Volkswagen recently admitted using software in the US to “fool” emission tests and thereby give a better test result than is justified. Five days later their chief executive, Martin Winterkorn, resigned. Speculation is mounting as to the claims, actions or investigations that Volkswagen might face in the UK and elsewhere. As with any large organisation in the midst of a scandal, it is important to balance maintaining (or regaining) public perception and trust in the brand alongside intense media and regulatory scrutiny.
What is the situation in the UK?
Bearing in mind that as many as 11 million cars may be in issue it is hardly surprising that in the US the class action claims against Volkswagen are flowing thick and fast, along with the prospect of regulatory investigations and fines. The situation in the UK is different as Volkswagen has yet to confirm which cars on the UK roads are affected. UK customers will be unable to bring claims until it is confirmed that their vehicle is fitted with the software, and even then may not be able to bring claims unless it is shown that the software bypassed the EU emissions tests and breached EU Regulations.
Therefore further confirmation as to whether cars purchased in the UK are fitted with the software, and whether these UK cars have bypassed the EU emissions tests, is needed before legal action can be taken against Volkswagen in the UK. The rumour mill is working overtime and the media is stimulating the debate. This is likely to activate both the politicians and regulators.
What are the legal and regulatory risks for Volkswagen and other car manufacturers in the UK?
If it is found that the software did breach EU Regulations, and that the emissions of the affected cars are higher than advertised, Volkswagen and any other car manufacturers implicated could face a number of litigation and regulatory risks in the UK. These could include:
- Consumer, rental and dealership claims. Consumers who purchased cars fitted with the software could bring claims, or even a class action by way of a Group Litigation Order, against their car manufacturer. Claims might include compensation for any depreciation in the value of the vehicle, any increase in road tax rates and increased fuel consumption under a number of heads of claim including breach of contract and fraudulent misrepresentation. Other groups, such as car rental companies and car dealerships could also bring similar claims.
- Regulatory investigations and fines. Car manufacturers could be subject to regulatory investigations, both in the UK and on European level, which could result in significant fines, or even criminal prosecution. US regulators have suggested that Volkswagen could face fines of $18 billion. Even if there is not found to be a regulatory breach, it is possible that manufacturers could face claims based on misrepresentation on the basis that consumers bought vehicles in reliance on false or misleading information.
- Conspiracy or cartel claims. The Vehicle Certification Agency, the UK emissions regulator, is currently undertaking an inquiry into car emissions and testing, and has also called on the European Commission to carry out a Europe-wide investigation into the industry. If it is found that other car manufacturers have, in consultation with one another, used similar software to bypass emissions tests, these manufacturers could face conspiracy or cartel claims.
- Corporate governance and shareholder claims. Share prices may be affected – Volkswagen has seen a 30% slump in its share price – which may give rise to shareholders claiming compensation for their loss. Directors could also face claims and investigations if it is found they were aware, or should have been aware, of the issue.
What might happen in the meantime?
There is some speculation that these events will trigger whistle blowers to come forward at other car manufacturers. From our experience advising global financial institutions on media and reputational management following whistleblowing by former employees, organisations facing similar issues should have regard to the following factors.
- Establishing a core team. As anyone who has worked in a large organisation will appreciate, it is often difficult to understand the priorities of different areas of the business. Decisions need to be made quickly with input a variety of sources. At the outset, it is important to establish a core team consisting of internal and external legal counsel, senior public relations personnel, and key figures from the relevant departments.
- Investigating the issues. It may be that the organisation was not aware of the issues prior to the story breaking in the press. In any event, the keys facts must be gathered so that the organisation can decide on its strategy for dealing with the crisis. In the longer term, it is likely that a detailed investigation by external legal counsel will be required.
- Managing the crisis and public perception. The core team should establish a strategy for dealing with the media and any applicable regulators. It is vital that a proactive rather than a reactive approach is taken with the media, so that key messages can be conveyed in a positive manner and so that the organisation can get in front of the crisis. In our experience, a strong relationship with the media is vital to ensure that the facts are correctly conveyed. The relationship between the media and the public is circular; public interest in the crisis will be high and it is important that the organisation responds in a manner that is consistent with its public relations strategy.
- Litigation and regulatory risk. Strong regard should be had to possible future litigation. The willingness to acknowledge its role in the crisis must be balanced against the need to protect an organisation’s position against possible claims by consumers and regulators, at least until a full investigation has been completed.