October 12, 2015

Automotive emissions crisis - regulatory

In Canada manufacturers which are implicated in the manipulation of test results face sanctions and/or penal charges from consumer protection boards, the Competition Bureau, and Environment Canada to name a few. The Canadian regulators have fewer resources than their US counterparts and, in situations affecting both the Canadian and US markets, tend to favour a "wait and see what happens in the US" approach.

In France an investigation has been commenced by the Paris prosecutor on charges of aggravated deceit on goods susceptible to be harmful to health.  This is a serious criminal offence with possible imprisonment and fines indexed by reference to turnover.  Two services are in charge of the criminal investigation: OCLAESP (environment and health protection) and OCLCIFF (anti-corruption squad).  In parallel, an administrative investigation was launched by the Anti-consumer Fraud Administration (DGCCRF). Results of these parallel investigations are expected by end of November/December.

In Hong Kong, under the Air Pollution Control (Vehicle Design Standards) (Emission) Regulations, all newly registered motor vehicles must comply with a set of emission standards which are in line with the most stringent ones adopted by the United States, the European Union and Japan.  A vehicle cannot obtain its registration from the Transport Department if it fails to comply with the said emission standards.  The Environmental Protection Department is responsible for handling pollution complaints and incidents.  Any person or company who commits an offence under the Air Pollution Control Ordinance may face criminal liability.  In addition, the company's director or other person concerned in the management can become personally liable to prosecution for the offence committed by that company if the offence is committed with his consent or connivance, or neglect or omission.

Manufacturers may also face penalties 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.  The maximum penalty upon conviction is a fine of HK$500,000 and imprisonment for five years.

In India the automobile sector has witnessed a recent spate of recalls with the likes of Audi, Honda, Suzuki, Toyota and General Motors.  The Indian government has initiated a probe into the possibility of violations by Volkwagen in India and has deputed its testing agency Automotive Research Association of India (ARAI) to conduct a thorough probe.

In Ireland the Irish Consumer Protection Act 2007 creates a criminal offence for an Irish trader (including a car dealer) to knowingly engage in any “misleading commercial practice” in relation to the main characteristics of a product, including: the specification of the product in question; or “the results and material features of tests or checks [including (here) NOx emission tests] carried out on the product”.  The ICPA also creates an offence to engage in a misleading commercial practice where the trader/motor dealer: “… omits or conceals material information that the average consumer would need, in the context, to make an informed transactional decision (“material information”) and such practice would be likely to cause the average consumer to make a transactional decision that the average consumer would not otherwise make”.

In South Korea the Government has announced that it will commence emission tests on three of the diesel versions of Volkswagen vehicles in October 2015 to check if they comply with its pollution standards following the U.S. scandal.  The probe will involve 4,000 to 5,000 Volkswagen vehicles that were produced and imported to Korea since 2014 and may be extended to all German diesel cars.  If any problems are found after conducting the investigation, the South Korean authorities may consider recalling the vehicles already sold in the country, or prohibiting domestic sale of the problematic models.  Manufacturers may also face punitive measures of up to $850,000 won on each model.

In Spain, VW has reported that 683,626 affected vehicles were sold.  An investigation is now ongoing at the Environmental Section of the Public Prosecutor's Bureau for possible environmental related crimes.  In addition, an association called Manos Limpias brought last week a criminal complaint in the National Court (a court sitting in Madrid only hearing certain type of crimes) against senior executives of Volkswagen, Audi and Seat for the alleged crimes of fraud, environmental crime, falsification of documents and tax related crimes. The Investigative Judge of the No 2 Central Investigative Court has asked the Public Prosecutor for his view on whether the Spanish National Court is competent.

In the United Arab Emirates the Consumer Protection Law has established the CPD, which has wide powers to investigate consumer complaints. The CPD has the right to represent consumers in claims before the court and request that fines be imposed on any manufacturer, importer or dealer who has breached the Consumer Protection Law. While the fines under the Consumer Protection Law are relatively modest, the CPD can also order a manufacturer to recall vehicles and fix any defect at no charge to the consumer.

In the United States the federal and state governments continue to act quickly in response to alleged false advertising by manufacturers, including those in the auto industry. Earlier this year, the Federal Trade Commission launched an investigation into whether General Motors dealers advertised used vehicles as "certified pre-owned" despite failing to make repairs required by General Motors recalls. Now the FTC may investigate advertising claims about diesel-run vehicles. Violations of FTC regulations carry with them a threat of significant fines, consent orders, and even criminal penalties. The Environmental Protection Agency has already issued Volkswagen with a notice of violation of the Clean Air Act, while the state of California has announced its own investigation into Volkswagen's alleged environmental pollution.  Volkswagen has already recalled over 480,000 vehicles and the scope of a federally mandated recall could soon expand.