LittleLaw looks at… The Volkswagen Dieselgate Emissions Scandal

An examination of the impact of Dieselgate on the legal landscape of Europe

April 2, 2020

9 min read

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What's going on here?

Whilst “Dieselgate” is old news to many, the Volkswagen (VW) scandal has recently resurfaced in the media as six German executives have been charged with “deliberately misleading” authorities and customers. Almost half a million German consumers are still awaiting compensation from the fraudulent car manufacturer for installing cheat devices to pass emission tests1. 

The scandal rocked the world in 2015, outraging environmentally conscious consumers for the abject disregard of the environment and emissions regulations. This global case has transformed collective redress in Europe and exposed not only Volkswagen but also other car manufacturers such as Audi and Porsche2.

Dieselgate 2015: The US Origins

The scandal first came to light in the United States in 2015, when the US Environmental Protection Agency (EPA) discovered that VW had installed “cheat software” to improve results during emission’s testing, circumventing US pollution laws3. Roughly half a million cars had these devices installed in the US and 10.5m more around the world4.

It was found that VW vehicles were emitting terrifyingly high quantities of toxic nitrogen oxide gas; up to 40 times higher than US regulations allow on the roads according to the US Clean Air Act of 1963 (CAA). Through the CAA, the EPA has set some of the strictest standards in the world for the regulation of air pollution. To be sold on the US market, all vehicles must be certified by the EPA as having met certain emissions standards5.

Exposure to nitrogen oxide has been linked with health issues such as respiratory illnesses serious enough to hospitalise affected individuals. VW marketed itself to the US as using clean diesel technology, conning millions of environmentally conscientious customers willing to pay a premium for the vehicles6.

After filing a lawsuit against VW, a $4.3bn settlement was agreed with the US Department of Justice in 2017, of which $2.8bn settled criminal charges and $15bn settled civil charges, mostly filed by environmental regulators7.

Thanks to the class action system, the 500,000 US customers were swiftly compensated for the financial loss suffered from the loss of value of the cars after the scandal came to light and the misleading marketing used to con consumers8. Class actions are a form of collective redress (compensation, replacement or repair) that allow groups of individuals or businesses to bring claims against a defendant or a group of defendants in a single litigation proceeding9. The bundling of claims is financially efficient and quick, as well as having the potential to ultimately change policy as class actions often expose flaws in legislation when a large number of individuals are affected10. 

The rapidity with which American consumers were able to access justice  has cast a harsh light on the flawed, or essentially non-existent, collective redress systems available to European consumers.

Dieselgate’s Effects in Europe: The flawed collective redress system

Over 8m European VW customers were affected by the scandal, yet many felt that European public and private enforcement systems had failed them11.   US customers were able to bundle their claims into a single litigation proceeding and obtain redress if the court ruled in their favour. However, there was no legislation in place that would allow European consumers to obtain similar redress through a single proceeding.

The “Injunctions directive for the protection of consumers’ interests” (Directive 2009/22/EC) allowed a court or an administrative body to halt the illegal practices of a company violating consumer rights but could not order the company to compensate consumers12.  In many European countries, claimants had to file individual claims in local courts, undermining their leverage in negotiations with VW13. 

Despite the pressure that the European Commission (EC) put on VW to compensate consumers, consumer protection organisations were left largely to their own devices to seek compensation for their members. VW repeatedly undermined the EC’s requests for compensation and made no concessions to compensate those affected by the scandal, demonstrating the EC’s lack of power to enforce consumer rights

Collective redress in European countries before Dieselgate was very limited and relied on consumer groups to privately take action. There were only a handful of countries in which the national civil procedural court had provided feasible options for collective redress, such as Belgium, Italy, and Germany.

In Germany, one of the largest collective actions in Europe to date, the Musterfeststellungsklage against VW, had over 430,000 consumers registered. However, it was limited by the lack of effective legislation. Whilst the court could declare that VW had indeed infringed the law and harmed consumers, it was powerless to order the company to issue redress. Once the judgement had been delivered by the court, consumers had to individually claim compensation which yielded mixed results.

Both private and public enforcement of the scandal has been fragmented and unclear, leaving many consumers unsure as to how to enforce their rights. The Single Market should have ensured that the recall had the same implications for all affected member states in the European Union, however this was not the case with Dieselgate.

Private enforcement has proven to be limited and inconsistent, yet public enforcement, with a few exceptions, has been a failure entirely. Many national consumer authorities did not step in to hold VW accountable for the scandal and there has been a lack of public discourse on the subject.

This is shown by the German reaction to Dieselgate; German authorities issued a mandatory recall for all affected vehicles in the EU. However, as only 8 EU member states complied with the recall, VW offered to modify the vehicles as an element of a service check rather than as compensation14.

In a survey taken in 2016, two thirds of respondents in Germany alone stated that they were disappointed by the handling of the scandal by both the car manufacturers involved and public authorities15.

Changes to Collective Redress in Europe 2019

To address the evident need for collective redress in Europe, on 11 April 2018, the European Commission announced the proposal of a new directive on collective action, the “New Deal for Consumers” yet this was met with mixed opinions16. 

Critics were concerned that the introduction of harmonised collective redress would harm businesses in Europe by creating an “abusive litigation culture” as can be seen in the US. Scevole de Cazotte, the chamber’s Senior Vice President for International Initiatives, commented that the proposal would “allow claimants’ lawyers to shop their cases around EU Member States, encouraging funding of cases by massive hedge funds that will take a large percentage of any award or settlement, and let claimants’ lawyers get paid before any consumer get any money”17.

This has certainly been the case in the US, as claimants’ lawyers have abused the system and exploited businesses by filing unfounded class actions. They do this with the goal of reaching a settlement that ultimately allows them to cash in on legal fees, whilst claimants receive miniscule compensation18. Businesses have long been lobbying for the introduction of safeguards to prevent US-style abusive litigation, which has been met with backlash from consumer advocates who suggest that safeguards would render the legislation ineffective19. 

However, on  27 November 2019, the “Directive on better enforcement and modernisation of EU consumer protection” (Directive (EU) 2019/2161) was adopted by the European Parliament and the Council20. This new directive allows qualified entities, such as consumer organisations, to seek redress on behalf of a group of consumers that have been harmed by the illegal practices of a trader. Consumers of all EU member countries are thus able to launch collective actions in courts and receive compensation in a single litigation proceeding, much like in the US21.

The introduction of this legislation has had many benefits including:

  • Strengthening consumer access to justice by allowing them to request traders to stop illegal practices and obtain compensation jointly with consumers in other member states;

  • Harmonising collective redress across member states, removing disparity;

  • Making collective redress more accessible by reducing the financial burden associated with it22.

The directive provides national authorities with the tools to impose effective, proportionate and dissuasive penalties when they are working together on mass EU infringements affecting consumers. National authorities have the power to impose a fine of up to 4% of turnover (or 2m euros if turnover information is not available) or increase the maximum fine at their own discretion23.

Differing from the US, the new legislation also safeguards against abusive litigation. The only entities that are able to engage in representative action are independent public bodies and non-profit consumer organisations that have to fulfil a strict eligibility criterion24.

The qualified entities have to comply with stringent transparency obligations regarding the source of their funding to launch the representative action. National courts or authorities must then evaluate whether the qualified entity has the means to sustain the costs of a failed action or whether there is a conflict of interest e.g. a company using a qualified entity to launch an action against a competitor. 

If this legislation had been in place when the Dieselgate scandal came to light, consumer organisations or independent bodies in all EU member states could have launched representative action against VW. The court or administrative body would then have carried out an assessment of the redress claims according to national rules (evaluating whether consumers have the right to redress and the type of redress available to consumers e.g. compensation or repair). 

Alternatively, a settlement could have been agreed between the qualified entity and VW, after being approved by the court or administrative authority. Once a redress order had been issued or a settlement approved, VW would have had to inform all consumers affected and explain the relevant steps for the consumers to receive redress25.

LittleLaw’s verdict: European collective redress revolutionised

Five years on from the discovery of the scandal, it is safe to say that Dieselgate has ultimately positively impacted European legislation. The case has had a profound impact on access to justice and collective redress in the EU. European consumers are henceforth able to obtain redress for the malpractices of traders in Europe whilst also avoiding the abusive litigation culture that is harming US business. 

Germany and other European countries are currently engaging in settlement talks with VW. If the court rules in the consumers’ favour, those affected will finally be able to move on from the scandal. This case has certainly demonstrated that high-profile cases have the power to influence legislation and change the legal landscape.

Report written by Emily Noble

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Footnotes

  1. Joe Miller, “Germany charges six Volkswagen executives over Dieselgate” (Financial Times, 14 January 2020).
  2. Clifford Atiyeh, “Everything You Need to Know about the VW Diesel-Emissions Scandal” (Car and Driver, 4 December 2019).
  3. Russell Hotten, “Volkswagen: The scandal explained” (BBC News, 10 December 2015).
  4. Atiyeh (n 1).
  5. ClassActions.com, “Volkswagen Lawsuit” (ClassActions.com, 17 October 2018).
  6. Hagens Berman, “Volkswagen/Audi/Porsche Diesel Emissions Scandal” (Hagens Berman, 17 May 2017).
  7. ClassActions.com (n 5).
  8. Christina Davis, “Volkswagen Seeks Dismissal of Pre-Scandal Class Action Lawsuit” (Top Class Actions, 22 January 2019).
  9. Philippe Métais and Elodie Valette, “Toward a European approach to collective redress such as group or class action?” (White and Case, 21 October 2018).
  10. Beatrice Bigonzi, Michel Chatelin and Frédérique de la Chapelle, “A study abroad: Will Europe adopt the US class action mechanism?” (Lexology, Eversheds Sutherland, 4 June 2018).
  11. BEUC, “Volkswagen Dieselgate Four Years Down the Road” (BEUC, 17 September 2019).
  12. Yasmina Yakimova, “First EU collective redress mechanism to protect consumers” (Europarl, 12 June 2018).
  13. Karin Matussek, “How U.S. and EU Differ in Handling Volkswagen Diesel Scandal” (Insurance Journal, 29 June 2016).
  14. BEUC (n 11).
  15. Emilie Magdalinski, “Three Years After Dieselgate: Where Do We Stand?” (Institut Delors, 26 September 2018).
  16. Caroline Meller-Hannich, “Dieselgate’: European Collective Redress and the New German Model Declaratory Action” (University of Oxford, Faculty of Law, 11 December 2018).
  17. Dave Keating, “After Dieselgate Anger, Europeans Get Right To Sue Collectively” (Forbes, 26 November 2019).
  18. US Chamber of Commerce, “Class Actions” (Institute for Legal Reform, 1 January 2019) Accessed 25 February 2020.
  19. Keating (n 18).
  20. European Commission, “Review of EU consumer law – New Deal for Consumers” (Europa.eu, 29 May 2017).
  21. European Commission, “A New Deal for Consumers: Commission strengthens EU consumer rights and enforcement” (Europa.eu, 11 April 2018).
  22. Meller-Hannich (n 17).
  23. Věra Jourová, “The New Deal for Consumers What benefits will I get as a consumer?” (Europa.eu, November 2019).
  24. European Commission (n 22).
  25. European Commission, “The New Deal for Consumers, How will the new collective redress mechanism work?” (Europa.eu, 28 November 2018).

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