It is commonly agreed that the « Volkswagen scandal » or “Volkswagate” shall have a catastrophic impact on the automotive giant and that the deluge of lawsuits, arising out from anywhere in the world since the last three weeks, could even “kill” the manufacturer. As a matter of fact, legal suits have already been initiated against Volkswagen in the United States, France, Germany, Italy, Switzerland, Sweden, Australia, Spain and South Korea and it should be very difficult for the auto manufacturer to emerge from the crisis safely /alive (?). The global amount of the incurred fines combined with the decrease of its stock-market capitalization by more than 45% since the scandal disclosure could bring the company to its knees.
The « Volkswagate » gives us the opportunity to draw up a brief overview of the judicial recourses that can be brought in France against an industrial company, in the same situation, and to appraise, on the basis of the currently available information, the chances for those judicial actions to succeed.
Brief reminder of the « ins and outs » of the « Volskwagen scandal »: In the United States, Volkswagen has been blamed for equipping its diesel vehicles with a software device which purpose is to mislead the antipollution tests and artificially reduce the polluting particles while the vehicles are subject to those tests. Such device was programmed in order to detect the tests parameters and, consequently, to modify the dynamics of the engine so that the vehicle could successfully pass the antipollution controls.
In France, more than 900.000 vehicles of the Volkswagen group (Volkswagen, Audi, Seat and Skoda brands) are suspected to be equipped with the “defeat device”.
Legal grounds for possible legal actions in France:
Legal actions against Volkswagen, or more generally against any industrial blamed for deceptive practice, may arise concurrently from either the French government, the misled consumers, or from any individual or legal entity that may have an interest in bringing such action, including competitors themselves.
Legal actions initiated by the French government or associations/ NGOs
Proceedings currently in progress:
On October 2, 2015, upon accusation by a deputy of the Ile-de-France Region, the public prosecutor’s department of Paris started a preliminary investigation (based on the legal ground of « aggravated deception ») against Volkswagen France, following the scandal disclosure in the press and the administrative investigation handled by the DGCCRF[1] which conclusions should be known in November or December.
The French minister of Ecology, Ségolène Royal, contemplates to claim for the reimbursement of the State aids that Volkswagen has received, in return for the marketing of vehicles supposedly “clean” and compliant with antipollution standards.
The French NGO « Ecologie Sans Frontière » (ESF) has recently filed a complaint based on the legal ground of « endangering the life of others » and « aggravated fraud ».
Legal grounds: Article L.213-1 of the French Consumer Code (« FCC ») states that « deception », which is a criminal offense, can be defined as the fact of « deceiving the contractor by any means or process whatsoever, including through a third-party intermediation (…) on the nature, species, origin, material qualities, composition or content in terms of useful principles of any merchandise”. Besides, Article L.213-3 states that such deception becomes an “aggravated fraud” if “the falsified or corrupted substance, or adulterated medicine is harmful to human and animal health”. The preliminary investigation launched by public prosecutor’s department of Paris and the complaint filed by the NGO are based on this last legal ground.
Incurred penalties: The criminal penalty of « simple » deception is punished by two year imprisonment penalty and a fine of 300,000 euros (article L.213-1). The “aggravated deception” is punished by a fine of 750,000 euros and a 7 year imprisonment penalty (article L.213-3). It should be noted that such fines may also be increased, « in proportion to the benefits resulting from the fraud », up to 10% of the global average annual turnover, calculated on the last three annual turnovers. It should also be noted that, under article L. 213-6 of the FCC, it is expressly stated that legal entities which criminal liability will be recognized, shall be sentenced to the penalties listed under articles L.131-38 and L.131-39 (2nd and 9th paragraph) of the French Criminal Code. In practice and as regards the incurred fines, should Volkswagen France (which has been expressly targeted in the French public prosecutor’s preliminary investigation) be regarded as liable, from a criminal standpoint, and recognized, at the end of the proceedings, as guilty for « aggravated deception », it could be sentenced, pursuant to article L.131-38 of the French Criminal Code, to a fine amounting to 3,750,000 euros which could be increased, under the specific circumstances, to 10% of the average annual turnover.
Legal actions initiated by the consumers / competitors
Proceedings currently in progress:
A complaint has been filed by a consumers group, gathered under the name of « Association of international victims of automotive fraud » for « deceptive commercial practice, deceptive advertising, deception, fraud, endangering the life of others, collusion, forgery and falsification”.
The association of defense of consumers CLCV also filed a complaint for « deceit on merchandise and unfair commercial practice ».
Legal grounds: the buyers of one of the 900,000 vehicles suspected to be equipped with the « defeat device » may initiate, on an individual basis, a legal action for « deceptive commercial practices » pursuant to article L.121-1 of the FCC[2]. Under such legal ground, they could claim for financial damages, provided that they can evidence an existing economic and/or moral damage/loss. Such evidence will probably very hard to report if it is proven that, as the association UFC Que Choisir underlines it in its press release of October 7, 2015: “(…) the environmental argumentation based on the nitrogene oxide had not been highlighted in Europe and in France and the NOx alleged results are not referred to in the technical documentation. There has not been any specific allegation in this respect, by any manufacturer. Hence, the consumers cannot claim, based on the « moral damage » suffered or « the loss of opportunity », any financial damages, since no information on the alleged NOx results has been properly disclosed to them[3]».
The « material » element of the deceptive commercial practice seems to be rather difficult, in the present circumstances, to evidence. For the same reason, the action based on said legal ground that could be brought by a competitor (professionals are also entitled to base their potential grievances on Article L.121-1 of the FCC) would also have little chance to succeed: the proof of the economic loss suffered by competitors will be even more difficult to establish (the effective diversion of clientele resulting from such practice is almost impossible to evidence) and, of course, the prerequisite of such action would be that competitors cannot be blamed for having implemented the same deceptive practice…
There is still the case, rather peripheral, in which the buyers of the suspected vehicles would like to cancel the sales and obtain their money back. Such cancellation requests initiated, on an individual basis, on the legal ground of the “dol” (ie. fraudulent tactics) (Article 1116 of the Civil code) could be contemplated, provided that it could be established that the non-polluting alleged characteristic of the purchased vehicle has been a “crucial condition” for the purchase, without which the buyer would never have purchased the vehicle. It could be sustained here, from a totally objective standpoint, that – without the deception – the vehicle would never have complied with the required standards and would have not consequently been marketed at all….. The cancellation request, based on the fraudulent tactics (“dol”), appears to be receivable in this context.
As regards the ability/opportunity to introduce a legal action, through French-made class actions, it is almost unconceivable, since the implementation of such class actions in France are subject to very restrictive conditions (for example, only recognized consumers associations are entitled to introduce such action) and may only, in any case, claim for the compensation of an economic loss/damage, which will be very difficult to evidence, under the current circumstances. Recognized consumers associations such as UFC Que Choisir and CLCV appear to be rather skeptical about the opportunity to introduce such class actions in France in the present case.
Incurred penalties: pursuant to Article L.121-6 of the FCC, the criminal offense of deceptive commercial practice is punished by a 2 year imprisonment penalty and a 300,000 euros fine for an individual which amount can be increased up to 1,500,000 euros for a legal entity; notwithstanding the possibility, as for deception, that the fine could be increased up to 10% of the average annual turnover, based on the three last annual turnovers.
Whatever the chances of success of legal actions introduced in France, the financial damage for the auto manufacturer – facing multiple similar actions in different countries all around the world – is already appraised to reach more than 18 billion euros…. and no doubt that the “Volskwagate” will have consequences on the “auto world” in general, considering the investigations launched by the French DGCCRF and public prosecutor. The vice-president of the Ile-de-France Region, the ecologist Pierre Serne, who is responsible for the preliminary investigation started by the public prosecutor, declared recently: “we will pay particular attention to the investigations handled by the public prosecutor. The question is now to know whether such investigations should be limited to Volkswagen or should be extended to other auto manufacturers”.
by Sarah Temple-Boyer
[1] French Administration in charge of the Competition, Consumer issues and Fraud controls.
[2] Pursuant to Article L.121-1 of the FCC, a deceptive commercial practice is effective « when it lies upon allegations, indications or presentations that are false or likely to mislead and (…) which relate to the essential characteristics of the marketed good of service ».
[3] In case it could be established, on the opposite, that such deceptive advertising allegations have been disclosed by Volkswagen, the « material » condition of the alleged deceptive commercial practice will be met and would justify a legal action initiated on the basis of such legal ground. See as a comparison the decision under which General Motors France has been sent before criminal courts for deceptive commercial practice as regards the alleged qualities of its vehicle « Saab 9-3 Bio-Power », which has been presented as « more environmental-friendly, more economic, and more efficient”. (Cass. Crim. 21 octobre 2014, n° Pourvoi 13-86881)
