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Volkswagen could face record fine, Justice Foster blasts ACCC and VW

The hearing in the case between Volkswagen and the Australian Competition and Consumer Commission could see the agreed settlement of $75 million replaced by an even higher penalty.
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Volkswagen’s German head office could be hit with an even bigger fine than the proposed $75 million penalty – already the highest of its type in Australia – for “misleading or deceptive conduct” on diesel vehicles that cheated emissions tests.

However, the outcome of the hearing and the total amount of the fine may not be known for months after Justice Foster reserved his decision in the Federal Court in Sydney today.

Justice Foster blasted Volkswagen AG for rigging its vehicles to pass tests but then belching out toxic emissions on the road – and accused the Australian Competition and Consumer Commission (ACCC) of going too soft on the German car maker.

At one point His Honour jested to the ACCC’s senior counsel Jeremy Kirk “you’re actually on the same side … peace in our time”.

The ACCC had reached a settlement that would have seen Volkswagen pay a $75 million fine plus $4 million in court costs. This is in addition to the payout of between $89 million and $127 million in a separate Class Action.

As part of its proposed settlement, the ACCC dismissed all orders against importers Volkswagen Australia and Audi Australia and instead took action against the company’s global head quarters, Volkswagen AG.

A $75 million penalty would be the highest such fine in Australia but a fraction of the cost of penalties handed out to Volkswagen overseas, which are now in the billions of dollars.

Volkswagen Australia lobbied for a “no admissions” settlement because the company is currently facing “dieselgate” court cases in the UK and USA – and didn’t want the Australian ruling to set an international precedent.

Justice Foster questioned if $75 million plus court costs was an “appropriate penalty” and indicated it should be “multiples of that amount”.

“A significant deterrence is very uppermost in my mind,” said Justice Foster, who emphasised the final amount of the fine would be “a matter for the court”.

The ACCC’s Kirk SC said the fine of $75 million plus court costs is already “three times higher” than any previous fines. In September 2019 the ACCC issued a $26.5 million to training college Empower Institute and in April 2018 it fined Ford $10 million for “unconscionable” conduct.

However, Justice Foster said prior fines were “irrelevant” and that “the penalty is a matter for the court”. The Federal Courttook exception tothe “no admission” agreement in the proposed settlement.

“I’m just baffled by it,” said Justice Foster. “I’m really outraged by that submission”. His Honour asked the ACCC’s senior counsel if the Australian public expected “the people’s champion” to “do whatever the Germans want?”

Justice Foster said “contrition” and admitting fault are among the considerations when imposing a penalty however “for some reason they (Volkswagen) won’t do it here”. His Honour said contrition has to be assessed “by not only what they (Volkswagen) have admitted, but by what they’ve not admitted”.

After reading the claim that certain Volkswagen diesel vehicles would have exceeded emissions standards and thus did not comply with Australian regulations because “the two mode software was designed to create a false impression … of compliance when in fact there was not compliance”, the ACCC’s Kirk SC told the court “the parties have agreed something after three years of very hard fought litigation”.

The ACCC’s Kirk SC also described the cheating software “a deliberate, sophisticated, detailed and long term plan”, a “substantial and enormous breach” of the regulations, and that VW has since been in “a world of pain”.

Justice Foster said Volkswagen’s manipulation of its diesel engine software was “not a mere accident, this is something they chose to do as a corporate entity … done for the sole purpose of cheating the regulatory system. It was a deliberate marketing decision to give them an advantage in the market”.

Earlier, Justice Foster said the Volkswagen case was a serious matter and of interest to the public because “public interest includes, in my view, the policing of behaviours which have a tendency to damage the environment and the citizens that live and breathe in that environment”.

Improperly filtered diesel emissions are “harmful to humans and harmful to the environment … and a very serious matter”, said Justice Foster.

His Honour indicated a number of times during the hearing the fine could be as much as $500 million, a figure regarded as “stratospheric” by Volkswagen’s legal team.

The ACCC’s legal team told the court about numerous examples of Volkswagen’s penalties overseas, to which Justice Foster replied: “Am I being told the US fines and these fines are the only ones being imposed?” Justice Foster then asked if he was being given the “full picture” or was he being shown “selective” material.

“This is just another fine? There’s going to be lots of them no doubt,” said Justice Foster. “I’m considering what an appropriate penalty is (and) I’m looking at what you’re agreeing.

And that may be larger or smaller than the one you’re agreed.”

Justice Foster said Volkswagen had been “punished” for selling diesel cars equipped with cheating software in the US and Europe, but not yet in Australia.

How Dieselgate unfolded

The scandal broke four years ago, after Volkswagen was caught cheating not once but twice.

In May 2014, researchers at West Virginia University in the US went to the trouble of attaching bulky testing equipment to the back of a Volkswagen and measured its emissions during a long road test.

The testers were shocked to find the emissions rose dramatically on the highway versus the lab.

Thinking there was a fault with the car, they retested the same vehicle in a lab and the car passed the emissions regulations.

The testers passed on their findings — and their suspicions — to the US Environmental Protection Agency.

When US authorities approached Volkswagen the first time about irregularities discovered after real-world driving tests, the car maker said there must have been some mistake and recalled 500,000 vehicles.

Months later, when the US environment agency retested Volkswagen cars that had supposedly been fixed, those vehicles also blew the meters.

It wasn’t until US authorities threatened to halt sales of all future Volkswagen diesel cars did the German company finally come clean on what it had done.

In 2016 a senior Volkswagen executive, Christian Buhlmann, told news.com.au: “I’ve been promoting diesel for many years and, with the knowledge that I have nowadays, I know that in the past I said things I shouldn’t have... but I didn’t have (the knowledge) back then.”

“What we can do is make up for what has been done wrong in the past and make better cars... and find remedies for 11 million cars.”

Emissions testing experts believed Volkswagen created the cheat mode to stop the build-up of engine and exhaust gunk, to reduce servicing costs.

It has since transpired Volkswagen created software that knew when the car was being tested in laboratory conditions, due to ambient temperature, the type of driving and the fact that only the two front driving wheels were moving, because at that time new vehicles were always tested in laboratory conditions.

Once cars with cheating software were driven in the real world, the anti-pollution system was disabled, pumping deadly toxins directly out the exhaust.

“The cars are tested on a rolling road dynometer, so the front wheels are spinning and the back wheels are not, and the steering wheel isn’t moving,” said the emissions tester.

“Then you have to accelerate to 50km/h within seven seconds to simulate the start of a city drive, and the test must be conducted between 20 and 30 degrees Celsius.

“If the car senses that, and it can with all the sensors it has on board these days, it would know it is doing an emissions test.”

Approximately 11 million Volkswagen, Audi and Skoda cars have been recalled globally, including about 100,000 in Australia. The German car giant has been fined billions by authorities in the US and Europe.

In addition, Volkswagen spent an estimated US$7.4 billion buying back 350,000 diesel cars in the US, storing them in 37 facilities across the country.

Certain versions of the following cars equipped with 1.6- or 2.0-litre EA189 diesel engines are affected and owners may be entitled to compensation:

Volkswagen

  • Golf (2009-2013)
  • Polo (2009-2014)
  • Jetta (2010-2015)
  • Passat CC (2008-2012)
  • Volkswagen CC (2011-2015)
  • Passat (2008-2015)
  • Eos (2008-2014)
  • Tiguan (2008-2015)
  • Caddy (2010-2015)
  • Amarok (2011-2012)

Audi

  • A1 (2010-2015)
  • A3 (1.6L 2009-2013, 2.0L 2011-2013)
  • A4 (2008-2015)
  • A5 (2012-2016)
  • A6 (2009-2015)
  • Q5 (2009-2016)
  • TT (2009-2014)

Skoda

  • Octavia (2009-2013)
  • Yeti (2011-2015)
  • Superb (2009-2015)