The automotive industry in India is one of the largest in the world. Recent data suggests India manufactures annually over 11 million vehicles and exports approximately 1.5 million vehicles. India's automobile exports have grown consistently and reached US$ 4.5 billion in value in 2009. They are expected to exceed US$ 12 billion by 2014.

In addition, the auto components segment in India is poised to grow to a massive US$ 30 billion purely in export terms by the year 2020. The premier export locations for the Indian automotive industry include the United Kingdom, Italy, Germany, Netherlands and South Africa.

Given the volume of cross-border activity in the automotive sector, it merits an examination of the respective rights of the manufacturers and customers in relation to the purchase of vehicles and automotive components in the UK by customers. Further, a growing number of sale of goods contracts in the automotive sector in relation to Indian exporters are governed by English law. Whilst the governing law clause has been relegated to boilerplate status, it is critical to understand the legal framework which governs the buyer-seller relationship.

English law regime

Under the Sale of Goods Act 1979 (the SOGA), where a seller sells goods to a consumer, there are implied terms as to satisfactory quality and fitness for purpose. In the event either of these provisions are breached, the consumer is permitted to reject the faulty goods and claim a full refund and damages for consequential losses. The law makes no distinction as to the value of goods being rejected. Under the SOGA, you have the same right to reject a new £10 kettle as you have to reject a new £200,000 top of the range motor vehicle.

Further under the SOGA, a customer may even be entitled to reject the goods for a minor defect although the customer is entitled to get such a defect repaired under the manufacturer's warranty.

EU law regime

There is, however, a second and parallel set of rights for consumers and this followed the implementation of the EU Consumer Sales Directive 1999/44 EC in the UK. A consumer who purchases defective goods may ask for a repair or replacement and if this cannot be provided without causing undue delay or inconvenience to the consumer, the consumer may ask for his money back or a reduction in the price.

Conflict and harmonisation

We therefore have under English law two separate regimes of remedies available to consumers who purchase defective goods. A consumer who buys defective goods has the following rights: rejection, damages, repair, replacement or reduction in the price. Unfortunately, the law is unclear on how the choice should be made between the various remedies available. Under the SOGA, the emphasis is on terminating the contract as soon as things go wrong so that the parties are put back in the same position as if the contract had not existed. In contrast, under the EU regime the trend is for the parties to fulfil their legal obligations under the contract with a two-tier system of repair or replacement and in default rescission. This system of parallel remedies has been criticised by the automotive sector representatives for uncertainly because it leaves buyers and sellers unsure about their legal rights when things go wrong.

The EU has proposed a new consumer directive to deal with the purchase of defective goods and to remove the right to reject. If the proposals become law, then retailers across all member states would have to offer the same consumer rights. In July 2009, the UK Government set out its proposals in a White Paper by creating a new Consumer Rights Bill to simplify the rights between the consumers and manufacturers but to retain the right to reject and this goes further than the EU proposals.

Changes in the law in this area are inevitable, long overdue and necessary to give both the consumer and the seller certainty as to their legal rights.

In light of the aforementioned position, Indian exporters of vehicles and automotive components will need to consider the following aspects before setting foot in the UK/European motor market:

  •  since a claim for rejection is made by the consumer against the seller, it is usual for the seller to have strong indemnity protection from the manufacturer in its documentation;
  • manufacturers should ensure that there are documented obligations on the dealer requiring it to thoroughly check the vehicle for defects prior to delivery to the end customer;
  • the dealership agreement should provide certain safeguards to the manufacturer in the event a claim for rejection is made, for example, that the dealer notifies the manufacturer immediately and co-operates with the manufacturer once a claim has been put forward.