On 8 December 2015, Clyde & Co partners from 6 jurisdictions held a panel discussion on the Volkswagen (“VW”) automotive emissions crisis. It was a highly informative session which clarified the key issues impacting the way in which the claims arising out of the crisis will be dealt with in the coming months.

The speakers were Jacinta Long of Clyde & Co’s Brisbane office, Louis-Philippe Constant from Montreal, David Méheut from Paris, Shurooq Zainal from Dubai, James Chin from Atlanta and Neil BeresfordHelen Bourne and Ian Plumley from London. The seminar explored the differing responses to the crisis in each jurisdiction, the way in which claims against VW will be pursued, the basis of those claims and their prospects of success.

Summary

An estimated 11 million vehicles have been affected by VW’s use of technology to allow its vehicles to cheat emissions tests, so it is unsurprising that claimant firms in many jurisdictions are mobilising to bring claims on behalf of the consumers affected. However, the success of the actions brought in each jurisdiction will depend firstly on the claimants’ compliance with the differing procedural requirements in each jurisdiction and secondly on their ability to prove that the consumers affected have suffered a loss. The highest likelihood of success is expected to be found in the US, where statutory fines are substantial and there is potential for significant punitive damages to be awarded to consumers during the course of a jury trial if settlement cannot be achieved beforehand.

Background to the crisis

In recent years, various jurisdictions have introduced rules regarding the acceptable levels of emissions from vehicles. The most stringent of these were phased in in the US between 2004 and 2009, although similar (less onerous) standards have also been introduced across the EU. As a result, VW developed technology to reduce the pollution produced by their vehicles and, in 2008, VW announced that its diesel cars were as clean, if not cleaner, than required by the most stringent emissions requirements. VW received widespread praise for this achievement and was awarded various environmental awards and tax breaks for its apparently environmentally-friendly vehicles.

In 2014, the International Council of Clean Transportation commissioned an independent study to test US vehicle emissions on the road. Discrepancies were found between these ‘on the road’ tests and those laboratory tests previously conducted on the VW vehicles. The ‘on the road’ tests revealed VW cars to be non-compliant with US and EU emissions regulations, in some cases exceeding the tolerable emissions limits by a factor of 40.

This was brought to the attention of the US Environmental Protection Agency (“EPA”) and VW admitted that it fitted defeat devices into its vehicles which allowed them to cheat emissions tests, appearing cleaner than they were. These devices had been in use for more than six years. The EPA issued a violation of the Clean Air Act and a recall order for the affected vehicles. A public apology and the announcement of an internal investigation by VW followed.

Of the estimated 11 million affected cars, 482,000 are located in the US, 2.8 million in Germany, 1.2 million in the UK and 1 million in France. A further 800,000 cars are also said to have been affected by CO2 emissions irregularities.

Initial responses

The first reaction was the EPA’s issue of a violation notice under the Clean Air Act and recall order of the affected vehicles. Although no fine has been imposed to date, the Act allows for fines of up to USD 37,500 per vehicle, which equates to a total of USD 18 billion for all of the cars affected in the US. As well as regulatory fines, VW also faces civil claims in the US. While many of these may not meet procedural requirements to proceed to trial, civil claims remain a risk.

A similar picture has emerged in Canada and albeit that the number of civil claims intimated is currently on a much smaller scale than the US. It is likely that this will increase however due to Canada having something of a ‘copycat’ relationship with US litigation trends.

Claimants in other jurisdictions have been slower in reacting to the VW crisis. For example, in Australia there have been only two class actions filed so far although they are estimated to represent an eighth of the 84,000 consumers affected. In the UK no class actions have been filed against VW to date and the main activity has been several claimant law firms attempting to recruit affected consumers.

In France, the focus is on the criminal investigation into the matter rather than civil claims and, as this investigation is moving swiftly it may be that civil claims are brought against VW via this mechanism.

In contrast to all of the above, there is yet to be any significant reaction in the Middle East- seemingly due to the limited options available to consumers.

How will claimants pursue VW in the various jurisdictions?

Where claimant law firms are actively recruiting claimants, the likelihood is that the majority (if not all) consumer claims will be in the form of class actions or other forms of group litigation rather than individual civil claims. For, even if a consumer decided to pursue a claim independently, it would swiftly become aware of the class actions and elect to join for ease.

While responses to date indicate that VW will probably be faced with class actions from groups in the US, the UK, Canada and Australia, this risk is not universal. The availability and ease of commencing class actions varies between jurisdictions and France and the UAE are examples of two countries from which VW is unlikely to field claims.

In any event, at this early stage, significant questions remain over the ability of these claimants to succeed against VW given there’s little indication at this stage as to what losses (if any) claimants have suffered.

United States

To date around 300 lawsuits have reportedly been filed in the US including consumer complaints, claims in respect of fraud, breach of warranty and deceptive trading. Class actions are filed when there are a large number of people who have been harmed by the same defendant under a common set of facts. Class actions can be filed either at the state or federal level depending on the circumstances.

Once a class has been identified and a lawsuit filed, one hurdle the class must overcome is that it must be certified by the court. Class members need to demonstrate that all group members’ claims are sufficiently similar to warrant being treated as a group.

If certified, the US operates an ‘opt out’ system whereby any person who would fall within a certified class is taken as being part of that class for the purposes of the action unless they specifically opt out.

An option being considered in the US to handle the multiple federal lawsuits that have been filed is Multi District Litigation. This is where a single federal court would consolidate and handle all of the matters jointly for pre-trial purposes.

Canada

The Canadian class action rules have certain similarities with the US, but Multi District Litigation does not exist in Canada. To date, more than a dozen motions to certify have been filed against VW in multiple jurisdictions across Canada. Some consolidation of these yet to be certified class actions is expected over the coming months. Certification hearings are unlikely to be held before 2017.

As in the US, the class action process is ‘opt out’ and in large part lawyer-driven.

United Kingdom

In contrast to the US and Canadian system, the UK operates an ‘opt in’ system and there are three group litigation mechanisms available to potential claimants. Firstly, a single claim can be issued which lists multiple claimants. Secondly an application could be made to the court for a Group Litigation Order and third is the commencement of a Representative Action which requires all claimants to have a common interest.

While these mechanisms have been infrequently used in practice thus far due to their relative complexity, the introduction of ‘opt out’ procedures for competition law claims by the recent Consumer Rights Act 2015 may prompt a change in group litigation trends if successful.

Australia

Somewhat of a hybrid, Australia operates both ‘opt in’ and ‘opt out’ class actions as well as actions for ‘closed’ classes which are similar to ‘opt in’ actions. As with the ‘opt in’ procedure, ‘closed’ classes require claimants to take positive action but impose a deadline for this, after which the class is ‘closed’ and no further claimants can join.

MENA

On the other end of the scale, class actions are not being recognised by the courts in the Middle East. Moreover, the low levels of compensation awarded in the event of a successful action in conjunction with rendering a claimant’s costs irrecoverable is not an attractive position to consumers.

France

While class actions have recently been introduced, they are accompanied by specific requirements which narrow their application. For example, they are restricted to claims for material or financial losses and must be brought by licensed consumer associations. So long as these associations remain sceptical about the class action process and its suitableness to claims against VW, few are likely to be commenced.

But in reality what is the loss claimed?

At this early stage the focus has been on recruiting affected customers to form claimant classes but it is not yet clear whether these claimants can or will be able to demonstrate any recoverable loss.

While claims may be submitted for loss in value of the vehicle or alleged overpayment, the fact remains that the vehicles still function and on that basis are no less valuable and could not be classed as damaged. It therefore seems that the majority of claims would be for breach of consumer laws for which compensation is limited to punitive damages.

What’s next? What can insurers expect?

As it seems that VW’s exposure may be limited to punitive damages, it would be surprising if class actions were not the consumers’ preferred approach. For, if pursued on an individual basis, the damages awarded may well dwarf each claimant’s legal costs.

However with limited damages likely to be available, consumers may not have the appetite for any litigation, particularly where VW appears to be taking pre-emptive action to dissuade claims by offering USD 1,000 good will gift cards to affected customers in the US.

Conclusions

While it initially seemed that VW would have a significant exposure in respect of class actions arising from the emissions crisis, it is increasingly looking as though this may not be the case.

As well as the inherent difficulties which claimants would face in getting classes certified for them to be able to commence an action, these are compounded by the subsequent issue of what sort of relief such actions could legitimately seek.

Indications are that VW has identified early settlement and placating of affected customers as the most prudent option to minimise its exposure both in terms of damages and defence costs. What remains to be seen is the reputational fall out attributable to the emissions crisis and VW’s main challenge may actually be how best to deal with its business loses which are already being evidenced globally.