The special leave application was rejected on Friday, leaving Volkswagen on the hook for the $125 million penalty imposed in November 2019 by Federal Court Justice Lindsay Foster, who expressed outrage at the “manifestly inadequate” $75 million penalty Volkswagen and the Australian Competition and Consumer Commission had proposed to settle the case.

A challenge to the penalty was rejected in April this year by the Full Court, which found that the higher penalty was warranted because of the “deliberate, calculated, systematic and covert” conduct by Volkswagen in deceiving the Australian government and consumers about harmful nitric oxide emissions from its vehicles.

In its special leave application, Volkswagen argued the Full Court was wrong to find while Justice Foster had failed to give weight to its lack of prior contravening conduct in Australia as a mitigating factor in determining its penalty, this error was “immaterial” and did not require appellate intervention.

The $125 million penalty is the highest ever imposed under the Australian Consumer Law, two-and-a-half times the next largest penalty.

“This case signals to large companies that penalties for egregious conduct which breaches the Australian Consumer Law can now reach very significant sums, and potentially make a big impact on their bottom line,” said ACCC chair Rod Sims.

A $120 million settlement of five class actions brought against Volkswagen and its subsidiaries Audi and Skoda by affected vehicle owners was approved by Justice Foster in May 2020.

Penalty reflects Volkwagen’s ‘egregious’ conduct, ACCC boss says

On Friday, Sims said the size of the penalty “reflected the seriousness of Volkswagen’s conduct” and was a reminder to businesses not to seek greater profits by misleading consumers.

“Volkswagen misled consumers and regulators about whether the diesel vehicles complied with environmental standards. It deprived consumers who may have deliberately sought to buy a low emissions vehicle, of the ability to make an informed decision,” he said.

“What made it particularly egregious in this case is that if Volkswagen had told the truth, these vehicles would not have been legally allowed to be sold in Australia. Their conduct showed complete disregard for Australia’s vehicle import regulations, which are designed to protect consumers.”

The consumer regulator brought the case in August 2016, a year after the emissions scandal erupted when Volkswagen admitted to intentionally cheating on emissions tests for at least six years using dual-mode software that could detect when certain diesel engine cars were being tested.

In 2019, Volkswagen admitted that it had made misleading statements regarding over 57,000 diesel vehicles imported into Australia between 2011 and 2015.

A second case filed by the ACCC in March 2017 against Volkswagen subsidiary Audi in the Federal Court was discontinued as a result of the settlement with the parent company.

In a statement to Lawyerly, a Volkswagen spokesperson declined to comment on the $125 million penalty but called the lower $75 million fine “a fair amount”.

“Volkswagen AG firmly believes that the penalty of $75 million agreed in principle with the Australian Competition and Consumer Commission to resolve the regulatory proceedings was a fair amount,” they said.

“Today’s decision confirms a penalty only on VWAG. The case against Volkswagen Group Australia has been dismissed in its entirety with no orders made against Volkswagen Group Australia.”

‘Turning point’: ACCC will be seeking higher penalties

In April, Sims told Lawyerly that the landmark penalty represented a “turning point” for the regulator, as it showed the courts were willing to consider much larger penalties.

In pushing for the $75 million fine against Volkswagen, Sims said the ACCC was concerned the court would not accept it since the common penalties the regulator had obtained against companies such as Telstra and Apple were $10 million.

Sims said he was particularly pleased that the landmark penalty was ordered under the previous penalty scheme, which stipulated a maximum of $1.1 million per contravention for companies.

The new penalty scheme, passed in August 2018, will see companies facing penalties of $10 million or 10 per cent of annual turnover per contravention.

Sims said he wanted to see more fines above $100 million for consumer law breaches.

“Higher penalties are fundamental to get respect for the laws. For very large companies it’s got to be an amount that people take notice of, the board of directors, the press take notice of,” Sims said.

“When penalties are immaterial to the company why would they care? We need penalties even higher than this.”

Volkswagen is represented by Justin Gleeson SC, Dr Ruth Higgins SC and Brendan Lim, instructed by Clayton Utz. The ACCC is represented by Jeremy Kirk SC and Joanna Davidson, instructed by Australian Government Solicitor.

The ACCC cases are Australian Competition and Consumer Commission v Volkswagen Aktiengesellschaft & Anor, and Australian Competition and Consumer Commission v Audi Aktiengesellschaft & Ors. The appeal is Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission.

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