Legal Analysis: The future for block exemption post-Brexit

Motor Trader’s legal expert Peter Groves thinks block exemption will come under pressure after the UK leaves the EU

What is going to happen to the block exemption after the UK leaves the European Union? It will still apply in the EU27, of course, but will it still have the force of law in the UK after 29 March next year? The short answer it is not going anywhere yet but this could change.

The motor vehicle block exemption has not always been seen as a good thing. Its earliest manifestations (we are on the fourth iteration now) gave extensive protection to dealers as well as protecting consumers by restricting price differentials and guaranteeing “full line availability” – making it possible to buy a UK spec car from a dealer in Belgium.

But dividing the country into exclusive territories made it difficult for consumers to get a bargain by shopping around, and at the start of the century when the Monopolies and Mergers Commission investigated the market for new cars the government thought seriously about asking for the block exemption to be disapplied from the UK. But price differentials, largely, evaporated, consumers were happy, and the block exemption survived.

Come 2022, it’s not hard to imagine that the government might think it’s time for a free-for-all in the car market.

Tesla is already challenging accepted norms, and even where manufacturers sell through dealers they often insist on branding that obscures the dealer’s identity behind that of the marque. Consumers don’t talk about taking their car to a dealer by name they say they have taken it to VW. As cars become more like computers, the sort of service they need will increasingly be performed by the dealer as the agent of the manufacturer, not as an independent business. If that’s the shape of the market, will the traditional structure still be justified?

The government might – I put it no stronger than that – be casting around for Brexit benefits. Some years ago the then government tried to loosen the law to make parallel imports of designer clothes and other luxury goods easier, seemingly hoping that cheap Levis would secure its re-election. Taking new car-selling out the exclusive hands of dealers, allowing discounters with low overheads to compete with those obliged by manufacturers to operate from huge gin palaces or “Taj Mahal” showrooms, might seem a similarly good vote-winner. Nearly as good as free beer – for the consumers, at least.

Later versions of the block exemption lack many of the dealer protection measures that helped to equalise the dealer-manufacturer relationship. They were not, the Commission thought, a competition matter – although what could have more to do with competition than a dramatically unequal contractual relationship? Commercial agents enjoy strong protection in EU law, as a result of a commercial tradition in which they were much more important than in the UK. In the USA, dealers have extensive legal rights – recently strengthened in California, with a new bill signed into law last month. In some EU countries dealers also enjoyed legal protection against arbitrary termination and other disadvantages. There is still a body of opinion arguing and lobbying for more extensive dealer protection, in the block exemption or in separate legislation. If anything comes of that at EU level, it won’t help the UK, and any possibility that we might introduce domestic laws like those in some other countries (Austria seems to be a particularly good place in which to be a dealer) would have gone.

Part of the attraction to many who voted Leave was the promised bonfire of EU regulations. Far from a bonfire, the first stage has been to make all those EU regulations into British laws. But that won’t be the situation for ever, and there are plenty of people around who think the block exemption would burn rather well. I hope I am wrong, but I don’t give much for its chances.

Block legislation: the legal background

Block exemption is not going away anytime soon. Under section 3 of the European Union (Withdrawal) Act 2018, “direct EU legislation” including most regulations, which was operative immediately before exit day “forms part of domestic law
on and after exit day”.
The basic rules of competition will go, but block exemptions will still have an important part to play in domestic competition law, which since the Competition Act 1998 has been deliberately modelled on the EU rules.
To save the Secretary of State making a whole raft of UK block exemptions, those that the EU had made (and has made since) operate in the UK a “parallel exemptions”. So motor vehicle distribution and servicing agreements which, because they contain certain exclusivity provisions, are actually prohibited under both UK and EU rules as anti-competitive agreements will still be saved by the block exemption.
So far, so good. The block exemption (which nowadays is actually two block exemptions, the general one for vertical restraints and the special rules for the motor sector) will remain in force incorporated in our domestic law until it expires (31 May 2022, a year later for the general one). Then the UK will make its own block exemption, or Domestic Exemption Order, under section 6 of the Competition Act – if it sees fit.