Legal

Wake-up call

Legal perspective on VW emissions scandal and UK litigation action In this feature l fraudulent misrepresentation l cprs l damages One to watch A case citing a breach of Consumer Protection from Unfair Trading Regulations in VWs emissions scandal could become a significant test case. michael coley explains why T The rationale behind bringing a claim under CPRs rather than fraudulent misrepresentation is the hope that it will be easier to prove and could lead to higher damages being awarded he High Court has adjourned an application for a group litigation order (GLO) in the Volkswagen Auto Group (VAG) emissions case made by consumers bringing a claim of fraudulent misrepresentation. However, before the hearing, another group of consumers announced its intention to apply for a separate GLO, basingits claim instead on a breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). This CPRs claim is based on Part 4A of the CPRs Regulations, inserted by the Consumer Protection (Amendment) Regulations 2014, which came into force on 1 October 2014. The rationale behind bringing a claim under CPRs rather than fraudulent misrepresentation is the hope that it will be easier to prove and could lead to higher damages being awarded. For a claim in misrepresentation to succeed, the claimant must provethat: a statement was made by the defendant to the claimant; thisstatement was untrue in fact and/or law; it induced the claimant to enter into a contract with the defendant; and the claimant was thereby caused a loss. Fraudulent misrepresentation is one of three sub-species of misrepresentation IN SNapSHOT: vaLuE OF uKS the others being negligent and innocent auTOMOTIvE INDuSTrY misrepresentation. A claimant must prove The automotive industry is a large part of the UKs a further requirement: that the defendant manufacturing sector and: did not believe the statement in question Accounts for nearly 7bn turnover and 15.5bn was true, or was reckless as to whether or value added not it was true. The usual remedies are Employs nearly 160,000 people directly in damages and/or rescission of the manufacturing and more than 799,000 across the contract. wider industry In the VAG case, damages in a claim Accounts for nearly 12 per cent of the UKs total for fraudulent misrepresentation are export of goods Invests 2.4bn each year in automotive research intended to place the claimants in the and development position they would have been in had the Has more than 30 manufacturers building more contract not been entered into. A key than 70 models of vehicle in the UK, supported by factor in this assessment is likely to be the around 2,500 component providers and some of vehicles decrease in value, which can be the worlds most skilled engineers attributed to the misrepresentation. A claim based on CPRs follows a similar factual matrix, but with some key differences. The three conditions for the right to redress to apply are setout in Regulation 27A. First, the consumer must have entered into acontact with a trader for the sale or supply of a product by the trader, orthe sale of goods to the trader, or have made a payment to the trader for the supply of a product (Regulation 27A (2)); second, the trader must have engaged in a prohibited practice in relation to the product (Regulation 27A (4)); and third, the prohibited practice must be a significant factor in the consumers decision to enter into the contract or make the payment (Regulation 27A (6)). For the purposes of Regulation 27A, a prohibited practice is a misleading action as defined in Regulation 5, or an aggressive practice as defined in Regulation 7. Note that misleading omissions are excluded from this regime. For the purposes of interpreting Regulations 5 and 7 in the context of Part 4A, the transactional decision referred to in those regulations is a decision to do any of the things referred to in Regulation 27A (2), and not the wider definition used in criminal prosecutions under these regulations (Regulation 27B). One potential advantage in using the Part 4A regime is a more straightforward assessment of damages, which could lead to higher awards for consumers. Under Regulation 27I, consumers have the right to a discount on any payments already made under the contract, as well as some or all of the payments that have not yet been made. The reduction is assessed by the seriousness of the prohibited practice: if it is more than minor, the reduction will be 25 per cent; if it is significant, the reduction will be 50 per cent; if it is serious, the reduction will be If an order is 75per cent; and if it is very serious, the reduction will be 100 per cent granted in respect (Regulation 27I (4)). The factors to be taken into account in deciding of the CPRs seriousness are set out at Regulation 27I (5). litigants, it is likely The advantage of this method of assessing damages is that it is not to be an important necessary for the claimant to prove any loss or causation in relation to case on the use that loss. Damages are assessed based simply on what has been, or is to of a relatively be, paid under the contract. It is likely that a misleading action of the new regime, and type involved in the VAG case will be considered significant, at the very one in which least, so that a consumer who purchased a Volkswagen Golf Mk VII 2.0 the amounts TDI (on-the-road price 20,445) could be entitled to a refund of up to recovered could 10,222.50. However, VAG could argue for an alternative assessment of damages. be significant Under Regulation 27I (6), if the price payable under the contract exceeds 5,000, the market price for the product was less than that payable under the contract, and if there is clear evidence of a difference between the market price and the price payable under the contract, the percentage of the reduction will be the percentage difference between the market price for the product and the contract price. So, if VAG can show that the price of the affected vehicles would have been reduced by less than 25 per cent if their true emissions figures had been known to the market it will be preferable to argue the damages should be assessed under Regulation 27I (6), rather than seeking to mitigate any assessment under Regulations 27I (4) and (5). So far, it is not known whether the High Court will grant a GLO in respect of either groups of litigants in this case; the matter has been adjourned until October 2017 for that determination to take place. If an order is granted in respect of the CPRs litigants, it is likely to be an important case on the use of a relatively new regime, and one in which the amounts recovered could be significant. MpS CONDEMN vW aND DfT FOr CONDuCT IN EMISSIONS SCaNDaL A scathing report by Mps has condemned towards assessing the legality of VWs use regulatory landscape, the report states: Volkswagens handling of the emissions of defeat devices; it waited five months The scandal was not just the result of scandal in the UK, and criticised the before seeking preliminary legal advice corporate deception; it was also the result government for failing to take swift action. about prosecuting the car giant. The report of regulatory failure. Suggested reforms by The Transport Committees latest adds: It is deeply concerning that the the European Commission include severing report its third into the scandal, which department is relying on the European the financial link between certification broke in September 2015 found that Commission to act, even though the services and the auto industry to remove VW: communicated poorly with its Commission does not hold the necessary conflicts of interest. customers, which led to confusion evidence or powers to prosecute. Referring to VW, the committee of MPs says: The company has acted with over when and how vehicles would be The report recommends that approval fixed; used the investigative process to authority the Vehicle Certification Agency a cynical disregard for emissions limits, make announcements to exonerate measures the exact impact the defeat which exist solely to protect human health. senior management; and has been software has had on meeting European VWs conduct has severely undermined deeply unfair in its decision to rule out emission standards. This will enable consumer confidence in vehicle standards. compensation payments to UK customers. investigations and court action in the UK It has not only brought its own integrity and across Europe. into disrepute, but also that of the rest of The Department for Transport has also been criticised for its ambivalence Credits Michael Coley, who wrote the main article, isa barrister at 36 Consumer Group. Images: iStock.com/J33P3l2/ollo Referring to the automotive industrys To share this page, in the toolbar click on the auto sector. You might also like The price is right? February 2017