Videos: Part 4: Enforcing contracts: Video 3: The Volkswagen emissions scandal

Introduction

In 2015, press reports revealed that Volkswagen had installed special software and ‘defeat devices’ in diesel cars it made.  The purpose of the software was to detect when the car was being subjected to an emissions test in relation to a gas called NOx.  If it detected that it was, the car would move into an artificial mode which reduced NOx emissions to comply with the legal cap.  At other times, NOx emissions were higher (although Volkswagen claims that they are never in excess of the cap).  Volkswagen have offered to fix the affected vehicles to remove the ‘defeat device’.

Watch the video below, and consider whether any remedies are available to the vehicle owners against Volkswagen under the law of contract.

Commentary

1. Is Volkswagen in breach of contract?  It is not immediately obvious that it is.

  1. Consider the impact of the doctrine of privity.  Car owners tend to buy their vehicles from a dealer, rather than directly from the manufacturer.  This means that many of the terms in relation to the quality and fitness for purpose of the vehicle will be contained in a contract to which Volkswagen is not a party.  Volkswagen will, of course, have contracts with its dealers, but the car owners are not parties to those contracts and will be barred from suing Volkswagen under the doctrine of privity.  
  2. It is not obvious that any of the common law exceptions to the doctrine of privity applies.  Will the statutory exception created by the Contracts (Rights of Third Parties) Act 1999 apply?  Consider the question with reference to the points that must be made out under the statute.  The contract must purport to confer a benefit on the third party (and not just incidentally happen to confer a benefit).  The third party must also be identified in the contract.  It is very unlikely that buyers of cars will be able to satisfy these requirements to claim a direct contractual right against Volkswagen.
  3. Volkswagen will have given a manufacturer’s warranty to the purchasers, and will have some liability under that warranty.  However, its obligations under that warranty are likely to be considerably more limited than they would have been under a contract for the sale of goods.

2.Assuming there was a contract between car purchasers and Volkswagen, what damages can be awarded against Volkswagen in a case like this?  Again, it is not obvious exactly what loss the purchasers have suffered.

  1. It is difficult to see how damages computed with reference to the cost of cure might be awarded, given that Volkswagen has offered to cure the breach free of charge. 
  2. In theory, damages could be awarded on the difference of value measure, if car owners can show (for example) that the resale value of their car has been affected.  In practice, it will be hard to prove this.
  3. As the video above shows, consumers are aggrieved in part because they purchased a car in the belief that they were making a ‘green’ choice.  As it transpired, the car they got was a lot less green than they were led to believe.  Does this suggest that an argument could be made for ‘loss of amenity’ damages, along the lines of Ruxley Electronics?

3. The most likely ground of action against Volkswagen is not in contract at all, but in tort—specifically, the tort of deceit, which is briefly discussed in chapter 11.  Deceit is available when a person causes loss to another by making an untrue statement which they know to be false, or without caring whether it is true or false.  Deceit does not require a contract to have come into being—any loss caused by the false statement is recoverable.  This means that car owners can sue Volkswagen notwithstanding the absence of privity.  A group of people who purchased affected cars in England and Wales have brought a group action in the High Court on this precise basis (see http://www.vwemissionsaction.com/).  Hearings are expected to begin in 2019.