How aware were you? High Court refuses to strike out fraudulent misrepresentation claim in VW 'Dieselgate' emissions

In Crossley and others v Volkswagen Aktiengesellschaft and others(1) the High Court refused to strike out or summarily dismiss the fraudulent misrepresentation claim brought by more than 86,000 vehicle owners against Volkswagen ("VW").

The crux of the judgment related to whether the claimants were sufficiently "aware" of the alleged implied representations to have relied on them in deciding to purchase their vehicles.  The Court considered that the issue was not a "short point of law" and it must be considered at the trial, which is scheduled for January 2023.

Facts

The case arises from 'Dieselgate' or the 'VW Emissions Scandal'.  The class action Claimants are owners of Volkswagen, Audi, Skoda and SEAT diesel vehicles.  The Defendants are Volkswagen AG, Audi AG, Skoda Auto a.s., Seat S.A., Volkswagen Group United Kingdom Limited and a group of authorised VW dealers (collectively referred to as "VW").

The basis for the class action against VW is that the engines purchased by the Claimants were fitted with a "defeat device" which allowed the vehicles to cheat emissions tests.  The defeat device enabled the engines to recognise when they were being tested for compliance and had two modes.  When operating in mode 1, the engine would emit nitrogen oxides at a level below the permissible levels allowed under the relevant emission regulations.  Otherwise, when operating in mode 2, the emissions exceeded permissible limits.

The Claimants advance various causes of action, including allegations that VW fraudulently made implied representations to all potential purchasers that their vehicles complied with emission standards and that all testing had been carried out properly and honestly (the "Deceit Claim").

VW made an application to strike out or summarily dismiss the Deceit Claim on the basis of a contention that the Claimants must plead and prove that they were "consciously aware" of the fraudulent misrepresentations in order to sustain their claim.  VW sought to argue that it was unlikely and implausible that the Claimants would "actually have turned their minds" to the alleged representations at the time of purchasing the vehicles and that the claim should therefore be dismissed or struck out.

"Awareness" in previous authorities

The Court considered the relevant prior judgments relating to the level of "awareness" of a representation which is required in order to establish reliance on it in a misrepresentation claim, which is particularly acute when considering representations such as these which are implied from the representor's conduct in proposing a transaction.

Those authorities included the well-known LIBOR cases of Property Alliance Group v Royal Bank of Scotland plc(2), Marme Inversiones 2007 v Natwest Markets plc(3) and Leeds City Council v Barclays Bank plc(4), which represent a strand of caselaw on the level of awareness required in respect of the implied representation that banks selling LIBOR-linked products were not engaged in manipulation of that benchmark.

In the latest of those LIBOR cases, the Leeds decision, the Judge in Charge of the Commercial Court allowed Barclays' application to strike out claims against it, on the basis that the claimants had not been able to plead that the alleged misrepresentations were actively in their mind at the time of being made, such that their claim must fail on grounds of reliance.  That decision is currently under appeal.  In reaching that finding, Cockerill J expressed some reservations as to whether a "quasi-automatic awareness" might be sufficient, but then found herself bound to hold that active awareness of thought was required at least in the particular circumstances of LIBOR manipulation fraudulent implied representation cases.   In doing so, the judge in Leeds distinguished other lines of case law on reliance including the House of Lords criminal case of DPP v Ray(5), and Spice Girls Ltd v Aprilia World Service BV(6), amongst others.

High Court decision in the VW case: Claimants' reliance must be decided at trial

Having considered the line of authorities, the Court dismissed VW's application to strike out the Deceit Claim.  The Court refused to determine as a summary matter whether the awareness component of the Claimant's claim had been satisfied, noting that it was not a "short point of law" and that it was a matter which would have to be dealt with at the trial.

Turning with particular interest to Leeds, the Court observed that that judgment had raised the question as to whether "quasi-automatic awareness" of an implied representation might be sufficient.  The Court considered it to be arguable that a customer buying a vehicle from a reputable manufacturer could have a quasi-automatic awareness of an implied representation that the car is lawful to drive and that it complies with all relevant regulations.

The Court also disagreed with the basis on which the judgment in Leeds had distinguished the judgments in DPP -v- Ray and Spice Girls.  In essence, it regarded the outcome of the LIBOR strand of case law to be a wrong turn in the law.  The Court observed that the Spice Girls case supported a principle that sufficient reliance on an implied representation could be established by a counterfactual of truth - i.e., by establishing that the transaction would not have proceeded if the representee had been told the truth instead of the (implied) false representation.  That test, of course, does not require conscious awareness or thought about the false representation as part of reliance, which can therefore take a form closer to an automatic assumption that the (in fact false) implied representation is true.  

The Court concluded that the Deceit Claim had a real prospect of success where there was a relevant assumption or counterfactual of truth (i.e., where the Claimants would not have purchased the vehicles if not for the misrepresentations).  It was therefore a case which must be tested at trial. 

Comment

The judgment highlights the complexities of the requirement of awareness in a fraudulent misrepresentation claim.  While the issue of the Claimants' reliance is yet to be determined in this case, the judgment is a welcome swing away from the recent LIBOR cases and back to the earlier strands of authority on these points.  In so doing it adds significant momentum to the clear note of scepticism struck in the Leeds decision, but in an admirably direct way.  It is welcome recognition that it may be sufficient from a reliance perspective for a claimant to show that there was a quasi-automatic assumption drawn from the context that the defendant was making an implied representation of honesty, particularly where it can be shown that the claimant would not otherwise have entered into the transaction had they known the truth. 

The case law on this issue remains in flux, with the anticipated decision of the Court of Appeal in Leeds being the next opportunity to consolidate and clarify the requirements of extent of awareness.

(1) Crossley and others v Volkswagen Aktiengesellschaft and others [2021] EWHC 3444 (QB)
(2) Property Alliance Group v Royal Bank of Scotland plc [2016] EWHC 3342
(3) Marme Inversiones 2007 v Natwest Markets plc [2019] EWHC 366 (Comm)
(4) Leeds City Council and others v Barclays Bank plc [2021] EWHC 363 (Comm)
(5) DPP v Ray [1974] AC 370
(6) Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15