Worldwide: Automotive Emissions Crisis - Product Liability

In Australia consumers might choose to commence actions either separately or by way of class actions arising from a common cause. Claims will be based upon common law, the Federal Australian Competition Law and State and Territory Sale of Goods legislation.  Class actions have become more prevalent in recent years owing to the public listing of plaintiff firms and the prolific growth of largely unregulated litigation funders.

Individuals may seek compensation for loss of use or loss of value of the vehicle. Financiers may seek compensation from dealers if the value of the vehicle is affected. Dealerships may seek compensation in response to claims by individuals or financiers.   Exemplary damages are also available in various jurisdictions.

In Canada motions for certification of class actions by owners and lessees of affected VW models have already been served and filed in many jurisdictions (Quebec, Ontario, Saskatchewan, and counting). Most class representatives/petitioners seek national representative status against VW and have not yet targeted VW dealers.  Canada does not have Multi-District Litigation (MDL), and the consolidation of class actions depends largely on the ability of the plaintiffs' lawyers to agree on which firm will take the lead in each jurisdiction. All class actions should eventually be consolidated into a single national class action run out of Ontario with possible outliers in Quebec and/or BC.

The plaintiffs are likely to raise allegations of fault including fraud by concealment, negligence, negligent misrepresentation, and breach of express or implied warranty.

The damages sought will likely encompass the alleged diminished value of the targeted cars and/or a partial price reimbursement based on the assertion that owners and lessees would not have paid so high a price had they known the actual emission figures.  The awards sought in the initial actions are between $5,000 and $10,000 per owner/lessee.   Punitive damages of up to $20M are also being claimed, as most consumer protection acts open the door to punitive awards.

In France several complaints have been filed by environmental protection associations, individual car owners and shareholders against VW.  In addition we expect that one of the licensed consumer associations may bring a consumer class action.

In Hong Kong manufacturers may face civil claims from consumers under the Trade Descriptions Ordinance, by which it is a criminal offence to supply goods with a false trade description, false or misleading information in the course of trade or business.

In India there is no specific statute governing product liability claims and the term product liability is not specifically defined.  The underlying principle is that the manufacturers should not sell a vehicle that suffers from any major defect (of design, manufacture or marketing), and if it escapes detection at quality check, the product should be promptly withdrawn from the market or from the consumer, voluntarily, once the manufacturers come to know of the defect.

In Ireland the Sale of Goods Act creates an implied condition that the vehicle in question corresponds to its description, is fit for purpose and as durable as it is reasonable to expect. Irish law also recognises a parallel right to sue a dealer, distributor or manufacturer in tort where a defective product has been sold pursuant to fraudulent or negligent misstatement.

The Irish courts have no mechanism for US-style class actions or UK-style group litigation orders.  Representative actions may only be commenced to seek injunctive or declaratory relief.

Financial losses are recoverable both in contract and in tort provided that they are a direct and reasonably foreseeable consequence of the misdescription which is alleged.  If deceit can be proven, the plaintiffs will argue that their damages should be extended to include all loss (e.g. higher tax imposed on affected vehicles) flowing directly from the deceit, irrespective of foreseeability.  Irish law also recognises the possibility of exemplary and punitive damages.

In Singapore motor manufacturers and dealers may be exposed to actions under the Sale of Goods Act for breach of contract on the basis that their cars do not comply with description (including descriptions given in advertisements) or are of unsatisfactory quality.  Consumers also have extensive remedies under the Consumer Protection Act (CPA) in the event that any supplier is found to have committed an unfair practice.  Unfair practices include misrepresenting the performance characteristics, qualities, benefits, standards, origins and/or methods of manufacture of goods.  Tortious claims for fraudulent or negligent misstatement could also be brought at common law.

Although there is no mechanism for US-style class action lawsuits, the Singapore Courts do allow for representative actions to hear significant issues of fact or law which are common to a number of claimants.  Recent case law from the Singapore Court of Appeal has underlined that such actions are to be used in a broad and flexible manner so as to preserve the principle of access to justice.

The remedies available to consumers include the variation of the contract, orders for repair or replacement of parts for goods, restitution of money or property, an award for damages for losses or damages suffered as a result of the unfair practice or, where appropriate, an order for specific performance.

South Korea has one of the strongest class action regimes in Asia. Just last year, a group of more than 1,700 consumers filed suit against Hyundai Motor Co. and five other auto makers for overstating the fuel economy of their vehicles. The plaintiffs in that case seek damages of between 900,000 won and 3 million won ($890-$2,967) each, putting the total amount at 2.7 billion won.

Product liability claims in Korea are primarily governed by the Product Liability Act which applies to products manufactured after the enactment date of 1 July 2002. "Defect" is defined to include a flaw in the manufacture, design, or labelling of a product. Historically, the burden is on the plaintiff to prove the existence of a product defect and causation, and thus consumer-liability cases are not very common in South Korean.  In recent years, certain Korean judgments and proposed legislative amendments indicate a movement toward lessening this burden of proof on claimants, thereby transferring it to the product manufacturer.

In Spain consumer associations have been created in order to group together purchasers who may wish to claim.  In addition, some law firms are launching advertising campaigns looking for buyers of cars who wish to recover the price paid for the vehicle or claim for damages.

In the United Arab Emirates consumers can bring claims in tort under the Civil Code against manufacturers and importers if products are defective and the defects are not covered by a warranty or if the products do not comply with their description.  Dealers can be sued for misrepresentation and, in cases of "gross cheating", the consumer may request that the contract be invalidated.  Otherwise consumers can bring claims for breach of contract under the Commercial Transactions Law in respect of vehicles which are unfit for purpose.

Class actions are not permitted and individual claims are rare because the level of damage awards is low.  As a general rule, the UAE courts only award damages for actual and direct losses.  Speculative claims for loss of profits and damages for "moral injury" are usually not awarded.  As a result, the damages that the Court is likely to award, if any, will often not be worth the cost of the litigation.

Manufacturers may also be required to indemnify importers and/or dealers for any losses they incur as a result of having to remedy a defect with the vehicle.  In our experience, however, these types of issues tend to be resolved by private agreement, without the need to refer the matter to the courts.

In the United Kingdom actions may be brought against dealerships in contract and against manufacturers in tort.  Tort claims are expected to be made in negligence, misrepresentation and, conceivably, deceit.  Group Litigation Orders are also likely, as some firms already claim to have signed up several hundred clients.

Claims will include financial losses due to the affected cars depreciating in value and/or incurring higher running costs than those advertised.  The damages sought will increase significantly if deliberate wrongdoing is alleged: in previous cases where the defendant has been accused of egregious conduct, English courts have awarded exemplary damages and/or a share of the defendant's profit.

The Consumer Rights Act 2015, which came into force on 1 October 2015, will open up a range of additional remedies, including a new statutory right to reject as well as rights to repair or replacement.

In the United States consumers have already filed over thirty class action suits, and that number is expected to rise significantly.  Manufacturers should be mindful of the potential for consumer fraud claims based on statements made in advertisements or elsewhere about their products. State and federal consumer protection laws are designed to shield consumers from dishonest advertising practices. On the state level, consumers can file lawsuits for damages suffered as a result of a company's misrepresentation. State consumer fraud statutes traditionally required plaintiffs to prove that they personally suffered damages as a result of the deception. Recently, however, some plaintiffs have succeeded in broadening the scope of defendants' liability, recovering damages on behalf of large groups of people who were affected by the misrepresentation.

In one recent case, a plaintiff in California successfully sued American Honda Motor Company, alleging that the company's claims about the gas mileage of its Honda Civic Hybrid were misleading and false.

Recoveries under state consumer fraud statutes can include monetary damages, injunctive relief, punitive damages and fees and costs. In assessing damages, the timing and the accuracy of the manufacturers' recall notice will be critical. Manufacturers that have delayed issuing recalls, even by one week, have faced product liability suits featuring not only traditional causes of action but also securities claims based on allegations that manufacturers were able to artificially inflate the value of their stock by failing to come clean about a defective product right away.

Liability to finance houses

Finance houses, especially those who offer Personal Contract Purchase ("PCP") arrangements, might conceivably be affected by a fall in resale values.  Under a PCP, the finance house purchases the customer's desired car from the manufacturer or dealer and sets a Guaranteed Future Value of the car based on its anticipated value at the end of the hire term.  The customer's monthly instalments are calculated based on the depreciation of the value in the car for the duration of the hire term.  At the end of the hire term, the customer is entitled to either return the car or purchase it for a one-off payment equal to the Guaranteed Future Value.

Thus, the PCP business model relies on the car's value not falling below the Guaranteed Minimum Value at the end of the hire term.  If it does, the customer's monthly instalments will no longer reflect the actual depreciation of the car and few, if any, customers will be prepared to purchase the car at the end of the hire term.

As a result, the resale values of the affected cars may drop, in which case finance houses may be left owning a fleet of vehicles worth significantly less than their purchase price with the depreciation not fully covered by their customers' monthly instalments.

The legal remedy to which affected finance houses may be entitled will vary from jurisdiction to jurisdiction.  The terms and conditions of the purchase may also disapply and/or limit the availability of particular remedies.  In some cases finance houses may be entitled to bring claims for loss of profit.

Liability for ill health

The link between vehicle emissions and ill-health is well established. Vehicles add significantly to air quality problems.  Exhaust gases are a complex mix of dangerous substances - including carbon monoxide, nitrogen oxide, nitrogen dioxide, hydrocarbons and particulate matter - high levels of exposure to which are linked with respiratory illness, cardiovascular problems and cancer. Sensitive individuals with existing respiratory conditions such as asthma are particularly vulnerable. Some 29,000 deaths a year in the UK are attributable to fine particulate pollution.

Recent press and media coverage in the UK and elsewhere has speculated on the likelihood of injury claims arising as a result of exposure to these emissions.  Clyde & Co was recently successfully involved in defending 16,000 claims of ill-health from smoke exposure in the Sonae Group Action.   Applying similar principles, it is unlikely that any claims for short or long-term ill-health from higher vehicle emissions could succeed.  Air pollution is complex mix of harmful substances from numerous sources. It will be extremely difficult for individuals to prove a causative link between illness and higher vehicle emissions to the requisite standard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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