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Latvian Competition Council decision regarding Tallinna Kaubamaja AS and KIA Auto AS

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On 19.08.2014, the Latvian Competition Council notified Tallinna Kaubamaja AS
and its subsidiary KIA Auto AS of its decision whereby these companies are
imposed a fine with regard to an alleged competition-related violation. 

KIA Auto AS is a company active in import and wholesale of Kia passenger
vehicles and spare parts in Estonia, Latvia and Lithuania. KIA Auto AS was
established in 1994 when a contract was signed with Kia Motors for the import
of Kia vehicles to Estonia. Since 1999, KIA Auto AS also holds import rights in
Lithuania, and since 2002, in Latvia. As at August 2014, Kia has a total of 21
distributors in Estonia, Latvia and Lithuania. In December 2006, Tallinna
Kaubamaja AS acquired a 100% holding in KIA Auto AS. 

The Latvian Competition Council initiated proceedings on the basis of the
application filed by SIA “Auto Stils Serviss”, a competing company, whereby SIA
“Gros Auto Grupa”, the independent distributor of Kia in Latvia, denied
warranty repairs to a Kia cee’d passenger vehicle in 2012 without having
consulted KIA Auto AS in this matter, because the passenger vehicle had not
been serviced at an authorised service centre. By the time of the alleged
violation, SIA “Gros Auto Grupa” had already been notified of the termination
of the rights as a distributor. According to the warranty conditions of Kia
that were valid in the period of 2004–2009, Kia passenger vehicles could also
be serviced at independent service centres, but in order to ensure the quality
of maintenance works and passenger safety, the manufacturer required
maintenance works performed at independent service centres to be inspected at
an authorised centre free of charge as a prerequisite of the validity of the
warranty in order to verify their compliance with the standards established by
the manufacturer. However, the Latvian Competition Council has interpreted the
referred warranty conditions as a restriction on maintenance at independent
service centres. 

The Latvian Competition Council took the view that Kia’s warranty conditions
violate the Latvian Competition Act. Tallinna Kaubamaja AS and KIA Auto AS
disagree with the conclusions of the Latvian Competition Council. The Council
has not considered the numerous evidence and claims filed by KIA Auto AS and
has issued a convicting decision based on a single identified violation where a
company unrelated to Tallinna Kaubamaja AS group denied warranty repairs
without having previously consulted KIA Auto AS. 

According to the decision, KIA Auto AS was fined in the amount of 135 thousand
euros, whereof 96 thousand euros is imposed jointly on both KIA Auto AS and its
parent company TKM Auto OÜ’s parent company Tallinna Kaubamaja AS, which is
considered to be liable for the activity of KIA Auto AS in the view of the
Latvian Competition Council. 

Tallinna Kaubamaja AS and KIA Auto AS are conducting a thorough analysis of the
Latvian Competition Council decision and preparing to appeal the decision at
the Administrative Regional Court of the Republic of Latvia because we are
absolutely convinced that the accusation is unfounded and the Competition Act
was not violated. Among other things, we take the view that the Latvian
Competition Council decision violates the common principle of the competition
law whereby the parent company is not held liable for the subsidiary’s
activity. KIA Auto AS and Tallinna Kaubamaja AS will continue their normal
business activities and keep the stock exchange informed as circumstances
evolve in accordance with procedures provided for in the law and the rules and
regulations of the stock exchange. 


         Raul Puusepp
         Chairman of the Board
         Phone: +372 731 5000