Volkswagen loses High Court bid to challenge $125 million penalty for misleading customers

Volkswagen has lost its bid for a High Court challenge to a penalty order for $125 million, for misleading customers about diesel emissions in its cars.

Key points:Volkswagen was fined $125 million by the ACCC for misleading customersThe High Court refused to grant special leave for the company to challenge the rulingFines were also issued in America and Germany

The penalty is the highest ever imposed by the Federal Court for a breach of consumer laws.

Initially, Volkswagen fought the case after consumer watchdog, the ACCC, commenced civil proceedings.

But later, it admitted it did not disclose to the Australian government that its cars had a two-mode software that hid the true nature of nitrogen oxide (NOx) emissions.

One mode which limited the NOx emissions was switched on for testing, and the second mode was switched on when cars were put on the road, emitting a higher level.

Volkswagen and the ACCC initially agreed to a $75 million penalty.

But when it came back to Federal Court, with an agreed statement of facts, Justice Lindsay Foster used his discretion to impose the higher penalty of $125 million.

He found Volkswagen should have disclosed the information to the government when it sought approval to supply 57,000 cars to Australia between 2011 and 2015, and that the agreed penalty was inadequate.

"It seems to me that the terms of settlement agreed between VWAG, Audi AG and the Australian emanations of those companies reflect an overly pragmatic approach on the part of the ACCC," he said.

Volkswagen appealed to the full bench of the Federal Court, saying the penalty was manifestly excessive.

But that was rebuffed, prompting the application to the High Court.

Volkswagen signs
The Federal court said by October 2015, company representatives met with the Australian government, and acknowledged that certain vehicles were not fully compliant with Australian design rules.

Lawyers for the company told the High Court that the original judge had erred in his interpretation of a law about past offences.

The court heard the judge had viewed the law as applying to an aggravating circumstance but had ignored the interpretation that a lack of past offences could be a mitigating factor.

The full bench of the Federal Court had agreed it was an error, but said it was immaterial and unlikely to have changed the outcome.

Lawyers for the ACCC agreed and told the High Court Volkswagen wanted to re-argue the whole case, so they could reduce their penalty.

The court heard a second part of the argument that suggested the company had already been punished with penalties overseas was irrelevant. 

But ultimately, the High Court refused to grant special leave for the company to challenge the ruling.

Two-mode software exposed by the US Environmental Protection Agency

The discovery of Volkswagen's two-mode software has an interesting history.

The Federal Court full bench judgement noted the operation and manner in which the software worked was exposed by the US Environmental Protection Agency in September 2015.

The agency issued a public notice detailing its conclusions that Volkswagen had installed so-called "defeat devices" in vehicles imported and sold in the US.

How VW's 'defeat device' worked

How did German carmaker Volkswagen rig emissions tests in diesel-powered vehicles and fool US regulators?

Read more

The court said by October company representatives met with the Australian government and acknowledged that certain vehicles were not fully compliant with Australian design rules.

There was a temporary suspension of sales of affected vehicles.

The problem was later solved with a software update.

Volkswagen was fined US$2.8 billion after a plea deal with US authorities.

The Federal Court also noted Volkswagen was fined 1 billion euros in Germany.

A company press release stated the fine related to Volkswagen's conduct in causing 10.7 million vehicles worldwide "being advertised, sold to customers, and placed on the market with an impermissible software function in the period from mid-2007 until 2015".

The $125 million penalty upheld in Australia is the highest ever imposed for breaches of the Australian Consumer Law.

"This case signals to large companies that penalties for egregious conduct which breaches the Australian Consumer Law can now reach very significant sums, and potentially make a big impact on their bottom line," ACCC chair Rod Sims said in a statement.

"Volkswagen misled consumers and regulators about whether the diesel vehicles complied with environmental standards. It deprived consumers who may have deliberately sought to buy a low emissions vehicle, of the ability to make an informed decision.

"What made it particularly egregious in this case is that if Volkswagen had told the truth, these vehicles would not have been legally allowed to be sold in Australia. Their conduct showed complete disregard for Australia's vehicle import regulations, which are designed to protect consumers."

The $125 million penalty is separate from payments already made to the owners of VW diesel cars.

Posted 11 Nov 202111 Nov 2021Thu 11 Nov 2021 at 11:39pm, updated 12 Nov 202112 Nov 2021Fri 12 Nov 2021 at 5:18amShareCopy linkFacebookTwitterArticle share optionsShare this onFacebookTwitterLinkedInSend this byEmailMessengerCopy linkWhatsApp

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