IAAF calls guilty verdict against Kia a 'major victory' for IAM | Professional Motor Mechanic

Professional Motor Mechanic reports an appeal decision in Sweden which IAAF has hailed as a major victory for the independent sector. In December 2012, the Market Court in Sweden had ruled (MD 2012:13) that exclusivity clauses in Kia's 7-year warranty contracts breached competition rules. If the customer breached the terms, the warranty was not void - it was reduced to three years (although whether the terms remained the same is not clear). The company was ordered to allow its customers to choose independent repairers as well as authorised ones, and was fined SEK 5 million. Three years later the Supreme Court in Stockholm dismissed Kia's application for leave to appeal and for a retrial.

Manufacturers are generally prohibited from refusing to honour a vehicle's warranty on grounds only that it has been serviced by a non-authorised repairer or non-original parts have been fitted. Kia's warranty required servicing to be carried out by an authorised workshop. The Association of Swedish Car Parts Wholesalers (SBF), the Swedish member of FIGIEFA, reported the matter to the Competition Authority, which declined to take action. The SBF then took legal action against the manufacturer in the Market Court, which granted an injunction against Kia under Chapter 3, section 2 of the Competition Act - a provision which enables a party to obtain an injunction to bring an infringement to an end, when the Competition Authority has decided not to proceed. (Of course, that's a different matter from the Competition Authority deciding that no infringement has been committed: it might well decide not to proceed for other reasons, perhaps - I'm guessing here - because there is insufficient public interest, although this shouldn't have been a case where that was a good reason for not devoting resources to it.) In essence, it allows a private interest to take action where the public body hasn't.

Section 2 does not enable the party bringing the action to claim damages, but it does deal directly with the problem - and there remains the possibility of a follow-on action for damages anyway. The Market Court has decided a number of cases - 14, according to the CELEC report, which is now three years old: and the petitioner has been successful in "several" of them.

The Market Court took the view - unsurprisingly, I think - that the relevant market for servicing and repairs was a brand-specific one. It decided that the condition in the warranty had serious foreclosing effects because independents were excluded from competing: one of the objects of the condition was to restrict competition. It would be prohibited under Article 101 TFEU and the equivalent provision in the Swedish competition law.

Prof Henriksson of the Center [sic] for European Law and Economics (CELEC) questions whether it is correct to view the agreement between Kia and its authorised repairers as restricting competition because of the condition imposed on customers. It's an interesting point, although it might be answered by scrutinising the authorised repairer agreement. If Kia have been clever, though, I guess the agreement will be silent on the matter and the restriction will be imposed through the back door, by deterring consumers from going elsewhere. Perhaps the AR agreement says that dealers will not honour warranties in the prescribed circumstances - or in practice they will be prevented from doing so, within the framework of the AR agreement, by the fact that they won't get paid for their work.

Prof Henriksson also asks whether this is indicative of a difference of opinion between the competition authority and the court about what amounts to a breach of the prohibition. That seems unlikely: Christer Liljenberg, Chairman of SBF, is quoted by FIGIEFA as saying that the competition authority had indicated that it did seem to be a breach.

Toyota denies Sunday Times allegations

The Sunday Times has published a story accusing Toyota GB and its dealers of acting "unethically" towards customers over warranty claims. You can see the headline on the public part of the website, but the detail is behind the paywall. It seems from other reports that the paper alleges that Toyota prevented dealers from fixing defects under warranty unless they related to safety and reliability or had initially been raised by the customer themselves. Anything the dealer found during routine servicing or inspection could, the Sunday Times asserts, be ignored. The Fleet Street Blues blog gives the following (presumably) extract from the paper's report:

Toyota’s warranty policy and procedures manual, a secret document seen only by dealers, states that “the warranty should address only those issues raised directly by a customer”, unless they are a direct risk to safety or reliability.
As a result, defects such as the clicking Yaris steering column, heavy clutches, corroded wheels and faulty wing mirrors cannot be fixed under warranty unless the customer reports them.
Dealers who are caught out repairing these “cosmetic” faults under warranty without a customer complaint can be fined up to four times the cost of the work.

Toyota GB, unsurprisingly, responded with a statement in which they said:

All manufacturing defects, however identified, are covered by the Toyota warranty.
Toyota dealer technicians can and do bring to the attention of customers any type of fault (including purely cosmetic faults), regardless of the cause, which they find on a vehicle, whether or not previously raised by the customer.

The company also said it “completely refutes the accusation that it or its dealers act unethically or seek to deceive customers by failing to notify them of non-safety or reliability manufacturing defects whilst a vehicle is under warranty”. I'm not sure anything has been refuted yet - but clearly they are denying it. I would give you a link to the statement, as the Sunday Times apparently does (behind the paywall!), but it doesn't seem to be on Toyota's website: you can read about it on Auto Retail Network.

The suggestion in the Sunday Times story seems to be that dealers can postpone rectifying some faults until the car has come out of warranty, which does sound a bit dubious, but to call the alleged (and denied) practice in general "unethical" strikes me as over-the-top. And what's so sinister about the document setting out the warranty policy being "secret"? There are reams of documents governing the manufacturer-dealer relationship which are not disclosed to the public, and that's entirely as you'd expect.

False claim about validity of warranty

It remains a common misconception that a car must be serviced by an authorised workshop if the warranty is to remain valid. Another popular misconception is that the block exemption changed this situation a few years ago. In fact the Office of Fair Trading put a stop to it in this country years ago, and the new block exemption reveals the Commission's resolution to do something about it. But whether because of a misconception or otherwise, advertising on the basis that using an authorised workshop is mandatory in this sense can land you in trouble.

Dumfries and Galloway Trading Standards have recently publicised an instance - let's not call it a case, because there's nothing in the press release to say that proceedings were issued - of a garage doing precisely that. In fact, according to the Dumfries & Galloway Standard, it seems that the Council simply required the garage to write to customers to undo the mischief, which seems fair enough. They don't know whether this is a widespread problem, and thought it worth highlighting it - so it's not really a matter of penalising the one garage.

In days gone by, this would have raised false trade description problems. Now the Trade Descriptions Act 1968 is no more, the Consumer Protection from Unfair Trading Regulations 2008 occupies the field. Misleading advertising like that is likely to constitute an offence under the Regulations - as it would have done under the old Act. Provided, of course, that the necessary mens rea can be shown, which - given the degree of ignorance of the law on warranties - might be very tricky.