Guide to procedural law: Easier way to claim damages for exhaust gas manipulation - On the BGH ruling of June 26, 2023 (Ref. Via ZR 335/21) - Prozesskanzlei

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Guide to procedural law: Easier way to claim damages for exhaust gas manipulation - On the BGH ruling of June 26, 2023 (Ref. Via ZR 335/21)

This article attempts to classify and evaluate the current ruling of the Federal Court of Justice (BGH) of June 26, 2023 (Ref. Via ZR 335/21) on the subject of compensation for damages due to emissions manipulation by car manufacturers.

The article first briefly examines the background of the diesel scandal dating back to 2015 as well as the first landmark ruling of the BGH from 2020 in order to then deal with the effects of the current ECJ ruling of March 21, 2023 (Ref. C-100/21), which laid the foundations for the amended BGH case law analyzed below.

A look back at 2015

The scandal surrounding emissions manipulation by car manufacturers dates back to 2015.

At the time, it turned out that VW had installed special software in the engine control unit to generate lower nitrogen oxide values on the test bench during emissions tests. In normal driving, however, the exhaust gas purification systems were deactivated in order to improve engine performance and fuel consumption. As a result, the vehicles did not comply with the statutory emission limits in real road traffic.

It later emerged that VW was not the only manufacturer to have “cheated” its way into supposed compliance with the statutory emission limits in the manner described above (or similar).

This resulted in waves of lawsuits from affected car buyers. The lawsuits were aimed at compensation for damages, reduction of the purchase price and rescission of contracts.

On the first landmark ruling of the BGH from 2020

In its first diesel ruling of 25.5.2020 (case no. VI ZR 252/19), the BGH ruled and confirmed the lower court in this respect that the fraudulent procurement of type approvals through emissions manipulation may also constitute a direct deception of the car buyer and, if necessary, a right of the buyer to compensation, and possibly also rescission, may be considered.

The guiding principles of the judgment were as follows:

a) It is equivalent to a direct fraudulent misrepresentation of vehicle purchasers if a vehicle manufacturer, in the context of a strategic decision taken by it during engine development, deliberately exploits the guilelessness and trust of vehicle purchasers by fraudulently deceiving the Federal Motor Transport Authority and then placing the vehicles thus falsified on the market.
b) If there are sufficient indications that at least one former member of the Management Board was aware of the strategic decision taken, the defendant manufacturer bears the secondary burden of proof for the assertion that such knowledge did not exist. It is irrelevant whether the former members of the Executive Board could be named as witnesses by the plaintiff.
c) If someone is induced by conduct giving rise to liability to conclude a contract that he would not otherwise have concluded, he may suffer pecuniary loss even if the performance and consideration are objectively valuable, because the performance is not fully usable for his purposes. However, the affirmation of financial loss under this aspect presupposes that the performance obtained through the unwanted contract is not only regarded as damage from a purely subjectively arbitrary point of view, but that the public opinion, taking into account the prevailing circumstances, also regards the conclusion of the contract as unreasonable, not appropriate to the specific financial interests and thus as disadvantageous.
d) The principles of equalization of benefits also apply to a claim for intentional immoral damage pursuant to Section 826 BGB.

This initially positive-sounding ruling meant that affected car buyers faced significant hurdles on the way to possible compensation, in particular:

According to the ruling at the time, a claim should require intent. Even though the BGH made it easier to provide evidence, the affected parties had to prove that the company managers had knowledge – possibly also “mediated” by employees.
Last but not least, the buyers concerned had difficulties with the necessary proof of loss. Thus, the BGH (see guiding principle 3 above) required that “the performance obtained through the unwanted contract is not only regarded as damage from a purely subjective arbitrary point of view, but that the public opinion (…) also regards the conclusion of the contract as (…) disadvantageous”.

The “prehistory” of the new BGH case law: The ECJ ruling of 21.3.2023 (Ref. C-100/21)

The overriding European law and thus the case law of the European Court of Justice (ECJ) is of essential importance for understanding the BGH’s changed case law in favor of consumers.

In an equally recent ruling of 21 March 2023 (case C-100/21), the ECJ laid the foundations for the current BGH case law by – contrary to previous BGH case law – granting individual protection to consumers under European type approval law. Paragraph 85 of the ECJ ruling states accordingly,

“(…) that Article 18 I, Article 26 I and Article 46 of the Framework Directive in conjunction with Article 5 II of Regulation (EC) No 715/2007 must be interpreted as meaning that, in addition to general legal interests, they protect the individual interests of the individual purchaser of a motor vehicle against its manufacturer if this vehicle is equipped with an unlawful defeat device within the meaning of Article 5 II of this Regulation.”

As if that were not enough, the ECJ even derives a claim for damages in favor of the car buyer from European law if the buyer has suffered damage as a result of the defeat device. Paragraph 91 of the ECJ ruling states,

“(…) that it follows from Article 18 I, Article 26 I and Article 46 of the Framework Directive in conjunction with Article 5 II of Regulation No 715/2007 that the Member States must provide that the purchaser of a vehicle equipped with an unlawful defeat device within the meaning of Article 5 II of that regulation has a right to compensation from the manufacturer of that vehicle if the purchaser has suffered damage as a result of that defeat device (…)”

The ECJ goes even further and admonishes the Member States to ensure that consumers actually benefit from this “European right to compensation”. According to the ECJ, this includes ensuring that the hurdles for consumers to obtain such compensation are not set too high. The ECJ ruling states this in paragraphs 92 and 93:

“92In the absence of provisions of Union law on the arrangements for obtaining such compensation by the purchasers concerned on account of the acquisition of such a vehicle, it is for each Member State to determine those arrangements.
93 However, national legislation which makes it practically impossible or excessively difficult for the purchaser of a motor vehicle to obtain adequate compensation for the damage caused to him by the manufacturer of that vehicle’s infringement of the prohibition laid down in Article 5(II) of Regulation No 715/2007 is not consistent with the principle of effectiveness.”

In short, the above-mentioned ECJ ruling is an obligatory instruction to the Member States that they must ensure that claims for damages by consumers due to exhaust gas manipulations that violate European type approval law do not remain mere theory.

On the new diesel ruling of the BGH of June 26, 2023 (Ref. Via ZR 335/21)

The ruling now issued by the BGH on June 26, 2023 (Ref. Via ZR 335/21) aims to implement the aforementioned requirements of the ECJ.

As a result, the BGH has significantly lowered the hurdles for claims for damages by diesel buyers in Germany, although (see my outlook at the end of this article) it seems questionable whether the BGH has gone far enough in accommodating consumers.

According to the amended BGH case law, vehicle manufacturers may in future be liable to pay compensation even if they have “only” acted negligently.

In addition, the BGH has implemented the further requirement of the ECJ, according to which car buyers must also have an effective way of obtaining compensation, by awarding affected consumers compensation in a range of 5 to 15 % of the purchase price without the need for an expert opinion.

In detail:

EC type approval cannot exclude claims for damages

In its ruling, the BGH first of all clarifies once again that neither an EC type approval granted nor an additional certificate of conformity can be suitable to exclude a tortious claim by the car buyer from the outset.

The decisive factor is that EC type approvals and any additional certificates of conformity only have effect with regard to a specific vehicle type, but the decisive factor for a claim under tort law is whether the specific vehicle purchased is affected.

Reversal (“major” compensation) still only in the case of intentional, immoral damage

The BGH continues to hold that “major” damages can only be claimed in the event of intentional immoral damage. In the event that a buyer’s trust in the correctness of the certificate of conformity is disappointed, he cannot demand that the vehicle manufacturer takes back the vehicle and refunds the purchase price less any benefits obtained.

Although European emissions law also protects the individual car buyer against the manufacturer if the vehicle purchased is equipped with an unlawful defeat device, the BGH stated verbatim (see para. 22 of the judgment):

“Union law, as clarified by the judgment of the Court of Justice of March 21, 2023, nevertheless does not require the purchaser of a motor vehicle equipped with an unlawful defeat device to be placed in the same position as if he had not concluded the purchase contract, i.e. to include the interest in rescinding the purchase contract in the material scope of protection of Section 6 (1), Section 27 (1) EG-FGV.”

The BGH further justifies this with, among other things, the limited wrongfulness of a “merely” culpable violation of a protective law in relation to an immoral, intentional damage.

The BGH sees no requirement in EU law and the case law of the ECJ to the effect that national law must provide for a right to rescission. It refers to the fact that the ECJ only requires sanctions that must be effective, proportionate and dissuasive. It also refers to a ruling by the Supreme Court of the Republic of Austria on April 25, 2023, which – for Austria – had affirmed a claim for major damages. The BGH considers this case law to be based on modalities of national Austrian law. It then also takes from the judgment of the Supreme Court that the Supreme Court itself assumes that EU law does not require the award of large damages.

Claim for compensation for so-called differential damages due to negligent violation of EU emissions legislation

The BGH then concedes that a negligent violation of EU emissions legislation – in the form of an impermissible defeat device – can justify a claim by the car buyer for compensation for the so-called differential damage.

In this respect, the ECJ stated that the so-called declaration of conformity pursuant to Article 26(1) of Directive 2007/46/EC provides individual protection for the vehicle purchaser, which is also aimed at ensuring that the purchased vehicle complies with all relevant legal acts. According to the ECJ, the right to register the vehicle in any Member State without further technical documentation is derived in particular from the declaration of conformity.

According to the case law of the ECJ, this reasoning in turn leads to a link between the declaration of conformity and the consumer’s individual purchase decision. This in turn corresponds to the principle established by the BGH that

“a buyer purchasing a vehicle for his own use would have refrained from purchasing the vehicle if he had been aware of the risk of an operating restriction or prohibition“

(see para. 30 of the judgment).

As a result, the BGH stated (see para. 32 of the judgment):

“The interest, which is therefore protected under EU law, not to suffer a loss of assets in the sense of the difference hypothesis by concluding a purchase contract for a motor vehicle due to a violation of European emissions law by the vehicle manufacturer, is protected by Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV according to the required interpretation of EU law. (…)”

Necessity of fault on the part of the car manufacturer

The BGH continues to demand fault on the part of the car manufacturer.

The BGH concedes that the ECJ did not deal with a fault requirement. However, the ECJ – which seems questionable to me (!) – did not directly derive a claim for damages due to an unlawful defeat device from Union law, but merely demanded such a claim to be defined in more detail by the Member States. With reference to the national law of the Federal Republic of Germany, the BGH upholds the culpability requirement and has explained this (see para. 37 of the judgment):

“According to its wording, § 823 para. 2 sentence 2 BGB does not permit an obligation to pay compensation independent of fault on the part of the injuring party. Rather, according to § 823 para. 2 sentence 2 BGB, if a violation of the protective law is also possible without fault according to the content of the protective law, the obligation to pay compensation only arises in the event of fault. Even if the limits of permissible interpretation of the law are exhausted, there is therefore no question of deriving strict liability from Section 823 (2) BGB. Nothing else applies with regard to the possibility of an interpretation in conformity with EU law. According to the case law of the Court of Justice, such an interpretation of national law finds its limit in the will of the national legislator expressed in the law (ECJ, judgment of January 22, 2019 – C-193/17, NZA 2019, 297 para. 74 mwN).”

If the affected car buyer has proven the existence of an unlawful defeat device, the vehicle manufacturer still has the option of demonstrating and proving that it neither acted intentionally nor negligently failed to recognize that the vehicle did not comply with EU regulations. If the vehicle manufacturer succeeds in doing so, it will not be liable in future either! This is because German tort law always presupposes fault on the part of the tortfeasor for tortious liability. According to the BGH, the German courts cannot impose tortious liability regardless of fault, which must also be decided in accordance with the requirements of the ECJ within the framework of the applicable national law.

Necessity of a reduction in assets – differential damages always to be assumed

For negligence cases, the BGH continues to adhere to the general principle that a claim for damages requires a reduction in assets due to the disappointed investment of trust when concluding the purchase contract for the motor vehicle.

Based on the ECJ’s requirement to grant consumers an “effective claim for damages”, the BGH links the required reduction in assets to the availability of a motor vehicle at all times, which in itself has a monetary value.

With “regard to the monetary advantage of the availability of a motor vehicle at any time”, “the legal possibility of a restriction of use, which is given with the use of an inadmissible defeat device” (see para. 42 of the judgment), is sufficient to assume damage to the detriment of the car buyer.

Accordingly, the buyer of a vehicle equipped with an impermissible defeat device within the meaning of Union law always suffers damage because the availability of the vehicle is in question due to the threat of an operating restriction or operating ban.

According to the BGH, the aforementioned principle of experience applies in favor of the buyer, namely that if the vehicle had been equipped with an unlawful defeat device, the buyer would not have purchased the vehicle at the agreed price. Accordingly, the necessary comparison of assets must be based on the time at which the contract was concluded.

Amount of damage in the range of 5% to 15% of the purchase price paid

Based on the requirements of the ECJ, according to which national law must provide an effective sanction for the violation of Union law, the BGH further ruled that the individual buyer must always be granted compensation in the amount of at least 5% and a maximum of 15% of the purchase price paid, without the need for a damage assessment.

The BGH justified the estimation of damages within this range by stating that, on the one hand, a minimum amount of damages is required to ensure sufficiently effective sanctions, but on the other hand, it must be taken into account that reasons of proportionality and the cumulative effect affecting the manufacturer as a result of multiple sales require an upper limit.

The BGH explained the reasons for the estimation range in detail (see para. 72 et seq. of the judgment):

“Pursuant to Section 287 (1) sentence 1 ZPO, the trial judge must estimate the amount of the damage in his free judgment, taking into account all the circumstances. By granting the power to estimate damages, the law accepts that the result of the estimate does not fully reflect reality as long as it comes as close as possible to it. (…)
In cases where a buyer relies on the accuracy of the certificate of conformity when purchasing a motor vehicle equipped with an unlawful defeat device, the estimation of the differential damage is subject to EU law requirements. (…)
For reasons of effectiveness under EU law, the estimated damage cannot be less than 5% of the purchase price paid. Otherwise, the sanctioning of an even merely negligent infringement of Art. 5 (2) sentence 1 of Regulation (EC) No. 715/2007 would not be sufficiently effective with regard to the promotion of the objectives of Union law due to its insignificance. (…)
Conversely, damages owed solely under Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV and not also under Sections 826, 31 BGB cannot be higher than 15% of the purchase price paid for reasons of proportionality. Liability pursuant to Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV covers cases of objectively comparatively minor infringements of the law, which the legislator has merely classified as an administrative offense. In addition, liability pursuant to Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV applies to the vehicle manufacturer several times in relation to a single motor vehicle in the event of multiple sales, so that a cumulative effect can occur. (…)

According to the BGH, the exact determination within this range is the responsibility of the trial judge, who can exercise his discretionary power of estimation without having to obtain expert advice beforehand.

Outlook

This BGH ruling will not be the last on the diesel scandal.

The judgment shows the comprehensible and welcome efforts of the BGH to limit the ECJ’s interference in the regulation of tort law claims, which is in principle the sole responsibility of the Member States, to a minimum. This is particularly evident in the culpability requirement, to which the BGH adheres with seemingly “spasmodic” reasoning, although the ECJ requires every Member State to provide a claim for damages based solely on an unlawful defeat device.

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