1. Introduction
An amendment to the Motor Vehicle Management Act, which will enable the owners of motor vehicles to demand a refund or replacement of defective motor vehicles, was promulgated on October 24, 2017.
Currently, the owners of defective motor vehicles in Korea may rely only on recalls or repairs as remedies for defects. Obtaining a refund or replacement, which is recommended as a possible remedy under the Consumer Dispute Settlement Regulation issued by Korea’s consumer protection agency, has been virtually impossible in practice as such recommendation is not legally binding and enforceable.
The amendment to the Motor Vehicle Management Act, after it becomes effective on January 1, 2019, will impose binding obligations on the manufacturers and importers of motor vehicles to comply with a consumer’s demand for a refund or replacement of a defective motor vehicle.
2. Main Provisions
The amendment provides for a detailed procedure for demanding a refund or replacement of motor vehicles and a mechanism for resolving any dispute that may arise in connection with such procedure.
(a) Refund or Replacement of Motor Vehicles
In case a motor vehicle sold in Korea by a manufacturer or importer is found to be defective, the owner of such defective motor vehicle would be able to demand a refund or replacement within two years after the purchase of such vehicle. Furthermore, a defect discovered within six months after the purchase of a motor vehicle will be assumed to have existed prior to the purchase, relieving the purchaser from having to bear the burden of proof of the existence of a defect with the motor vehicle.
Some of the conditions that the owner of a defective motor vehicle is required to satisfy to demand a refund or replacement of the motor vehicle is set forth below.
(i) The sale and purchase agreement for the motor vehicle contains a warranty provision which allows the owner to demand a refund or replacement as a remedy for a defect;
(ii) The defect causes safety concerns or a significant decrease in value of the motor vehicle;
(iii) The motor vehicle has been owned by the owner for less than one year and the motor vehicle has not been driven for 20,000 km or more;
(iv) The motor vehicle has either (i) a material defect (which is defined by the amendment as a defect on the structure or other key parts, such as the engine, drivetrain, steering mechanism or brakes) which remains unfixed after (A) two or more attempts of repair or (B) one attempt of repair the period of which exceeded 30 days or (ii) a non-material defect which remains unfixed after (X) three or more attempts of repair or (Y) one attempt of repair the period of which exceeded 30 days; and
(v) The owner of such defective motor vehicle demands a refund or replacement within two years from the date of purchase.
(b) Dispute Resolution
The amendment contains provisions for establishing a special arbitration body dealing with disputes over motor vehicles called the Vehicle Safety and Defects Review Committee under the Ministry of Land, Infrastructure and Transport. The Committee is proposed to be composed of lawyers, professors, vehicle engineers and consumer advocates and it will be authorized to resolve any dispute between the owner of a vehicle and the manufacturer or importer of such vehicle with respect to the refund or replacement of the motor vehicle, if both the owner and the manufacturer or importer agree to be bound by the Committee’s decision.
In the course of resolving any dispute, the Committee will be authorized to request the parties, including the manufacturer or importer, to submit supporting documents and/or to commission a third party testing agency to undertake a fact-finding investigation to independently confirm the existence of any defect.
3. Scope of Application and its Prospects
The amendment to the Motor Vehicle Management Act does not apply to a person or entity that owns more than two motor vehicles for commercial use. Thus, the amendment applies only to (i) those who own one or more motor vehicles for non-commercial use and (ii) those who own only one motor vehicle each for commercial use.
The amendment requires significant changes to be made in the practice of the consumers and manufacturers and importers of motor vehicles in dealing with defects. We, thus, expect that it will take some time for the relevant parties to make adjustments necessary to implement the changes proposed in the amendment. Nevertheless, once the amendment becomes effective, the consumers’ rights to be protected against any possible defects in the motor vehicles purchased by them will be strengthened. Conversely, the manufacturers and importers of motor vehicles will become subject to a heightened responsibility to deal with the consumers’ claims relating to a defect in the motor vehicles manufactured or imported by them and, thus, they are recommended to review their internal policies and template contracts to make sure that they will be in compliance with this new legislation.
