Double jeopardy in Volkswagen cases - CJEU in Volkswagen Group Italia and Volkswagen Aktiengesellschaft (C-27/22)

Last Thursday the CJEU adjudicated in the Volkswagen Group Italia and Volkswagen Aktiengesellschaft case (C-27/22 - see here). We have previously written about the Volkswagen scandal on the blog (see here) - that is, on the unfair commercial practice that Volkswagen engaged in by installing a defeat device in its cars, which led to marketing them as more environmentally-friendly in 2009. As our past blog posts mention, various national authorities were active in their investigation of Volkswagen's conduct. And here lies the problem that the CJEU tackled in this new case: Could different national procedures against Volkswagen (for the breach of consumer protection rules, esp. prohibition of unfair commercial practices) breach the principle of ne bis in idem? 

Eliott Van Buggenhout on Unsplash

Two national authorities' decisions were at stake here. The Italian authority (AGCM) imposed a fine of 5 million Euro on Volkswagen in August 2016 for the unfair marketing practices in Italy. This decision was promptly challenged in court by Volkswagen. Then, the German authority (Public Prosecutor's Office of Braunschweig) imposed a fine of 1 billion Euro for the 'negligent breach of the duty of supervision' in developing and installing relevant software worldwide. Volkswagen did not challenge this decision and paid the fine, which means it became final in June 2018. Part of the German decision indicated that the amount of 5 million Euro from the total fine would indeed penalise for the conduct mentioned in the Italian decision, whilst the rest of the fine aimed at taking away the economic advantage that Volkswagen derived from engaging in the unfair practice (para 19). This then led to Volkswagen claiming that the Italian authority's decision infringes the principle of ne bis in idem (embedded in Article 50 of the Charter of Fundamental Rights), as it would duplicate the penalty for the same acts against the same person when it became final. To be able to claim this, Volkswagen argued that administrative fines placed on it were of a criminal nature. 

The Court of Justice agreed that administrative fines for breach of unfair commercial practices may be of a criminal nature. What is necessary is that the penalty has a punitive aim and a high degree of severity (determined on the basis of its amount compared to maximum allowed penalty under relevant provisions) (paras 45, 53-54). If these criteria are fulfilled, the penalty should be seen as of a criminal nature, even if national law classifies it as an administrative penalty (para 48). The Court mentions that if the fine was merely trying to repair the damage (possibly take away the unfair advantage), then it would be unlikely that it had a punitive or deterrent character, which characterises criminal sanctions (para 49). However, e.g. the fact that there is a maximum amount that can be set as a fine suggests that it would not always allow for taking away the achieved unfair advantage (para 52).

Consequently, if the Italian and German procedures penalise Volkswagen on the basis of identical material facts, not just similar facts and regardless of the national legal qualification of these facts, Italian law would not be able to allow for maintaining of the proceedings (paras 66-67, 70). This would indeed infringe the principle of ne bis in idem. This would only be different if the following three conditions were satisfied (para 96): 1) duplication of proceedings would not excessively burden Volkswagen (interestingly, since the Italian fine amounts to only 0.5% of the German fine, CJEU would not consider awarding it alongside the German fine as an excessive burden - para 97); 2) there needs to be transparency and predictability of which acts or omissions could be subject to duplication of proceedings (could Volkswagen predict then that their practices could give rise to proceedings in various countries? - para 98); 3) proceedings should be duplicated within a proximate timeframe and coordinated (and it seems that the Italian authority did not engage in any attempts initiated by the German authority to coordinate these proceedings - paras 101-102).

CJEU on jurisdiction in Dieselgate disputes: C‑343/19, VKI v Volkswagen

Dear readers, 

as many of us prepare to enjoy some well-deserved holidays, we should not neglect to pay attention to a judgment by the Court of Justice from this week which can have important consequences on Dieselgate litigation. 

Since the scandal known as Dieselgate emerged a few years ago, several individuals, consumer organisations and law firms have started actions against Volkswagen to claim damages or other remedies in connection with the company's emissions fraud. While national courts are gradually also starting to render important decisions on the subject, this week the Court of Justice had to answer an important question: which national courts have jurisdiction to adjudicate on actions for damages brought by disappointed consumers?

image: pikist.com

Under article 7.2 of the so-called Brussels I regulation (n 1215/2012), a person domiciled in a Member State can be sued in a different member state, in tort cases, when this is the place where the "harmful event" has occurred or may occurred. 

In the case of Dieselgate claims, the referring Austrian court doubted what would have to be considered as the harmful event: is it the installation of a "defeat device" making the car's tracking of emissions unreliable, or is it, as claimed by the plaintiffs, the place where the defective vehicle has been purchased?

Recalling its earlier case-law, the CJEU (para 23) asserted that the concept of the "place where the harmful even occurred" covers both the place where the damage has occurred and the place where the damage-generating event took place.

The damage suffered by the buyers emerged immediately with the purchase of a vehicle whose value was lower than the price paid due to its defect and was not purely financial loss exactly because the vehicle was defective (para 35). For this reason, the damage emerging at the moment of purchasing the vehicle is suitable for establishing jurisdiction in the MS where the contract was concluded - in this case, Austria. 

According to the Court, this outcome does not undermine legal certainty as a manufacturer who sells in several Member States can expect to be sued in these MS and because, given the nature of the damage, courts of the state in which the contract has been concluded will be best placed to investigate the loss. Indeed, the CJEU observes, the possible loss of market price of the defeat vehicles depends very much on local market conditions, which means that courts of the MS where the original sale has been made can assess whether the consumer has suffered a loss of value. 

By taking away exceptions of jurisdiction, the CJEU has thus cleared one of the stumbling stones standing between consumers and effective remedies in this interesting saga. 

From Karlsruhe with love: landmark Dieselgate decision

In these days of turmoil, it's sometimes difficult to keep one's mind to the same subject for a longer time - especially for those who, like many of the contributors to this blog, are juggling worries for parents in a different country or childcare or finishing a dissertation with ongoing administrative and teaching tasks. 

This said, it should not escape our readers' attention that yesterday the German Bundesgerichtshof likely injected considerable momentum in the Dieselgate redress movement by establishing that VolksWagen is in principle required to accept that disappointed buyers of a "defeat" product cheating on emissions can return their car and get a reimbursement and damages - even as the company will be able to charge them something for use of the vehicle.

This could well trigger a wave of settlements as it is estimated that roughly 60 000 cases are still pending in Germany. An interesting question is whether the judgment will also have effects beyond the German borders, inspiring other courts and regulators on how to approach some of the legal hurdles that have swamped court proceedings so far. What a start of the week!

Here reporting on a well-regarded newspaper. And here the full text.

Volkswagen hit by a multi-million fine from the Polish consumer protection authority

Last September we informed our readers about an interesting report from BEUC summarizing the developments in law enforcement following the Dieselgate scandal. Last week a fine of over PLN 120 million (approx. EUR 28 million), imposed on Volkswagen Group Polska by the President of the Office of Competition and Consumer Protection in Poland (UOKiK), was added to this list. The violations established by the decision (the operative part is available in Polish here) are anchored in the Polish provisions implementing Directive 2005/29/EC on unfair commercial practices (UCPD), specifically Art. 4(1), Art. 5(1), Art. 5(3)(2) of the Act on counteracting unfair market practices (Ustawa o przeciwdziałaniu nieuczciwym praktykom rynkowym). These correspond, respectively, with: the general clause on unfair commercial practices, the specific provision on misleading actions, specification on misleading actions related to the main characteristics of the product.

According to the press release, the President of the UOKiK contested following behaviours of the trader: disseminating false information in advertising materials which suggested that Volkswagen, Seat, Skoda and Audi cars were environmentally-friendly and met the requirements for nitrogen oxide emissions; providing incorrect nitrogen oxides emission parameters in EC certificates of conformity; issuing guidelines for sellers of these cars which suggested that consumers' complaints should not be taken into account. 

Besides imposing a fine, the President of the UOKiK also obliged the trader to send a letter to the affected consumers and publish the content of the decision on its website. VW can appeal the decision to the Court of Competition and Consumer Protection (SOKiK) in Warsaw.

A call to improve enforcement of consumer law: BEUC Dieselgate report

The European Consumer Organisation BEUC has just published an interesting report summarizing the enforcement and policy-related actions in four years following the exposure of the Volkswagen emissions scandal (and subsequent reports of similar practices by other car manufacturers, see eg Commission investigates collusion...). The key message of the report concerns the flaws of the European enforcement system in the field of consumer law. The report notes that while multiple consumers around the world have already received compensation for the damage suffered, EU consumers are still waiting for car manufacturers to make amends.

Substantive rules

Source:  Pixabay

BEUC report begins with an overview of particular enforcement actions taken by its members in different types of proceedings. A reader who is less clued-up about the substantive legal rules may, however, find it useful to first have a look at later sections, which shed a bit more light on the legal background. As regards civil claims a distinction can be made between repair and compensation. This distinction is well illustrated by the settlement reached in the proceedings before the US court, in which affected car owners could, firstly, choose between a buyback or a free fix and, additionally, receive compensation ranging between $5,100 and $10,000 (p. 19). Aside from civil claims, a manufacturer, who installs defeat devices to manipulate emission results, can face monetary sanctions imposed by courts or administrative authorities. Much of BEUC criticism concerns the difficulties of the European consumers to receive compensation and the comparably low level of fines imposed by relevant authorities.

From a private law perspective, a particularly interesting part of the BEUC report concerns "a comprehensive comparative table" prepared by the organisation, analysing among others the concept of damage and the grounds for breach of contractual and non-contractual obligations (p. 16). According to BEUC, the analysis revealed significant correspondence of private law across the EU in all relevant aspects: the notion of compensation loss, such as the lower value of the car, the higher fuel consumption, repair costs or lesser performance; the grounds for breach of contractual obligations, such as non-conformity, fraud and error; and the grounds for breach of and non-contractual obligations, such as tort, misleading practices and unjust enrichment. This is appears to be a broad-brush approach as important differences emerge when each of the listed matters is analysed in more detail (e.g. tort liability in Germany and France, remedies for unfair commercial practices in different Member States). All in all, however, it is true that consumers across EU can rely on a diverse menu of options in order to claim compensation, and that some of them are connected to EU law.

Private enforcement

According to BEUC, the experiences made by its members demonstrate the ineffectiveness of collective redress mechanisms in most European countries. The report discusses particular collective proceedings initiated by national consumer organisations. What certainly stands out is the legal framework in Belgium and Portugal where collective redress is based on an 'opt-out' system. The report further discusses the proceedings in Italy and Spain, where an 'opt-in' mechanism appears to be in place. Austrian example is discussed somehow separately, although is is clear that important enforcement efforts are also put in there. According to the report, the Austrian consumer organisation VKI had brought "16 group actions in front of 16 courts representing a total of 10,000 consumers". The dispute currently revolves around jurisdictional matters, on which earlier this year a request for a preliminary ruling was directed to the Court of Justice.

The report also elaborates on the state of play in Germany - where, of course, Volkswagen and other important car makers are established. Most noteworthy development is a declaratory court action (Musterfeststellungsklage) brought by the consumer organisation vzbv. More than 430,000 consumers are reported to have joined the action to date (compared to 75,000 consumers in the Italian proceedings and 7,500 in the Spanish case). The proceeding, however, only allows the court to declare that VW infringed the law and damaged consumers, on which subsequent claims for compensation can be based.

BEUC also reports on several developments in the Member States where consumer organisations have no feasible options to engage in collective redress. Slovenia provides an interesting example: here consumer organisation ZPS has reportedly teamed up with a law firm which brought claims of Slovenian consumers before a German court (in a different type of proceeding than Musterfeststellungsklage, apparently). Importantly, the fact that certain countries are not mentioned in the report does not mean that no significant developments regarding VW case can be observed there; it rather suggests that the relevant consumer organisations are not involved. This seems to be the case for Poland, where law firms have taken the initiative from the very beginning. For example, after Polish courts had found to have no jurisdiction in some early proceedings, thousands of Polish consumers joined the declaratory court action brought by vzbv in Germany.

Public enforcement

A significant part of BEUC report concerns public enforcement. In this respect, indeed, VW has so far managed to avoid major blows (particularly compared to the numbers overseas). The highest sanction so far - totaling €1 billion - was imposed in a case brought by public prosecutors in Germany. There are also ongoing criminal cases in other Member States, among others France and Poland.

BEUC appears to be particularly disappointed with the (lack of) action of the European consumer protection authorities, including as part of the Consumer Protection Cooperation (CPC) network. It describes the dialogue carried out by the European Commission with VW and its very modest achievements. More severe measures have only been taken by consumer authorities in Italy and the Netherlands, which hit VW with the highest possible fines of €5 million and €450,000 respectively.

Concluding thought

The report is set against the background of ongoing EU developments. It welcomes the review of the CPC framework and the relevant type-approval/market surveillance system. Most importantly perhaps, the report comes at a time when the European legislators are still working on the proposed directive on representative actions for the protection of the collective interests of consumers. The negotiations on this file have remained controversial as, indeed, the proposal seems difficult to reconcile with many Member State traditions. Whether an improvement of consumer law enforcement can truly be achieved with amendments that are currently discussed remains an open question. Without doubt, however, the state of play of consumer law enforcement leaves much to be desired.

Commission investigates collusion among car manufacturers

Guest post by dr Kati Cseres, Associate Professor at the Amsterdam Centre for European Law and Governance, University of Amsterdam

On 18 September the European Commission has announced that it has opened an investigation against BMW, Daimler and Volkswagen, Audi and Porsche from the VW group, based on information that they had colluded, in breach of EU competition rules, to avoid competition on the development and roll-out of technology to clean the emissions of petrol and diesel passenger cars.

EU Commissioner, Margrethe Vestager, in charge of the competition policy portfolio, said: "The Commission is investigating whether BMW, Daimler and VW agreed not to compete against each other on the development and roll-out of important systems to reduce harmful emissions from petrol and diesel passenger cars. These technologies aim at making passenger cars less damaging to the environment. If proven, this collusion may have denied consumers the opportunity to buy less polluting cars, despite the technology being available to the manufacturers."

The Commission's investigation focusses on information indicating that BMW, Daimler, Volkswagen, Audi and Porsche participated in meetings where they discussed inter alia the development and deployment of technologies to limit harmful car exhaust emissions. In particular, the Commission is assessing whether the companies colluded to limit the development and roll-out of certain emissions control systems for cars sold in the European Economic Area (Article 101 of the Treaty on the Functioning of the European Union). While the EU competition rules certainly leave room for technical cooperation aimed at improving product quality, the current investigation concerns specific cooperation that is suspected to have aimed at limiting the technical development or preventing the roll-out of technical devices. The Commission has, however, stated that at this stage of the investigation it “has no indications that the parties coordinated with each other in relation to the use of illegal defeat devices to cheat regulatory testing”.

The Commission’s statement and act comes three years after  the Dieselgate scandal started with a violation notice issued by the US Environmental Protection Agency (EPA) to the VW group revealing that “defeat devices”, meant to game emissions testing, had been fitted to nearly half a million cars.

EU Commissioner Vera Jourová, responsible for Justice, Consumers and Gender Equality  has also been actively pursuing a solution for European consumers by way of legislation and proposing a New Deal for consumers as well as obtaining action plans from Volkswagen.

Should the current investigation of the Commission, Vestager’s DG Competition indeed find that Volkswagen group, Daimler and BMW has colluded on, consumers will have another strong case to bring before national courts and claim damages for the harm they suffered. At the same time, this is another strong signal for the other EU institutions that there should be further hesitation to support an EU wide collective action mechanism which effectively compensates harmed consumers.

POLITICO publishes draft Commission proposal on collective redress for European consumers

POLITICO, a well-known news website on European affairs, reports that it has obtained a draft proposal of the European Commission for a new Directive on representative actions for the protection of the collective interests of consumers, and repealing the Injunctions Directive (2009/22/EC; referred to as "ID"). Last year, the Commission already announced a 'New Deal for Consumers', including an EU-wide class action and collective redress; see our blog post here.

One of the drivers of this development has been the "the inquiry into emission measurements in the automotive sector", i.e. 'Dieselgate'; see our previous blogs here, here and here. Not all Member States provide for collective redress mechanisms tailored for mass harm situations, so not all consumers have access to effective redress opportunities. According to the Commission, the significant disparities among Member States require EU intervention, particularly in light of the cross-border implications; although the proposal applies to domestic infringements of EU law as well.

The draft proposal is a follow-up to the REFIT Fitness Check of EU Consumer and Marketing Law, which also covered the ID, and to Commission Recommendation 2013/396/EU. The Commission states its intention to further strengthen the redress and enforcement aspects of consumer protection (Article 114 TFEU and Article 38 EUCFR), through the establishment of a complementary EU framework supported by procedural rules on the national level. This should also facilitate access to justice (cf. Article 47 EUCFR); possible benefits of collective judicial actions are lower costs and more legal certainty. The proposal is meant as an additional procedural tool: it does not replace existing mechanisms, nor does it affect substantive rights.

The proposed Directive establishes "certain key aspects", but its lack of further detail is also its weakness. For example, it does not specify which divergences between Member States or gaps in the protection of collective consumer interests are most problematic. It does not make a clear distinction either between injunction orders, redress orders and declaratory decisions, nor does it address corresponding procedural complications and modalities.

The Commission does not explain why the ID needs to be improved and which specific elements need an update. It only observes that the key shortcomings of the ID are its limited scope, the limited effects of injunctions on redress for consumers and the costs and length of the procedure. The Commission therefore proposes to enlarge the scope of the future Directive to other horizontal and sector-specific EU instruments, e.g. in the field of financial services, energy, telecommunication, health or the environment. Consumers who have been harmed must be able to rely on a final decision in a representative action (Article 8 draft proposal). The proposal aims to improve the effectiveness of injunctions in terms of deterrence of unlawful practices, as well as fair and adequate compensation for consumers, but how exactly those goals are to be achieved is not elaborated. Moreover, the proposal aims to strike a balance between facilitating access to justice and ensuring adequate safeguards from abusive litigation (frivolous claims), but again modalities are not defined. The proposal works with 'qualified entities' that must satisfy certain criteria (Article 6 draft proposal), and it emphasises the importance of 'due procedural expediency'. However, how this is to be realized is left to the Member States.

In the Netherlands, for instance, a legislative proposal is pending for the introduction of a collective damages action. The ongoing discussion shows how difficult it is to find a balance between access to justice and effective redress on the one hand, and the prevention of abuse on the other; see here and here for more background information. The most controversial issues, such as the designation of a lead plaintiff, opt-in/opt-out possibilities and the calculation of damage, are not addressed in the Commission's draft proposal. 

It is expected that the Commission will announce its proposal (this draft or an amended version) in the next few months. It is far from certain that it will eventually result in a Directive. Whether it will be adopted or not, the proposal is likely to have an impact on the debate on collective redress.

Enforcement without bite- national authorities urge for action as the Volkswagen saga continues

As announced on the 7^th of September, national consumer authorities of all EU Member States, spearheaded by the Netherlands’ Authority for Consumers and Markets (ACM) along with the EU Commission sent a joint letter to the Volkswagen Group reminding them to honour their commitment to take ‘confidence building measures’ such as repair cars of affected consumers.^[1] Volkswagen had previously committed to the Commission to repair all affected cars by autumn 2017. The letter requests that Volkswagen individually informs consumers about the repairs and makes legally-binding assurances that the car’s overall performance will be retained post-repair. Furthermore, the letter asks for an extension of the deadline for free repairs should it not be completed in autumn 2017.
This is an important development as it is the first time that EU Member States take a unified stance to address the VW scandal, making use of Regulation 2006/2004 on Consumer Protection Cooperation.

It has been two years since the scandal broke that Volkswagen fitted its diesel cars with software suppressing the emission und testing conditions; yet, redress for EU consumers is proving elusive. The situation in the EU is in stark contrast with that of the US, where regulators took swift action leading to Volkswagen admitting guilt and paying billions of dollars in compensation to consumers.

This initiative by consumer authorities follows the efforts made by consumer organisations and law firms across the EU to coordinate in bringing legal action against Volkswagen in different jurisdictions. The Netherlands are again leading on this front, as they have filed a large class action cooperating with other Member States such as the UK. So far, Volkswagen has benefitted from the EU system which leaves enforcement to the Member States, as can be seen in the reluctance of Volkswagen to commit to legally binding action.

Volkswagen’s response to this joint letter will show whether the cooperation of the national authorities will benefit EU consumers and this blog will continue to cover the developments. While the letter is a welcome initiative, it does not address the main hurdle in getting redress for consumers, which are the disparities between national laws. Although the Member States are willing to cooperate, any legally binding action will be taken on a national level.

The Volkswagen scandal has been an example of a global consumer challenge that calls for the EU to take a uniform stance. However, the current regulatory framework has proven inadequate in protecting consumers. This raises the question: should enforcement of EU consumer law be centralised in such cases to effectively protect consumers or is this a matter best left to the Member States? What do you think? Please share your view in the comments.

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[1] http://europa.eu/rapid/press-release_IP-17-3102_en.htmin