German group’s battle to minimise financial damage from scandal hinges on test case
Six years ago, in early January, Herbert Gilbert bought a used Volkswagen Sharan minivan from a dealer in south-west Germany, for almost €31,500.
The model, which had 20,000km on the clock, contained a two-litre EA 189 diesel engine that was to gain notoriety over a year later, when VW admitted installing devices designed to defeat nitrogen oxide emissions tests in 11m cars.
On Tuesday, four-and-a-half years after the Dieselgate scandal broke, 65-year-old Mr Gilbert will become the first VW customer to have his demand for compensation heard in Germany’s highest civil court.
The ruling will have ramifications well beyond the confines of the Bundesgerichtshof.
If judges in the city of Karlsruhe support Mr Gilbert’s request for a full refund of the car’s purchase price, Volkswagen could be forced to pay out similar amounts to almost 100,000 claimants across Germany — a scenario VW insists remains unlikely.
The world’s largest carmaker has already spent more than €31bn on costs relating to the scandal, including a $10bn settlement in the US, reached mere months after the existence of cheat devices was brought to light.
In its home country, however, where Volkswagen was ordered to recall 2.4m vehicles, the process has not been as swift, with individual claims snaking their way through Germany’s complex legal system, often overwhelming local courts.
Volkswagen recently settled 235,000 such cases, following a mass lawsuit, and has paid out in tens of thousands of individual claims across the country.
But Mr Gilbert, who started his campaign at a district court in the spa town of Bad Kreuznach, became a test case when he refused any such deals, and challenged an early dismissal.
“My family has been driving Volkswagens for 50 years,” he said last week, “VW has always been a mark of quality for us.”
The purchase of a Sharan in 2014, Mr Gilbert said, was the biggest investment he had made in a car. He added that he had been lured by VW advertisements that highlighted the diesel engine’s environmental credentials by waving a white scarf against a car’s tailpipe, which remained unblemished.
“We knew about the need to protect the environment and the problems with air pollution and it was clear to me that if I bought a diesel, I would get the cleanest one from VW,” he said.
At the heart of Mr Gilbert’s claim is that he inadvertently entered into an unwanted contract, which he would like to exit by returning the car to VW for a full refund, plus interest.
Volkswagen, however, maintains he suffered no economic impairment, and that a software fix installed in his car in 2017 removed the defeat device.
Customers who installed this update, which was mandated by the country’s Federal Motor Transport Authority, the KBA, “did not suffer any loss of value due to the software, and they were able to use the vehicle at any time, which hundreds of thousands still do every day,” VW said.
Claus Goldenstein, the owner of the law firm acting for Mr Gilbert, which also represents 21,000 other Dieselgate claimants, said the case would provide legal certainty for consumers.
“On Tuesday, we will fight for a principle that will ensure that the diesel scandal does not end, but instead really begins now,” he said.
However, Mr Gilbert’s case is complicated by the fact that he did not purchase the car directly from Volkswagen, but from a dealership. VW argues that it was therefore not involved in the contract, and did not receive the sum he is claiming.
What’s more, the Wolfsburg-based carmaker is confident that if the judges award damages to Mr Gilbert, they will deduct the value of the car’s subsequent usage — namely the miles driven — resulting in a significantly smaller payout.
“There is not a single case in the higher regional courts that does not allow a deduction for the use of the property,” the company said.
Volkswagen has also mitigated the risk of an unwelcome verdict. Last week, the company revealed that it had paid out approximately €750m in settlements with 235,000 owners, who had originally sued VW in the country’s largest collective lawsuit.
Of those claimants, who will receive between €1,350 and €6,250 each, only 35,000 would still be able to refuse the settlement and sue independently, if the court indicates that it will rule in Mr Gilbert’s favour.
Yet, Volkswagen’s legal woes are unlikely to be over soon.
Last Thursday, EU advocate general Eleanor Sharpston advised the European Court of Justice that a technology installed in the vehicles of several large manufacturers constituted a “defeat device”.
Should her analysis be accepted by the ECJ, a flood of new compensation claims could follow, especially if Germany’s highest civil court paves the way by finding for Mr Gilbert.
An ECJ judgment “could very well make VW more liable to pay civil damages for vehicles with [newer diesel] engines”, said Christopher Rother, a veteran lawyer backed by British and American private equity firms, who has signed up 12,000 individual claimants.
“That is the highest risk for Volkswagen.”
Judgment day for VW as pensioner’s Dieselgate fight goes to top court