Legal update: Consultation on proposed acceptance of commitments from seven car distributors

In this snapshot legal update, we report that on 1 August 2022, the Competition Commission commenced a consultation on its proposal to accept legally binding commitments (“Proposed Commitments”) from seven car distributors (covering 17 car brands) (“Distributors”) relating to their restrictive warranty terms and conditions (“Warranty Restrictions”).

Following an investigation, the Competition Commission concluded that the Warranty Restrictions contained provisions that require, or give the impression to, car owners that they must have their car maintained or repaired in authorised repair centres to ensure the continued validity of the warranty. This is irrespective of whether the maintenance service or repair item is covered by the warranty. The Competition Commission considers that the Warranty Restrictions deter car owners from engaging the services of independent car repair workshops in case the warranty may become void. This causes a decrease in competition between independent car repair workshops and authorised repair centres, which in turn increases the prices for maintenance and repair services. The effect of the Warranty Restrictions is that they potentially prevent, restrict or distort competition in the brand-specific maintenance and repair services markets in Hong Kong. This contravenes the First Conduct Rule of the Competition Ordinance.

The Distributors have offered Proposed Commitments to address and resolve the concerns of the Competition Commission. The Proposed Commitments include:

• not enforcing the Warranty Restrictions;
  
• ensuring the Warranty Restrictions are not included in any new warranty issued to car owners in Hong Kong; and
  
• upon obtaining necessary approval from relevant car manufacturers, removing Warranty Restrictions from the standard warranty, and adding terms to reflect that maintenance and repair services may be conducted at independent workshops.

The Proposed Commitments would last for five years from their effective date, with reporting and monitoring mechanisms in place to ensure compliance.

The Competition Commission has stated that it believes the Proposed Commitments are appropriate because:

• The Warranty Restrictions do not constitute cartel conduct. Cartel conduct is conduct agreed upon by two or more competitors which involve price fixing, bid rigging and market sharing. The Policy on Section 60 Commitments published by the Competition Commission states that it is unlikely that the Competition Commission would accept a commitment with respect to cartel conduct involving competitors.
  
• The Proposed Commitments resolve the Competition Commission’s concerns.
  
• The Distributors have engaged and communicated with the Competition Commission in good faith.

The consultation period ended on 15 August 2022. The Competition Commission will consider the representations it has received before deciding on whether to accept the Proposed Commitments. If the Competition Commission accepts the Proposed Commitments, the Competition Commission may agree to terminate the investigation and not bring proceedings in the Competition Tribunal. More information on the consultation is available on this link.

Pádraig Walsh and Carol Ling

If you would like to discuss any of the matters raised in this article, please contact:

Pádraig Walsh
Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.