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Supreme Court Denies Appeal by Union Motors

Publications / Oct 19, 2020

A significant decision was given by the Supreme Court this week denying an appeal filed by Union Motors [ direct importers for Toyota] and other direct car importers against the Ministry of Transport and holders of parallel import licences [ one of which  – Ayalon Group – was represented by Omer Kelner and Neil Smollett for Pearl Cohen] relating to upholding warranties given for new cars imported to Israel by parallel import, which contain a specific  geographical restriction on upholding and realizing the warranty outside the original country of sale.

Whilst the direct importers tried to claim that the provisions of article 49(1) of the 2016 statue for Licensing of Services in the Vehicle Industry [ MOT legislation which incorporated sweeping reforms regarding car imports by parallel or personal import] did not obligate them – via their authorized service centers – to uphold a guarantee if the manufacturer had included a geographical restriction, the MOT and the parallel importers argued that the said clause was intended to do exactly that – prevent the geographical restrictions being unfairly used by the direct importers to limit competition in the import market. In particular they pointed out that the original sale price of the car included the cost of any guarantee irrespective of where the car was eventually driven.

After an extensive review of the legislation  by Judge Fogelman and a detailed discussion of the hearings held before the Economic Committee of the Knesset at the committee stage for this statute in 2016, the court applied the subjective and objective rules of interpretation ,as widely explained in the judgement, and concluded that the interpretation which best served the purpose of the legislation – promoting and expanding the competition for import in the vehicle industry – was the interpretation presented by the MOT and the parallel importers.

The conclusion being that even if a manufacturer’s warranty explicitly states that the warranty is restricted to a country or area other than Israel , this restriction will not apply in Israel and the statutory provision will prevail over the wording of the warranty. As a result, under the statute the direct importer is obliged to enable the warranty to be upheld and therefore the MOT was and is entitled to threaten sanctions, under its far-reaching powers in this legislation, against any direct importer who does not comply with this interpretation of the statutory provision.

It remains to be seen how this decision will impact the largely minor changes in the market brought about thus far by the 2016  reforms  of the legislation for imports.