, if the trader can prove that the offence was due to mistake, reliance on information supplied by another person, the act or default of another person, and that it took all reasonable precautions in due diligence to avoid the offence it will be not guilty of the offence.

Fraud Act 2006

 Offence

 A person is guilty of fraud if he dishonestly makes a false representation and intends by making a representation to make a gain for himself or another or to cause loss to another or to expose another to risk of loss (Section 1(1), 1(2)(a) and Section 2(1)(a) and (b)).  A representation is false if (a) it is untrue or misleading and (b) the person making it knows that it is or might be untrue or misleading (Section 2(2)).  Representation means any representation as to fact to or law and may be expressed or implied.

Penalties

On summary conviction – imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (currently £5,000) or to both (Section 1(3)(a)).

On conviction on indictment to imprisonment for a term not exceeding 10 years or to a fine or both (Section 1(3)(b)).

Furthermore, rather like under the Regulations, if an offence is committed by a limited company and the offence is proved to have been committed with the consent or connivance of (a) a director, manager, secretary or other similar officer of the limited company or (b) a person who was purporting to act in any such capacity…..that person as well as the limited company is guilty of the offence and liable to be prosecuted and punished accordingly.

Mistakes will happen

Even in the best run companies and dealerships there is a possibility, even a probability, that mistakes will happen and errors will occur in connection with VHCs. This does not mean that technicians or service advisors are serially incompetent or recklessly disregard their duties. A technician may have an “off day”. He may make an error of judgment.  A service advisor may misinterpret the technician’s report or add a gloss to the report, not intended by the technician, and may unwittingly and incorrectly refer to a particular item as rendering the vehicle “unsafe to drive” when it does not.

Defences

As the offences under the regulations are strict liability offences, it will not be difficult for a prosecuting authority which receives a complaint from a disgruntled customer, assisted e.g. by a VOSA examiner’s report, to show the required facts to prima facie make out the offence.

As the expert, a dealer‘s recommendations that works are necessary when they are not,  or its  assertion  of facts which are misleading concerning the condition of a vehicle, will almost inevitably cause or be likely to cause the average customer to make a transactional decision he would otherwise not have made  i.e. for the works to be carried out.  This is one of the important elements of the offences.

The offences do not require that any money change hands or that the customer suffers any financial loss.

Where there is reliance by the prosecuting authority upon any verbal comments e.g. “the car is unsafe to drive” it may be that a service adviser will distinctly remember the conversation which he or she had with the customer and will be prepared to give evidence as to what was actually said which may be at odds with the customer’s recollection. This would be a defence based upon a straight conflict of oral evidence. There will be a risk however that a court will be more likely to accept the evidence of a customer over a service adviser, if only on the basis that the customer is more likely to have an accurate recall of statements made to him or her than a service adviser who deals with many customers.

It may be possible to adduce expert evidence to dispute or counteract the effect of the VOSA examiner’s findings. In many cases, however, it may not be possible or realistic for a dealer’s expert to examine the vehicle or give an expert because the condition of the vehicle has been altered.  There may well have been a lengthy passage of time before a prosecution is notified or commenced which may also impact upon the potential use of any expert evidence.

Defences base upon the above will be difficult and to an extent risky. The greater likelihood is that it will not be practicable to defend upon the facts and upon expert evidence.

In many cases the dealers will need to avail themselves of the narrow due diligence defence.

The due diligence defence

In order to rely on the due diligence defence a dealer will need to show, on the facts, that it had put in place reasonable precautions to prevent the possibility of offences being committed. What is “reasonable” will be judged upon the facts of each case. It may be partially judged on the size of the dealer and its resources so that the “bar” may be lower for a smaller dealer than a large dealer but, come what may, the dealer will have to show that there was an effective system in place to avoid the possibility of offences being committed.

This will certainly require an examination and demonstration of the qualifications and training of the technicians and service advisers. It will also require a detailed examination of the quality control systems which the dealer has put in place specific to VHCs. A technician’s mistake may be picked up by quality control, where such procedures exist. It is commercially unviable, however, for every VHC report to be checked. These health checks are carried out for free but clearly use a technician’s valuable time. It is simply impracticable for every report to be checked by another equally skilled or more skilled technician using their valuable time also. Workshops would grind to a halt. Yet, it is upon the quality control system which dealers will need to rely to be successful in a defence on this basis.

These systems will need to be well documented. It is little use having a quality control system which results in all “passes” and no “fails”. It will strain credulity that every health check ever carried out has been done perfectly.

A dealer may also be able to point to other systems such as internal company audits, and external franchisor audits as part of their wider quality control systems.

Good CSI ratings, especially where carried out by independent third parties, may be of assistance in demonstrating that a dealership is well managed and is generally well thought of by its customers.

Although it should not affect the accuracy of the health check report, there is another influencing factor which is that in a report involving a number of safety related items, there will be a natural tendency for a dealer and its technicians to err on the side of being conservative .This is because, in holding itself as an expert, even when doing a health check for free, the dealer probably takes on a “duty of care” to its customer. It may be regarded as preferable for a technician to be overly cautious particularly on steering and brakes, rather than to “let an item go” only for the item to fail after the customer has left the dealership, with the obvious potential commercial and legal consequences of so doing.

A “conservative approach” must be substituted by an “accurate approach” if the commission of offences is to be avoided.

Some dealers seek to protect themselves from these consequences by expressly requiring a customer to acknowledge in writing on the health check report that required work has been brought to their attention and that the customer has decided not to have the work completed before leaving the premises. It is a matter for debate whether even this type of clause will actually be effective to exclude potential liability in all circumstances.

Prevention -how to avoid problems

Dealers need to review their health check processes generally.

This should involve:-

• a review of the wording and format of the health check report itself to reduce the risk of inaccurate information being provided;
• a consideration of the wording of any disclaimer (although the effect of such disclaimers is debatable);
• ensuring consistency of reporting and expression by technicians in the report;
• ensuring that service reception advisers do not interpret the technician’s comments in a way not intended by the technician or substitute their own comments on the technician’s report to the customer, but instead accurately explain and adhere to the technician’s comments
• ensuring that technician never states to a customer or implies that a recommended  item, if unattended to either in immediately or in the future, may render a vehicle unsafe to drive unless absolutely sure that this is the case (doing so misleadingly is one of the 31 blacklisted  practices which will always be an unfair misleading practice;
• ensuring that some form of record of the explanation to the customer of the health check report is kept and maintained. (service advisers cannot be expected to remember every conversation they have with a customer concerning health checks whereas customers will have a distinct recollection)
• a review of the dealer’s systems and quality control procedures

 

Back to the case

Upon receipt of the letter from the TSS requesting a PACE interview and notifying an intention to prosecute under the regulations and the Fraud Act, the dealer sought legal advice.

 It was quickly established that there was only a slim prospect of mounting a successful defence based solely upon the indications of the evidence against the dealer particularly because of the fact that the offences under the Regulations were of a strict liability nature.

 The dealer was acutely concerned at the indication that it may be prosecuted under the Fraud Act 2006.The very mention of the possibility of such a prosecution, involving allegations of fraud, was both intimidating and concerning to a dealer which prided itself on building up and running a good dealership.

 As will be appreciated from the brief analysis of the offences under the Fraud Act above, the offences essentially amount to an allegation that the dealer deliberately set out to defraud its customers. 

 Unlike the offences under the Regulations, however, which do not require the prosecution to prove (dishonest) intention as well as facts supporting that an offence had been carried out, the Fraud Act offences do require such an intention to be proved.

 The dealer received legal advice that it was unlikely that such a state of mind on the part of the company could be proved and that it was likely to have a successful defence to any  prosecution under the Fraud Act 2006.

 It is tempting to take the view that the inclusion of references to Fraud Act offences was to incline the dealer to “plea bargain” for the fraud offences to be dropped in return for a guilty plea to some or all of the offences under the Regulations.

 Whether or not this use of a combination of threatened prosecutions under both the Regulations and the Fraud Act is specific to the particular Trading Standards Service or whether this is truly something which will become more widespread remains to be seen.

 In the light of the difficulties of a defence on the facts the dealer was obliged to consider a “due diligence” defence in relation to the offences under the Regulations.

  At the subsequent tape recorded PACE interview where the owner of the dealer was questioned under caution, the dealer gave notice in a prepared statement of its intention to do so.

 Following the PACE interview the Trading Standards Service demanded, under its powers, production of all documents relied upon to support the dealer’s contention that it had taken all reasonable precautions to prevent offences being committed. These were supplied. There was no further communication from the Trading Standards Service thereafter.

 In parallel with taking legal advice, the dealer also carried out an internal investigation concerning the allegations made. It quickly established that the allegations affected more than one technician and more than one service adviser. This was not a case of a “bad apple” These were skilled, proficient and trusted long serving employees. It was clear that the dealer was, at worst, dealing with mistakes made rather than reckless disregard or intentional conduct by any employee.

 The dealer also undertook a review of its training and quality control systems. It also contacted and entered into a dialogue with its franchisor and as a result changes were made to the VHC report and training was undertaken to ensure a greater consistency of approach The number of quality control checks on health checks was also increased.

 The dealer recognised that it is always possible to improve on systems and that the fact that it had taken such steps to review and improve its systems would at the least provide good mitigation should it be found guilty of any offences.

 Five months later the local authority commenced criminal prosecutions with ten charges, six under the Regulations and four under the Fraud Act 2006.

 The dealer felt it had no option but to defend the proceedings despite the considerable legal  cost of so doing and the potential fines of up to £50,000 if it was found guilty. It could not stomach pleading guilty to the offences, particularly the Fraud Act defences which it believed either had not been committed or to which it had defences.  The dealer was understandably extremely concerned at the effect upon its customers and potential customers of being “named and shamed” in the local press if it pleaded guilty. This would be a big concern to any dealer which relied upon local custom.

 The prosecution was fully defended at very substantial cost. A range of tactics were deployed in an attempt to persuade the prosecuting authority to review its decision to prosecute, but it repeatedly refused to do so.

 On the day of the trial, the prosecution finally offered a face saving deal. It indicated that it was prepared to offer no evidence on nine of the charges, if the dealer would plead guilty to one charge under the Regulations. The deal was naturally repugnant to the dealer which considered itself not to be guilty of any of the charges. Despite this, and taking into the account the litigation risk that it may not succeed in its defence, on advice the dealer made the commercial decision to agree the deal. It was hoped that there would be no press reportage. It was a calculated risk .There was no representative from the press in court

 The magistrates were subsequently made aware of the fact that the prosecution were offering no evidence on nine out of the ten charges and were only proceeding on one charge  to which the dealer (very reluctantly) pleaded guilty and also heard substantial mitigation on the part of the dealer.

 Having deliberated they took the step of publicly stating that they considered the conduct of the owner and of the dealer to be exemplary and beyond reproach.  They dismissed the nine charges. They reflected their obvious displeasure with the prosecution and its conduct by conditionally discharged the dealer for 12 months on the one charge to which it had pleaded guilty and ordering payment by it of a fraction of the prosecution costs. The magistrates also made an order for a substantial proportion of the dealer’s defence costs to be paid out of central funds.

 The dealer and its owner left court with their excellent reputations substantially intact although financially poorer.

The sting in the tail

The Trading Standard Service later trumpeted their “victory” in the form of press release to the local press naming the dealer. It made no mention of the nine dismissed charges, the magistrates complimentary comments concerning the dealer or the order for a substantial proportion of the dealer’s costs to be paid.

A cautionary tale indeed!

Nicholas Yapp is a partner in the Contentious Rights and Dispute Resolution Department of Davenport Lyons solicitors (020 7468 2600) and has over 20 years experience in advising large retail motor groups and smaller independents, from board to dealership level and upon a wide range of matters.

Nicholas Yapp, partner Davenport Lyons, solicitors