Marco Frigessi di Rattalma Editor

The
Dieselgate
A Legal Perspective

The Dieselgate

Marco Frigessi di Rattalma
Editor

The Dieselgate
A Legal Perspective

With contributions by:
Marco Frigessi di Rattalma; Sara Landini; Joseph Allan MacDougald;
Marisa Marraffino; Adolfo Paolini; Giorgio Pedrazzi; Gabriella Perotti;
Giovanni Posio; Laurent Posocco; Francesca Romanin Jacur;
Christoph U. Schmid; Stephen Turner

Editor
Marco Frigessi di Rattalma
Department of Law
University of Brescia
Brescia, Italy

ISBN 978-3-319-48322-1
ISBN 978-3-319-48323-8
DOI 10.1007/978-3-319-48323-8

(eBook)

Library of Congress Control Number: 2016963065
© Springer International Publishing AG 2017
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Contents

Part I

National Perspectives

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laurent Posocco

3

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christoph U. Schmid

27

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Giovanni Posio

47

United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stephen Turner

67

United States of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joseph Allan MacDougald

83

Part II

Specific Issues

Civil and Consumer Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Giorgio Pedrazzi
Corporate and Insurance Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Adolfo Paolini
Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Marisa Marraffino
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Sara Landini

v

vi

Contents

The Environmental Dimension of the Dieselgate: a European and
International Legal Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Francesca Romanin Jacur
European Union Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Marco Frigessi di Rattalma and Gabriella Perotti

List of Editor and Authors

Marco Frigessi di Rattalma University of Brescia, Brescia, Italy
Sara Landini University of Florence, Florence, Italy
Joseph Allan MacDougald Center for Energy & Environmental Law, University
of Connecticut School of Law, Hartford, CT, USA
Marisa Marraffino Law Firm Marraffino, Milan, Italy
Adolfo Paolini University of Buckingham, Buckingham, UK
DAC Beachcroft LLP, London, UK
Civil Liability Working Party, International Insurance Law Association AIDA,
London, UK
Giorgio Pedrazzi University of Brescia, Brescia, Italy
Gabriella Perotti University of Brescia, Brescia, Italy
Giovanni Posio University of Brescia, Brescia, Italy
Laurent Posocco Maı̂tre de Conférences en Droit Privé a l’Université de Corse
Pascal Paoli, Corte, France
Francesca Romanin Jacur University of Milan, Milan, Italy
Christoph U. Schmid University of Bremen, Bremen, Germany
Stephen Turner DAC Beachcroft LLP, London, UK

vii

Introduction

On 18 September 2015, the United States Environmental Protection Agency (EPA)
issued a notice of violation of the Clean Air Act to German car producer
Volkswagen Group. The notice was based on the allegation that the car producer
had intentionally programmed turbocharged direct injection (TDI) diesel engines to
activate certain emission control systems only during laboratory testing. This
manipulation had the obvious aim of bypassing the diesel emission standards in
the US so as to get the VW diesel cars approved for the US market.
Not only the USA with 480,000 vehicles but also Germany with 2.2 million
vehicles and many other European countries are affected. VW has admitted that
about 11 million cars worldwide, including eight million in Europe, are fitted with
the so-called defeat device. VW even sold vehicles with the questionable software
in China. Several public prosecutors and environmental protection agencies
announce investigations or start investigating. In Germany, the Braunschweig
prosecutor and the State office of criminal investigations start searching the offices
of Volkswagen in Wolfsburg and other (German) cities.
What started in the US has spread to a growing number of countries. The UK,
Italy, France, and, of course, Germany, have opened investigations. Throughout the
world, politicians, regulators, and environmental groups are questioning the legitimacy of VW’s emission testing. In France and China, the authorities start investigating the scandal and the US Justice Department announces that it will sue
Volkswagen over the emission scandal. Meanwhile, the VW Group has already
made a loss of 3.5 billion euros in the third quarter. Workers employed at the
Wolfsburg manufacturing plant and at other plants have to fear for their jobs.
Thus, the Dieselgate can for sure be defined as a global or worldwide scandal.
This book aims to analyze the complex legal issues that arise from the facts that
make up the magmatic and not yet fully defined reality that goes by the name of
Dieselgate. The book is meant to represent a moment of reflection on something so
unprecedented as the Dieselgate. The authors and myself have decided to work hard
to give readers interested in exploring the legal issues related to Dieselgate a timely
reference point.
ix

x

Introduction

The structure of the book is quite simple.
A first group of essays is devoted to the main countries involved by the scandal.
These essays shall give a full picture of the main legal consequences and issues
triggered by the scandal. They will thus deal with private and consumer law,
criminal law, environmental law, etc. to the extent that they are necessary for
explaining the implication for each specific jurisdiction.
A second group of essays investigates the Dieselgate each from a specific legal
perspective: civil and consumer law, corporate and insurance law, criminal law,
environmental law, and European Union law. These contributions are thus centered
on specific areas of the law and adopt a comparative law approach.
In sum, this particular structure of the book shall be apt to give to the reader a
quite complete picture of the legal dimension of the Dieselgate.
Last but not least, I would like to thank Dr. Marta Lazzaroni, PhD Student and
Lecturer of EU law at the University of Brescia, who patiently helped me in the
preparation of this book from start to finish.
Milan, Italy
January 2017

Marco Frigessi di Rattalma

Part I

National Perspectives

France
Laurent Posocco

1 Introduction
1.1

Historical Context

Since the time of the first postwar, French motorists were encouraged by favorable
tax provisions to buy diesel-powered vehicles. The government promoted transports, agriculture, and handcrafts, which massively used this technology. In particular, it is recognized that the diesel engine offers a very generous power and high
efficiency. Diesel engines are used for locomotives, boats, trucks, tractors, generators, etc. The French car manufacturer Peugeot had played a pioneering role in
developing diesel engines.1 Other national car manufacturers, like Citroën2 and
Renault,3 will invest in diesel vehicles only later, mainly to contain the effects of
the oil shock of 1973. The brand with the lion believed in the future of this
technology before its competitors. This historical precedence allowed Peugeot to
forge a solid reputation, giving it a prominent role on the market. This technological
option explains the policy of promoting diesel of the French State, and with it, the
extent of diesel car registrations. This situation, well established, appears difficult to
challenge; 58 % of new cars in 2015 are equipped with diesel engines. For this

1
On the eve of the Second World War, the Sochaux company sold a dozen of its elegant car model
402. In 1959, Peugeot launched the 403 model with Indenor engine. Then, in 1960, came the
404 model. In 1960, the manufacturer offered a Peugeot 204 diesel model. Under the hood we find
the smallest diesel in the world, a new aluminum block with the power of 40 bhp.
2
Citroen Type H is a subcompact car, and the brand did not offer a diesel model before its
acquisition by Peugeot in 1976.
3
The Renault 20 diesel in 1979.

L. Posocco (*)
Universitè de Corse Pascal Paoli, Corte, France
e-mail: posocco@univ-corse.fr
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_1

3

4

L. Posocco

reason, France could provide a substantial number of potential plaintiffs and the
Dieselgate has a significant impact in the country. Volkswagen stated that 948,064
cars were affected (in detail: Volkswagen, 574,000; Audi, 189,322; Skoda, 66,572;
Seat 93,388), almost 9 % of the total figure of VW cars affected by the Dieselgate
worldwide.

1.2

Political Context

The Dieselgate broke out on 21 September 2015,4 on the eve of the COP21, when
negotiations are ongoing with the United States on the US–EU Transatlantic Free
Trade Agreement (TAFTA), which provides a chapter, one out of 23, that aims at
creating a transatlantic market for cars. France is particularly concerned with these
two events. The French government will, firstly, chair and host the 21st Conference
of the Parties to the Framework UN Convention on Climate Change (COP21/
CMP11) to be held from 30 November to 12 December 2015. This is a crucial
deadline. The meeting will result in a new international climate agreement, applicable worldwide, to keep global warming below 2  C by 2100 and adapt our
societies to the existing imbalances. The agreement will represent a success for
French diplomacy but will bear the mark of US tensions between Democrats and
Republicans.5 In France, the attention of public opinion and decision makers
focuses on the environmental issue.
On the other hand, one of the chapters of TAFTA purports the creation of a
transatlantic car market by unifying technical standards. German car manufacturers, already active on the American and European markets, enjoy strong positions and have an interest in the outcome of the negotiations. The French PSA does
not hide its ambition to return to settle in the United States through its luxury brand
DS, even as American consumers have never really welcomed the brand.6 The
Renault brand, as such, is not marketed across the Atlantic. However, Nissan and
Mitsubishi pertaining to the Renault group could help disseminate Renault products
under other brand names. In this context, the standardization of technical regulations may appear desirable. The confrontation between the US Environmental
Protection Agency (EPA) and VW therefore comes amid intense international
gatherings, while defending the environment is at the heart of the consciences of

4

CEO’s Martin Winterkorn group reacts to the investigation by the US environmental agency and
said he was “deeply sorry to have disappointed our customers and the public”, ensuring full
cooperation with the authorities (La Voix du Nord, 22 September 2015).
5
The agreement is not globally binding. For President Obama, it was imperative to find a wording
that did not make the outcome of the negotiations a binding treaty. The US President knew that it
would never have been ratified by the Congress dominated by Republicans. Washington managed
to achieve that the agreement does not render mandatory specific targets for reducing CO2
emissions and the financing of the fight against climate change.
6
Verdevoye (2015).

France

5

French people. The country is not directly involved in the case. But, for the reasons
given, the French do not feel foreign to the confrontation.

2 Technological and Economic Analyses
From the technological perspective, domestic manufacturers face the same obstacles as their competitors to fight CO27 emissions and NOx.8 PSA and Renault have
taken different routes to overcome them.

2.1

Analysis of the Technological Situation of the Brands

In their pursuit of virtuous engines, engineers must find a balance between consumption and pollution and between CO2 and NOx. It is known that the diesel
engine spreads less carbon dioxide (CO2). The air-fuel mixture is subjected to a
stronger pressure to produce higher energy. Unfortunately, this high compression
ratio leads to a rise in temperature that favors the formation of nitrogen oxides
(NOx). To fight against the formation of NOx, all manufacturers have chosen the
technique of the exhaust gas recirculation (EGR), which lowers the combustion
temperature. This system reduces at the source 85 % of NOx emissions.
In order to treat the remaining 15 % and reduce the rate of NOx below the
threshold permitted by the law, car manufacturers can choose between letting
these molecules accumulate to catalyze them later, intermittently, and treating
these molecules continuously – two distinct approaches that make all the difference
between what is called a NOx trap and the selective catalyst reduction, abbreviated
SCR. Renault has adopted the first method, Peugeot the latter.

2.1.1

Analysis of the Technology Used by the Renault Group: The
NOx Trap

The Renault brand, which uses the technology of NOx trap,9 is in question for some
of its models with the 1.5 dCi group. The “Captur” in particular was caught out by
7

Carbon dioxide, also called carbon or carbon dioxide gas.
General term for a group of highly reactive gases, all of which contain nitrogen and oxygen in
varying amounts. The nitrogen oxide is a chemical compound consisting of oxygen and nitrogen.
9
This filter has a limited processing capacity, which forces it to periodically purge the nitrogen
oxides that accumulate. The electronic computer determines the appropriate time to initiate
regeneration transforming nitrogen and oxygen in nitrogen oxide. This chemical reaction demands
more heat, obtained by a diesel injection for increasing the temperature of the exhaust gas. Purging
the NOx trap filter induces additional fuel consumption.
8

6

L. Posocco

tests on benches made by UTAC10 on behalf of the Royal Commission,11 following
the occurrence of the VW scandal.
According to Renault, the EGR valve only works well on a certain range of
ambient air temperatures.12
When Renault adopted this system of exhaust gas recirculation in the mid-2000s,
it was deemed effective. Its disadvantages appeared later: when the ambient air is
too cold, hot, or wet, there is a phenomenon varnishing soot deposits that block the
EGR valve.
As the engine can be affected, the control software has been configured in order
to control the rate of exhaust gas recirculation when the air temperature is not
within a defined range (between 17 and 35  C). In the case that the temperature
(at the fresh air intake of the engine) is under 17  C or above 35  C, the computer
greatly reduces the rate of exhaust gas reinjected into the combustion chambers.
However, a reduced recirculation determines an increase of the temperature of the
exhaust gas and therefore an increase of the NOx rate. The amount of NOx becomes
sometimes greater than what the NOx trap may treat. The manufacturer realized this
malfunction, and from 2010 it managed to extend the operating time of the EGR
and to increase the frequency of purging the NOx trap.
These fixes reduce NOx emissions in all circumstances. This is important
because the UTAC tests have certainly proved disappointing emission rates when
the vehicle is evaluated in real traffic conditions but show that, except for Captur,
Renault diesel engines comply with technical standards when they are submitted to
standard cycle of type approval test benches.
On 6 April 2016, the Renault group answered, through its chief engineer, Gaspar
Gascon Abellan, questions from MP members of the mission with the task of
informing the National Assembly on actions undertaken by the French automotive
sector to overcome the difficulties encountered.
It emerged that the Renault Captur,13 which was tested by UTAC, did not
comply with regulations. The case, however, seems of minor importance: on the
one hand, the anomaly appears to affect only isolated cases; on the other hand, a
recall campaign to change the management software of the system of clearance of
affected models had started as early as July 2015 (Captur) and September 2015
(Kadjar), before the outbreak of the Volkswagen scandal and well before the tests
by UTAC commenced.

10
UTAC (Union Technique Automobile and Motorcycle Cycle) is working with French, British,
Dutch, and Romanian authorities to the European Commission and the United Nations. It conducts
tests for the type approval of vehicles and their equipment in accordance with regulations issued
respectively by the EU and UNECE. The French authorities have also delegated to UTAC the
monitoring of production conformity (COP) (Source: newspaper “20 minutes” of 1 October 2015).
11
The “Royal Commission” takes its name from the person who is in the lead. Ms Royal is the
Minister of Environment, Energy and the Sea, in charge of International Relations on climate.
12
Bergerolle (2016).
13
115,000 Renault Captur vehicles are affected by the recall that started on July 2015.

France

7

Good faith of the old board could not be questioned. According to Gaspar
Gascon Abellan, an internal misunderstanding took place and, in any case, Renault
never had the will to cheat or violate any regulations. According to the chief
engineer, the specimen of the Captur tested by UTAC was among those that were
not corrected at the factory. Its software was incorrectly set: there was an error in
the set of the temperature at which the NOx trap must proceed with the desulfurization cycle. The firm of Ile Seguin was slow to detect the wrong setting because
the audits concern new vehicles. The vehicle must travel several dozen kilometers
before the sulfur accumulates in the NOx trap. In any case, the figure of vehicles
recalled is relatively small, a fact that greatly circumscribes the impact of the defect
both economically and environmentally. Renault is committed to expand the
maximum operating range between 5 and 40  C and make the purge of the NOx
trap more frequent. Furthermore, the new generation of Renault diesel engines will
use SCR.14

2.1.2

Analysis of the Technology Used by the PSA Group: SCR

PSA is in a different situation. The group is completely foreign to the Dieselgate
scandal. PSA diesel engines emit less NOx in real driving conditions because they
adopt a continuous catalytic process (SCR), not just a periodic one. The SCR is able
to handle a higher volume of exhaust gas and is less sensitive than the NOx trap to
lower gas recirculation rates. The increase in the rate of NOx in the exhaust gas is
not enough to overcome its management capabilities. The SCR equipment is more
expensive but is also more satisfactory in terms of preservation of the environment.
These circumstances did not prevent ADAC15 from challenging the premium DS5
Hybrid4 44 model, a competitor of the most famous German models.

2.2

Analysis of the Economic Situation of French Groups

The various national European car markets reacted to the Dieselgate differently
from the car market of the United States. While American consumers seem very
susceptible to cheating, the Wolfsburg group resists in the old continent.

14
It is noteworthy that in September 2015, a study by the German Federation of Motorists
challenged car models manufactured by the Renault–Nissan Alliance (Nissan X-Trail 1.6 dCi,
Renault Espace dCi 160 Energy, Renault Grand Scenic Energy dCi 130, and Renault Energy dCi
130 Kadjar) for alleged noncompliance with Euro 6 standards (Bonnebas V., Renault-Nissan,
European champion pollution, Reporterre, 30 September 2015, available on https://reporterre.net/
Renault-Nissan-champion-d-Europe-de-la-pollution).
15
The ADA (Allgemeiner Deutscher Automobil-Club) is a federation of automobile clubs in
Germany. With 18.73 million members in July 2013, it is the largest in Europe and the second
worldwide (after the American Automobile Association).

8

2.2.1

L. Posocco

Analysis of the Used-Cars Market in France

The used-car market is growing at a less sustained rate than the market of new
vehicles (+3 % against +7.9 % in the first four months of 2016). To our knowledge,
there are no statistics on the impact of the Dieselgate on sales volumes and prices of
the vehicles. Automotive professionals affirm that, for the time being, the
Dieselgate did not determine any significant change on the prices of used cars or
on the trading volumes. No drops in sales were reported by car dealers. Moreover,
the ease of car resale would not have suffered the impact of the Dieselgate.
The impact of the scandal would have been much more severe if it had challenged the reliability and safety of the affected car models. In any case, at the time
when this book is printed, we do not yet have sufficient data concerning the
evolution of prices and thus a reservation on this issue is necessary. The plaintiffs
in turn will probably ask for compensation in case of resale of the vehicle at a low
price. This argument, if evidenced by relevant market data, will be legally relevant.
Buyers wish to purchase quality products and pay them accordingly. As the VW
group’s reputation is tainted, it is possible that the value of used cars and the ease of
car resale reflect this situation. Any economic difficulty of VW would worsen this
situation.

2.2.2

Analysis of the New Car Market in France

The analysis of the consequences of the Dieselgate on the volume of sales cannot be
completed at the current state of information. The Dieselgate has implications on
the new car market, but they are less important than one might have expected.16
Sales of gasoline and hybrid cars increase, but this trend was established well before
the outbreak of the scandal. The share of diesel cars in total car sales decreased from
71 % in 2013 to 64 % in 2014 and to 52.32 % in April 2016.17 To date, no consumer
panic that would drive consumers to shift in mass from diesel to gasoline cars has
been observed. At most, the previous trend is confirmed. PSA does not seem to take
advantage of its more environmentally friendly technological choices to increase its
market share. Renault does not suffer from the challenging of some of its models.18

16

François-Xavier Castille, President of SNLVLD (Syndicat national des Loueurs de Véhicules
Longue Durée), workshop organized on 14 October 2015 for the Observatoire du véhicule
d’entreprise (Quelles énergies pour aujourd’hui et pour demain?, Flotte automobile, 20th
January 2016).
17
CCFA, Lettre d’information, 1 July 2016 (www.ccfa.fr).
18
For example, before the outbreak of the scandal, in the first six months of 2015 the market grew
by 6.1 %. During the same period, the overall results of the French car makers, with the exception
of Peugeot, were down: Peugeot: +8.1 %, Citroën: 0.5 %, DS: 14.5 %, Renault: 6.8 %, Dacia:
7.5 %. During the same period, the results of VW were hardly better: +5.5 %. During the period
immediately following the outbreak, the market was growing more significantly.

France

9

VW’s difficulties benefit French car manufacturers too irregularly, to affirm that a
trend has emerged. There is no evidence that potential customers of the German
group have changed their mind after the scandal and have preferred a French model.
The months of December 2015 and May 2016 were very favorable for French
groups, but the months of October and November 2015 and from January to March
2016 have not allowed them to open a gap. The results are jerky.

2.2.3

Analysis of the European Car Market

French manufacturers did not take advantage in terms of shares of the European car
market from the commercial difficulties affecting the VW group.19
Again, PSA did not take advantage of its good technology choices. Organic
growth (increase of the market share) is choppy, and acquisition opportunities
(through the acquisition of competitors) are rare. By contrast, the diesel technology
as a whole could suffer damage to its image as an effect of the Dieselgate. In any
case, European car makers, federated in the ACEA (European Automobile Manufacturers Association), were at the time of the breakup of the Dieselgate waging a
strong prodiesel campaign as a means to achieve CO2 targets for 2020, arguing that
diesel fuel contains more energy than gasoline and produces less CO2 emissions.
PSA would probably have benefited from the promotion of diesel. The group of
Sochaux risks instead of suffer from this hostile environment.
It is noteworthy that, as mentioned above, the Dieselgate involved also Renault
and that despite this the Renault–Nissan Alliance might gain control of Mitsubishi
at a cheap price. The latter confessed that it had lied about the consumption of its
vehicles for 25 years and the value of its shares dropped 40 % in a few days. Nissan
would consider to exploit this situation and to purchase 34 % of the stake of the
Japanese competitor. It would become Mitsubishi’s largest shareholder. The alliance would include four manufacturers with the French Renault and the Russian
Avtovaz. The investment would allow the alliance to produce 10 million cars per
year, rising the production of one million vehicles per year.

19

For example, in December 2015, the Volkswagen Group saw its sales fall 8.9 %, while Renault’s
sales jumped 26.7 % and PSA Peugeot Citroen rose by only 7.7 %. Also, May was quite encouraging for the French industry. In May 2016, the market for new light-duty vehicles increased by
22.3 % on year and French carmakers were doing much better than their foreign competitors
(French sales went up 29.3 %, while foreign manufacturers’ sales increased 14.9 %). In detail, in
France, Dacia, the “low-cost brand” of Renault, saw its sales jump very high in a month (+39.3 %).
Behind, Renault achieved the second best performance, with an increase of 32.6 %. While Citroën
followed closely (+30 %), DS and Peugeot displayed smaller, but in any case exceptional,
increases (+25.6 % and +23.1 % respectively).

10

L. Posocco

3 Political and Legal Analysis
The legal analysis of the developments in France is paradoxical: while the reaction
of the French government to the scandal is quite immediate, private lawsuits against
VW, collective or individual, are relatively prudent. It is true that collective actions
are a bit new for French lawyers. Moreover, the various potential proceedings raise
many questions that are difficult to answer. Which cause of action should be chosen
by the plaintiff as the basis for his claim (legal guarantee of conformity, false
advertising, false commercial practice, contractual or tort liability, etc.)? How
should the amount of the damages suffered by the claimant be quantified?
Moreover, three types of actions, public and private, are evoked as a result of the
scandal in France: governmental reaction (control of the vehicles, repayment of the
ecological bonus), criminal prosecution toward responsible individuals, and various
civil proceedings by customers against VW.

3.1

Governmental Initiatives

While the reaction of the French government is immediate, the consequences of its
approach are not necessarily univocal. The diesel car manufacturers (Renault and
PSA) and their suppliers (Plastic Omnium and Faurecia) seem, at first, relatively
unscathed by the scandal, which perhaps explains the immediacy of the governmental reaction. Moreover, random testing of the vehicles will later confirm the gap
between Volkswagen vehicles and French vehicles in terms of emissions.20 However, the scandal unfortunately feeds the idea that all car manufacturers cheat.
Beside this, the actions of aggrieved consumers accumulate.

3.1.1

Vehicle Control

Finance Minister Michel Sapin has reacted promptly to the occurrence of the
scandal. He said that investigations were necessary “at European Union level”
after the outbreak of the scandal about pollution tests deliberately falsified by
Volkswagen.21 While the European Commission considered it premature to establish specific immediate surveillance measures, French manufacturers have taken up
the wish of the Minister. The opening of an investigation was aimed at confirming
that French car manufacturers comply with type approval procedures in every
country where they operate.22 CCFA (the French Automobile Manufacturers
20
Experts, according to Ms. Royal, have established that while Volkswagen vehicles exceed five
times the regulatory limit of nitrogen dioxide, French cars exceed it from half to two times.
21
Chevalier and Maroselli (2015).
22
Ibid.

France

11

Committee) also ensured that its members supported “the establishment of
European tests [. . .] which will validate, on the road, in 2017, the laboratory
measurements.”23
Two French automotive suppliers take leading positions: Faurecia, whose performance will be greeted a few months later by VW,24 said that the products it
develops do not contain embedded fraudster software. Plastic Omnium said that it
does not equip any pollution control systems for affected vehicles of the
Volkswagen group.25
Minister of Ecology Ségolène Royal announced a thorough investigation.26 She
asked the French manufacturers to ensure that such fraud would not progress.27 She
seized the US Federal Agency for Environmental Protection [EPA] to get all
relevant information, to assess the nature of the fraud and the means implemented
to detect it.28 She also invited the UTAC29 (Technical Union of automotive,
motorcycle and cycle) to get closer to the US agency in order to understand the
mechanisms of falsification and make proposals for action.30 The Minister wanted
to ensure that vehicles type approved in France comply with current regulations and
standards. She asked UTAC, on the basis of information forwarded to it by the US
agency, to prepare a protocol of investigation aimed at guaranteeing to consumers
full compliance with the emissions regulations. On 24 September 2015, three days
after the outbreak in the US of the scandal, she announced that random tests would
be started to ensure that vehicles put into circulation in France comply with current
standards.
From the random tests ordered by the Minister, two important information
emerged:
1. The vehicles of all tested car manufactures exceeded the relevant emissions
standards. This conclusion, in itself, obscured the government’s message and
condoned Volkswagen. An uninformed person might consider that if all car
manufacturers are at fault, VW’s behavior is not serious in itself.31
23

Ibid.
Faurecia has been awarded in Berlin on 1 June 2016 the “Volkswagen Group Award 2016,” an
annual distinction awarded by the Volkswagen Group, which honors its best global suppliers
(source: Auto Strategies International, 29 June 2016).
25
Chevalier and Maroselli (2015).
26
Ségolène Royal lance une enquête approfondie, Le Point, 22nd September 2015, available
on
http://www.lepoint.fr/economie/affaire-volkswagen-segolene-royal-lance-une-enqueteapprofondie-22-09-2015-1967067_28.php.
27
Chevalier and Maroselli (2015).
28
Chevalier and Maroselli (2015).
29
UTAC is the technical service designated by the French government to the European Commission for conducting approval tests, said the ministry.
30
Chevalier and Maroselli (2015).
31
At the commission Royal, Jacques Rivoal, the president of VW France, argued that Volkswagen
models were polluting less than those of competitors. VW stressed the results of its five vehicles
tested in France by UTAC. None of the tested models (Polo, Golf, Sharan, Tiguan, and the Audi Q3)
24

12

L. Posocco

2. UTAC-Ceram has not detected in the other tested vehicles software comparable
to that which was used by VW. This element is perhaps less well understood by
the population. One thing is to seek to optimize the results of tests performed in
the laboratory (while the results are different if the tests are performed on the
road), quite another to falsify tests, mislead authorities and consumers through
clearly fraudulent methods.
The government initiative that aimed at a clarification ultimately led to making
the situation perhaps less clear than it was before in the eye of the public opinion.
An additional difficulty is that even considering conventional certification tests
made in the laboratory, there are cases, according to UTAC, where the results
exceeded two and a half times the ceiling provided by the law. This poses the
question of the responsibility of certification bodies, their competition, and the lack
of postaudit. How can indeed, in these conditions, these vehicles have been type
approved?32
Out of 15 evaluated brands (including Jeep, Kia, Nissan, Toyota, and Fiat),
Peugeot is among the best, Renault among the largest emitters of NOx. These
differences are mainly due to the pollution control system that is used. There are
those, like Peugeot employing the SCR process (selective catalytic reduction) and
others, the majority, as Renault that use the less efficient “NOx trap.”

3.1.2

Exclusion of Bonus Repayment

The eco-claim bonus or eco-tax is a method of struggle against the emission of
greenhouse gases and to steer consumption toward the purchase of less polluting
vehicles by granting a bonus and, conversely, taxing the purchase of high CO2
emission vehicles.
Ms Royal,33 minister of the environment, evoked in September 2015 the repayment of the environmental bonus by the State to the buyer of a cleaner vehicle.
Diesel engines, theoretically small emitters of CO2,34 often seemed to meet the

had breached during road tests the NOx emission ceiling (nitrogen dioxides) set by the board, as
they did not exceed by more than five times the established standard. In the worst case, one of the
models displayed exceeding 4.7 times the standard. The results were better for Polo (1.2 times) and
for Sharan (0.9). The president argued that performances of many competitors were well above
five times the allowed threshold.
32
Parliamentary Office for Evaluation of Scientific and Technological Choices, Senate Commission, 13 November 2015 (www.senat.fr).
33
On 1 October 2015, the government confirmed the execution of random tests in France on
hundred diesel vehicles. Ségolène Royal announced the results in November. The tested
Volkswagen vehicles exceeded five times the NOX emission standard, a circumstance, according
to the Minister of Ecology, that confirmed the cheating. The test on other manufacturers revealed
that the emissions exceeded from a half to two times the standard, an excess that would correspond
to the difference, already known, between tests on rollers and real driving tests.
34
CO2 is the sole pollutant that comes into account for the calculation of the eco bonus criteria.

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criteria allowing their owners to gain from the tax benefit. The scandal changed the
situation. Indeed, some petrol engines, as well as some diesel engines, were accused
of emitting more CO2 than the amount indicated by their specifications. The VW
Group initially recognized that its vehicles exceeded the limit. This admission was
later denied on 9 December 2015 by a statement of the Wolfsburg group.35 It
follows that, as the scandal ultimately concerns NOx emissions, which were not
included in the calculation for obtaining the environmental bonus, VW may not be
concerned about the repayment of the bonus.
The fact remains that the communication of the VW group on this issue was
hesitant. In any event, it seems unlikely that the fraud will be detrimental to
consumers and that they will be requested by the French government to repay the
bonus, as consumers are the first victims of the scandal. If we correctly interpret the
intention of the government, it would be surprising if the affected vehicles would be
submitted to new type approval procedures. The car manufacturers shall propose
methods to make them compliant with the law.

3.2

Criminal Law Aspects

Several criminal cases were started.36 Several hundred individual complaints have
already been filed. According to the victims, the conduct of VW’s responsible
managers is likely to be characterized as organized fraud,37 endangering the lives of
others,38 aggravated deception about sold goods,39 misleading and deceptive advertising,40 forgery and use of false statements.41

35

On 9 December 2015, Volkswagen published a statement. The group stated that cheating on CO2
emissions was not ultimately confirmed. The figure of about 800,000 vehicles, originally published
by Volkswagen Group, was denied. The differences in the figures related exclusively to nine
models and represent only a few grams of CO2 on average; they matched the cycle NEDC
consumption increase (new European driving cycle) of about 0.1–0.2 l for 100 km. With an annual
production of about 36,000 vehicles, these models accounted only for 0.5 % of the overall
production volume of Volkswagen. Following significant internal investigations and comprehensive measurements, it was clear that for almost all models, actual CO2 emissions corresponded to
the values initially indicated. This meant that these vehicles could be marketed and sold without
any limitations. The suspicion that the fuel consumption figures had been illegally modified was
not confirmed. Internal measurements revealed only slight differences on nine models of
Volkswagen (five marketed in France).
36
See Husson (2015).
37
Art. 313-1 Criminal Code.
38
Art. 223-1 Criminal Code, because of the severity of the pollution caused by the fraud.
39
Art. L213-1 Consumer Code.
40
Art. L12-1 Consumer Code (Loi 2008-776 of 4 August 2008).
41
Art. 441-1 Criminal Code.

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L. Posocco

In detail:
– The NGO Ecologie Sans Frontières has filed a complaint with the Paris prosecutor against X for endangering the lives of others and aggravated deception.42
– The AVIFA (Association of International Automobile Fraud Victims) decided to
go to Court for misleading commercial practice, false advertising, deception,
fraud, endangering the lives of others, forgery and use of forgeries.
– The CLCV (Consumption, Housing and Living Environment) filed on 5 October
2015 a claim for misrepresentation of the product and unfair commercial
practice.43
– The vice president of the Ile-de-France in charge of transport, Pierre Serne, filed
a complaint with the Paris prosecutor concerning the fraud masking of the
emissions of the Volkswagen diesel vehicles. The elected ecologist draws on
Article 40 of the Criminal Procedural Code, which requires any public authority
to report any criminal offense to the competent public prosecutor.
– The DGCCRF (Directorate General for Competition, Consumption and Repression
of Fraud) has commissioned an administrative investigation on the relevant facts.

3.2.1

Tromperie aggravée (Aggravated Deception)

From September 2015, the DGCCRF (Directorate General for Competition, Consumption and Fraud Control) conducted an administrative investigation that confirmed deception on VW vehicles marketed in France. The research of the
Directorate General revealed that there was evidence that the installed software
could intentionally skew the results during the tests of polluting emissions.44 This
investigation also covered 13 further automakers. The French automakers were
acquitted.
The public prosecutor, meanwhile, launched on 2 October 2015 a preliminary
investigation for aggravated fraud. A judicial investigation against Volkswagen
was opened on 19 February 2016 and was assigned to three Parisian judges.
The qualifying elements of the aggravated fraud are known and fairly simple.45
A person commits a fraud if, during the formation or performance of a contract, it
says or suggests to the other party some inaccurate information on essential
qualities of the object of the contract. It is a criminal offense to mislead, that is,
to lie. The deception may have been committed during the execution46 or the
performance47 of the contract.

42

Le figaro, 2nd October 2015.
www.clcv.org/actualites/la-clcv-porte-plainte-contre-volkswagen.html.
44
Chevalier and Maroselli (2016).
45
Art. L213-1 Consumer Code.
46
Art. L213-1, 1 et 3 Consumer Code.
47
Art. L213-1, 2 Consumer Code.
43

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In the case under examination, a scheme was set up. Within the onboard
computer, spyware was hidden. The sophisticated algorithm was difficult to detect
even for experts. It starts to function only in a specific context, that is in the “test
mode,” well known to carmakers.
The software, produced by Bosch, manufacturer of auto parts (which blandly
said that it had warned Volkswagen of the illegality of the device if installed on
vehicles of series), is indeed able to recognize the very particular conditions in
which the homologation tests are carried out (straight drive, open hood, very slow
and gradual acceleration, etc.). The spyware was dormant and had no impact on the
functioning of the car in normal road traffic. Automobiles were sold as complying
with emission standards, while those vehicles should not have been marketed. The
fraud was perpetrated at the time of the conclusion of the contract. It was used to
obtain the victim’s consent, while the buyer, if better informed, would have refused
to sign the contract. The fraud continued once the cars were sold since VW initially
refused to recognize the illegal manipulation, which was discovered by chance
during a study. Any successive admission of liability by VW and any after-sale
fixing of affected cars do not exempt the manufacturer from its criminal
responsibility.48
Two prerequisites for the qualification of the fact as deception are required: a
contract that has been or will be executed and an object of this contract. The first
element excludes from the scope of the criminal protection a person who would not
be bound by the contract with the seller.49 Moreover, the lie has either convinced
the victim to execute the contract or convinced the victim that the contract was
faithfully performed. The lie must focus on essential qualities of the object of the
contract. When the parties have not specifically agreed upon any requirement, the
goods must comply with ordinary substantial qualities. Common sense often
determines what ordinary substantial qualities are: food should not be harmful to
health, dye should not be toxic, drugs should have a composition consistent with
their authorization, a car should not be equipped with software designed to mask the
real emissions of NOx.
Any quality established by statutory or regulatory standards is deemed per se
substantial and decisive of the consent of the party, and judges shall not determine
whether the victim of the deception was or was not aware of the statute or regulation
that the accused person contravened.50 Thus, the assessment of the materiality of

48

Cour de Cassation criminelle No. 84-91606.
This is what was found about erroneous information that the director of the Central Service for
Protection against Ionizing Radiation had disseminated to the public about the safety of the
radioactive cloud from Chernobyl (Cour de Cassation criminelle, No. 11-87531, JurisData
No. 2012-026591; Dr. pén. 2013, comm. 28, note Robert J.H.; Comm. com. électr. 2013, comm.
7, note Lepage A.; D 2013, p. 218, note Lacroix C.).
50
Thus, although the average consumer does not know that foie gras should not contain more than
two grams of sugar per kilogram of product, it is a deception to sell foie gras whose composition
deviates from this administrative standard (Cour de Cassation criminelle, 30 March 1994: Bull.
crim. 1994, No. 130; Dr. pén. 1994, comm. 164, note Robert J.H.).
49

16

L. Posocco

the qualities of the object of the contract is generally conducted on the basis of an
abstract reasoning by the judge, without any investigation relating to the psychology of the victim.
Deception can be committed regardless of the damage it may cause. In any case,
the harm caused to society (environmental impact) and individuals (health damage
resulting from additional pollution, loss of value of vehicles, resale difficulties, etc.)
will be considered by the Court.
The aggravating circumstances of the deception could result in the case at hand
in particular from the fact that the scheme has jeopardized the health of the
population or was committed by an organized gang. The offense is punished with
imprisonment (seven years) and fine (750,000 euros). The fine can be augmented by
the Court, proportionally to the gain derived from the criminal offense, up to 10 %
of the turnover during the previous financial year.51 Criminal liability could therefore result in serious economic difficulties for VW, even in the absence of civil
liability claims or in case of failure of such claims.

3.2.2

Faux et usage de faux (Forgery and Use of False)

Forgery is a fraudulent alteration of the truth done by any means, in writing or other
medium of expression, which aims at or may have the effect of establishing a fact
with legal consequences. The alteration of truth can be accomplished in several
ways (material or intellectual) but must in all cases be detrimental to the victim. The
lie must be an essential element of the act. In this case, the VW group stated NOx
emission levels that were false. The author of the statement could hardly ignore the
inaccuracy of the statement and its harmful nature. The offense is punished by
three-year imprisonment and 45,000 euros fine.52 If juridical persons are held
liable,53 they may be sanctioned with an increased fine.54

3.2.3

Pratiques commerciales déloyales (Unfair Commercial Practices)

A commercial practice is unfair if it is contrary to the requirements of professional
diligence and distorts or is likely to alter, substantially, the economic behavior of a
reasonably well-informed consumer in respect of the purchase of a good or a
service. The concept of unfair trade practices refers at once to the diligence
expected from professionals in exercising their business and to its effects on
consumer behavior. The expected professional diligence is assessed with regard
to, in particular, the codes of conduct or rules of conduct, and also the good faith of

51

Art. L213-2 Criminal Code, modified by the Loi No. 2014-344 of 17 March 2014, Art. 131.
Art. 441-1 Criminal Code.
53
Art. 441-12 Criminal Code.
54
Art. 131-38 and Arts. 131-39 Criminal Code.
52

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the professional and his competence, having regard to the legitimate expectations of
consumers. Judges should investigate whether the commercial practice of the
professional is likely to materially distort consumers’ economic behavior.55 Unfair
commercial practices are divided into two categories:56 misleading commercial
practices57 and aggressive commercial practices.58 The VW case could be qualified
as a deceptive trade practice. The professional acts in a way that false elements are
communicated to consumers in order to distort their judgment. A commercial
practice is misleading, especially when it is based on allegations, indications, or
misrepresentations to mislead the consumer on substantial qualities of the goods.59
VW’s fraud has its origins in seeking an unfair advantage over the competitors and
tricking the buyer. The aim of the dishonest car manufacturer was as follows:
– distort competition and prices and accordingly attract customers;
– receive bonuses and therefore increase margins;
– falsely inform customers, who think to pollute little, while their vehicles emit
more CO2 and NOx;
– falsely forge a good reputation on the advanced technology used for the cars
pertaining to the Volkswagen Group (Audi, Skoda, Seat, Porsche) while these
cars pollute more in reality;
– reduce the car owners’ costs of “Add-Blue” (decontaminating NOx) to falsely
attract customers;
– increase engine power compared to this power when the mode pollution test
functions.

3.2.4

Escroquerie en bande organisée (Organized Fraud)

Fraud60 is an offense consisting in deceiving, by the use of fraudulent means, a
person and thus determining it to act at his prejudice or to the prejudice of a third
party, intended to extract undue advantages, including monetary. The use of fraud
involves the completion of positive actions to deceive the victim and determine
undue advantages.
Organized fraud presupposes that a group has been formed or an association
established with the purpose of committing the offense. The existence of a group

55

Cour de Cassation commerciale, No. 10-27402.
Art. L120-1 II Consumer Code.
57
Art. L121-1 and Art. L121-1-1 Consumer Code.
58
Art. L122-11 and Art. L122-11-1 Consumer Code.
59
This concerns the material qualities, composition, accessories, origin, quantity, method and date
of manufacture, conditions of use and the ability to use the properties and the expected results of
use, as well as the results and the main characteristics of tests and controls carried out on the goods.
60
Art. 313-1 Criminal Code.
56

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L. Posocco

constitutes61 an aggravating circumstance62 that increases the penalty for the crime.
The maximum penalties for simple fraud are five-year imprisonment and 375,000
euros fine, while they are 10 years of imprisonment and a fine of one million euros
for aggravated fraud.

3.2.5

Publicité mensongère et trompeuse (False and Misleading
Advertising)

False or misleading advertising consists in the fact that a professional disseminates
misleading information about his products and intends thereby to win support of
customers.63 Deceptive advertising practices apply to advertising that must emanate from a professional but that can target both professionals and consumers. The
offending advertisement may relate in particular to the substantial qualities and
properties of the goods and to the main characteristics of tests and controls carried
out on the goods.
Advertising must then be false or likely to mislead; in other words, it is not
necessary that the advertising actually cheats provided that it is likely to do so. The
onus of proof is on the victim of deception, and the proof of the bad faith of the
seller is not required.
The assessment of the misleading is referred to an average contractor, reasonably attentive and informed. The sanctions are those provided for unfair commercial practices. The fine may be fixed to 50 % of the expenditure for publishing the
misleading advertising.

3.2.6

Mise en danger de la vie d’autrui (Endangerment of the Lives
of Others)

The offense called endangerment of another person’s life is characterized by the
deliberate violation of a duty of care or precaution imposed by the law or regulations,64 which is the case of the regulations governing the type approval of vehicles.
This offense was invoked especially in relation to the Creutzfeldt-Jakob disease,
asbestos-related losses, nosocomial infections, and death caused by medical

61

Art. 132-71 Criminal Code.
Art. 313-2 Criminal Code.
63
Art. L121-1 Consumer Code.
64
The Chambre d’Accusation (Indictment Division) was right when it confirmed the order of
refusal of information about a complaint accusing the mayor of Paris to have directly exposed
people to the immediate risk of death or injury by not adopting effective measures to mitigate the
effects of air pollution, as the provisions relied upon by the claimants in support of their complaint
did not impose on the mayor a specific duty of care and precaution (Cour de Cassation criminelle,
No. 95-86205, Bull. crim. n 274, Dr. pén. 1996. 265, obs. Véron, Rev. sc. crim. 1997. 106, obs.
Mayaud, et 390, obs. Robert J.H.).
62

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malpractice. The endangerment offense assumes that the violation of the rule
directly exposes the person to immediate risk of death or of injuries resulting in
mutilation or permanent infirmity.
It will be up to Courts to decide whether there has been this endangerment in the
Dieselgate affair, and a special role will be played by the experts appointed by the
Court, who will advise the Court on the effects to the health of individuals of the
increased pollution caused by the affected VW vehicles.
Judges will also have to establish whether there was a direct and immediate
causal link between the breach of the rule and the exposure to risk. However, it is
not necessary to establish that the violation was the exclusive cause of the risk. It is
noteworthy that the offense under examination does not imply the existence of a
concrete prejudice to the victim; it is sufficient that the victim has been exposed to a
risk. The penalties for this offense are one year of imprisonment and 15,000
euros fine.

3.3

Civil Law Aspects

The counterparty of VW has several actions against VW. Some relate to the validity
of the contract; other actions concern its performance.

3.3.1

Civil Actions: The Conclusion of the Sales Contract

Dol65 (fraud) may be invoked. Misinformation, possibly provided at the time of the
purchase, has raised false expectations among consumers who purchased the
vehicle. For this reason, the contract was flawed. The fraud could well imply the
cancelation of the contract when the scams practiced by one party are such that it is
obvious that without these scams the other party would have not executed the
contract. In France, the level of NOx is not part of the contractual regulation. Only
the level of emission of CO2 is specified by the deed of sale.
But the fact that the type approval was obtained by VW irregularly certainly
involves deception. All devices by which one party misleads the other party and so
determines the conclusion of the contract are relevant. In this scandal, VW lied and
the purchaser thought that his vehicle was type approved after a due process, but
this was not the case. The originality of the Dieselgate is that the vice affects new
vehicles and not used ones. If we go through the case law, we can detect that
typically scams concern transactions of used vehicles.

65
Under French contract law, dol is a scam of a counterparty aimed at deceiving his partner. Fraud
is, together with error and violence, one of the three vices of consent.

20

L. Posocco

The victim of a fraud has a well-known option. It may decide to request the
cancelation of the contract, possibly claiming also damages; alternatively, it may
merely ask for damages, without requesting the cancelation.66
If the future effects of the contract do not raise particular problems, it is not the
same with reference to the past effects of the contract:
• If the contract has not been performed by the parties previously to the cancelation (no delivery of the vehicle and no payment of the price), there will be
obviously no restitution. The only effect of the cancelation will be that the
parties may not request to the Court the enforcement of the contract.
• If the contract has been performed (car delivered and price paid), its past effects
will be challenged.67

3.3.2

Civil Actions: The Implementation of the Sale Contract

The professional must deliver goods that comply with contractual provisions and
regulations. A general obligation is laid down by the Civil Code (Arts. 1134
and 1135).
To be compliant, the delivered goods should correspond not only to what was
agreed upon by the parties in the contract but also to the law and administrative
regulations.68 Article 1135 of the Civil Code states: “The contracts oblige not only
to what is agreed upon in it, but also to all the consequences which equity, usages or

66
The invalidity that may be invoked is relative and is time-barred after a five-year term. In
principle, the starting point of this term is the day of the execution of the contract. However, in this
case, it would start to run only from the day when the fraud was discovered. A Court will be
required to annul the contract.
67
Thus, the cancelation of a bilateral contract will result in reciprocal restitutions. The seller shall
return the amount that he received. He will be held to pay interest on the sum if he has acted in bad
faith, which would probably be the case here. The buyer shall restitute the car. When restitution is
not possible (loss, destruction, sale), compensation will be by equivalent (monetary). Damages to
the car will be eligible for compensation. However, due to the retroactive effect of the cancelation
of the sale, the seller is in principle not entitled to an indemnity equal to the benefit to the purchaser
for the use of the vehicle.
68
The good sold must comply with administrative standards: it seems logical, if not otherwise
stated, to require the seller to deliver a good that is in good working conditions; this is a natural
effect of the contract (Cod. Civ. Art. 1135). For example, the developer who delivers a land that
does not meet the building standards (Cass. 3e civ. 17 January 1990, Bull. civ. III, no 26, D. 1991,
somm. 168, obs. Tournafond O.), the seller who delivers a restaurant whose electrical installation
does not meet the safety rules (Cass. com. 21 January 1992, Bull. civ. IV, no 33), the selling
company that installs an alarm system with outdoor siren at a private home without making sure of
obtaining the mandatory administrative authorization (rappr. Cass. 1re civ. 27 October 1981, Bull.
civ. I, no 315, D. 1982, IR 532, obs. B. Audit), the vendor who delivers a stolen motor vehicle
(Cass. 1re civ. 29 May 1996, Bull. civ. I, no 230, D. 1997, somm. 346, obs. Tournafond O.), or a
vehicle not compliant with the provisions of the technical inspection (Cass. 1re civ. 29 January
2002, Bull. civ. I, n 35) do not properly perform the duty to deliver to which they are contractually
bound.

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law provide.” The dissatisfied purchaser of the delivered goods may exercise the
exception of nonperformance, the right of option between resolution and enforcement of the contract, the request of damages based on the contractual liability of the
seller.
In this case, the delivered cars did not comply with the standards and administrative regulations concerning type approval of cars.
Besides the general provisions of the Civil Code, Articles L. 211-4 and following
of the Consumer Code69 may govern the relationship between the professional and
the consumer. In this regard, French law will probably not represent a marked
peculiarity.70 The guarantee applies only to the contractual relationship between a
professional seller and a buyer acting as a consumer.71
In the case of the Dieselgate, this specific guarantee would be difficult to enforce.
This is so because in France the information to be disclosed to the buyer of the car
concerns CO2 emissions and not NOx emissions. Decree No 2002/1508 of
23 December 2002 on the information on fuel consumption and emissions of carbon
dioxide from new passenger cars requires that the measurement of fuel consumption and carbon dioxide emissions (CO2) is indicated at each selling point on each
new passenger car and prominently displayed. If CO2 measurements were found to
be different from those displayed by the manufacturer, the consumer would be
entitled to invoke the noncompliance of the vehicle.
Until now, the Tribunal of Soissons (Aisne) issued a decision on four claims
commenced in November 2015 against Volkswagen Group France, claiming delivery of a vehicle compliant to the purchase order.72 The four French plaintiffs were
dismissed by the Tribunal.73 The applicants were also ordered to pay to the
defendant the sum of 1,800 euros each as refund of legal costs.

3.3.3

Civil Liability Actions

Victims may consider seeking compensation for damages suffered. This type of
action does not, in principle, imply the refund of the price or the replacement of the
vehicle. Compensation may be sought for damages caused by the misleading
information provided at the time of the sale or by changes to the vehicles within
the postsale fixing operations.

69

Art. L211-4 Consumer Code, confirmed in Articles L217-4 of Order No. 2016/304 of
14 March 2016.
70
This standard derives from the implementation into French law of Directive 1999/44/EC of the
European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer
goods and associated guarantees and was inspired by the Vienna Convention of 11 April 1980 on
the international sale of goods.
71
Art. L211-3 Consumer Code.
72
www.journalauto.com 29 April 16; de la Brosse (2016).
73
Ibid.

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L. Posocco

Civil Actions Consumers
Volkswagen France affirms that there is no harm to French buyers of the affected
vehicles. At the end of November 2015, Volkswagen announced that European buyers
affected by the Dieselgate would not be compensated, unlike their US counterparts.
The disclosure of the level of NOx emission would be the object of a contractual term
in the US, not in Europe. VW France considers therefore that no harm was produced to
European clients, to the extent that the fixing operations would correct the defect and
considering that all necessary measures would be promptly undertaken by VW. This
approach by the German group vis-a-vis the law of civil liability may probably be
explained by the desire to discourage actions in Court by dissatisfied buyers.
It is submitted that the French legal system does not provide for punitive
damages and that the damages suffered in the context of the Dieselgate require
in-depth studies as they are relatively complex to evaluate.
In any case, it is clear that a breach of the law has been committed by the VW group
as far as type approval of vehicles is concerned. A clear causal link connects this breach
to the damages. These could include several economic losses: vehicle depreciation,
difficulties or impossibility to sell the used vehicle, difficulties in case of future technical
controls and tests if regulations were to change, etc. Damages may result from the bad
image toward third parties that may derive from the property of an affected vehicle.
The fixing of the cars by VW will determine a lack of availability of the vehicle
for the owner, and it will be necessary to monitor how VW executes the fixing. It
will also be necessary to verify if the fixed vehicles do show unfavorable characteristics (higher consumption, ineffective reduction of levels of pollution, modified
top speed, increased amount of particles, reduced particles filter life, etc.). The
French owners of affected vehicles will test their cars before and after the fixing by
the manufacturer in order to ensure that the technical characteristics of the cars are
preserved.74 If the damage is established, the conditions for the implementation of
actions for recovery of damages could be met.

Civil Actions for Environmental Victims
The effect of diesel on human health is known.75 An environmental victim can
bring an action against the liable person. The right to the environment could be the

74
AFP 26th April 16. The French owners meeting within the ADD Association (Action Auto
Defence) have decided to anticipate the fixing and to test their cars before and after upgrading, in
partnership with the Union of independent car experts. A dozen of vehicles, belonging to the four
affected brands (Volkswagen, Audi, Seat, and Skoda), will thus undergo a consumption test and an
analysis of pollution by NOx (nitrogen oxides) before and after the upgrading in order to assess the
efficiency of the technical solution envisaged by VW and the effective preservation of technical
and contractual standards.
75
Senate report on behalf of the Commission of Inquiry on the economic and financial costs of air
pollution (Rapp. Sénat No. 610/2015, p. 59 ff.).

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basis for civil liability for environmental damages. In our case, the injury would
result from additional pollution generated by fraud.76 The European Court of
Human Rights went so far to explicitly recognize the human right to the enjoyment
of a healthy and protected environment.77
Individual actions for damages are, however, poorly suited for mass damages
since the interest to act before the Court of the single claimant could be difficult to
evidence. It could result from the additional pollution provoked by the fraud
damaging the individual. The evidence of the latter would also require expertise
that weighs down the proceeding.
Collective action, better suited, could come from an association acting78 in the
interest of individual members.79 Collective action is a method that has many
disadvantages, which are well known,80 but its regime tends to be softened by a

76
A first step in this direction can be found in the jurisprudence of the European Court of Human
Rights that protects the environment through other fundamental rights such as the right to life
€
(ECHR, Oneryildiz
vs. Turquie, 18 June 2002), the right to a fair trial (ECHR, Zander vs. Sweden,
25 November 1993), the right to respect for private and family life (ECHR, Lopez-Astra
vs. Espa~
na, 9 December 1994; ECHR, Anna Maria Guerra vs. Italy, 19 February 1998; ECHR,
Kyratos vs. Greece, 22 May 2003).
77
ECHR, Tatar vs. Romania, 27 January 2009.
78
Cass. Civ. 3e, 19 Oct. 1978, D. 1979. 581. The Supreme Court recognized the right, in the case of
the residents of a neighborhood committee grouped against air pollution caused by a coffee
roasting plant, to seek compensation for the damages caused to the interests of the members of
that committee.
79
The traditional approach of self-interest to act before a Court means that in principle a person
may not defend the interests of others. This approach is based on the rule that “nul ne plaide par
procureur,” according to which the proceedings in Court are not regulatory but result in a decision
regarding a specific case. For this reason, the collective exercise of actions requesting compensation for several individual damages should be prohibited. This is the case before criminal courts
and less rigorously before administrative courts. However, it is settled case law in civil law matters
that the action of an association organized as a defense committee asking compensation for
damages suffered individually by its members is admitted by the Court, provided that the statute
of the association empowers the latter to act on behalf of its members. Thus, the law opens the way
to the collectivization of civil actions, a necessity in cases of mass torts, as often environmental
torts are.
80
Despite the potential benefits of collective proceedings for compensation of individual damages
caused by environment torts, the recourse to such action is weakened by uncertainties about their
conditions and effects. From the perspective of the conditions of admissibility of collective
proceedings, there is uncertainty as to whether all members must evidence to have suffered injury
or evidence of injury to one is sufficient. From the perspective of the effects of the action, in most
cases the decisions do not engage in a case-by-case allocation of damages to each member, but
damages are assessed in a very comprehensive and generic manner. The result is that the damages
obtained by the association are often kept by it rather than distributed to members. These
uncertainties and inconsistencies prevent this procedural tool to become an effective means for
compensation in mass tort litigation. This form of civil action is not used for compensation of a
large number of individual damages but is the most useful for groups not exceeding a few tens of
victims.

24

L. Posocco

pragmatic jurisprudence.81 The action in joint representation,82 for its part, has
never really worked.83 Group action is not envisagable, at present, with reference to
environmental damages.

3.4

Group Action

Consumers can, as the environmental victims, form an association and collectively
defend their converged individual interests. But they can also, pursuant to Hamon
Law No. 2014-344 of 17 March 2014, bring a group action. These actions tend to
the compensation of economic damages to property suffered by consumers placed
in the same or similar situation.84
The right to bring a group action requires the establishment of a particular
quality:85 the law permits the exercise of collective actions only to consumers’
associations acting at national level and approved by the State. The procedure,
which is more complex than that governing individual proceedings, applies only to
the enforcement of consumer rights. Victims of environmental damages may not act
through a group action against VW. Only consumers who bought the affected cars
may act through a group action toward VW. To this end, the Paris Bar has launched
a platform (avocats-actions-conjointes.com) to promote the joint submission of
consumers’ complaints against Volkswagen. The advantage of group action in
this case consists also in limiting the costs of the trial for each individual claimant.
It is very likely that the complexity of the assessment of the damages will make the
recourse to expensive expertise necessary.

Cass. civ. 2ième 7 December 2006 n 05-20297, Envir. 2007. Comm. 63; Civ. 2e, 16 November
2006, n 05-19062; Envir. 2007. Comm. 63; Cass. Civ. 2ième 5 October 2006, n 05-17602, Bull.
civ. II, n 255; Cass. Civ. 3e, 8 June 2011, n 10-15500, D. 2011. 2635, note Parance; Cass. civ. 3
ième
9 June 2010, n 09-11738. D. 2010. Pan. 2468, obs. Trébulle; D. 2010. 2608, obs. Monge
et Nesi.
82
Art. L142-3 Environmental Code enacted by the Loi of 2 February 1995.
83
The joint representation action is surrounded by extremely restrictive conditions that reduce its
practical usefulness. It is reserved only for approved associations, and the approval procedure is
quite complex. In addition, the need for prior identification of all victims makes this action almost
useless for groups of up to several hundreds or thousands of victims. Above all, the possibility for
environmental protection associations to seek the mandate of victims of environmental damage is
excluded, which reduces the scope of the joint representation action with regard to environmental
mass torts. Authorized associations do not have sufficient money to manage hundreds or thousands
of claims and are reluctant to act, fearing to bear a heavy responsibility for errors in the
management of the cases. For all these reasons, the number of joint representation actions
exercised to date is insignificant.
84
Art. L423-1 Consumer Code.
85
Art. L411-1 Consumer Code.
81

France

25

4 Answers of the Manufacturer
The answers proposed by the manufacturer raise a number of questions. As it has
been said, the communication of the VW group was, initially, hesitant, awkward.
The advertising agency acting for VW was even accused to have threatened French
media to postpone or even cancel advertising campaigns in order to put pressure on
the contents of the information regarding the fraud committed by Volkswagen. The
car manufacturer denied to have ordered such conduct, but it remains that the
advertising agency works exclusively for the Volkswagen group.86
On the merits, Volkswagen France began the process of recall announced on
15 October 2015. This fixing will be spread over the year 2016. The group does not
want to compensate its clients but proposes to update the affected vehicles. The
announcement of the absence of any proposal of amicable compensation seems to
be an attempt to discourage victims from seeking compensation. Even if it is
submitted that the damage is complex to estimate in the present case, this does
not mean that it should be a priori excluded.
Measures concerning the affected EA 189 diesel engines, 1.2,87 1.6,88 and 2.0,
have been validated by the German Federal Authority for Transport (KBA).
Customers are being informed about the next steps. VW claims that, after the
implementation of these corrective measures, the vehicles will meet the applicable
emission standards while such interventions will not alter the engine power, fuel
consumption, and performance of the cars. Technical measures for 2.0 l engines
will be implemented in the first quarter of 2016, for 1.2 l engines in the second
quarter. From the third quarter of 2016, to complete the recall campaign, the
measures will affect the 1.6 l engines. Volkswagen AG announced that, while
these technical measures are carried out, it will do every effort to avoid inconveniences to customers’ mobility. Volkswagen will ensure that a replacement mobility solution is offered free of charge to all customers.
Finally, until 31 December 2017, Volkswagen AG expressly waives the right to
invoke any statute of limitations with regard to claims arising from software
installed on vehicles equipped with the EA 189 engine, even if the time limit to
file such claims has already expired. Volkswagen customers will not bear the legal
inconveniences of any waiting. This decision by VW raises some concerns in the
affected car owners who do not understand why, if the update is so simple, it has not
been done before.
More indirectly, Volkswagen responds to the scandal by investing heavily in
the market of electric cars. An extensive renovation program of the range sets

86

Couberchet (2015).
Engines 1.2 and 2.0 will undergo a software update. The time necessary for this update will be
less than half an hour.
88
Engines 1.6 will also undergo a software update. In addition, a “flow regulator” will be installed
in front of the air mass flow meter. The time requested for the upgrading process will be less than
one hour.
87

26

L. Posocco

ambitious goals since Volkswagen says it wants to become the world leader in
sustainable mobility. To achieve this goal, the manufacturer will launch more than
30 new electric vehicles by 2025. Also in 2025, the Wolfsburg firm hopes to sell
between two and three million of its “BEV” (battery electric vehicle). The implementation of this program will probably attract the attention of analysts and
consumers.

References and Websites
Bergerolle E (2016) Diesel: pourquoi Renault a choisi le piège a NOx plutôt que le SCR,
Challenges, 11th April 2016. Available on http://automobile.challenges.fr/actu-auto/
20160411.LQA8094/diesel-pourquoi-renault-a-choisi-le-piege-a-nox.html
Chevalier J, Maroselli Y (2015) Le séisme des voitures truquées de VW prend une dimension
inédite, Le Point, 22nd September 2015. Available on http://www.lepoint.fr/automobile/
actualites/le-seisme-des-voitures-truquees-de-volkswagen-prend-une-dimension-inedite-2209-2015-1966947_683.php
Chevalier J, Maroselli Y (2016) DGCCRF:VW a fraudé intentionnellement mais, pas Renault, Le
Point, 7th March 2016. Available on http://www.lepoint.fr/automobile/actualites/dgccrf-vw-afraude-intentionnellement-pas-renault-07-03-2016-2023562_683.php
Couberchet B (2015) VW accusé de chantage a la pubicité par les médias français, L’Express, 30th
September 2015. Available on http://lexpansion.lexpress.fr/entreprises/volkswagen-accusede-chantage-a-la-pub-pour-faire-taire-les-medias-francais_1720982.html
de la Brosse J (2016) DieselGate: la justice française déboute des clients de VW, L’Express, 27th
April 2016. Available on http://lexpansion.lexpress.fr/actualite-economique/dieselgate-la-jus
tice-francaise-deboute-des-clients-volkswagen_1786835.html
Husson LE (2015) Une nuée de procédures judiciaires s’abat sur VW, Challenge, 6th October
2015. Available on http://automobile.challenges.fr/actu-auto/20151005.CHA0137/une-nueede-procedures-judiciaires-s-abat-sur-volkswagen.html
Verdevoye AG (2015) L’automobile française, bientôt de retour aux Etats-Unis?, Challenges, 21st
September 2015. Available on http://automobile.challenges.fr/actu-auto/20150113.CHA2193/
l-auto-francaise-bientot-de-retour-aux-etats-unis.html
https://reporterre.net/Renault-Nissan-champion-d-Europe-de-la-pollution
http://www.lepoint.fr/economie/affaire-volkswagen-segolene-royal-lance-une-enquete-approfondie22-09-2015-1967067_28.php
www.ccfa.fr
www.clcv.org/actualites/la-clcv-porte-plainte-contre-volkswagen.html
www.journalauto.com
www.senat.fr

Germany
Christoph U. Schmid

1 Introduction
The manipulation of exhaust emission standards through electronic devices in about
11 million Volkswagen cars worldwide, labeled Dieselgate, has given rise to one of
the greatest industrial scandals in Germany in the last decades. Made public by a
notice of violation of the US environmental protection agency in November 2015,
its economic and legal consequences are still not foreseeable. At any rate, the
economic damages of Volkswagen and other car manufacturers that have used
similar devices will be enormous and are likely to induce a major crisis of the whole
industry, which might result in the limitation or abandonment of the production of
Diesel engines for cars.1
Dieselgate has drastically shown that despite the recent proliferation of publicimage-related programs such as compliance and integrity management, corporate
social responsibility, and manifold codes of conduct, criminal behavior is frequent
even in large public companies. The “three T principle Tarnen-T€
auschenTricksen,” i.e., masking, deceiving, and manipulating,2 seems to enjoy a prominent
place in German and European corporate culture.
Against the background of these larger developments, the present contribution
focuses on a narrower but nevertheless crucial dimension of the scandal: the legal
situation of buyers, mostly consumers, of manipulated cars under private and—as
proof of criminal offenses may largely facilitate liability claims against

1

The development of the Dieselgate scandal is reported chronologically on http://www.ingenieur.
de/Politik-Wirtschaft/Unternehmen/Dieselgate-Hier-lesen-Sie-VW-Skandal-im-Ticker.
2
See in this sense Haag (2015).
C.U. Schmid (*)
Centre of European Law and Politics (ZERP), University of Bremen, Bremen, Germany
e-mail: cschmid@zerp.uni-bremen.de
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_2

27

28

C.U. Schmid

Volkswagen—criminal law. Its main sources are German legal literature3 and the
first national court decisions4 on the matter, which deserve to be presented to a
foreign audience.
Factually, this analysis focuses on the main manipulation consisting of the
installation of an electronic defeat device, manufactured by Bosch, that recognizes
when a car is on the test stand and reduces, through the addition of special substances such as urea, the emission of nitrogen oxides so as to meet the legal
emission limits—whereas these limits are grossly exceeded during the real daily
use of a car. With respect to this manipulation, the Federal Agency for Motor
Vehicles (Kraftfahrzeugbundesamt—KBA) has in October 2015 issued a recall
notice extending to all affected cars registered in Germany (an estimated 2.4
million) and ordered their overhaul so as to meet legally binding emission standards. Beyond this manipulation, also the carbon dioxide emissions of Volkswagen
and other cars have been measured incorrectly in the course of the type approval
procedure prescribed by European regulation; this manipulation may trigger similar
legal consequences but will not be analyzed separately here.
Starting with criminal law, we will first deal with the offenses that Volkswagen
is currently confronted with, i.e., fraud and manipulation of capital markets
(through belated information of shareholders on essential facts relevant for the
share value). Indeed, the public prosecutors’s office of the district of Braunschweig,
to whose jurisdiction the Volkswagen headquarter in Wolfsburg belongs, has
initiated investigations on these two offenses against various managers of
Volkswagen, including former chief executive Martin Winterkorn. Moreover,
Dieselgate has given rise to an intensified discussion of necessary reforms, in
particular with a view to introducing criminal liability not only of the acting
managers but also of enterprises as legal persons (2). As regards the private law
side, the recall notice issued by the Federal Agency for Motor Vehicles will first be
expounded (3). Regarding their legal consequences under private law, the manipulations carried out by Volkswagen may give rise to contract (4) as well as tort law
and related claims and remedies against the seller and/or the producer (5). These
will form the core of the following contribution. Concluding that, contrary to the
situation in criminal law, the available remedies under private law are not sufficiently effective, the contribution joins recent calls for the establishment, on the

3
See in particular Revilla (2016); Lüftenegger (2016); Riehm (2016); Altmeppen (2016); Steenbuck
(2016); Peres (2016); Ahlbrecht and Basar (2015). Besides these publications, two studies have been
published on the topic. This first was commissioned by the Federal Consumer Agency (see http://
www.vzbv.de/sites/default/files/downloads/Rechtsgutachten-VW-manipulierte-Schadstoffwerte-KFZOktober-2015.pdf); the second, drafted by the Scientific Service of the German parliament, by the Green
party
(see
https://www.gruene-bundestag.de/fileadmin/media/gruenebundestag_de/themen_az/
verkehr/PDF/Manipulation-von-Emissionskontrollsystemen-durch-Autohersteller.pdf).
4
See, in particular, LG Münster of 14th March 2016, 11 O 341/12—available at http://www.juris.
de with annotation by Hoffmann-Benz S (2016) jurisPR-VerkR 11/2016; LG München of 14th
April 2016—23 O 23033/15—available at http://www.juris.de; LG Frankenthal of 12th May 2016,
8 ¼ 208/15—Available on http://www.juris.de.

Germany

29

model of capital market law, of a collective action in consumer law to enhance the
legal position of consumers (6).

2 Criminal Law
As mentioned, the analysis of criminal law will deal with the offenses that
Volkswagen is currently confronted with, i.e., fraud (Sect. 2.1) and manipulation
of capital markets (Sect. 2.2) and then delve into the ongoing discussion on reforms
(Sect. 2.3).

2.1

Fraud

Fraud, as defined in Sec. 263 of the Criminal Law Statute (Strafgesetzbuch—StGB),
presupposes an act of deception that induces an error of another person. This error
must motivate a transfer of patrimony of the deceived person to the advantage of
another and result in a damage of the latter. This provision seems fulfilled at first
glance: buyers (consumers) have been deceived intentionally as regards the existence of manipulation devices and the respect of emission standards and norms,
with the intention to confer an illegal advantage to Volkswagen, corresponding to a
loss of buyers, who have bought cars being worth less. In addition, we may face a
grave form of fraud as defined in Sec. 263 para. 2 StGB, with sanctions ranging
from 6 months to 10 years of imprisonment or financial sanctions, as the patrimonial damage extends to a large number of persons. As a further aggravation, the
offense of computer fraud in the sense of Sec. 263 a StGB may be fulfilled as well.
However, at second glance, a number of hurdles become apparent, which render
the outcome of the ongoing investigations uncertain. First, as there is still no
criminal liability of enterprises or legal persons as a whole under German law,
the liability of the acting individuals, i.e., Volkswagen engineers and administrators, needs to be ascertained. In this context, it is obvious that the development and
use of software in about 11 million cars worldwide could not have been the act of a
single perpetrator. Instead, dozens of motor and software specialists must have been
active in the manipulation; in addition, before series maturity, motors need to
undergo intense and multiple tests under all kinds of conditions. As a result, the
manipulations must have been known to all motor and IT development departments
within Volkswagen.
However, to fulfill the element of deceit of buyers, those Volkswagen managers
who publicly communicated the respect of the emission standards need to have
known that this statement was wrong—which is far from certain in a big company,
characterized by sophisticated forms of division of labor. The investigations into
the internal organizational structures of Volkswagen will be difficult for the public

30

C.U. Schmid

ministry anyhow, given that the decision on the manipulation seems to have been
taken in the Volkswagen central office already about 10 years ago.
If that could be shown, the deception about the emission standards would need to
be causal, at least alongside other criteria, for the purchase of a Volkswagen vehicle
by a consumer. This may be difficult to prove in individual cases, but the public
ministry is likely to find a lot of environmentally conscious buyers for whom the
respect of emission standards was relevant for the purchase.
As another element, the transfer of property (car purchase) must have led to a
patrimonial damage of the buyer. It is true that the cars are technically fully usable
without limitations; also, as far as we can see, no country has up to now considered
a ban on the circulation of manipulated Volkswagen vehicles, which would of
course necessarily entail a patrimonial damage. Moreover, if the car’s value were to
decrease after the reparation announced by Volkswagen (in the context of the right
to cure), this would not be the consequence of the deception and, therefore, exclude
fraud. However, it is likely that the resale value of manipulated cars will be lower
and thus constitute a patrimonial damage.
As a subjective element, an intentional deceit would need to be shown, as
negligent fraud is not a crime. Paradoxically, as the patrimonial damage materializes only if the manipulation is discovered, the intention, at least in the form of
dolus eventualis, needs to extend not only to the use of the manipulated software but
also to its discovery. If the acting Volkswagen managers or employees (even
negligently or erroneously) assumed that the buyers of cars would at any rate be
fully compensated by Volkswagen and, therefore, never suffer any patrimonial
damage, this belief might again exclude their intention if regarded as relevant by
courts.
However, the hurdles on the subjective side may seem to be lower when taking
executive officers’ compliance obligations into account. Indeed, according to Sec.
91 para. 2 of the German act on public companies (Aktiengesetz—AktG), a functioning compliance system needs to be established, for which the executive board is
liable. This needs to guarantee that respect of all applicable legal provisions is
ensured (the so-called legality duty) and that all developments that might become
dangerous for the enterprise are discovered timely. The required scope of compliance structures depends on the kind, size, and organization of the enterprise, as well
as on the geographical range of its business activities. Under all these requirements,
a large multinational company such as Volkswagen must live up to the highest
standards, and it is obvious that these standards have not been complied with as
regards the respect of emission standards.
As a consequence, the executive board is jointly liable for the damages arising
for the company due to the omission of the establishment of a functioning compliance system under Sec. 93 para. 2 AktG. This liability under civil law is likely to be
taken over, at least to a large part, by the D&O (directors and officers) insurances
that Volkswagen has underwritten for its CEOs. Yet liability under criminal law
may of course not be insured. In this context, the executive officers may be liable as
guarantors according to Sec. 13 of the criminal act for the respect of legality duties
arising from Sec. 91 para. 2 AktG. As a consequence, even if unaware of the details

Germany

31

of the manipulation, executive officers might be convicted of fraud for their
omission of establishing a functioning compliance system, which has entailed the
intentional deceit of buyers about the respect of emission standards. All these
findings will also need to be scrutinized by the public prosecutors in the course of
their investigations.

2.2

Manipulation of Capital Markets

As a reaction to the charges brought forward by the Federal Financial Supervisory
Authority (Bundesanstalt f€
ur Finanzdienstleistungsaufsicht—BaFin), the public
prosecutor’s office of Braunschweig has in 2016 extended its investigation to the
offense of manipulation of capital markets, which is governed by Sec. 20a of the
securities trading act (Wertpapierhandelsgesetz—WpHG).
This law stipulates the obligation for public companies to immediately render
public hitherto not publicly available information about all factual circumstances
that are capable of massively influencing stock exchange rates of the shares of a
company or market prices. Relevant circumstances may be affirmed when a diligent
investor would consider them in his investment decisions.
A pertinent information notice was published by Volkswagen only on
22 September 2015. Yet, according to the Financial Supervisory Authority, there
are plausible indications that this information on imminent losses due to the scandal
should and could have been given much earlier. Currently, criminal investigations
are directed against former CEO Martin Winterkorn and another leading executive
officer. As these investigations rely almost exclusively on internal files and data of
the company, predictions on their outcome are not reasonably possible. Of course,
the presumption of innocence applies until final conviction.

2.3

Reform Discussions Triggered by Dieselgate

Irrespective of the outcome of the ongoing legal proceedings, Dieselgate has
contributed to the discussion about the introduction of enterprise liability for
organized crimes within a company following the US model.5 It is true that this
discussion has been held for decades and many lawyers and politicians have already
called for such a legal instrument without success. Most recently, Thomas
Kutschaty, Minister of Justice of the Bundesland (region) of Northrhine-Westfalia,
in 2013 presented the draft of a law on the criminal liability of companies and other
associations (Verbandsstrafgesetzbuch), which has not yet been successful either.

5

See Ahlbrecht and Basar (2015).

32

C.U. Schmid

According to Kutschaty, Dieselgate has again shown the necessity of such a legal
instrument.
The draft is based on the idea of providing effective sanctions against companies
themselves, in particular when criminal offenses are due to dubious business
strategies and policy decisions, the lack of compliance and control structures, and
intentional violations of the law. Indeed, CEOs, who are exclusively liable under
criminal law up until now, may simply be sacrificed by companies (for which
“golden handshakes” may act as incentives), without any change in business policy
and compliance being imposed.
It should, however, be noted in this context that financial sanctions against
companies are already possible under existing law, in particular according to
Secs. 30 and 130 of the law on minor offenses (Ordnungswidrigkeitenrecht—
OwiG), when key legal obligations of the companies have been disrespected or
supervisory structures have failed. Yet prosecution in these cases is not obligatory
but depends on the discretion of the competent public prosecutor’s office (the
so-called Opportunit€
atsprinzip, i.e., principle of facultative prosecution). For example, Siemens has been fined more than 100 million € for corruption and Swiss banks
for facilitating tax evasion offenses of their clients. The reform wants prosecution to
become mandatory so that investigations could no longer be stopped or carried out
with low intensity if a prosecutor’s office has a high workload and/or other priorities
in prosecution.
However, it is far from certain whether such a reform would actually change the
legal reconditioning of criminal industrial scandals such as Dieselgate. Investigation competences, including search and confiscation rights, of public prosecutors
are already far-reaching if there is a minimum suspicion of a crime, and cases where
such a suspicion exists only against the company and not against leading executives
are inconceivable. And if the latter cannot be convicted, the public ministry may
still proceed against the company itself under the mentioned provisions of the law
on minor offenses.
As a result, while extending criminal liability to companies may of course be a
useful step, it would seem to be more promising to counteract the massive shortage
of personnel in most prosecutors’ offices and the knowledge of prosecutors on
economic matters, i.e., deciphering complex balance sheets of large companies
drafted according to international accountancy standards. At any rate, due to the
principle of nonretroactivity in criminal law, even the possible adoption of enterprise liability by the national (and/or European) legislator would not affect
Dieselgate.
In sum, from the perspective of consumers, invoking criminal law liability seems
to be less promising than liability under civil law, which will be examined in the
remainder of this contribution.

Germany

33

3 The Private Law Side: The Recall of Affected Cars by
Volkswagen and Its Legal Consequences
When the scandal about the emission of nitrogen oxides became publicly known,
Volkswagen offered a voluntary recall of all affected cars.6 This, however, was
refused by the competent authority, the Federal Agency for Motor Vehicles, as not
all owners of affected cars might actually have obeyed it. In turn, the authority
issued a notice for a legally mandatory recall. This recall was one of the biggest in
German industrial history, as it covered about 2.4 million cars, whereas for example
in 2014, only 1.9 million cars had been recalled in 230 different recall procedures.7
This first recall was in the meantime complemented by further voluntary recalls
extending to other types of Volkswagen vehicles.
Legally, the mandatory recall notice could not be based on the ordinary legal
basis for recalls contained in product safety law, as no danger for the safety of the
affected cars existed. Instead, in an unprecedented move, the agency focused on the
European regulation for the approval of motor vehicles.8 This regulation deals with
the so-called type approval, without which cars must not be registered in the
EU. According to its Sec. 25 para. 2, the agency is entitled to issue ancillary orders
to counteract defects of cars and ensure regulatory compliance of already approved
types of vehicles. Based on this provision, the agency ordered the gratuitous
overhaul of the affected cars’ exhaust system. If car owners do not comply with
this notice, i.e. do not make their cars available to Volkswagen to carry out the
reparation, the agency may order the immobilization of the cars. Though controversial, the use of this legal basis seems to be acceptable as environmental protection rationales lie at the basis of the pertinent EU legislation.
It is interesting to note that by issuing a recall notice based on public law, the agency
went further than what private law would otherwise have allowed. Indeed, according to
the jurisprudence of the German Federal Highcourt (Bundesgerichtshof—BGH) on
private duties of security (Verkehrssicherungspflichten), a recall is necessary and
legitimate only as ultima ratio, when other measures, including warnings or communications on necessary retrofitting, are not sufficient to prevent dangers.9 Up until now, the
recall process has only started and is far from being completed. While in some types of
Diesel cars an upgrade of the electronic system is alleged to be sufficient, in others
additional technical devices have turned out to be necessary. Importantly, it is controversial whether the reparation will cause disadvantages such as a lower motor performance and a higher consumption of fuels.

6

On this part, see Lüftenegger (2016).
On the recall issue, see Lüftenegger (2016).
8
German regulation of 03.11.2011, BGBl. I:126, implementing European Directive 2007/46/EC,
O.J. L 263/2 (2007).
9
See BGH NJW (2009):2080.
7

34

C.U. Schmid

4 Contract Law Claims and Remedies Against the Seller
The fact that the reparation of the manipulation may lead to further disadvantages to
the buyer shifts the attention to private law claims and remedies against
Volkswagen. Among these, contract and tort law claims against the seller and/or
the producer are most important.
Due to privity of contract and the lack of devices such as the French action
directe in German contract law, contractual claims may only be brought against the
seller. More specifically, one may distinguish claims based on misrepresentation
and mistake aiming at the rescission of the contract and claims based on warranties,
which trigger a right to cure and, if that were to fail, to the revocation of the contract
and the award of damages.

4.1

Misrepresentation

As in all civil and common law systems, misrepresentation may give the buyer the
right to rescind the contract. According to Sec. 123 para. 1 BGB, a person who has
been induced to make a declaration of intent by deceit or unlawfully by duress may
avoid his declaration. However, if a third party committed this deceit, Sec.
123 para. 2 BGB continues, a declaration that had to be made to another may be
avoided only if the latter knew of the deceit or ought to have known it (. . .).
Against this background, the status of the seller is decisive. In the most frequent
case of the seller being a legally independent dealer, he is not liable for the deceit
committed by Volkswagen, which constitutes a third party in this context, unless his
positive knowledge or grossly negligent ignorance can be shown. This is most
unlikely as Volkswagen did everything to keep the manipulation secret, and it is not
even clear whether VW’s chief executive Martin Winterkorn, who resigned in the
wake of the scandal, was fully informed about it. In other words, the knowledge of
the firm must not be imputed to independent dealers.
An action based on misrepresentation may, however, be successful if the seller
forms part of the Volkswagen group of enterprises, as then Volkswagen does not
constitute a third party in the sense of Sec. 123 para. 2 BGB. This was held in a
recent decision by the Landgericht M€
unchen, acting as a court of first instance.10
The precise structure and control relationships could be left open in this case, as the
selling company had emphasized the common roots and status of its Austrian
mother company as a “100% daughter” of Volkswagen. Through this statement,
the selling company had, according to the court, claimed a special degree of
consumer confidence, which justified the imputation of the knowledge of
Volkswagen to her.

10

LG München I.

Germany

4.2

35

Mistake

The voidability of a car sales contract may also be sought on the basis of mistake.
The pertinent rule is spelled out in Sec. 119 BGB. This provision reads:
1. A person who, when making a declaration of intent, was mistaken about its
contents or had no intention whatsoever of making a declaration with this
content, may avoid the declaration if it is to be assumed that he would not
have made the declaration with knowledge of the factual position and with a
sensible understanding of the case.
2. A mistake about such characteristics of a person or a thing as are customarily
regarded as essential is also regarded as a mistake about the content of the
declaration.
In our case, para. 2 may be relevant as the relevant manipulations of the exhaust
system certainly constitute characteristics of a car regarded as essential by the
market. Moreover, an ordinary buyer who assumed that his car complied with all
regulations, including emission standards, has undoubtedly also fallen prey to a
mistake in this respect. Yet it is acknowledged in jurisprudence and academic
literature that voidability on the basis of mistake is excluded when a liability for
defects arises,11 which is the case here as will be shown now.

4.3

Liability for Breach of Contract

Contractual liability is governed by Sec. 433ff BGB, which have been reformed in
2002 in order to implement the 1999 EU consumer sales directive.
The major impediment to contractual liability may be the prescription of warranty claims, which applies two years after delivery in the case of new cars (Sec.
438 para. 1 No. 3 BGB). In sales of used cars to consumers, it is usual and lawful
that the period of prescription is reduced by party agreement to one year only (Sec.
475, Sec. 2 BGB). These delays may be extended by mutual agreement if the seller
is willing to do so. Otherwise, to stop prescription, the buyer is forced to start court
proceedings for a declaratory motion that confirms the presence of a defect.
Moreover, if negotiations between the obligor and the obligee are in progress in
respect of the claim or the circumstances giving rise to the claim, the limitation
period is suspended until one party or the other refuses to continue the negotiations
(Sec. 203 BGB). Finally, according to Sec. 212 BGB, the limitation period
recommences if the obligor acknowledges the claim towards the obligee by partial
payment, the payment of interest, the provision of security, or in any other way.

11
See Faust (2014), Beck Online-Kommentar BGB, 2014, § 437 Rz. 177ff - available on https://
beck-online.beck.de/.

36

4.3.1

C.U. Schmid

Liability for Defects (Warranty)

According to Sec. 434 para. 1 sent. 1 BGB, the object sold is free from material
defects if, upon the passing of the risk, the object has the agreed quality.12 If the
quality has not been agreed, the object is free of material defects if it is suitable for
the use intended under the contract or if it is suitable for the customary use and its
quality is usual in objects of the same kind and the buyer may expect this quality in
view of the type of the thing.
Whether the respect of a certain norm for exhaust emissions has been made the
object of such an agreement depends on the individual contract. However, the
installation of manipulation software always entails the quality of the thing not
being that usual in things of the same kind in the sense of the last alternative of Sec.
434 BGB. Indeed, as a parameter of reference for the comparison, the market as a
whole needs to be considered. Even the fact that possibly all similar Volkswagen
cars are endowed with the same manipulation software does not render this a “usual
quality of the thing.”
Moreover, the presence of a material defect may also be derived from Sec.
434 para. 1 sent. 3 BGB, according to which quality under sentence 2 no. 2 above
includes characteristics that the buyer can expect according to public statements on
specific characteristics of the thing such as emission standards that are made by the
seller.

The Right to Cure
The liability for defects may give rise to price reduction, damages, or the revocation
of the contract. However, before these remedies may be invoked, the seller has a
right to cure. According to Sec. 439 BGB, the buyer may, at his choice, demand that
the defect is remedied or a thing free of defects is supplied. However, as a first step,
possible exceptions to the right to cure need to be analyzed. Interestingly, the first
court decisions on the topic13 diverge as regards the existence of such a right.
Possible Exceptions The right to cure is preempted if the seller has reasonably
refused to carry out both kinds of cure under Section 439 para. 3 BGB or if the kind
of cure that the buyer is entitled to receive has failed or cannot reasonably be
expected of him. Given that Volkswagen has promised to cure the defects in the
exhaust system, this exception would not seem to apply in the first place. However,
jurisprudence has held that the buyer cannot be expected to accept a cure if the
defect has been intentionally hidden to him.14 Yet, as stated, it is unlikely that those
12

In this article, the English translation of the German Civil Code made available online by the
Federal Ministry of Justice and Consumer Protection is used: http://www.gesetze-im-internet.de/
englisch_bgb/englisch_bgb.html#p1549).
13
See No. 4.
14
BGH decision of 8.12.2006—V ZR 249/05.

Germany

37

Volkswagen dealers that are legally autonomous actors knew about the manipulation that was kept secret for years. Moreover, it does not seem legally possible to
impute the knowledge of Volkswagen directors and technicians to independent
dealers as the former are not legal representatives or persons used to perform the
obligations of the latter in the sense of Sec. 278 BGB.
Another exception to the right of cure may be applicable if it were actually true
that the required changes to the exhaust system lead to a substantially increased fuel
consumption and/or to a significantly reduced motor performance. Then the defect
might actually be of an incurable nature. It does not seem to be necessary in such a
case that the buyer makes another request to cure these “secondary defects” before
resorting to damages claims and other remedies.
Implementation of the Right As regards its implementation, the right to cure
presupposes that the buyer makes an official request. To do so, it is not sufficient to
communicate the problem to the seller. Instead, the buyer must offer the vehicle to
the seller for inspection and request the reparation of the defect; setting a specific
deadline is not strictly speaking necessary but advisable as long as the buyer
communicates that he expects the reparation being carried out within a reasonable
period of time. Generally, the seller must twice be given the opportunity to cure the
defect.
Request for an “Equivalent Car” Without Defects (“Buy Back Option”)
Within the framework of the right to cure, a buyer may, as stated, also request the
supply of a thing free of defects (Sec. 439, second alternative). Generally, such a
request seems to be promising only in the case of new cars. It is true that also in
sales of used things, a request for an equivalent used item is not legally excluded.
However, if the buyer of a used car opts for the car that she has inspected and/or
made a test drive with, there does not exist an obligation in kind but a specific
obligation, which would seem to exclude the supply of a similar car in the event of
defects. Moreover, the request for an alternative car would presuppose that an
equivalent model, i.e., a model respecting all emission standards, with an identical,
not decreased, motor performance and without higher fuel consumption exists at
all, which is rather unlikely in practice.
But even if that were the case, the request for such a car could amount to an
unreasonable burden for the seller. This threshold cannot be described in general
terms; instead, all economic disadvantages for the seller need to be assessed in the
individual case. The value of the car without defects and the importance of the
defect need to be considered. Exceeding the purchase price does not automatically
imply an unreasonable burden. Finally, as the ECJ has decided in the Quelle case,15
the buyer who is supplied a new good is not liable for the (defective) old good’s
value of use.

15
C-404/06, Quelle Ag vs. Bundesverband der Verbraucherzentralen und Verbraucherverb€
ande,
17 April 2008.

38

C.U. Schmid

If the right to cure constitutes an unreasonable burden for one of the parties or if
the cure has failed, the buyer may revoke the contract, reduce the purchase price,
claim damages, or, alternatively, claim reimbursement of futile expenditure.

Revocation of the Contract
Revocation presupposes a fundamental breach of contract (Sec. 323 para. 5 BGB).
This could be held if correcting the emission standards would result in an increase
of fuel consumption by at least 10 % as compared to the indicated reference
values—as this is the threshold at which case law concedes a defect. Yet an
additional problem arises from the necessity that the increased consumption
would need to be measured under the prescribed test standards. As is commonly
agreed, these do not reflect real-world conditions but are also suspected as being
manipulated; irrespective of this, an increase of consumption found under realworld conditions is not relevant in this context. In addition, in a court action, such a
test would cause substantial expert costs of about 6000€,16 which would need to be
borne by the losing party under German procedural law. As regards a decreased
motor performance, there is no pertinent case law on when this is considered as a
defect, but an application of the 10 % threshold might seem to be plausible as well.

Reduction of the Sales Price
As an alternative to the revocation of the contract, the buyer could also request a
reduction of the sales price. This remedy presupposes neither fault on the part of the
seller nor a fundamental breach of contract. Yet its implementation may cause
problems.
Sec. 441 para. 3 reads:
In the case of a price reduction, the purchase price is to be reduced in the proportion that the
value of the thing free of defects would, at the time when the contract was entered into, have
had to the actual value. To the extent necessary, the price reduction is to be established by
appraisal.

Just as with the award of damages, this formulation raises the problem of
determining the value of a car free of the pertinent defects.

Damages
The alternative remedy of damages requires fault, i.e., positive knowledge or
grossly negligent ignorance of it. Sec. 280 para. 1 sent. 2 contains a rebuttable
presumption of the seller’s fault. However, in our case of defects caused by the
16

Revilla (2016).

Germany

39

producer, the seller will normally be able to prove that he was not at fault. So it is
unlikely that a Volkswagen dealer will be held responsible for damages reflecting
the reduced value of the car.
However, damages may also be claimed from the seller if the reparation of the
exhaust system, claimed by the buyer in the framework of his right to cure, were to
fail—except if the reparation were found to be objectively impossible for which the
seller bears the burden of proof. This means that after a first failed attempt to cure
the defect, the buyer may claim from the seller compensation for loss of use or for
car rental costs but not for the decreased value of the car. Finally, according to Sec.
325 BGB, the claims for damages and revocation of the contract may be combined.

Reimbursement of Futile Expenditure
If the buyer opts for the revocation of the contract, it may be useful for him to claim
the reimbursement of futile expenditure instead of damages in lieu of performance.
Sec. 284 BGB offers this option. Such a claim would not exclude, however,
ancillary damages such as expert witness costs and costs of legal action. Futile
expenditure may be maintenance and repair costs, costs for snow tires or any special
equipment, or costs for transport and registration of the car. The advantage of such a
claim is that it could be proven more easily than damages in lieu of performance
reflecting the reduced market value of a defective car.

5 Tort and Related Claims and Remedies Against the Seller
To the extent that contract law remedies are prescribed, tort law remedies constitute
the main alternative. The prescription period for damage claims is 30 years in the
case of injuries of life, body, health, or freedom and 10 years in all other cases (Sec.
199 para. 2 and 3 BGB), irrespective of the knowledge of the tortfeasor. Moreover,
as another important advantage, there is no right to cure under tort law, i.e.,
damages may be claimed immediately without any intermediary steps. However,
as will be shown, tort law remedies are subject to other uncertainties and
limitations.
Unlike basically all other European legal orders, German law is endowed with
only a “small general clause” in the law of delicts. Not any damage resulting from
faulty and unlawful action is recoverable as under Art. 1382 French civil code or
Art. 2043 Italian civil code. Instead, the basic tort law rule contained in Sec.
823 para. 1 BGB restricts liability to the injury of “absolute legal goods” such as
life, freedom, or property, whereas the compensation for pure economic loss is
excluded. Aside from this “small general clause,” there are two others in general
tort law: liability for breach of statutes with protective function, in particular of
criminal provisions such as fraud (Sec. 823 para. 2 BGB), and liability for intentional damage contrary to public policy (Sec. 826 BGB). Moreover, special torts

40

C.U. Schmid

such as liability under product liability, environmental law, and competition law
may be examined.

5.1

Liability Under Sec. 823 Para. 1 BGB

Liability for injury of absolute legal goods according to Sec. 823 para. 1 BGB is
examined first. This provision reads:
A person who, intentionally or negligently, unlawfully injures the life, body, health,
freedom, property or another right of another person is liable to make compensation to
the other party for the damage arising from this.

However, precisely due to the restriction on the injury of (existing) property, this
rule is little helpful in our case. Indeed, the performance of a contract with a
defective car does not constitute a violation of property in this sense as the buyer
has never acquired the property of the car without defects in the first place. In more
general terms, the so-called interest in the integrity of one’s belongings
(Integrit€
atsinteresse—as opposed to the contractual interest to receive an adequate
counterperformance for one’s performance—Äquivalenzinteresse), which is the
core ratio legis of tort law, is not applicable here.
The sole recognized exception would be applicable if the defective thing was a
separable part of a bigger thing that triggered damage in that bigger thing, here the
car.17 For example, it has been held that the destruction of the whole car in an
accident caused by a defective accelerator cable is recoverable under Sec. 823 para.
1. A similar reasoning might be imaginable here if in the course of the reparation
other defects are caused, in particular fuel consumption increased or motor performance decreased. Yet such reparation, irrespective of whether it may be limited to a
software upgrade or whether it requires the change of components, may take place
only if authorized by the buyer, which would exclude its unlawfulness. Moreover, it
may be plausibly assumed that potential additional defects may not be reasonably
separated from, but rather constitute the unavoidable consequence of, the original
defect of the manipulation of the exhaust system.

5.2

Civil Law Liability for Fraud (Sec. 823 Para. 2 BGB
and Sec. 263 Criminal Law Code)

As mentioned above, German civil law also grants a damage claim resulting from
the breach of any statutes, including provisions of public, technology, or safety law,
which are intended to protect another person (Sec. 823 para. 2 BGB). Most criminal

17

See on this so-called Weiterfresser jurisprudence, e.g., Gsell B (2004) NJW:1913.

Germany

41

law provisions are recognized as statutes intended to protect another person in this
sense. Therefore, in the Volkswagen context, the existence of a crime would need to
be shown, with fraud being of course the most obvious assumption. As mentioned
above, the public prosecutors’s office of the district of Braunschweig has initiated
investigations for grave fraud and manipulation of capital markets (through belated
information about the probable loss of value of Volkswagen shares) against various
managers of Volkswagen. If these proceedings lead to criminal convictions, civil
law liability under Sec. 823 para. 2 BGB is an automatic consequence. As such
convictions are far from certain, given the various substantive law objections
against fraud and the manipulation of markets, which would need to be overcome,
only the outcome of the ongoing investigations will be capable of clarifying the
situation.

5.3

Liability for Intentional Damage Contrary to Public
Policy (Sec. 826 BGB)

The most promising ground for invoking tort liability might be Sec. 826 BGB, which
stipulates a compensation claim for intentional damage contrary to public policy. It
is acknowledged that such liability may also arise without the requirements of a
criminal act being fulfilled by Volkswagen directors and/or employees. Instead, this
form of liability is addressed to the firm itself to whom the knowledge of all its staff
members may be imputed in analogous interpretation of Sec. 166 para. 1 BGB. The
firm is thus fictitiously treated as a unitary actor for the purpose of tort liability.
Besides, under Sec. 826 BGB, Volkswagen may also be exposed to vicarious
liability derived from the action of its directors (analogous application of Sec.
31 BGB), without the absence of fault being available as defense.
The factual and legal requirements of Sec. 826 may be presented as follows.
First, the existence of an intentional patrimonial damage may be assessed identically as under Sec. 823 para. 2 BGB, where such damage would seem to presuppose
a reduced resale value of manipulated cars and the awareness and tacit approval of
the acting Volkswagen directors and/or employees that customers would thus suffer
a loss.
Moreover, the violation of public policy would seem to be rather obvious in our
case. This is to be assessed on a case-by-case basis against the background of all
relevant facts and circumstances. In our setting, public policy is violated massively
in several ways: statutory provisions on emission standards were violated; millions
of manipulated cars have been marketed, thus putting at risk the environment and
possibly even the health of buyers; millions of buyers have been deceived about the
properties of their cars. Taken together, these circumstances almost certainly add up
to a violation of public policy.
However, important limitations apply to the scope of liability under Sec.
826 BGB. First, it only covers damages contemplated by Volkswagen directors

42

C.U. Schmid

and/or employees; unforeseeable consequential damages are not covered. Second,
according to the general regulation of the scope of liability contained in Sec. 249ff.
BGB, liability is primarily limited to the reparation of the defect. Only if this were
not reasonably possible, buyers could request the unraveling of the contract or
prefer to uphold the contract. In the latter case, liability would be limited to the
so-called negative interest.18 Deceived buyers must not, therefore, claim to be
placed in the financial position that they would have been in if Volkswagen had
supplied nonmanipulated cars respecting current emission standards. Instead, they
may only claim the damage deriving from the fact that they have not been informed
about the manipulations. Therefore, back taxes19 on motor vehicles complying only
with inferior exhaust standards might not be covered as they would also have been
due had the buyers known about the manipulation. However, as mentioned, buyers
who would not have bought their cars if informed correctly may claim the
unraveling of the contract, i.e., give back their cars and reclaim the purchase price.

5.4

Product Liability

As compared to the US, the scope and impact of product liability law is rather
limited in Europe. Famously, it is covered by the early 1985 directive which has
been implemented in Member State legislation, in Germany in the product liability
statute of 1989. The directive is celebrated for the consecration of objective liability
unrelated to fault on the American example, which did not exist before in most
European states. In order not to be too invasive, this liability is attenuated by a
series of objective defenses, the state of the art defense being the most
important one.
However, the directive has a very narrow scope ratione materiae: it only extends
to damages caused to life, health, or other goods. Ironically, it is to this limited
scope and the ensuing ineffectiveness that its worldwide success may be due.
Whereas it is, symbolically, a modern piece of legislation, it does not limit national
industries to a meaningful extent as most kinds of damages are not covered in the
first place. In our case, too, just as Sec. 823 para. 1 BGB, both the directive and the
national implementation legislation do not apply to defects of the sold good itself.

See Spindler G in Beck, Online-Kommentar BGB, § 826 Rz. 16. https://beck-online.beck.de/.
See on this subject the study of the Scientific Service of the Bundestag, https://www.bundestag.
de/blob/415658/b656cd7418087fba3704f6dc1e821296/wd-4-004-16-pdf-data.pdf.
18
19

Germany

5.5

43

Environmental Liability

As the main negative consequence of the manipulation affects the environment, the
issue of environmental liability is also raised.
First, the 1990 act on environmental liability covers only environmental damages, in particular health injuries or death, caused by plants or (typically larger)
systemic installations of all kinds but not simple cars. American newspapers have
referred to medical studies according to which about 60 additional deaths through
cancer and other diseases will be caused by the manipulated Volkswagen cars sold
in the US. However, the old-fashioned strict causality requirements of German
law—which exclude a quota-dependent liability for the increase of risks—would
render the proof of a health injury resulting specifically from the manipulation of
Volkswagen exhaust systems, and not from any concurring causes such as general
air pollution and others, virtually impossible.
As mentioned, German civil law also grants a damage claim resulting from the
breach of any statute, which is intended to protect another person (Sec. 823 para.
2 BGB). Under this heading, one may discuss the obvious violation of the regulation on emissions of motor vehicles (Fahrzeugemissionsverordnung),20 which has
occurred here. However, it is acknowledged that this legal instrument aims primarily at protecting the environment as a common good but not individuals. Whereas
Volkswagen might be fined for the violation of this instrument, consumers will not,
therefore, be able to successfully base a damage claim on it.

5.6

Competition Law

A similar assessment applies to a possible violation of competition law, i.e., the
German law against unfair competition (UWG), which also has the task of
implementing the 2005 Unfair Commercial Practices Directive. According to
Sec. 4a UWG (an autonomous German provision not derived from EU law), a
violation of competition—which may give rise to claims for omission, damages, or
skimming off of profits (but only to the advantage of the public budget)—may also
be assumed if a provision is violated that intends, at least inter alia, to regulate
market behavior in the interest of market participants. Yet, according to a famous
formula, the competition law judge is not to become a “substitute police officer”
under this provision, for which reason it needs to be construed narrowly. It does not,
therefore, extend to provisions with an indirect bearing on market behavior (as is
undoubtedly true for rules on car emissions standards) but with primary nonmarketrelated objectives such as environmental protection.

20

Regulation (EC) No. 715/2007/EC, O.J. L 171/1 (2007).

44

C.U. Schmid

6 Conclusion
Whereas the instruments available under criminal law seem to be satisfactory even
without the introduction of a company liability, the remedies available to buyers of
manipulated Volkswagen cars under German private law have been shown to be not
very effective. Only if the seller is part of the Volkswagen group of enterprises and
not an independent dealer, the buyer may rescind the contract for deceit. Contract
law remedies are even less effective: while the presence of a defect is of course
undeniable, it is already unclear whether the seller may insist on a right to cure or
whether the buyer may immediately resort to price reduction, damages, or restitution
of his car. The first court decisions diverge precisely on this point. Moreover, the
relatively short periods of prescription are likely to exclude claims in many cases.
Tort law liability is characterized by longer periods of prescription but exposed
to other hurdles. Whereas the liability for the civil consequences of criminal acts
presupposes the proof of fraud, the liability for intentional damage contrary to
public policy might prove to be the most promising remedy. Importantly, it aims
primarily at the reparation of the defect and not the unraveling of the contract. In
this situation, a buyer seeking more than the gratuitous reparation of the defect
(which Volkswagen is anyway forced to offer by the notice of recall issued by the
Federal Agency for Motor Vehicles), in particular damages and restitution (buy
back), is faced with the prospect of long, costly, and uncertain court proceedings.
Whereas Volkswagen is facing a liability for consumer damages, including punitive
damages, of billions of dollar in the US, it has little to fear in Germany.
For private buyers, a more effective means would be a collective action, in which
multiple individual claims could be bundled. Such an action has been introduced in
capital market law (Kapitalmustergesetz-Verfahren), where shareholders may join
together to claim damages from a public company in model procedures (under which
the outcome of a model lawsuit is binding also for all other plaintiffs in the same
legal situation). Such proceedings have actually already been started by Volkswagen
shareholders before the regional court of Braunschweig. It is true that a previous
procedure, in which Telekom shareholders claimed damages for wrong information
in sales prospects, is still not entirely finished after 10 years and has, therefore,
shown little effectiveness. However, such a collective action is certainly a promising
new instrument, putting big firms and shareholders on the same footing, and the
procedure could still be rendered more effectively, perhaps even on a de lege lata
basis by “creative judicial interpretation.”
A similar but perhaps even more effective device has been invented in the
Netherlands, where harmed investors have, with the help of Dutch lawyers, assembled in a foundation called “Stichting Volkswagen Investor Claims.” This construction enables consumers to confront Volkswagen collectively and, possibly, to
negotiate settlements. The foundation is open to investors from all European
countries.
The introduction of collective measures of redress for consumers such as class
and model actions has in recent years, and in particular also after Dieselgate, been

Germany

45

advocated by many politicians, in particular the Green party. The latter has
contended plausibly that with a “procedural law dating from the 19th century,”
neither the problems of access to justice in mass damages nor the ensuing implementation gap could be confronted successfully. Yet the majority in Parliament has
rejected the initiative in a decision, which has certainly been promoted by traditional associations of judges and lawyers and, more importantly, the most powerful
lobbies of big German enterprises, which are highly influential as they make
available many jobs. Their main counterargument is obviously the fear of “US
conditions,” where law firms make fortunes with class actions and industries are
afraid of being sentenced to exorbitant damages. However, similar dangers are
excluded in Europe already for the simple fact that the most powerful legal
weapons, punitive and triple damages, do not exist and are even qualified as
violations of public order in continental European legal systems. Moreover, the
resort to model actions instead of class actions would keep the value of the claims
lower, thus counteracting the emergence of a US style “lawsuit industry”. Therefore, an attenuated European-style collective action would seem to make a lot of
sense in Germany and Europe, too, as it would enable big firms and consumers to
confront each other on the same footing. The European Commission has been
advocating such an instrument since 2007 and has in 2013 issued a recommendation.21 Yet the introduction of a binding legal instrument was not successful so far
due to fierce resistance of industrial lobbies. The message is clear: whereas shareholders are offered the powerful tool of collective actions, as they are apparently
considered important for the functioning of the capitalist economy, consumers do
not have an equally powerful political standing—irrespective of the fact that in an
economic reasoning, rendering big firms legally accountable to consumers may
provide incentives for the creation of better and safer products and services and
thus, ultimately, promote economic efficiency and the spread of a better business
and compliance culture.

References and Websites
Ahlbrecht H, Basar E (2015) Dieselgate als Tor ins Unternehmensstrafrecht? In: Legal Tribune
Online of 30.09.2015. Available on http://www.lto.de/recht/hintergruende/h/volkswagen-abgasmanipulation-ermittlungen-strafrecht-konsequenzen-unternehmensstrafrecht
Altmeppen H (2016) Haftung für Delikte “aus dem Unternehmen”, dargestellt am Fall
“Dieselgate”, ZIP:97
Haag O (2015) Unternehmenshaftungsrecht versus 3-T-Prinzip “Tarnen-Täuschen-Tricksen”, BB
46:1
Lüftenegger K (2016) Der Fall Volkswagen – (k)ein Rückruf wie jeder andere?, DAR:122
Peres R (2016) Nach Dieselgate: Braucht Deutschland die Sammelklage? In: Legal Tribune
Online of 27.05.2016. Available at http://www.lto.de/recht/hintergruende/h/sammelklageverbraucher-vw-amerika/

21

COM 2013/396/EU.

46

C.U. Schmid

Revilla A (2016) Der VW-Abgasskandal und seine rechtlichen Folgen für den Käufer, Zfs:10
Riehm T (2016) “Dieselgate” und das Deliktsrecht, DAR:12
Steenbuck M (2016) Die Rechte der Käufer von Fahrzeugen mit überh€
ohten Abgaswerten,
MDR:185
https://beck-online.beck.de/
https://www.bundestag.de/blob/415658/b656cd7418087fba3704f6dc1e821296/wd-4-004-16-pdfdata.pdf
http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#p1549
https://www.gruene-bundestag.de/fileadmin/media/gruenebundestag_de/themen_az/verkehr/PDF/Manip
ulation-von-Emissionskontrollsystemen-durch-Autohersteller.pdf
http://www.ingenieur.de/Politik-Wirtschaft/Unternehmen/Dieselgate-Hier-lesen-Sie-VW-Skandalim-Ticker
http://www.juris.de
http://www.vzbv.de/sites/default/files/downloads/Rechtsgutachten-VW-manipulierte-SchadstoffwerteKFZ-Oktober-2015.pdf

Italy
Giovanni Posio

1 The Italian “Competition and Market Authority”: Its
Nature and Competencies. The European and Italian
Normative Basis of Its Inquiry on the VW
Dieselgate Case
The Italian Competition and Market Authority (Autorit
a Garante della Concorrenza
e del Mercato) was established in Italy by Law No. 287/1990. It is an independent
body, and its decisions are based on the competition law without interference by the
Government. The principal competence of the Authority is to enforce rules against
anticompetitive agreements among undertakings, abuses of dominant position, as
well as concentrations (e.g., mergers and acquisitions, joint ventures) that may
create or strengthen dominant positions that are detrimental to competition.1 Moreover, the Authority may send official opinions to the Government, the Parliament,
the Regions, and Local Authorities whenever existing or proposed legislative and
administrative measures restrict competition. But the Italian Competition Authority
is also in charge of several other competencies, including protecting consumers
from misleading advertising, comparative advertising that may bring discredit on
competitors’ products or cause confusion, as well as unfair commercial practices
among undertakings.2 Finally, the Authority enforces rules against conflicts of

1

Law 10 October 1990 No. 287.
Legislative Decree 6 September 2005 No. 206 (Consumers’ Code) and Legislative Decree
2 August 2007 No. 145.

2

G. Posio (*)
University of Brescia, Brescia, Italy
e-mail: notaio.posio@notaicpv.it
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_3

47

48

G. Posio

interest for government officials3 and could release the certification of legality to
the companies that ask for it.4
The inquiry started by the Italian Authority on the VW Dieselgate case, in
particular, finds its normative basis on Legislative Decree No. 206 of 6 September
2005 (Consumer’s Code), in execution of Directive 2005/29/EC of 11 May 2005
concerning unfair business-to-consumer commercial practices in the internal market5 and amending Directives 84/450/EEC, 97/7/EC, 98/27/EC, and 2002/65/EC
and Regulation (EC) No. 2006/2004 (Unfair Commercial Practices Directive).6
This Directive defines the commercial practices that are prohibited in the
European Union. It thus protects the economic interests of consumers before,
during, and after a commercial transaction has taken place. Unfair commercial
practices are those that7
– do not comply with the requirements of professional diligence;
– are likely to materially distort the economic behavior of the average consumer.
The Directive defines two specific categories of unfair commercial practices:
misleading practices (by action or omission)8 and aggressive practices.9
A practice is misleading for the Directive if it contains false or untrue informations or is likely to deceive the average consumer, even though the information
given may be correct, and is likely to cause him to take a transactional decision that
he would not have taken otherwise. Examples of such actions include false or
deceiving information on the existence or nature of the product, the main characteristics of the product (its availability, benefits, risks, composition, geographical
origin, results to be expected from its use, etc.), the extent of the trader’s commitments, the price or the existence of a specific price advantage, the need for a service
or repair.
A misleading omission occurs when material information that the average
consumer needs, according to the context, to take an informed transactional decision is omitted or provided in an unclear, unintelligible, ambiguous, or untimely
manner and thereby causes or might cause that consumer to take a purchase
decision that he or she would not have otherwise taken.
Under the section of aggressive commercial practices, the Directive affirms that
consumers’ transactional decisions must be made freely. They cannot be taken
following the use of harassment, coercion, or undue influence.
Several elements must be taken into consideration in order to determine whether
an aggressive commercial practice occurs. These include the nature, location, and

3

Law 20 July 2004 No. 215.
Art. 5ter of Legislative Decree No. 1/2012, as amended by Law 18 May 2012.
5
O.J. L 149/22 (2005).
6
O.J. L 364/1 (2004).
7
Art. 5 of Directive 2005/29/EC.
8
Arts. 6 and 7 of Directive 2005/29/EC.
9
Arts. 8 and 9 of Directive 2005/29/EC.
4

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duration of the aggressive practice; the possible use of threatening or abusive
language or behavior; the exploitation by the trader of any specific circumstance
affecting the consumer in order to influence his/her decision; any disproportionate
noncontractual conditions imposed on the consumer who wishes to exercise his or
her contractual rights.
Particularly, the Directive contains a list of 31 commercial practices that should
be considered unfair in all circumstances.10
As said, Directive 2005/29/EC had application in Italy with Legislative Decree
of 2 August 2007 No. 146, which amended, among the others, Articles 18 to
27quater of the Consumer Code, which was initially enacted with Legislative
Decree of 6 September 2005 No. 206.11
In addition, with Decree Law of 24 January 2012 No. 1, changed with modifications by Law of 24 March 2012 No. 27, to Art. 18 of the Consumer Code was
added letter d-bis, which includes among the recipients of the Italian legislation on
misleading advertising also the microenterprises,12 id est entities, companies, or
associations that, regardless of their juridical form, pursue an economic activity,
also individually or with a family, employing less than 10 people and making less of
two million euros of revenue on the balance sheet. It constitutes an important
innovation of the Italian law in the field of protection against misleading advertising
and within a greater scope of protection granted by the Italian State on the European
regulations,13 which could have a considerable impact also on an economical level
on the consequences of the scandal that VW Dieselgate will have in Italy, since
notoriously microenterprises are widely trademark clients of Volkswagen, Audi,
Skoda, and Seat (just think of all the Volkswagen group’s cars purchased by agents,
sales representatives, artisans, and professionals, usually purchased with diesel
engines as a result of considerable kilometers covered by such persons in the
exercise of their professional activities).14

10
As explained below, it will be very relevant for the VW Dieselgate case in the final decision of
the Italian Competition and Market Authority (AGCM) as misleading conducts: (2) displaying a
trust mark, quality mark, or the equivalent without having obtained the necessary authorization;
(3) claiming that a code of conduct has an endorsement from a public or other body, which it does
not have; (4) claiming that a trader (including his commercial practices) or a product has been
approved, endorsed, or authorized by a public or private body when he/it has not or making such a
claim without complying with the terms of the approval, endorsement, or authorization.
11
See Gagliardi A F (2009).
12
As defined by Commission Recommendation of 6 May 2003 concerning the definition of micro,
small and medium-sized enterprises (2003/361/EC).
13
See Labella (2015) and Bettelli (2014).
14
The Centre for Studies and Statistics of UNRAE (the Italian association of foreign carmakers)
has produced a study published on 23 December 2015 (http://www.unrae.it/sala-stampa/altricomunicati/3318/160400-privati-possessori-di-partita-iva-hanno-acquistato-unauto-nel-2014),
which shows that in the year 2014 (just when it was sold a large number of VW vehicles with diesel
engines Euro 5), 160,406 customers-owners of a microenterprise bought a car. This number
represents the 18.8 % of total registration to noncompany buyers (854,665 units). Of those cars,
78,054 were purchased by self-employed; 34,289 by professionals; 31,030 by sales agents; and

50

G. Posio

2 The Italian Inquiry of the “Italian Competition
and Market Authority” on the VW Dieselgate Case
On 2 October 2015, the “Italian Competition and Market Authority” published a
press release on its website15 in which it announces, even following numerous
complaints from the associations of the consumers, to have opened an investigation
against Volkswagen AG and Volkswagen Group Italia S.p.A. (the Italian branch of
VW) for possible commercial malpractices operated in relation to the Dieselgate
scandal, for possible misleading of buyers in their purchasing decisions on claims
used by Volkswagen about polluting emissions and homologation class within their
advertising campaigns and informational brochures distributed by dealers and
retailers.
Subsequently, on 4 February 2016 has appeared another media information16
announcing, as reported to the counterparty consumer’s Association in the proceeding, an enlargement of the Italian Authority’s investigation towards VW over that
for advertising related to NOx emissions even for the information for purchasers on
CO2 emissions and also for models with gasoline engines, which as known does not
concern Volkswagen’s case in the USA.
Finally, on 26 May 2016, the Authority issued an additional press release,17 in
which it affirmed that the investigation on the VW’s case was closing to the end. In
fact, on 8 August 2016, on the website of the Authority the decision about the VW
Dieselgate case18 was published. The decision convicted Volkswagen AG and
Volkswagen Group Italia S.p.A. with a joint punishment in the maximum amount
permitted by the Italian law in case of misleading and unfair commercial practices
and so with the order of payment of 5,000,000 euros.

17,033 by farmers. In addition, regarding the 34,289 units sold to professionals, 22.8 % were sold
to lawyers, 16.4 % were sold to accountants, 15.5 % were sold to consultancy firms. The 2014
revenue in Italy of those 160,406 buyers was 3.7 billion euro (22.9 % of the total revenue of the
sales to noncompany buyers). The diesel engine is always the favorite, with a share of almost 64 %
of the market between microenterprises, 14.5 points higher than consumers that are not owners of
microenterprises. Considering that the market share of the Volkswagen Group in Italy is about
13 % of the total, it yields that in Italy there are at least 50,000 owners of Euro 5 diesel models of
the VW group bought between 2012 and 2015 (perhaps more, considering that the VW group’s
brands are among the most common in the Italian microenterprises) that may be recipients of the
consequences of the Authority’s decision and that would not have protection under common
European rules on misleading advertising.
15
http://www.agcm.it/stampa/comunicati/7881-istruttoria-antitrust-sul-caso-volkswagen-perpratica-commerciale-scorretta.html.
16
https://www.altroconsumo.it/organizzazione/media-e-press/comunicati/2016/intervento-anti
trust-su-dieselgate.
17
http://www.agcm.it/stampa/comunicati/8256-antitrust-e-consumatori-a-confronto-nell%E2%
80%99incontro-semestrale-sui-diritti-dei-cittadini.html.
18
http://www.agcm.it/stampa/comunicati/8372-ps10211-antitrust-sanziona-il-gruppovolkswagen-per-5-milioni-di-euro-per-manipolazione-del-sistema-di-controllo-delle-emissioniinquinanti.html.

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3 The Italian Decision of the Competition and Market
Authority on the VW Dieselgate Case of the 4th of August
2015 Published on the 8th of August 2016
At the meeting of 4 August 2016, after many procedural prorogations, the Authority
released its decision on the VW Dieselgate case. The Authority confirmed that the
normative basis of the violation jointly committed by Volkswagen AG and
Volkswagen Group Italia S.p.A. is Arts. 20, 21 subparagraph 1 letter b), 22, and
23 subparagraph 1 letter d) of the Consumer Code. Therefore, for the Authority,
VW committed unfair commercial practices, in particular practices that, for the
Italian law, are considered misleading in any case because VW publicized its
vehicles diesel Euro 5 sold from 2009 in September 2015 as provided of certifications and homologations that they did not truly have. The Authority particularly
assumed VW responsible for the violation of Art. 23 subparagraph 1 letter d) of the
Consumer Code.19 The inquiry had been with the participation, other than the
blamed companies, also of some consumers’ associations. The probatory elements
used by the Authority to uphold the decision were as follows:
– the conclusion on the case of the German Federal Motor Transport Authority
(KBA—Kraflfahrtbundesamfl), the public entity that released the homologation
of the indicted vehicles effective for all the territory of the European Union,
conclusion sent to the Italian General Direction of the Civil Vehicle Registration
Office; for that conclusion, the mechanism used by VW on its autovehicles
(defeat device) was able to modify automatically with electronic data processing
of artificial intelligence the results of the emissions of NOx in the laboratory’s
tests for homologation, conversely of the results obtained on street running; still
for that conclusion of KBA, a similar defeat device is expressly prohibited by
Regulation (EC) No. 715/200720;
– many publicity campaigns of VW diffused on the Internet, television, newspapers, and brochures, in which VW declared that its vehicles with motors Euro
5 diesel respected the homologations of the law;
– other numerous and pressing publicity campaigns, also connected with commercial names attributed to some VW vehicles (for example, Volkswagen
BlueMotion Technology, Skoda GreenLine, Seat Ecomotive, and Audi clean
diesel) based on the induction in the buyer’s belief that the cars of the VW Group
could be fully environmental friendly, even beyond legal limits (green claims or
environmental claims made by VW21);

19
This rule prohibits to assert falsely that a professional, its commercial practices, or its products
have been authorized, accepted, or approved by a public or private body or that the permit
conditions and acceptance or approval receipt have been complied with.
20
O.J. L 171/1 (2007).
21
Green Claims or Environmental Claims is the term used for recent marketing campaigns based
on environmental protection and reduction of pollutant emissions and in general on the

52

G. Posio

– full admission of explicit responsibility by VW for the manipulation operated
with the defeat device,22 once they admitted their responsibility with a publication in many national newspapers in October 2015,23 in which VW affirmed:
Dear Volkswagen’s clients, recently we have made a serious mistake: we have
compromised the relationship of trust that has always binded us. We apologize to everyone,
first to you. Our research and development departments are working hard in collaboration
with the competent authorities to clarify the emission values for nitrogen oxide (NOx) of
some of our diesel engines of the EA189 family. [. . .] You need to know that we will not
stop until we will have not fully conquered your confidence.24

The Authority, moreover, affirmed that the violation was “manifestly unfair and
serious” pursuant to Art. 27 subparagraph 7 of the Consumer Code25 and rejected
the request of VW during the proceeding to stop the ruling in exchange for a
commitment to eliminate the negative consequences of its unfair commercial
practices.
Moreover, the Authority deemed that VW did not have any responsibility on
declarations made in its publicitary campaigns about emissions of CO2 since it
ascertained, as admitted by VW during the ruling, that the values declared are only
occasionally and slightly different from the real ones, that is, in the limits permitted
by proper commercial practices, and it also affirmed that, in any possible way, VW
diligently endeavored to amend its publicitary campaign on the emission of CO2.
The Authority concluded its decision convicting jointly Volkswagen AG (holder
of the worldwide companies’ group, producer of the vehicles, party responsible for
the installation of the defeat device, holder of the German homologation released by
KBA, and final beneficiary of the earnings of the global sale of the vehicles) and
Volkswagen Group Italia S.p.A. (importer and dealer of the vehicles in Italy and
party responsible for the marketing campaigns in Italy) for the payment within
30 days of euros 500,000,000, pursuant to the maximum penalty permitted by
Italian law in case of unfair commercial practices.

environmental impact of the purchased product because these issues are even more popular to the
consumers and are able to direct or change the buying trends of the people.
22
The Italian Authority affirms that by the inquiry of EPA, Environmental Protection Agency of
the U.S.A., the defeat device is able to reduce more than 40 times the emissions of NOx during the
laboratory tests compared to normal road use.
23
As mentioned in the final decision of AGCM, during the proceeding before the Authority, VW
contradictorily has rejected all charges of violation of regulations and denied having violated any
rule related to the obligation to declare the level of pollutant emissions in their advertising
campaigns.
24
Translation by the author.
25
This rule allows the professional to require from the Authority an authorization to voluntarily
eliminate the negative consequences of unfair commercial practices, obtaining the interruption of
the proceeding, and therefore avoiding the imposition of a penalty. However, this is not allowed
under the law when the commercial practices are manifestly unfair and grave.

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In establishing the maximum penalty, the Authority considered the following:
– VW sold in Italy, from 2009 to 2015, 700,000 autovehicles on which result it
installed on purpose the illegal implant of manipulation (defeat device), therefore with polluted emission of NOx, which in truth is noncompliant with the
values detected during the homologation tests and declared in the vehicles’
certificates of conformity; it means that the declarations of conformity released
by the constructor attesting that the vehicles are compliant with the requirement
of the European Union’s homologation are false; for the Authority, the certificates of conformity of the vehicles diesel Euro 5 of VW and, as a consequence,
the values of polluted emissions indicated in the logbooks released by the Italian
Ministry of Infrastructures and Transport and released by VW to each owner do
not correspond to reality.
– Particularly, the Authority considered that the value of the emissions of NOx is
lower than the one that was supposed to be expected from the results of the tests
without the manipulation of the defeat device.
– For the Authority, the voluntary conduct of VW was never denied during the
ruling process and constitutes a serious violation of the requirements of professional diligence, beyond the failure to respect the normal degree of skill and care
that reasonably could be expected, considering the importance and popularity of
VW, one of the leading global players in the automobile industry, and the
increasing importance of environmental issues assumed in directing the customer’s buying choices.
– In its motivation, the Authority states that the environmental awareness of
consumers is growing and becoming widespread and that it is an element
capable of orienting purchase decisions, so much that competition in the various
markets also takes place through the vindication of features and product innovations directed to preserve nature and the environment (the so-called green or
environmental claims); according to the Authority, during the proceeding would
be taken evidence showing that if consumers were aware of the presence of
defeat device in the control unit of the purchased vehicles, they would not have
proceeded to purchase.
– Finally, the Authority assessed it to be appropriate to fix the maximum penalty
imposed on the VW because the total revenue of 2015 Volkswagen AG
amounted to EUR 73,510,000,000; the 2015 sales of Volkswagen Group Italia
S.p.A. amounted to EUR 4,272,367,749; the vehicles involved in the Dieselgate
case and sold in Italy for the period 2009–2015 amounted to over 700,000, in
particular, 150,000–300,000 Audi vehicles; 30,000–50,000 Skoda vehicles;
30,000–50,000 SEAT vehicles; 300,000–400,000 Volkswagen vehicles; and
15,000–20,000 Volkswagen commercial vehicles, for a worth of total sales of
euro 10–20 billion and an average purchase price for any driver of euro
10,000–30,000.
Therefore, these are the reasons that led AGCM to sanction VW with the
maximum penalty of euro 5,000,000 allowed by Italian law in the case of false
advertisings that resulted in damage to consumers and owners of microenterprises.

54

G. Posio

4 The Legal Remedies for Drivers Established by
the Italian Law After the Decision of AGCM on VW
Dieselgate’s Case
The Italian Authority’s decision for competition and the market is very important
for the consequences that it will have on individual actions and class actions that
motorists will be able to sue to obtain the restoration of the suffered damages, also
using the findings already made by the Authority26. However, it is to be considered
that this decision is not definitive, as it could be held by Volkswagen AG and
Volkswagen Group Italy S.p.A. in front of the Regional Administrative Court of
Lazio at first instance and in front the Council of State on appeal.
Reading the motivations of the Authority’s decision, it is clear that the conduct
of VW was considered very serious and that it was able to distort the intentions of
the drivers to purchase, affirming that it is extremely probable that if people were
aware of the existence of the defeat devices, they would not have bought the cars.
Therefore, this motivation may now be used in a much more easy way even in
the various individual actions or class actions that may be filed in Italy.
It is probable that many contractual actions will be initiated now, both by
consumers and by owners of microenterprises, pursuant to subsequent general
principles of the Italian Civil Code:
– for breach of the obligation of good faith during negotiations, as imposed by Art.
1337 of the Italian Civil Code27;
– for the annulment of the purchase contract due to the willful fraud of VW
pursuant to Art. 1439 of the Italian Civil Code28 or a refund for damages
pursuant to Art. 1440 of the Italian Civil Code29;
– to obtain the cancelation of the purchase contract because of the significant
breach of the contract by VW, mostly considering that nowadays VW did not
perform its promise to remedy the alteration of the defeat device through a
specific recall of each vehicle in VW’s garages, made with personal letters sent

26

See Mari (2011).
Art. 1337 of the Italian Civil Code—Negotiations and pre-contractual liability—The parties,
making negotiations and during the closing, have to be in good faith (translation by the author).
28
Art. 1439 of the Italian Civil Code—Willfull fraud—Willfull fraud make void the contact when
the scams used by one of the contractors were such that, without them, the other party would not
have closed the contract. When the deception were used by a third party, the contract is voidable if
they were known to the contractor who benefited ot it (translation by the author).
29
Art. 1440 of the Italian Civil Code—Incidental fraud—If the scams were not such as to
determine the consent, the contract is valid, although without them the agreement would be
concluded on different terms; but the contractor in bad faith is liable for damages (translation by
the author).
27

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55

to each driver owner of a diesel Euro 5 VW vehicle, pursuant to Art. 1453 of the
Italian Civil Code.30
In addition, both consumers and microenterprises’ owners will be able to invoke
the termination of the contract concluded with a bank or a moneylender sponsored by
VW, contract linked to the purchase of the vehicle and that financed the vehicle,
according to the general principle of Italian law to which the invalidity of the main
contract may also be transmitted to the connected accessory contract.31 It is clear, in
fact, that often the buyer concludes the loan agreement for the car in the car dealer’s
showroom, only because he decides to buy that particular vehicle. This could produce
the suspension of payment of installments still to be paid while waiting for the repair
or replacement of the defeat devices promised by VW and/or the request for return of
the interest already paid or, in graver cases, even the capital already paid.
This general principle, which allows to obtain a judicial declaration of invalidity
of the loan agreement connected to a void purchase’s contract, has recently had an
express recognition in Italy by the general legislation of the banking system (called
Testo Unico Bancario or TUB), which has implemented a binding directive of the
European Union, but only in case of a purchase made by a consumer and not also by
an enterprise or a microenterprise.
Therefore, consumers involved in Italy in the VW Dieselgate’s scandal who
bought their vehicles through a loan agreement with installment payment may
invoke against the financier (lender or leasor) the application of Art. 125 quinquies32
of Legislative Decree 6 September 1993 No. 385 (Testo Unico Bancario—TUB), as

30
Art. 1453 of the Italian Civil Code—Cancellation of the breached contract—In contracts with
reciprocal givings, when one party is not fulfilling its obligations, at his discretion, the other party
may claim the fulfilment or the resolution of the contract, and, in any case, his right to claim the
compensations for damages. The resolution of the contract may also be claimed when the lawsuit
began to seek enforcement of the contract; but it’s not possible to ask the fulfilment when
resolution was asked. From the date of the claim for resolution, the other party may not fulfil his
obligation any more (translation by the author).
31
For the general principles of Italian law, the connection between contracts occurs when two or
more contracts, separate and independent, are directed to the same purpose so that they are
portions of a single operation; in such cases, the voidance of one of the related contracts may
also lead to the invalidity of the other contract. See Gazzoni (2015).
32
Art. 125quinquies of TUB—Breach of the contract by the seller—In connected financing
contracts, when the seller of goods or services is in breach of the contract, the consumer, after
the intimation of the seller, may apply for the termination of the financing agreement if the contract
of goods or services selling is void according to art. 1455 of the civil code (id est, for a serious
breach of the contract). The termination of the financing contract involves the obligation for the
lender to give back to the consumer all the installments and all other fees already paid. With the
termination of the credit agreement the consumer may not pay to the lender the amount that the
lender has already paid to the seller of the goods or services. The lender has the right to claim that
amount to the seller. In case of leasing, the consumer that has already intimated the seller of the
goods or services, may ask to leasor to bring a dispute against the seller to cancel the contract of
purchase. The request to the leasor determines the suspension of payment of lease fees. The
judicial termination of the contract of purchase determines the legal termination of the leasing
agreement without penalties and charges for the consumer. In this case the second period of this

56

G. Posio

amended by Legislative Decree 13 August 2010 No. 141 in execution of Directive
2008/48/EC of the European Parliament and the Council of 23 April 2008 on credit
agreements for consumers33 (repealing Council Directive 87/102/EEC). This aspect
of the VW Dieselgate case will be very interesting in Italy since many vehicles
(almost all) are generally bought through a loan agreement and the same
Volkswagen Group is the owner of Volkswagen Bank GmbH and Volkswagen
Leasing GmbH companies, which fund the purchases of vehicles of VW Group in
Italy through the authorized dealers of VW. For that reason, the position of buyers
who purchased in Italy a vehicle of the VW Group with payment by installments
still in progress, also including loan contracts concluded with financing companies
unrelated to the VW Group, will be more effectively protected because they will
immediately suspend the payment of installments, invoking in their favor Art.
125 quinquies of TUB and asking the lending company for the return of all the
installments already paid. Naturally and probably, it will be their responsibility to
return the vehicle to the dealer, even if they have already used it.
However, all contractual actions described above pose a specific problem in
Italy. In fact, for the Italian distribution organization in the autovehicle’s market,
the driver concludes the contract of purchase of the vehicle with a car dealer, which
is an independent and separate entity from the VW Group and buys the vehicles
from Volkswagen Group Italy SpA, which imports them into Italy by purchasing
them from the German company Volkswagen AG. So the supply chain of vehicles
ends with the sale to the user by an entity that is formally and also substantially
separate from VW Group while having an exclusive relationship of representation
of Volkswagen, Audi, Seat, and Skoda trademarks.
Since it is clear that a contractual claim may be enforced only against the other
party to the contract,34 that in a contract of sale of a vehicle the other party of the
contract is not VW but the car dealer, and again that probably car dealers of brands
VW, Audi, Seat, and Skoda were completely unaware of the installation of the
defeat devices by VW, it will be necessary to find a link to permit the initial writ of
summons against the car dealers because of the installation of the defeat devices
by VW.
In the opinion of the writer, it is reasonable to conclude that the car dealer, at
least in an instrumental way, may be responsible to the purchaser for the misleading
advertising used for the sale of vehicles equipped with the defeat devices because
he is the initial beneficiary of the economic advantage derived from the sale of the
vehicle, he is the local distributor in his showroom of brochures bearing false green
claims and incorrect statements on NOx emissions, as well as he is the entity who
article is applicable. The rights of this article for the consumer exist also against the third party to
which the lender selled the rights arising from the credit agreement (translation by the author).
33
O.J. L 133/66 (2008).
34
The general principle of relativity of the effects of the contract derives from Roman law and is
summarized in the maxim res inter alios acta tertio neque nocet neque prodest. It means that a
contract generally is not able either to harm or to benefit a third party since he is not related to the
contractual relationship.

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57

delivers to the user the registration certificate of the car that reports a public
approval that in realty is false and because he is the person who has to guarantee
the conformity of the vehicle with the declared homologation. But, as noted by the
Italian Ministry of Infrastructure and Transports, the homologation of those vehicles must be considered as released on false assumptions even if not formally
withdrawn by the German authorities (KBA).35
After all, under Italian law, in the case of a purchase concluded by a consumer, it
is only the seller-car dealer that is solely responsible against the buyer for the lack
of conformity of the goods sold as promised. Indeed, pursuant to Arts. 12936 and
13037 of the Consumer Code, the only party responsible against the consumer is the
seller. Those articles are not applicable in case of a purchase made by a microenterprise or a normal enterprise, but it is reasonable to believe that the same
35
I think that the legal basis for a similar conclusion could be given in Italy pursuant to Art. 1381 of
the Italian Civil Code, which affirms: “who promises the obligation or a conduct of a third party,
have to indemnify the other party if the third party refuse to obligate or miss to do what was
promised” (translation by the author). In the VW Dieselgate case, it is reasonable to assume that
the car dealers promised that VW vehicles had the homologations declared by VW as true and that
consequently the car dealers must indemnify the final buyers of the cars because of the installation
of the defeat device.
36
Art. 129 of the Italian Consumer Code—Conformity to the contract—The seller has the
obligation to deliver goods in conformity with the sales contract. It is assumed that the consumer’s
goods comply with the contract if, where relevant, the following circumstances exist: (a) they are
fit for the purposes for which goods of the same type are normally used; (b) they comply with the
description given by the seller and have the qualities of goods held out by the seller to the
consumer as a sample or a model; (c) they show qualities and performances which are normal in
goods of the same type and which consumer can reasonably expect by the nature of good and,
eventually, by public Statements on specific characteristics of the goods made about them by the
seller, by the manufacturer or his agent or representative, particularly in advertising or in labels of
the goods; (d) they also are particularly suitable for use wanted by the consumer and known and
accepted by him (in fact too) at the closing of the purchase as declared by the seller (translation by
the author).
37
Art. 130 of the Italian Consumer Code—Rights of consumer—The seller is liable to the
consumer for any non-conformity which exists at the time the goods were delivered. In case of
non-conformity, the consumer has the right to obtain the restorage of the conformity without any
charge, by repair or replacement, in accordance with paragraphs 3, 4, 5 and 6, or to obtain an
appropriate reduction of price of purchase or the termination of the contract in accordance with
paragraphs 7, 8 and 9. The consumer may, at its option, pretend from the seller to repair the goods
or to replace them without any charge in both cases, unless the remedy requested is impossible or
too expensive. For the purposes of paragraph 3 should be considered too expensive one remedy in
comparison to another, considering: (a) the value of good without non-conformity; (b) the grade of
non-conformity; (c) the possibility that the alternative remedy could be completed without
significant inconvenience to the consumer. Any repair or replacement shall be completed within
a reasonable time from the request and without any significant inconvenience to the consumer,
considering the nature of the good and the purpose for which the consumer purchased the good.
The consumer may, at his choice, obtain an appropriate reduction of the price or the termination of
the contract in case of one of the following situations: (a) if the repair or the replacement are
impossible or prohibitively expensive; (b) the seller failed to repair or replace the good within the
appropriate period referred to in paragraph 5; (c) the replacement or repair previously carried out
caused significant inconvenience to the consumer.

58

G. Posio

conclusion could be reached using the general principles of the Italian Civil Code,
as mentioned above.
It is also clear that the car dealer sued for a contractual action by a consumer, a
microenterprise, or an enterprise will be asked by the judge to be held inoffensive
by Volkswagen Group Italia S.p.A., suing in the trial the Italian company of VW
Group pursuant to Art. 106 of the Italian Civil Procedure Code.38 In turn,
Volkswagen Group Italia S.p.A. will have the burden to summon in the same trial
Volkswagen AG as maker of the vehicles and first responsible for the cars’
equipment with the defeat devices. At the end of the summons, it is probably that
in the same trial started by the consumer’s action there will be four parties: the
consumer, the car dealer, Volkswagen Group Italia S.p.A., and Volkswagen AG.
It should be underlined that Volkswagen Group Italia S.p.A. may not avoid to
summon Volkswagen AG in the trial, leaving in that way the economic consequences of the scandal in the assets of the Italian branch of the group because
otherwise the board of directors and the board of auditors of the Italian branch of
VW could be held to pay personally for damages suffered by creditors of the Italian
company of the group in case of its insolvency.
At last, generally all drivers (consumers, microenterprises, and normal enterprises) will be able to sue directly Volkswagen Group Italia S.p.A. and Volkswagen
AG for noncontractual liability arising from their conduct on Dieselgate’s case, as
established by Art. 2043 of the Italian Civil Code.39
It must be considered that under the Italian law, in case of a trial based on
contractual liability, the plaintiff has only to prove the existence of the contract of
purchase and the breach of the contract made by the seller; otherwise, in case of a
dispute based on tort, the plaintiff has to prove the illegal conduct of the defendant,
his guilt, and the suffered damages. So normally, a dispute based on tort is harder
than a trial for contractual liability.
However, the decision of AGCM on Dieselgate’s case will be very useful for the
victorious outcome of follow-on disputes based both on contractual liability and
noncontractual liability (id est on tort of Volkswagen Group Italia S.p.A. and
Volkswagen AG).

38
Art. 106 of the Italian Civil Procedure Code—Participation (in the trial) by request of one party
(of the trial)—Each party may summon (in the same trial) a third party if the main party believe the
dispute common with the third party or if the party wants to be guaranteed by the third party
(translation by the author with his explications in brackets).
39
Art. 2043 of the Italian Civil Code—Compensation in case of tort—Any fault or negligence
which causes unfair damages to others, obliges the one who committed the tort to pay compensation (translation by the author).

Italy

59

5 Follow-on Disputes After Decisions of the Independent
Competition Authority in Italy
Also in Italy as in other European and American countries, in the competition law
grew an interesting private enforcement to restore damages caused to users by
behaviors committed by professionals and regarded as anticompetitive by national
antitrust authorities, mainly through individual actions but recently, after the
introduction of Art. 140bis of the Consumer Code, even through class actions.
This was made easier by the introduction of a specific rule40 deriving from the
European Community legal system that expressly allows the user to start a legal
action against the professionist to obtain compensation for damage suffered in the
antitrust field. This is the so-called private enforcement of antitrust law. As well as
of the user’s protection when he is a victim of unfair or deceptive commercial
practices, although there is not a specific similar rule, nobody doubts that it is
likewise possible to start a legal action against the trader to obtain compensation for
the damage suffered and deriving from the conduct of the professional.41 After all,
pursuant to the general principles of any legal system, all financial damages
resulting from the breach of a mandatory law must be compensated. In the matter
of unfair or deceptive commercial or trade practices, the Italian judicial cases are
not so many, probably because normally damages of similar practices affect many
people but for very low individual amounts; consequently, users are usually discouraged to start a judicial trial for damages resulting from unfair commercial
practices, but certainly the recent introduction of class actions in the Italian legal
system will make more effective the relative private enforcement.
Anyway, private actions that have historically been most successful in the
antitrust field are always the ones subsequent to an order of conviction of a
professional released by AGCM, that is, the so-called follow-on actions. They are
traditionally distinguished from stand-alone actions, which are commenced by
users against the professionals before the ordinary courts without the coverage of
a preventive decision versus professionals by a State Authority.
Stand-alone actions are normally very difficult to win because of the natural
asymmetry of information between user and professionals and difficulties for the
user to prove his right in an ordinary trial. And in fact, a first case of stand-alone
class action that started in Italy on the VW Dieselgate case was rejected by the
Court of Venice.42

40

Art. 33 of Law 10 October 1990 No. 287.
https://www.personaedanno.it/mercati-concorrenza/pratiche-commerciali-scorrette-e-followon-action-mariella-spata-allen-overy.
42
Tribunale di Venezia, sec. III, 12 January 2016, in http://www.foroitaliano.it/wp-content/
uploads/2016/01/trib-venezia-12-1-16.pdf. That decision was afterward reformed by the Court of
Appeal of Venice, Sez. IV, with the ordinance No. 298/2016 RG and No. 1915/2016 Cron, in
https://www.altroconsumo.it/organizzazione/~/media/lobbyandpressaltroconsumo/images/mediae-press/comunicati/2016/consumi%20bugiardi%20ammessa%20class%20action%20contro%
41

60

G. Posio

About follow-on actions in Italy, it has been a great debate concerning the
relevance of AGCM’s decisions in ordinary trials for damages from antitrust
torts.43 The same considerations, as specified above, are valid for AGCM’s decisions taken for unfair or deceptive commercial or trade practices. There are many
opinions about that:
(a) At the very beginning of the private enforcement of antitrust law in Italy, for
some authors44 the Civil Courts in any case have to make a full assessment of
the occurrences giving rise to the damage, and in that assessment the decision of
AGCM on anticompetitive conducts could only have value of clue, not enough
by itself to found the judgment on the existence or the unlawfulness of the fact.
(b) Afterward, some doctrine45 said that it is up to the discretion of the Civil Courts
to attribute decisive weight or less for ascertainments and assessments
contained in the provisions of the Authority.
(c) Starting from year 2010, also because of some innovative sentences, it is now
sure that the AGCM’s decisions are a “privileged proof” in the ordinary trials
between consumers and professionals.46
(d) At last, for someone, the decisions of the Authority establish a legal presumption47 for the existence (or nonexistence) of the fact and to qualify it as lawful or
unlawful; however, the Civil Courts may exercise their power disapplying the
administrative act and, by decision properly motivated, dissenting from the
rulings expressed by the Competition Authority.
Accordingly, today in Italy by virtue of the case law, if the follow-on action is
initiated when the Competition Authority’s procedure is closed with the condemnation of the professional and the settlement became definitive, the qualification of
the facts made by the administrative authority is acquired and used in the civil
proceedings as the starting point of the judgment, except in the case of
disapplication adequately motivated by the judge48. However, disapplication is
not possible for an ordinary judge in a trial of private enforcement if the Administrative Regional Court of Lazio as judge of first instance and the State’s Council as
final Court of Appeal have confirmed the decision of AGCM. For the defendant
there is only the possibility to offer a (very hard) contrary proof about the facts
ascertained in the AGCM’s decision.
20volkswagen/ordinanza/ordinanza%20corte%20appello%20venezia%20class%20action%20vw
%20ammessa%2017_06_2016.pdf.
43
See Libertini (2011).
44
See Negri (2006).
45
See Scuffi (2009).
46
See Court of Cassation, Sec. I, No. 3640/2009 in Il civilista, 2011, 5, p. 65; Court of Cassation,
Section III, No. 5941/2011, in Diritto e fiscalit
a delle assicurazioni, 2012, 1, I, p. 190; Court of
Cassation, Sec. III, No. 5942/2011, in Foro italiano, 2011, 6, I, p. 1724; Court of Cassation, sec. III,
No. 7039/2012, in Diritto e fiscalit
a delle assicurazioni, 2012, 3, p. 603.
47
See Court of Cassation, sec. VI., No. 5327/2013 in Diritto & Giustizia.
48
See Lecca (2012) and De Cistofaro (2015)

Italy

61

So today, the writ of summons as follow-on action against VW after the decision
of AGCM is certainly easier for the consumer-plaintiff because he will start the
proceeding having already obtained the proof of the illegal conduct of Volkswagen
AG and Volkswagen Group Italia S.p.A.49
Ergo, in VW Dieselgate’s case, plaintiffs will have only to offer the proof of the
damage50 in contractual actions against car dealers and also of the causal link
between the damage and VW’s unfair commercial conduct in noncontractual
actions for tort of Volkswagen AG and Volkswagen Group Italia S.p.A. In fact,
the ascertainment of AGCM for unfair commercial practices in VW Dieselgate’s
case alone is not able to prove damage for the single consumer of VW’s vehicles.
For the Italian Supreme Court, the causal link could be proved by the plaintiff
attaching to the writ of summons the AGCM’s decision and the contract
(of purchase in VW Dieselgate’s case) and through high logical-probability criteria
or by probabilistic assumptions that are based on a result of the constant relationship between antecedent and consequences.51
From the other party, VW may be able to reject the judicial request and the
presumption of damage to the consumer by only proving that the causal link
between the damage and unfair commercial practices is broken by one or more
different facts that alone are able to produce the damage or proving that those facts,
jointly with the unfair conduct, are equivalents in producing the damage.52
The legal ways to introduce the AGCM’s decision in an ordinary trial for the
Italian Civil Procedure Code are as follows:
(a) the plaintiff could use the general principle of the fatto notorio (very known fact
or common experience)53; or

49
After all, in European antitrust matter, from which derives all the national matters we are
discussing, Art. 16 of Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty said: “1. When
national courts rule on agreements, decisions or practices under Article 81 or Article 82 of the
Treaty which are already the subject of a Commission decision, they cannot take decisions running
counter to the decision adopted by the Commission. They must also avoid giving decisions which
would conflict with a decision contemplated by the Commission in proceedings it has initiated. To
that effect, the national court may assess whether it is necessary to stay its proceedings. This
obligation is without prejudice to the rights and obligations under Article 234 of the Treaty.
2. When competition authorities of the Member States rule on agreements, decisions or practices
under Article 81 or Article 82 of the Treaty which are already the subject of a Commission
decision, they cannot take decisions which would run counter to the decision adopted by the
Commission.”
50
In fact, according to Italian jurisprudence, the plaintiff always needs to show the damage
suffered because under the Italian law there does not exist a concept of damage in re ipsa or
punitive damages.
51
See Court of Cassation, sec. III, No. 27527/2013.
52
See Court of Cassation, sec. III, No. 2305/2007.
53
Art. 115 of the Italian Civil Procedure Code—Disposability of proofs—Except in the cases
provided by the law, the judge must base his decision on the proofs proposed by the parties or by
the prosecutor or on the facts that are not specifically rejected by the defendant. However, the

62

G. Posio

(b) the plaintiff may attach to the writ of summons a certified copy of AGCM’s
decision, released by the Authority on a specific written request of the
consumer54;
(c) if the Authority refuses to release the certified copy of its decision even by
virtue of the consumer’s written request, it could be asked from the judge to
order the Authority to release the certified copy and to send it to the Court55;
(d) finally, the plaintiff may ask the judge to order VW as defendant to produce the
copy of the AGCM’s decision.56
In the specific case of the Dieselgate scandal, I do not think that this will be a
problem because the Authority published the relevant text of the decision taken
against Volkswagen AG and Volkswagen Group Italia S.p.A. on its official website.
So it will be certain that the decision may be considered known by everyone and in
common experience. So I think it will be sufficient to attach to the writ of summons
a simple copy of the decision, downloaded from AGCM’s website.
About the quantification of damages for the consumer, in similar cases the Italian
courts sometimes used the economic method of “before and after,” that is, an
estimation of damage viewing the same situation for the consumer and the market
before and after the VW Dieselgate case was known in September of 2015; in other
cases, the judges used the “yardstick” method, that is, the comparison of the
market’s situation between an owner of a VW vehicle involved in the Dieselgate
case and an owner of a similar vehicle of a different brand. Anyway, often the
Courts use technical consultants for those estimations, but sometimes they may also
use equity to determine the amount of damage.
In Italy, the judge to claim on VW Dieselgate’s case for damages resulting from
its unfair commercial practice will be the ordinary local Tribunals for damages
amounting to more than euro 5,000,00 and the Judges of Peace for lower claims.57
This aspect is very important and different from private enforcement of antitrust
law because only this special matter58 is to be claimed before the Tribunals of
Enterprises.

judge may take his decision without proofs using factual notions known in the common experience
(translation by the author).
54
As permitted in Italy by the general law on administrative rule. See Law 7 August 1990 No. 241.
55
See Art. 213 of the Italian Civil Procedure Code.
56
See Art. 210 of the Italian Civil Procedure Code.
57
See Art. 7 of the Italian Civil Procedure Code.
58
Disputes concerning Art. 33, second period, of Law 10 October 1990 No. 287, as mentioned in
Art. 3 of Legislative Decree No. 168 of 27 June 2003.

Italy

63

6 Around-the-World Similar Proceedings for Unfair
Commercial Practices or Deceptive Trade Practices
on VW Dieselgate’s Case
Around the world, there are many proceeding similar to the Italian one, but
strangely more in the single States of the US than in the single Member States of
the EU. In fact, the national competition authorities in Europe (except for the Italian
one) at the moment are very cautious to prosecute VW for unfair commercial
practices.
On the other hand, many federated States of the US and also the federal
authorities are going after VW for violations of the national legislation on “deceptive trade practices” (this is the corresponding term in the US of unfair commercial
practices).
Many press or media news confirm it.
In Hawaii, Attorney General Doug Chin and Office of Consumer Protection
(OCP) Executive Director Stephen Levins announced that, as part of the settlement,
Volkswagen must pay overall in the US more than $570 million for violating State
laws prohibiting unfair or deceptive trade practices by marketing, selling, and
leasing diesel vehicles equipped with illegal and undisclosed defeat device software. The agreement is part of a series of State and federal settlements that will
provide cash payments to affected consumers, require Volkswagen to buy back or
modify certain Volkswagen and Audi 2.0-l diesel vehicles, and prohibit
Volkswagen from engaging in future unfair or deceptive acts and practices in
connection with its dealings with consumers and regulators. Volkswagen is
required to implement a restitution and recall program for more than 475,000
owners and lessees of 2.0-l diesel vehicles, of the model year 2009 through 2015
listed in the chart below at a maximum cost of just over $10 billion. This includes
up to 911 vehicles in Hawaii. Eight hundred twenty affected vehicles in Hawaii are
2.0 l engine models. The remaining vehicles are 3.0 l engine models. This settlement specifically pertains to the 820 2.0 l engines in Hawaii. Lawyers continue to
negotiate on what relief will be available later to owners of the 3.0 l engines. Once
the consumer program is approved by the court, affected Volkswagen owners will
receive restitution payment of at least $5,100 and a choice between the following: a
buyback of the vehicle (based on prescandal National Automobile Dealers Association (NADA) value) or a modification to reduce NOx emissions provided that
Volkswagen can develop a modification acceptable to regulators. Owners will still
be eligible to choose a buyback in the event regulators do not approve a fix. Owners
who choose the modification option would also receive an Extended Emission
Warranty and a Lemon Law-type remedy to protect against the possibility that
the modification causes subsequent problems.59

59
See
http://khon2.com/2016/06/28/hawaii-drivers-benefit-from-volkswagen-settlement-overemissions-fraud.

64

G. Posio

Oregon says it is in line to receive $85 million from Volkswagen as part of the
German automaker’s emissions fraud settlement. With more than 13,000 affected
residents, the State has the highest per capita ownership of the affected VW cars in
the nation. Washington State announced that it will receive $129 million from VW
as part of the car manufacturer’s settlement over deceptive marketing of its diesel
cars. More than 22,000 Washingtonians are affected by the settlement. VW owners
in both States will receive at least $5,100 and can decide whether to buy back the
vehicle at preemission scandal prices. Or they can decide to have their vehicles
fixed. Oregon and Washington are two of 37 States that settled with Volkswagen for
$570 million for violating laws prohibiting unfair or deceptive trade practices.60
Texas Attorney General Ken Paxton filed a lawsuit against Volkswagen Group
of America, Inc., and Audi of America, LLC, over violations of State consumer
protection laws, along with a separate suit charging that the companies violated
clean air standards in Texas. The lawsuits allege that the companies misled Texas
consumers by marketing and selling diesel vehicles as “clean” while knowing that
these vehicles were designed to meet emission standards only when being tested.
Volkswagen has agreed to pay Texas $50 million.61
Other proceedings are going on in Nebraska,62 New Mexico,63 Arkansas, where
VW accords to pay $3 million,64 and Connecticut, where the payment will be $16
million.65
The Tennessee Government, meanwhile, will receive $1,259 million as part of
the $570 million that is going to States nationwide. That is for repeated violation of
State consumer laws sold or leased in Tennessee by VW, which produces the Passat
in its Chattanooga’s factory. Owners will also receive payment amounting to
$5100–$10,000, depending on the age of their vehicles. Georgia Attorney General
Sam Olens, meanwhile, says 17,157 VW and Audi models with the emissionscheating device were sold in his State from 2009 to 2015. The Georgia Government
will receive $1,887 million in the settlement.66
So it appears very clear that for VW, the matter of unfair or deceptive commercial (or trade) practices, and the subsequent damages for consumers, will be a very

60

See http://www.opb.org/news/article/oregon-volkswagen-diesel-fraud-emissions-settlement.
See
https://www.texasattorneygeneral.gov/news/releases/texas-sues-volkswagen-and-audiover-deceptive-trade-practices-environmental and https://www.texastribune.org/2016/06/28/
volkswagen-awarding-texas-50-million.
62
See https://protectthegoodlife.nebraska.gov/news/volkswagen-emissions-fraud-settlement.
63
See
http://www.wsj.com/articles/new-mexico-ag-sues-volkswagen-over-emissions-scandal1453303230.
64
See http://www.swtimes.com/news/State-news/volkswagen-pay-arkansas-3-million-buy-backvehicles.
65
See http://www.courant.com/business/hc-volkswagen-connecticut-20160628-story.html.
66
http://www.timesfreepress.com/news/business/aroundregion/story/2016/jun/29/vw-pay-tennes
see-georgi31-millifines-deceptiv/373505/.
61

Italy

65

important aspect of the wider Dieselgate emission scandal and that probably, as in
the US, in the future many other European States, in addition to Italy, will go in the
same direction.

References and Websites
Bettelli E (2014) L’attuazione della direttiva sui consumatori tra rimodernizzazione di vecchie
categorie e «nuovi» diritti. In Europa e Diritto Privato 3:927
De Cristofaro M (2015) Onere probatorio e disciplina delle prove quale presidio di efficienza del
private antitrust enforcement. AIDA 1:100
Gagliardi AF (2009) Pratiche commerciali scorrette. Utet, Torino, p 2
Gazzoni F (2015) Manuale di diritto privato, XVII edizione. Edizioni Scientifiche Italiane, Napoli,
p 234
Labella E (2015) Tutela della microimpresa e “terzo contratto”. In Europa e Diritto Privato 4:857
Lecca S (2012) Tutela del consumatore, della concorrenza e del mercato: l’equilibrio contrattuale
e il riparto dell’onere probatorio. In Responsabilit
a Civile e Previdenza 3:859
Libertini M (2011) L’azione di classe e le pratiche commerciali scorrette. In Rivista di Diritto
Industriale 4–5:147
Mari G (2011) Gli effetti della pubblicit
a ingannevole sul contratto concluso dal consumatore.
Alcune riflessioni alla luce dell’attuazione della Direttiva 05/29 CE nel nostro ordinamento. In
Rivista di Diritto Civile 3:269
Negri M (2006) Giurisdizione e amministrazione nella tutela della concorrenza. Giappichelli,
Torino
Scuffi M (2009) Tutela antitrust del consumatore e azione di classe. In Diritto industriale, p 345
http://www.agcm.it/stampa/comunicati/7881-istruttoria-antitrust-sul-caso-volkswagen-perpratica-commerciale-scorretta.html
http://www.agcm.it/stampa/comunicati/8256-antitrust-e-consumatori-a-confronto-nell%E2%80%
99incontro-semestrale-sui-diritti-dei-cittadini.html
http://www.agcm.it/stampa/comunicati/8372-ps10211-antitrust-sanziona-il-gruppo-volkswagenper-5-milioni-di-euro-per-manipolazione-del-sistema-di-controllo-delle-emissioni-inquinanti.
html
https://www.altroconsumo.it/organizzazione/~/media/lobbyandpressaltroconsumo/images/mediae-press/comunicati/2016/consumi%20bugiardi%20ammessa%20class%20action%20contro%
20volkswagen/ordinanza/ordinanza%20corte%20appello%20venezia%20class%20action%
20vw%20ammessa%2017_06_2016.pdf
https://www.altroconsumo.it/organizzazione/media-e-press/comunicati/2016/intervento-antitrustsu-dieselgate
http://www.courant.com/business/hc-volkswagen-connecticut-20160628-story.html
http://khon2.com/2016/06/28/hawaii-drivers-benefit-from-volkswagen-settlement-over-emis
sions-fraud
http://www.opb.org/news/article/oregon-volkswagen-diesel-fraud-emissions-settlement
https://www.personaedanno.it/mercati-concorrenza/pratiche-commerciali-scorrette-e-follow-onaction-mariella-spata-allen-overy
https://protectthegoodlife.nebraska.gov/news/volkswagen-emissions-fraud-settlement
http://www.swtimes.com/news/State-news/volkswagen-pay-arkansas-3-million-buy-backvehicles
https://www.texasattorneygeneral.gov/news/releases/texas-sues-volkswagen-and-audi-overdeceptive-trade-practices-environmental
https://www.texastribune.org/2016/06/28/volkswagen-awarding-texas-50-million

66

G. Posio

http://www.timesfreepress.com/news/business/aroundregion/story/2016/jun/29/vw-pay-tennes
see-georgi31-millifines-deceptiv/373505/
http://www.unrae.it/sala-stampa/altri-comunicati/3318/160400-privati-possessori-di-partita-ivahanno-acquistato-unauto-nel-2014
http://www.wsj.com/articles/new-mexico-ag-sues-volkswagen-over-emissions-scandal1453303230

United Kingdom
Stephen Turner

1 Dieselgate in the UK: An Overview
One in every three cars on UK roads is fuelled by diesel (www.smmt.co.uk—Facts
and Figures), and according to VW, just under 1.2 million cars in the UK are
affected by Dieselgate (http://www.volkswagen.co.uk/owners/emissionsinfo). As
such, it is unsurprising that Dieselgate has been widely reported in the UK. Yet the
reaction in the UK has perhaps been modest compared to the US, where litigation
and a proposed class settlement are underway.

1.1

Legal and Parliamentary Activity

Compared to the US, very little has been reported in the UK in terms of litigation or
formal regulatory activity. The UK has seen claimant lawyers advertising for
potential claimants, and a Parliamentary Select Committee Report was published
on 12 July 2016.1 The Transport Committee heard evidence from witnesses,
including from the Managing Director of Volkswagen UK. The Transport Committee Report was highly critical of both VW and the UK’s Department for
Transport, concluding: “Approval authorities and regulators cannot depend on
VW to co-operate and in this report we have called upon the Department for
Transport to use its powers and resources to properly investigate VW which we
believe it has failed to do, so far” (Transport Committee Report, para. 82).

1

Referred to below as the Transport Committee Report.

S. Turner (*)
DAC Beachcroft LLP, London, UK
e-mail: sturner@dacbeachcroft.com
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_4

67

68

1.2

S. Turner

Type Approval

As well as exploring the Dieselgate affair, the Transport Committee also examined
whether the type approval process was fit for purpose since certain Skoda models
received their type approval in the UK. In the context of emissions, the key issue
raised as regards type approval, in addition to the use of defeat devices, was whether
the laboratory-based tests reflected the real-world driving experience. From a legal
perspective, looking at Dieselgate claims in the UK, this raises a number of further
issues. Manufacturers’ specific claims about their products may see consumers
relying on specific published performance data and raise issues about breach of
contract and possible misrepresentations. Is it at all relevant to consider consumer
expectations if published test data do not closely reflect real-world use of the
product—and would the reasonable consumer be taken to know that the published
emission figures were not representative of actual emissions when driving in the
real world? What heads of loss might consumers recover against this background,
and would a Court first have to reach a view on the causative effect of using or not
using a defeat device and whether it made a material difference to how the product
would perform in the real world?

1.3

A Transatlantic Divide?

On the contrast between how VW might deal with US consumers compared to those
in the UK, the Transport Committee also had strong views: “Volkswagen’s treatment of customers in Europe compared to its treatment of customers in the US is
deeply unfair. Volkswagen said it was justified in providing goodwill payments to
US customers, but not European customers, on the grounds that US customers
would face delays to fixing their vehicles. The delay to fixing vehicles in Europe is
now creating a great deal of uncertainty over whether cars will be fixed, their
residual values and their compliance with regulations. We do not accept
Volkswagen’s justification of its policy on payments and see nothing to justify
their refusal to offer comparable payments to customers in Europe. Volkswagen
must provide goodwill payments to European vehicle owners equal to offers that
have been made to US vehicle owners. The Sale of Goods Act 1979 might also offer
owners some recourse for compensation” (Transport Committee Report, para. 36).
There has also been much discussion of whether the Dieselgate affair in the US
and the UK involves the same factual and legal scenario, namely the use of a
“defeat device”. In its 21 December 2015 written response to the Transport Committee’s questions, VW accepted that software was fitted that enabled the vehicle to
recognise that it was undergoing testing and that changed the NOx emission
characteristics in that testing. However, it is not accepted by VW that the software
constituted a defeat device as defined by Regulation (EC) No. 715/20072 as follows:
2

O.J. L 171/1 (2007).

United Kingdom

69

Volkswagen accepts that a defeat device was used in the USA in certain models, in the
context of the very different regulatory framework and factual circumstances there. However, we do not think that it is possible to make the same definitive legal determination in
relation to the software that was fitted to those differently configured vehicles in the UK and
the EU. Given that there is the potential for this to be an issue that is examined in litigation,
both in the English courts and elsewhere, and further given that Volkswagen is not taking
this point to delay or withhold implementing any of the technical measures as soon as
possible, regrettably we are unable to provide any further (potentially legally privileged)
details in relation to our legal views on this issue (Letter from Volkswagen Group UK Ltd
to Louise Ellman MP dated 21st December 2015).

Although it is sometimes said that where the US goes, the UK follows, the liability and enforcement regimes are quite different and, in summary, enforcement
and claims activity in the UK has been far more limited.
This chapter now examines the potential criminal and private law consequences
in the United Kingdom of the Dieselgate affair.

2 Criminal Exposure
By way of context, the Transport Committee raised whether sufficient consideration
had been given by the UK authorities to possible criminal charges being laid against
VW in the UK. This is a matter for the independent prosecuting authorities and
remains under consideration, such that it is inappropriate to comment specifically
on the case of VW. However, a manufacturer whose claims about their product are
subsequently called into question could be exposed to a number of potential criminal charges, which are discussed below.

2.1

Potential Criminal Offences

In summary, English law has a number of potentially relevant offences.

2.1.1

Offences Under the Fraud Act 2006

The Fraud Act 2006 (“Fraud Act”) creates a general offence of “Fraud” under
Section 1 and then sets out three ways of committing the offence of fraud: fraud by
false representation under Section 2, fraud by failing to disclose information under
Section 3 and fraud by abuse of position under Section 4. We focus on the Section 2
offence of fraud by false representation, which provides as follows:
(1) A person is in breach of this section if he–
(a) dishonestly makes a false representation, and
(b) intends, by making the representation–
(i) to make a gain for himself or another, or

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(ii) to cause loss to another or to expose another to a risk of loss.
(2) A representation is false if–
(a) it is untrue or misleading, and
(b) the person making it knows that it is, or might be, untrue or misleading.

Under Section 2, an offence is committed if a person dishonestly makes a false
representation and intends, by making that representation, to make a gain for
himself or another or cause or expose another to a risk of loss (Section 2(1)). The
offence is committed when the representation is made, and so it is irrelevant
whether any gain or loss actually occurs as a result of the representation.
Whether the representation is “false” will be dependent on the knowledge of the
person making the representation, i.e. they must know that it is, or might be, untrue
or misleading; “knowledge” means actual knowledge. When considering the position of multinational manufacturers, consideration will need to be given to which
entity is alleged to have had the requisite knowledge and when.
All of these offences under the Fraud Act require a finding that the accused acted
dishonestly, which will be determined by applying a dual objective and subjective
test. This test assesses, firstly, whether the act was dishonest in accordance with the
ordinary standard of a reasonable and honest person and, secondly, whether the
person carrying out the act realised that his actions were, by the standard of a
reasonable and honest person, dishonest.3
A person may be charged with attempted fraud if they dishonestly make a representation that, contrary to their belief, is true. To take a simple example: a manufacturer markets its product on the basis that it meets all relevant legal standards.
Unbeknown to consumers, the manufacturer has taken steps to include software that
helps the product to pass certain required tests. Even if the product would have
passed the tests anyway, or perhaps even if the subterfuge does not work and the
product still fails, does subterfuge by the manufacturer mean that the offence of
attempted fraud could be committed? Potentially yes.
There is no stated requirement of “materiality”, and so the fact that for some
consumers the representations in question were of little, if any, influence on their
decision to purchase the product is immaterial, again provided dishonesty is
made out.
Section 12 of the Fraud Act deals specifically with offending by companies,
as follows:
(2) If the offence is proved to have been committed with the consent or connivance of–
(a) a director, manager, secretary or other similar officer of the body corporate, or
(b) a person who was purporting to act in any such capacity,
he (as well as the body corporate) is guilty of the offence and liable to be proceeded
against and punished accordingly

This means that managers who “consent or connive” in offences committed by
the company can also be exposed to prosecution. But how actively involved need a
manager be, and is mere failure to report wrongdoing or implied/tacit consent

3

R v Ghosh [1982] EWCA Crim 2.

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enough? Not necessarily. The manager must also act dishonestly, and their consent
must be informed. This issue was expressly addressed in Parliamentary debates
about the Fraud Act. The English courts can have regard to Parliament’s intention
when construing statutes. The Minister addressed the House of Commons, the UK’s
lower legislative Chamber, as follows:
Some provisions of this type include neglect, but that is not included here. This is not about
somebody who is a bit negligent and does not know; he has to have the ability to take a view
on a matter, and then to have taken that view by having given his consent in a practical way.
We consider that that informed consent is sufficient to amount to a knowledge of dishonesty. Whether a person is, himself, dishonest might well be a different matter; it is a fine
line. The question is whether they are they well enough informed about the implications to
have taken a step that amounts to consent (Hansard [ref] col 62).

In practice, a key evidential challenge may be establishing the necessary link
between the employee who made the representations (both through marketing literature and through retailers to customers) and those who knew the representations to
be false. This could extend to whether a UK subsidiary had any relevant knowledge
of the wrongdoing committed by other parts of the group in other jurisdictions.
Each of the offences making up the overarching offence under Section 1, including the Section 2 offence of fraud by false representation, carries a maximum sentence of 10 years’ imprisonment, an unlimited fine or both.

2.1.2

Conspiracy to Defraud

This offence is a “common law” offence and not derived from statute. As such, an
accused can be charged both with a Fraud Act offence and with conspiracy to
defraud. The offence involves an agreement by two or more people “. . .to deprive a
person dishonestly of something which is his or to which he is or would be or might
be entitled. . .”.4 In scenarios such as the Dieselgate affair, where consumers have
paid for a product with certain stated performance characteristics that are alleged to
be false, conceivably the consumers have been deprived of the characteristics that
they thought they were to receive. This might seem difficult to articulate to a jury
unless it is clear that the consumers have suffered economically.
However, the breadth of the offence of conspiracy to defraud is such that the
offence can also be committed by deceiving a person performing public duties, such
as the Vehicle Certification Agency, the UK body responsible for type approval, to
act contrary to their public duty through dishonesty. The purpose need not involve
causing economic loss to anyone (as found by the House of Lords in R v Scott
[1975] AC 819 at 841). The maximum penalty for the offence is 10 years’ imprisonment or an unlimited fine or both.

4

Scott v Metropolitan Police Commissioner [1974] UKHL 4.

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2.1.3

Unfair Trading

The Consumer Protection from Unfair Trading Regulations 2008 prohibits unfair
commercial practices and misleading actions and omissions. The focus of this
aspect of English law is on whether a company has used false or deceptive marketing. Investigation and enforcement, as discussed below, are undertaken by the
Competition and Markets Authority.

2.1.4

Possible Reforms

As recently as May 2016, the UK Government announced a consultation on
extending the criminal law to create a new offence of “failing to prevent” economic
crimes. There are already offences of failing to prevent bribery and tax evasion, and
the consultation will look at whether to extend this to other areas, including corporate fraud. This may mirror the approach taken in the Bribery Act: Section 7
provides that a company commits an offence where an “associated person” commits bribery unless the company can prove that it had “adequate procedures” in
place to prevent such conduct. This would potentially be a significant extension to
corporate responsibilities, assuming that this provision is enacted, but will be too
late to affect those implicated in the Dieselgate affair.

2.1.5

Road Vehicles (Approval) Regulations 2009

Finally, manufacturers in the automotive sector may be exposed to prosecution
under the Road Vehicles (Approval) Regulations 2009. Regulation 33(4) provides:
A person commits an offence if, in supplying information or producing a document for the
purpose of these Regulations, that person—
(a)makes a statement which that person knows to be false in a material particular or
recklessly makes a statement which is false in a material particular, or
(b)produces, provides, sends or otherwise makes use of a document which that person
knows to be false in a material particular or recklessly produces, provides or sends or
otherwise makes use of a document which is false in a material particular.

The UK’s Vehicle Certification Agency (VCA) is responsible for granting type
approvals of vehicles in the UK. In this case, certain Skoda vehicles received their
EU type approval in the UK. The Transport Committee Report was critical of the
VCA, saying: “24. The VCA confirmed through its own testing that the Škoda
vehicles that it type approved contained defeat device software. We welcome the
work the VCA has done to establish that fact but regret that not more work was done
to analyse the extent that the software contributed to meeting emissions limits and
obtaining type approval. . . While there might be technical difficulties for quantifying the contribution the defeat device software made to meeting emissions limits,
it is concerning that the VCA has not made any efforts to do so.”

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Enforcement: Structure and Present Position

In England and Wales, the decision to prosecute under the Fraud Act is likely to be
made following any investigation by the Serious Fraud Office (SFO). The SFO is an
independent criminal law enforcement agency established under the Criminal Justice Act 1987 to investigate on behalf of the state the most serious and complex
fraud, bribery and corruption cases.
The SFO wrote to the Transport Committee on 25 February 2016 explaining that
it was “currently working with other UK and European bodies to assess this particular matter”. As at 1 August 2016, there are no further details available on any
investigation by the SFO.
The Competition and Markets Authority wrote to the Transport Committee on
1 March 2016 to say: “We have not opened a formal investigation but we are
continuing to assess, with other relevant bodies, the allegations and VW’s response,
including the proposed recall of affected vehicles. We are considering what action it
would be appropriate to take in the UK and who is best placed to take it.”
Any prosecution under the Road Vehicles (Approval) Regulations 2009 would
be brought by the Secretary of State for Transport. The Minister for Transport
appeared before the Transport Committee and in follow-up correspondence
informed the Transport Committee:
In the present case the UK (through the Vehicle Certification Agency (VCA)) has granted
type approval to Skoda vehicles. In order to take action pursuant to Reg 33(4) of the Road
Vehicles (Approval) Regulations 2009, the Secretary of State must establish that Skoda
officials had knowledge of the use of a prohibited defeat device in VW diesel engines and
made false statements in that regard when they presented the vehicles to VCA for type
approval.
Prosecuting authorities from 16 Member States (plus Norway, Switzerland and OLAF
(European Anti-Fraud Office)) are liaising and coordinating their investigations through
Eurojust. DfT officials have been part of those coordinating efforts and continue to monitor
the progress of those investigations and, where necessary, press for information.
Criminal Counsel was instructed in January 2016 and gave preliminary advice in
February 2016. Counsel is currently reviewing that advice in light of more recent events,
including the publication of DfT’s Emissions Testing Report, and it is envisaged that he
will provide updated advice by the end of May 2016. That advice will include an assessment of (ii) the evidence currently held, (ii) further evidence required and how it can best be
obtained, (iii) prospects of a successful prosecution and (iv) the procedural steps required. It
would be premature, and potentially damaging to any prospective prosecution, to discuss
prosecution any further at this point (Annex to letter from Robert Goodwill MP, Minister of
State for Transport to the Transport Committee, dated 23rd May 2016).

The Transport Committee’s Report is critical of the UK authorities, concluding
at paragraph 30 that “We are concerned by the Department for Transport’s ambivalence towards assessing the legality of Volkswagen’s use of defeat device software despite its condemnation of Volkswagen’s actions to us and in the media. The
Department for Transport was too slow to assess the use of its powers under the
Road Vehicles (Approval) Regulations 2009 to prosecute Volkswagen for its
deception. It took five months before the DfT took even preliminary legal advice

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on a prosecution. It is deeply concerning that the Department is relying on the
European Commission to act even though the Commission does not hold the necessary evidence or have powers to prosecute. We are also concerned that regulators
have shown little interest in establishing whether Volkswagen Group has broken
any laws. The Vehicle Certification Agency has evidence that defeat devices were
installed in vehicles that it type approved but it has not attempted to conduct any
tests to prove that type approval was contingent on the use of the defeat device
software. The VCA must measure the exact contribution that the software made to
meeting Euro 5 emissions standards. That would facilitate investigations and court
actions in the UK and across Europe.”
A final word on how the UK’s criminal justice system might deal with scenarios
such as the Dieselgate affair where a manufacturer is involved in a high-profile
issue with its products and prosecution is being urged. A fairly recent feature of the
UK criminal justice system is the Deferred Prosecution Agreement (DPA), introduced on 24 February 2014, under the provisions of Schedule 17 of the Crime and
Courts Act 2013. This is an agreement reached between a prosecutor and a company
liable to be prosecuted, under the supervision of a judge. The agreement allows a
prosecution to be suspended for a defined period subject to the company-meetingspecified conditions.
DPAs enable a company to make reparation for criminal behaviour without the
collateral damage of a conviction (for example, reputational damage and risks to
employees and suppliers). DPAs are concluded under the supervision of a judge,
who must be convinced that the DPA is ‘in the interests of justice’ and that the terms
are ‘fair, reasonable and proportionate’. They avoid the cost of what may often be
complex trials yet offer transparency and a public recognition of the company’s
conduct.

3 Tax
There has been much media comment about whether consumers might face unexpected tax bills or whether the public finances may have suffered as a result of the
Dieselgate affair.
In the UK, tax relating to the use of motor vehicles is determined by reference to
CO2 emissions, but not by reference to NOx or any other emissions. So if the VW
affair does not implicate how VW dealt with CO2 emissions, it seems unlikely that
tax will feature in VW’s potential exposure. In a letter to the Transport Committee
dated 21 December 2015, VW stated that the
. . .issue of tax reimbursement has largely fallen away as a result of our finding that no
unlawful change to the stated fuel consumption and CO2 figures has been found to date.
Our position is that there is therefore no need to retrospectively amend the figures, which is
what would give rise to a tax liability. The CO2 measurements for homologation were
accurate and in line with the relevant regulations.

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On 2 October 2015, the UK Government confirmed that consumers who
unknowingly bought an affected car will not have to pay any additional VED if
their existing vehicles are found to be fitted with software that manipulated emission tests (DfT press release published 2 October 2015).

4 Private Law Exposure: Civil Liability
We have seen above that the focus of any potential criminal charges would be
around consumers being deceived and feeling cheated. The focus now moves to
how the Dieselgate affair might provide consumers with private law rights to establish VW’s civil liability and how consumers might claim redress through the
civil courts. A number of key issues arise when a manufacturer’s product is called
into question in this way:
• What are the consequences of having made specific claims for a product that are
then alleged to be false, particularly where it remains unclear whether the function of the product is unaffected and whether the product can still perform its
purpose?
• Specifically, what of the situation where published figures about emissions do
not match real-world emission levels achieved during “normal” driving—could
the manufacturer defend claims on the basis that there is a “technical” breach of
duty but no, or only nominal, loss?
• Where a product is marketed and purchased because it has certain characteristics
(for example, a “greener” vehicle), does the disappointment and upset experienced by a consumer resonate at all in terms of legal liability and compensation?

4.1

Current Claims Activity

In England and Wales, a number of law firms have advertised for customers to
come forward to consider joining VW emission claimants in a group action, which
is addressed further below. However, there has as yet been no litigation commenced
in the United Kingdom.
In Scotland, recent media reporting (The Herald, 22 July 2016 “Lawyers for
Scottish VW owners set to bring first compensation claims to court ‘by end of
year’”) suggests that lawyers are preparing to issue proceedings if VW does not
offer compensation in addition to undertaking a “fix” of affected vehicles.

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Consumer Claims: Contract

The starting point under English law is that consumers entered into contracts with
dealerships to purchase VW cars.

4.2.1

Pre-contractual Discussions: Misrepresentation

Before looking at the terms of the contracts and how these might be enforced by
consumers, it is logical to consider the parties’ pre-contractual behaviour. One can
imagine consumers describing how, before purchasing a car, they were shown various brochures with performance and emission data. Some consumers may also
allege that dealers emphasised the environmentally friendly qualities of the cars,
that they passed all relevant emissions tests and so forth. Under certain circumstances, the English law relating to misrepresentation can provide a remedy.
The starting point is that the Court will distinguish between an actionable misrepresentation—a statement of past or present fact—and somewhat archaically
termed “mere puffs”, statements of the salesperson’s opinion. An example might
be a general statement such as “This car is very green” compared to a specific
statement that its emissions are within the latest EU standards.
If a consumer is able to prove that, contrary to what they were told by a dealer,
the car did not meet the relevant emissions standards, what are their remedies?
In summary, the consumer may be able to rescind (cancel) the contract or seek
damages in lieu of rescission. The English law on misrepresentation is a complex
amalgam of common law, equity and statute, which is outside the scope of this
chapter, but the overlapping nature of its remedies was recently clarified by the
Court of Appeal in Salt v Stratstone Specialist Limited [2015] EWCA Civ 745. The
case arose after the claimant purchased a Cadillac following a representation by the
dealer that it was “brand new”. Although the car had no previous owners and was
unregistered, it was over two years old and had several defects, including accident
damage. This decision emphasised that the usual remedy for misrepresentation is
rescission, particularly where the seller does not assert that they had any reasonable
grounds to believe that the representation was true. The burden is then on the seller
to show any reason why rescission should not be granted.
The right to rescind can be lost through affirmation, lapse of time or because the
goods have changed to such a degree that restitution of the goods is impossible. If
restitution of the goods is not possible, then the Court will consider an award of
damages. The Court of Appeal stressed that the Court will look to achieve “practical justice” but that if the seller wishes to argue that allowance should be made for
the use of the car prior to rescission, the onus is on them to prove that element.
Whilst Dieselgate claimants may see the Salt v Stratstone decision as strengthening any claim for the return of the vehicle and obtaining a refund of the purchase
price, this was a complex decision procedurally and involved a binary misrepresentation where there was no doubt that the misrepresentation was highly material

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to the decision to purchase, namely an express assurance that the car was “brand
new”. Addressing issues of misrepresentation in any Dieselgate claims is likely to
see much debate about how material representations about emissions were, particularly when seen through the lens of what seems to be an acknowledged disparity
between published emission test results and actual emissions produced during realworld driving.

4.2.2

Claims for Breach of Contract

The principal source of rights of action in contract is the Sale of Goods Act 1979
(as amended). As a footnote, the recent flagship consumer law reforms under the
Consumer Rights Act 2015 only apply to contracts concluded from 1 October 2015
and so will not apply to claims by VW consumers who purchased cars affected by
the Dieselgate affair.

4.2.3

Claims Under the Sale of Goods Act

Civil claims by consumers are likely to be made for breach of contract, relying upon
the rights derived from the Sale of Goods Act 1979 (as amended) (SOGA) and will
be directed against the dealers who sold the cars in question. Dealers will then seek
an indemnity or contribution under their supply agreements with VW.
Under SOGA, goods must comply with their description and be of satisfactory
quality.

4.2.4

Compliance with Description

“Description” can include express claims made about emissions, for example, that
in tests a car is capable of meeting a specified standard. Delivering a product with
stated performance figures that are false would in principle give consumers an
action for breach of the implied term that goods should correspond with description,
pursuant to Section 13(1) of SOGA.
“Satisfactory quality” means that goods must be of a standard that a reasonable
person would regard as satisfactory. Quality covers a number of matters, including
the following:
–
–
–
–

appearance and finish,
freedom from minor defects,
safety,
durability.

In assessing quality, all relevant circumstances must be considered, including
price and description. In consumer contracts, the manufacturer’s advertising can
also be taken into account.

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If such claims are litigated, much debate is possible about whether Dieselgate
cars are of satisfactory quality. If data used in manufacturers’ literature is found to
be incorrect, this could provide a Court with a route to find that the goods were not
of satisfactory quality. However, if the real-world performance is the same and
there are unlikely to be issues on resale, then the product could still be of satisfactory quality.
There is relatively little case law addressing this issue. But by analogy, the decision of the Court of Appeal in Jewson v Boylan/Kelly5 offers some guidance. The
case concerned the sale of central heating boilers to a developer of flats. The boilers
worked as intended but had the effect of depressing the energy efficiency ratings of
the flats, in effect making them unsaleable without modifying the heating system at
extra cost. The Court of Appeal made clear that the issue of satisfactory quality was
all about the intrinsic performance of the product, not whether it worked for some
more specific purpose. In other words, because the boilers worked as boilers,
heating up water safely to provide heat and hot water, they were of satisfactory
quality. Although some caution is required because Jewson involved issues that do
not arise here, and the case concerned a commercial not a consumer purchaser, one
can see that a Court could take a similar approach and conclude that if the performance and safety of Dieselgate cars is as intended, then they are of satisfactory
quality.

4.2.5

Direct Claims Against VW?

Could UK consumers seek redress directly from VW? Purchasers will have the
benefit of a warranty from VW, typically covering defects in materials and workmanship for a certain period of time or mileage after purchase. It is by no means
clear that a typical manufacturer’s warranty would offer any remedy in this case.
Warranties aside, a direct claim by consumers against VW represents a more
difficult route for claimants compared to claiming under the contract of sale with
the dealer. This scenario is most often tested when a retailer becomes insolvent,
leaving consumers with fewer options for redress. English law allows claimants
under certain circumstances to claim directly against an insolvent retailer’s
insurers. However, in the case of VW emission claims, it is difficult to see how,
under English law, a standard product liability insurance policy would respond to
contractual liabilities under SOGA and claims to repair or replace the product itself,
in the absence of claims for personal injury or damage to third party property.
This would leave consumers contemplating a direct claim against the manufacturer. Generally speaking, apart from any express contractual warranty, English law
offers the following routes to consumer claimants to claim directly from manufacturers: a claim in tort, for example, for negligence and claims under the Consumer
Protection Act 1987.

5

[2004] 1 C.L.C. 87.

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None of these routes would be straightforward. For a claim in the tort of negligence, the burden of proving the claim remains with the consumer. They would
have to identify the relevant acts or omissions alleged to comprise negligence and
the entity responsible for such acts or omissions. There is in any event a more
significant hurdle for claimants in tort, namely that English law does not allow
recovery in tort for what is termed “pure economic loss”. Essentially, this means
that defects with the product itself that have not caused either injury or damage to
property other than the product itself are not compensateable in tort, barring a
“special relationship” between claimant and defendant. Claims for “pure economic
loss” are seen as the exclusive domain of contract law, making the prospect of
direct consumer claims in tort against VW unlikely.
Claimants may consider a claim based on the tort of deceit. Deceit involves a
false representation dishonestly made that is intended to be and is relied upon by
claimants who suffer loss as a result. However, the tort of deceit is not easy to make
out. Again, identifying who is alleged to have made the representation—and,
crucially, who is alleged to have made it dishonestly—is likely to be particularly
challenging. Further, whilst it need not be the only factor, claimants must also show
that the representation was relied on by them and that the defendant intended them
to rely on it. Here, a Court will need to grapple with the thorny issue of whether
purchasers do rely on published emissions figures and whether what is emerging
now about the disparity between laboratory and real-world emission results was
common knowledge when the Dieselgate vehicles were being marketed.
The Consumer Protection Act 1987 allows consumers to claim from manufacturers without proof of fault. However, it only applies to safety-related defects,
“defect” being defined under Section 3(1) as being where the safety of the product is
not such as persons generally are entitled to expect, and for those purposes,
“safety”, in relation to a product, shall include safety in the context of risks of
damage to property, as well risks of death or personal injury. Under Section 5(2),
there is no liability for the loss of or any damage to the product itself.
Whilst there may be further debate about the long-term effects on air pollution
and health arising from the VW emissions affair, a CPA claim is far less obvious,
particularly where a contract claim lies against a solvent dealer.

5 Remedies
Since it was announced that US consumers were likely to receive compensation in
addition to having their vehicles repaired, questions have been asked as to why
similar promises have not been made to UK consumers. As noted above, the
Transport Committee insisted: “We do not accept Volkswagen’s justification of
its policy on payments and see nothing to justify their refusal to offer comparable
payments to customers in Europe. Volkswagen must provide goodwill payments to
European vehicle owners equal to offers that have been made to US vehicle
owners.”

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It is unclear whether the Transport Committee intended to draw a clear distinction between “goodwill payments” on the one hand and legally recoverable compensation on the other. However, from a legal perspective, albeit perhaps not a
customer relation and PR perspective, it should come as little surprise that different
levels of payment are being contemplated in different jurisdictions.
Consumers pursuing claims under SOGA (as amended by the Sale and Supply of
Goods to Consumers Regulations 2002) on the basis that a product does not correspond with description or was not of satisfactory quality have a number of potential
remedies.
Firstly, they may reject the product and demand a refund from the retailer. This
must be done quickly, within a reasonable time after purchase, and can be lost
within a matter of weeks of taking delivery of the product and starting to use it.
Secondly, they may instead insist on a repair or replacement of the product
within a reasonable time and without causing significant inconvenience to the consumer. If repair or replacement is impossible or disproportionate, or if the seller
fails to repair or replace the product within a reasonable time and without significant inconvenience to the consumer, the consumer may require the seller to reduce
the purchase price of the goods by an appropriate amount or to rescind the contract
(effectively preserving the consumer’s right to reject the product).
As a third alternative, consumers can claim damages, based either on the cost of
repairing the product or on its diminution in value due to the fault.
Consumers may also, whichever of the above remedies they claim, recover damages for additional and out-of-pocket losses, where recoverable. What is recoverable will depend on the usual rules on recovery of damages for breach of contract.
In summary, consumers can recover damages for losses arising naturally, in the
ordinary course of things, as a result of the breach of contract. Where the claim is
based on the goods not complying with description or being of the required quality,
and the goods are to be repaired or replaced, recoverable losses might include
additional costs incurred if the consumer is without the vehicle during repair. If fuel
consumption is unaffected and subject to whether evidence emerges of an effect on
resale values of repaired vehicles, it is difficult to see what else might be recoverable under English law.
For example, consumers may feel disappointed and let down as they read allegations about deception by VW and about extra payments being made to US consumers. However, generally English law does not award compensation for
annoyance or disappointment caused by a breach of contract.
There are limited categories of cases where the English courts have awarded
damages where enjoyment was held to be part of the object of the contract, for
example, claims about poor holidays (as occurred in Jarvis v Swans Tours [1973]
1 All ER 71). Damages have also been awarded for loss of amenity where the
purpose of the contract was to provide the claimant with subjective pleasure, in that
case where a swimming pool was built with less depth than specified. However, two
points should be made. Firstly, such cases are regarded in English law as exceptional and it is difficult to see how they would apply to Dieselgate claims: even by
analogy that consumers brought “green” cars based on emission figures and now

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feel cheated. Secondly, even where damages have been awarded, the sums
have been modest.

5.1

Procedure

If litigation does ensue, we are likely to see, at least in the courts of England and
Wales, group litigation. This involves multiple claimants whose claims raise
common issues of fact or law, where the Court concludes that it is desirable and
proportionate to make such a group litigation order. Note that whether to make a
group litigation order is solely within the discretion of the Court. A Register will be
maintained of all claims where the claimant has joined the group litigation. Orders
made in group litigation will be binding on all claims on the Register.

6 Further Implications of the Dieselgate Affair
In April 2016, the UK Government published the results of its Vehicle Emissions
Testing Programme, funded largely by the DfT and coordinated with the authorities
in France and Germany. Although it found no evidence that any other manufacturer
had used “defeat devices”, it underlines the difference in emission performance
between official testing and real-world driving experience. The report concluded
that “The emissions of NOx from the other tested vehicles, whether in the Euro 5 or
Euro 6 technology levels, are surprisingly different when tested on a test-track or
on-road under real driving conditions compared to those recorded in the
laboratory”.6

7 Environmental Enforcement
Much of the media coverage has focused on steps being taken in the US. In summary, the US Environmental Protection Agency has issued Notices of Violation of
the Clean Air Act to various VW group companies. Subsequently, the US Department of Justice filed a complaint on behalf of the EPA for alleged violations of the
Clean Air Act. The Californian Environmental Protection Agency’s Air Resources
Board is taking its own action and recently rejected VW’s recall plan for 3.0 litre
diesel vehicles. So what is happening in the UK?
Very little it seems. To put this into context, the UK lacks a unified regulator, and
so there is no direct equivalent of the US EPA. Air quality comes within the remit of

6

Para. 6.3, DFT report “Vehicle Emissions Testing Programme”.

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the Department for Environment Food & Rural Affairs (DEFRA). Enforcement is
dealt with by the Environment Agency, a non-departmental agency sponsored by
DEFRA. Its enforcement work is focused on businesses and individuals responsible
for pollution. The Environment Agency has published details of its approach to
enforcement. In summary, its powers include working with businesses to ensure
compliance through to prosecution where offences are committed deliberately,
recklessly or with gross negligence.7
The Environment Agency also has certain powers as alternatives to prosecution
to impose civil penalties directly without recourse to the courts.
Their most serious civil penalty is the Variable Monetary Penalty, which is used
where there is evidence of negligence and mismanagement and/or where significant
environmental damage requires restoration. It remains to be seen whether any
action will be taken. However, whilst publicised prosecutions have dealt with
unlicensed waste operators, where pollution is immediate and tangible, whether
Dieselgate will see any increase in actual air pollution is unclear, given the findings
of the recent Vehicle Emissions Testing Programme.

8 Concluding Remarks
Dieselgate has received almost unprecedented media scrutiny in the UK. The
Parliamentary Transport Committee has produced an uncompromising report that
has stoked further media interest.
However, in assessing whether Dieselgate will prompt the largest group action in
English legal history, much depends on how quickly VW’s fix programme progresses and whether long-term resale values hold up despite Dieselgate.
Perhaps of greater significance is the recent report from the Vehicle Emissions
Testing Programme. The data obtained found higher levels of nitrogen oxide emissions in test track and real-world driving conditions than in the laboratory for all
manufacturers’ vehicles. The report looks forward to agreement at EU level for new
vehicles sold from 2017 to have real driving emission tests. Given the public and
political reaction to the Dieselgate affair, it seems unlikely that these new measures
will be affected by Brexit-related negotiations.

References and Websites
http://www.volkswagen.co.uk/owners/emissionsinfo
www.smmt.co.uk

7

Environment Agency Enforcement and Sanctions—Guidance, LIT 5551, Version 4.

United States of America
Joseph Allan MacDougald

1 Introduction
On 18 September 2015, the United States Environmental Protection Agency (EPA)
held a news conference that shocked both the environmental and automotive
worlds: Volkswagen AG (VW) admitted to installing undisclosed software in
almost 500,000 diesel automobiles, that reduced emissions during the EPA’s
emissions testing, but, under normal driving conditions, increased the car’s emission to 10–40 times the legal limit of serious pollutants like nitrogen oxides (NOx).1
These pollutants can have a range of negative health effects such as decreased lung
functionality and increased rates of heart disease—leading to increased hospitalizations and premature deaths.2
Cynthia Giles, Assistant Administrator of the EPA’s Office of Enforcement and
Compliance Assurance, summarized the allegation bluntly and directly: “Put simply, these cars contained software that turns off emissions controls when driving
normally and turns them on when the car is undergoing an emissions test.”3 Using
I have owned several Audi and Volkswagen products beginning with my 1974 VW 412 through
my currently owned 2015 Audi, that contains a 3.0 liter TDI. While I still own a ‘15 Audi, pending
resolution of the issues around the 3.0 liter TDI engine, today my daily driving car is an all-electric
vehicle. This article is about a constantly developing series of complex litigations. It was written as
of August 2016.
1

Letter re: Notice of Violation from Phillip A. Brooks, Director, Air Enforcement Division, EPA,
to Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc. (18 September 2015).
Available at http://www.epa.gov/sites/production/files/2015-10/documents/vw-nov-caa-09-18-15.
pdf.
2
Environmental Protection Agency (1998).
3
Quoted in Gardner and Woodall (2015).
J.A. MacDougald (*)
University of Connecticut School of Law, Hartford, CT, USA
e-mail: joseph.macdougald@gmail.com
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_5

83

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J.A. MacDougald

software in this way to manipulate the test results constitutes a “defeat device.” In
the automotive industry, defeat devices are prohibited under the United States
environmental laws and regulations.
The cars accused were the popular, heavily advertised 2.0-l turbocharged direct
injection (TDI) diesels, including the former Green Car of the Year, the VW Jetta
TDI 2.0.4 VW became the target of a massive investigation by the EPA, California
Air Resources Board (CARB), and Department of Justice (DOJ) with potential
penalties reaching $18 billion.5 Thus marked the beginning of the largest emission
case in United States history, known familiarly as Dieselgate.
Within a few days of the announcement, on 20 September 2015, Volkswagen
AG Chief Executive Officer Martin Winterkorn issued a statement apologizing for
breaking the trust of consumers and the public.6 Three days later he announced his
resignation.7 VW posted a reserve liability of $18.28 billion dollars on its financial
statements, creating both a net loss of billions of dollars on their income statement
and a reduction to VW’s dividend payments to shareholders.8
Later, in November 2015, the EPA issued a second Notice of Violation for an
additional 85,000 TDI cars, many in their Porsche and Audi lines, alleging that a
similar software defeat device manipulated the emissions of the larger, technologically different 3.0 TDI diesel engines.9 Showing incredible speed, in June 2016,
the EPA and the DOJ held a different news conference, to announce one of the
largest civil settlements in environmental legal history. This $14.7 billion dollar
settlement dispensed with many of the claims pertaining to the 2.0 TDI engine
plaintiffs and required repurchases, payments, and electric car infrastructure investments from VW.10
Separately, VW settled lawsuits with 44 states for a variety of claims.11
This chapter presents the United States the regulatory framework and history of
defeat devices, the changing regulatory landscape that influenced car design, and
the discovery of Dieselgate. As VW’s own statements indicated during the introduction of the 2.0 TDI engine, the decisions surrounding the design of these cars
were not made in a vacuum; the design was formed as reflection of the legal and

4

See Squatriglia (2008).
Davenport and Ewing (2015).
6
See Volkswagen (2015a).
7
See Volkswagen (2015b).
8
See Sloat (2016).
9
Letter re: Notice of Violation from Susan Shinkman, Director, Office of Civil Enforcement, EPA,
to Volkswagen AG, Audi AG, Porsche AG, Volkswagen Group of America, Inc., Porsche Cars
North America, Inc. (2 November 2015), http://www.epa.gov/sites/production/files/2015-11/doc
uments/vw-nov-2015-11-02.pdf.
10
Federal Trade Commission (2016).
11
Press Release, Volkswagen AG, Volkswagen reaches settlement agreements with US Federal
Regulators, private plaintiffs and 44 U.S. States on TDI Diesel Engine Vehicles (28 June 2015).
Available at http://media.vw.com/release/1214.
5

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regulatory constraints of environmental emission law and policy, particularly that
of the United States. To orient readers who are less familiar with the United States
legal system, Sect. 2 begins with a cursory overview of the structure of the United
States environmental law relevant to emissions, it then introduces the special status
granted to California by the Clean Air Act, and it finally concludes by presenting
other relevant cases concerning defeat devices. Sect. 3 presents the regulatory
changes occurring contemporaneously with VW’s development and marketing of
the TDI engines. Sect. 4 outlines the VW defeat device’s discovery, litigation, and
2.0 TDI settlement. Sect. 5 explores a selection of other possible civil or criminal
legal challenges regarding the 2.0 liter or 3.0 liter defeat devices. Finally, Sect. 6
provides some concluding thoughts on the possible legacy of Dieselgate on United
States environmental law and policy.
Importantly, the Volkswagen litigation is not only unsettling but also, literally,
unsettled. As of this August 2016 writing, some of the 2.0 TDI litigations may be
coming to a close. However, numerous issues remain. Many of the facts are not yet
in the public eye, and several investigations are ongoing. This chapter is structured
to provide the context for any reader to better understand the legal and policy
implications of Dieselgate as it continues to unfold.
Dieselgate is massive in its scope, and the story of its discovery is as thrilling as
it is concerning. VW’s defeat-device-equipped cars continued to be approved under
the watchful eye of one of the most sophisticated governmental emission testing
regimes on Earth. Thus, Dieselgate challenges us to ask: how can we improve our
testing safeguards to better protect the environment? Should the manufacture–
regulator relationship change in fundamental ways to improve compliance? The
responsibility lies with us to seriously consider these issues and their implications.
VW’s actions both before and after the discovery of the defeat devices will be a
topic of discussion among legal scholars, business ethicists, compliance officers,
regulatory agencies, and consumer and environmental advocates for years to come.
However, ultimately, to determine the lasting impact of Dieselgate, we all need to
be asking two basic questions: how could this happen, and how do we avoid being
fooled again?

2 Introducing the Clean Air Act and Automobile
Emissions: Background and History
This section presents a background on the United States regulatory process for
emissions. It begins by presenting the general structure of the Clean Air Act
(Sect. 2.1). It then discusses the special role that California plays in automobile
emissions (Sect. 2.2). The section concludes by reviewing the legal structure and
history of defeat devices (Sect. 2.3).

86

2.1

J.A. MacDougald

A Brief Introduction to the Clean Air Act

The United States environmental laws span a broad policy range including
protecting endangered species,12 safeguarding waters of the United States,13 and
requiring all government agencies to take a “hard look” at the environmental
consequences of their major decisions.14 From hazardous waste to coastal protection, each of the many environmental legal regimes has its own vibrant history. Yet,
perhaps, no one law typifies U.S. environmental law in the public’s mind more than
the Clean Air Act (CAA).15 The CAA was born out of a visible problem, smog, and
is regularly featured in the popular press, as the safeguard of breathable air and,
more recently, as the major legislative bulwark against climate change.
Responding to the smog and air pollution problems prevalent throughout the
jiddle of the twentieth century, the United States created and enacted the CAA as
a comprehensive system of air emission regulations for stationary sources, like
smoke stacks, as well as mobile sources, like passenger cars, trucks, and tractors.
While the federal government takes a more direct role in very large or very
hazardous sources of emissions, for most stationary sources the states and federal
government work together. States create a State Implementation Plan, and, subject
to EPA oversight, each state determines where and how sources can be located and
how much of the selected pollutant’s emissions are appropriate in a given region.
This type of state and federal government collaboration is referred to as cooperative
federalism.16
Mobile sources are different. Instead of a cooperative federalism approach,
emission regulations are set on a national scale with some limited state involvement, notably from California. Under the CAA, the EPA Administrator determines
which tailpipe emissions constitute pollutants, as well as the appropriate regulatory
response. Specifically, Sect. 202 of the CAA reads: “The Administrator shall by
regulation prescribe (and from time to time revise) . . . standards applicable to the
emission of any air pollutant from any class or classes of new motor vehicles or new
motor vehicle engines, which in his judgment cause, or contribute to, air pollution
which may reasonably be anticipated to endanger public health or welfare.”17
Sometimes a statute, like the preceding CAA Sect. 202, contains general phrases
such as pollutants, from time to time revise, welfare, and standards, without any
additional limiting or characterizing language. In these situations, the United States

Endangered Species Act of 1973, 16 U.S.C. §§1531–1544 (2012).
Clean Water Act, 33 U.S.C. §§1251–1388 (2012).
14
National Environmental Policy Act of 1969, 42 U.S.C. §§4321–4347 (2012).
15
Clean Air Act, 42 U.S.C. §§7401–7671 (2012).
16
See, generally, US EPA, Clean Air Act Requirements and History—http://www.epa.gov/cleanair-act-overview/clean-air-act-requirements-and-history.
17
Clean Air Act §202, 42 U.S.C. §7521 (2012). For a summary of the CAA’s provisions see the
EPA’s website: http://www.epa.gov/clean-air-act-overview/title-ii-emission-standards-movingsources.
12
13

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Supreme Court has held that an administrative agency, such as the EPA, should be
given broad deference in interpretting the meaning of those phrases and how best to
promulgate regulations consistent with the law.18 As a result, the EPA has a great
deal of authority in determining the scope of the act and which emissions constitute
pollutants to be regulated under the CAA.
Similarly, the EPA has wide discretion to design its testing procedures. Here
again, the CAA uses broad language with room for interpretation, employing
expressions such as shall test, determine, and conforms: “Administrator shall test
. . . any new motor vehicle . . . to determine whether such vehicle or engine
conforms with [the Clean Air Act].”19 These non-specific words afford the EPA
Administrator the power both to create the test and to establish what constitutes a
passing score. This deference also means that any future policy changes to testing
protocols in response to Dieselgate will largely be in the EPA’s discretion, subject
to regular challenges under the doctrines of administrative law or any change to the
CAA by the United States Congress.

2.2

The Special Role of California and the California Air
Resources Board

Ultimately, the auto emission policy of the United States is set by the federal
government. Nonetheless, Dieselgate shows extensive involvement with the state
of California. The reason for this federal state tandem role is historical. Responding
to its acute air quality crisis, California was early and aggressive in establishing a
state-based emission testing and certification program. Seeing the rise of the
California program, Congress sought to protect automobile manufacturers from
complying with a patchwork of 50 separate state emission regimes. Congress,
through the Clean Air Act, gave the authority to set national automobile emission
limits to the Environmental Protection Agency.20
Yet this EPA-centered federal system created a problem. Under U.S. law, a
strong and detailed national scheme frequently occupies the regulatory space,
displacing and invalidating overlapping state statutes and regulations. In fact, the
CAA has a provision to nullify these state laws: “No State . . . shall adopt or attempt
to enforce any standard relating to the control of emissions from new motor
vehicles or new motor vehicle engines subject to [the Clean Air Act].”21
However, rather than eliminating California’s working state system, Congress
adopted a provision in the Clean Air Act that enabled the EPA administrator to

18

See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).
42 U.S.C. §7525 (2012).
20
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. New York State Dep’t of Envtl. Conservation,
810 F. Supp. 1331, 1337 (N.D.N.Y. 1993).
21
442 U.S.C. §7543(a) (2012).
19

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J.A. MacDougald

grant a waiver to those states that adopted emission standards prior to 30 March
1966.22 With its waiver, California, the only state to qualify, can set lower, stricter
emission limits. Other states can adopt California’s levels if they choose.23 This
system means that an automobile manufacturer, like Volkswagen, must respond to
two separate emission limits and testing protocols: the EPA and the California Air
Resources Board. VW’s defeat device violated both legal regimes. This next
section discusses the concept of a defeat device in greater detail.

2.3

Introducing Defeat Devices: Legal Definition and Cases

The EPA tests automobile emissions under two difference scenarios.24 Before a
new car can be sold, the EPA examines the emissions of a sample of the cars (or
engines) to grant a certification. Following certification, the EPA also tests cars that
have been operating on the road, or “in-use”. In both scenarios, the cars are
removed from the road and tested under simulated road conditions.25
An example of an “in-use” testing violation can be found the 1984 case of
General Motors Corp v. Ruckelshaus.26 In this case, the EPA discovered that
several cars in GM’s 1975 Cadillac fleet, when tested post-sale, were found to
have emissions that exceeded the then allowable limits. This early Cadillac case
provides an example of the EPA’s testing a car, which “flunked” the test.
However, a car with a defeat device never fails the test. A defeat device is a piece
of equipment or software that reduces a car’s emissions to passable levels during
the EPA’s tests but increases emissions when the car is driven on the road. Unlike
GM’s cars, where the EPA’s testing revealed the problem, VW’s cars always
“passed” the test, since the car recognized it was being tested and changed its
operation. The defeat device cannot be discovered through EPA’s regular testing
cannot discover the defeat device; it can only be found through physical inspection,
on-road testing, or some other means.
The Clean Air Act and its regulations anticipated the existence of defeat devices.
The text of the Clean Air Act lists a series of prohibited actions. In particular, CAA
Section 203(a)(3)(B) prohibits a manufacturer from knowingly installing in a car
“any part or component . . . where a principal effect of the part or component is to
bypass, defeat, or render inoperative” design elements used to pass its emission
testing.27 The phrase “defeat device” is explicitly defined in the United States Code

442 U.S.C. §7543(b) (2012).
See Ridge (1994).
24
For description and historical context of EPA testing, see Motor Vehicle Mfrs. Ass’n of U.S.,
Inc. v. New York State Dep’t of Envtl. Conservation, 810 F.Supp. 1331, 1336 (N.D.N.Y. 1993).
25
40 C.F.R. 86.078-3 et seq.
26
General Motors Corp, v. Ruckelshaus, 742 F.2d 1561 (D.C. Cir. 1984).
27
42 U.S.C. §7522(a)(3)(B) (2012).
22
23

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of Federal Regulations as “an auxiliary emission control device . . . that reduces the
effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.”28 In other
words, it is a separate system that distinguishes between a car that is being tested
versus one that is being driven in normal road conditions, and adjusts emission
accordingly.
The past four decades have seen several cases involving defeat devices. In fact,
one of the earliest defeat device enforcement actions was against none other than
Volkswagen itself! As Bloomberg News reported: “On July 23, 1973, the
U.S. Environmental Protection Agency accused the automaker of installing defeat
devices in cars it wanted to sell in the 1974 model year. VW then admitted it had
sold 1973 model year cars with the devices, which consisted of temperature-sensing
switches that cut out pollution controls at low temperatures. . . . VW settled with a
$120,000 fine without admitting any wrongdoing.”29
In another case involving General Motors, in 1991 the EPA accused GM of
evading emissions tests by installing a computer chip that tripled the output of
carbon monoxide when the air conditioner or heating system was engaged. At the
time, this $11 million settlement was the largest emission fine ever levied.30 Like
the 2016 VW Dieselgate case, this case involved a piece of software that, which
changed the emission profile of the car in real-world operation.
Perhaps of greatest relevance to the current Volkswagen TDI case is the 1998
settlement against several players in the diesel engine industry.31 While this case
was directed toward the diesel industrial machinery industry instead of passenger
cars, the facts are similar. In 1998, a series of very large diesel equipment manufacturers were also accused of installing a software-based defeat device. As with
the VW TDI diesel cars, the accused industrial diesel vehicles changed from a
low-emission testing mode to a higher-emission operating mode: “When the
engines were used on the road, the engine operation would change to be more
fuel-efficient, but would produce up to three times the legal limit of NOx.”32
Although several companies disagreed with this finding, the $1 billion dollar
industry settlement was called one of the biggest in Clean Air Act enforcement
history.33
At a potential exposure of nearly $15 billion and growing, the VW diesel
emission settlements and on-going cases dwarf all other prior defeat device actions.
28

40 CFR 86.1803-01.
Plungis (2015).
30
See Press Release, DOJ, U.S. Announces $45 Million Clean Air Settlement with GM
(30 November 1995). Available at https://www.justice.gov/archive/opa/pr/Pre_96/November95/
596.txt.html.
31
Press Release, DOJ, EPA Announce One Billion Dollar Settlement with Diesel Engine Industry
for Clean Air Violations (22nd October 1998). Available at http://www.clm.com/publication.cfm?
ID¼3540.
32
Reitze (2016).
33
See, e.g., Bendavid (1998).
29

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J.A. MacDougald

Taken together, this history renders the presence of defeat devices in VW’s cars
inexplicable. Many elements of VW’s current defeat device problem were already
well known—in particular, the diesel industry’s use of software as a defeat device,
compounded by VW’s own corporate experience. Given defeat devices’ track
record of official scrutiny and record-breaking fines, how could VW have allowed
this software to be included in their cars? One possible answer might be VW’s
excessive reliance on high-performance diesel cars as part of their overall regulatory compliance strategy. Section 3 explores the increasing emission and mileage
regulatory burdens that faced VW as they were developing and installing the
engines, which would become the subject of the diesel enforcement actions.

3 Emission and Mileage Policy Changes and the
Introduction of the 2.0 TDI
This section presents the accumulating regulatory pressures that may have
influenced Volkswagen’s development of the 2.0 TDI engine and served as the
backdrop stresses in place when the defeat device was being developed. Throughout the early 2000s, automobile manufacturers faced an increasingly stringent
group of emission and mileage standards. At the same time, a key climate change
case before the Supreme Court expanded EPA’s emission authority. Other car
manufacturers chose to adapt to this evolving emission policy situation through
hybrid or electric engines, but Volkswagen made the strategic decision to rely on
low-emitting diesel engines. This section traces the changing emission standards
(Sect. 3.1) and mileage standards (Sect. 3.2), followed by a presentation of the
Massachusetts v. EPA Supreme Court case (Sect. 3.3). It concludes with the VW’s
announcement and introduction of the 2.0 TDI (Sect. 3.4).

3.1

A Changing World for Diesel Emission Regulation

VW announced the 2.0 TDI engine in a two-part article, entitled, ironically in
retrospect, “Volkswagen’s New 2.0 TDI Engine for the Most Stringent Emission
Standards.”34 At the start, VW acknowledged that the 2.0 engine was not just a
technological creation; it was an expression of their response to a changing regulatory landscape.
Diesel engines offer many advantages over traditional internal combustion
engines: “Diesel cars get more torque, achieve better mileage and hold their long34

Jens Hadler et al., Volkswagen’s New 2.0 l TDI Engine for the Most Stringent Emission
Standards, Part 1, 69 MTZ WORLDWIDE 12 (May 2008); Jens Hadler et al., Volkswagen’s
New 2.0 l TDI Engine for the Most Stringent Emission Standards, Part 2, 69 MTZ WORLDWIDE
54 (June 2008).

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term value better than most gasoline burning vehicles, but the exhaust contains
more nitrogen dioxide than most gasoline-powered engines.”35 NOx are a key
pollutant emissions regulated by the CAA and have health serious health
consequences.36
The EPA began regulating NOx by setting an emission limit for passenger cars of
2.0 g of NOx per mile. Later, seeking further NOx reductions, the EPA created a
new “Tier 1” standard that set separate standards for trucks and cars. For cars, the
phase-in process of this new standard of 0.6 NOx began in 1994.37
However, in 1999, the EPA, again, revised the emission limits downward.38 This
“Tier 2” standard put cars, light-duty trucks, and sport utility vehicles into the same
category. With a phased-in approach beginning in 2004, the Tier 2 standard lowered
the car emission targets from 0.6 NOx grams per mile to 0.07 g of NOx per mile, “a
77–86 % reduction for cars.”39 VW used this standard, which would have also been
acceptable to California and all states, as the design target for the 2.0 TDI.
Yet even stricter standards were on the horizon as EPA and California adopted
lower limits, which were to take effect beginning in 2009.40 The California Air
Resources Board adopted California’s Low Emission Vehicle standards called LEV
II, a group of lower emission standards to be phased in from 2004 through 2010.41
For Volkswagen, developing a car that had all the benefits of diesel while being
compliant with the tightening and overlapping regulatory targets would deliver a
superior car that would also help Volkswagen meet its mileage standards, as
presented in the next section.

3.2

Increasing Mileage

Volkswagen’s challenges did not stop at the end of the tailpipe; they also needed to
increase the average mileage and fuel efficiency of their entire fleet. In December
2007, the Corporate Average Fuel Economy (CAFE) Standards were to increase
to 35 miles per gallon by 2020, a 40 % efficiency increase.42 CAFE standards
35

Goodman (2015).
See, generally, Press Release, US EPA, Air and Radiation, California Notify Volkswagen of
Clean Air Act Violations/Carmaker allegedly used software that circumvents emissions testing for
certain air pollutants (18 September 2015). Available at https://www.epa.gov/newsreleases/epacalifornia-notify-volkswagen-clean-air-act-violations-carmaker-allegedly-used.
37
See US EPA, Office of Mobile Sources, Emission Facts (May 1999). http://www3.epa.gov/otaq/
consumer/f99017.pdf.
38
See Goodman (2015).
39
Environmental Protection Agency (1999).
40
See http://www.dieselnet.com/standards/us/ldt2.php.
41
For a summary description of the LEV II phase-in, see https://www.dieselnet.com/standards/us/
ld_ca.php#levii.
42
Pew Charitable Trusts (2011).
36

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J.A. MacDougald

are weighted average mileage calculations for each manufacturer and “when these
standards are raised, automakers respond by creating a more fuel-efficient fleet.”43
VW needed the TDI offerings to raise their average mileage for the product line.
Emissions and mileage policies are inextricably interrelated. Courts, policy makers,
and industry have all recognized that, for traditional internal combustion engine
cars, regulating emissions of an automobile is tantamount to regulating fuel economy and mileage standards.44

3.3

Climate Change and the EPA’s Expanded Authority

One of the most powerful changes to emissions policy in recent times came not
from the EPA but from the Supreme Court of the United States via their April 2007
decision in the case of Massachusetts v. Environmental Protection Agency.45 While
the EPA may have the discretion to choose which emissions are considered
pollutants under the Clean Air Act, an open question remained as to whether the
EPA could add certain emissions to the regulated sphere, specifically by virtue of
their climate change effects. The United States Supreme Court case of Massachusetts v. EPA needed to resolve whether the CAA authorized the EPA to regulate
emissions for their climate change effect. Justice Stevens opened the majority
opinion with: “[the] first question is whether . . . the Clean Air Act authorizes
EPA to regulate greenhouse gas emissions from new motor vehicles in the event
that it forms a ‘judgment’ that such emissions contribute to climate change. We
have little trouble concluding that it does.”46
This ruling had two effects: first, it expanded the EPA’s mobile emission
regulatory power under the Clean Air Act; second, it energized the administrative
apparatus of the entire federal government. It would be much more difficult for
private companies or industry groups to challenge the regulation of greenhouse
gasses by administrative agencies as arbitrary, capricious, or contrary to law. It also
foreshadowed increasing regulation of CO2 and other greenhouse gases from
mobile sources.

3.4

Volkswagen’s Solution: The 2.0 l TDI

Volkswagen’s diesel technology was critical to its CAFE standard compliance
strategy. However, the diesel engines needed to comply with changing emission

43

Department of Transportation (2014).
See Metro. Taxicab Bd. of Trade v. City of New York, 615 F.3d 152 (2d Cir. 2010).
45
Massachusetts v. E.P.A., 549 US 497 (2007).
46
Massachusetts v. E.P.A., 549 US 528 (2007).
44

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standards and an EPA of growing authority, thanks to Massachusetts v. EPA.
Volkswagen’s solution to this problem was the 2.0 l TDI.
Other manufacturers facing the same problems of tightening emissions and
mileage standards went in a different direction. “Volkswagen’s rivals, including
Mazda, Honda, Nissan and Hyundai, also had their eye on the U.S. diesel market,
but they took one look at the new EPA standards and decided to scrap their plans.”47
Whereas Toyota and other manufacturers embraced Prius-like hybrid cars, a gas
and electric technology that allowed it to increase the average fuel efficiency of
their offerings while not running afoul of emissions standards, Volkswagen chose a
path that had potentially increased rewards, by investing in a cheaper, simpler
technology, but also caused them to chart a course directly toward diesel in a
very big, very public bet on the technology.
Earlier iterations of the diesel engine had many physical drawbacks. They were
difficult to start in cold weather, the fuel was more expensive, the diesel tailpipe
emitted particulates—placing soot on the back of the cars and into the environment
of the consumers.
Prior to this time, Volkswagen had a viable diesel technology embodied in their
3.0 TDI engines that used a second tank of fluid, typically urea, which would treat
the exhaust, capturing and treat emissions.48 For their new smaller, mass-market
engine, the “company wanted to avoid the use of urea tanks, which are expensive,
take up space, are an inconvenience to consumers, and required compliance with
EPA regulations that were difficult or impossible to meet.”49 To move beyond the
3.0, VW created a lean NOx system, which became the Volkswagen 2.0 engine.
Instead of using a special fluid, the 2.0 liter engine would capture NOx emissions
in a special trap and, when full, dispense a small quantitiy of fuel to combust the
trapped NOx, rendering it harmless. VW’s innovation was to create a finely tuned
engine through monitoring and recirculating emissions to limit operational tradeoffs in the car’s operations.50
Clearly excited by their technological development, the 2.0 engine was widely
promoted by VW. Referring to the regulatory standard for low levels of NOx, VW’s
engineering team readily acknowledged the motivation for the engine’s development: “The challenge for the new TDI engine . . . is to restrict emissions to the
lowest [emissions] limit values while ensuring a stable combustion and taking into
account differences in fuel qualities.”51 In other words, the new engine promised to
be usable under the strictest, most widely accepted U.S. national and California
standards.52

47

Goodman (2015).
See Ulrich (2008).
49
Reitze (2016).
50
See De Chant (2015).
51
De Chant (2015).
52
Green Car Congress, Volkswagen Testing Tier 2 Bin 5 “Clean TDI,” slated for production in
2008, newsletter (5 January 2007). http://www.greencarcongress.com/2007/01/volkswagen_test.
html.
48

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J.A. MacDougald

By all external evidence, VW had threaded the needle between regulatory
standards and technological challenges, and the market rewarded them as
evidenced by the nearly 500,000 2.0 TDI cars sold from the time of the introduction
until the time of the Notice of Violation. Articles appeared in the New York Times
such as “Diesel, Cleaner, is Set to Make a Comeback”53 and “Diesel Automobiles
Clean Up for an Encore.”54 Upon its introduction in 2009, the 2.0 TDI VW Jetta
won the prestigious “Green Car of the Year” from greencarjournal.com, specifically
because “its 2.0-liter turbodiesel represents the state of the art in clean diesel
injection and emissions technology, so the car is clean enough even for California—no mean feat.”55 But it was all based on a defeat device.

4 Dieselgate: Discovery, Litigation, and Settlement
of the 2.0 TDI
Having established the difficulties and promise of Volkswagens diesel program,
this Sect. 4 turns to the discovery of the defeat device, the litigations, and the 2.0
TDI settlement.

4.1

Defeat Device Discovery

Volkswagen’s TDI success in the tightly regulated United States market caught
the attention of the International Council on Clean Transportation (ICCT), a
nongovernmental organization devoted to automobile emissions and environmental
policy. Two members of the ICCT, Peter Mock and John German, wanted to
influence European diesel fuel policy. The goal was simple: encourage stricter
European emission regulations by demonstrating how clean U.S.-regulated diesels
were performing in real-world conditions. European environmental standards allow
for greater NOx emissions. As reported by Bloomberg, German said that both men
“were sure the U.S. versions of the vehicles would pass the emissions tests. . .” We
had no cause for suspicion. . . . We thought the vehicles would be clean.”56
ICTT engaged West Virginia’s Center for Alternative Fuels Engines and Emissions (CAFEE) for $69,000 to conduct real-world emission studies, attaching

53

Viz. Zeller (2010).
Viz. Ulrich (2008).
55
Squatriglia (2008).
56
Quoted in Plungis and Hull (2015).
54

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95

testing apparatus to the back of the automobiles.57,58 While CAFEE tested different
cars, the Volkswagen test results were inexplicable. CAFEE Director Dan Carder
told Reuters in an interview: “[We] saw huge discrepancies. There was one vehicle
with 15 to 35 times the emissions levels and another vehicle with 10 to 20 times the
emissions levels.”59 CAFEE announced their results at the 24th CRC Real World
Emissions Workshop, which began on 31 March 2014. They published the results
six weeks later on 15 May 2014. It was this report that caught the attention of the
EPA and CARB.60
What could explain these results? Might it just be a testing error, or is something
wrong with those particular test cars? Under the EPA’s normal testing protocols, the
cars are evaluated only under very strict conditions. Yet these were real-world road
results. According to the New York Times, “Volkswagen executives told environmental regulators for more than a year that discrepancies between pollution tests on
its diesel cars and the starkly higher levels out on the road were a technical error, not
a deliberate attempt to deceive Washington officials.”61 VW was eventually compelled to disclose the defeat device “when the Environmental Protection Agency
took the extraordinary action of threatening to withhold approval for the company’s
2016 Volkswagen and Audi diesel models.”62
Finally, on 18 September 2015, the EPA issued a Notice of Violation (NOV) for
the 2.0 TDI model engines. The NOV alleged that the software contained a
“switch,” which triggered lower emissions when it recognized the position of the
“steering wheel, vehicle speed, duration of the engine’s operations and barometric
pressure,” all of which “precisely track the parameters of the federal test procedure.”63 When on the road, the car bypassed its emissions control systems. This first
NOV named VW Jettas, Golfs, Passat, and the Audi A3 manufactured in a range
from 2009 through 2015. Separately, the California Air Resources Board issued a
similar letter as part of its ongoing in-use certification program and also initiated an
investigation.64

57

Reitze (2016).
For a video showing CAFEE’s testing apparatus, see http://go.wvu.edu/1JrRlct.
59
Quoted in Morgan (2015).
60
Letter re: Notice of Violation Phillip A. Brooks, Director, Air Enforcement Division, EPA, to
Volkswagen AG, Audi AG, and Volkswagen Group of America Inc. (18th September 2015).
Available at http://www.eenews.net/assets/2016/03/31/document_gw_05.pdf.
61
Vlasic and Kessler (2015).
62
Vlasic and Kessler (2015).
63
Vlasic and Kessler (2015).
64
Press Release, US EPA, Air and Radiation, California Notify Volkswagen of Clean Air Act
Violations/Carmaker allegedly used software that circumvents emissions testing for certain air
pollutants (18 September 2015). Available at https://www.epa.gov/newsreleases/epa-californianotify-volkswagen-clean-air-act-violations-carmaker-allegedly-used.
58

96

4.2

J.A. MacDougald

Litigation

Consumers, who purchased their car for the environmental benefits, flocked to the
courts, and “by the end of October 2015, at least 80 consumer lawsuits had been
filed in the United States on behalf of consumers that purchased or leased 482,000
Volkswagen and Audi diesel vehicles.”65 By February, the number of cases swelled
to nearly 500. On 4 January 2016, the DOJ filed a civil action lawsuit in the Eastern
District Court of Michigan against Volkswagen AG and its affiliated companies,
seeking damages for both the 2.0 and 3.0 l diesel engine cars. The complaint’s four
parts charged Volkswagen with selling the vehicles with the device, installing the
device, tampering with the pollution controls and design of the automobiles to emit
NOx in excess of the allowable limits, and finally failing to disclose the presence of
the defeat device. In its prayer for relief, the complaint sketched out the statutory
damages for each violation, $32,500 per automobile for each violation and up to
$2750 or $3750 per defeat device.66
On 29 March 2016, the Federal Trade Commission (FTC) also filed suit, alleging
that “to induce American consumers to purchase its Defeat Device Vehicles,
Volkswagen USA spent tens of millions of dollars on widely-disseminated advertising to convey ‘diesel’s environmental and economic advantages.”67 The Wall
Street Journal estimated the total financial impact on the company from fines and
lawsuits could approach $46 billion.68
With so much potential court action, there was a legitimate fear that these diesel
litigations could burden the U.S. court system. Further, for VW to negotiate any
form of common settlement would be impossible, given the numerous plaintiffs and
courts. On 22 December 2015, the United States Judicial Panel on Multidistrict
Litigation issued a transfer order, consolidating all filed cases to the Northern
District of California under Judge Charles Breyer, the brother of U.S. Supreme
Court Associate Justice Stephen Breyer. The panel noted that Judge Breyer “is a
jurist who is thoroughly familiar with the nuances of complex, multidistrict litigation by virtue of having presided over nine MDL dockets, some of which involved
numerous international defendants.”69 Judge Breyer appointed former United
States Federal Bureau of Investigation Director Robert S. Mueller to shepherd the
settlement discussions. He also formed a 22-member plaintiff’s steering committee

65

Reitze (2016).
Complaint, United States v. Volkswagen AG, et al., No. 2:16-CV-10006 (E.D. Mich. January
4, 2016), http://www.justice.gov/opa/file/809826/download.
67
Complaint at 5, Federal Trade Commission v. Volkswagen Group of America,
No. 3:16CV01534(LJM)(MJH), (N.D. Cal. March 29, 2016), https://www.justice.gov/opa/file/
809826/download.
68
Boston (2016).
69
In re: Volkswagen “Clean Diesel” Mktg., Sales Practices, & Products Liab. Litig., 148 F. Supp.
3d 1367 (U.S. Jud. Pan. Mult. Lit. 2015).
66

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to represent the interests of car owners and other individuals who may have court
standing in pretrial and settlement discussions.70
With the potential for nearly half a million plaintiffs or more, the court
entertained motions seeking class action certification for the case. Federal Rule of
Civil Procedure, Rule 23, provides for class action status if the class of plaintiffs is
so large that it cannot manageably be brought into one lawsuit, the fact patterns and
defenses are similar, and representative parties can fairly advocate for the interests
of the class.71 The attorneys for the plaintiff’s steering committee filed three class
action suits representing three classes of plaintiff:
1. consumers who purchased or leased affected Volkswagen vehicles;
2. automobile dealers who had affected diesel vehicles in their inventory on
18 September 2015; and
3. automobile dealers that competed with Volkswagen . . . that were disadvantaged
by Volkswagen’s false marketing.72
Judge Breyer made an effort to be as transparent as possible. Hearings contained
large-scale dial-in capability for listeners, and transcripts were posted readily on a
special site.

4.3

Settlement

Surprisingly, on 28 June 2016, the EPA released a statement: “Volkswagen to
Spend Up to $14.7 billion to Settle Allegations of Cheating Emissions Tests and
Deceiving Customers on 2.0 Liter Diesel Vehicles.”73 With remarkable speed, all
parties had come into consensus on an initial settlement agreement. The DOJ
announced the tentative deal.
The settlement was on behalf of the DOJ, the EPA, the CARB, the Federal Trade
Commission, certain state attorneys general, and consumers—as represented by the
plaintiff’s steering committee. The broad terms consisted of recompensing the
owners through a time-advantaged buyback, proposing technological fixes if the
EPA concurs on the technical efficacy of the fix, paying into environmental trusts to
help remediate the damage, and investing in expanding the United States electric
vehicle charging infrastructure. In more detail:

70
In re: Volkswagen “Clean Diesel” Mktg., Sales Practices, & Products Liab. Litig., 148 F. Supp.
3d 1367 (U.S. Jud. Pan. Mult. Lit. 2015).
71
Fed. R. Civ. P. 23.
72
Reitze (2016).
73
Viz. Press Release, US EPA, Air and Radiation, Volkswagen to Spend up to $14.7 Billion
(18 September 2015). Available at http://www.epa.gov/newsreleases/volkswagen-spend-147-bil
lion-settle-allegations-cheating-emissions-tests-and-deceiving.

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J.A. MacDougald

• Buyback – VW must offer to purchase the 2.0 TDI vehicles or offer to terminate
any leases free of penalty. For the buyback, the value must be the September
2015 resale value of the car. VW reserved up to $10.03 billion to pay consumers,
with each consumer eligible to receive between $12,500 and $44,000, depending
on the car’s use and condition. The FTC further required VW to forgive car loans
or settle with a third party lender should the $44,000 not be enough for some
individual circumstances.
• Technological fix – VW can propose to the EPA and the CARB a technological
change to the cars so that they are compliant with the CAA without a defeat
device present, subject to the approval of the EPA and CARB.
As detailed in a VW news release describing the settlement, VW will also be
paying sums to support programs to mitigate the excess NOx.
• Environmental trusts – VW will be required to pay $2.7 billion across three
years into trusts designed to remediate the environmental damage caused by the
excess NOx emitted by the 2.0L TDI vehicles.
• Electrical infrastructure – Volkswagen will also invest $2 billion dollars
across ten years to fund the development and deployment of an electrical vehicle
charging infrastructure throughout the United States, as well as an awareness
initiative.74
This settlement has many interesting facets. First, the settlement rewards consumers. By fixing the buyback value as of September 2015, consumers receive the
resale value for the car as it existed before the announcement of the defeat device.
In this sense, they are fully compensated as though the scandal had never occurred.
Moreover, they receive this payment despite the car’s having sustained at least an
additional year of use, with compensation equivalent to the value of a year’s
depreciation.
Consumers also have a choice. Diesels are supposed to have long and productive
lives, and the relative benefit of a year’s depreciation would be small compensation
for an older vehicle that has been running without any issues. Thus, some consumers would likely prefer to retain their cars. With this in mind, a settlement
provision was included, in which VW fixes the original automobile at their own
expense.
The other two provisions make amends for the excess NOx released by
Volkswagen’s engines. The first compensation provision, the $2.7 billion dollar
payment into environmental trusts, allows for the allocation of funds into several
sources of state and federal remediation programs. However, more controversial
is the second provision, a $2 billion dollar required investment by VW toward
building out a U.S. electric car charging infrastructure—particularly at a time when
VW is not marketing electric cars. Commentators questions whether VW was being
put in a position to fund another company’s business, in articles such as the Wall

74

Volkswagen AG (2016).

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99

Street Journal’s “The VW-Tesla Redistribution”75 and Bloomberg’s “VW Settlement Spurs Business for Rivals Like Tesla, Toyota.”76
Judge Breyer issued an important order on 29 July 2016, accomplishing two
things. First, he certified the class for settlement purposes. The order defines the
class of plaintiffs included in the settlement in the following terms:
The proposed Settlement Class consists of a nationwide class of all persons (including
individuals and entities) who, on September 18, 2015, were registered owners or lessees of,
or, in the case of Non-Volkswagen Dealers, held title to or held by bill of sale dated on or
before September 18, 2015, a Volkswagen or Audi 2.0-liter TDI vehicle in the United
States or its territories (an ‘Eligible Vehicle’), or who, between September 18, 2015, and the
end of the Claim Period, become a registered owner of, or, in the case of Non-Volkswagen
Dealers, hold title to or hold by bill of sale dated after September 18, 2015, but before the
end of the Claims Period, an Eligible Vehicle in the United States or its territories.77

As of this writing, the case for the 2.0 TDI is not settled.78 Nonetheless, the
hearing transcripts set a tone of cooperation among the plaintiff’s steering committee, former Federal Bureau of Investigations Director Mueller, the attorneys
representing the government agencies and the DOJ, and the attorneys for VW,
as they all work together toward settling these cases. Judge Breyer praised
Volkswagen for actively seeking settlement and technological solutions rather
than litigating the case.

4.4

Other Settlement Claims

VW also newly released that it had settled a series of state-based claims. Several
states, through their leading attorneys general, had brought claims against
Volkswagen as violating state consumer protection laws. As part of the states’
negotiations, and on the same day as the 2.0 TDI settlement announcement, VW
issued the following news release, settling their disputes with many state
governments:
Volkswagen also announced that it has agreed with the attorneys general of 44 U.S. states,
the District of Columbia and Puerto Rico to resolve existing and potential state consumer
protection claims related to the diesel matter for a total settlement amount of approximately
$603 million. . . . Volkswagen will pay approximately $583 million to the signatories and
$20 million to the National Association of Attorneys General (NAAG) for use by state
attorneys general for consumer protection oversight, training and enforcement, and for the

75

Viz. Wall Street Journal (2016).
Viz. Hull (2016).
77
Amended Order Giving Preliminary Approval of Settlement, U.S. District Court, Northern
District of California, Judge Charles Breyer, MDL No. 2672 CRB. Judge Charles Breyer
(29 June 2016).
78
Transcript of Proceedings, In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and
Products Liability Litigation (28 July 2016), Case 3:15-md-02672-CRB, p. 76.
76

100

J.A. MacDougald

reimbursement of costs and expenses related to this matter. Participating states include
California, Florida, Illinois, New York, Pennsylvania, and Texas. At this point, the signatories do not include Arizona, New Jersey, New Mexico, Oklahoma, Vermont and West
Virginia, which have 30 days to join in the settlement.79

Oklahoma has already indicated that it will not join the multiparty settlement.
However, as individual states start announcing payments, pressure may mount on
the remaining states either to join the current litigation settlement or to settle rapidly
on slightly enhanced terms. The next section will explore these unsettled state
litigations and other open legal exposures.

5 Other Legal Exposures
Despite the massive and sweeping settlement discussed in Sect. 4, Volkswagen’s
legal exposure is far from resolved. As Deputy Attorney General Sally Yates noted
when announcing the 2.0 settlement, “this partial settlement marks a significant first
step towards holding Volkswagen accountable for what was a breach of its legal
duties and a breach of the public’s trust. And while this announcement is an
important step forward, let me be clear, it is by no means the last. We will continue
to follow the facts wherever they go.”80
This section presents some of the other avenues of potential legal redress that
aggrieved parties may seek from Volkswagen. This section’s emphasis lies with the
3.0 litigation, as well as the potential for criminal penalties. Section 5.1 examines
the parallel 3.0 litigation, which, while not settled, has been deliberated. Section 5.2
explores the potential for criminal penalties against VW—with a discussion significantly informed by recent automobile industry cases, despite their being outside
the environmental laws. Finally, Sect. 5.3 provides a cursory review of the other
possible right of actions, which are numerous, factually specific, and beyond the
scope of this chapter. Very few of these cases are developed, and this area is still
emerging.

5.1

The 3.0 Litigation

While the 2.0 TDI settlement could resolve many of the potential claims of the
500.000 2.0 TDI owners, roughly 85.000 3.0 TDI cases are awaited resolution for
their claims. Unlike the 2.0 engine, the larger 3.0 engine has a complete separate

79

See Press Release, Volkswagen AG, Volkswagen reaches settlement agreements with
U.S. Federal Regulators, private plaintiffs and 44 U.S. States on TDI Diesel Engine Vehicles
(28 June 2015). Available at http://media.vw.com/release/1214.
80
Federal Trade Commission (2016).

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101

emission control system built into it. Rather than relying on a careful control of
exhaust fumes and a NOx trap, the 3.0 engines used a secondary fluid, a urea like
substance, to treat and capture the emissions. While this technology was used by
many car manufacturers with success, the EPA claimed that VW installed software
that sensed when the car was being tested and then kept emissions low only for the
precise length of the test time.
The second Notice of Violation was issued on 2 November 2016. This NOV was
addressed to a different collection of the Volkswagen corporate group. Like the 2.0
TDI NOV, this notice was delivered to VW AG and VW Group of America. But
unlike the 2.0 TDI NOV, it was also sent to Audi AG and Porsche Cars North
America, Inc., divisions that sold cars, such as the Audi A8L and the Porsche
Cayenne, which were equipped with the larger 3.0 engine. While VW did not sell as
many 3.0 TDI cars, the consequences are nonetheless significant. These cars are
higher-end models, with larger purchase prices.81 Where the 2.0 TDI system
depends on fine-tuning, these 3.0 l TDI cars have a different system called “selective catalytic reduction.” Using this secondary fluid technology, the car injects urea
into the trapped NOx, breaks down the NOx into the component parts of oxygen and
nitrogen, and then expels these gases, each harmless on its own.82
The Notice of Violation describes a software-based defeat device, similar to that
found in the 2.0 TDI case of the prior month. However, specifics of the NOV’s
allegations are worth reviewing. The Agency alleged that a status bit in a 3.0 TDI
car’s computer triggered a low-emission operating mode if the car sensed it was
being tested:
Exactly one second after the completion of the initial phases of the . . . Federal emissions
test procedure . . . this software directs the vehicle to cease low NOx temperature conditioning mode. . . . In sum, as soon as the vehicle senses that it is not being tested, it uses
‘normal mode.’ In ‘normal mode,’ tailpipe emissions of NOx are up to nine times the
applicable NOx standard levels.83

One second after the prescribed test time, emissions rose precipitously. The
timing detailed in the NOV appeared to authorities to be too precise to be coincidental. In fact, on 19 November 2016, Volkswagen informed the EPA that this
software defeat device had been operating on all 3.0 models since 2009.84 The cars

81
Letter re: Notice of Violation from Susan Shinkman, Director, Office of Civil Enforcement,
EPA, to Volkswagen AG, Audi AG, Porsche AG, Volkswagen Group of America, Inc., Porsche
Cars North America, Inc. (2 November 2015), http://www.epa.gov/sites/production/files/2015-11/
documents/vw-nov-2015-11-02.pdf.
82
De Chant (2015).
83
Letter re: Notice of Violation from Susan Shinkman, Director, Office of Civil Enforcement,
EPA, to Volkswagen AG, Audi AG, Porsche AG, Volkswagen Group of America, Inc., Porsche
Cars North America, Inc. (2 November 2015), http://www.epa.gov/sites/production/files/2015-11/
documents/vw-nov-2015-11-02.pdf.
84
US EPA, Volkswagen Light Duty Diesel Vehicle Violations for Model Years 2009–2016, http://
www.epa.gov/vw.

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J.A. MacDougald

affected by this second recall are the Volkswagen Touareg, the Porsche Cayenne,
and several Audis, including the A6 Quattro, A7 Quattro, A8, A8L, and Q5.
It is likely that Volkswagen would prefer to avoid a buyback provision similar to
that in the 2.0 settlement. While the number of cars is much smaller, this group
would cost more money per car since they largely draw from VW’s luxury lines.
There is no current deadline to reach resolution on the 3.0 diesels. In a recent hearing
before Judge Breyer, one attorney involved in the discussion said: “the company
thinks it has a fix for 85.000 Porsche, Audi, and Volkswagen cars equipped with
emissions-cheating 3.0-liter V6 Diesels. The fix . . . isn’t complex and won’t have an
impact on performance. Currently, the proposed fix is undergoing testing to ensure
durability.”85 A comprehensive settlement announcement appears to hinge on
reaching a preliminary consensus as to the viability of a 3.0 TDI fix.
Each of the three class action lawsuits filed before Judge Breyer includes 3.0
TDI claims. The DOJ and the FTC’s complaints brought parallel 3.0 TDI claims
within their lawsuits. It is logical to assume that the same group that successfully
negotiated a complex group settlement across the largest vehicle class of 2.0 TDI
might coalesce around a 3.0 TDI settlement—particularly since these cars have an
installed pollution control system. The existing hardware makes it more likely for
the cars to be recalled, repaired, and returned to their owners or compliant operation. The question is whether or not 3.0 owners will be offered an automatic
buyback for their cars. Perhaps a technological solution would be possible and
compensable if, for instance, it were to require the use of more urea fluid. On the
other hand, a buyback provision may yet be the fair and just result, given that the 3.0
TDI owners became unwitting polluters in their desire to drive “green” cars with
reduced emissions profiles. It is also possible the car’s resale value will have been
damaged by the scandal or any changes in performance. Judge Breyer will need
to establish what appropriate relief is owed to these TDI consumers, who were
expressing their environmental ethic through their driving and automobile choices,
only to discover that they themselves were contributing dramatic amounts of
pollution per mile. The harm might not be repaired through technology alone.

5.2

Criminal Prosecution

The DOJ opened an investigation of Volkswagen and its management, marking the
possibility of the very first criminal prosecution of an automobile manufacturer for
emissions violations.86 The stakes are high. A recent statistical study argues that
VW’s emissions policies have led to the premature deaths of 59 people.87 Not to be
forgotten are the 600,000 cars that are still belching excess emission on

85

Perkins (2016).
Harder and Viswanatha (2015).
87
Barrett et al. (2015).
86

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103

U.S. roadways today, and will be doing so for some time. At the time of this writing,
the DOJ has given no indication as to whether it will seek criminal penalties. While
the government has not sought criminal penalties in any prior emission case, a
combination of several factors, including recent deferred prosecution agreements
with other automobile manufacturers, might indicate a break with past practice.88
Looking at the statute itself, the Clean Air Act mobile sources subchapter
provides for civil penalties.89 However, other sections of the CAA contains several
general prohibitions that lend authority to criminal penalties.
The CAA’s section 113(c)(2) contains provisions for criminal penalties if a
person knowingly makes false statements, representation, or certifications.90
Given the history of VW’s communication with the EPA during the investigation,
it seems very possible that this section’s authority could apply. Even more directly
applicable, section 113(c)(2)(c) authorizes seeking criminal penalties for anyone
who “falsifies, tampers with, renders inaccurate, or fails to install any monitoring
device or method required to be maintained or followed under this chapter.”91 This
section reads like the NOV’s description of the defeat device installation. Each of
these infractions is punishable by fine or imprisonment of up to two years.92
Even beyond the CAA, other avenues for corporate criminal prosecution
included provisions as broad as obstruction of justice93 or general crimes against
the United States.94,95
The DOJ’s criminal charging strategy against Volkswagen may be influenced by
two very recent cases against other automobile manufacturers: the settlements with
Toyota Motor Corporation (Toyota) in 2014 and a separate settlement with General
Motors Corporation in 2015.
On 19 March 2014, the DOJ announced a $1.2 billion dollar financial penalty
and a deferred Prosecution Agreement based on a long-running dispute with the
Toyota Motor Corporation.96 The DOJ alleged that certain Toyota cars experienced
unintended acceleration due to defects in their floor mats and pedals. Importantly,
Toyota told customers via the Internet and other mass communications media
that these issues had been resolved, even though, per the DOJ, they had not.
Again, per the DOJ, as far back as 2007, Toyota knew that its gas pedals could
become stuck under floor mats and had internal reports that identified design

88

Reitze (2016).
42 U.S.C. §7524 (2012).
90
42 U.S.C. §7413(c) (2012), et seq.
91
42 U.S.C. 7413(c)(2)(c) (2012).
92
42 U.S.C. 7413(c)(2)(c) (2012).
93
18 U.S.C. 1503 (2012), et seq.
94
18 U.S.C. 2 (2012).
95
For an analysis of several criminal avenues for prosecution, see Reitze (2016).
96
See Press Release, the DOJ, U.S. Announces $45 Million Clean Air Settlement with GM
(30 November 1995). Available at https://www.justice.gov/archive/opa/pr/Pre_96/November95/
596.txt.html.
89

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J.A. MacDougald

problems, prosecutors said. Toyota resisted recall suggestions, instead negotiating
with the National Highway Traffic Safety Administration to recall only a limited
number of extra-thick all-weather floor mats rather than a complete recall.97 The
dispute was resolved with a deferred prosecution agreement, a legal device where
the DOJ presents the potential defendant with a prosecution agreement and agrees
not to pursue it under certain conditions. The deferred prosecution agreement’s
criminal charge consisted of a single count of wire fraud in the Information, the
charging document attached as an appendix to the deferred prosecution agreement.
Wire fraud is an allegation that provides criminal prosecution for fraudulent
schemes conducted by way of electronic communications media:
Whoever, having devised or intending to devise any scheme . . . for obtaining money or
property by means of false or fraudulent pretenses, representations, or promises, transmits
or causes to be transmitted by means of wire, radio, or television communication in
interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the
purpose of executing such scheme or artifice, shall be fined under this title or imprisoned
not more than 20 years, or both.98

As applied to Toyota, the Information alleges that in concealing information
about the unintended acceleration through its communication with consumers,
constituted wire fraud as Toyota induced consumers to purchase the cars with the
safety defect.
Another recent case against a large automobile manufacturer also included a
deferred prosecution agreement. One year after the Toyota settlement, on
17 September 2015, the Justice Department announced another deferred prosecution agreement, this time against GM, who admitted to producing cars with faulty
ignition switches, which the DOJ said would cause the car to function erratically
and dangerously. On 17 September 2015, the Manhattan U.S. Attorney announced a
deferred prosecution agreement, similar to the one used for Toyota. This time the
agreement was accompanied by a penalty of $900 million dollars. In this case, the
DOJ produced an Information, which had two counts. Like Toyota, GM was
charged on a wire fraud theory. Also like Toyota, GM was accused of making
“representations by means of interstate wires— that is, over the Internet— falsely
assuring customers of the safety” of their preowned cars being purchased.99
However, unlike Toyota, GM’s Information contained an additional criminal
count springing from their alleged concealing of a “potentially deadly safety
defect,” from a federal agency, in this case, the National Highway Transportation

97

Letter re: Toyota Motor Corporation—Deferred Prosecution Agreement from Preet
Bahara, United States Attorney, Southern District of New York, to Attorneys for Toyota, https://
www.justice.gov/sites/default/files/usao-sdny/legacy/2015/03/25/Toyota%20DPA%2C%20State
ment%20of%20Facts%2C%20and%20Information.pdf.
98
18 U.S.C. 1343 (2012).
99
Press Release, United States Attorney’s Office, Southern District of New York, Manhattan
U.S. Attorney Announces Criminal Charges Against General Motors and Deferred Prosecution
Agreement with $900 Million Forfeiture (17 September 2015), http://www.justice.gov/usao-sdny/
pr/manhattan-us-attorney-announces-criminal-charges-against-general-motors-and-deferred.

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105

Safety Administration.100 The authority for this second charge stems from 18 U.S.C. Sections 1001 and 1002, which, among other things, provides for criminal
penalties for anyone who “falsifies, conceals, or covers up by any trick, scheme,
or device a material fact” from any executive branch of the United States.101
Beyond criminal penalties sought from the corporation, there is the question of
penalties directed toward VW officers or employees. Neither the Toyota nor the
General Motors case has yet to charge any officer personally, and it would appear
that there is no effort to do so. However, on 9 September 2015, Sally Q. Yates, the
Deputy Attorney General, issued a policy statement asking all Assistant Attorneys
General to increase their attention paid to charging individuals. In a memo entitled
“Individual Accountability for Corporate Wrongdoing,” Deputy AG Yates offered
guidance to all the Assistant Attorneys General that all future corporate investigations should have increased focus on the actions of individuals, as well as the
corporate entity. Noting that in “large corporations, where responsibility can be
diffuse and decision are made at various levels, it can be difficult to determine if
someone possessed of knowledge and criminal intent to establish their guilt,”102
Yates provided new guidelines for all investigations, such as requiring cooperation
from corporations in investigating the actions of individuals, instituting a new
policy against executing corporate settlements that release individuals from corporate liability, and requesting that each investigation have a plan for pursuing
criminal and civil penalties against employees. However, perhaps most interesting
at this stage of the Volkswagen discussion is the provision that “criminal and civil
corporate investigations should focus on individuals from the inception of the
investigation.”103
Putting these pieces together, the picture of criminal enforcement starts to come
into focus. Like both the Toyota case and General Motors case, the case seems
possible for a wire fraud case made against the company. As detailed by the FTC
complaint, Volkswagen had continued a series of advertisements since the introduction of the 2.0 L diesel advertisement, including the Green Police advertisement
and the Old Wives Tale advertisement—both of which are designed to distinguish
Audi and VW diesels as being powerful and green, characteristics inextricably
linked to the amount of emissions.104

100

Exhibit B to Deferred Prosecution Agreement, United States of America v. General Motors,
No. 1:15-cv-07342 (S.D.N.Y. Sept. 17, 2015). Available at http://www.justice.gov/usao-sdny/file/
772311/download.
101
18 U.S.C. §1001 (2012).
102
Memorandum re: Individual Accountability for Corporate Wrongdoing from Sally Quillian
Yates, Deputy Attorney General, to All United States Attorneys (9 September 2015), http://www.
justice.gov/dag/file/769036/download.
103
Memorandum re: Individual Accountability for Corporate Wrongdoing from Sally Quillian
Yates, Deputy Attorney General, to All United States Attorneys (9 September 2015), http://www.
justice.gov/dag/file/769036/download.
104
See Schultz (2016).

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J.A. MacDougald

Next, the structure of a potential false statement claim is laid out within the
NOVs for both the 2.0 and 3.0 diesels. The 2.0 TDI NOV recounts that only after it
was clear that the EPA would not approve the next model year diesel cars “did VW
admit it had designed and installed a defeat device in these vehicles in the form of a
sophisticated software algorithm that detected when a vehicle was undergoing
emissions testing.”105 The implication is that VW was denying the presence of
the defeat device to regulators up until that moment. Thus, it would not be
surprising to see VW charged with a count for false statements, much like GM.
VW already admitted to the installation and use of the defeat device. Given the
scale of Dieselgate and the course of the 2.0 and 3.0 investigations, we might expect
to see a break with past practice—with the DOJ to introducing the criminal
penalties section under the CAA itself. Finally, the unknown quantity is the extent
to which Deputy Attorney General Yates’ memo will affect the timing of any
prosecution and the government’s interest in pursuing individuals. Yates’ program
was announced in such close proximity to the EPA’s announcement that this effect
is impossible to predict. Further, for reasons not obvious to the public at the time,
this case may simply not be a candidate for individuals. VW’s executive team has
conducted its own internal investigation, using a major law firm, which was
overseen by a retired German jurist. On 11 May 2016, Volkswagen Group
announced that it found “no serious and manifest breaches of duty on the part of
any serving or former” top executives.106 Given the above, VW may face a similar
situation to the other major automotive companies, deferred prosecution agreement,
much like GM in the most recent automobile manufacturer case, but with additional
counts from the criminal provisions of the CAA.

5.3

Speculating on Other Claims

Other possible civil claims are numerous. Volkswagen dealers are included within
one of the class action suits; however, depending on their state law, these dealers
may have claims that survive based on independent state law theories, such as
business torts like unfair trade practices or even intentional interference with
business expectancies. All parties to the class action, including consumers, could
choose not to let the class satisfy their claims but instead “opt out” and choose to
litigate the claims individually. Given the local exposure of 40 times emission with
a car driving in their garage, some consumers might seek recovery for direct
environmental or health damage. Another available theory could be personal

105

Letter re: Notice of Violation Phillip A. Brooks, Director, Air Enforcement Division, EPA, to
Volkswagen AG, Audi AG, and Volkswagen Group of America Inc. (18 September 2015).
Available at http://www.eenews.net/assets/2016/03/31/document_gw_05.pdf.
106
Bomey (2016).

United States of America

107

harm to consumers arguing that they were injured, either emotionally or physically,
by becoming an unwitting polluter.
Despite the 44 state settlements, the agreement does not represent the entire
locus of claims available to the states. The states may have additional claims against
Volkswagen—notably others associated with the 3.0 TDIs, specific state environmental claims for both engine models, unfair trade practice claims, or claims based
on state or municipal ownership of the cars.
Banks that have security agreements may be able to assert their rights against an
intentionally fraudulent value placed against the inventory of diesel TDI cars when
VW knew or should have informed their dealers that such assets were of impaired
value. A similar lawsuit may be possible brought on behalf of consumer lenders
who used the car as surety for either the purchase of the car or other collateral.
Securities lawsuits in which VW shareholders argue that their stock is undervalued
due to a failure to disclose material facts may also be brought. The success or failure
of this type of claim depends a great deal on the facts developed as closely as the
emission Dieselgate information was used.
Other environmental claims could consist of individuals attempting to get
standing to stop the cars from being driven on state roads. Whatever the cause
that is brought with merit or dismissed out of hand among each of the claims in this
section, one thing is clear – Volkswagen’s Dieselgate will be working through their
legal position in this area for a long time.

6 Conclusion
The VW Diesel emissions story is one of the biggest corporate and environmental
actions of our time, and it will be studied for years to come. VW’s technological
choice was directly influenced by changing environmental law and policy. The 2.0
TDI was designed to be a perfect expression of technology and regulatory compliance, and arguably it succeeded in this purpose. The law attempted to change
behavior—and it did, just not in the way it was intended.
Dieselgate also challenges us to rethink the relationship between regulator and
manufacturer. The EPA has broad authority on its testing protocols. The fact that
these defeat devices could be employed for so long, only to be discovered by
accident, invites a new perspective on regulatory testing. The EPA’s tests were
transparent and predictable. It was this very framework that had, at its core, an
assumption of good faith. The EPA has it, within its authority, to change and
challenge its testing protocols to reduce the incentive and opportunity for cheating.
However, this well-publicized case will surely create a strong deterrent for emission
violations, for some time. But, as the history of defeat device shows, those lessons
are too soon forgotten.
Finally, there is reason for optimism. A violation this large challenges the
U.S. government’s commitment to emissions policy. Clearly, there could have
been an opportunity for reduced enforcement. Yet the rapid and obvious move

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J.A. MacDougald

toward enforcement became a time for the U.S. to reinforce its commitment to
environmental values. It was surely this commitment that yielded the most surprising result of all: the cooperative and expeditious settlement discussions. Groups
that, when assembled, are naturally antagonistic toward each other were able to
work together to address this common problem without combative litigation and
with lighting speed. The settlement structure, if approved, will not only reinforce
emission priorities and remediate some of the damage done but will also jump-start
the United States toward a zero-emission transportation future, protecting everyone
for decades to come. In future years, the legacy of this action could be one of
commitment, cooperation, and leadership toward a greener future.
Acknowledgements For their invaluable assistance, I wish to thank Katelyn MacDougald,
M.A. Brown University, M.A. Columbia University, Ph.D. Student in Linguistics at Georgetown
University; Andrew Butler, Columbia Law School J.D. Candidate 2017; and Kristie Beahm,
University of Connecticut School of Law J.D. Candidate 2017.

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http://www.epa.gov/newsreleases/volkswagen-spend-147-billion-settle-allegations-cheating-emis
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20Statement%20of%20Facts%2C%20and%20Information.pdf
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http://www3.epa.gov/otaq/consumer/f99017.pdf

Part II

Specific Issues

Civil and Consumer Law
Giorgio Pedrazzi

1 Introduction: Background
The so-called Dieselgate is an unprecedented event not only in the car-making
industry but also in the whole private law field. An impressive amount of products,
in this case motors inside cars, was involved and sold in a large number of
countries, each with its own jurisdiction. It appears that up to 11 million cars
were outfitted with specially tailored devices that allowed the car to pass the
emission test. This sophisticated system1 would allow the car to recognize the
typical behavior of the testing procedure and keep the emission within the limit.
This pollution control would cease to operate right after the end of the test, with
improved performance of the diesel motor vehicle.
The term Dieselgate, although it does not appear to have an official definition, is
clearly derived from the infamous case of US President Nixon’s Watergate and has
become synonymous of the lying and cheating. When the game was over and the
cards turned over, it was clear the involvement of VW’s headquarters in Wolfsburg,
Germany. The environmental agencies had evidence in hand, and the motor company confessed the cheating, while the role of some suppliers is still unclear.
Volkswagen group gained over time a leading market share of diesel-powered
cars: the German carmaker was well reputed for his reliability. The consumers’
trust was over time propelled by popular campaigns advertising the “green” attitude
of the VW motor company’s cars.
From a private lawyer’s point of view, the admission about cheating should
make this event look like a clear-cut case, but unfortunately the legal issues at stake
are not so clear by now. Speaking of liability, leaving aside the alleged criminal
1

About the ethical issues in software programming: Balbir (2016).

G. Pedrazzi (*)
University of Brescia, Brescia, Italy
e-mail: giorgio.pedrazzi@unibs.it
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_6

113

114

G. Pedrazzi

issues, the aim of this chapter is to discuss the private law drawbacks related to this
big “fiasco.” In fact, Volkswagen group will face many lawsuits all over the world,
but the outcomes are, at the time of writing, unpredictable. What can be easily
predicted is the downsizing of the market share for Volkswagen cars in particular
and the diesel-powered cars in general, from which will be probably benefit the EV
(electric vehicle) manufactures.2
Agencies throughout the world promoted investigations on the emission tests,
and regulators are taking actions from China to India, following the US
investigations.3
At a first glance in this case can be invocated corporate and social responsibility,
tort liability, environmental liability, contractual defective products, warranty, false
information, and misleading advertising. The potential plaintiffs could encompass
buyers of VW’s cars, shareholders of VW’s stocks, including wealth funds and
investors, car fleet corporate managers, sellers, workers and subcontractors, and
part suppliers. The list could be endlessly carried over, but we have to take into
account that in most cases these plaintiffs’ lawyers once actually in court will have
to prove the damages occurred to them and the causation link between the events.
Many private issues are at stake: the choice between individual or collective action
and the proper definition of the legal ground of the claim.
In the next sections, we will try to define the liabilities involved (Sect. 2). These
notes will lead to the discussion about suitable remedies, such as restitution or
compensation (Sect. 3), followed by some comparative remarks for individual or
collective actions (Sect. 4) and some final remarks (Sect. 5).

2 Liabilities
One of the most striking facts related to the Dieselgate is the complete awareness of
the board of directors.4 Undeniably, this misconduct was in fraud of the pollution
regulations, bringing false light in the public eye and violated basic ethical rules.5
Since evidence of similar cheating has not yet provided for any of the major
rivals in the diesel-powered car market, the biggest player6 significantly altered the
competition in this sector.
As corporate liability, the executives put in danger the value of the firm even
before the price of the stocks.7 Wealth and edge funds and investors are joining
force to bring VW in court to recover the financial losses.

2

Carvalho (2016).
Goel (2015).
4
Witkowska (2016); Cruz Caria and Hermans (2016); Cavico and Mujtaba (2016).
5
Bovens (2016).
6
Miravete et al. (2015).
7
Terry-Armstrong (2016).
3

Civil and Consumer Law

115

As social responsibility, the “green” manifesto of the company was nevertheless
repeatedly announced and publicly endorsed while keeping a behavior, which has
damaged the environment and health of the whole Earth.8
In 2007, Audi issued in US an advertising campaign with the motto “truth in
engineering” and further on truth leaves other behind. Not only would they take
care of environment and social responsibility, but also the hidden message is that
they would take care of it “better” than others would.9
The traditional “made in Germany” reliability for safety and transparency in
product making has been compromised by the reckless behavior of the
executives.10
The liability affected many different stakeholders, besides the investors mentioned before; the Dieselgate directly damaged even the car salespersons.
The VW dealers and distributors in the US will likely be compensated. After the
scandal, the sales of VW cars in the US dropped to about 14.6 % and 650 North
American sellers promoted a class action against the car company. During the trial,
VW declared to be willing to recover the losses as a payout, plus a buyback of the
affected cars still unsold at the same conditions applied to consumers in the
settlement11; although the total sum would not be disclosed, it should be reasonably
close to $1.2bn.

3 Remedies
The language of remedies, traditionally belonging to common law systems, has
more and more become a common vocabulary for European judicial systems.
Finding the line of action from a customer’s lawyer perspective would lie in
answering the following questions: is the defeat device making the car a defective
product? How can we actually define the magnitude of damages in order to place a
claim?
The actual impact on health and air pollution of the use of the emission control
defeat device is highly debatable.12 The foresight of the future drawbacks and costs
in terms of deaths, sickness, and economic expenses for medical aid can be
problematic.13
8

“Our results show that health costs in Europe and USA combined are an estimated 5.3 times
larger than the 7.3 billion US dollars that Volkswagen Group has set aside to cover worldwide
costs related to the diesel emissions scandal” Oldenkamp et al. (2016).
9
A case study of the scandal can be found in Blackwelder et al. (2016).
10
Zalupca (2015).
11
For an analysis of the 2.0 TDI motor settlement, check in this book MacDougald J,
Chapter “United States of America”, Sect. 3.3.
12
See the thread Holland et al. (2016a); Kent Hoekman (2016); Holland et al. (2016b). For the US:
Malina and Keith (2015); Barrett et al. (2015).
13
Talha Khan (2016).

116

G. Pedrazzi

Not to mention that Europe and US during the last years kept a different position
focusing regulation respectively on CO2 emissions, following the Kyoto agreement,
and NOx pollution.
The first remedy offered by Volkswagen to US customers would be a “fix” with
an option for a buyback of the “sale proof” cars. Statistics shows that they will
largely go for the latter.
It is worth to notice that the California settlement allows VW to fix and resell, or
even sell abroad in countries with less stringent emission requirements, the cars that
will be bought back. Some used cars would be also more valuable as a source of
refurbished spare parts than to be sold as a whole.
The policy towards European customers at the time of writing appears to be
completely different. The fix has been approved, for 1.2 and 2.0 TDI motors, by the
German Regulatory Agency KBA, and complies with EU regulations without
affecting the fuel consumption levels, performance data, or noise created by the
vehicles. This approval has been challenged by some consumer groups that claim
that the car after fix will not fully match the requirements as homologated when first
put on the market.
In particular, the fixed vehicle could not be considered as Euro 5 compliant but
only Euro 4. This would lead to a lack of conformity, a decreased resale value, and
some collateral drawbacks in performance.
If the buyer of the car can be considered as a “consumer,” he would be entitled to
some specific rights under the EU legislation, as implemented by single member
States. The Charter of Fundamental Rights and the European treaties both guarantee
high level of consumer protection in the European Union. The measures adopted
during the years to pursue this aim tried to balance it with the competiveness of
enterprises.14
Some member States entered into force the Directive related to sales and
guarantees of consumer mobile goods (1999/44/EC) and the Directive on consumer
rights (2011/83/EC) by means of a Consumer Law Code.15 According to the
European consumer law, the seller has the duty to deliver the goods in conformity
with the sales contract. In case of lack of conformity, the consumer has the right to
ask for the goods to be repaired, replaced, and reduced in price or for the contract to
be rescinded.

14

This scandal broke German perspective; see in this book Schmid C, Chapter “Germany”, Sect. 3.
For the remedies available in the French “Code de la Consommation,” see in this book
Posocco L, France, Sect. 3.3.
15

Civil and Consumer Law

117

4 Some Comparative Remarks
About the collective redress approach, it could be useful to provide a short insight
of two different civil law systems where a class action can be granted to plaintiff
and in which the Volkswagen cars were sold.

4.1

Italy

Although quite recently introduced, the Italian collective action’s rules were
amended already and in Parliament lies a reform proposal, which could lead to
some further improvements in the next future.16 The actual Article 140bis in the
Italian Consumer Code disciplines the collective actions. The rule was at first
introduced in 2007, amended in 2009, entered into force in 2010, and then subsequently modified in 2012. As part of the Consumer Code, this action could only be
filed against enterprises and business operators.
On this ground, some legal firms and consumer groups promoted a class action
about Dieselgate emission cheating. The claims range from the restitution of 15 %
of the price paid for the car.
While these trials are not gone past the preliminary issues, taking into account
the well-known length of Italian procedures, some recent class actions can offer a
relevant insight.
In June 2016, the Venice Court of Appeal accepted a class action suit against
Volkswagen filed by an Italian consumer group in 2014. Venice is the court of
appeal for the Verona Tribunal decision since the latter is the town where the Italian
headquarters of VW cars distributor is based.
The Turin Court of Appeal held an comparable decision in a similar case
involving Fiat Chrysler, which is notoriously based in that city of the northeast of
Italy.
These judgments are not connected to the emission-cheating device. But in both
cases, the carmakers understated the fuel consumption of, respectively, VW Golf
and Fiat Panda model. These rulings, albeit reached in appeal of a previous denial
of the court of first instance, are relevant because the certification of the “homogenous interest” could be difficult to prove in such a case, as well as the different
drivers’ behavior and usage of the car, which would affect the consequences of
VW’s cheating based on the distance driven.17
Recently, Italian Antitrust Authority AGCOM issued the maximum amount of
fine (five million euros) for “unfair commercial practices”; VW announced an
appeal.
16

Caponi (2016).
On the importance, and the complexity, to calculate the emission during the car lifetime cycle:
Vi~noles-Cebolla et al. (2015).
17

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4.2

G. Pedrazzi

Brazil

The Brazilian perspective is relevant because the country adopted a class action
model with the prominent role of the public interest, which can be seen as a model
for civil law systems.18
In October 2015, in the Tribunal of Rio De Janeiro was brought a class action
suing Volkswagen for pecuniary and nonpecuniary losses. The car in the middle of
the scandal is the pickup Amarok, built in Argentina and sold in Brazil with the 2.0
TDI diesel motor in 17,057 units. It can be inferred that it is relatively a small
percentage, considering the vastness of the Brazil region. But we have to take into
account the large adoption of ethanol-fuel-propelled vehicles.19 Furthermore, in the
1970s in times of energy crisis, the authorities became aware that the internal oil
was not able to match the needs, so the Brazilian government enacted a law that
does not allow diesel passenger cars. This kind of propulsion is confined to
commercial vehicles such as the Amarok pickup.
In addition to this long-term ostracism, the concerns over health are rising20 and
the Brazilian Institute for the Environment and Renewable Natural Resources
(Ibama) issued a fine of R$ 50 reals and the Fundaç~ao de Proteç~ao e Defesa do
Consumidor (Procon-SP) of R$ 8.3 million for the diesel cheating. Volkswagen
anyway planned a recall of the Amarok pickup fitted with the 2.0 TDI motors and
will be fighting both the sanctions and the civil claims in court. New cars are now
equipped with the modern 3.0 motors.

5 Conclusions: Lesson to Be Learned
The effects of the Dieselgate will be probably different, in my humble opinion, on
the opposite sides of the ocean. For the continental Europe, it is a chance to
strengthen controls and regulation on the air pollution and to boost renewableenergy-based21 systems of transportation.22 For some countries, Italy for instance, it
is an opportunity to spread the word on class actions outside the realm of the
lawyers and to shed a light on the consumers’ association as advocates of citizen’s
right.
For Volkswagen, the rebranding and green-washing23 strategies are already in
place, but the cost to pay will be high.24
18

Gidi (2003).
Johnson (2015).
20
Dallmann and Façanha (2016).
21
Zachariadis (2016), Sch€
ottle and Bratzel (2016).
22
Brand (2016).
23
Zhou (2016).
24
Fracarolli Nunes and Lee Park (2016).
19

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119

In the long run, we all hope not to face again such a huge scandal but we will
have to be armed and ready.
The intersection between regulation and enforcement, individuals’ rights and
public interest has been crossed over. The next generation of European private law
remedies should probably be able to address an answer for collective claims at
supranational level. Furthermore, the reckless company behavior should be sanctioned for good. The choice between punitive damages in a private lawsuit or
administrative fines issued by a suitable authority has to be wisely chosen, taking
into account the deterrent effect compared to the company’s dimensions. The
sanction devised in the newly approved Regulation on Personal Data Protection,
which will be in effect in 2018, can be a model in linking the amount of the fine to a
percentage of the global turnover of the company.
Environmental wrongs, privacy breaches and all illicit behavior that can affect
the population should be prevented in every possible means because every kind of
redress of recovery will never bring back the clock.

References and Websites
Balbir SB (2016) Do you own a Volkswagen? Values as non-functional requirements. In:
Bogdan C, Gulliksen J, Sauer S, Forbrig P, Winckler M, Johnson C, Palanque P,
Bernhaupt R, Kis F (eds) Human-centered and error-resilient systems development, volume
9856 of the series Lecture Notes in Computer Science, pp 151–162
Barrett SRH, Speth RL, Eastham SD, Dedoussi IC, Ashok A, Malina R, Keith DW (2015) Impact
of the Volkswagen emissions control defeat device on US public health. Available at http://
stacks.iop.org/1748-9326/10/i¼11/a¼114005
Blackwelder B, Coleman K, Colunga-Santoyo S, Harrison JS, Wozniak D (2016) The Volkswagen
Scandal. Case Study. University of Richmond: Robins School of Business. http://scholarship.
richmond.edu/robins-case-network/17/
Bovens L (2016) The ethics of Dieselgate. Midwest Stud Philos 40:262–283. doi:10.1111/misp.
12060
Brand C (2016) Beyond ‘Dieselgate’: implications of unaccounted and future air pollutant
emissions and energy use for cars in the United Kingdom. Energy Policy 97:1–12. http://
www.sciencedirect.com/science/article/pii/S030142151630341X
Caponi R (2016) Italian ‘Class Action’ suits in the field of consumer protection: 2016 Update (16th
June 2016). http://ssrn.com/abstract¼2796611
Carvalho H (2016) The end of diesel-powered cars? Lancet Respir Med 4(1):e2–e3
Cavico FJ, Mujtaba BG (2016) Volkswagen emissions scandal: a global case study of legal,
ethical, and practical consequences and recommendations for sustainable management.
HCBE Faculty Articles, paper 470. http://nsuworks.nova.edu/hcbe_facarticles/470
Cruz Caria P, Hermans M (2016) The Volkswagen’ case; morally permissible?, VU University
Amsterdam. https://www.researchgate.net/publication/292722292_’The_Volkswagen’_case_
morally_permissible
Dallmann T, Façanha C (2016) Environmental risks of diesel passenger vehicles in Brazil. White
Paper. http://www.theicct.org/environmental-risks-diesel-passenger-vehicles-brazil-2016
Fracarolli Nunes M, Lee Park C (2016) Caught red-handed: the cost of the Volkswagen dieselgate.
J Glob Resp 7(2):288–302
Gidi A (2003) Class actions in Brazil: a model for civil law countries. Am J Comp Law 51:311

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Goel A (2015) Volkswagen the protagonist in diesel emission scandal. South Asian J Mark
Manage 5(11):32–40
Holland S-P, Mansur E-T, Muller N-Z, Yates A-J (2016a) Damages and expected deaths due to
excess NOx emissions from 2009 to 2015 Volkswagen diesel vehicles. Environ Sci Technol
50(3):1111–1117. doi:10.1021/acs.est.5b05190
Holland S-P, Mansur E-T, Muller N-Z, Yates A-J (2016b) Response to comment on “Damages and
expected deaths due to excess NOx emissions from 2009–2015 Volkswagen diesel vehicles”.
Environ Sci Technol 50(7):4137–4138
Johnson J (2015) Promoting the sustainability of biofuels in America: looking to Brazil. Tenn J
Law Policy 10(2):263. http://ssrn.com/abstract¼2499310 or doi:10.2139/ssrn.2499310
Kent Hoekman S (2016) Comment on “Damages and expected deaths due to excess NOx
emissions from 2009 to 2015 Volkswagen diesel vehicles”. Environ Sci Technol 50
(7):4135–4136
Malina R, Keith DW (2015) Impact of the Volkswagen emissions control defeat device on US
public health. Environ Res Lett 11:10. doi:10.1088/1748-9326/10/11/114005
Miravete EJ, Moral MJ, Thurk J (2015) Innovation, emissions policy, and competitive advantage
in the diffusion of European diesel automobiles. https://www.ucm.es/data/cont/media/www/
pag-37515/MoralRincon_jun14.pdf
Oldenkamp R, van Zelm R, Huijbregts MAJ (2016) Valuing the human health damage caused by
the fraud of Volkswagen. Environ Pollut 212:121–127. http://www.sciencedirect.com/science/
article/pii/S0269749116300537
Sch€ottle M, Bratzel S (2016) ATZ Elektron Worldw 11:10. doi:10.1007/s38314-016-0010-1
Talha Khan B (2016) Diesel cars and health: the Volkswagen emissions scandal. Lancet Resp Med
3(11):838–839
Terry-Armstrong N (2016) The Volkswagen scandal - the high cost of corporate deceit. Busidate
24(1):9–13.
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Vi~noles-Cebolla R, Bastante-Ceca MJ, Capuz-Rizo SF (2015) An integrated method to calculate
an automobile’s emissions throughout its life cycle. Energy 83:125–136. doi:10.1016/j.energy.
2015.02.006
Witkowska J (2016) Corporate social responsibility: selected theoretical and empirical aspects.
Comp Econ Res 19(1):27–43
Zachariadis T (2016) After ‘dieselgate’: regulations or economic incentives for a successful
environmental policy? Atmos Environ 38:1–3. http://works.bepress.com/theodoros_
zachariadis/45/
Zalupca A-G (2015) “Made in Germany” – “Volkswagen Dieselgate”. In: Costea AM, Ghigiu
AM, Melenciuc IR (eds) Governance and Europeanization as a framework for understanding
the European Society. Tritonic, Bucureşti, pp 193–206
Zhou A (2016) Analysis of the Volkswagen scandal possible solutions for recovery. Available at
https://gps.ucsd.edu/_files/faculty/gourevitch/gourevitch_cs_zhou.pdf
http://www.volkswagenag.com/content/vwcorp/content/en/sustainability_and_responsibility.html

Corporate and Insurance Law
Adolfo Paolini

1 Introduction: The Facts as They Developed
Nobody for an instance would doubt that the Volkswagen group, as a global
enterprise, is one of the most influential market players. The VW group has
managed to build excellent reputation not only for the quality of its products but
also for the financial stability of its entire corporate group. Hence, it would not be
difficult to understand that the market will positively or negatively react to any
news, which in one way or another affect the VW corporate body. On 11 September
2015, VW made public a statement highlighting how prosperous and environmentally friendly VW was. Its web portal praised that it was the ‘world’s most
sustainable automotive group’.1 Arguably, investors in American Depository
Receipts (ADRs) in the US welcomed such great news. Nevertheless, on
18 September 15, the US Environmental Protection Agency served a notice to
VW that the carbon emission software, used in certain VW car models, had been
unlawfully manipulated. VW share prices lost, almost instantaneously, more than a
third of its value. Consequently, VW faces billions of dollars in fines, indemnity
claims of approximately $37,000 per vehicle and it has set aside $7 billion to deal
with almost 0.5 million cars affected in the US and 11 million worldwide. The latest
news revealed that the US authority has reached an agreement with VW in the range
of 14.7 billion USD.2

1

http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/09/sustain.html.
http://www.quattroruote.it/news/industria/2016/07/11/dieselgate_volkswagen_germania_la_
procura_di_braunschweig_chiede_una_multa_separata.html.

2

A. Paolini (*)
University of Buckingham, Buckingham, UK
DAC Beachcroft LLP, London, UK
e-mail: adolfo.paolini@buckingham.ac.uk
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_7

121

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A. Paolini

On 25 September 15, Germany disclosed that 2.8 million cars had been affected
and the VW supervisory board had instructed lawyers both in the US and Germany
to investigate the case. At that point, VW admitted liability for the use of ‘defeat
devices’ to rig the emissions test/software to circumvent EPA. Nevertheless, VW
senior officers denied liability and/or knowledge of any misconduct in regard to the
so-called defeat devices.3
At the moment, the German state of Bavaria is considering suing VW for the
losses sustained by the pension fund of its civil servants, who may have lost up to
700,000 euros due to the fall in VW shares price.4 The public prosecution office in
Braunschweig Germany has received at least 150 complaints against VW, and the
likelihood of further fines being imposed on the giant manufacturer are latent.5
Consequently, VW groups of companies are facing liability for breaching antipollution rules, directors’ liability to VW for breach of directors’ duties are likewise
in issue, and even liabilities to third parties are now being tested. Furthermore, VW
has been threatened with class actions not only by consumers but also by company
shareholders and mainly ADR investors, product recall claims,6 to say nothing of
attempted actions against directors by environmental agencies and regulatory
investigations.
Should D&O carriers worry about the above scenario? Undoubtedly, yes!
The scope and size of potential claims, if lightly managed, could pose serious
challenges to the D&O market, especially in terms of suitable limits, deductibles,
aggregation and even pricing in the foreseeable future.
Once I read a very well-written book, whose author wisely said, ‘the best place to
start is the beginning’; thus, let us start with brief ideas about the scope and nature
of D&O policies.

2 Scope and Nature of D&O Policies
D&O insurance has been developed to protect directors and officers against the
liabilities they could incur for breaching the duties owed to the corporate body. The
provision of entity or company cover was a later addition. Hence, the rationale for
its creation was not to protect the company itself in the sense that first party
insurance and fidelity policies would do that job.7
It is a well-established principle that companies are separate legal persons;
therefore, the nature of D&O needs to be found in third party insurance since it
3

http://www.aljazeera.com/news/2015/09/volkswagen-chief-executive-winterkornresigns150924034930424.html.
4
http://www.reuters.com/article/us-volkswagen-emissions-litigation-idUSKCN10D135.
5
http://www.quattroruote.it/news/industria/2016/07/11/dieselgate_volkswagen_germania_la_
procura_di_braunschweig_chiede_una_multa_separata.html.
6
Lüftenegger (2016).
7
Paolini and Nambisan (2008).

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123

potentially indemnifies damages suffered by others, the company, rather than the
wrongdoer, director, itself.
Professional Indemnity Insurance seems to be the obvious direct source of D&O.
Even though directorship is not, in its own right, a profession,8 being a company
director requires a high level of professionalism, thus skills and commitment, akin
to the practising of any common profession. This feature is, for the most, very
important because it triggers the level of care, diligence and skills that directors, as
any other professional, should have in discharging their duties to the corporate
body. It is precisely liability for negligent acts what D&O is meant to cover in the
first place.
The next important feature of D&O is what triggers the insurer duty to indemnify
the insured, and in line with the principles underpinning third party insurance, it has
to be the insured’s liability for damages caused to a third party.9 Consequently, it is
paramount that such liability is firstly established, by judgments, arbitration awards
or binding settlements out of court, to trigger substantive cover.10 Mere allegations
of liability, as far as the English legal system is concerned, would not be enough to
recover from the D&O carrier.11 Other jurisdictions do have a more flexible
approach and admit allegations of liability to trigger indemnity, the New York
legal forum a clear example. In Astrazeneca Insurance Co Ltd v XL Insurance
(Bermuda) Ltd,12 reinsurers sought a declaration that they were not contractually
bound to indemnify the insured on the ground that in accordance with English law,
the (re)insurers’ duty to indemnify the (re)insured only arises when the latter
liability has been established and not when mere allegations have been made by
the third parties, ultimate victims of the wrongful act. Astrazeneca, a well-known
manufacturer of pharmaceutical products, sustained a number of claims for the side
effects caused by one of its products. Most of the claims were settled out of court
and immediately, Astrazeneca sought recovery from its insurer. The insurer, a
captive of Astrazeneca, agreed to indemnify all claims and in turn sought indemnity
from its reinsurers, XL and others. The policy was written in the Bermuda form,
which almost always has New York law as choice of law. On this occasion,
nevertheless, choice of law was England and Wales law; therefore, the UK courts
had, for the first time, the opportunity to scrutinise claims in the so-called Bermuda
form. There is a crucial difference between the way two jurisdictions, namely
New York and England/Wales, construe what triggers the insurer’s contractual
duty to indemnify. According to the former, mere allegations of liability would
suffice; however, according to the latter, liability would have to be established. This
last argument was the basis of the reinsurers’ argument, and the Court of Appeal
agreed with this submission. Astrazeneca made ex gratia payments to potential

8

Paolini and Nambisan (2008).
Merkin (2014).
10
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363.
11
Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660.
12
[2013] EWCA Civ 1660.
9

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A. Paolini

claimants; therefore, its liability had not been established as to trigger the reinsurers’ duty to indemnify. Should the insurance policy have had New York as
choice of law, the outcome would have been different because this last jurisdiction
only requires mere allegations of liability to activate indemnity.
The relevance of the above decision in the ambit of D&O in general and in the
VW carbon emission investigation in particular is seriously important. One would
expect that D&O reinsurance is in place to cover VW directors’ liabilities, and it is
very likely that the London market may have provided with such cover. Consequently, D&O insurance and reinsurance policies would only be triggered if
directors’ liability to indemnify the third party claimant is ascertained or finally
established, and not on the grounds or mere allegations of liability.
Defence Costs, on the other hand, should be approached differently. Nowadays,
D&O policies tend to offer defence costs cover as a stand-alone cover. The fact that
it is not part of the aggregate limit of the substantive cover would allow directors to
defend their liabilities, without exhausting policy limits. Defence costs stand-alone
cover also benefits insurers because directors would have access to funds that could
ultimately be used to prove them innocent, so no liability arises.13 Several issues
could nevertheless arise, such as allocation between claims against the company
and claims against directors to say nothing of one of the most controversial, whether
or not the insured is entitled to request the advance of defence costs to defend
his/her liability and/or whether the insurer is contractually bound to so advance.
D&O is written on a Claims Made basis,14 so the insurer would be at risk if a
claim or circumstance likely to give rise to a claim is duly notified to the insurer
during the insurance period, regardless of whether or not the directors’ liability is
ascertained at some point in the future.
The different types of cover offered by the market are sides A, B and C. Side A
provides cover to company directors for liabilities that they could incur in
discharging their duties as such. Side B is also known as company reimbursement
cover, whereby the company itself would be reimbursed for any lawful payments
that it has done to the director in connection with the claim. Last is side C, or entity
cover, which provides insurance for the company itself against claims by shareholders, stakeholders and even regulatory investigations. It is necessary to emphasise that side C cover could probably have the negative effect of exhausting the
insurance limits of indemnity, thus leaving directors without suitable protection. It
is advisable to negotiate suitable cover with insurers, to diminish the impact of side
C cover.15
Normal exclusions operate; for example, D&O does not cover wilful misconduct
and fraud on the grounds of public policy; contractual liability is also excluded,
albeit it seems that the insured would have a claim if he/she proves that a claim in

13
In fact, in Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd, the defence costs claim
was not disputed.
14
Merkin (2014).
15
Ring fencing, different limits of indemnity.

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125

tort, on the same grounds, would have also succeeded.16 On the other hand,
regulatory investigations are now covered, provided that the insured is not found
guilty of fraud or wilful misconduct.
Paramount to this discussion is the fact that pollution is often excluded and
requires specific coverage, leaving the VW potential issues within the boundaries of
directors’ breaches of duties and the company’s own liability.
It would be impossible to cover in a short piece of research, such as this, all
potential implications that D&O in the VW Dieselgate allegations would have.
Consequently, let us focus on two of the most important: VW directors’ negligence
and defence costs.

3 Directors’ Duty of Care and Skill in the UK
and Germany
Arguably, D&O insurance indemnity will be provided to any insured director who
is found negligent and has caused a loss to a third party, including the company.
Nowadays, the standards of diligence and commitment imposed on company
directors have reached high levels, and directors should be aware that it is very
easy to incur liability for merely and even inadvertently failing to meet such
standards.
In the United Kingdom, the Companies Act 2006 section 174 establishes the
following:
Duty to exercise reasonable care, skill and diligence
(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably
diligent person with—
(a) The general knowledge, skill and experience that may reasonably be expected of a
person carrying out the functions carried out by the director in relation to the company, and
(b) The general knowledge, skill and experience that the director has.

Directors’ duty of skill and care has therefore evolved from, to some extent, a
lenient standard17 to a more demanding one. The new approach distinguishes
between the duty of skill and the duty of care and assesses both from different
angles.
The duty of care is objectively assessed, in the words of section 174 above, “the
general knowledge, skill and experience that may reasonably be expected of a
person carrying out the functions carried out by the director in relation to the
company. . .”.18 This means that in assessing whether the duty of care is breached,

16

Omega Proteins Ltd v Aspen Insurance UK Ltd [2010] EWHC 2280 (Comm).
City Equitable Fire Insurance Co Ltd, Re [1925] Ch 407.
18
Companies Act 2006, s 174.
17

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A. Paolini

courts will look at what a reasonable person occupying such position would
have done.
On the other hand, the duty of skill is pretty much subjective: “the general
knowledge, skill and experience that the director has”.19 This test looks at what the
special knowledge, position, remuneration, corporate structure and nature of his/her
role is in order to raise or lower the required standards.
In Re Barings Plc (No 5),20 the England and Wales Court of Appeal approved
the summary given by Jonathan Parker J at first instance in the following terms:
(i) Directors have, both collectively and individually, a continuing duty to acquire and
maintain a sufficient knowledge and understanding of the company’s business to enable
them properly to discharge their duties as directors.
(ii) Whilst directors are entitled (subject to the articles of association of the company) to
delegate particular functions to those below to them in the management chain, and to trust
their competence and integrity to a reasonable extent, the exercise of the power of
delegation does not absolve a director from the duty to supervise the discharge of the
delegated functions.
(iii) No rule of universal application can be formulated as to the duty referred to in
(ii) above. The extent of the duty, and the question whether it has been discharged, must
depend on the facts of each particular case, including the director’s role in the management
of the company.21

From the above quotation, three conclusions are readily apparent, namely, the
duty of care is of continuous nature, directors are allowed to delegate their functions
to others in the management chain and the extent of the duty of care ultimately
depends on the facts of each particular case, for example, company size, structure,
directors’ remuneration,22 role in the company, market share, number of potential
victims of negligent acts, just to mention few.
Delegation is therefore possible, and in fact not delegating functions to others
with better knowledge and expertise than the director himself could be the negligent
act that breaches the duty. However, delegation automatically imposes on the
director the residual duties to supervise and control those on whom the duties
have been delegated.

19

Ibid.
[2000] 1 BCLC 523 at 535.
21
[2000] 1 BCLC 523 at 535.
22
Secretary of State for Trade and Industry v Baker and Others [1998] BCC 583: “It is right that
that should be so, because status in an organisation carries with it commensurate rewards. These
rewards are matched by the weight of the responsibilities that the office carries with it, and those
responsibilities require diligent attention from time to time to the question whether the system that
has been put in place and over which the individual is presiding is operating efficiently, and
whether individuals to whom duties, in accordance with the system, have been delegated are
discharging those duties efficiently. . .. It would, I think, be quite rare to find a case where there
have been serious continuing failures on the part of individuals of which the senior executive
officers could disclaim responsibility on the ground that they did not know, and were not told of the
failures . . . the responsibilities that go with the high office held by [the director in question] . . .
carry with them the obligation of diligent supervision.”
20

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This last point has been eloquently highlighted in Re Westmid Packaging
Services Ltd (No 2)23 as follows:
. . . [T]he collegiate or collective responsibility of the board of directors of a company is of
fundamental importance to corporate governance under English company law. That collegiate or collective responsibility must however be based on individual responsibility. Each
individual director owes duties to the company to inform himself about its affairs and to
join with his co-directors in supervising and controlling them. A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but not total
abrogation of responsibility. A board of directors must not permit one individual to
dominate them and use them . . . It is of the greatest importance that any individual who
undertakes the statutory and fiduciary obligations of being a company director should
realise that these are inescapable personal responsibilities. The appellants may have been
dazzled, manipulated and deceived by [the fraudulent director] but they were in breach of
their own duties in allowing this to happen . . ..

Directors are also required to seek professional advice and could rely on those
expert opinions where appropriate. It could be the case that not obtaining such
advice could be the director’s negligent act that leads to liability.24 For example,
could the VW CEO escape personal liability for relying on the expertise of those in
whose hands the role of controlling the carbon emission software was? According
to English law, he could if he trusted their competence and integrity. However, the
CEO would be liable if he failed to properly monitor or supervise them or failed to
put a system whereby he could check on the performance of the delegated functions. Should this be the case, in principle the director would be covered under a
D&O insurance policy. Policy exclusions will nevertheless apply if the CEO knew
about the rigged software or was reckless (more than negligent) in not properly
supervising and/or monitoring other managers or directors in the management
chain.

3.1

UK Non-executive Directors

The UK contrary to Germany, does not have the two-tier board25 system whereby
non-executive directors could separately supervise the executive board. On the
contrary, both executive and non-executive directors rank equally, and this could
pose certain problems, one of which is that non-execs are not independent enough
so as to properly monitor the executive board and therefore properly fulfil their
role.26

23

[1998] 2 All ER 124.
Re Faure Electric Accumulator Co (1888) 40 Ch D 141; Re New Mashonaland Exploration
Company [1892] 3 Ch 577 at 585; Sheffield and S York Permanent Building Society v Aizlewood
(1890) 44 Ch D 412 at 455–460.
25
See in this book Schmid C, Chapter “Germany”, section 3.3.
26
Paolini (2016).
24

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A. Paolini

The one-tier board system could only efficiently work where non-executive
directors exercise independent judgement and supervision of the executive board.27
Additionally, the Companies Act 2006 does not distinguish between executive
and non-executive directors; consequently, both are subject to the same sort of
duties and obligations.28 This last point makes difficult to ascertain what the
standard of care of non-execs is. Nevertheless, it is clear, after the decision in
Lexi Holding Plc (In Administration) v Luqman,29 that non-execs’ failure to properly discharge their duties could be the causative link between the breach and the
losses incurred by the company; they are meant to supervise. In some instances, the
standard of care and skill has been assessed at a very high level.30
The Corporate Governance Code 2014, albeit it is of voluntary adoption for
public limited companies, plays also a prominent role in the well-functioning of UK
company law. Its main objectives, as they affect non-executive directors, could be
summarised as follows:
to guarantee the integrity of the financial information provided by the company;
to guarantee that financial controls and risk management are robust and defensible;
to ascertain proper level of remuneration for executive directors;
to appoint and remove executive directors;
to play a paramount role in succession planning.31
Contrary to the German system,32 the one-tier system implemented in the UK
does not allow for shareholders to request from the non-executive directors the
commencement of legal proceedings or investigations against executive members
of the board. Shareholders therefore would have no other option than derivative
actions, which have the additional burden of having to convince the court33 that the
claim merits litigation. The second possibility lies in the hands of the Financial
Conduct Authority, which has to ensure compliance with financial regulation.

27

Equitable Life Assurance Society v Bowley and Others [2003] EWHC 2263 at 41; Bonham
Carter v Situ Ventures Ltd [2013] EWCA Civ 47.
28
Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498.
29
[2009] EWCA Civ 117.
30
Newcastle International Airport Ltd v Eversheds LLP [2012] All ER (D) 20; Australian
Securities Commission v Healey [2011] FCA 717; Secretary of State for Trade and Industry v
Swan and Others [2005] EWHC 603 (Ch).
31
UK Corporate Governance Code 2014 A.4 Non-Executive Directors, Supporting Principle.
32
See in this book Schmid C, Chapter “Germany”, section 3.3.
33
According to section 261 of the Companies Act 2006, leave of court is required to proceed with a
derivative claim.

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Directors’ Liability to Third Parties

A critical difference between UK and German company laws is precisely found
here. The possibility of directors incurring liability to third parties (outside the
company) is very difficult to be established. What the law requires is, in the absence
of statutory provisions in this area, a clear assumption of responsibility test, which
if proven will create a duty of care between the director and a third party claimant.
In Williams v Natural Life Health Foods Ltd,34 the then House of Lords35 decided
that a director of a company in liquidation did not incur liability to the claimants
because the latter failed to prove that the former had assumed personal responsibility to the claimants for the accuracy of information given by the company. In
other words, should the claimant have proved such assumption of responsibility, it
would have resulted in a successful claim against the company director.36 The
significance of this last comment is twofold: firstly, D&O insurance would not be
triggered unless directors’ personal liability is established, which requires assumption of responsibility. Secondly, a living question is still open for discussion, and
that is whether a director who had assumed responsibility to a third party may have
incurred liability in his/her insured capacity, that of being a director, or outside
directorship. In the last scenario, D&O will not cover.
The same cannot be said when directors incur fraudulent misrepresentation, in
which case the UK courts will be inclined to make directors personally liable for the
tort of deceit. This was the view in Standard Chartered Bank v Pakistan National
Shipping Corporation.37 Needless to say that the fraudulent nature of the incurred
liability would prevent D&O insurance cover.
As stated above, the Companies Act 2006 section 170 establishes that directors
owe their duties to the corporate body and it is very difficult indeed to incur liability
to third parties. Furthermore, the UK has not instituted class actions whereby
shareholders could collectively claim against wrongdoers’ directors. The possibility
of shareholders claiming for reflective losses, namely the diminution of value of
their shareholding caused by directors’ breaches of duties, cannot be directly
recovered from the latter,38 a position that is also followed in most European
countries, including Germany.39
Consequently, minority shareholders’ protection is afforded in an indirect way,
namely, seeking remedies for the company that ultimately would benefit the

34

[1998] 2 All ER 577.
Before becoming Supreme Court following the judicial reform in 2009.
36
Cases that followed Williams: Fashion Brokers Ltd v Clarke Hayes [2000] PNLR 47; Electra
Private Equity Partners v KPMG Peat Marwick [2001] 1 BCLC 589; Noel v Poland [2001]
2 BCLC 645; Merret v Babb [2001] EWCA Civ 214; European International Reinsurance Co Ltd
v Curzon Insurance Ltd [2003] EWHC 321.
37
[2003] 1 All ER.
38
Prudential Assurance Co Ltd v Newman Industries Ltd (No2) [1982] Ch 204.
39
De Jong Bas (2013).
35

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shareholders. This is the aim of the derivative action contained in section 260 of the
Companies Act 2006:
(3) A derivative claim under this Chapter may be brought only in respect of a cause of
action arising from an actual or proposed act or omission involving negligence, default,
breach of duty or breach of trust by a director of the company. The cause of action may be
against the director or another person (or both).

The locus standi is on the company, and any remedy will be for the benefit
corporate body.40
Two more remedies are available to shareholders, the unfair prejudicial conduct
action41 and the winding up on just and equitable grounds, which for the purpose of
this paper are less relevant.42
Against this background, let us move to see what the German approach is.

3.3

Germany

Arguably, most Civil Law jurisdictions recognise that company directors could
incur liability both contractual and extra-contractual, not only to the corporate body
but also to shareholders and third parties. From this perspective alone, D&O
insurers face much larger risks than UK carriers, where directors’ liabilities are
virtually limited to the corporate body.
Germany is not an exception, and the Stock Corporation Act section 9343
contains a series of very demanding provisions, which are analysed in turn.
40
Companies Act 2006 s 260: “Derivative claims (1) This Chapter applies to proceedings in
England and Wales or Northern Ireland by a member of a company—(a) in respect of a cause of
action vested in the company, and (b) seeking relief on behalf of the company. This is referred to in
this Chapter as a “derivative claim”. (2) A derivative claim may only be brought—(a) under this
Chapter, or (b) in pursuance of an order of the court in proceedings under Section 994 (proceedings
for protection of members against unfair prejudice). (3) A derivative claim under this Chapter may
be brought only in respect of a cause of action arising from an actual or proposed act or omission
involving negligence, default, breach of duty or breach of trust by a director of the company. The
cause of action may be against the director or another person (or both). (4) It is immaterial whether
the cause of action arose before or after the person seeking to bring or continue the derivative claim
became a member of the company. (5) For the purposes of this Chapter— (a) “director” includes a
former director; (b) a shadow director is treated as a director; and (c) references to a member of a
company include a person who is not a member but to whom shares in the company have been
transferred or transmitted by operation of law.”
41
Companies Act 2006 s 994.
42
Insolvency Act 1986 s 122(g).
43
http://www.nortonrosefulbright.com/files/german-stock-corporation-act-109100.pdf.
“Duty of care and responsibility of members of the management board.
(1) In conducting business, the members of the management board shall employ the care of a
diligent and conscientious manager. They shall not be deemed to have violated the aforementioned
duty if, at the time of taking the entrepreneurial decision, they had good reason to assume that they
were acting on the basis of adequate information for the benefit of the company. They shall not

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Directors and managers should exercise the care of a diligent and conscientious
manager. This requires each director to act as an organised and orderly business
person and not to incur liability if they genuinely believe and rely on adequate
information before making decisions. A director will therefore be expected to be
more careful ‘than the usual care expected of the ordinary man’.44 Consequently,
inability or inexperience is no excuse, and the higher their degree of qualification,

disclose confidential information and secrets of the company, in particular trade and business
secrets, which have become known to the members of the management board as a result of their
service on the management board. The duty referred to in sentence 3 shall not apply with regard to
a recognized auditing agency pursuant to § 342b of the Commercial Code within the scope of the
audit.
(2) Members of the management board who violate their duties shall be jointly and severally
liable to the company for any resulting damage. They shall bear the burden of proof in the event of
a dispute as to whether or not they have employed the care of a diligent and conscientious
manager. If the company takes out an insurance covering the risks of a member of the managing
board arising from his work for the company, such insurance should provide for a deductible of no
less than 10 per cent of the damage up to at least an amount equal to 1.5 times the fixed annual
compensation of the managing board member.
(3) The members of the management board shall in particular be liable for damages if, contrary
to this Act:
1. Contributions are repaid to shareholders; 2. Shareholders are paid interest or dividends;
3. Own shares or shares of another company are subscribed, acquired, taken as a pledge or
redeemed; 4. Share certificates are issued before the issue price has been paid in full; 5. Assets
of the company are distributed; 6. Payments are made contrary to § 92 (2), 7. Remuneration is paid
to members of the supervisory board; 8. Credit is granted;
9. In connection with a conditional capital increase, new shares are issued other than for the
specified purpose or prior to full payment of the consideration.
(4) The members of the management board shall not be liable to the company for damages if
they acted pursuant to a lawful resolution of the shareholders’ meeting. 2 Liability for damages
shall not be precluded by the fact that the supervisory board has consented to the act. 3 The
company may waive or compromise a claim for damages not prior to the expiry of three years after
the claim has arisen, provided that the shareholders’ meeting consents thereto and no minority
whose aggregate holding equals or exceeds one-tenth of the share capital records an objection in
the minutes. 4 The foregoing period of time shall not apply if the person liable for damages is
insolvent and enters into a settlement with his creditors to avoid or terminate insolvency
proceedings.
(5) The claim for damages of the company may also be asserted by the company’s creditors if
they are unable to obtain satisfaction from the company. 2 However, in cases other than those set
out in (3), the foregoing shall apply only if the members of the management board have manifestly
violated the duty of care of a diligent and conscientious manager; (2) sentence 2 shall apply
analogously. 3 Liability for damages with respect to the creditors shall be extinguished neither by a
waiver nor by a compromise of the company nor by the fact that the act that has caused the damage
was based on a resolution of the shareholder’s meeting. 4 If insolvency proceedings have been
instituted over the company’s assets, the receiver in insolvency shall exercise the rights of the
creditors against the members of the management board during the course of such proceedings.
(6) For companies that are listed on a stock exchange at the point in time of the violation of
duty, claims under the foregoing provisions shall be time barred after the expiration of a period of
ten years; for other companies, claims under the foregoing provisions shall be time barred after the
expiration of a period of five years.”
44
Arsalidou (2003).

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e.g. solicitors or accountants, the higher the standards of care expected from them.45
There is, in principle, a business judgement rule46 in place whereby directors
escape liability for negligent (no reckless) decisions made in good faith.47 Whether
the business judgement rule provides or not a safe harbour for company directors
needs to be assessed on a case-by-case basis.48
Liability to the company is joint and several for any resulting damages, and this
poses some challenges to the enforceability of a D&O policy. Whether the policy is
or is not composite in nature will result in directors and even the company following
the fortunes or misfortunes of dishonest directors. The decision in Arab Bank Plc v
Zurich Insurance Co49 has clearly settled the UK position in regard to composite
insurance policies by affirming that when a company and its directors enter into a
contract of this nature, each insured must be deemed as separate insured; hence, the
dishonest act of any director should not affect either the innocent company or
innocent directors.50 The obvious conclusion at this junction is that all comes down
to D&O policy wordings and whether directors have been insured jointly or on a
composite basis.
D&O policies have a minimum statutory deductible of no less than 10 % of the
damage sustained by the company, up to an amount equal to 1.5 times the fixed
annual salary of the wrongdoer director.51 This novel system is aimed at forcing
directors to act with utmost care since the quantum of personal liabilities, for which
there is no insurance, could be quite significant.
Directors do not incur liability for lawfully following shareholders’ resolutions
in general meetings.
Action for damages proceeds even if the supervisory board has consented to
authorise the act that later transpires to be in breach of directors’ duties.
Minority shareholders could consent to waive the company’s rights to claim
damages. This decision cannot take place before three years counted as from the
claim against the directors.
A 10 % capital holder could oppose the above resolution. The above period of
grace (three years) does not operate if the wrongdoer is insolvent or faces
insolvency.
Creditors could directly claim against directors where the company is financially
unable to compensate creditor’s claims. However, this action only proceeds when
directors have manifestly breached the duty of care.

45

Ibid.
Gerner-Beuerle and Shuster (2014).
47
Schwarz (2008).
48
Du Plessis and Ruhmkorf (2015).
49
[1999] 1 Lloyd’s Rep 262.
50
Paolini and Nambisan (2008).
51
See also the German Corporate Governance Code 2014 3.8 accessed via http://www.dpdhl.com/
content/dam/dpdhl/Investors/Corporate_Governance/Declaration_of_Conformity/DPDHL_CG_
Code_June_2014.pdf.
46

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Liability to creditors cannot be waived.
Limitation period for public limited companies is 10 years and for other companies five years.
In general terms, company directors are obliged to look after the interest of the
corporate body, its self-preservation and also the wider interest of company
stakeholders.52

3.3.1

Non-executive Directors

The role and duties of non-executive directors in Germany is well defined and
structured, and it is clear that it does not have the power to interfere with the day-today management of the company.53 The German Corporate Governance Code 2014
establishes:
The Supervisory Board appoints, supervises and advises the members of the Management
Board and is directly involved in decisions of fundamental importance to the enterprise.54

The two-tier system, supervisory and executive board, permits shareholders to
approach non-execs and trigger formal investigations against the executive board.
Stock Corporation Act, s 111, entitles the supervisory board to bring a claim, on
behalf of the company, against the executive board and/or management board, s 93
(4)(3).
The Stock Corporation Act, s 111, establishes:
Duties and Rights of the Supervisory Board
(1) The supervisory board shall supervise the management of the company.
(2) The supervisory board may inspect and examine the books and records of the
company as well as the assets of the company, in particular cash, securities and merchandise. The supervisory board may also commission individual members or, with respect to
specific assignments, special experts, to carry out such inspection and examination. It shall
instruct the auditor as to the annual financial statements and consolidated financial statements according to §290 of the Commercial Code.
(3) The supervisory board shall call a shareholder’s meeting whenever the interests of
the company so require. A simple majority shall suffice for such resolution.
(4) Management responsibilities may not be conferred on the supervisory board.
However, the articles or the supervisory board have to determine that specific types of
transactions may be entered into only with the consent of the supervisory board. If the
supervisory board refuses to grant consent, the management board may request that a
shareholders’ meeting approve the grant. The shareholders meeting by which the shareholders’ approves shall require a majority of no less than three-fourths of the votes cast. The
articles may neither provide for any other majority nor prescribe any additional
requirements.

52

Lotz (2011).
Schwarz (2008).
54
German Corporate Governance Code 2014 Foreword.
53

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(5) Members of the supervisory board may not confer their responsibilities on other
persons.55

Additional statutory provisions could be summarised as follows:
According to section 147 of the Stock Corporation Act, shareholders could pass
a resolution and force the supervisory board to proceed, investigate and/or claim
against the executive board.
Shareholders have also the statutory derivative action whereby 1 % of the
shareholding or EUR 100,000 nominal value could seek a remedy for the company
on the ground of breaches of directors’ duties. Leave of court is required, there must
be suspicion of dishonesty and it must be beneficial for the company.
The locus standi is on the shareholders who acquired shares before the wrongful
act complained of.
Shareholders bear the cost of the claim and are entitled to claim costs back if
successful.
If the action is unfounded, shareholders do not recoup costs.
The supervisory board has, consequently, the duty to efficiently control the
‘lawfulness, expediency and efficiency’56 of the executive board, including the
right to represent the company and pursue claims on its behalf.57

4 What Is the Importance of the Above Comments
in the Context of D&O and Dieselgate?
Several questions remained unanswered at these early stages of the Dieselgate
scandal, so let us deal with them in turn.
D&O policies (as any other form of insurance) exclude fraud and/or wilful
misconduct. There are clear indications that the management team, at the most
high level, knew that the carbon emissions software had been manipulated. Should
it be the case, D&O carriers do have valid arguments to deny cover on the ground of
public policy or wilful misconduct. Liability would have not arisen out of negligence, for which D&O provides cover, yet out of intentional acts. It is not suggested
that fraud has been committed, but the question still remains as to whether knowingly altering the carbon emissions software to circumvent environmental regulation is borderline with unacceptable and rather fraudulent market practices.
Arguably, some directors in the management chain would be innocent of wilful
misconduct; however, the fact that they are bound to constantly monitor those in
whom they delegate duties, including full compliance with environmental regulation, will lead to liabilities that in principle are covered under D&O policies.
Especially where cover has been provided in a composite basis, so the wilful
55

http://www.nortonrosefulbright.com/files/german-stock-corporation-act-109100.pdf.
Du Plessis and Cordes (2015).
57
Ibid. See also The Stock Corporation Act s 112(1).
56

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misconduct of one director may not affect innocent ones. The UK position,58 as
much as the German one, is very clear in this regard. Section 81 of the German
Insurance Code states:
Causing the insured event
(1) The insurer shall not be obligated to effect payment if the policyholder intentionally
causes the insured event.
(2) If the policyholder causes the insured event by gross negligence, the insurer shall be
entitled to reduce the benefits payable commensurate with the severity of the fault of the
policyholder.59

Very interesting issues may arise if the insured directors are proven to be gross
negligent and their liability is proportionally reduced. How would insurance allocation apply? How would defence costs cover operate? Would the entire claim be
tainted with illegality? Or only that part that is deemed gross negligent?
Answers to these situations are far from easy!
Liability must be ascertained before liability to indemnify the insured arises. It is
necessary to highlight that the point refers to liabilities that are commonly insured
under D&O policies and not liabilities that directors may incur in general. All the
investigations, news and media coverage suggest that some of the VW board of
directors knew about the defeat device and did very little to remedy the situation;
thus, D&O insurers have been placed in a very strong position as to deny insurance
cover, set aside defence costs cover.
From a different angle, the former VW Chief Executive Martin Winterkorn has
taken full responsibility for the ‘defeat device’ but insists that he has done nothing
wrong and has always acted for the best interest of the company.60 Should it be the
case and subject to any statutory deductible, D&O insurers will be facing indemnity
since his liability could potentially arise in negligence, namely, failure to properly
monitor other members of the board, failure to keep himself informed about the
company’s business or even failure to supervise that the company complies with
statutory and/or environmental regulations.
Depending upon insurance terms and conditions, VW company’s admission of
liability may not affect innocent directors should the policy be agreed on composite
basis. The de facto provision in German law is that directors’ liability to the
company is joint and several for any resulting damages, and this poses some
challenges to the enforceability of a D&O policy.

58

Marine Insurance Act 1906 s 55(2) (a): “The insurer is not liable for any loss attributable to the
wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss
proximately caused by a peril insured against, even though the loss would not have happened but
for the misconduct or negligence of the master or crew.”
59
https://www.gesetze-im-internet.de/englisch_vvg/englisch_vvg.html#p0301.
60
http://www.aljazeera.com/news/2015/09/volkswagen-chief-executive-winterkorn-resigns
150924034930424.html.

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Bentham Europe Ltd has offered to finance a shareholder class action litigation
for breach of the Securities Trading Act.61 The London market is not static either,
and investigations are taking place as to possible claims.62 Several situations may
arise here, and contractual terms such as claim control provisions and follow the
settlements would be closely monitored.
The role of non-executive directors, especially in Germany where, investigations
and potential claims against the executive board, have already been triggered. It is
very difficult to see at this early stage if non-executive directors could be blamed for
the carbon emission scandal, e.g. lack of supervision and control, yet it is still a
possibility. Based on the German two-tier system, it will be very interesting to see
how D&O carriers have offered cover. For example, if insured v insured exclusions
have been incorporated, policy limits to cover both boards in the aggregate or
separate cover has been offered and whether side C cover has been provided again
as standalone or forming part of the aggregate limit of the D&O policy.
The insured v insured exclusion, less common these days, aims at excluding
claims brought by one insured, alleging wrongful acts by another insured. The
rationale is to prevent the company for using the proceeds of insurance to finance
internal litigation and ultimately recover, from the insurer, losses accruing as a
result of wrong management decisions.63
Policy exclusions, fines, environmental and strict liability are all important
aspects to consider as well. The justification for excluding pollution hazards in
D&O insurance policies has been eloquently addressed by Youngman as follows:
Negligence is becoming less important in this area because the tendency is to
consider environmental liability as a matter of strict liability. This basically means
that liability arises regardless of the wrongdoer’s state of mind or negligence.
Most of the time, the outcome of investigations and legal proceedings leads to
imposing fines on directors and companies. As far as the UK legal system is
concerned, such fines are criminal in nature and therefore excluded from D&O
cover. It is necessary to emphasise, nevertheless, that in civil law jurisdictions the
nature of these fines is a administrative and not criminal, with the consequent effect
of being, in principle, covered by D&O insurance.
Market capacity seems to be another reason; the cleaning-up costs could be so
large that the D&O market is reluctant to provide cover. Especial pollution cover is
therefore needed, which, very usually, attracts large deductibles and high
premiums.

61

http://www.cityam.com/225622/20-1-odds-that-volkswagen-will-go-out-of-business-by-the-endof-2016; http://www.telegraph.co.uk/business/2016/06/21/vw-faces-multi-billion-investor-classaction-over-dieselgate-sca/; http://www.dandodiary.com/2016/02/articles/international-d-o/dutchshareholder-foundation-seeks-to-represent-global-class-of-vw-investors/; http://www.dandodiary.
com/2015/10/articles/international-d-o/litigation-funding-firm-announces-german-securitiesaction-on-behalf-of-volkswagens-german-shareholders/.
62
http://www.slatergordon.co.uk/commercial-and-group-litigation/volkswagen-scandal-legalinvestigation/.
63
Paolini and Nambisan (2008).

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Another crucial reason is that environmental legislation is usually retroactive, so
what could have been legal in the past suddenly becomes illegal, with the consequent effect of triggering liabilities. The insurance market predictions and reserves
become difficult to plan.64
The question is, therefore, whether company directors could incur personal
liability for pollution and whether the decision in Northstar Aerospace v Ministry
of Environment Ontario Canada65 may be of assistance. The case concerns a
company that knew about the pollution agent and did its best to clean the site.
Despite all the efforts, it run out of cash after continuing to clean the site, thus
becoming insolvent. During the trial, it was proven that directors did not act
maliciously or negligently; nevertheless, they were held personally liable to fund
the cleaning-up cost of the company’s site. The D&O insurers agree to pay up to 4.5
Can $, and the dispute was settled, despite the fact that the policy excluded
pollution.
In the US, on the other hand, the decision in High Voltage Eng’g Corp v Federal
Ins Co66 had to deal with the issue of whether a pollution exclusion clause,
contained in a D&O insurance policy, related only to acts or omissions in which
company directors had personally participated, authorised or approved. The court
was not satisfied that this was the correct interpretation and was of the opinion that
the exclusion clause entirely applies when there is claim against the company or its
directors.
The most neuralgic debates in D&O insurance are no doubt defence costs cover
and who bears that defence costs. As liability policies in D&O, liability must be
established to trigger the insurer’s duty to indemnify. This right accrues as soon as
the insured’s liability is ascertained by judgment, award or binding settlement.67
The issue of defence costs is a different one because it does not necessarily
follow the above principles especially when policies offer the advance of defence
costs to defend the claim. Now, are defence costs cover offered as a free-standing
right or as part of the substantive cover?68 In Astrazeneca v XL,69 the Court was of
the view that defence costs were included as part of the losses and complemented
the core insuring clause. It did not have independent existence thus followed the
fortunes of the main insuring clause. The UK case law has developed several
important rules that are worth noting and may no doubt affect defence costs
cover in a potential VW’s D&O claim:
A dishonesty exclusion relieves the insurer of liability not only for the substantive cover but also for defence costs.70 In other words, when defence costs form part

64

Youngman (1999).
[2012].
66
981 F2d 596 (1st Cir, 1992).
67
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363.
68
Merkin (2014).
69
Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660.
70
Silberman v. CGU Insurance Ltd [2003] NSWCA 203.
65

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A. Paolini

of a single undertaking with the primary insuring clause, an exclusion clause affects
both substantive and defence costs cover.71
Defence costs only arises when the claim falls within the terms of the primary
insuring clause,72 even though such costs were incidentally used to defend
uninsured directors.73
When insurers’ consent is needed, defence costs cover are triggered when such
consent is obtained, and the claim falls within cover.74
The claimant could be entitled to defence costs incurred with the insurers’
consent in the absence of express exclusions in regard to such defence costs.75
In general, parties are free to decide but all depends on policy construction.
In the UK, it is thought that the most likely scenario for litigation, if any, would
be in the reinsurance market, more specifically facultative reinsurance. Issues
related to the presumption of back-to-back cover would prepare the scene for
serious negotiation and defence strategies. Some of these possibilities are discussed
below:
The UK strategy to defend D&O insurer’s liability would no doubt be based on
wilful and even intentional breaches of directors’ duties. It is impossible to conceive the idea that fitting cars with a defeat device, to circumvent carbon emission
limits, was totally unknown at board level. It could be the case that some directors
were unaware of the situation, in which case D&O could be of assistance for as long
as the latter had been negligent in not keeping them well informed about the
company’s activities or negligent for failing to properly monitor others in the
management chain. The insured’s liability could also arise if the VW group has
failed to create a monitoring system for checking on the performance of the
delegated functions,76 especially in a company the size of the one at issue.
On the other hand, the company in an attempt to escape direct liability could
plead that VW has incurred liability through the wrongful acts of its directors and
officers, thus vicariously; therefore, despite being liable to indemnify the third party
claimants, the company would have a cause of action against its directors. This
scenario was dealt with in Safeway v Twigger,77 where some employees and
directors of Safeway fixed the price of dairy products, in contravention of competition rules, and the then Office of Fair Trading fined the company accordingly. The
issue was whether the company had primarily or vicariously incurred liability.
Should the company have incurred primary liability, it would result in the company

71

Wilkie v. Gordian RunOff Ltd [2003] NSWSC 1059; [2005] HCA 17.
Wyeth v. Cigna [2001] Lloyd’s Rep IR 420.
73
New Zealand Insurance Company Ltd v New Zealand Forest Products Ltd and another (1995)
8 ANZ Ins 75, 769.
74
Merkin (2014) at 20-081; see also Thornton Springer v. NEM Insurance Co Ltd [2000] Lloyd’s
IR 590.
75
Poole Harbour Yacht Club Marina Ltd v. Excess Insurance Co [2001] Lloyd’s Rep IR 580.
76
Paolini and Nambisan (2008).
77
[2010] EWCA (Civ) 1472.
72

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being precluded from recovering its losses from its managers on the ground of
public policy. On the other hand, should the company have incurred vicarious
liability through the acts or omissions of any of its employees, despite being liable
to pay the fine, the company will have a cause of action against the wrongdoers,
including their D&O insurance carrier. The employees suggested that the company
was prevented from claiming against them the money it paid for the fine on the
ground of public policy because it was the company itself, thorough the rules of
attribution,78 that breached competition rules, and the Court of Appeal agreed with
this approach, albeit on different grounds.79 It would be inconsistent with the aim of
the regulation if the guilty company could rely on the employees’ or directors’
insurance to recoup the money it had paid for contravening the law.80 The same
principle could easily be transported into anti-pollution rules where liability tends
to be strict and fines are aimed at punishing the wrongdoer.
This decision could be paramount should VW and its officers be tested at D&O
insurance level. The apparent conclusion is that it would be impossible in a
company the size of VW to avoid primary liability for the events leading to the
defeat device scandal; therefore, in the absence of a proper side C cover, sides A
and B will be of very little assistance for the company. Directors, on the other hand,
with suitable side A cover may find protection for as long as their liability is found
in negligence and not recklessness or fraud.
The last question is whether directors could be personally liable to third parties,
and the departure point is that contrary to Germany, in the UK it will be almost
impossible that VW company directors would have incurred personal liability to
shareholders, investors and customers. The size of the corporate structure prevents
or makes it impossible for third parties to prove that directors have assumed
personal responsibility for the transaction and/or, as in this case, for the quality of
the cars, value of VW shares or even value of ADR’s purchase in a competing

78
These rules purport to attribute the acts or omissions carried out by company directors to the
company itself. The outcome would be that it would be the company, along with its controllers,
that who may have breached the law. It is necessary that the wrongdoer is in a position of control,
so his/her acts can be attributed to the corporate body. See Stone & Rolls Ltd (In Liquidation) v
Moore Stephens (A Firm) [2009] UKHL 39. However, company directors cannot use the use of
attribution to stop a claim brought by the company itself against them, for breaches of directors’
duties. Bilta (UK) Ltd (In Liquidation) v Nazir [2015] UKSC 26.
79
Inconsistency with the rationale of penalties for breaching fair competition rules. Or indeed
financial regulation, e.g., Meridian Global Funds Management Asia Ltd v Securities Commission
[1995] 2 A.C. 500.
80
Safeway v Twigger at para. 29: “Once it is appreciated that the claimant companies are
(personally and not vicariously) liable to pay the penalties exigible under the 1998 Act, those
companies cannot invoke the Hampshire Land principle to say that they were not ‘truly’ liable.
The principle gives them no defence to the [Office of Fair Trading’s] claim for the penalties; they
are personally liable to pay those penalties and it would be inconsistent with that liability for them
to be able to recover those penalties in the civil courts from the defendants. The statutory scheme
has attributed responsibility to the claimant companies and the Hampshire Land exception to the
ordinary rule of attribution can have no import on the application of the ex turpi maxim.”

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market. Therefore, directors’ liability in the UK is confined to liability to the
company,81 either by a direct claim by the company or by derivative shareholders’
claim.82
Germany, on the other hand, clearly contemplates the possibility of directors
incurring liability to third parties; therefore, the risk is much wider than that in the
UK. This means that company creditors could directly claim against directors
whose actions have caused losses to the former, albeit such actions could prove
futile if losses exceed directors’ personal wealth. The D&O statutory deductible
imposed on company directors may help, but bearing in mind the size of the claim
in the Dieselgate scandal, there would not be enough to put the claimants in the
position they would have been but for the defeat device.

5 Conclusions
It is very early to predict what the D&O insurance market reaction would be. It is
true that VW has accepted liability and promised to indemnify customers who
acquired faulty vehicles, yet the magnitude of the problem could reach considerable
amounts of money. The problem for the D&O insurance market is not that of
capacity but uncertainty, not knowing if their D&O reserves and calculations would
be enough to cope, therefore affecting pricing, deductibles and limits of indemnity
in the near future. One question that seems obvious is whether D&O carriers will be
requiring from company directors an express statement that the company, as far as
they are concerned, complies with environmental, commercial and other regulatory
rules. Responses to these questions could prove fundamental for a policy like D&O
to provide its benefits to the insured.
Arguably, pollution liability is likely to continue to be excluded and covered by
different insurance products; product liability insurance, including product recall,
would have to be double checked by insurance companies, especially in the vehicle
manufacturing industry.
Both UK and German corporate laws impose upon directors of public limited
companies a standard of care that is high. In comparing the two systems, directors’
and officers’ liability as insured risk leads to some interesting conclusions. In the
UK, it is clear that directors owe their duties to the corporate body and not to
shareholders or stakeholders, which limit the risk to corporate claims. The likelihood of directors incurring liability to third parties, by assuming personal responsibility, in a company the size of Volkswagen is virtually impossible. D&O insurers
could rest assure that third party claims against directors will not prosper; however,
the situation could be substantially different at facultative reinsurance level, where
the presumption of back-to-back cover may force the interpretation of the

81
82

Companies Act 2006 section 170.
Companies Act sections 260 and 261.

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141

reinsurance policy as fully reproducing the wording of the underlying one. Should it
be the case, and in the absence of express English choice of law clause, insurers face
larger risks.
Germany, on the other hand, from a D&O insurer’s perspective carries a much
larger risk in the sense that according to statutory provisions, directors could incur
personal liability to third parties other than the company. Such liability could be
mitigated by the business judgement rule, which seems, on this occasion, unlikely
to help directors. Directors could not possibly suggest that they made the decision to
fit cars with defeat devices to maximise sales, so it was ultimately beneficial to the
company. The ex turpi causa non oritur actio (illegality) principle will prevent
directors for so alleging. Some liabilities are nevertheless insurable, especially in
cases were directors should have discovered about the defeat devices but for their
negligence failed to properly monitor or supervise the management chain.
Side C cover, should it have been provided, leads to some interesting scenarios
as well, namely, whether there are different limits of indemnity or whether VW’s
liability forms part of the aggregate limit, in which case the entire policy limit will
be exhausted. Very important is the fact that Germany has incorporated a statutory
D&O deductible of 10 %, capped at 1.5 times the fixed annual salary of each
director yet, and bearing in mind the extent and quantity of claims, it is very
unlikely that such deductibles are of any assistance to millions of potential
claimants.
Defence costs cover is the area were we are going to see more movement for
several reasons. Insurers could be very interested in assisting company directors
against claims. Such claims include regulatory investigations, civil and criminal
proceedings and even settlements out of court. The advancement of defence cost
may help directors to either mitigate their liability or avoid liability altogether. In
both scenarios, insurers will be better off. Disputes could arise in regard to whether
insurers have the contractual duty to defend and/or advance defence costs, and this
will depend on policy wording and construction. For insurance companies, advancing defence costs carries the inherent risk of being unable to recover from the
insolvent insured, whose liability happens to be excluded by the D&O policy.
Unsuccessfully defending criminal proceeding could be a clear example. Finally,
whether defence costs is provided as stand-alone cover or not is potentially
disputable.
One could suggest that the carbon emission scandal or Dieselgate is just the
beginning of a series of investigations against other car manufacturers. Therefore,
the aim of this short piece of research has been none other than giving some ideas as
to how the events could develop and what the D&O market reaction, including
disputes, could be. Even if claims end in settlements out of court, D&O insurers will
be very interested in controlling that generous or ex gratia payments are made.
After all, as much as we are sympathetic with the victims of faulty vehicles, D&O
insurance is not there to cover acts or omissions that happen to be illegal, unacceptable or simply uninsurable.

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References and Websites
Arsalidou D (2003) Objectivity vs flexibility in civil law jurisdictions and the possible introduction
of the business judgment rule in English law. Comp Law 24(8):228–233
De Jong Bas J (2013) Shareholders’ claims for reflective loss: a comparative legal analysis.
E.B.O.R. 14(1):97–118
Du Plessis JJ, Cordes N (2015) Claiming damages from members of management boards in
Germany: time for a radical rethink and possible lessons from Down Under. Comp Law 36
(11):335–353
Du Plessis JJ, Ruhmkorf A (2015) New trends regarding sustainability and integrated reporting for
companies: what protection do directors have? Comp Law 36(2):51–64
Gerner-Beuerle C, Shuster EP (2014) The evolving structure of directors’ duties in Europe.
E.B.O.R. 15(2):191–233
Lotz S (2011) Directors’ duties with regard to creditors in German and UK (core) company law. I.
C.C.L.R. 22(8):264–269
Lüftenegger K (2016) The VW claim a call like any other, DAR 3/2016 Literature
Merkin R (2014) Colinvaux’s law of insurance, 10th edn. Sweet & Maxwell, London
Paolini A (2016) Non-executive directors in financial institutions: a demanding standard of care.
In: Paolini A (ed) Research handbook on directors’ duties. Edward Elgar Publishing,
Cheltenham
Paolini A, Nambisan D (2008) Directors’ and officers’ liability insurance. Informa Law, London
Schwarz F (2008) The German co-determination system: a model for introducing corporate social
responsibility requirements into Australian law? Part 2. J.I.B.L.R. 23(4):190–199
Youngman I (1999) Directors’ and officers’ liability insurance. A guide to International Practice.
Woodhead Publishing, Cambridge
https://www.gesetze-im-internet.de/englisch_vvg/englisch_vvg.html#p0301
http://www.aljazeera.com/news/2015/09/volkswagen-chief-executive-winterkorn-resigns
150924034930424.html
http://www.dpdhl.com/content/dam/dpdhl/Investors/Corporate_Governance/Declaration_of_Con
formity/DPDHL_CG_Code_June_2014.pdf
http://www.cityam.com/225622/20-1-odds-that-volkswagen-will-go-out-of-business-by-the-endof-2016
http://www.telegraph.co.uk/business/2016/06/21/vw-faces-multi-billion-investor-class-actionover-dieselgate-sca/
http://www.dandodiary.com/2016/02/articles/international-d-o/dutch-shareholder-foundationseeks-to-represent-global-class-of-vw-investors/;
http://www.dandodiary.com/2015/10/articles/international-d-o/litigation-funding-firm-announcesgerman-securities-action-on-behalf-of-volkswagens-german-shareholders/
http://www.nortonrosefulbright.com/files/german-stock-corporation-act-109100.pdf
http://www.reuters.com/article/us-volkswagen-emissions-litigation-idUSKCN10D135
http://www.slatergordon.co.uk/commercial-and-group-litigation/volkswagen-scandal-legalinvestigation/
http://www.quattroruote.it/news/industria/2016/07/11/dieselgate_volkswagen_germania_la_
procura_di_braunschweig_chiede_una_multa_separata.html
http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/09/sustain.html

Case Law
Arab Bank Plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262
Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660

Corporate and Insurance Law

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Australian Securities Commission v Healey [2011] FCA 717
Bilta (UK) Ltd (In Liquidation) v Nazir [2015] UKSC 26
Bonham Carter v Situ Ventures Ltd [2013] EWCA Civ 47
Re Barings Plc (No 5) [2000] 1 BCLC 523 at 535
City Equitable Fire Insurance Co Ltd, Re [1925] Ch 407
Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
Electra Private Equity Partners v KPMG Peat Marwick [2001] 1 BCLC 589
Equitable Life Assurance Society v Bowley and Others [2003] EWHC 2263 at 41
European International Reinsurance Co Ltd v Curzon Insurance Ltd [2003] EWHC
Fashion Brokers Ltd v Clarke Hayes [2000] PNLR 47
Re Faure Electric Accumulator Co (1888) 40 Ch D 141
Re New Mashonaland Exploration Company [1892] 3 Ch 577 at 585
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 A.C. 500
Merret v Babb [2001] EWCA Civ 214
New Zealand Insurance Company Ltd v New Zealand Forest Products Ltd and another (1995)
8 ANZ Ins 75, 769
Newcastle International Airport Ltd v Eversheds LLP [2012] All ER (D) 20
Noel v Poland [2001] 2 BCLC 645
Northstar Aerospace v Ministry of Environment Ontario Canada [2012]
Omega Proteins Ltd v Aspen Insurance UK Ltd [2010] EWHC 2280 (Comm)
Poole Harbour Yacht Club Marina Ltd v. Excess Insurance Co [2001] Lloyd’s Rep IR 580
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363
Prudential Assurance Co Ltd v Newman Industries Ltd (No2) [1982] Ch 204
Safeway v Twigger [2010] EWCA (Civ) 1472
Secretary of State for Trade and Industry v Baker and others [1998] BCC 583
Secretary of State for Trade and Industry v Swan and Others [2005] EWHC 603 (Ch)
Sheffield and S York Permanent Building Society v Aizlewood (1890) 44 Ch D 412
Silberman v. CGU Insurance Ltd [2003] NSWCA 203
Standard Chartered Bank v Pakistan National Shipping Corporation [2003] 1 All ER
Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2009] UKHL 39
Thornton Springer v. NEM Insurance Co Ltd [2000] Lloyd’s IR 590
Wilkie v. Gordian RunOff Ltd [2003] NSWSC 1059; [2005] HCA 17
Wyeth v. Cigna [2001] Lloyd’s Rep IR 420

Statutes
Companies Act 2006 ss 174, 260, 261, 994
Insolvency Act 1986 s 122 (g)
German Corporate Governance Code 2014
German Stock Corporation Act 1963
Marine Insurance Act 1906
UK Corporate Governance Code 2014

Criminal Law
Marisa Marraffino

The study of the Dieselgate in the perspective of criminal law requires to identify
the various conducts undertaken by Volkswagen before tackling the issue—just as
complex—of attributing criminal liability to specific individuals involved. The
fraudulent conduct might consist in false statements relating to CO2 (carbon
dioxide) and NOx (nitrogen oxide) emissions of a vast number of vehicles, not
just diesel cars but also gasoline cars.
As it is well known, Regulation (EC) No. 715/2007 of the European Parliament
and of the Council of 20 June 2007,1 entered into force on 7 February 2007,
imposed detailed emission limits in its Annex I.
There is no doubt that the technical requirements for the type approval of motor
vehicles and related spare parts had been violated in the context of the Dieselgate
case on the basis of this Regulation in force at the time of the relevant facts.
Subsequently, the emission limits have been changed by Regulation (EU) No.
646 of 20 April 2016,2 which raised the emission limits of nitrogen oxides by 110 %
in the period from September 2017 to 31 December 2018 and 50 % thereafter.
Under Italian criminal law, however, the principle of the so-called relative
nonretroactivity, established by Art. 2 Penal Code, as well as Art. 25 paragraph
2 of the Constitution, applies. According to this principle, the most favorable law
deploys its effect in favor of the person accused also with reference to conducts
committed by such person previously to the entry into force of the most favorable
law. Therefore, the new EU rules may provide benefits to the top management of
VW, although it remains to be seen whether the affected VW vehicles do exceed

1
2

O.J. L 171/1 (2007).
O.J. L 109/1 (2016).

M. Marraffino (*)
Law Firm Marraffino, Milan, Italy
e-mail: marisa.marraffino@gmail.com
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_8

145

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M. Marraffino

also the higher emission limits introduced by Regulation No. 2016/646, in which
case any benefits would be excluded.

1 Mode of Conduct
From a criminal law perspective, the first question that which needs to be answered
concerns the way in which the data on polluting emissions were manipulated. The
fraudulent conduct was put in place through a piece of software able to modify
computer codes of the emission test. In particular, during tests carried out by EPA
(US Environmental Protection Agency) on a sample of diesel models manufactured
between 2009 and 2015, some “defeat devices” were found. The device consists in
software able to modify the parameters of the control unit of the engine so as to
limit to a minimum the emission of nitrogen oxide when the vehicle undergoes
control tests. The software turns the equipment down during regular driving, thus
increasing emissions up to 40 times more than the limit imposed by Regulation
No. 715/2007.
Volkswagen took advantage from this situation: sales were up significantly in
the US market, a notoriously conservative one, used to gasoline vehicles rather than
diesel ones. Considering the type of conduct under examination, it is likely that the
software was approved by the leaders of VW and that the engineers who projected
the software were responding to a specific request of the top management. It is
unlikely that some engineers decided, in total autonomy, to falsify the results of the
emission tests.
Our previous assertion is confirmed by the official statement made by VW on
22 September 2015, which admitted irregularities concerning the specific software
installed in its Euro 5 diesel engines. Moreover, VW is notoriously the automaker
that invests more money on research and innovation, so that it was clearly in the
position to respect the applicable legislation. In any case, Art. 4 of Regulation
No. 715/2007, also after the amendments provided by Regulation No. 2016/646,
requires the manufacturer to verify that vehicles put into circulation comply with
the applicable emission standards.
Public prosecutors will need to analyze the individual position of the persons
involved in the selling chain of the relevant vehicles in order to figure out who could
be (even partially) responsible for the harmful event occurred. The assessment of
the individual responsibility will be one of the main difficulties for public prosecutors to tackle in the factual framework of the Dieselgate scandal, in which the
flow of time plays in favor of the automaker, who has already put in place remedial
strategies, which could stem—at least partially—court proceedings of consumers.
The crimes that could potentially have been committed in the framework of the
Dieselgate jeopardize fundamental public rights, such as the right to a clean
environment.

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2 Crimes That Could Potentially Have Been Committed
Under Italian criminal law, criminal offenses that could potentially have been
committed in the factual framework of the Dieselgate are as follows:
(a) commercial fraud (Article 515 of the Italian Criminal Code (Codice Penale—P.
C.));
(b) fraud (Article 640 P.C.);
(c) environmental pollution (Article 452bis and Article 452quinquies P.C.).

2.1

Commercial Fraud and Scam

The marketing of a vehicle that does not comply with EU emission requirements
will make the product different from what was stated by VW in the relevant sales
documents, thus triggering the application of Art. 515 P.C. In particular, the crime
of commercial fraud punishes “anyone who, in the exercise of a commercial
activity, or in a shop open to the public, delivers one movable item for another,
or a movable whose origin, source, quality or quantity is different from that stated
or agreed.”
The provision punishing the crime of commercial fraud is aimed at ensuring
public trust in business relationships and constitutes the foundation of good faith
bargaining. The crime of commercial fraud falls under the category of crimes
against the public economy and not among those against property because an
indefinite number of individuals, and not economic goods pertaining to a single
individual, are harmed. The public good protected by the law is fairness (good faith)
in trade.
The crime is committed by the simple fact of the sale of the vehicle as it is not
necessary that the seller formally has the title of car dealer. Commercial fraud is a
so-called common crime as it can be committed by anyone, which means that the
acting subject may also be a clerk or an employee of the owner of the car dealership,
etc. In the case under examination, the fraudulent conduct would consist in false
statements relating to CO2 (carbon dioxide) and NOx (nitrogen oxide) emissions of
a vast number of vehicles.
Directive 1999/94/EC3 requires Member States to annually publish a guide on
fuel economy and CO2 emissions from vehicles in order to provide buyers with
useful information and guidance for an informed purchase of new vehicles and to
contribute to reduce greenhouse gas emissions and energy saving. In addition to the
issue of CO2 emissions, EU legislation has also been regulating for decades
pollutant emissions, in order to improve air quality, in view of the great increase
of vehicles on the road network traffic. The standard of pollutant emissions of a car

3

O.J. L 12/16 (2000).

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M. Marraffino

is certified by compliance with type approval tests according to the requirements
defined in specific directives and regulations issued by the European Union.
Currently, EU rules require vehicles registered from 1 January 2011 to meet the
standards of pollutant emissions “Euro 5.” Starting from 1 September 2015, “Euro
6” standards are compulsory. In fact, Regulation No. 715/2007 has been amended
by Regulation (EC) No. 692/2008.4 The Regulation establishes common technical
requirements for the type approval of motor vehicles and replacement parts, without
which they may not be put on the market.
However, as already mentioned, pollutant thresholds have later been raised,
attracting much criticism. In fact, the previous European Regulation
No. 715/2007 had established that for Euro 6 vehicles, the emission limit for
nitrogen oxides (NOx) was of 80 mg per kilometer. Subsequently, the emission
limit has been changed by EU Regulation 646 of 20 April 2016, which raised the
limit of nitrogen oxides by 110 % in the period from September 2017 to
31 December 2018 and by 50 % thereafter. In any case, the provisions on emission
controls and on the liabilities of those involved remain in force.
Art. 3 of Regulation No. 715/2007 provides: “1. In order to receive an EC typeapproval with regard to emissions and vehicle repair and maintenance information,
the manufacturer shall demonstrate that the vehicles comply with the test procedures specified in Annexes III to VIII, X to XII, XIV and XVI to this Regulation.
The manufacturer shall also ensure compliance with the specifications of reference
fuels set out in Annex IX to this Regulation.”
EU legislation on emissions from vehicles places a warranty on car manufacturers that have a duty to avoid omissions and/or negligent conducts also by third
parties, which makes the existence of evidence as far as the attribution to a specific
individual of the design of the software defined as a “defeat device” irrelevant. The
marketing of a vehicle that does not comply with EU law requirements on emissions would make the product different from what was stated in the sales documents
provided by VW to the buyer, warranting compliance with all EU standards and
thus triggering the application of Article 515 P.C.
EU technical requirements have been introduced to certify the conformity of
products in order to protect the common good in the internal market. In our opinion,
the relevant requirements certify an essential quality of the product, i.e., the
compliance of the vehicle with the EU standards set for the control of pollutant
emissions. Thus, in case of untruthfulness of the sales documents, this essential
quality lacks.5 The public good protected by the provision contained in Article
515 P.C. must be identified in the fair exercise of commercial activity that—in this
case—appears jeopardized. The typical conduct contemplated by the provision is
the delivery to the costumer of a thing the origin, source, quality, or quantity of
which is different from the one stated in the contract, regardless of whether the
seller has used special tricks to deceive the buyer. This makes it important to

4
5

O.J. L 199/1 (2008).
Court of Cassation, sec. III, No. 50307/2014 and No. 5068/2012.

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analyze the relation between the crime under examination and the crime of fraud.
The crime of commercial fraud is committed even if the buyer could, by applying
ordinary care and diligence, realize the defect of the object of the sale.6
The crime of commercial fraud differs from that of fraud (truffa) for the
modalities of the conduct. The crime of fraud is accomplished through artifices
and deception that are not required instead for the judge to punish the crime of
commercial fraud.7 In the present case, there is no doubt that the software has
created a deception that has misled customers.
This explains the characterization of the offense as fraud by the first office of
Public Prosecutors, which is in charge in Italy of the criminal investigations on the
Dieselgate. In any case, the offense would be qualified as an aggrieved fraud
pursuant to Article 61 n. 5 P.C. as the automaker would have taken advantage of
the circumstances of time and place that would hold back the defense of consumers,
which makes this serious fraud an offense prosecutable ex officio by Public Prosecutors and not on complaint by the victim of the crime. The referral to the
Prosecutors, therefore, may be made beyond 90 days from the day when the
customer became aware of the deception.
However, we note, in accordance with comments by German scholars on this
point, that the economic damage to the buyer of the vehicle, an essential element for
the coming into existence of the crime of fraud, is not easy to detect in the present
case.8 There is no clear evidence of an economic damage to the buyer, and there is
rather evidence of an environmental damage, which is not sufficient in order to
substantiate the crime of fraud.

2.2

Territorial Jurisdiction

Italian law considers both the crime of commercial fraud and fraud committed in
the place where the vehicles are delivered to the car distributor of the relevant
country.9 It is precisely at this time that the local distributor may notice the
nonconformity of the vehicles with EU standards on emissions and thus prevent
the sale of the vehicles and the accomplishment of the crime.
However, the qualification under criminal law of the conducts held by the
numerous national distributors of VW is not easy at all. VW is a multinational
industrial group with several subsidiaries with registered offices in each country
where cars are distributed. Each subsidiary has its own executive and top managers.

6

Court of Cassation, sent. No. 1169/1984.
Court of Cassation, sent. No. 52487/2014.
8
Lüjtenegger (2016).
9
Court of Cassation, sec. III, sent. No. 34873/2009; Court of Cassation, sec. II, sent. No. 37855/
2010.
7

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M. Marraffino

The potential offender—i.e., the manager who is legally responsible for the local
distribution of the affected vehicles—in fact may well face different penalties and
fines depending on the criminal law applicable in one or the another country.
Criminal law, in fact, is far from harmonized at the EU level, and there are striking
differences between the laws of EU countries.
Therefore, the principle of equality could be put to the test in the VW case if
criminal proceedings in the various countries would lead to different judgments and
penalties for prosecuted national managers. The European Parliament Resolution of
2015/2865 (RSP) merely states that “air pollution causes over 430.000 premature
deaths in the EU yearly and costs up to an estimated EUR 940 billion annually as a
result of its health impacts; whereas NOx is a major air pollutant which causes, inter
alia, lung cancer, asthma and many respiratory diseases, as well environmental
degradation such as eutrophication and acidification,” but it says nothing about the
uniformity of penalties for managers involved in the various countries concerned.
However, interestingly, the Resolution stresses that “employees should not ultimately be the ones who pay the price for emission measurement manipulation.”
This last phrase could make us suppose that a criminal responsibility will
probably be limited to the top management of the VW group for which the
existence of the subjective element of the crime, the fraud, could even be assumed
in re ipsa. Apart from the top management, an attribution of criminal responsibility,
also following the pattern of the delegation of functions described below in §2.5,
might possibly involve the top engineers who actually have designed the defeat
device that altered the results of the emission tests. At a first glance, having regard
to the dynamics of the Dieselgate, any evidence that exonerates VW top executives
seems unlikely.

2.3

Environmental Pollution Crime

The environmental pollution crime was introduced by Law No. 68/2015. The
current Article 452 P.C. punishes anyone who “abusively” causes an impairment
or a significant and measurable deterioration (I) of the water or air or extensive or
significant portions of the soil or subsoil (II) of an ecosystem, of biodiversity,
including agricultural, flora, or fauna.
A different crime is that of environmental disaster, introduced by Article
452quater P.C., which comes close to the definition of environmental disaster,
which has already been identified by the Court of Cassation in its case law. In
particular, according to the Supreme Court, it is sufficient that “the harm exposes to
danger, collectively, an undetermined number of persons.”10 Later, in accordance
with that guidance, the Supreme Court has identified a number of requirements that
characterize the notion of disaster, such as an “expansive power of harm” and the

10

Court of Cassation, sec. V, sent. No. 40330/2006.

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“ability to endanger the public safety.”11 The analysis of the danger threshold for
the existence of the crime (minimum threshold of offensiveness of the conduct) is
complex.
Finally, the fact that the Italian Criminal Code provides also for the crimes of
environmental pollution and environmental disaster based on negligence expands
even more the application limits of the relevant provisions, making it of potential
relevance to the Dieselgate.
In summary, in order for the Court to retain the existence of these crimes, a
macroscopic occurrence needs to take place, disruptive, and then characterized, in
common experience, by the fact of bringing with it a significant risk of damage to
life or health of many people, in a way that is not precisely definable and calculable
(Supreme Court, judgment No. 14859/2015).
Given the lack of independent scientific data concerning the harmful effects of
the altered emissions, in the opinion of the writer it appears more reasonable to
foresee that the Public Prosecutors may prosecute the offenders for environmental
pollution, which might be more easily evidenced in Court than the crime of
environmental disaster.
Moreover, given the severity of penalties for both crimes (six years maximum
penalty for the crime of environmental pollution, 15 years for that of environmental
disaster), it will be necessary for the Court to carefully assess the causal link
between the conduct and the harmful event. Even the crime of environmental
pollution may be retained exclusively if the Court is convinced that there is
evidence of a harmful event that must be “significant and measurable.” This triggers
the paramount importance of an expertise apt to evidence the Court about the
environmental impact of VW’s conduct, taking into account the figure of altered
vehicles and the quantifiable increase of polluting emissions.
It should be noted that there is no room under Italian criminal law for any
objective (no-fault) responsibility of the legal representatives of VW and of its
national subsidiaries. Moreover, the withdrawal of the vehicles from the market or
their recall and the fixing by VW, as well as similar marketing strategies, are all
conducts that the Court must take into account, also on the basis of the principle,
which is inspired by EU law, which requires a person who takes a risk of pollution
to pay for the repair costs.

2.4

The Role of “Silence”

According to Italian criminal law, the crimes examined above involve the active
commission of specified conducts by the perpetrator, so that the configuration of
such crimes in case of mere omission by the perpetrator is in principle not possible.
In any case, it is interesting to analyze whether a criminal liability of a VW car

11

Court of Cassation, sec. III, sent. No. 9418/2008.

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M. Marraffino

dealer may be affirmed by the Court if he knew about the defeat device but did not
inform the customer about it. The criminal liability may be based here on the
principle of participation in the commission of a crime (Article 110 P.C.).
The so-called moral participation in the crime can be affirmed not only in the
case of a prior agreement between the material author of the crime and the
coparticipant and also in any case in which the presence of the coparticipant and
his psychological support are directed at encouraging the criminal action by the
perpetrator of the crime, so that the purpose of the material author is facilitated or
enhanced by the aforementioned presence. Based on this interpretation, upheld by
Italian Courts, even silence can determine criminal responsibility. Distributors or
sellers, who were aware of the scam and did not inform buyers of affected cars, may
thus be held criminally responsible. However, this hypothesis in practice raises the
difficulties inherent to the so-called probatio diabolica of the subjective element of
the crime. Therefore, unless the criminal pyramidal “plot” is clearly evidenced from
emails and/or seized computers, etc., it seems unlikely for Public Prosecutors to
succeed in obtaining from Courts the conviction of persons, such as distributors or
dealers with no true decision-making power within VW.

2.5

The Delegation of Functions in Environmental Crimes

According to Italian law, a delegation of functions within a corporation may be
relevant in order to determine the criminal responsibility of the individuals building
up the chain of command of a given corporation. For the case law, a delegation of
function may operate also with reference to environmental crimes if it is evidenced
that the top managers of the corporation delegated in toto the heads of specific
operational areas with the tasks inherent to pollution emissions tests.12 The delegation operates exactly as in the case of accidents at work, so there is the theoretical
possibility that top managers of VW demonstrate that they delegated the emission
pollution test area and the related checks to specific employees. Of course it appears
unlikely that the defeat device has been projected and designed without the direction and consent of the top management. However, the presence or absence of an
effective delegation of functions will be the object of accurate ascertainment by the
competent Courts.
With regard to environmental crimes, the delegation of functions—according to
the Court of Cassation—is admissible if there are specific objective and subjective
requirements. The objective requirements refer to the size of the corporation, the
specific and precise content of the delegation of functions, its publicity, and its
structural and effective nature. Subjective requirements are instead the technical
capacity and suitability of the person delegated. There is no doubt that the large

12

Court of Cassation, sec. III, sent. No. 27862/2015.

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dimension of the Volkswagen corporation might legitimize the existence of a
specific delegation of functions.

3 Problems Related to the Acquisition of Digital Evidence
In the Dieselgate, the software that distorts the emission pollution tests was directly
placed in the car. The proof of the alteration is hence evident and available to the
owner of the car, who will eventually rely on his own technical consultant for a
verification. The main evidentiary difficulty for the owner might be the identification and acquisition of the illegal programming code that might well have been
destroyed.
The main difficulty for an “ordinary” car owner concerns the check of the real
quantity of emission of pollutants produced by his vehicle, also taking into account
the costs associated to this check. In the Internet era, it will be hopefully possible in
the next future to prevent remotely controlled distortions of data carried out during
the tests or to give consumers technical instruments apt to verify that the “green
claims” made by manufacturers conform to reality. With 11 million of possible
“controllers”, the amount of VW car owners, the Dieselgate scandal might have
been avoided.13 Similar problems may exist without our knowledge for many other
devices utilizing technologies connected to the Internet, such as mobile phones,
playstations, monitors for fitness, etc. Each of these devices could be distorted,
without our knowledge, unless there are effective controls that could make the use
of such devices safer for consumers. The Dieselgate scandal should teach us the
way to change the legal framework in the future in order to make the protection of
the consumers both preventive and effective.
One lesson that can be drawn from the Dieselegate affaire is that the limits to the
emission of pollutants should be the object of uniform provisions at the global level.
US standards on nitrogen oxide emissions—characteristic of diesel engines—are
more severe than those applied in the EU, while those related to CO2 emissions are
stricter in Europe. The Dieselgate scandal has clearly shown the drawback of the
nonuniformity of standards on issues, such as pollution deriving from cars, that are
per se transnational and that require stronger coordination at the global level.

4 Comparative Law Profiles
In Germany, several employees are under investigation, but there is no leaked
notice regarding evidence of the subjective element of the crime (i.e., dolus or
negligence).14 As German law does not provide for corporate criminal liability, it

13
14

Corbet (2015) The Internet of criminal things, available at https://lwn.net/Articles/658198/.
http://www.economist.com/news/world-week/21694584-business-week.

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will thus be necessary for public prosecutors to identify the specific individuals who
have intentionally distorted the emission tests or accepted the risk that the software
could distort the results of such tests (i.e., dolus eventualis).
German scholars note that there are many doubts concerning the responsibility
of VW employees as it is likely that they were not aware of any test falsification.
Moreover, having regard to the existence of the crime of fraud, it seems questionable if an economic damage was suffered by the car owner (leaving apart, for the
moment, the case of car resale). If there is no evidence of the economic damage, the
crime of fraud is not fulfilled.15
German law defines fraud in Sec. 263 of the Criminal Law Statute
(Strafgesetzbuch—StGB). It requires an act of deception inducing an error of
another person. This error shall cause a patrimonial transfer of the deceived person
to the advantage of another individual and result in damage to the latter.
This provision seems fulfilled at first sight: buyers have been deceived intentionally as regards the existence of defeat device, i.e., an apparatus that unduly
reduces the effectiveness of emission control systems under conditions a vehicle
may reasonably be expected to experience.
The observance of emission standards and provisions was circumvented by VW,
with the intent to confer an illegal advantage to the German car manufacturer,
corresponding to a loss of buyers, who have bought cars whose quality and thus
economic worth were minor than that warranted by VW in the sale contract.
Moreover, this is a serious fraud as defined in Sec. 263 para. 2 StGB, providing
criminal sanctions ranging from 6 months to 10 years of imprisonment or financial
sanctions, as the patrimonial damage prejudiced a large plethora of buyers. In
addition, as a further aggravation, the offense of computer fraud, according to
Sec. 263 a StGB, may be fulfilled as well.
However, at a more detailed insight, hurdles become apparent. First, as there is
no corporate criminal liability under German law, the liability of the acting individuals, i.e., Volkswagen managers and engineers, needs to be specifically
ascertained.
In this context, we agree with the opinion that that the development and use
of software in about 11 million cars worldwide could not have been the act of a
single perpetrator. It has been also rightly observed that the manipulations must
have been known to most if not all motor and IT development departments within
Volkswagen.16
However, to fulfill the element of deceit of buyers, those Volkswagen managers
who publicly guaranteed the observance of the emission standards need to have
known that this statement was wrong, a fact that is far from certain in a company of
the dimension of VW, characterized by sophisticated forms of division of labor. In
this respect, the issue of delegation of functions that we have highlighted above in

15
16

See, in this book, Schmid C, Chapter “Germany”, Sect. 2.1.
See, in this book, Schmid C, Chapter “Germany”, Sect. 2.1.

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the light of Italian law will probably be of paramount relevance also within the
German context in order to assess individual liabilities.
Moreover, the car purchase must have triggered a patrimonial damage to the
buyer to become criminally relevant. The affected cars are technically sound and fit
for circulation. At any rate, it is highly probable that the resale price of manipulated
cars will be lower than that achievable under ordinary circumstances and thus
determine a patrimonial damage to the seller.
Similarly to Italian law, also under German law, the prosecution of persons for
the crime of fraud requires that an intentional deceit can be shown. There is a
further similarity of Italian and German laws: as the patrimonial damage comes to
existence exclusively if the manipulation is discovered, the intention, at least in the
form of dolus eventualis, needs to extend not only to the use of the manipulated
software but also to its discovery. If the acting Volkswagen managers or employees
(even negligently or erroneously) assumed that the buyers of cars would in any case
be compensated by Volkswagen and, therefore, never suffer any patrimonial damage, this subjective belief might again exclude their intention if judged as relevant
by Courts.
The similarity of German and Italian laws ends if we consider executive officers’
compliance obligations. As explained in another chapter of this book,17 German
law provides for a stricter legal regime under this perspective. In order to avoid
repetitions, we only recall that according to Sec. 91 para. 2 of the German act on
public companies (Aktiengesetz—AktG), a functioning compliance system needs
to be established, for which the executive board is liable. A multinational company
such as Volkswagen must comply with the highest standards, and it is obvious that
these standards have not been complied with as regards the respect of emission
standards. Therefore, the executive board is jointly liable for the damages arising
for the company due to the omission of the establishment of a functioning compliance system under Sec. 93 para. 2 AktG. In this context, the executive officers may
be liable as guarantors according to sec. 13 of the criminal act for the respect of
legality duties arising from Sec. 91 para. 2 AktG.
As a consequence—a striking difference from Italian law—even if unaware of
the details of the manipulation, executive officers might be convicted for fraud for
their omission of establishing a functioning compliance system, which has entailed
the intentional deceit of buyers about the respect of emission standards.
As far as manipulation of capital markets is concerned, the public prosecutors’
office of Braunschweig has in 2016 extended its investigation to the crime of
manipulation of capital markets, ruled by Sec. 20a of the securities trading act
(Wertpapierhandelsgesetz—WpHG). Public companies have the duty to immediately render public hitherto not publicly available information about all facts that
are apt of massively influencing stock exchange rates of the shares of a company or
market prices.

17

See, in this book, Schmid C, Chapter “Germany”, Sect. 2.1.

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M. Marraffino

A specific information notice was published by Volkswagen only on
22 September 2015. However, according to the Financial Supervisory Authority,
there are plausible indications that this information on imminent losses triggered by
the scandal should have been circulated much earlier. At present, criminal investigations are directed against former CEO Martin Winterkorn and another leading
executive officer. As these investigations rely almost exclusively on internal files
and data of VW, predictions on their outcome are not reasonably possible.
As far as environmental crimes are concerned, according to known facts,
evidence that German environmental criminal legislation was infringed does not
yet exist. For sure customers and the German regulatory authorities have been
misled about the actual pollutant emission amounts of their diesel vehicles. Thus,
the first condition of fraud under §263 of the German Criminal Code would be
satisfied.
As explained above, the focus of the investigation by the public prosecutor
(Staatsanwaltschaft Braunschweig) is initially on the possible fraud against buyers.
Volkswagen has repeatedly assured the public of its willingness to participate fully
in the necessary findings of fact. To justify any criminal responsibility, it is
important to find out who has decided and implemented the manipulation. The
issue is: were there on the board and/or the supervisory board persons who knew
about it or who may even have endorsed it?
In Germany, only natural persons can be criminally prosecuted. The Braunschweig public prosecutor will therefore need to determine the actual actors of the
scandal and their respective personal responsibility. Unlike in the United States,
under German law no criminal direct prosecution may be directed against the
company itself.
This has been criticized by investigators, as well as some criminal scientists and
politicians, for many years, emphasizing the need for the introduction of a
“Unternehmensstrafrechts.” Nordrhein-Westfalen’s Justice Minister Thomas
Kutschaty proposed in 2013 a draft law on the introduction of criminal liability
of companies and other organizations, briefly “Verbandsstrafgesetzbuch.”
From a criminal law policy perspective, the proposal aims at satisfying the need
to guide the conduct of corporations by facing them with the risk of a real
punishment. This will be achieved with the fact that not only individuals have to
serve as a “scapegoat” for the company, if the cause of a criminal offense has to be
found in a misguided corporate culture, in a lack of control or possibly in offenses
covered by the management. The proposed Verbandsstrafgesetzbuch would go a
step further. Also, in corporate criminal law, the principle of legality would apply
and the Prosecutor could and should determine also against the company if it has
reasonable indications that the company is involved in criminal conducts that
cannot be “only” considered a fact of individuals but as an organized corporate
crime.
In the case that it is not possible to individuate persons who may be held
criminally responsible, the prosecutor can, even under current legislation, i.e.
§§30, 130 OWiG, impose corporate fines up to millions of euros for negligent
conduct by the management. This independent proceeding requires only that the

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investigation against the accused persons is not closed pursuant to §170 2 StPO, the
so-called acquittal in the inquiry proceeding—Freispruch im Ermittlungsverfahren.
In France, where about a million vehicles of VW were sold only in the last year,
there are still ongoing investigations, both for aggravated fraud and for environmental disaster. Compensation for consumers might have a key role, at least with
regard to the crime of aggravated fraud.18
In Switzerland, many consumers have complained VW for fraud and environmental disaster, but the Swiss Criminal Procedure Code states that the prosecutor
may “abandon the criminal prosecution if the crime in question is already pursued
by a foreign authority.” However, the Foundation for the Swiss-German Consumer
Protection (SKS) considers this not enough to stop the investigation in Switzerland.
The Swiss complaints that are still pending are recorded against unknown persons
for crimes of fraud and environmental disaster.
English law has a number of potentially relevant offenses. The Fraud Act 2006
(“Fraud Act”) sets out the offense of fraud by false representation, which could be
relevant in the context of the Dieselgate.19 The offense is committed when the
representation is made, and so it is irrelevant whether any gain or loss actually
occurs as a result of the representation. This is a relevant difference from German
and Italian laws, which do require a loss.
As it happens in many other jurisdictions, managers who “consent or connive” in
offenses committed by the company can also be exposed to prosecution. As in
German and Italina laws, an important evidential challenge may be establishing the
necessary link between the employee who made the representation and those who
knew the representations to be false. This could extend to whether a UK subsidiary
had any relevant knowledge of wrongdoing perpetrated by other parts of the group
in other jurisdictions.
As explained in the chapter on the US,20 the Department of Justice (DOJ) started
an investigation concerning VW and its management. It is noteworthy that it would
be the very first criminal prosecution of a car manufacturer for emission violations
in the US. It is not yet clear whether the DOJ will start criminal prosecution. In any
case, as well known, the Clean Air Act (CAA) provides a number of general
prohibitions that grant authority to criminal penalties. With reference to the
“Dieselgate” case, Section 113(c)(2) of the CAA, which contains provisions for
criminal penalties if a person knowingly makes false statements, representation or
certifications, could play an important role.
It seems possible that this section’s authority could apply within the context of
the Dieselgate, given the relations of VW with the EPA during the investigation. A
further relevant provision is Section 113(c)(2)(c), which authorizes seeking criminal penalties for anyone who “falsifies, tampers with, renders inaccurate, or fails to
install any monitoring device or method required to be maintained or followed

18

See, in this book, Posocco L, Chapter “France”, Sect. 3.3.3.
See, in this book, Turner S, Chapter “United Kingdom”, Sect. 2.1.
20
See, in this book, MacDougald J, Chapter “United States of America”, Sect. 4.2.
19

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M. Marraffino

under this chapter.” The installation of the defeat device by VW could probably fall
within the scope of this provision. These infringements are punishable by fine or
imprisonment of up to two years.
EU countries meet the difficult choice between civil and criminal actions, which
are assigned to individual consumers and to the activity of investigation by the
public prosecutors, respectively. In the US, a decisive role may be played by the
restorative conduct engaged by VW.
The ne bis in idem principle and the so-called international lis pendens could
represent an important guarantee for prosecuted VW managers. The European
Human Rights Convention expressly provides for the right of refusal when the
procedure is in the requested State (Articles 8–9).21 In any case, the Dieselgate
highlights the lack of harmonization of criminal law, which remains an aspiration
still unimplemented. This seems especially urgent for environmental crimes that
require a rapid harmonization that could be achieved by EU directives or at a global
level through international conventions. In a hopefully not too far future, the
European Parliament should be entrusted with legislative competence on criminal
matters, at least for offenses that have no boundaries and that appear anachronistic
to leave to the domestic law of each country. The establishment of a permanent
international criminal court and the codification of new international crimes could
be the next step so as to guarantee the certainty of punishment and the uniformity of
sanctions for all offenses that per se have no territorial limits. The Dieselgate
scandal should be the starting point for the modernization of existing instruments
of international cooperation, with the proclamation of new principles aimed at the
protection of the global community of consumers and individuals and of the
environment.

References and Websites
Corbet J (2015) The internet of criminal things. Available at https://lwn.net/Articles/658198/
Lüjtenegger VK (2016) Der Fall Volkswagen-(k)ein Rückruf wie jeder andere? In DAR 3/2016
Mantovani F (2007) Diritto penale, Parte generale, Cedam, Padova, 901 ff
https://lwn.net/Articles/658198/
http://www.economist.com/news/world-week/21694584-business-week

21

See Mantovani (2007).

Environmental Law
Environmental Claims
Sara Landini

1 Premise
The Dieselgate may be qualified as an unfair commercial practice as long as false
environmental claims can attract consumers’ acceptance. Environmental claims, or
“green claims,” are assertions made by businesses about the environmental qualities or characteristics of their goods and services. These claims refer to the way
goods are produced, packaged, distributed, used, consumed, and/or disposed
of. They sometimes include the socially responsible or ethical manner in which
goods are manufactured and distributed. Environmental claims can consequently
appear on a product, on its packaging, or on advertising material, as well as in
promotional and point-of-sales material, and through other forms of marketing.
Such claims might be represented by symbols, emblems, logos, graphics, colors,
and product brand names.
An environmental claim can represent a form of unfair commercial practice
since it is able to impact on the economic behavior of consumers. According to
surveys in OECD countries, consumers are increasingly eager to buy environmentally friendly goods and services. However, some studies suggest that consumers
are often confused about the meaning and the veracity of self-declared environmental claim, in particular by those that are vague or unsubstantiated.1 As car sales
are concerned, the tendency of consumers to buy “green” cars is also justified by the
prohibitions provided in various cities, particularly in European Union countries,
regarding the circulation of vehicles considered excessively polluting.
In this chapter, we will consider what could be the result of the application of the
rules on unfair commercial practices to the Dieselgate case.
1

https://www.oecd.org/sti/consumer/48127506.pdf.

S. Landini (*)
University of Florence, Florence, Italy
e-mail: sara.landini@unifi.it
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_9

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S. Landini

2 Unfair Commercial Practice Law: A Comparison
In EU Member States, a satisfactory uniformity of rules on unfair commercial
practice was obtained through Directive 2005/29/EC on Unfair Commercial Practices.2 Thanks to this Directive, national enforcers have been able to determine a
range of unfair business practices, such as providing untruthful information to
consumers or using aggressive marketing techniques to influence their choices.3
Domestic law prohibits unfair commercial practices, such as unfair advertising,
which directly harm consumers’ economic interests and indirectly the economic
interests of competitors, with regard to “business to consumer” (B2C) contracts. A
commercial practice is commonly considered unfair in B2C relationships when
directly conceived to mislead consumers’ decisions in relation to the purchase of
goods and services. As previously mentioned, any commercial communication can
influence consumer’s behavior, but, according to the principle of proportionality,
only some commercial communication may be regarded as unfair.
As noted by the European Commission in 2005, Member States’ legislation on
unfair commercial practices has evidenced differences that can cause distortion to
competition and obstacles to the smooth functioning of the internal market. In the
field of advertising, Council Directive 84/450/EEC of 10 September 19844
concerning misleading and comparative advertising established minimum legal
criteria for harmonizing national legislation on misleading advertising.
As this Directive adopts a minimum and not a maximum harmonization
approach, it does not prevent Member States from retaining or adopting measures
that provide more extensive protection for consumers. For this reason, the Parliament and the Council of the European Union have jointly adopted on 11 May 2005
Directive 2005/29/EC “concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC,5 98/27/EC6 and 2002/65/EC7 of the European Parliament and of the
Council and Regulation (EC) No. 2006/2004 of the European Parliament and of the
Council8.”
This Directive establishes a single general prohibition of unfair commercial
practices distorting consumers’ economic behavior. It also sets rules on aggressive
commercial practices. According to Article 5:
A commercial practice shall be unfair if:
(a) it is contrary to the requirements of professional diligence, and

2

O.J. L 149/22 (2005).
See particularly Micklitz (2009).
4
O.J. L 250/17 (1984).
5
O.J. L 144/19 (1997).
6
O.J. L 166/51 (1998).
7
O.J. L 271/16 (2002).
8
O.J. L 364/1 (2004).
3

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(b) it materially distorts or is likely to materially distort the economic behavior with
regard to the product of the average consumer whom it reaches or to whom it is addressed,
or of the average member of the group when a commercial practice is directed to a
particular group of consumers.

Misleading practices, including misleading advertising, prevent the consumer
from making an informed and efficient choice by deceiving him. Directive 2005/29/
EC classifies misleading practices as misleading actions and misleading omissions:
unfair omissions are characterized by the lack of information that the consumer
needs to take an efficient transactional decision (such as the main characteristics of
the product; the geographical address and the identity of the trader; the price
inclusive of taxes; the arrangements for payment, delivery, performance; and the
complaint handling policy). According to Article 6 of the Directive, “a commercial
practice shall be considered misleading if it contains false information and is
therefore untruthful or in any way, including overall presentation, deceives or is
likely to deceive the average consumer, even if the information is factually correct,
in relation to one or more of the elements, and particularly:
(a) the existence or nature of the product;
(b) the main characteristics of the product;
(c) the extent of the trader’s commitments;
(d) the price or the manner in which the price is calculated, or the existence of a specific
price advantage.”

A commercial practice shall also be considered as misleading if, taking into
account its factual context and all of its features and circumstances, it causes or is
likely to cause the average consumer to take a transactional decision that he would
not have taken otherwise.
According to the present Directive, national provisions on aggressive commercial practices should cover those practices that significantly impair the consumer’s
freedom of choice. Those are practices using harassment; coercion, including the
use of physical force; and undue influence.
According to Article 9, “in determining whether a commercial practice uses
harassment, coercion, including the use of physical force, or undue influence,
account shall be taken of:
(a) its timing, location, nature or persistence;
(b) the use of threatening or abusive language or behavior;
(c) the exploitation by the trader of any specific misfortune or circumstance of such
gravity as to impair the consumer’s judgment, of which the trader is aware, to influence the
consumer’s decision with regard to the product;
(d) any onerous or disproportionate non-contractual barriers imposed by the trader
where a consumer wishes to exercise rights under the contract, including rights to terminate
a contract or to switch to another product or another trader;
(e) any threat to take any action that cannot legally be taken.”

Persons or organizations having a legitimate interest in the matter must be
provided with legal remedies for initiating proceedings against unfair commercial
practices, either before a court or before an administrative authority that is

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S. Landini

competent to decide upon complaints or to initiate appropriate legal proceedings
before a court.
A specific role has been recognized to codes of conduct, which enable traders to
effectively apply the principles of the Directive in specific economic areas. In
sectors where specific mandatory requirements regulate the behavior of traders, it
would be appropriate for these to provide evidence as to the requirements of
professional diligence in that sector. The trader or group of traders who are
responsible for the formulation and revision of a code of conduct should monitor
compliance with the code by those who are bound to it. Such control, if exercised at
national or EU level, should eliminate unfair commercial practices and avoid the
need for recourse to administrative or judicial action. In our opinion, a higher level
of consumer protection could be achieved if consumers’ organizations were
informed and involved in the process of drafting the codes of conduct.
According to Article 6(2) of this Directive, “a commercial practice shall also be
regarded as misleading if, in its factual context, taking account of all its features and
circumstances, it causes or is likely to cause the average consumer to take a
transactional decision that he would not have taken otherwise, and it involves
[. . .] non-compliance by the trader with commitments contained in codes of conduct by which the trader has undertaken to be bound, where:
(i) the commitment is not aspirational but is firm and is capable of being verified, and
(ii) the trader indicates in a commercial practice that he is bound by the code.”

Moreover, Article 10 underlines that this Directive does not exclude the control
of unfair commercial practices by code owners, i.e., any entity that is responsible
for the formulation and revision of a code of conduct, and recourse to such bodies
by the persons or organizations regarded under national law as having a legitimate
interest in combating unfair commercial practices.
The “Unfair Commercial Practice Directive” could be applied together with
other EU provisions. We may thus consider Council Directive 85/374/EEC
concerning liability for detective products9 and Council Directive 1999/44/EC on
certain aspects of the sale of consumer goods and associated guarantees.10 As well
known, the first one regulates the liability of producers in case of defective
products. A product is defective when it does not provide the safety that a person
is entitled to expect, taking all circumstances into account, including the presentation of the product, the reasonable use of the product, the moment when the product
was put on the market. The second mentioned Directive protects consumers in the
event of sale of a product without “conformity.”
To be in conformity, goods must
(a) comply with the sales description;
(b) be fit for the purpose for which the good was intended;
(c) demonstrate the quality and performance that can reasonably be expected.
9

O.J. L 210 (1985).
O.J. L 171 (1999).

10

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Moreover, sellers are responsible for any incorrect installation if provided by the
contract. This applies either if the wrong work is due to faulty instructions or if it is
covered by the liability of the seller. Consumers have the right to request that faulty
items be either repaired or replaced free of charge within a reasonable time and with
minimal inconvenience. If it is impossible to repair the item in a reasonable time
frame, or if it is more convenient than repairing it, then the seller may replace it for
the consumer. If the producer is liable for price reduction or rescission of the
contract, redress between the seller and the producer would then probably be
needed.
Provisions on unfair business practices can thus result in contrast with provisions
on defective products and on sale of consumer goods. With regard to this, the UCP
Directive (Directive 2005/29/EC on Unfair Commercial Practices of 14th March
2013) states that “in case of conflict between the provisions of this Directive and
other Community rules regulating specific aspects of unfair commercial practices,
the latter shall prevail and apply to those specific aspects.”11
As this principle shall be applied also with regard to national rules implementing
EU directives, one may conclude that, in case of conflict between national provisions implementing the UCP Directive and domestic provisions implementing
other specific EU directives on unfair commercial practices, the latter ones shall
prevail. However, in our opinion, a combination of various remedies in favor of the
consumer should be possible if there is no conflict between UCP rules and other
specific EU provisions.12
In the US, misleading commercial practices are prohibited by the law on
consumer protection. Moreover, the Federal Trade Commission of the United
States (FTC) has the regulatory power to prevent any misleading or deceptive
claims.
The Federal Trade Commission drew Green Guides designed to help marketers
avoid making environmental claims that deceive consumers. The Green Guides
were first issued in 1992 and were revised in 1996, 1998, and 2012. The guidance
they provide includes the following: (1) general principles that apply to all environmental marketing claims, (2) how consumers are likely to interpret particular
claims and how marketers can substantiate these claims, and (3) how marketers can
qualify their claims to avoid deceiving consumers.
The FTC’s most recent update of the Guides is designed to make them easier for
companies to understand and apply. The changes include new guidance on marketers’ use of product certifications and seals of approval, claims about materials
and energy sources that are “renewable,” and “carbon offset” claims.13
11

Art. 3(4).
See Regulation (CE) No. 178/2002 of 28 gennaio 2002, O.J. L 31/1 (2002); Regulation (CE) No.
1924/2006 of 20 December 2006, Art. 2, lett. (a) on nutrition and health claims made on food,
O.J. L 404/9 (2006); Legisl. Decree No. 189 of 27 January 1992 (and its amendments), on labeling,
presentations and food advertising.
13
https://www.ftc.gov/policy/federal-register-notices/guides-use-environmental-marketingclaims-green-guides.
12

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S. Landini

In the United States, the sale of a product that does not comply with the promised
standards can be adjusted according to the Products Liability Law and to the
Consumers Contracts Law. The law of products liability is found mainly in common law and in the Uniform Commercial Code (UCC). Article 2 UCC deals with
the sales of goods, and it has been adopted by most States. Product liability claims
can be based on negligence, strict liability, or breach of warranty of fitness
depending on the jurisdiction where the claim is lodged. Many States have enacted
comprehensive product liability statutes. As these statutory provisions differ, the
United States Department of Commerce has promulgated a Model Uniform Product
Liability Act (MUPLA) for voluntary adoption by the States, considering that there
is no federal product liability law. Product liability concerns the manufacturer of
component parts (at the top of the chain), an assembling manufacturer, the wholesaler, and the retail store owner (at the bottom of the chain). There are three types of
product defects that incur liability in manufacturers and suppliers: design defects,
manufacturing defects, and defects in marketing.14

3 The Dieselgate in the Perspective of the Unfair
Commercial Practice Law (UCPL)
The term Dieselgate stays for the scandal that involved VW in 2015. As well
known, Volkswagen had intentionally programmed turbocharged direct injection
(so-called TDI) diesel engines to activate certain emission controls only during
laboratory emission testing. The program caused the vehicles’ nitrogen oxide (NOx)
output to meet US standards during regulatory testing but emit up to 40 times more
NOx in real-world driving. Volkswagen put this software in about 11 million cars
worldwide, 500,000 in the United States.15
For this reason, on 18 September 2015, the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to the
German automaker Volkswagen Group.
VW’s commercial communications on the TDI car emissions could be considered environmental claims since they were able to impact on the economic behavior
of the consumers. As already mentioned, declaring that a product is environmentally friendly has a strong attraction to consumers, especially when the low impact
on the environment has an economic value. When purchasing a new car, consumers
are very careful with emission limits usually imposed by governments on the most
polluting cars. Therefore eco-friendly cars are more attractive, and environmental
claims regarding car emissions may have a significant impact on consumers’
commercial behavior.

14
15

https://www.law.cornell.edu/wex/products_liability.
https://www.epa.gov/sites/production/files/2015-10/documents/vw-nov-caa-09-18-15.pdf.

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The European Union has paid specific attention to environmental claims as they
may represent a kind of unfair commercial practice. In March 2014, the European
Commission published the report “From the Commission to the European Parliament, the Council and the European economic and social committee.” The report
addresses the issue of “environmental claims” in the context of commercial practices. The expression “environmental claims” (or “green claims”) refers to the
practice of suggesting or otherwise giving the impression that a product or a service
is either environmentally friendly or less damaging to the environment than competing goods or services.
The growing use of environmental claims as a marketing and advertising tool is
strictly related to the increase in environmental concerns among the global civil
society. Beyond the aspects covered by specific EU legislation,16 the UCP Directive
is the main instrument of horizontal legislation for assessing and evaluating environmental claims. As the European Commission has explained in the
abovementioned report, the application of the provisions of the Directive to environmental claims can be summarized with regard to two main principles:
• Based on the Directive’s general provisions, traders must, above all, present their
green claims in a specific, accurate, and unambiguous manner.
• Traders must have scientific evidence to support their claims and be ready to
provide it in an understandable way in case the claim is challenged.17
16
Council Regulation (EC) No. 834/2007 of 28 June 2007 on organic production and labelling of
organic products and repealing Regulation (EEC) No. 2092/91, O.J. L 189/1 (2007). Other
examples of specific legislation are Directive 2010/30/EU of 19 May 2010 on the indication by
labelling and standard product information of the consumption of energy and other resources by
energy-related products, O.J. L 153/1 (2010); Regulation (EC) No. 1222/2009 of 25th November
2009 on the labelling of tyres with respect to fuel efficiency and other essential parameters, O.J. L
342/46 (2009).
17
We report the relevant part of the Guidance on the application/implementation of Directive
2005/29/EC on Unfair Commercial Practices (SEC(2009)1666), Commission Staff Working
Document, page 37: “The expressions ‘environmental claims’ or ‘green claims’ refer to the
practice of suggesting or otherwise creating the impression (in the context of a commercial
communication, marketing or advertising) that a product or a service, is environmentally friendly
(i.e. it has a positive impact on the environment) or is less damaging to the environment than
competing goods or services. This may be due to, for example, its composition, the way it has been
manufactured or produced, the way it can be disposed off and the reduction in energy or pollution
which can be expected from its use. When such claims are not true or cannot be verified this
practice can be described as ‘green washing’. Consumers may weigh environmental considerations
when purchasing products. Increasingly, in planning their advertising and marketing campaigns
traders are taking these factors into account and environmental claims have become a powerful
marketing tool. However, in order for environmental claims to be informative for consumers and
to be effective in promoting goods and services with lower environmental impacts, it is imperative
that they are clear, truthful, accurate and not misleading. They must also not emphasize one
environmental issue and hide any trade-offs or negative impacts on the environment. The use of
truthful environmental claims is also important in order to protect traders who make genuine
claims from unfair competition from those traders who make unfounded environmental claims.
There is no EU legislation specifically harmonizing environmental marketing. Environmental
claims are partly covered by specific community legislation regulating the environmental

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S. Landini

Annex I of the Directive refers, in addition, to a number of practices that are
particularly relevant to environmental claims and that are prohibited, regardless of
the impact they have on the consumer’s behavior. They concern unauthorized use
of logos (point 2), false approval or endorsement by public or private bodies (point
4), falsely claiming to be a signatory to a code of conduct (point 1), or endorsement
of a code of conduct by a public or private body (point 3).
Economic sanctions could be imposed by national Supervisory Authorities in
case of infringement of the abovementioned provisions. Moreover, consumers may
start proceedings in order to claim compensation for damage caused by such
practices.

4 Recent Applications of UCP Law to the Dieselgate
On 2 October 2015, a preliminary investigation against Volkswagen Group
S.p.A. Italy and Volkswagen AG was started in Italy in accordance with Article
6 of Regulation AGCM.18 In February 2016, AGCM informed Volkswagen that it
had extended the procedure against the German group for unfair commercial
practices with reference to the issue of NOx and CO2 emissions.19 The case is
still pending, and there is yet no information about its outcome.
A further case of environmental claims concerning cars and emissions in Italy
was judged on 17 June 2015 by the Court of Appeal of Turin, which accepted the
claims of an Association of Consumers against FCA (Fiat Chrysler Automobiles)
according to the unfair commercial practices provisions contained in the Italian
Consumers Code. Consumers affirmed that FCA spread out erroneous and incorrect
data on fuel consumption and on CO2 emissions with regard to the car model Fiat
Panda 1.2 series petrol 51 kW. Consumers promoted a class action on the basis of
Art. 140bis of the Consumer Code—Legislative Decree No. 206 of 6 September
2005, requesting the court to condemn FCA to pay an equitable compensation for
damages caused by unfair commercial practices. FCA defended itself by stressing

performance of a category of products and prohibiting the misleading use of the claim, logo or
label used in reference to this specific legislation. These laws provide for specific rules which take
precedence over the broader provisions of the Directive as explained in Section 1.9 above.
Examples of such legislation are given in Section 2.5.2 below. Outside those aspects covered by
specific EU legislation, the general provisions of the Directive are to be used when assessing
environmental claims and establishing whether a claim is misleading either in its content or in the
way it is presented to consumers. This was highlighted when, on 4 December 2008, the Environment Council adopted conclusions on the Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan. Under point 18 of the conclusions, the Council ‘INVITES the
Member States to fully implement the Directive on unfair commercial practices with regard to
environmental claims; INVITES the Commission to include environmental claims in any future
guidelines on the Directive on unfair commercial practices’.”
18
Italian Competition and Market Authority, www.agcm.it.
19
www.agcm.it.

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167

the noncommercial importance of the alleged falsified data since its commercial
communications were not focused on those data.
In this case, the Court held a class action admissible under the rules of the Italian
Consumer Code. According to Art. 140bis of the Italian Consumer Code, class
actions are permitted only if the infringed individual rights are “homogeneous.”
It is useful to quote a case that clarifies this important requirement.
The Court of Appeal of Milan, on 3 March 2014, stated that: “For the purposes
of the correct interpretation of the term ‘homogeneous’ contained in Art. 140bis
Consumer Code, we must take into account the reason of the introduction of class
actions in the Italian legal system, which aims, on the one hand, to increase
consumer confidence in the functioning of the market and the use of an effective
instrument of protection, and conversely, allows businesses a generalized assessment of damages, in view of an overall simplification of consumer disputes, which
are potentially numerous. Therefore, it is not correct to require that the legal
position of a member is identical to that of another, as this would be contrary to
the purpose underlying the law in using the term ‘homogeneous’. It is therefore
necessary to distinguish between ‘homogeneous rights’ and ‘identical rights’.”
In the United States, the FTC accused the Volkswagen Group of America, Inc.,
claiming that it had misled consumers with an advertising campaign to promote its
“clean diesel” while using manipulation devices to mask excessive emissions
during pollution emission tests. Moreover, the FTC is seeking a court order
requiring Volkswagen to compensate American consumers who bought or leased
an affected vehicle between late 2008 and late 2015 and asking an injunction to
prevent Volkswagen from engaging in this type of conduct in the future.20
In the US, Volkswagen has agreed to pay up to $14.7 billion to settle claims
stemming from its diesel emission cheating scandal, in what would be one of the
largest consumer class action settlements ever in the United States. The proposed
settlement involving the federal government and lawyers of the owners of about
475,000 Volkswagen vehicles includes a maximum of $10.03 billion to buy back
affected cars at their prescandal values and additional cash compensation for the
owners.21 The deal requires the approval of the federal judge overseeing the case.
The settlement would cover only a small fraction of the 11 million diesel cars
worldwide, particularly in Europe, that Volkswagen has acknowledged that
contained the cheating software. Volkswagen would also pay $2.7 billion into an
EPA fund to compensate for the environmental impact of its cars, which were fitted
with software that enabled them to pass emission tests but exceed legal pollution
limits in on-the-road driving.

20
https://www.ftc.gov/news-events/press-releases/2016/03/ftc-charges-volkswagen-deceived-con
sumers-its-clean-diesel.
21
http://www.nytimes.com/2016/06/28/business/volkswagen-settlement-diesel-scandal.html.

168

S. Landini

5 Some Conclusions
It is doubtful whether the statements by VW concerning the quality of its cars can
be qualified as representing false environmental claims under the unfair commercial
practice law. Moreover, it is not easy to determine the damages in the case at hand.
Damages could probably be claimed for the reduced value of the cars involved in
case of resale. In addition, there is uncertainty about the ability of VW to restore the
legally established emission levels without undermining the performance of the car.
If this would be the case, car owners could claim damages for the reduced
performance of the vehicles. As already said, in case of UCP, Supervisory Authorities can issue sanctions on VW.
Moreover, courts may order compensation in favor of consumers who bought the
cars involved, provided that they can evidence the existence of damages.
In Germany, some authors propose to apply to the Dieselgate case the legal
notion der schadensgleichen Verm€
ogensgef€
ahrdung—“Damage in case of risk to
the property.” Section 263 of StGB (Strafgesetzbuch) states: “Whosoever with the
intent of obtaining for himself or a third person an unlawful material benefit
damages the property of another by causing or maintaining an error by pretending
false facts or by distorting or suppressing true facts shall be liable to imprisonment
not exceeding five years or a fine.”22
However, this provision has to be reconciled with the compensatory function of
civil liability according to which any damage needs to be proved in court in order to
be compensated.23 Moreover, we assume that §263 concerns criminal law aspects
and is in principle not relevant for the purpose of civil liability.
Finally, it is submitted that, if recognized by the applicable law, it is possible to
have punitive damages with regard to unfair commercial practices.24

22

Riehm (2016). The violation of the freedom of choice through a fraud determines a damage to
property. See BVerfG 2 BvR 1980/07 (2. Kammer des Zweiten Senats)–Beschluss vom 10. März
2009 (BGH/LG Kiel).
“Nach ständiger Rechtsprechung des Bundesgerichtshofs kann ein Nachteil im Sinne des §
266Abs. 1 StGB auch dann vorliegen, wenn Verm€
ogenswerte konkret gefährdet sind, so dass nach
wirtschaftlicher Betrachtungsweise bereits eine Verschlechterung der gegenwärtigen
Verm€ogenslage eingetreten ist (vgl. BGHSt 44, 376, 384; 48, 354, 357; 51, 100, 113 f.;
"schadensgleiche Verm€
ogensgefährdung" oder "Gefährdungsschaden"). Zum Betrugstatbestand
des § 263 StGB wurde zuerst nach der gebotenen wirtschaftlichen Betrachtungsweise ein
Verm€ogensschaden nicht nur im tatsächlichen Verlust eines Verm€
ogenswertes, sondern schon in
der konkreten Gefährdung verm€
ogenswerter Positionen gesehen (vgl. BVerfG NJW 1998, 2589,
2590; BGHSt 21, 112, 113; 23, 300, 303). Der Gefährdungsschaden wird dem endgültigen
Schaden in § 266 Abs. 1 StGB wie in § 263 StGB grundsätzlich gleichgestellt (vgl. BGHSt
51, 100, 120).”
23
But see Cadiet (1997).
24
Punitive damages are recognized in some US jurisdictions; see http://www.mcandl.com/puni_
chart.html.
With regard to the concept of punitive damages, see Pacific Mutual Life Insurance
Co. v. Haslip: the US Supreme Court observed that “punitive damages have long been part of

Environmental Law

169

A further issue concerns the D&O Insurance coverage. In the event that VW’s
commercial communications in the Dieselgate are judged by a court as false
environmental claims, we have to take into account one of the most common risk
exclusion usually contained in D&O insurance policies, i.e., the exclusion in case of
damages caused by pollution. Interpreting such exclusion according to the contra
proferentem rule,25 usually to be applied to contracts of adhesion as insurance
contracts, it may be argued that this exclusion works exclusively in case of damages
to the environment and thus not in the case at hand. In the context of the Dieselgate,
plaintiffs will request, within civil proceedings for false environmental claims,
compensation for damages to their property and not for damages to the environment. Civil proceedings for false environmental claims aim indeed to protect the
freedom of choice of consumers and not the environment.

References and Websites
Cadiet L (1997) Les métamorphoses du Prejudice In Les métamorphoses de la responsabilité. 37 ff
Chabas F (1999) La pena privata in Francia in Riv. dir. priv. 353

traditional state tort law,” Haslip, 499 U.S. 1, 1 (1991). We can remember the famous case BMW
vs. Gore, 646 sod 619, 67 (Ala.1994). In reversing the judgment and remanding the case for
“transcend[ing] the constitutional limit,” the Supreme Court held that there were three “indicia of
the reasonableness” of a punitive damages award, which have since become commonly known as
“guideposts”: (i) the degree of reprehensibility of the conduct at issue; (ii) the extent of parity
between the harm (or potential harm) and the punitive damages award; and (iii) comparisons
between the punitive damages award and civil or criminal penalties that could be imposed for
comparable misconduct.
In the UK, punitive damages have been recognized in the case Attorney-General vs. Blake,
1 A.C. 268 (2001) e Kuddus (AP) vs. Chief Constable of Leicestershire Constabulary, in U.K.H.L.,
2001, 29.
In Germany, they are not recognized. See BGH 4.6.1992, in NJW, 1992, 3096 and Schäfer
(2002), p. 419 ff.
In France, jurisprudence does in principle not recognize punitive damages. See Cass. 8.5.1964,
in JCP, 1965, II, 14140. See also Chabas (1999); Roujou de Boubee I., Essai sur la notion de
réparation, Paris, 1974, in part. p. 267.
It is the same in Spain. See T.S. 5750/1986, in La Ley, 1986, V, p. 5620 and Casals M, Notas
sobre la indemnización del da~
nos moral en las acciones por difamación de la LO 1/1982, in
Estudios en homenaje al Código civil, Madrid, 1989, p. 1231.
The Italian Supreme Court has sent the question of recognition of punitive damage to the United
Sessions of the Supreme Court stating that “The current opinion, affirming that the recognition of
foreign judgments awarding punitive damages is contrary to public order, is doubtful taking in to
account the progressive evolution accomplished by the Court in the interpretation of the principle
of public order, originally intended as an expression exclusively of the national legal system”: see
Court of Cassation, sent. No. 9978/2016.
25
In Italy, it is contained in Article 1370 of the Civil Code. It is a rule of the interpretation of the
contract providing that where a promise, agreement, or term is ambiguous, the preferred meaning
should be the one against the interests of the party who drafted the wording. This principle is
recognized also in common law systems. See Garner (2009).

170

S. Landini

Garner B (2009) Black’s law dictionary. West Group, Eagan (Minnesota)
Micklitz HW (2009) Unfair commercial practices and misleading advertising. In Micklitz HW,
Reich N, Rott P (eds) Understing EU consumer law. Intersentia
Riehm T (2016) Dieselgate und Deliktsrecht In DAR, 13 (rif. Nota 23)
Schäfer C (2002) Strafe und Prävention im Bürgerliche Recht in AcP. 419 ff
https://www.epa.gov/sites/production/files/2015-10/documents/vw-nov-caa-09-18-15.pdf
https://www.ftc.gov/news-events/press-releases/2016/03/ftc-charges-volkswagen-deceived-con
sumers-its-clean-diesel
https://www.ftc.gov/policy/federal-register-notices/guides-use-environmental-marketing-claimsgreen-guides
https://www.law.cornell.edu/wex/products_liability
http://www.mcandl.com/puni_chart.html
http://www.nytimes.com/2016/06/28/business/volkswagen-settlement-diesel-scandal.html
https://www.oecd.org/sti/consumer/48127506.pdf
www.agcm.it

The Environmental Dimension of the
Dieselgate: a European and International
Legal Perspective
Francesca Romanin Jacur

This chapter looks at the environmental and sustainability dimension of the
Dieselgate in a European and international legal perspective. In this perspective,
it analyses the regulatory approach adopted by the European Union and its Member
States with regard to control of emissions from cars and norms and processes of
corporate social and environmental responsibility (CSR).1 The aim of these latter
rules is to strengthen sustainable behaviours on behalf of companies, taking also
into consideration the public interest issues related to the production of cars, such as
the market-related, financial and transparency aspects.
Volkswagen A.G. appeared as one of the most responsible car maker according
to sustainability index rating. Despite that a well-established code of conduct was in
place, the company has been exposed to an epic scandal, which unveiled many
delicate matters relating to the environmental impacts of diesel vehicles and the
shortcomings of their emissions tests, which involve several car makers, certification companies, EU institutions, States and their regulatory authorities.2 What rules
or control processes did not work? Who was supposed to control? Who should be
held responsible? And for the breach of what obligations?
The role and responsibilities of these actors need to be clarified, and well as a
serious assessment of the existing regulations, monitoring and compliance systems
needs to be undertaken.
Furthermore, considering that the Dieselgate had a coincidence in timing with
the adoption of the global agreement to reduce greenhouse gas emissions and shift

1

Morgera (2009).
On 22 August 2016, the Financial Times reported that “A French government report omitted
significant details about how Renault’s diesel cars were able to emit fewer deadly gases when
subject to official emissions testing, members of the state inquiry have told the Financial Times”.
2

F. Romanin Jacur (*)
University of Milan, Milan, Italy
e-mail: fromanin@yahoo.com
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_10

171

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F. Romanin Jacur

the economy towards a greener path, its impact not only has deeply shaken the car
industry but also has a broader impact on green production processes. The international community is now aware that there are urgent environmental challenges that
need to be addressed. Important changes need to be introduced in the industrial
production processes, which also touch upon the public and private transportation
systems. These and many other core changes of contemporary society are among
the crucial matters that were recently discussed during the climate change negotiations under the UN Framework Convention on Climate Change (UNFCCC),
which resulted in the Paris Agreement.3
After a brief overview of the EU legal framework and of the voluntary instruments of corporate social responsibility that are relevant to the Dieselgate, this
chapter considers the loopholes in this complex legal framework and draws some
conclusive remarks on the importance of transparency and of procedural obligations in the context of environmental and, more broadly, of public interest
protection.

1 The EU Norms on Control of Pollutant Emissions from
Road Vehicles
Starting from the 1970s, the European Union adopted regulations on pollutant
emissions from cars to respond to the growing awareness of their negative impacts
on human health and the environment. EU laws set the maximum levels of
emissions to be respected by vehicles in order to get an approval valid within the
Union and provided for the harmonization of technical rules and processes. A
different approach, which is not strictly relevant to the Dieselgate and therefore
will not be examined in this context, is adopted to control CO2 emissions.4
In the current period of economic crisis, regulators need to combine environmental protection and competitiveness of the car sector, which employs 12.1 m
people and accounts for 7 % of the EU’s manufacturing employment. European
Union emission regulations for new light-duty vehicles (passenger cars and light
3
In December 2015, 195 States gathered in Paris and adopted an agreement to deal with the main
challenges of climate change for the next decades. The core pillars of the agreement cover national
measures and international cooperation on mitigation, adaptation and transfer of finance and
technology. After lengthy and cumbersome negotiations that lasted more than two decades
under the aegis of the United Nations, the Paris Agreement is a delicate balance between the
many and often conflicting interests and priorities of all the countries of the world. The Agreement
sets the foundations for a long-term strengthened international cooperation that combines, on the
one hand, the flexibility necessary to accommodate the great variety of different national circumstances with, on the other hand, the necessity to rely on uniform and commonly accepted rules. The
Paris Agreement is an international treaty that has been open for signature by states on 22 April
2016. For an early assessment of the Paris Agreement, see Romanin Jacur (2016).
4
For an in-depth and comparative analysis of EU law in the field of atmospheric pollutants and
CO2 emissions, see Visaggio (2012).

The Environmental Dimension of the Dieselgate: a European and International. . .

173

commercial vehicles) are regulated by Directive 2007/46/EC5 establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles; it sets the emission
limits for several pollutants, including CO2, NO and NO2.6 This Directive is further
implemented by Regulation (EC) No. 715/2007,7 which regulates how emission
tests are carried out. According to the relevant provisions, vehicles are tested in
laboratories. It is common knowledge among experts in the field that figures
resulting from these tests do not represent the real emissions that a vehicle generally
emits during its normal use.8 In 2011, the European Commission’s Joint Research
Centre has flagged similar discrepancies and warned that diesel cars, although
passing the lab tests, were emitting as much as four times the permitted levels of
NOx.
Another weakness in the current test system relates to the sadly famous “defeat
devices”. According to Regulation No. 715/2007, Art. 3(10), “defeat device”
“means any element of design which senses temperature, vehicle speed, engine
speed (RPM), transmission gear, manifold vacuum or any other parameter for the
purpose of activating, modulating, delaying or deactivating the operation of any
part of the emission control system, that reduces the effectiveness of the emission
control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use”.
After carefully defining what a “defeat device” is, the Regulation provides that
the use of such devices is prohibited,9 except when “(a) the need for the device is
justified in terms of protecting the engine against damage or accident and for safe
operation of the vehicle; (b) the device does not function beyond the requirements
of engine starting; or (c) the conditions are substantially included in the test
procedures for verifying evaporative emissions and average tailpipe emissions”,
Art. 5(2).
These exceptions leave room for interpretation and thereby have the effect of
watering down the requirements of the tests, thereby adding elements of uncertainty
in the measurement of the laboratory tests. These risks have been acknowledged
5

O.J. L 263/1 (2007).
Important regulatory steps implementing emission standard for light-duty vehicles were as
follows: Council Directive 70/220/EEC – O.J. L 76/1 (1970) and relative amendments; Council
Directive 91/441/EEC – O.J. L 242/1 (1991), Euro 1 standards (passenger cars only); Directive
93/59/EEC – O.J. L 186/21 (1993), passenger cars and light trucks; Directive 94/12/EC – O.J. L
100/42 (1994); Directive 96/69/EC L 282/64 (1996), Euro 2 standards; Directive 98/69/EC –
O.J. L 350/1 (1998); Directive 2002/80/EC – O.J. L 291/20 (2002), Euro 3/4 standards; Regulation
No. 715/2007, Euro 5/6 standards and several comitology regulations.
7
O.J. L 171/1 (2007).
8
Regulation No. 715/2007, Art.14(3): “The Commission shall keep under review the procedures,
tests and requirements referred to in Article 5(3) as well as the test cycles used to measure
emissions. If the review finds that these are no longer adequate or no longer reflect real world
emissions, they shall be adapted so as to adequately reflect the emissions generated by real driving
on the road.”
9
Regulation No. 715/2007, Art. 5(1).
6

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F. Romanin Jacur

also by the European Commission.10 In its 2013 report, the Commission refers to
the loopholes in the ban on defeat device technology and warns that these provisions “provide scope, together with the currently applied test procedure, for
tailoring the emissions performance”.11
With the aim of narrowing the gap between the measurement of emissions
during the laboratory tests and the real emissions on the road, the Commission is
working on the development of a new Real Driving Emission (RDE) test. In these
tests, the car will be driven on a real road according to random acceleration and
deceleration patterns. RDE testing reduces the differences between emissions
measured in the laboratory and those measured under real-world conditions and
limits to a great extent the risk of cheating with a defeat device. RDE tests have
been approved in May 2015 by the Technical Committee for Motor Vehicles, where
all Member States are represented. After defining technical matters, the new tests
should become operational in 2017 or 2018 with an initial phase where there will be
only monitoring, without interfering with the release of the conformity certificates
by the national authorities.
In addition to regulating the tests, Regulation No. 715/2007 allows Member
States to grant financial incentives to car makers for the production of vehicles that
comply with the emission limits (Art. 12). This provision is another provision that
may serve as a legal basis for lawsuits against Volkswagen or other car makers, who
received incentives for allegedly greener vehicles that turn out not to comply with
the declared environmental performances.

2 The Corporate Environmental Responsibility Dimension
The Dieselgate calls into question the effectiveness not only of laws and regulations
but also of the voluntary instruments of corporate social responsibility (CSR),
which are increasingly used by companies to commit to environmental protection,
respect of fundamental human rights and other public interests, such as transparency and responsible behaviours towards workers, shareholders and the market.
Volkswagen has in place an articulated CSR system, including a comprehensive
code of conduct, which states, inter alia, as follows: “We stand for responsible,
honest actions”; “We bear responsibility for continuous improvement of the environmental tolerability of our products and for the lowering of demands on natural
resources while taking economic considerations into account. We therefore make
ecologically efficient advanced technologies available throughout the world and
10

Remarks of Commissioner Elżbieta Bieńkowska at the press conference after the Competitiveness Council on 30th November 2015.
11
European Commission-JRC Scientific and Policy Reports, A complementary emissions test for
light-duty vehicles: Assessing the technical feasibility of candidate procedure, 2013, p. 31.
Available at http://publications.jrc.ec.europa.eu/repository/bitstream/JRC75998/ld-na-25572-enn_online.pdf).

The Environmental Dimension of the Dieselgate: a European and International. . .

175

implement them over the entire lifecycle of our products.”; “We are obligated to the
truth with respect to political institutions.”12
These words sound somehow out of tune in light of the facts discovered and
acknowledged by the Volkswagen management.
Furthermore, according to Volkswagen: “More than 74,000 employees were
trained in the company’s code of conduct last year. Around 40 percent of these were
face-to-face in a classroom, and the rest were online. In total, more than 185,000
employees received training on compliance topics in 2014. More than 1,700 audits
were conducted at VW companies around the world; 140 cases on anti-corruption
were investigated; 365 cases of suspected fraud were looked at; and 72 employees
were fired as a result.”13
Hence, it appears not only that the code of conduct was on paper but also that
monitoring and compliance procedures were in place and functioning. Nonetheless,
the system has been unable to prevent the wrongdoing. Interestingly, the main cause
of VW’s alleged wrongdoing may lie in the company’s ambitious production targets
for the US market and the time and budget constraints imposed on employees to
reach those targets.14 The internal investigations carried out by Volkswagen itself
with the aim of clarifying the responsibilities for the wrongdoings and loopholes in
its compliance procedures identified three main factors at the basis of the NOx
software manipulation: first, the misconduct of individual employees; second,
weaknesses in some processes; and, third, “a mindset in some areas of the Company
that tolerated breaches of rules”.15
Taking responsibility for what happened, the Volkswagen website communicated a few days after the scandal: “The Volkswagen Supervisory Board consulted
intensively on the current situation at its meeting on Friday, September 25th. There
is absolutely no excuse for the manipulations which have deeply shocked
Volkswagen. The company will leave no stone unturned in getting to the bottom
of this, will call those responsible to account, and take the necessary actions.”
Besides these voluntary CSR instruments, other tools that should have supposedly identified and monitored environmental and social behaviours of companies
proved their inability to perform their functions: the Dow Jones Sustainability
World Index (DJSI World) tracks the performance of the top 10 % industry of the
2,500 largest companies in the S&P Global Broad Market Index that lead their field
in terms of environmental, social and governance performance, the so-called ESG
factors.16 These companies are assessed on an annual basis through RobecoSAM’s
12
The Volkswagen Group, Code of Conduct, respectively p. 4, 19 and 15. Available at http://en.
volkswagen.com/content/medialib/vwd4/de/Volkswagen/Nachhaltigkeit/service/download/corpo
rate_governance/Code_of_Conduct/_jcr_content/renditions/rendition.file/the-volkswagen-groupcode-of-conduct.pdf.
13
http://sustainabilityreport2014.volkswagenag.com/economy/compliance.
14
Crête (2016).
15
Volkswagen News, Volkswagen making good progress with its investigation, technical solutions, and Group realignment, 10th December 2015. Available at http://www.volkswagenag.com/
content/vwcorp/infocenter/en/news/2015/12/VW_PK.html, p. 1.
16
www.sustainability-indices.com.

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F. Romanin Jacur

Corporate Sustainability Assessment. On 11 September 2015, Volkswagen communicated to the press that: “The Volkswagen Group has again been listed as the
most sustainable auto-maker in the world’s leading sustainability ranking”.
While legal proceedings are pending to establish who is to blame for the
wrongdoings within the Volkswagen management, in light of what happened it
seems safe to say that the CSR machinery established by Volkswagen, as well as
other instruments, such as the DJSI, which were meant to detect in advance and
possibly avoid the occurring of similar events, did not function effectively.
The only function of these instruments was to react to the scandal by removing
Volkswagen by the European and all other DJSI.

3 Sanctions for Non-compliance
Directive 2007/46/EC envisages the actions that Member States granting the
certificates and other States where vehicles are exported shall put in place in case
of problems of non-compliance with the certification rules. For instance, if a
Member State that has granted EC type-approval certificates finds that a vehicle
is not in conformity with the certificate issued, it shall take the necessary measures,
including the withdrawal of the approval.17
Furthermore, Member States shall lay down the provisions on penalties applicable for infringements by manufacturers. The penalties provided for must be
effective, proportionate and dissuasive,18 and, according to Regulation
No. 715/2007, penalties shall be issued for infringements regarding “(a) making
false declarations during the approval procedures or procedures leading to a recall;
(b) falsifying test results for type approval or in-service conformity; (. . .) d) use of
defeat devices”.19
In addition to these legally established sanctions, there are other types of marketrelated “sanctions” that have a very significant impact on the company. One may
think of the removal from the sustainability indexes, as mentioned above, of the
drastic fall of the market value of the shares of Volkswagen and the consequent
sharp reactions of the shareholders, of diesel car owners and of investors, who are
now undertaking legal proceedings and class actions under various jurisdictions
against the company.20

17

Directive 2007/46, Art. 30(1).
Directive 2007/46, Art. 46 and Regulation No. 715/2007, Art. 13(1).
19
Regulation No. 715/2007, Art. 13(2).
20
Norway’s sovereign fund and one of the major European insurance companies, Allianz, are
suing Volkswagen due to the negative impact of the Dieselgate on the value of Volkswagen shares.
See Allianz to sue Volkswagen over Dieselgate share drop, 8 March 2016. Available at http://
www.reuters.com/article/volkswagen-allianz-suit-idUSL5N16G3CB.
18

The Environmental Dimension of the Dieselgate: a European and International. . .

177

It appears hence self-evident how the lack of transparency and of compliance
with legally required behaviours, as well as with the self-imposed standards of
corporate social responsibility led to severe and highly costly consequences for the
car-maker company.

4 Conclusive Remarks
The Dieselgate shows blatantly how issues and processes of a highly technical
nature may translate into crucial economic and financial problems. Considering the
market and investor reactions after the scandal, the repercussions in terms of
devaluation of the Volkswagen shares and other financial effects have been clearly
underestimated by the Volkswagen management, as reflected in the declarations of
the chairman, Mr P€otsch, who acknowledged that “management did a poor job
when independent tests in 2014 revealed that emissions by VW diesel cars on the
road were far higher than those recorded in laboratory conditions. He said the issue
was not given due attention because it was considered a technical problem.”21
Another worrying consideration relates to the inadequacy of what before the
scandal appeared as a comprehensive regulatory framework: firstly, the legal
instruments in force were unable to function correctly due to weaknesses and
loopholes in the system. The latter were well known by the regulators since years
before but nonetheless were not fixed. It remains to be seen whether the necessary
improvements will be introduced as expected in the next year or two. This brief
overview shows several weakness of the European legal framework on emissions
from vehicles: on the one hand, there are the technical aspects that consist in the
inefficient measurement of emissions; on the other hand, the regulatory approach is
flawed mainly because of the fragmented division of competences between Member States and the EU Commission.22
Secondly, also the voluntary instruments of CSR proved inadequate to deal with
the complexities of the case and limited their functioning to the aftermath of the
scandal. Far from arguing that the CSR approach should be abandoned due to its
poor performance in this occasion, we maintain that responsible and environmentally sound business is critical for the long-term success of industries and their
production processes. However, appropriate measures and improvements should be
adopted to ensure that CSR and sustainability indexes stand for reliable commitments to achieve social and environmental goals. Any assessment of how a company behaves is based on transparency and the truthiness of what companies
voluntarily share. In the absence of these requirements, it becomes very difficult
for the system to identify such deceptions. To this aim, rating agencies and

21

Financial Times, 15th May 2016.
For a thorough exam of EU law in this sector and reaching similar conclusions, De
Sadeleer (2016).
22

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F. Romanin Jacur

sustainability indexes should more carefully verify corporate claims. The combination of these ineffective rules results in potentially grave environmental breaches,
in the loss of trust in the soundness and transparency of the market and of its control
mechanisms and consequently in burdensome legal proceedings, economic scandals and financial crises.
Learning from the Dieselgate experience, one may suggest to increase coordination and synergies among the national and European regulations applicable to the
certification of vehicles and the voluntary instruments setting standards and requiring monitoring and compliance in order to reduce the space for wrongdoings and to
detect them in an early phase. A positive development in this direction is the
implementation of Directive 2014/95/UE23 amending Directive 2013/34/UE as
regards disclosure of non-financial and diversity information by certain large
undertakings and groups, which requires large public-interest entities, such as listed
companies, banks, insurance undertakings and other companies that are so designated by Member States, with more than 500 employees to disclose relevant and
useful information on their policies, main risks and outcomes relating inter alia to
environmental matters, social and employee aspects, and anticorruption and bribery
issues.

References and Websites
Crête R (2016) The Volkswagen scandal from the viewpoint of corporate governance. Eur J Risk
Reg 7:25–31
De Sadeleer N (2016) Harmonizing car emissions, air quality, and fuel quality standards in the
wake of the VW scandal. Eur J Risk Reg 7:11–24
Morgera E (2009) Corporate accountability in international environmental law. Oxford University
Press, Oxford
Romanin Jacur F (2016) L’Accordo di Parigi e i passi avanti della cooperazione multilaterale sul
clima. Sidiblog. Available at http://www.sidiblog.org/author/francesca-romanin-jacur/
Visaggio L (2012) La normativa europea in materia di controllo delle emissioni: tra
armonizzazione tecnica e politica ambientale. In: Gestri M (ed) L’autoveicolo nel nuovo
contesto giuridico europeo - The motor vehicle in the new European legal framework. Giuffrè,
Milan, pp 241–280
http://en.volkswagen.com/content/medialib/vwd4/de/Volkswagen/Nachhaltigkeit/service/down
load/corporate_governance/Code_of_Conduct/_jcr_content/renditions/rendition.file/thevolkswagen-group-code-of-conduct.pdf
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC75998/ld-na-25572-en-n_online.pdf
http://www.reuters.com/article/volkswagen-allianz-suit-idUSL5N16G3CB
http://sustainabilityreport2014.volkswagenag.com/economy/compliance
http://www.volkswagenag.com/content/vwcorp/infocenter/en/news/2015/12/VW_PK.html
www.sustainability-indices.com

23

O.J. L 330/1 (2014).

European Union Law
Marco Frigessi di Rattalma and Gabriella Perotti

1 The Regime of European Union Law Aimed
at Controlling Polluting Emissions
The regime of European Union law aimed at controlling the volume of polluting
emissions focuses on technical harmonization in the context of the completion of
the internal market, through acts based, first, on Articles 100 and 100A EEC, then
on Article 95 EC and now on Article 114 TFEU. This legislation provides for the
establishment of maximum allowable emissions that each vehicle must respect and
constitutes a specific aspect of the more general harmonized rules on type approval
of motor vehicles. The rules on emissions have been introduced at the level of EU
law since 1970, under the pressure of scientific evidence of the considerable risks to
human health and the environment that involved the uncontrolled increase of
emission substances resulting from motor traffic.1
European Union regulatory action regarding polluting emissions resulting from
motor traffic concerns includes, on one hand, the control of the so-called pollutant
emissions, that is those of carbon monoxide (CO), hydrocarbon (HC), nitrogen
oxide (NOx), and particulate matter (PM), and the control of emissions of carbon
dioxide (CO2), on the other.2

The present work was discussed and jointly set by Marco Frigessi di Rattalma and Gabriella
Perotti. Sections 3 and 4 are to be attributed exclusively to the latter.
1

See the fundamental essay by Visaggio (2012). For a general view on environmental law aspects,
see De Sadeleer (2014); Falke (2016); Gestri (2012); Jans and Vedder (2012); Kingston (2013);
Kiss and Shelton (2007); Kramer (2002); Louka (2004).
2
As the so-called Dieselgate does not concern emissions of carbon dioxide, we will not examine
the regime of that pollutant in this study.
M. Frigessi di Rattalma (*) • G. Perotti
University of Brescia, Law Department, Brescia, Italy
e-mail: marco.frigessidirattalma@unibs.it; gabriella.perotti.gp@gmail.com
© Springer International Publishing AG 2017
M. Frigessi di Rattalma (ed.), The Dieselgate, DOI 10.1007/978-3-319-48323-8_11

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M. Frigessi di Rattalma and G. Perotti

The ground-breaking EU legal instrument was Council Directive 70/220/EEC of
20 March 1970 on the approximation of the laws of the Member States relating to
measures to be taken against air pollution by gases from positive-ignition engines of
motor vehicles3 which that concerned specifically the emissions from gasoline
engines. It was adopted under the premise that Germany—a front-runner in the
EEC in the fight against air pollution—had enacted the regulation of 14 October
1968 amending the Straßenverkehrs-Zulassungs-Ordnung that contained measures
against air pollution by positive-ignition engines of motor vehicles, while similar
measures were taken shortly afterward in France with regulation of 31 March 1969
on the “Composition of exhaust gases emitted from petrol engines of motor
vehicles.” Significantly, the directive after affirming that “..those [national] provisions are liable to hinder the establishment and proper functioning of the common
market,” went on stating that “it is therefore necessary that all Member States adopt
the same requirements.”
Council Directive 72/306/EEC of 2 August 1972 on the approximation of the
laws of the Member States relating to the measures to be taken against the emission
of pollutants from diesel engines for use in vehicles4 established, for the first time,
maximum permissible limits for emissions from diesel engines.
The emission standards were defined in a series of European Union directives
staging the progressive introduction of increasingly stringent standards (so called
Euro standards).
Council Directive 91/441/EEC of 26 June 1991 amending Directive 70/220/EEC
on the approximation of the laws of the Member States relating to measures to be
taken against air pollution by emissions from motor vehicles5 fixes emission caps
for all the pollutants (carbon monoxide, hydrocarbons, nitrogen oxide, and particulate matter) and for the entire category of vehicles, for the first in the form of a
Euro standard (Euro 1).
These directives and further linked directives were repealed by Regulation
(EC) No. 715/2007 of the European Parliament and of the Council of 20 June
2007 on type approval of motor vehicles with respect to emissions from light
passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle
repair and maintenance information.6

3

O.J. L 76/1 (1970).
O.J. L 190/1 (1972).
5
O.J. L 242/1 (1991).
6
O.J. L 171/1 (2007). The works on the reform of Regulation 715/2007 are still ongoing. See the
report on the proposal for a Regulation of the European Parliament and of the Council amending
Regulations (EC) No. 715/2007 and (EC) No. 595/2009 as regards the reduction of pollutant
emissions from road vehicles (COM(2014)-28final-2014/0012(COD)) by the Committee on the
Environment, Public Health and Food Safety of the European Parliament. The proposal consists of
a set of different, relatively heterogeneous measures, mostly aiming at reducing noxious emissions
from vehicles for human health. More in particular, they concern the setting of specific NO2
emission limits within the wider NOx emission range.
4

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181

As affirmed by its recital 20, not a secondary goal of the regulation is to consolidate
in one main legal instrument the plethora of scattered EU acts that governed the matter:
Given that the legislation on vehicle emissions and fuel consumption has developed over
more than 35 years and is now spread over more than 24 Directives, it is advisable to
replace those Directives by a new regulation and a number of implementing measures.

The regulation provides that the new standards Euro 5 and Euro 6 apply from
September 1, 2009, and September 1, 2014, respectively.
As said above, the legal regime of European Union law aimed at controlling the
volume of polluting emissions is based on harmonization in the context of the
completion of the internal market, through acts based now on Article 114 TFEU.
This regime constitutes a specific aspect of the more general harmonized rules on
type approval of motor vehicles.
Article 114 TFEU contained in Chapter Three of Title Seven entitled “Approximation of laws” provides that the European Parliament and the Council shall,
acting in accordance with the ordinary legislative procedure and after consulting the
Economic and Social Committee, adopt the measures for the approximation of the
provisions laid down by law, regulation, or administrative action in Member States
that have as their object the establishment and functioning of the internal market.
It is important to note that, pursuant to its paragraph 3, the Commission, in its
proposals concerning health, safety, environmental protection, and consumer
protection:
will take as a base a high level of protection, taking account in particular of any new
development based on scientific facts. Within their respective powers, the European
Parliament and the Council will also seek to achieve this objective.

The fact that Article 114 permits the adoption of “measures” leaves a wide range
of choice in the hands of the European legislator, as it may opt for a directive, a
regulation, or a decision. As we have seen, after using for more than 35 years the
instrument of the directive for its policy of harmonization of emission caps, in 2007
the EU legislator switched to the instrument of the regulation since, as explained in
recital 20 of Regulation (EC) No. 715/2007:
A regulation will ensure that the detailed technical provisions are directly applicable to
manufacturers, approval authorities and technical services and that they can be updated in
a much faster and more efficient way.

Type approval of a vehicle means the procedure preparatory to the sale of a
vehicle whose purpose is to ensure compliance of the vehicle itself with certain
technical provisions designed not only to ensure that they operate properly but also
to pursue the objectives of protection of life and health of users, as well as road and
environmental safety. The urgent need to balance the protection of these latest
requirements of undoubted public interest, with the achievement of the free movement of goods enshrined in the Treaty, led to the start of the long process of
harmonization summed up above.
The regime for the type approval of vehicles, which includes the provisions for
the control of polluting emissions, is functional to the full realization of the internal
market. The adoption of measures under Article 114 TFEU aims to eliminate, or

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prevent, the obstacles to the establishment and proper functioning of the internal
market. The objective of the legislation in the field of type approval is indeed to
remove obstacles to the free movement of goods in the motor vehicle industry
resulting from disparities between the different national laws, as explained clearly
by “whereas” 1 of Regulation (EC) No. 715/2007:
The internal market comprises an area without internal frontiers in which the free movement of goods, persons, services and capital must be ensured. To that end a comprehensive
Community type approval system for motor vehicles, established by Council Directive
70/156/EEC of 6 February 1970 on the approximation of the laws of the Member States
relating to the type approval of motor vehicles and their trailers, is in place. The technical
requirements for the type approval of motor vehicles with regard to emissions should
therefore be harmonised to avoid requirements that differ from one Member State to
another, and to ensure a high level of environmental protection.

The mere liberalization of trade between Member States through the abolition and
prohibition of quantitative restrictions and measures having equivalent effect (now
Articles 34 to 36 TFEU) would have been with high probability insufficient to ensure
the free flow of trade if each Member State had been able to independently and
unilaterally determine the level of protection of public health, environment, or even
road safety, applicable in their territory, and establish, as a result, the content of the
technical requirements that vehicles must meet before being placed on the market.7
The proliferation of unilateral national measures would, in fact, constitute
obvious obstacles to mutual recognition of type approvals granted at national
level, and then to the free movement of motor vehicles. Moreover, since, at least
in the abstract, they are potentially justified in the light of the general interest
requirements, those obstacles could not be removed through the simple application
of the prohibition of quantitative restrictions on imports.
National measures in reality could be more aimed at sheltering the domestic
industry from competitive pressures than at pursuing genuine protection of public
goods, such as the environment.8
Hence, there is the need for harmonization at European Union level based on
mutual trust.
It is important to highlight that, while the harmonization of motor vehicle type
approval procedure has been building gradually, so that for a long time the
harmonized European Union law standards coexisted with different national
rules, technical requirements, including those relating to the control pollutant
emissions, have been the object of maximum harmonization from the outset.9
At present, the fundamental legal instrument regulating type approval of vehicles is Directive 2007/46/EC of the European Parliament and the Council of
5 September 2007 establishing a framework for the approval of motor vehicles
7

See Visaggio (2012).
See Snell (2002).
9
Maximum harmonization means a complete harmonization that does not leave any margin to
deviate from a requirement or a level of protection laid down by an EU measure. See Lenaerts and
Van Nuffel (2011).
8

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183

and their trailers, and of systems, components and separate technical units intended
for such vehicles (Framework Directive).10
This policy choice by the EU legislator is easy to understand. Minimum harmonization, which would have left the Member States free to introduce, at national
level, stricter rules and more stringent technical requirements than those laid down
at European level, would not be translated into a simple discrimination a
 rebours,
that is, in a greater burden on manufacturers established in Member States that have
decided to do so. In fact, it could jeopardize the attainment of the very goal to
eliminate obstacles to trade. This is because, as we have seen, the tightening of the
technical requirements that may be adopted by some Member States could, theoretically, be justified in the public interest requirements such as the protection of
health or the environment or road safety and therefore be compatible with Articles
34 to 36 TFEU.11 Consequently, the Member States concerned would have been
entitled to demand compliance with these requirements with regard to not only
motor vehicles produced on their territory but also those imported from other
Member States that comply with the harmonized rules, thereby reintroducing in
practice, just the obstacles that the harmonization intervention wanted to remove.
As a consequence of the harmonization under Article 114 of the provisions
concerning type approval of vehicles, including those concerning emissions by
vehicles, Member States are no longer in the position to invoke national provisions
incompatible with harmonized EU rules.12 This was clarified by the ECJ in the
judgment Commission v. Belgium of 6 May 1980 when it stated that:
The binding effect of the directive from which Member States are not permitted to derogate
is meant to abolish all obstacles to the freedom of movement likely to arise in regard to
products originating from other Member States as a result of the application of technical
rules which are different from Community rules.13

10
O.J. L 263/1 (2007). It should be noted that on 27 January 2016, a Proposal for a Regulation of
the European Parliament and of the Council on the approval and market surveillance of motor
vehicles and their trailers, and of systems, components and separate technical units intended for
such vehicles COM(2016)-31final-2016/0014(COD) has been put forward by the Commission.
This proposal aims at a general reform of the present regime of type approval. In the Commission
staff working document-impact assessment accompanying the Proposal for a Regulation of the
European Parliament and the Council on the approval and market surveillance of motor vehicles
and their trailers, and of systems, components and separate technical units intended for such
vehicles (SWD(2016)-9final), it is stated at page 17 that: “The current system clearly proved
deficient in dealing with a large situation of non-compliance such as the one encountered with
VW. It also became clear that the need for a swift and losely coordinated response at the EU level
clashed with the absence of effective means for the European Commission to get directly involved
under the current rules. Even for obtaining the relevant information, the European Commission
depended on the willingness of national authorities and vehicle manufacturers to cooperate.”
11
If EU law is adopted in stages or is limited to certain aspects, the Member States retain the right
to apply their national measures, provided that that they can be justified in Community law. See
case Nijman (C-125/88 (1989) ECR p. 3533).
12
Reliance on Article 36 becomes progressively vain as complete harmonization is achieved. See
case Van Bennekom (C-227/82 (1983) ECR p. 3883).
13
Case Commission of the European Communities vs. Kingdom of Belgium (C-102/79 (1980) ECR
p. 1473, para. 11).

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Similarly, in the judgment Commission v. United Kingdom of 12 July 1988 in
case 60/86,14 the ECJ judged that:
11. Such an interpretation of the exhaustive nature of the list of lighting and lightsignalling
devices set out in Annex I to the directive is consistent with the purpose of Directive 70/156/
EEC which is to reduce, and even eliminate, hindrances to trade within the Community
resulting from the fact that mandatory technical requirements differ from one Member State
to another (see the first and second recitals in the preamble to Directive 70/156/EEC). In
the context of Directive 76/756/EEC that objective is reflected in the obligation imposed on
the Member States to adopt the same requirements ’either in addition to or in place of their
existing rules’ (second recital).
12. It follows that the Member States cannot unilaterally require manufacturers who have
complied with the harmonized technical requirements set out in Directive 76/756/EEC to
comply with a requirement which is not imposed by that directive, since motor vehicles
complying with the technical requirements laid down therein must be able to move freely
within the common market.

Finally, the judgment of 29 May 1997 in case C-329/95 VAG Sverige15 had to
decide a case where the Swedish Government tried to make the sale of a vehicle in
Sweden dependent on a national certificate of conformity in addition to the Community type-approval certificate.
The ECJ stated:
24. . ..the answer to the first question must be that Directive 70/156 must be interpreted as
precluding national legislation under which motor vehicles covered by a valid Community
type-approval certificate cannot be registered unless a national certificate is produced
attesting to their conformity with national requirements concerning exhaust emissions.

In the light of the foregoing, the exclusive chance for a Member State to
introduce national rules on emission control must be based on paragraph 5 of
Article 114, which provides:
if, after the adoption of a harmonisation measure by the European Parliament and the
Council, by the Council or by the Commission, a Member State deems it necessary to
introduce national provisions based on new scientific evidence relating to the protection of
the environment or the working environment on grounds of a problem specific to that
Member State arising after the adoption of the harmonisation measure, it shall notify the
Commission of the envisaged provisions as well as the grounds for introducing them.16

14

Case Commission of the European Communities vs. United Kingdom (C-60/86 (1988) ECR
p. 3921).
15
See the administrative proceedings brought by VAG Sverige AB (C-329/95 (1997) ECR
p. I-2675).
16
In that case, the Commission shall, within six months of the notification, approve or reject the
national provisions involved after having verified whether or not they are a means of arbitrary
discrimination or a disguised restriction on trade between Member States and whether or not they
shall constitute an obstacle to the functioning of the internal market. In the absence of a decision by
the Commission within this period, the national provisions referred to in paragraph 5 shall be
deemed to have been approved. When justified by the complexity of the matter and in the absence
of danger for human health, the Commission may notify the Member State concerned that the
period referred to in this paragraph may be extended for a further period of up to six months.
Paragraph 4 of Art. 114 provides for the case that a Member State deems it necessary to maintain

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For a Member State that is able to impose national standards, Article 114 paragraph 5 TFEU requires the consent of the Commission, which enjoys wide
discretion.
In this context, a judgment was rendered by the ECJ on 6 November 2008 in case
C-405/07.17 The Netherlands notified the Commission, pursuant to Article 95
(5) EC [now Article 114 (5) TFEU], of its intention to adopt a decree subjecting,
from 1 January 2007 and by derogation from the provisions of Directive 98/69, new
diesel-powered vehicles in Categories M1 and N1, Class I, to a limit on emissions
of particulate matter of 5 mg/km. In short the Member State had asked to bring
forward, notwithstanding the wording then in force of Directive 70/220/EEC,
which required compliance with the Euro 4 standard, the application of the particulate emission limit values laid down by successive Euro 5 standard regarding
diesel engines, submitting specific pollution problems. In support of its request for
derogation, the Netherlands stated that the limits on concentrations of particulate
matter laid down by Directive 1999/30/EC were exceeded in several areas of its
territory and that, therefore, it did not consider itself in a position to comply with its
obligations under that directive.
It emphasized, in that context, its high demographic density and greater concentration of infrastructure than in other Member States, which gives rise to a higher
rate of emissions of particulate matter per square kilometer. Residents were thus
very exposed to air pollution because, particularly, of the immediate proximity of
automobile traffic zones and residential zones. In addition, a large proportion of the
pollution comes from the neighboring Member States, so that only 15 % of the
national average of concentrations of particulate matter can be affected by national
standards of environmental protection.
The request was, however, rejected by the Commission, which had found no
proven specific problems alleged by the applicant Member State and, in any case,
had held that the exemption request was disproportionate to the objective pursued.
At first upheld by the Tribunal, the Commission’s refusal was then annulled by the
Court, which has however found that, in its analysis of the Dutch request, the
Commission had wrongly failed to take account of all available scientific data.
As far as the legislative aspect is concerned, we note that the directives and
regulations containing the technical requirements, have been adopted for a long
time directly by the European Union legislature, therefore first by the Council, then
by the latter jointly with the European Parliament. Subsequently, the system has
evolved in the sense of a more effective role of the Commission, where the

national provisions on grounds relating, inter alia, to the protection of the environment. Recourse
to paragraph 4 concerning the maintenance of more stringent national regulations, preexisting to
the introduction of harmonized law, does not seem of any practical relevance with regard to
legislation on pollutant emission control, given the 35-year-old EU harmonization in this area of
law. See Visaggio (2012), p. 251.
17
Case Netherlands vs. Commission (C-405/07 ECR (2008) p. I-08301).

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determination in detail of the technical prescriptions is now assigned through
directives or implementing regulations adopted by the Commission, while the
legislature reserves the right to determine the essential requirements that reflect
the underlying policies on environmental and health protection, as well as road
safety.
Accordingly, while traditionally the technical requirements were contained in
legislative acts, they are now increasingly the result of a combination of essential
requirements established in legislation, and specific detail, contained in acts
adopted by the Commission. The legal instrument used for this purpose has been,
in the past, the conferral of implementing powers to the Commission under Article
202 EC via the so-called procedures of “comitology.” Today, the delegation
pursuant to Article 290 TFEU applies.

2 Commission Regulation (EU) No. 2016/646 of 20 April
2016 and Its Adoption Process
We come now to Commission Regulation (EU) No. 2016/646 of 20 April 2016
amending Regulation (EC) No. 692/2008 as regards emissions from light passenger
and commercial vehicles (Euro 6), the legal act adopted at the EU level in the
immediate aftermaths of the Dieselgate. As explained below, Regulation (EU) 646
introduces a “temporary conformity factor” of 2.1 (equivalent to a rise of 110 % of
the current limit) to be applied for NOx in the new RDE testing.
In its premise, the Regulation individuates its legal basis by referring to:
. . .Regulation (EC) No 715/2007 of the European Parliament and of the Council of 20 June
2007 on type-approval of motor vehicles with respect to emissions from light passenger and
commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance
information (1), and in particular Article 5(3) thereof.

Accordingly, as far as the adoption process of Regulation 2016/646 is
concerned, one has to consider Article 5(3) of Regulation No. 715/2007, which
provides:
The specific procedures, tests and requirements for type approval set out in this paragraph,
as well as requirements for the implementation of paragraph 2, which are designed to
amend non-essential elements of this Regulation, by supplementing it, shall be adopted in
accordance with the regulatory procedure with scrutiny referred to in Article 15(3).18

18
The wording of Art. 5(3) anticipates the wording of Art. 290 TFEU concerning “delegated acts,”
which provides that “1. A legislative act may delegate to the Commission the power to adopt
non-legislative acts of general application to supplement or amend certain non-essential elements
of the legislative act.”

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Pursuant to Article 15(3):
Where reference is made to this paragraph, Article 5a (1) to (4) and Article 7 of Decision
1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

Thus, Regulation 2016/646 was adopted pursuant to the “regulatory procedure
with scrutiny” established by 1999/468/EC Council Decision of 28 June 1999
laying down the procedures for the exercise of implementing powers conferred
on the Commission 19 as amended by Council Decision 2006/512/EC of 17 July
2006.20
For the sake of comprehensiveness, it should be noted that after the entry into
force of the Lisbon Treaty, on February 16, 2011, the European Parliament and the
Council adopted Regulation (EU) No. 182/2011 pursuant to Article 293 (1) TFEU
laying down the rules and general principles concerning mechanisms for control by
Member States of the Commission’s exercise of implementing powers.21 The
Regulation entered into force on March 1, 2011, and replaced Decision 1999/468/
EC. However, according to its Article 12, second phrase:
The effects of Article 5a of Decision 1999/468/EC shall be maintained for the purposes of
existing basic acts making reference thereto.

The reason for this is highlighted in whereas 21:
Decision 1999/468/EC should be repealed. In order to ensure the transition between the
regime provided for in Decision 1999/468/EC and this Regulation, any reference in
existing legislation to the procedures provided for in that Decision should, with the
exception of the regulatory procedure with scrutiny provided for in Article 5a thereof, be
understood as a reference to the corresponding procedures provided for in this Regulation.
The effects of Article 5a of Decision 1999/468/EC should be provisionally maintained for
the purposes of existing basic acts which refer to that Article.

The Report from the Commission to the European Parliament and the Council on
the implementation of Regulation (EU) No. 182/2011 clarifies:
Regulation (EU) 182/2011 provides in its Article 13 for the automatic alignment of all
references to existing committee procedures to the new procedures with the exception of the
regulatory procedure with scrutiny. This automatic alignment has ensured a smooth
changeover to the new system. As regards legislative acts in force which currently contain
references to the regulatory procedure with scrutiny, no automatic alignment was foreseen
in Regulation (EU) 182/2011. The Commission made a commitment to review the provisions attached to this procedure, in order to adapt them in due course according to the
criteria laid down in the Treaty on the Functioning of the European Union. . . .In line with
this commitment the Commission made three horizontal alignment legislative proposals in
2013. Due to the stagnation of the interinstitutional negotiations on these files, the
Commission, as announced in its 2015 Work Programme, withdrew them. In the
Interinstitutional Agreement on Better Law-Making the Commission committed to submit

19

Council Decision 1999/468/EC, O.J. L 184 (1999), so-called Second Comitology Decision.
Council Decision 2006/512/EC, O.J. L 200 (2006). This decision of the Council responded to the
wish of the European Parliament to be able to exercise control over the implementation of acts
adopted by codecision, in addition to the control exercised by representatives of Member States.
See Lenaerts (2011), p. 697.
21
O.J. L 55/13 (2011).
20

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by the end of 2016 a new proposal for the alignment of legislative acts which still contain
references to the regulatory procedure with scrutiny. Pending this, a large number of
measures are still adopted under the regulatory procedure with scrutiny. In the interim,
whenever the Commission makes a proposal for an amendment of the substantive provisions of an individual legislative act making reference to the regulatory procedure with
scrutiny that proposal also contains an alignment of the provisions referring to the
regulatory procedure with scrutiny to the new regime.22

Accordingly, as Regulation (EC) No. 715/2007, the “existing basic acts”, refers
to Article 5a of Decision 1999/468/EC, the regulatory procedure with scrutiny and
not Regulation (EU) No. 182/2011 applies to the adoption of Regulation 2016/646.
That being said, the relevant provisions are as follows:
Article 5a
Regulatory procedure with scrutiny
1. The Commission shall be assisted by a Regulatory Procedure with Scrutiny Committee composed of the representatives of the Member States and chaired by the representative of the Commission.
2. The representative of the Commission shall submit to the Committee a draft of the
measures to be taken. The Committee shall deliver its opinion on the draft within a timelimit which the chairman may lay down according to the urgency of the matter. The opinion
shall be delivered by the majority laid down in Article 205(2) and (4) of the Treaty in the
case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States within the Committee shall be
weighted in the manner set out in that Article. The chairman shall not vote.
3. If the measures envisaged by the Commission are in accordance with the opinion of
the Committee, the following procedure shall apply:
(a) the Commission shall without delay submit the draft measures for scrutiny by the
European Parliament and the Council;
(b) the European Parliament, acting by a majority of its component members, or the
Council, acting by a qualified majority, may oppose the adoption of the said draft by the
Commission, justifying their opposition by indicating that the draft measures proposed by
the Commission exceed the implementing powers provided for in the basic instrument or
that the draft is not compatible with the aim or the content of the basic instrument or does
not respect the principles of subsidiarity or proportionality;
(c) if, within three months from the date of referral to them, the European Parliament or
the Council opposes the draft measures, the latter shall not be adopted by the Commission.

22

COM(2016)-92final. As observed by Bast (2012), “The so-called “regulatory procedure with
scrutiny” pursuant to Article 5a of the old Decision (PRAC, the acronym based on the French
name) remains applicable as long as references to this procedure in basic acts adopted before the
Lisbon Treaty do exist. The PRAC was invented in 2006 in order to meet European Parliament’s
demands for reform while the Constitutional Treaty was still pending and its entry into force
uncertain. Although some differences still remained, the 2006 reform was largely guided by Article
290 TFEU since it gave the Parliament de facto a right to veto a draft implementing act where the
basic act was subject to parliamentary co-decision. With the bulk of co-decision acts just recently
adapted to the requirements of the 2006 reform, the institutions did not feel much pressure for a
semi-automatic, en bloc alignment to the similar regime of Article 290 TFEU. As a result, for the
time being a third class of habilitated acts of the Commission populates the Official Journal: acts
adopted under the PRAC. They can easily be identified in that their title displays neither the
adjective “delegated” nor “implementing.”

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In that event, the Commission may submit to the Committee an amended draft of the
measures or present a legislative proposal on the basis of the Treaty;
(d) if, on expiry of that period, neither the European Parliament nor the Council has
opposed the draft measures, the latter shall be adopted by the Commission.
4. If the measures envisaged by the Commission are not in accordance with the opinion
of the Committee, or if no opinion is delivered, the following procedure shall apply:
(a) the Commission shall without delay submit a proposal relating to the measures to be
taken to the Council and shall forward it to the European Parliament at the same time;
(b) the Council shall act on the proposal by a qualified majority within two months from
the date of referral to it;
(c) if, within that period, the Council opposes the proposed measures by a qualified
majority, the measures shall not be adopted. In that event, the Commission may submit to
the Council an amended proposal or present a legislative proposal on the basis of the
Treaty;
(d) if the Council envisages adopting the proposed measures, it shall without delay
submit them to the European Parliament. If the Council does not act within the two-month
period, the Commission shall without delay submit the measures for scrutiny by the
European Parliament;
(e) the European Parliament, acting by a majority of its component members within four
months from the forwarding of the proposal in accordance with point (a), may oppose the
adoption of the measures in question, justifying their opposition by indicating that the
proposed measures exceed the implementing powers provided for in the basic instrument or
are not compatible with the aim or the content of the basic instrument or do not respect the
principles of subsidiarity or proportionality;
(f) if, within that period, the European Parliament opposes the proposed measures, the
latter shall not be adopted. In that event, the Commission may submit to the Committee an
amended draft of the measures or present a legislative proposal on the basis of the Treaty;
(g) if, on expiry of that period, the European Parliament has not opposed the proposed
measures, the latter shall be adopted by the Council or by the Commission, as the case may
be.

One should consider that, as stated by Regulation 2016/646, “the measures
provided for in this regulation are in accordance with the opinion of the Technical
Committee — Motor Vehicles,” which triggers the application of paragraph
3 above. As neither the European Parliament nor the Council opposed to the
projected regulation of the Commission within three months from the date of
referral of the projected regulation to them, the Commission adopted the Regulation, which was published in the Official Journal on L 109 of 26.4.2016, pagg. 1–22.
It should be added that also Commission Regulation (EU) No. 2016/427 of
10 March 2016 amending Regulation (EC) No 692/2008 as regards emissions
from light passenger and commercial vehicles (Euro 6) was adopted pursuant to
the regulatory procedure with scrutiny described above and that the legal analysis
set out above with reference to Regulation 2016/646 is relevant also for it.

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3 The Dieselgate Scandal and Its Impact in the European
Union
The Dieselgate emission scandal dates back to September 2015, when the US
Environmental Protection Agency (EPA23) found that the VW Group24 had built
diesel cars with “defeat device” software designed in order to cheat emission tests.
More specifically, Volkswagen was caught using sophisticated software to cheat
emission tests, producing up to 40 times more pollution than allowed. The scandal
became international in September 2015, but some previous studies conducted in
the US had already focused on the problem. In May 2014, the researchers of the
West Virginia University’s Center for Alternative Fuels, Engines, and Emissions
(CAFEE25) in collaboration with the International Council on Clean Transportation
(ICCT26) conducted some on-road tests from two VW car models (Volkswagen
Jetta 2011 and Volkswagen Passat 2012).27 They tested emissions from models
equipped with the 2-liter turbocharged 4-cylinder diesel engine in order to
compare the results with the ones gathered in laboratory with Portable Emissions
Measurement Systems (PEMS). CAFEE hit instead the road in a number of VW
diesels: the researchers found that the nitrogen oxide (smog-forming pollutant
linked to lung cancer and acid rain) emissions of some cars were from 15 to
35 times28 higher than the legal federal levels (some cars may emit just a few
times over the limit, depending on driving style and load).29 As the observed
emission level was almost 40 times higher than expected, the researchers understood that it could not be a simple fail procedure, but the engine software had to be
responsible.30 According to CAFEE experts, the reason behind the discrepancies
23
The United States Environmental Protection Agency (EPA or sometimes USEPA) is an agency
of the U.S. federal government that was created for the purpose of protecting human health and the
environment by writing and enforcing regulations based on laws passed by Congress.
24
VW Group, or VW as reported, includes a number of related entities: Volkswagen AG; Audi
AG; Volkswagen Group of America, Inc.; Volkswagen Group of America Chattanooga Operations, LLC; Dr. Ing H. c. F. Porsche AG; and Porsche Cars North America, Inc.
25
See more on https://cafee.wvu.edu/.
26
The International Council on Clean Transportation is an independent nonprofit organization
founded to provide first-rate, unbiased research and technical and scientific analysis to environmental regulators.
27
The ICCT’s research contract to CAFEE was sparked by separate findings by the European
Commission’s Joint Research Centre, which showed a discrepancy between test results and realworld performance in European diesel engines. See more on http://www.dailymail.co.uk/news/
article-3245167/West-Virginia-engineer-proves-David-VWs-Goliath.html#ixzz4AFOSYWSI.
28
The Jetta exceeded the US nitrogen-oxide emission standard by 15–35 times and the Passat by
5–20 times.
29
http://blog.caranddriver.com/everything-you-need-to-know-about-the-vw-diesel-emissionsscandal/.
30
http://www.nytimes.com/interactive/2015/business/international/vw-diesel-emissions-scandalexplained.html?_r¼1&module¼ArrowsNav&contentCollection¼International%20Business&
action¼keypress&region¼FixedLeft&pgtype¼Multimedia.

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was a software strategy working in order to optimize certain aspects of the cars’
performances: this so-called defeat device could be set up to detect the absence of
steering-wheel movement, traction control, or other inputs in the test in order to turn
the emission controls on for EPA testing.31 When driving normally, the computer
switches instead to a separate mode that permits heavier NOx (nitrogen-oxide)
emissions.
The California Air Resources Board (CARB32) and the US Environmental
Protection Agency already opened an investigation into Volkswagen in May 2014
and made their finding known to the firm on 8 July, however receiving unsatisfactory replies.33 Only with the prospect of not being allowed to sell diesels in the U.S.,
Volkswagen admitted that it had knowingly installed a “sophisticated software
algorithm” that permitted the diesels to reduce the amount of NOx emissions
while undergoing testing.34 As VW said: “On 23 May 2014, a memo about the
ICCT study was prepared for Martin Winterkorn, then-Chairman of the Management Board of Volkswagen AG,” but no answers of the Chairman were recorded.35
In fact, according to reports from the German media, Audi developed the defeat
device as early as 1999, but it remained unused until 2005 when VW’s engineers
needed a way to get around the strict US emission regulations.36
VW had admitted to the EPA on 3 September 2015 that it had used softwarebased defeat devices in 480,000 diesel vehicles that served to understate emissions
of nitrogen oxides in laboratory tests, but VW only made its first “ad hoc” statement
to the market about the affair on 22 September, saying up to 11 million diesel
vehicles worldwide may have defeat devices.37 The scandal broke out the international scene on 18 September 2015, as the US Environmental Protection Agency
and the California Air Resources Board filed against VW a Notice of Violation of
the Clean Air Act, stating that cars sold between 2009 and 2015 included software
to specifically pass EPA’s emission tests.38 The firm was accused of breaking the

31
http://blog.caranddriver.com/everything-you-need-to-know-about-the-vw-diesel-emissionsscandal/.
32
California Air Resource Board is an agency in the government of California, whose goals are
attaining and maintaining healthy air quality, protecting the public from exposure to toxic air
contaminants, and providing innovative approaches for complying with air pollution rules and
regulations.
33
http://blog.caranddriver.com/how-volkswagen-got-busted-for-gaming-epa-diesel-emissionsstandards/.
34
http://blog.caranddriver.com/how-volkswagen-got-busted-for-gaming-epa-diesel-emissionsstandards/.
35
https://www.theguardian.com/business/2016/mar/02/vw-ceo-martin-winterkorn-told-aboutemissions-scandal.
36
https://www.theguardian.com/business/2016/mar/02/vw-ceo-martin-winterkorn-told-aboutemissions-scandal.
37
http://www.ft.com/intl/cms/s/0/ef00293c-e0f1-11e5-8d9b-e88a2a889797.html.
38
https://www.theguardian.com/business/2015/sep/18/epa-california-investigate-volkswagenclean-air-violations.

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rule that every car manufacturer should inform the responsible authorities about any
use of auxiliary emission control device in order to make it legal. According to
EPA, Volkswagen violated the law by not disclosing this software and by
employing a code that explicitly switched the car’s emission system from a
bench-testing mode that actually outperformed federal standards to allowing dirtier
emissions under regular conditions. Contextually, EPA ordered Volkswagen to
recall seven of its American car models with affected engines, which amount to
nearly 600,000 vehicles.39 According to the EPA and the California Air Resources
Board, who were tipped off by researchers in 2014, these so-called defeat devices
detect steering, throttle, and other inputs used in the test to switch between two
distinct operating modes.40
Since news of the first violation broke on 18 September, the world’s secondlargest car manufacturer has admitted to using so-called defeat devices to manipulate U.S. emission tests of its diesel-powered cars. Volkswagen’s CEO since 2007,
Martin Winterkorn, resigned on 23 September: he took full responsibility for the
scandal, in which the company admitted that 11 million cars worldwide were
installed with a defeat device that reduced emissions under test conditions only,
but he denied personal wrongdoing.41 Matthias Müller, the former boss of Porsche,
who said the company did not lie but faced a “technical problem,” later replaced
him.42 On 24 September 2015, Germany’s Transport Minister Alexander Dobrindt
stated the cheating software could be found in 1.6 and in 2.0 diesels in Europe.43
Since then, reports have been published that suggest that other car manufacturers
have problems meeting the emission standards for diesel.44 The plaintiffs argue that
while Volkswagen was cheating on emission tests, it was also spending huge sums
on advertising for its “clean diesel” technology, allowing the company to grab as
much as 70 % of the nascent diesel-engine market in the U.S.45 The issue also has
criminal aspects, that is, it is assumed that the VW’s offer of low emissions, high
performance and fuel economy constitutes deliberate fraud.
As promised, EPA blocked in USA the sale of interested vehicles (diesel models
made since 2009), and it is likely possible that EPA imposes itself penalties of up to
$18 billion to Wolfsburg’s headquarters. On 4 January 2016, the US Department of
Justice sued Volkswagen on behalf of the EPA, which can technically fine
Volkswagen up to $37,500 per car—a potential $18 billion punch.46 At least
39

Volkswagen, Defeat Devices, and the Clean Air Act: Frequently Asked Questions.
http://blog.caranddriver.com/everything-you-need-to-know-about-the-vw-diesel-emissionsscandal/.
41
https://www.theguardian.com/business/2015/sep/23/volkswagen-ceo-martin-winterkorn-quitsover-diesel-emissions-scandal.
42
http://blog.caranddriver.com/everything-you-need-to-know-about-the-vw-diesel-emissionsscandal/.
43
http://www.bbc.com/news/business-34345210.
44
http://www.eppgroup.eu/press-release/Car-Emissions%3A-urgent-need-for-real-emission-tests.
45
http://www.wsj.com/articles/class-action-suit-filed-against-volkswagen-in-u-s-court-1456318343.
46
http://www.dailymail.co.uk/news/article-3245167/West-Virginia-engineer-proves-David-VWsGoliath.html#ixzz4AFOovnHl.
40

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25 lawsuits involving claimants from all 50 states have been filled against the
German car manufacturer after it admitted manipulating systems to make its cars
greener than they actually are.47 Volkswagen said it would either buy back or repair
the offending diesel vehicles as part of the deal following the emission cheating
scandal: actually, Volkswagen agreed on 27 June 2016 to pay 15 billion dollars to
settle Diesel scandal in US.48 It is still unclear how Volkswagen will modify these
cars for compliant emissions. Owners of these vehicles will receive a software
update and possibly a new catalytic converter, according to one early report. On
25 November 2015, the German Federal Motor Transport Authority (KBA)
approved the proposed fix for VW vehicles. Vehicles with 1.2- and 2.0-litre engines
will need software tweaks, while 1.6-litre engines will need hardware changes
too.49 On 12 January 2016, US emissions agency, CARB, has rejected VW’s recall
plans over the 500,000 affected US vehicles, stating that the plans did not specify
what effect the fix would have on emissions, performance, and vehicle safety.50
What started in the U.S. has spread to a growing number of countries: the UK,
Italy, France, South Korea, Canada, and, of course, Germany, have opened investigations.51 VW still faces criminal investigations in Germany and other countries
and lawsuits from investors around the world.52 What about Europe? In the U.S.,
the diesel car market currently represents around 1–3 % of all new car sales, and this
is unlikely to increase in the short to medium term, but in Europe more than half of
the sold vehicles are diesel engines.53 According to a study conducted by the Centre
for Economic Policy Research (CEPR), the reason of such a great use of diesel
vehicles in Europe was, in large part, a result of the European regulations on
greenhouse gases during the ’90s.54 Europe started in 1990 to put limits on carbon

47
http://www.dailymail.co.uk/news/article-3246911/Volkswagen-facing-dozens-billion-dollar-lawsuitsemissions-scandal-experts-warn-bankrupt-Germany-s-biggest-car-maker.html#ixzz4AFMKzUgq.
48
The German carmaker agreed to devote as much as $10 billion to buy back affected models and
compensate drivers. It will also pay $2.7 billion to federal and California regulators to fund
pollution-reduction projects and give $2 billion to be invested in clean technology. Volkswagen
also announced a $603 million settlement to resolve consumer and environmental claims with
44 U.S. states. The Volkswagen settlement would be one of the largest in corporate history,
exceeded by the $246 billion agreement between the tobacco industry and US states in 1998 and
the multiple payments to private parties and governments over the 2010 British Petroleum Plc oil
spill. BP’s final bill is not yet known, but it includes agreements to pay more than $25 billion to the
US and states and at least $12.9 billion for claims of private property and economic loss.
See more on http://www.bloomberg.com/news/articles/2016-06-28/volkswagen-to-pay-14-7billion-to-settle-u-s-emissions-claims.
49
http://www.autoexpress.co.uk/volkswagen/92893/vw-emissions-scandal-recalls-compensationis-your-car-affected-latest-news.
50
http://www.bbc.com/news/business-35297961.
51
http://www.bbc.com/news/business-34324772.
52
http://www.reuters.com/article/us-volkswagen-emissions-settlement-idUSKCN0ZD2S5.
53
http://www.aduc.it/articolo/diesel+benzina+europa+usa+perche+scelta_23489.php.
54
“Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel
Automobiles”, Miravete EJ, Rincón MJM, Thurk J, August 2015. http://ftp.cepr.org/active/publi
cations/discussion_papers/dp.php?dpno¼10783.

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dioxide (CO2), responsible for global warming; the United States have focused
instead more on the containment of nitrogen oxides (NOx), one of the precursors of
acid rain (not to forget that the United States has not ratified the Kyoto Protocol55).
Diesel engine emits less greenhouse gases than gasoline; and gasoline produces less
nitrogen oxides than diesel.56 The car industry says that diesel cars still emit 15 %
less carbon dioxide per kilometer than their petrol equivalents, but some studies
conducted at Tiers University show that tailpipe emissions of sooty “black carbon”
could be as much as 25–50 % higher than the EU estimates for cars made before
2005.57
The Dieselgate scandal has raised questions not just about car testing practices
but also about the EU’s system for regulating the industry; it has exposed failures by
the European Commission and several of the EU’s national regulators to enforce
legislation outlawing the defeat devices used by the German carmaker to cheat in
diesel vehicle emission tests. According to the Financial Times newspaper, the
revelations about VW could be an acute embarrassment for EU policymakers, who
have been compelled to ask why it took the Environmental Protection Agency, a US
regulator, to expose defeat devices.58 Politicians should be particularly worried
about potential conflicts of interest arising from how the carmakers pay for the
certification work. Gerben-Jan Gerbrandy, a Dutch member of the European Parliament’s environmental committee, said that “the problem is the system we have
created in the EU, where there seems to be a very perverse incentive for national
testing authorities to be as easy-going as possible to attract (car companies).”59
The European Commission, which is supposed to oversee the implementation of its
own legislation, made no attempt to find defeat devices in its research work into
emission testing, saying that it was the responsibility of Member States. Brussels
has argued its focus was on proposing legislation that would render defeat devices
ineffective. In 2007, the EU adopted legislation that would shift testing for NOx
emissions away from laboratories and on to roads, where software tricks should
prove useless. However, MEPs complain that intense lobbying from the car industry has delayed implementation of this legislation for years. The rules are not due to
be fully in place until late 2017 at the earliest. During this long delay in reforming
the NOx testing regime, the European Commission’s in-house scientists warned in
2013 that defeat devices could skew laboratory test results. When the scandal broke
in Europe, there was the suspect that some institutions of the European Union
already knew, long before September 2015, about the emission discrepancies: it is
still unclear who knew what and when (although VW must have had a chain of
management command that approved fitting cheating devices to its engines, so

55

See more on http://unfccc.int/kyoto_protocol/status_of_ratification/items/2613.php.
http://www.aduc.it/articolo/diesel+benzina+europa+usa+perche+scelta_23489.php.
57
https://www.theguardian.com/environment/2016/feb/19/diesel-cars-may-be-be-worse-than-pet
rol-for-co2-emissions-report-claims.
58
http://www.ft.com/intl/cms/s/0/03cdb23a-6758-11e5-a57f-21b88f7d973f.html.
59
http://www.ft.com/intl/cms/s/0/03cdb23a-6758-11e5-a57f-21b88f7d973f.html.
56

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further departures are likely60). Environmental campaigners have long argued that
emission rules were being flouted and that diesel cars in Europe operate with worse
technology on average than the US.61 As early as 2006, a study conducted by
Transport & Environment, a green NGO, found that “real life emissions” from
diesel cars were much higher than emissions on the official test cycle62 and that
almost 90 % of diesel vehicles did not meet emission limits when they drive on the
road. As already mentioned, the Commission’s Joint Research Centre (JRC63)
reported in 2011 that there were massive differences between how cars fare in the
official tests to determine their compliance with EU emission limits and on the road.
Not all senior EU policy makers ignored the findings. In March 2011, the former
EU commissioner responsible for environmental policy, Janez Potocnik, publicly
warned that “some cars may be ‘tweaked’ to fulfil the required test cycle in
laboratory conditions but run outside the optimum when they are on the road.”64
In a February 2013 missive to Mr Antonio Tajani, EU Commissioner for Transport,
Mr Potocnik warned of “widespread concerns that performance (of cars) has been
tailored tightly to compliance with the test cycle in disregard of the dramatic
increase in emissions outside that narrow scope.”65 Cars are required to comply
with EU emission limits “in normal driving conditions,” he wrote. At the center of
the internal commission wrangling was the discrepancy between NOx emissions
recorded in laboratory tests conducted by regulatory authorities and the much
higher levels detected during road tests. It was clear that a new type of emission
test was necessary as the old ones did not express the real data of pollutants emitted
in reality. In November 2012, the EU Commission published its political plan for
the car industry called CARS2020, whose deal was to introduce on-road testing of
cars from 2017.66 Both Mr Potocnik and Mr Tajani received a letter in January 2013
from Ida Auken, the then Danish environment minister:67 Ms Auken criticized
policy plans published by the Commission in November 2012 that delayed on-road
emission tests until 2017, describing this time frame as unacceptable and strongly
recommending the Commission to act upon this critical situation as soon as
possible. According to the Danish Minister, the reasons for the delay were based

60

http://www.bbc.com/news/business-34324772.
http://www.bbc.com/news/business-34324772.
62
http://www.exaronews.com/articles/5789/ec-research-revealed-scandal-over-car-emissionsfive-years-ago;
https://next.ft.com/content/f8aafc92-bae4-11e5-bf7e-8a339b6f2164.
63
Joint Research Centre is the European Commission’s science and knowledge service which
employs scientists to carry out research in order to provide independent scientific advice and
support to EU policy.
64
http://www.ft.com/cms/s/0/f8aafc92-bae4-11e5-bf7e-8a339b6f2164.html.
65
http://www.ft.com/cms/s/0/f8aafc92-bae4-11e5-bf7e-8a339b6f2164.html.
66
https://next.ft.com/content/d593256c-78c8-11e5-a95a-27d368e1ddf7.
67
http://www.ft.com/cms/s/0/d593256c-78c8-11e5-a95a-27d368e1ddf7.html.
61

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on EU’s priorities, such as the eurozone crisis and the recovery of the automotive
industry. In a joint response to Ms Auken, both Mr Potocnik and Mr Tajani argued
that an introduction of tests reflecting real-world emissions should not be delayed
further beyond 2017 and that this time frame was necessary for new diesel vehicles
to meet emission limits in the real world.
As reported by the Financial Times, the Commission has come under intense
criticism for succumbing to carmaker lobbying to water down and delay implementation of on-road tests that may have prevented the Volkswagen scandal.
Despite repeated warnings, the European institutions did not act promptly to
remedy the use of illegal stratagems, leaving in place one unlike the previous
plan that would allow Volkswagen and other automakers to continue with these
fraudulent practices until 2017. In other words, the EU was aware of the problem
for years but failed to take action, beyond the change of progressive roadmap and
tightening of emissions tests, which in fact will only change from 2017.
Currently, emissions are measured with a laboratory-based test (New European
Driving Cycle-NEDC)—which typically involves putting cars on a stationary test
rig,68—that does not faithfully represent emissions into the condition of real use of
the car. The new tests being developed, as descripted in the joint letter of Potocnik
and Tajani to the Danish Minister Auken, are the Real Driving Emission (RDE)
testing, designed to correct earlier laboratory tests. The RDE tests were approved in
May (first package) and October (second package) 2015 by the Technical Committee for Motor Vehicles (TCMV69), a permanent body that collaborates with the
European Commission, where all Member States are represented. They should
come into force in 2017 or, at the latest, in 2018–2019. As already mentioned, the
Commission invoked as a reason for the possible delay the technical difficulties for
the adaptation of the same tests from laboratory measurements and those on the
road (temperature, altitude, speed . . .).
European reference standards on emissions are Directive 2007/46/CE and Regulation (EC) No. 715/2007, which specify emission limits for different pollutants—
including carbon dioxide (CO2), nitrogen monoxide (NO), and nitrogen dioxide
(NO2)—along with the implementing rules governing the tests. Regulation
(EC) No. 715/2007, as amended by Regulation (EU) No. 459/2012 of the Commission of 29 May 2012, is the basis for disciplining the movement of vehicles Euro
5 and Euro 6. The EU legislation, taking note of the fact that the light vehicles such
as cars and trucks are a major source of air pollution and produce about 15 % of
carbon dioxide (CO2) of the EU, harmonizes the technical requirements for emissions, known as EU type approval of motor vehicles and spare parts. Two different
terms of entry into force of Euro 5 and Euro 6 standards were set:

68

http://www.bbc.com/news/business-34324772.
Technical Committee for Motor Vehicles was set up by Article 40 paragraph 1 of Directive
2007/46/EC.
69

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(a) the Euro 5 standard is effective from 1 September 2009 with regard to the issue
of the approval and from 1 January 2011 with regard to the registration and sale
of new types of vehicles;
(b) the Euro 6 standard is applicable from 1 September 2014 with regard to the
issue of the approval and from 1 September 2015 with regard to the registration
and sale of new types of vehicles.
With the entry into force of the standard Euro 6, emissions of nitrogen oxides
from diesel vehicles should have been reduced considerably, to the limit of 80 mg/
km (or greater reduction of 50 % compared to the Euro 5, which provided a roof of
180 mg/km).70 In addition to introducing the terms for the adaptation of vehicles to
the fixed limits, the Regulation expressly prohibits deceptive software, or rather,
Article 5(2) of the Regulation provides:
The use of defeat devices that reduce the effectiveness of emission control systems shall be
prohibited. The prohibition shall not apply where:
(a) the need for the device is justified in terms of protecting the engine against damage
or accident and for safe operation of the vehicle;
(b) the device does not function beyond the requirements of engine starting; or
(c) the conditions are substantially included in the test procedures for verifying evaporative emissions and average tailpipe emissions.

In our opinion, the provision in question leads to an interpretation such that the
conditions are to be considered alternatives to each other.71
Following the revelations that emerged from the Dieselgate scandal, the
European Commission invited in September 2015 the national authorities to conduct the necessary investigations and to report its findings. The Commission offered
to facilitate the exchange of information between Member States, for a complete
picture of the number of EU vehicles with manipulation implants.
On 27 October 2015, the European Parliament passed a resolution in which it
“calls for a thorough investigation regarding the role and responsibility of the
Commission and of Member State authorities, bearing in mind inter alia the
problems established in the 2011 report of the Commission’s Joint Research
Centre.”72 The “whereas” of the resolution clearly argues that “independent test
results confirm significant discrepancies between the limits and actual vehicle
emissions in normal use for both standards.73” Furthermore, “an analysis by the
Commission Joint Research Centre in 2011 came to the conclusion that NOx
emissions of diesel vehicles measured with Portable Emission Measurement

70

To be noticed that the US norm for NO emissions is only 0.031 g/km, or rather 31 mg/km
(EP source).
71
The prohibition of deceptive software will be reaffirmed in whereas No. 5 of Regulation
(EU) No. 2016/646: “‘Defeat devices’ as defined in Article 3(10) of Regulation (EC) No
715/2007 reducing the level of emission control are prohibited.”
72
European Parliament resolution of 27 October 2015 on emission measurements in the automotive sector (2015/2865(RSP).
73
Whereas M. of the resolution.

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M. Frigessi di Rattalma and G. Perotti

Systems (PEMS) substantially exceed respective Euro 3-5 emission limits, ranging
from a factor of 2-4 for average NOx emissions over entire test routes up to a factor
of 14 in individual test windows; another JRC report published in 2013 referred to
conclusions that Euro 6 vehicles may even exceed the emission levels of Euro
5 vehicles. Independent analyses undertaken in 2014 documented, on average,
on-road NOx emissions from tested diesel vehicles about seven times higher than
the limits set by the Euro 6 standard.74” Moreover, it is stressed that the reliability
and robustness of the vehicle test procedure is crucial for meeting the emission
limits and therefore for the public health and the environment. It is recommended
the rapid abandonment of current tests and simultaneously the development and
adoption of a new test cycle based on the emissions generated by real driving
conditions (real driving emissions—RDE). The Commission is thus urged to bring
into force such standards for regulatory purposes by 2017.
On 28 October 2015, the Technical Committee for Motor Vehicles made a
choice apparently in contrast with the line held by Parliament, endorsing a Commission draft that introduces a “temporary conformity factor” of 2.1 (equivalent to a
rise of 110 % of the current limit) to be applied to 2007 Regulation for NOx in the
new RDE testing.75 The proposed requirements are to be introduced in two steps:
(a) as a first step, car manufacturers would have to bring down the discrepancy to a
“conformity factor” of a maximum of 2.1 (110 %) for new models by
September 2017 (and for new vehicles by September 2019), and
(b) as a second step, this discrepancy would be brought down to a factor of 1.5
(50 %), taking account of technical margins of error, by January 2020 for all
new models (and by January 2021 for all new cars). A conformity factor for the
number of particles (PN) remains to be determined. This second conformity
factor will be annually reviewed to take into consideration technical improvements to the test equipment.76
As a result, this project would shift the current limit (under Regulation (EC) No.
715/2007) from an 80 mg/km NOx for each vehicle in circulation to a 168 mg/km
limit by 2017. According to the European Commission, the transitional relaxation
of limits is justified by the need to take account of technical uncertainties to do with
the use of the new Portable Emission Measurements (PEMS) device, as well as
technical limits to improving the real-world emission performance of currently
produced diesel cars in the short term.77 As this legal act is a Commission
regulation that is subject to the regulatory procedure with scrutiny, the text was
then submitted to the Council and the European Parliament.78

74

Whereas N. of the resolution.
See Summary Record 51st TCMV meeting, Brussels, 1 December 2015 GROW/C4 – CM.
76
http://www.europarl.europa.eu/news/en/news-room/20160222STO15305/Car-emissions-tak
ing-tests-out-of-the-lab-and-onto-the-road.
77
http://www.europarl.europa.eu/news/en/news-room/20160129IPR11905/Parliament-decidesnot-to-veto-car-emissions-test-update.
78
See in this book, for a complete analysis, Frigessi di Rattalma M, Chapter “European Union
Law”, Sect. 2.
75

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On 12 January 2016, the Parliament Committee on the Environment, Public
Health and Food Safety voted on a draft resolution79 condemning the package of
measures taken by the European Commission, which, according to the resolution,
“is empowered only to supplement Regulation (EC) No 715/2007, and not to amend
the emission limit values set out in Annex I to the regulation.”80 According to the
Committee, the draft proposal “would result in a de facto blanket derogation from
applicable emissions limits, and is therefore not consistent with Union law, in that it
is not compatible with the aim and content of Regulation (EC) No 715/2007.”81 If
approved, the draft resolution would have nullified the decision of the TCMV,
which significantly raised those limits, concerning the nitrogen oxides (NOx)
emitted by diesel engines.
However, the EU Parliament voted against the resolution to block the Commission regulation on 3 February 2016, giving its green light to the package.82 The
Council decided not to oppose its adoption during its meeting on 12 February 2016
as a point without discussion.83 Following this Council Decision, the Commission
adopted Regulation (EU) No. 2016/646 of 20 April 2016.84 Nitrogen oxides (NOx)
emissions will now be allowed at twice the EU’s 80 mg per km limit from 2019 and
50 % more from 2021, despite the exemptions being deemed unlawful in a separate
vote by the Parliament’s legal committee.85 The Committee on Legal Affairs of the
European Parliament, despite the narrow majority, had supported the request to
veto the decision of the Technical Committee Motor Vehicles, claiming that it had
abused its powers for having lowered, with a technical decision, the limit emissions
imposed by a legislative act, which can not be changed except with a new note of
the colegislators (European Parliament and EU Council).86

79

Motion for a resolution (D042120/03 – 2015/2988(RPS)), document B80040/2016.
Point F) of the resolution.
81
Point 2 of the motion.
82
The draft motion for a resolution from the Environment Committee was rejected by the EU
Parliament by 323 votes to 317, with 61 abstentions. See http://www.europarl.europa.eu/news/en/
news-room/20160129IPR11905/Parliament-decides-not-to-veto-car-emissions-test-update.
83
http://www.consilium.europa.eu/en/press/press-releases/2016/02/12-vehicle-emissions-in-realdriving-conditions-2nd-package/.
84
http://www.consilium.europa.eu/en/press/press-releases/2016/02/12-vehicle-emissions-in-realdriving-conditions-2nd-package/; http://www.consilium.europa.eu/en/press/press-releases/2016/
02/12-vehicle-emissions-in-real-driving-conditions-2nd-package/.
85
http://www.theguardian.com/environment/2016/feb/03/eu-parliament-gives-green-light-forloopholes-in-car-emissions-tests; http://www.euractiv.com/section/transport/news/parliamentlegal-committee-rattles-commission-s-emissions-proposal/.
86
For a legal appraisal of these legal issues, see para 5.
80

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M. Frigessi di Rattalma and G. Perotti

4 European Driving Cycles and the EU Committee
of Inquiry into Emissions Measurements
in the Automotive Sector (EMIS)
The European automotive industry is an asset for the European Union: this sector
accounts for roughly a quarter of global production of motor vehicles and €90
billion in trade surpluses.87 According to EU legislation, before being sold, vehicles
must be tested to verify they are compliant with the required environmental,
climate, safety, and security standards. As it is not practical to test every single
vehicle, one production vehicle is tested—with this vehicle considered representative of the “type”—and if all standards are respected, “type approval” documentation is issued.88 In Member States, type-approval authorities have been granted
responsibility for all aspects of the approval of a type of vehicle. This includes
issuing and withdrawing approval certificates, as well as appointing the technical
laboratory services that run the tests and verify whether the vehicles conform to the
relevant European legislation.89
How are vehicle emissions measured? New vehicles must comply with emission
standards (EURO classes) for their approval and registration. Since the 1990s, new
passenger cars have had to pass what is known as the New European Driving Cycle
(NEDC) to obtain type approval for the European market.90 The NEDC is the
official cycle (speed-time profile) of a vehicle that is prescribed to be used for
European type-approval testing of vehicle emissions and fuel consumption.91 The
test procedure as a whole was introduced in 1970 and then updated in 1990. As part
of the testing, all light-duty vehicles—whether passenger car, light commercial
vehicle, moped or motorcycle—have to be tested on a “chassis dynamometer,” also
known as a roller bench: a chassis dynamometer is designed to operate a vehicle
indoors on a stationary platform to simulate real-world vehicle operation.92 The
benefit of a standardized test cycle in a laboratory is its repeatability and the
straightforward comparability of the test results.93 Nowadays, it is widely accepted
that the NEDC is outdated, with much evidence available from the scientific
community and vehicle users clearly showing that the emission values and fuel
consumption measured in the laboratory largely understate the actual levels
87

http://www.eppgroup.eu/press-release/Inquiry-Committee-on-car-emissions-will-providesolutions.
88
See para 1 for a detailed analysis of the rules on type approval of vehicles.
89
Report by EEA: ‘Explaining road transport emissions - A non-technical guide’, 24 May 2016.
90
http://www.europarl.europa.eu/RegData/etudes/STUD/2016/578996/IPOL_STU%282016%
29578996_EN.pdf.
91
TNO March report on ‘NOx emissions of Euro 5 and Euro 6 diesel passenger cars - test results in
the lab and on the road’, 24 May 2016.
92
Report by EEA: ‘Explaining road transport emissions - A non-technical guide’, 24 May 2016.
93
http://www.europarl.europa.eu/RegData/etudes/STUD/2016/578996/IPOL_STU%282016%
29578996_EN.pdf.

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obtained under real-world driving conditions.94 The NEDC has evidently many
weaknesses. It originally was not designed to reflect real driving conditions since
velocities beyond 120 km/h are not recorded and unrealistically low acceleration
behavior is applied. Furthermore, only a few requirements are defined for the car
manufacturers, which has led them to optimize the vehicles on the test bench. As a
result, the emission behavior of the mass-production vehicle during road use is not
reflected.
As previously stated by the Commission,95 the need for a more realistic test
procedure became apparent after the entry into force of the Euro 5/6 Regulation
(EU) No 715/2007, and immediately the Commission initiated the work at the
UNECE level to develop a new test procedure for measuring pollutant emissions,
CO2, and fuel consumption from cars and vans—the Worldwide Harmonized
Light-Duty Vehicle Test Procedure (WLTP). WLTP’s aim is to create a globally
harmonized driving test cycle for light-duty vehicles with typical driving characteristics. It becomes thus possible to directly measure emissions from vehicles as
they are driven on roads: the WLTP was developed on the basis of the RDE test
procedure, which will measure emissions of NOx, and at a later stage particle
numbers, using Portable Emission Measuring Systems (PEMS) attached to the
car. For this purpose, the EC followed the technical option provided in Regulation
(EC) No. 715/2007, which entails the use of PEMS and Not-To-Exceed (NTE)
limits.96 The WLTP test cycle should thus be more accurate in predicting the
exhaust emissions and fuel consumption under real-world driving conditions.
Plans are to replace the NEDC with the WLTP test cycle in 2017. The new protocol
requires the real driving emissions from cars and vans to be lower than the legal
limits multiplied by a “conformity factor” a multiplier by which the originally
agreed Euro 6 limits are allowed to be exceeded.
The VW scandal has thus highlighted not only the question of the handling
system (so-called defeat device) but also the problem regarding the reliability of the
old laboratory tests: following the revelations last year that the Volkswagen Group
had dodged the NOx emissions limit for diesel cars, the European Parliament
decided on 17 December 2015 to set up a Committee of Inquiry for Emission
Measurements in the Automotive Sector (EMIS), composed of 45 members, to
investigate alleged contraventions and maladministration in the application of
Union law in relation to emission, measurements in the automotive sector, without
prejudice to the jurisdiction of national and Union courts.97 The decision moved
from the EP resolution of 27 October 2015 on emission measurements in the
Report by EEA: ‘Explaining road transport emissions - A non-technical guide’, 24 May 2016.
See the written reply to Question 5 of the EMIS Committee questionnaire provided by the
Commission (DG GROW) prior to the hearing on 21 June 2016.
96
Whereas No 15 of Regulation No. 715/2007.
97
Decision (EU) 2016/34 of the European Parliament of 17 December 2015 on setting up a
Committee of Inquiry into emission measurements in the automotive sector, its powers, numerical
strength and term of office. More about the mentioned Decision in http://www.europarl.europa.eu/
sides/getDoc.do?type¼TA&reference¼P8-TA-2015-0462&language¼en.
94
95

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M. Frigessi di Rattalma and G. Perotti

automotive sector, which calls for a thorough investigation regarding the role and
responsibility of the Commission and of Member States’ authorities since the 2011
report of the Commission’s Joint Research Centre (JRC).98 Committee of Inquiry’s
main tasks are to
– investigate the alleged failure of the Commission to comply with the obligation
imposed by Article 14(3) of Regulation (EC) No. 715/2007 to keep under review
the test cycles used to measure emissions and to adapt them, if they are no longer
adequate or no longer reflect real-world emissions;
– investigate the alleged failure of the Commission and the Member States’
authorities to take proper and effective action to oversee the enforcement of,
and to enforce the explicit ban on defeat devices, as provided for in Article 5
(2) of Regulation (EC) No. 715/2007;
– investigate the alleged failure of the Commission to introduce tests reflecting
real-world driving conditions in a timely manner and to adopt measures
addressing the use of defeat mechanisms, as provided for in Article 5(3) of
Regulation (EC) No. 715/2007;
– investigate the alleged failure of Member States to lay down provisions on
effective, proportionate, and dissuasive penalties applicable to manufacturers
for infringements of the provisions of Regulation (EC) No. 715/2007, including
the use of defeat devices.
The scope of this inquiry is limited by the mandate, by Article 226 of the TFEU,
and by the Decision of the Parliament, Council, and Commission on the exercise of
the European Parliament’s right of inquiry.99 On 2 March 2016, the Parliament
elected Kathleen van Brempt as President of the committee and four VicePresidents of the organism that will have a term of one year. According to point
3 of the Decision, the committee shall present an interim report within six months of
starting its work and shall submit its final report within 12 months of starting its
work.100 Through its hearings, EMIS committee has collected the testimonies of
people informed about the facts not only from a technical but also from an
institutional and political point of view.101 Three possible ways to gather written
98

European Parliament resolution of 27 October 2015 on emission measurements in the automotive sector (2015/2865(RSP)). See previous paragraph.
99
Draft of interim report, 20 June 2016.
100
http://www.eppgroup.eu/emis. A dedicated website for the EMIS Committee (http://www.
europarl.europa.eu/committees/en/emis/home.html) has been set up since March 2016. Members
and the public can find there all relevant information related to the work of the Committee.
101
Among people questioned until now are Mr Vicente Franco, Researcher, International Council
of Clean Transportation (ICCT); Ms Delilah Al-Khudhairy, Director, Joint Research Center
(JRC); Mr Alois Krasenbrink, Head of the Sustainable Transport Unit, Joint Research Center
(JRC); Mr Dirk Bosteels, Executive Director, Association of Emission Control by Catalyst
(AECC); Mr Udo Lambrecht, Institut für Energie- und Umweltforschung Heidelberg (IFEU);
Mr Richard Smokers, Principal Advisor, Sustainable Transport and Logistics, TNO; Mr Rob
Cuelenaere, Senior consultant, Sustainable Transport and Logistics, TNO; Mr Paul Mc Aleavey,
Head of Air and Climate Change Programme, European Environment Agency (EEA); Mr Martin

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information for the inquiry are in use, namely requests for documents, questionnaires, and a call of evidence.102
Regarding the issue of the manipulative software used by Volkswagen, no
hearing has been able until now to give precise indications about who knew and
when. As reported by Financial Times, EU officials had warned of the dangers of
defeat devices two years before the Volkswagen emission scandal broke, highlighting Europe’s failure to police the car industry: a 2013 report by the European
Commission’s Joint Research Centre drew attention to the challenges posed by the
devices, which are able to skew the results of exhaust readings.103 In replies given
to the EMIS Questionnaire, the Commission Representatives on the Technical
Committee on Motor Vehicles (TCMV) and the Type Approval Authorities Expert
Group (TAAEG) said that the Commission was not aware of any instances of use of
defeat devices or of any national authority that located one.104 After being
questioned by the EMIS committee on what kind of investigations it had internally
launched to investigate the installation of the so-called defeat device, VW Group
answered that Volkswagen AG and the Board of Directors of Volkswagen AG
formed an executive investigation committee, filing criminal charges against an
unknown person and thus initiating investigations by the public prosecutor’s
office.105 The committee should work in close cooperation with the investigative
commission at the Federal Ministry of Transport and Digital Infrastructure
(Bundesministerium f€
ur Verkehr und digitale Infrastruktur).
In Regulation (EC) No. 715/2007, there is no explicit requirement for manufacturers to disclose relevant information on whether they make use of the exemptions
under Article 5(2), so that EU law allowed carmakers to turn off emission controls
to protect an engine, for instance when temperatures are either too hot or too cold,
without disclosing it. After the VW revelations, the Commission provided in the
2nd RDE Regulation (EU) No. 646/2016 for the obligation of the car manufacturers
to declare their emission reduction strategy;106 more precisely, since April 2016, all
Adams, Head of group ‘Air pollution, transport and noise’, European Environment Agency (EEA);
Mr Pascoe Sabido and Mr Olivier Hoedeman, Corporate Europe Observatory (CEO); Prof. Dr-Ing.
Kai Borgeest, Centre for car electronics and combustion engines, Aschaffenburg University of
Applied Science; Mr Daniel Lange, Faster IT; Mr Reinhard Schulte-Braucks, Mr Philippe Jean,
Ms Joanna Szychowska, Mr Gwenole Cozigou from DG GROW, European Commission; Mr
Christoph Gauss, Head of Vehicle Test and Emission Lab, Allgemeiner Deutscher AutomobilClub (ADAC); Mr Nick Molden, Founder and CEO of Emissions Analytics; Mr Gaspar Gascon
Abellan, Executive Vice President Engineering, Renault Group; Dr Ulrich Eichhorn, Chief
Technology Officer, Volkswagen Group; Mr Paul Greening, Emission & Fuels Director,
European Automobile Manufacturers’ Association (ACEA); Mr Stavros Dimas, Commissioner
for the Environment from 2004 to 2010.
102
According to Rule 198(7), the EMIS Committee may contact institutions or persons with a view
to obtaining documents to carry out its inquiry.
103
http://www.ft.com/cms/s/0/d0d7ba40-6394-11e5-9846-de406ccb37f2.html.
104
EMIS questions to Commission TMCV TAAEG of 21 June 2016, question No. 6.
105
Questionnaire to Volkswagen Group—written answers, on 14 July 2016.
106
EMIS questions to Commission TMCV TAAEG of 21 June 2016, question No. 7.

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M. Frigessi di Rattalma and G. Perotti

manufacturers have been required to disclose and document all so-called “Auxiliary
Emission Strategies” in the type-approval process. During the hearing, Volkswagen
Group defended itself by saying that “in certain circumstances it is however
difficult to determine whether a vehicle component is a legal cycle detection method
or constitutes a prohibited defeat device. There might, for example, be cases in
which it is not clear whether the component reduces the effectiveness of the
emission control system or whether it is necessary for the protection of other vehicle
components.”107 Moreover, as reported by the General German Automobile Club
(ADAC) and the ICCT, “it is not possible to detect manipulation of the control units
during our emission tests. This would involve a detailed analysis of the
software.”108
The use of the exemptions provided under Article 5(2) has led to doubts of
interpretation, especially for what concerns on a possible vagueness of the definition of a defeat device or terms such as “in normal use” or “justified in terms of
protecting the engine against damage or accident and for safe operation of the
vehicle.” In this regard, the European Automobile Manufacturers Association
(ACEA) pointed out that “it should be noted that the Commission proposal for
Euro 5 (COM (2005) 683 final) contained essentially the same text as was already
contained in the Euro 3 and 4 Directive109 [. . .]. Since that text mirrors the text in
the Euro 3 & 4 Directive, it could be concluded that the term was clear to all
legislators. Article 5(2) point (a) is extremely important, for example for the
operation of exhaust gas recirculation (EGR), to protect the operation of the engine
and ancillary components and for the safe operation of the vehicle under a wide
range of different driving conditions. The term ‘in normal use’ used in the question
is assumed to relate to the term “. . .that reduces the effectiveness of the emission
control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use” that appears in Article 3(1) which
defines ‘defeat device’. Again, since that text mirrors the text in the Euro 3 &
4 Directive, it could be concluded that the term was clear to legislators alike.
However, it should be noted that neither the Euro 3 & 4 Directive or the Euro 5 &
6 Regulation defines ‘normal use.’”110 Neither does the first RDE package, Regulation 2016/427, define “in normal use” (or other similar phrases), and only provides the following: ‘41. “Real driving emissions (RDE)” means the emissions of a
vehicle under its normal conditions of use.’”
As already mentioned, there is no single European authority certifying the
compliance of cars with European standards, but each manufacturer can choose
107

Questionnaire to Volkswagen Group on July 14, 2016.
EMIS hearing of 20 June 2016 Questions to ADAC, question No. 1.
109
Directive 98/69/EC of the European Parliament and of the Council, of 13 October 1998 relating
to measures to be taken against air pollution by emissions from motor vehicles and amending
Council Directive 70/220/EEC, Official Journal of the European Communities, L350, 28.12.1998,
page 1.
110
Questionnaire to the European Automobile Manufacturers’ Association (ACEA)—written
answers on 14 July 2016.
108

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among different type-approval authorities in the Member States, with the consequent possibility of differences in treatment in the approval process. Commissioner
Bienkowska said during the meeting of transport ministers on 7 June 2016 that “the
problem of manufacturers understating the actual emissions of their cars isn’t due
to loophole in the existing legislation, but the failure of national authorities to
catch—and punish—cheaters.”111 On this point, again ACEA said that “The Euro
5 & 6 regulation and the current type-approval framework directive contain
sufficient provisions for the member states to carry out post-approval enforcement
testing and evaluation. For example, Article 12 of Directive 2007/46/EC addresses
conformity of production (with details of the COP procedures for emissions in the
Euro emission Regulations). Also, Article 9 of Regulation 692/2008 lays down the
provisions for in-service conformity checking, making reference to Article 12 of
Directive 2007/46/EC. Those provisions may not have not been used to the full.
ACEA strongly welcomes that the Commission proposal for the new type-approval
Regulation puts more emphasis on the carrying out of in-service conformity checks
by the member states. As already noted, since the content of Article 5(2) was
essentially unchanged from the Euro 3 & 4 Directive, one may assume that Article
is clear to legislators alike.”112
On one hand, the fallacy of the emission test is therefore due to the manipulative
indicted systems, which, regardless of their legality, hid the real data on vehicle
emissions. On the other hand, as mentioned, it is today clear that the NEDC tests on
vehicles are dated and do not reflect the true performance on the road. EMIS
documents offer much more information regarding the history and evolution of
emission tests and how we have come to understand that the old test did not reflect
the real situation.113 To the question “when exactly did the Commission begin to
examine whether the New European Driving Cycle was still contemporary or
needed readjustments?” the Commission Representatives on TCMV and TAAEG
answered: “Regulation (EC) No 715/2007 requires the Commission to keep under
review the representativeness of the test cycles and test procedures. The need for a
new more realistic test procedure became apparent already from the entry into
force of that Regulation and the Commission therefore immediately supported the
work that was initiated in 2008 at the United Nations Economic Commission for
Europe (UN/ECE) in developing a new more representative laboratory test
procedure.”
However, the Deutsche Umwelthilfe (DUH), a nonprofit environmental and
consumer protection association, asserted in a hearing to EMIS that in 2007,114 it
presented manufacturer’s practice in determination of exhaust emission and consumption data, and it called on the Federal Ministry of Transport and Federal Motor

111

http://www.wsj.com/articles/eu-rejects-call-to-tighten-car-emissions-control-law-1465299116.
Questionnaire to the European Automobile Manufacturers’ Association (ACEA)—written
answers, on 14 July 2016.
113
http://www.ft.com/cms/s/0/d0d7ba40-6394-11e5-9846-de406ccb37f2.html.
114
Questions to Deutsche Umwelthilfe e.V. for the EMIS hearing on 16 June 2016.
112

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M. Frigessi di Rattalma and G. Perotti

Transport Authority (KBA) “to start control measurements and to correct false
values. DUH pointed out in detail test cycle recognition tools and defeat devices.
DUH assessed this increasingly common practice as consumer deception.”115 The
German association stated that “all of (its) attempts have been fruitless. From the
beginning, own tests (the BMW) as well as publication by ADAC and the German
Federal Environmental Agency provided knowledge about higher fuel consumption
(and thus higher CO2 emission) and higher NOx emission (documented in high
emission factors as basis for air quality modelling) provided sufficient inducement
to release further investigation by competent authorities.”116
According to the European Environmental Agency (EEA), by the mid-2000s,
there was increasing evidence that, for various reasons, standardized test cycles
used for the type approval of Euro 3 vehicles did not always represent real-world
driving emissions.117 According to the JRC, the risk that NOx emissions of diesel
vehicles would be significantly higher outside the regulatory test cycle (NEDC) was
known to the European Commission, as well as to a wider audience of stakeholders,
and based on laboratory tests with alternative driving cycles when the Euro 5/6
Regulation (EC) No. 715/2007 was drafted in 2006.118 For this reason, the Commission was empowered in the Regulation to “keep under review the test cycles
used to measure emissions in order to ensure they reflect real driving emissions.”119
A study conducted in 2013 on behalf of the Dutch Ministry of Infrastructure and
Environment (TNO) found as well that Euro 6 vehicles produced around 500 mg
NOx/km in real-world driving, an amount very similar to that produced by the
earlier Euro 4 and Euro 5 vehicles.120 Under real-world conditions, the NOx
emission of Euro 5 diesel passenger cars, as measured by TNO in the lab as on
the road using PEMS, ranged on average from around 400 to 1000 mg/km. These
values are a factor of 3–5 higher than the values measured on the type approval test.
On average, the real-world NOx emissions of Euro 5 diesel passenger cars were
quite similar to those of Euro 1–4 vehicles. The lowering of the NOx emission TNO
report limit on the NEDC by a factor of 5 between Euro 1 and 5 had not resulted in
significant reductions of the real-world NOx emissions of diesel passenger cars.121
TNO measured the emission levels of a range of Euro 6 diesel passenger cars, both
in the laboratory and on the road. Overall, the tests revealed that on the typeapproval test, all these vehicles met the Euro 6 NOx standard of 80 mg/km. Under

115

Questions to Deutsche Umwelthilfe e.V. for the EMIS hearing on 16 June 2016.
Questions to Deutsche Umwelthilfe e.V. for the EMIS hearing on 16 June 2016.
117
EMIS hearing of 24 May 2016: Questions to European Environment Agency (EEA).
118
Questionnaire to the Joint Research Center (JRC) on 19 April 2016. Regulation (EC) No.
715/2007 of the European Parliament and of the Council of 20 June 2007 on type approval of
motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro
5 and Euro 6) and on access to vehicle repair and maintenance information is described in para 1.
119
Whereas No. 15 of Regulation (EC) No. 715/2007.
120
Report by EEA: ‘Explaining road transport emissions - A non-technical guide’, 24 May 2016.
121
TNO 2016 R10083 | Hearing of 9 March 2016 29/33.
116

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real-world conditions, evaluated using PEMS, the NOx emissions of the various
types of Euro 6 diesel vehicles range on average from 100 to 700 mg/km.
As highlighted by the speakers in preceding EMIS hearings, the recorded
discrepancies can be summarized as being due to three key factors:
• the outdated NEDC test procedure used in Europe that does not reflect typical
real-world driving conditions;
• the permitted ‘flexibilities’ in the testing procedures that allow manufacturers to
optimize certain testing conditions and thereby achieve lower fuel consumption
and emission values, e.g., for CO2 and NOx;
• several in-use factors that are driver dependent (e.g., driving style) or independent (e.g., environmental conditions, driving terrain, etc.).122
According to the JRC, at that time, PEMS equipment that was small enough and
could ensure reliable on-road measurements with light-duty vehicles was not
available, and vehicles were tested in accordance with the NEDC in the laboratory
on a roller bench (also known as chassis dynamometer), simulating the vehicle
mass and driving resistances, using various driving cycles.123 On-road testing of
heavy-duty vehicles (HDV) with PEMS started at the JRC in 2004, but on-road
testing of light-duty vehicles started at the JRC in 2007 for research and exploratory
purposes only as the European Commission required the applicability of PEMS to a
wider range. The JRC’s Vehicle and Engine Emissions Laboratories (VELA)
subsequently started testing light-duty vehicles on the road with PEMS in 2007.
It included Euro 3, 4, and 5 vehicles and continued until 2010, while the on-road
emissions of regulated gaseous pollutants generally remain below the respective
emission limit, the on-road NOx emission of diesel cars exceed the applicable
emission limit by several factors.124 With the regulatory developments for
on-road testing of heavy-duty vehicles in the US and Europe, certified PEMS
equipment became available from 2008 onwards. A PEMS is a transportable
measurement system containing a variety of instruments that can be carried on
board a vehicle to monitor the real-time emissions of selected pollutants.125 In
2010, the European Commission decided that the use of PEMS equipment was also
the way forward for the RDE legislation, currently under development, which
prescribes on-road testing as part of the type-approval test protocol for light-duty
vehicles.
Once this was achieved, the Commission decided to develop an RDE test
procedure in 2011, five years passed from the launch of the RDE working group

122

EMIS hearing of 24 May 2016, Questions to European Environment Agency (EEA).
TNO March report on ‘NOx emissions of Euro 5 and Euro 6 diesel passenger cars - test results in
the lab and on the road’, 24 May 2016.
124
According to EEA, CO2 emissions tested with PEMS were also found to be higher (by 21 % on
average) than laboratory tests for petrol and diesel cars. The magnitude of this discrepancy varies
depending on vehicle type, operation mode, route characteristics, and ambient conditions.
125
Report by EEA: ‘Explaining road transport emissions - A non-technical guide’, 24 May 2016.
123

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until the publication of the first regulatory RDE act (i.e., Regulation 2016/427
amending Regulation (EC) No. 692/2008 as regards emissions from light passenger
and commercial vehicles—Euro 6126). In January 2014, the JRC organized the first
meeting of RDE-LDV working group (Real Drive Emission-Light Duty Vehicle
working group), whose objective was to develop a complementary test procedure
that ensures that the emissions of regulated pollutants are appropriately controlled
under normal conditions of vehicle use. In the period between November 2012 and
February 2013, it became clear that Member States would support the further
development of PEMS on-road testing toward a complete RDE test procedure. In
October-November 2014, the Commission completed the first of four expected
regulatory RDE acts making up the full RDE test procedure. The first regulatory
RDE act sets out the RDE test procedure for NOx, the second act defines the
boundary conditions for the RDE test procedure, the third act extends RDE testing
to particle numbers and cold start, and the fourth act covers in-service conformity.
On 19 May and 28 October 2015 the Technical Committee on Motor Vehicles
(TCMV) approved respectively the 1st and the 2nd regulatory RDE acts, which
define a test procedure that is technically feasible and that will in all likelihood
substantially decrease the on-road NOx emissions of diesel vehicles compared to
the current situation. Recital 14 of the second regulatory RDE act provides sufficient grounds for reviewing, and if applicable possibly revising, technical provisions and conformity factors if needed. It should be emphasized that RDE
constitutes the first regulatory on-road test procedure for light-duty vehicles worldwide. The recently published first regulatory RDE act (Regulation (EU) No. 2016/
427) defines performance requirements for PEMS in the context of RDE. The first
two packages relating to RDE have already been passed. Upon publication in the
Official Journal of the European Union, the first RDE package will enter into force
retroactively as of 1 January 2016. It defines the specific basis of RDE metrics using
PEMS. In the second package, the legislators have defined a conformity factor (CF),
i.e. the admissible deviation of real-life emissions from the test bench limits, of 2.1
for the type approval of new vehicles as from September 2017 (September 2019 for
new registrations). The CF of 1.5 will enter into force as late as January 2020 for the
type approval of new vehicles as (January 2021 for new registrations). Speedy
passage of the third package, which will include a CF for the particle number (PN),
and the fourth package defining in-use conformity testing should be prioritized.127

126

Commission Regulation (EU) No. 2016/427 of 10 March 2016 amending Regulation (EC) No.
692/2008 as regards emissions from light passenger and commercial vehicles (Euro 6) and
Commission Regulation (EC) No. 692/2008 of 18 July 2008 implementing and amending Regulation (EC) No. 715/2007 of the European Parliament and of the Council on type-approval of
motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro
5 and Euro 6) and on access to vehicle repair and maintenance information are described in para. 1.
127
Questionnaire to ADAC—responses on 20 June 2016. To be noted that, according to DUH,
there is no need to include any conformity factor in the RDE procedure (Questionnaire to Ms
Dorothee Saar, Deutsche Umwelthilfe (DUH)).

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In order to prevent uncontrolled and very high emission behaviors, DUH considers that “European Commission should define additional, independent tests to
monitor the performance of vehicles outside of the boundary conditions of RDE
(ambient temperature, altitude, dynamic driving indicator) and expand the limits as
necessary to maintain low in-use emissions.”128 ADAC recommends as well “the
creation of a supervisory body along the lines of an advisory board or supervisory
board made up of consumer rights organizations, representatives of the automotive
industry, the authorities, engineers and legal experts. As a neutral player, such a
body could oversee and supervise the search for solutions to such highly sensitive
and public matters.”129
Since EMIS committee has not yet completed its work,130 it seems premature to
draw definitive assessments of the conduct and responsibility of the Commission
and the Member States in the Dieselgate scandal. At the time of writing, the
program of EMIS hearings for the second part of the mandate is being finalized.
Hearings to collect evidence will continue at least until fall 2016, after which the
focus will shift to the preparation of the final report of the Committee of Inquiry.

5 Appraisal of the Main Controversial EU Law Aspects
As it is well known, implementing acts are necessary and/or useful where legislative acts cannot determine every specific aspect of a particular subject. Commission
Regulation (EU) No. 646/2016 constitutes an implementing act of Regulation
(EC) No. 715/2007, which constitutes the basic act.
It is submitted that Regulation 646 being an act adopted pursuant to the “old”
“regulatory procedure with scrutiny” and not according to the new Articles 290 and
291 TFEU,131 we are using the term “implementing act” in the “pre-Lisbon”
meaning:
If the act was based on an article of the Treaties, it could be regarded as a “legislative act”,
at least in so far its content was formulated in general, abstract terms. In contrast,
implementing (or executive) acts were involved where they were based on legislative
acts.132

128

Questionnaire to Ms Dorothee Saar, Deutsche Umwelthilfe (DUH), 16 June 2016.
ADAC Position in the Current Discussion on Emissions Manipulations in VW Diesel Vehicles—Risks and Legal Consequences for Affected Car Owners.
130
A draft intermediate report available in English was created on 2 June 2016, and a final interim
report should be voted on 13–14th July 2016.
131
There is no insertion of the word “delegated” or “implementing” in the title of Regulation
(EU) No. 2016/646. See Lenaerts and Van Nuffel (2011), p. 695, note 35: it is observed that the
definition of delegate acts at Article 290 TFEU is very similar to that of acts that under the Second
Comitology Decision were subject to the regulatory procedure with scrutiny.
132
See Lenaerts and Van Nuffel (2011), p. 693.
129

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The case law of the Court has thus formulated the concept of implementing acts,
which do not possess their legal basis directly in the Treaties but rather in an act of
the institutions that has delegated the power to adopt implementing measures. The
Court has judged such interinstitutional conferral of powers admissible to the extent
that the basic elements of the matter to be dealt with have been adopted pursuant to
procedures laid down in the Treaty.133 The Court employed a wide notion of the
term “implementation” used in Article 202 EC, which thus ranges from individual
decisions enforcing the basic acts to supplementary legislation, including amendments of the provisions of basic acts.134
A fundamental principle guiding the relationship between “implementing act”
and “basic act” provides that “an implementing act must in any case be consistent
with the procedural as well as the substantive requirements set forth in the basic
act.”135 or, with other words, that “the only condition is that the Commission’s
implementing act must not go beyond implementation of the principles of the basic
act.”136
The Court has consistently held (see in particular judgment of 16 June 1987 in Case 46/86
Romkes v Officier van Justitie [1987] ECR 2671) that an implementing regulation. . .must
respect the basic elements laid down in the basic regulation.137

An act is invalid where it conflicts with the act on the basis of which it was
adopted. This is a general principle part of the hierarchy of EU law. The EU
institutions, member States, and, under certain circumstances, physical and juridical persons may obtain a court ruling on the legality of an implementing act.
Moreover, the Court has specified that while it is true that an implementing act
cannot derogate from the provisions of a basic act, such derogation is, however,
possible if it is expressly provided for in the basic act and consistent with its general
system and essential elements.
The ECJ affirmed in the Eridania case the following:
8. Consequently it was lawful for the Council to enact an implementing regulation [3331/
74] in accordance with the procedure referred to in Article 24(3) of Regulation No 3330/74
which constitutes the basic regulation for the market in sugar. That outcome is not affected
by the sole fact that Article 24(3) empowers the Council not only to enact implementing
measures but also to determine any "derogations" from the provisions of the basic regulation, which word must be understood in this context as necessarily referring to derogations which relate to the general system for the allocation of quotas provided for by the

133
See Bast (2012), p. 890. Case Einfuhrstelle v. Koster (C-25/70 [1970] ECR p. 1161, para 6); See
Eberhard (2008), p. 63; see Schaffer (2008).
134
See Bast (2012), p. 890. Case C-16/88, Commission v. Council, [1989] ECR 3457, para 11;
Case C-417/93 European Parliament v. Council, [1995] ECR I-1185, para 30.
135
See Bast (2012), p. 890. Case C-46/86, Romkes v. Officier van Justitie for the District of Zwolle
(1987) ECR 2671, para 16; Joined Cases C-6&7/88, Spain and France v. Commission, (1989) ECR
3639, para 15; Case C-133/06, Parliament v. Council (2008) ECR I-3189, paras. 54 et seq.
136
See Lenaerts and Van Nuffel (2011), p. 693, citing C-25/70, Einfuhrstelle v. Koster, [1970]
ECR p. 1161, paras 6 and 7.
137
See T-398/07, Kingdom of Spain v. Commission (2012) ECR II-0000, para. 15.

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basic regulation and which do not jeopardize the essential elements embodied in that
regulation.138

In the same vein, the ECJ ruled in the C.A.M. case the following:
27. Article 4 of Regulation No 2496/74 by conferring on the Commission under Article
155 of the Treaty the powers necessary for the implementation of the rules which it lays
down, provides that that institution may at the same time as it adopts detailed rules for the
application of the regulation, make alterations to the prices and amounts fixed within the
context of the common agricultural policy and that it may do so ’where appropriate by
derogation from the rules for fixing contained in the regulations concerned to the extent and
for the durations strictly necessary to take into account this regulation.
28. That provision expressly confers on the Commission power to modify the rules for
fixing the amounts payable as refunds, so that in deciding that the traders who had advance
fixing arranged before a certain date would be excluded from the benefit of the supplementary refund, the Commission did not exceed its powers.139

Having so reported the law on the relationship between the basic act and the
implementing act, we come now to discuss the challenges that have been brought
against the validity of Regulation (EU) No. 2016/678.
As explained above, Regulation (EU) 2016/678 introduces a “temporary conformity factor” of 2.1 (equivalent to a rise of 110 % of the current limit) to be
applied for NOx in the new RDE testing.
The specific provisions states as follows:
2.1.2 Temporary conformity factors
By way of exception to the provisions of point 2.1.1, during a period of 5 years and
4 months following the dates specified in Article 10(4) and (5) of Regulation (EC) No
715/2007 and upon request of the manufacturer, the following temporary conformity
factors may apply: Pollutant Mass of oxides of nitrogen (NOx) Number of particles
(PN) Mass of carbon monoxide (CO) (1) Mass of total hydrocarbons (THC) Combined
mass of total hydrocarbons and oxides of nitrogen (THC + NOx) CF pollutant 2,1 to be
determined — — — (1) CO emissions shall be measured and recorded at RDE tests. The
application of temporary conformity factors shall be recorded in the certificate of conformity of the vehicle.

A “motion for resolution pursuant to Rule 106(2), (3) and (4)(c) of the Rules of
Procedure on draft Commission regulation (EU) . . ./. . . of XXX amending Regulation (EC) No. 692/2008 as regards emissions from light passenger and commercial vehicles (Euro 6) (D042120/03 – 2015/2988(RPS))” had been proposed on
12 January 2016 by Matthias Groote, Gerben-Jan Gerbrandy, Bas Eickhout, Merja
Kyll€
onen, Piernicola Pedicini on behalf of the Committee on the Environment,
Public Health and Food Safety of the European Parliament.
According to this motion:
whereas air pollution causes over 430 000 premature deaths in the Union every year and
costs up to an estimated EUR 940 billion annually as a result of its health impacts; whereas
nitrogen oxides (NOx) are major air pollutants which cause, inter alia, lung cancer, asthma

138
139

Case C-230/78, SpA Eridania-Zuccherifici nazionali (1979) ECR p. 2749, para. 8.
Case C-100/74, CAM v. Commission (1975) ECR p. 1417, paras. 27–28.

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and many respiratory diseases, as well environmental degradation, such as eutrophication
and acidification; whereas diesel vehicle exhausts are a major source of NOx in urban
areas in Europe; whereas recent air pollution analyses by the European Environment
Agency attribute 75 000 premature deaths to NO2 emissions in Europe, with 93 % of all
exceedances occurring close to roads;
---Omissis-E. whereas Article 14(3) of Regulation (EC) No 715/2007 states the following: ‘The
Commission shall keep under review the procedures, tests and requirements referred to in
Article 5(3) as well as the test cycles used to measure emissions. If the review finds that
these are no longer adequate or no longer reflect real world emissions, they shall be
adapted so as to adequately reflect the emissions generated by real driving on the road’;
whereas the provision is accompanied by recital 15, which states the following: ‘The
Commission should keep under review the need to revise the New European Drive Cycle
as the test procedure that provides the basis of EC type approval emissions regulations.
Updating or replacement of the test cycles may be required to reflect changes in vehicle
specification and driver behaviour. Revisions may be necessary to ensure that real world
emissions correspond to those measured at type approval. The use of portable emission
measurement systems and the introduction of the “not-to- exceed” regulatory concept
should also be considered’;
F. whereas, according to Article 5(3) of the Regulation (EC) No 715/2007, draft
implementing measures adopted under that provision, in accordance with the regulatory
procedure with scrutiny (RPS), are ‘designed to amend non-essential elements of this
Regulation, by supplementing it’; whereas, in the present context, the Commission is
empowered only to supplement Regulation (EC) No 715/2007, and not to amend the
emission limit values set out in Annex I to the regulation;
G. whereas the Commission has developed new draft implementing measures with a
view to amending Commission Regulation (EC) 692/2008(7) by adapting the test procedures so that they adequately reflect the emissions generated by real driving on the road;
whereas two packages of measures, each contained in a draft Commission regulation based
on Article 5(3) of Regulation (EC) No 715/2007, were endorsed by the TCMV on 19 May
2015 and 28 October 2015 respectively;
H. whereas draft Commission Regulation (EU) . . ./. . . of XXX amending Regulation
(EC) No 692/2008 as regards emissions from light passenger and commercial vehicles
(Euro 6) (hereafter ‘the draft measure’) states that for the purpose of establishing the
quantitative real driving emission (RDE) requirements ‘statistical and technical uncertainties of the measurement procedures should be taken into account’; whereas the draft
measure also allows for a margin ‘taking into account the additional measurement uncertainties related to the application of Portable Emission Measurement Systems (PEMS)’;
I. whereas, under the draft measure, manufacturers will be required to ensure that, at
type approval and throughout the life of a vehicle, emissions emitted at an RDE test do not
exceed certain ‘not-to-exceed (NTE) limit values’; whereas the NTE limit values are
expressed as the emission limits set out in Regulation (EC) No 715/2007 multiplied by a
conformity factor and a transfer function;
J. whereas, on the basis of an analysis by the Joint Research Centre (JRC), the
Commission has concluded the current average PEMS error of measurement to be
18.75%, corresponding to a maximum compliance factor of 1.2; whereas the JRC error
analysis concluded that the RDE testing procedure may introduce a measurement uncertainty margin of up to maximum 30%, i.e. a ‘worst case margin’ of 25 mg NOx/km for the
Euro 6 limit, equivalent to a compliance factor of 1.3; whereas such tolerances or initial
uncertainties of the emissions measurement procedure are expected to become smaller over
time thanks to technical progress;
K. whereas the draft measure endorsed by the TCMV on 28 October 2015 would
introduce a ‘temporary conformity factor’ of 2.1, with the effect of allowing vehicles to

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emit 168 mg/km of NOx in the RDE test applicable to all new vehicles from September 2019
(new vehicle types from September 2017), i.e. four years after the entry into force of the
Euro 6 80 mg/km limit value; whereas a final quantitative RDE requirement with a ‘final
conformity factor’ of 1.5 would apply to all new vehicles from 2021 (new vehicle types from
2020) with the effect of allowing vehicles to emit 120 mg/km of NOx in the RDE test;
L. whereas the transfer function multiplier in the formula for NTE limits is not explained
or justified; whereas any value for the transfer function parameter that is greater than
1 would result in increasing the level of emissions allowed under the RDE test;
M. whereas the draft measure would undermine any enforcement of the existing limit
values established in Regulation (EC) No 715/2007 as regards the evidenced significant
exceedances in normal use of vehicle NOx emissions until enforcement of the RDE test;
N. whereas in paragraph 14 of its resolution of 27 October 2015 on emission measurements in the automotive sector, Parliament confirmed the provision of the report adopted by
its Committee on the Environment, Public Health and Food Safety which requires the
Commission to ‘introduce a real driving emissions test for all vehicles type-approved or
registered from 2015 to ensure the effectiveness of emission control systems and enable the
vehicle to comply with this Regulation and its implementing measures, with a conformity
factor reflecting only the possible tolerances of the emissions measurement procedure in
place by 2017’;
1. Considers that the draft Commission implementing decision exceeds the
implementing powers provided for in Regulation (EC) No 715/2007;
2. Considers that the draft Commission Regulation would result in a de facto blanket
derogation from applicable emissions limits, and is therefore not consistent with Union
law, in that it is not compatible with the aim and content of Regulation (EC) No 715/2007;
3. Calls on the Commission to withdraw the draft regulation and submit a new one
without delay and no later than 1 April 2016, in order to introduce a real driving emissions
test for all vehicles with a view to ensuring the effectiveness of emission control systems and
enabling vehicles to comply with Regulation (EC) No 715/2007 and its implementing
measures, with a conformity factor reflecting only the possible tolerances of the emissions
measurement procedure in place by 2017;
4. Instructs its President to forward this resolution to the Council and the Commission,
and to the governments and parliaments of the Member States.

As already reported, the motion has been rejected by the European Parliament.
Before commenting on this motion, we will also report the complaints that the
Ville de Paris raised against Commission’s Regulation No. 646 of 2016, as they
have similar content.
The Ville de Paris lodged an action for annulment based on Article 263 TFEU
and an action for damages pursuant to Articles 268 and 340 paragraph 2 TFEU at
the Tribunal of the European Union to challenge the legality of Regulation
(EU) 2016/646, which increases the permitted levels of nitrogen oxide emissions
and to claim damages from the EU.140
According to Article 263, the Tribunal of the European Union shall review,
under certain conditions, the legality of acts, inter alia, of the Commission. It shall
for this purpose have jurisdiction in actions brought on grounds of lack of competence, infringement of an essential procedural requirement, infringement of the

140
Case T-339/16, Ville de Paris v Commission. See Mairie de Paris, Communiqué de presse—
Mercredi 11 mai 2016.

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Treaties or of any rule of law relating to their application or misuse of powers. If the
action is well founded, the Tribunal shall declare the act concerned to be void.
Pursuant to Article 268, the Tribunal of the European Union shall have jurisdiction in disputes relating to compensation for damage provided for in the second and
third paragraphs of Article 340. According to Article 340 paragraph 2, in the case of
noncontractual liability, the European Union shall, in accordance with the general
principles common to the laws of the Member States, make good any damage
caused by its institutions.
These actions are challenging the regulation “on the substance and form,” as
affirmed in the Communiqué de presse of the Ville de Paris.
According to the Ville de Paris, the European Commission to adopt Regulation
(EU) 2016/646 “has used a procedure usually reserved for the modification of the
‘non-essential elements’ of European regulations in order to adopt this act of heavy
consequences discreetly.”
Moreover, the adopted regulation would violate the maximum thresholds of
nitrogen oxides established by Regulation (EC) 715/2007, as well as Article 37 of
the Charter of Fundamental Rights of the European Union providing for a high level
of environmental protection.
We start with the examination of the first criticism against Regulation 2016/646,
contained both in the motion and in the Communiqué de presse, namely that the
Commission would not have had the power, according to the basic regulation, to
increase the emission level of nitrogen oxides (NOx).
We have now to examine whether the challenges are well grounded or not.
Both the motion and Communiqué de presse are right where they affirm that
according to Article 5(3) of Regulation (EC) No. 715/2007, draft implementing
measures adopted under that provision are “designed to amend non-essential
elements of this Regulation, by supplementing it.”
However, we have to discuss whether it is true—as affirmed in the quoted
motion and similarly in the Communiqué de presse—that “whereas, in the present
context, the Commission is empowered only to supplement Regulation (EC) No
715/2007, and not to amend the emission limit values set out in Annex I to the
regulation.”
One should consider that the motion omits to quote a fundamental recital of
Regulation 715/2007, i.e. recital 25, which provides:
In particular, power should be conferred on the Commission to introduce particle number
based limit values in Annex I, as well as to recalibrate the particulate mass based limit
values set out in that Annex. Since those measures are of general scope and are designed to
amend non-essential elements of this Regulation, they should be adopted in accordance
with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/
468/EC.

Equally important is Article 5 paragraph 3 which specifies:
The specific procedures, tests and requirements for type approval set out in this paragraph,
as well as requirements for the implementation of paragraph 2, which are designed to
amend non-essential elements of this Regulation, by supplementing it, shall be adopted in

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accordance with the regulatory procedure with scrutiny referred to in Article 15(3). This
shall include establishing the requirements relating to:
(a) tailpipe emissions, including test cycles, low ambient temperature emissions, emissions at idling speed, smoke opacity and correct functioning and regeneration of
aftertreatment systems;
(b) evaporative emissions and crankcase emissions;
(c) OBD systems and in-use performance of pollution control devices;
(d) durability of pollution control devices, replacement pollution control devices,
in-service conformity, conformity of production and roadworthiness;
(e) measurement of greenhouse gas emissions and fuel consumption;
(f) hybrid vehicles and alternative fuel vehicles;
(g) extension of type approvals and requirements for small volume manufacturers;
(h) test equipment;
and
(i) reference fuels, such as petrol, diesel, gaseous fuels and biofuels, such as bioethanol,
biodiesel and biogas.
The above requirements shall, where relevant, apply to vehicles regardless of the type of
fuel by which they are powered.

The Commission was thus empowered by the basic act to establish the “requirements relating to: (a) tailpipe emissions” and to “recalibrate the particulate mass”
and the “Mass of oxides of nitrogen (NOx)” as it has done by adopting Regulation
(EU) 2016/646.
We discuss now the second criticism against Regulation No. 2016/646,
contained both in the motion and in the Communiqué de presse. The motion
“considers that the draft Commission Regulation would result in a de facto blanket
derogation from applicable emissions limits, and is therefore not consistent with
Union law, in that it is not compatible with the aim and content of Regulation
(EC) No 715/2007.” Similarly, the Communiqué de presse affirms that the adopted
regulation would violate the maximum thresholds of nitrogen oxides established by
Regulation No. 715/2007.
We note preliminarily that we are not able to see how the establishment of new,
although higher, emission limits would “result in a de facto blanket derogation
from applicable emissions limits.” Also, the criticism of the Ville de Paris seems
unclear, since it does not explain why the recalibration by Regulation (EC) 2016/
646 of the thresholds originally provided by the basic regulation should represent a
violation of the latter, considered that the latter expressly allows such recalibration.
More relevant seems to us the reference made by the Communiqué de presse to
Article 37 of the Charter of Fundamental Rights of the European Union affirming
that “A high level of environmental protection and the improvement of the quality of
the environment must be integrated into the policies of the Union and ensured in
accordance with the principle of sustainable development.”
Since the text of the actions of the Ville de Paris lodged at the Tribunal is not yet
public, we can only suppose that the Ville de Paris considers that, in the light of
Article 37, the Commission could well, according to the basic act, recalibrate the
emission levels of nitrogen oxides (NOx), but only by reducing and not by increasing these levels.

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This issue implies a complex question of interpretation of EU law. Obviously,
the answer to it by the Tribunal of the EU, provided that the Tribunal preliminarily
holds that the Ville de Paris is entitled to bring its actions, will certainly depend on
the analysis of the case law of ECJ and also on what judicial policy will prevail
among European judges.
Perhaps an argument in favor of the thesis of the Ville de Paris may be the
judgment of the ECJ, Association belge des Consommateurs Test-Achats ASBL of
1 March 2011.141
This judgment affirms that in the progressive achievement of a fundamental
right, it is the EU legislator that, in the light of the task conferred on the European
Union by the relevant provisions of the Treaties or the Charter, determines when it
will take action, having regard to the development of economic and social conditions within the European Union (para 20).
It is thus in principle a free political choice of the EU legislator to establish what
should a “high level of environmental protection” mean in concrete.
The ECJ added: “However, when such action is decided upon, it must contribute,
in a coherent manner, to the achievement of the intended objective, without
prejudice to the possibility of providing for transitional periods or derogations of
limited scope” (para 21).
One could argue that Regulation No. 2016/646, by increasing the emission levels
established by the basic regulation, is not coherent with the latter and thus runs
against the achievement of the intended objective, i.e., the attainment of a high level
of protection of the environment.
However, one could argue that the recalibration introduced by Regulation 2016/
646 is limited in time, which is made clear by the title of 2.1.2, “Temporary
conformity factors.” Moreover, the Commission undertakes at whereas 14 to
“keep under annual review the appropriate level of the final conformity factor in
light of technical progress.” These provisions could bring arguments in favor of the
thesis that the recalibration of the emission levels respects the principle of
proportionality.
Moreover, the argument could be made that since new measurement methods
have been created, it would seem logical to introduce new parameters, considering
the fact that the old measurements were ineffective and therefore would give
erroneous results that were and are by now unattainable. Conformity factors of
2.1 and 1.5, i.e. a rise in RDE of no more than 110 % and 50 % compared with the
test bench, could be thus deemed acceptable. This would also ensure that carmakers
equip their vehicles with emission control technologies effectively lowering pollutant emissions under all operating conditions, in accordance with the technological and automotive development.

141

Case C-263/09, Association belge des Consommateurs Test-Achats ASBL, [2011] ECR I-00773.

European Union Law

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