In the course of their operating activities, Volkswagen AG and the companies in which it is directly or indirectly invested are involved in a great number of legal disputes and governmental proceedings in Germany and abroad. Such legal disputes and other proceedings occur in relation to employees, dealers, investors, customers, or suppliers, among others, or in relation to relevant public authorities. For the companies involved, these may result in payment or other obligations. In particular, substantial compensatory or punitive damages may have to be paid and cost-intensive measures may have to be implemented. In this context, specific quantification of the objectively likely consequences is often possible only to a very limited extent, if at all.
Risks may also emerge in connection with the adherence to regulatory requirements. This particularly applies in the case of regulatory vagueness that may be interpreted differently by Volkswagen and the authorities responsible for the respective regulations. In addition, legal risks can arise from the criminal activities of individual persons, which even the best compliance management system can never completely prevent.
Where transparent and economically viable, adequate insurance coverage was taken out for these risks. For the identifiable and measurable risks, provisions considered appropriate based on existing information were recognized and information about contingent liabilities disclosed. As some risks cannot be assessed or can only be assessed to a limited extent, the possibility of loss or damage not covered by the insured amounts and provisions cannot be ruled out. This applies particularly to legal risk assessment regarding the diesel issue.
In the USA Volkswagen AG and certain affiliates reached settlement agreements (including various consent decrees) with the US Department of Justice (DOJ), the US Environmental Protection Agency (EPA), the State of California, the California Air Resources Board (CARB), the California Attorney General, the US Federal Trade Commission, and private plaintiffs represented by a Plaintiffs' Steering Committee in a multi-district litigation in California. These settlement agreements resolved certain civil claims made in relation to affected diesel vehicles in the United States of America.
Volkswagen AG also entered into agreements to resolve US federal criminal liability and certain civil penalties and claims relating to the diesel issue. As part of its plea agreement, Volkswagen AG agreed to plead guilty to three felony counts under US law – including conspiracy to commit fraud, obstruction of justice and using false statements to import cars into the United States of America – and has been sentenced to three years' probation.
A description of the diesel issue can be found in the chapter Diesel Issue. In connection with the diesel issue, potential consequences for Volkswagen’s results of operations, financial position and net assets could emerge primarily in the following legal areas:
1. Coordination with the authorities on technical measures worldwide
In agreement with the respective responsible authorities, the Volkswagen Group is making technical measures available worldwide for virtually all diesel vehicles with type EA 189 engines.
Within its area of responsibility, the German Federal Motor Transport Authority (Kraftfahrt-Bundesamt or KBA) ascertained for all clusters (groups of vehicles) that implementation of the technical measures would not bring about any adverse changes in fuel consumption figures, CO2 emission figures, engine power, maximum torque, and noise emissions.
AUDI AG has worked intensively for many months to check all relevant diesel concepts for possible discrepancies and retrofit potentials. The measures proposed by AUDI AG have been adopted and mandated in various recall notices issued by the KBA for vehicle models with V6 and V8 TDI engines.
Currently, AUDI AG assumes that the total cost, including the amount based on recalls, of the ongoing largely software-based retrofit program that began in July 2017 will be manageable and has recognized corresponding balance-sheet risk provisions. The measures submitted by AUDI AG are being examined by the KBA and can only be made available to customers after corresponding approval by the KBA.
The Ministry of Environment in South Korea qualified certain emissions strategies in the engine control software of various diesel vehicles with V6 or V8-TDI engines meeting the Euro 6 emission standard as an unlawful defeat device and ordered a recall on April 4, 2018; the same applies to the Dynamic Shift Program (DSP) in the transmission control of a number of Audi models.
In the USA, in fiscal year 2018, the EPA and CARB issued the outstanding official approvals needed for the technical solutions for the affected vehicles with 2.0 l TDI and with V6 3.0 l TDI engines. In the case of 2.0 l Generation 2 diesel vehicles with manual transmissions, Volkswagen Group of America, Inc. elected to withdraw the approved emissions modification proposal, whereby owners were given the option of a buyback and lessees were given the option of early lease termination.
On October 31, 2018, after discussions with DOJ, EPA, and CARB, the parties agreed to modify the First and Second Partial Consent Decrees to clarify that Volkswagen may repair certain technical issues with approved emissions modifications through an “AEM Correction” (Approved Emissions Modifications).
2. Criminal and administrative proceedings worldwide (excluding the USA/Canada)
Criminal investigations, regulatory offense proceedings, and/or administrative proceedings (in Germany for example by the Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin – Federal Financial Supervisory Authority) have been opened in some countries. The public prosecutor’s offices in Braunschweig and Munich are investigating the core issues of the criminal investigations.
The Braunschweig Office of the Public Prosecutor is investigating approximately 40 (current and former) employees and a former member of the Board of Management for possible fraud, among other things. The investigations are ongoing. The defendants and Volkswagen AG were permitted to inspect the investigation files.
The regulatory offense proceeding that was opened against Volkswagen AG in this connection in April 2016 has been terminated by the administrative fine order issued against Volkswagen AG by the Braunschweig Office of the Public Prosecutor on June 13, 2018. The administrative fine order is based on a negligent breach in the Powertrain Development department of the obligation to supervise, relating to the period from mid-2007 to 2015 and a total of 10.7 million vehicles with diesel engines of types EA 189 worldwide and EA 288 (Generation 3) in the USA and Canada. The administrative order imposes a total fine of €1.0 billion, consisting of a penalty payment of €5 million and the forfeiture of economic benefits in the amount of €995 million. After thorough examination, the fine has been accepted and paid in full by Volkswagen AG, rendering the administrative fine order legally final. The administrative fine order terminates the regulatory offense proceeding against Volkswagen AG. Further sanctions against or forfeitures by Volkswagen AG and its Group companies are therefore not expected in Germany in connection with the unitary factual situation covered by the administrative order concerning diesel engines of types EA 189 worldwide and EA 288 (Generation 3) in the USA and Canada. As a result, Volkswagen expects that the conclusion of this proceeding will have a substantially positive impact on other governmental proceedings being conducted in Europe against Volkswagen AG and its Group companies.
The Braunschweig Office of the Public Prosecutor is conducting another proceeding against three (current or former) members of the Board of Management for alleged market manipulation with respect to capital market disclosure obligations in connection with the diesel issue. In this context, the Office of the Public Prosecutor has been conducting a regulatory offense proceeding against Volkswagen AG under § 30 OWiG (German Regulatory Offenses Act) since July 30, 2018. Volkswagen AG has since been permitted to inspect the public prosecutor's investigation files several times. The investigations are ongoing.
The Munich II Office of the Public Prosecutor is conducting investigations against 24 persons, including the former Chairman of the Board of Management of AUDI AG (who is also a former member of the Board of Management of Volkswagen AG) and another active member of the Board of Management of AUDI AG. The investigations are ongoing. AUDI AG has appointed two renowned major law firms to clarify the matters underlying the public prosecutor’s accusations. The Board of Management and Supervisory Board of AUDI AG are being regularly updated on the current state of affairs.
The administrative fine order issued on October 16, 2018 by the Munich II Office of the Public Prosecutor terminates the regulatory offense proceeding conducted against AUDI AG in this connection. The administrative fine order is based on a negligent breach of the obligation to supervise occurring in the organizational unit “Emissions Service/Engine Type Approval”. The administrative order imposes a total fine of €800 million, consisting of a penalty payment of €5 million and the forfeiture of economic benefits in the amount of €795 million. After thorough examination, the fine has been accepted and paid in full by AUDI AG, rendering the administrative fine order legally final. The administrative fine order terminates the regulatory offense proceeding against AUDI AG. Further sanctions against or forfeitures by AUDI AG are therefore not to be expected in Europe in connection with the unitary factual situation underlying the administrative fine order.
The Stuttgart Office of the Public Prosecutor has commenced a criminal investigation relating to the diesel issue against one board member, one employee, and one former employee of Dr. Ing. h.c. F. Porsche AG on suspicion of fraud and illegal advertising as well as an analogous regulatory offense proceeding against Dr. Ing. h.c. F. Porsche AG under § 30 OWiG. Dr. Ing. h.c. F. Porsche AG has appointed two renowned major law firms to clarify the matter underlying the public prosecutor’s accusations. The Board of Management and Supervisory Board of Dr. Ing. h.c. F. Porsche AG are being regularly updated on the current state of affairs.
On July 6, 2018, the Federal Constitutional Court rendered its decision on the constitutional complaints filed in connection with the search of the premises of the law firm Jones Day, holding that the lower court ruling affirming the provisional seizure of client engagement documents and data of Volkswagen AG did not violate constitutional law. The companies of the Volkswagen Group will continue to cooperate with the German government authorities with due regard for the ruling of the German Federal Constitutional Court.
Whether the criminal and administrative proceedings will ultimately result in fines for the Company, and if so in what amount, is currently subject to estimation risks. According to Volkswagen’s estimates so far, the likelihood that a sanction will be imposed is 50 % or less in the majority of these proceedings. Contingent liabilities have therefore been disclosed where the amount of such liabilities could be measured and the likelihood of a sanction being imposed was assessed at not lower than 10 %. Provisions were recognized to a small extent.
3. Product-related lawsuits worldwide (excluding the USA/Canada)
In principle, it is possible that customers in the affected markets will file civil lawsuits or that importers and dealers will assert recourse claims against Volkswagen AG and other Volkswagen Group companies. Besides individual lawsuits, various forms of collective actions (i.e. assertion of individual claims by plaintiffs acting jointly or as representatives of a class) are available in various jurisdictions. Furthermore, in a number of markets it is possible for consumer and/or environmental organizations to bring suit to enforce alleged rights to injunctive relief, declaratory judgment, or damages.
Customer class action lawsuits and actions brought by consumer and/or environmental associations are pending against Volkswagen AG and other companies of the Volkswagen Group in various countries including Argentina, Austria, Australia, Belgium, Brazil, Chile, China, the Czech Republic, Germany, Israel, Italy, Mexico, the Netherlands, Poland, Portugal, Spain, South Africa, South Korea, Switzerland, Taiwan, and the United Kingdom. Alleged rights to damages and other relief are asserted in these actions.
The actions pending in the aforementioned countries include in particular the following:
Various class action lawsuits with opt-out mechanism, one individual lawsuit, and two civil suits by the Australian Competition and Consumer Commission are currently pending in Australia against Volkswagen AG and other Group companies, including the Australian subsidiaries. These proceedings have been joined with each other. Given the opt-out rule, the class actions have the potential to automatically cover all vehicles with type EA 189 engines unless the right to opt out is actively exercised. In all, approximately 100 thousand vehicles in the Australian market with type EA 189 engines are affected. An initial court hearing lasting several weeks was held in March 2018 on technical questions; further issues are to be argued in September 2019.
In Belgium, the Belgian consumer organization Test Aankoop VZW has filed a class action to which an opt-out mechanism has been held to apply. The class action pertains to vehicles purchased by consumers on the Belgian market after September 1, 2014. The asserted claims are based on purported violations of unfair competition and consumer protection law as well as on alleged breach of contract. An initial hearing for oral argument has yet to take place in this matter. The court has extended the statutorily mandated negotiation phase until July 8, 2019.
In Brazil two class actions are pending. One of them pertains to approximately 17 thousand vehicles. In this proceeding, a judgment, which is not yet final, has been rendered holding Volkswagen do Brasil liable in an amount of €0.3 billion plus interest. The judgment has been appealed. In the second class action alleged compensation claims are made based on purported breaches of environmental regulations.
In Germany, the Verbraucherzentrale Bundesverband e. V. (Federation of Consumer Organizations) filed an action on November 1, 2018 with the Braunschweig Higher Regional Court for model declaratory judgment against Volkswagen AG. The complaint is seeking a ruling that certain preconditions for potential consumer claims against Volkswagen AG are met; however, no specific payment obligations would result from any determinations the court may make. Individual claims then would have to be enforced afterwards in subsequent separate proceedings.
In addition, various actions have been brought against companies of the Volkswagen Group in several German Regional Courts (Landgericht) by financialright GmbH, which is asserting rights assigned to it by a total of approximately 46 thousand customers in Germany, Slovenia, and Switzerland.
In England and Wales, suits filed in court by various law firms have been joined in a single collective action (group litigation). Roughly 117 thousand claimants joined the group litigation prior to expiration of the opt-in deadline on December 19, 2018; around 40 thousand additional plaintiffs not currently covered by the group litigation could still be added. Because of the opt-in mechanism, not all vehicles with type EA 189 engines are automatically covered by the group litigation; potential claimants must instead take action in order to join. A judicial case management conference is scheduled for March 2019. No oral argument on the substantive merits of the claims has as yet taken place.
In Italy, two class action lawsuits have been filed with the Venice Regional Court by two consumer associations (Altroconsumo and Codacons) acting on behalf of Italian customers. Damage claims based on alleged breach of contract as well as claims based on purported violations of Italian consumer protection law are being asserted in these proceedings. In the Codacons proceeding, the court dismissed the class action as inadmissible on December 18, 2018. In the Altroconsumo proceeding, the deadline for the filing of claims has passed and those filed are currently being tabulated by an appointed expert.
In the Netherlands, Stichting Volkswagen Car Claim has brought an opt-in class action seeking declaratory rulings. Any individual claims would then have to be reduced to judgment afterwards in a separate proceeding.
Several lawsuits filed by the Austrian consumer protection organization (VKI Verein für Konsumentenschutz) and by the Cobin Claims platform are pending in Austria. In these actions, damage claims assigned for collection to VKI or to the Cobin Claims platform are being asserted on behalf of roughly 10 thousand customers.
A Portuguese consumer organization has filed a class action with opt-out mechanism in Portugal. There are approximately 126 thousand affected vehicles in the Portuguese market. The complaint seeks vehicle return and alleges damages as well.
Volkswagen estimates the likelihood that the plaintiffs will prevail to be 50 % or less for the majority of the customer class actions and the complaints filed by consumer and/or environmental organizations. Contingent liabilities are disclosed for these proceedings where the amount of such liabilities can be measured and the chance that the plaintiff will prevail was assessed as not implausible. Since most of these proceedings are still in an early stage, it is in many cases not yet possible to quantify the realistic risk exposure. Provisions were recognized to a small extent.
Furthermore, individual lawsuits and similar proceedings are pending against Volkswagen AG and other Volkswagen Group companies in various countries, most of which are seeking damages or rescission of the purchase contract. In Germany, there are around 46 thousand such individual lawsuits. A total of approximately one thousand additional individual lawsuits are pending in other countries. According to Volkswagen’s estimates, the likelihood that the plaintiffs will prevail is 50 % or less in the vast majority of the individual lawsuits. Contingent liabilities are disclosed for these actions where the amount of such liabilities can be measured and the chance that the plaintiff will prevail was assessed as not implausible. In addition, provisions were recognized to the extent necessary based on the current assessment.
At this time it cannot be estimated how many customers will choose to file lawsuits in the future in addition to those already pending given the action for model declaratory judgment in Germany, among other things, and what their prospect of success will be.
4. Lawsuits filed by investors worldwide (excluding the USA/Canada)
Investors from Germany and abroad have filed claims for damages against Volkswagen AG – in some cases along with Porsche Automobil Holding SE (Porsche SE) as joint and several debtors – based on purported losses due to alleged misconduct in capital market communications in connection with the diesel issue.
The vast majority of these investor lawsuits are currently pending at the Regional Court in Braunschweig. On August 5, 2016, the Regional Court in Braunschweig ordered that common questions of law and fact relevant to the lawsuits pending at the Regional Court in Braunschweig be referred to the Higher Regional Court (Oberlandesgericht) in Braunschweig for binding declaratory rulings pursuant to the German Act on Model Case Proceedings in Disputes Regarding Capital Market Information (Kapitalanleger-Musterverfahrensgesetz – KapMuG). In this proceeding, common questions of law and fact relevant to these actions are to be adjudicated in a consolidated manner by the Higher Regional Court in Braunschweig (model case proceedings). All lawsuits at the Regional Court in Braunschweig will be stayed pending resolution of the common issues, unless the cases can be dismissed for reasons independent of the common issues that are to be adjudicated in the model case proceedings. The resolution in the model case proceedings of the common questions of law and fact will be binding for all pending cases that have been stayed in the described manner. In the model case action, hearing for oral argument before the Braunschweig Higher Regional Court began on September 10, 2018 and was continued in subsequent sessions. Tracking the objects of declaratory judgment, the Court gave indications as to its preliminary assessment. Oral argument is to continue in 2019.
At the Regional Court in Stuttgart, further investor lawsuits have been filed against Volkswagen AG, in some cases along with Porsche SE as joint and several debtor. On December 6, 2017, the Regional Court in Stuttgart issued an order for reference to the Higher Regional Court in Stuttgart in relation to procedural issues, particularly for clarification of jurisdiction. An action for model declaratory judgment concerning the diesel issue is also pending against Porsche SE before the Stuttgart Higher Regional Court; as the case currently stands, Volkswagen AG is model case defendant in this action as well.
Further investor lawsuits have been filed at various courts in Germany and the Netherlands. In Austria, the first-instance dismissal of the last investor complaint pending in connection with the diesel issue became binding in the reporting period.
Worldwide (excluding USA and Canada), investor lawsuits, judicial applications for dunning procedures and conciliation proceedings, and claims under the KapMuG are currently pending against Volkswagen AG in connection with the diesel issue, with the claims totaling roughly €9.6 billion. Volkswagen AG remains of the opinion that it duly complied with its capital market obligations. Therefore, no provisions have been recognized for these investor lawsuits. Insofar as the chance of success was estimated at not lower than 10%, contingent liabilities have been disclosed.
5. Proceedings in the USA/Canada
Following the publication of the EPA’s “Notices of Violation,” Volkswagen AG and other Volkswagen Group companies have been the subject of intense scrutiny, ongoing investigations (civil and criminal), and civil litigation. Volkswagen AG and other Volkswagen Group companies have received subpoenas and inquiries from state attorneys general and other governmental authorities.
Volkswagen AG and other Volkswagen Group companies are facing litigation in the USA/Canada on a number of different fronts relating to the matters described in the EPA’s “Notices of Violation”. In that respect, investigations by various US and Canadian regulatory and government authorities are ongoing, particularly in areas relating to securities, financing and tax. Additionally, in the USA and Canada, certain putative class actions by customers, investors, salespersons and dealers; individual customers’ lawsuits and claims by state, provincial or municipal authorities have been filed in various courts, including state and provincial courts. A large number of these putative class action lawsuits have been filed in US federal courts and consolidated for pretrial coordination purposes in the federal multidistrict litigation proceeding in the State of California.
In the USA, Volkswagen has reached separate agreements with the attorneys general of 49 states, the District of Columbia and Puerto Rico to resolve their existing or potential consumer protection and unfair trade practices claims in connection with both 2.0 l TDI and 3.0 l TDI vehicles in the USA. New Mexico still has consumer protection claims outstanding. Volkswagen has also reached separate agreements with the attorneys general of thirteen US states (California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington) to resolve their existing or potential future claims for civil penalties and injunctive relief for alleged violations of environmental laws. The attorneys general of eight other US states (Alabama, Illinois, Montana, New Hampshire, New Mexico, Ohio, Tennessee, and Texas) and some municipalities have suits pending in state and federal courts against Volkswagen AG, Volkswagen Group of America, Inc. and certain affiliates, alleging violations of environmental laws. The environmental claims of eight states – Alabama, Illinois, Missouri, Minnesota, Ohio, Tennessee, Texas, and Wyoming – as well as Hillsborough County (Florida), Salt Lake County (Utah), and two Texas counties, have been dismissed in full or in part by trial or appellate courts as preempted by federal law. Alabama, Illinois, Ohio, Tennessee, Hillsborough County, and Salt Lake County have appealed or may still appeal the dismissal of their claims.
The U.S. Securities and Exchange Commission (the “SEC”) has requested information from Volkswagen regarding potential violations of securities laws in connection with issuances of bonds and asset-backed securities, as a result of nondisclosure of certain Volkswagen diesel vehicles' noncompliance with US emission standards. The SEC informed Volkswagen that it had issued a formal order of investigation in January 2017; this investigation is ongoing. The SEC Staff subsequently informed Volkswagen that the SEC might bring an enforcement action against Volkswagen arising out of this investigation.
On August 28, 2018, Volkswagen AG and a putative class of purchasers of Volkswagen AG American Depositary Receipts agreed to settle the class’ claims alleging a drop in price purportedly resulting from the matters described in the EPA’s “Notices of Violation” in exchange for a cash payment of USD 48 million. The proposed settlement was granted preliminary approval by the court in November 2018.
On December 21, 2017, Volkswagen announced an agreement in principle on a proposed consumer settlement in Canada involving 3.0 l diesel vehicles that was approved by the courts in Ontario and Quebec in April 2018. Also in Canada, a criminal enforcement-related investigation related to 2.0 l and 3.0 l diesel vehicles by the federal environmental regulator is ongoing, and a quasi-criminal enforcement-related offense has been charged by the Ontario provincial environmental regulator related to 2.0 l diesel vehicles. Additionally, in Quebec, a certified environmental class action on behalf of residents is pending. This environmental class action was authorized on the sole issue of whether punitive damages could be recovered. Volkswagen is seeking leave to appeal this authorization ruling. Class action and joinder lawsuits have also been filed in Canada, including alleged consumer protection and securities claims asserting damages among other things.
To the extent a matter is not separately described above, an assessment is not yet possible at the current stage of the proceedings or has, in accordance with IAS 37.92, not been presented so as not to compromise the results of the proceedings and the interests of the Company.
6. Additional proceedings
With its ruling of November 8, 2017, the Higher Regional Court of Celle ordered, upon the request of three US funds, the appointment of a special auditor for Volkswagen AG. The special auditor is to examine whether there was a breach of duties on the part of the members of the Board of Management and Supervisory Board of Volkswagen AG in connection with the diesel issue on or after June 22, 2006 and, if so, whether this resulted in damages for Volkswagen AG. The ruling by the Higher Regional Court of Celle is formally unappealable. However, Volkswagen AG has filed a constitutional complaint with the German Federal Constitutional Court alleging infringement of its constitutionally guaranteed rights. It is currently unclear when the German Federal Constitutional Court will reach a decision on this matter. Following the formally unappealable ruling from the Higher Regional Court of Celle, the special auditor appointed by the court indicated that he was not available to conduct the special audit on grounds of age. The US funds then applied to the Regional Court of Hanover to appoint another special auditor. Volkswagen AG is of the opinion that replacing the court-appointed special auditor in this manner is impermissible and has requested that the application for the appointment of a new special auditor be denied. A decision by the Regional Court of Hanover is expected in the course of 2019.
In addition, a second motion seeking appointment of a special auditor for Volkswagen AG to examine matters relating to the diesel issue has been filed with the Regional Court of Hanover. This proceeding has been suspended until the German Federal Constitutional Court renders its decision in the first special auditor litigation.
7. Risk assessment regarding the diesel issue
An amount of around €2.4 billion has been included in the provisions for litigation and legal risks as of December 31, 2018 to protect against the currently known legal risks related to the diesel issue based on existing information and current assessments. Insofar as these can be adequately measured at this stage, contingent liabilities relating to the diesel issue were disclosed in the notes in an aggregate amount of €5.4 billion (previous year: €4.3 billion), whereby approximately €3.4 billion (previous year: €3.4 billion) of this amount results from lawsuits filed by investors in Germany. The provisions recognized and the contingent liabilities disclosed as well as the other latent legal risks in the context of diesel issue are in part subject to substantial estimation risks given that the fact finding efforts have not yet been concluded, the complexity of the individual relevant factors and the ongoing coordination with the authorities. Should these legal or estimation risks materialize, this could result in further considerable financial charges.
In line with IAS 37.92, no further statements have been made concerning estimates of financial impact or about uncertainty regarding the amount or maturity of provisions and contingent liabilities in relation to the diesel issue. This is so as to not compromise the results of the proceedings or the interests of the Company.
Additional important legal cases
In 2011, ARFB Anlegerschutz UG (haftungsbeschränkt) brought an action against Volkswagen AG and Porsche SE for claims for damages for allegedly violating disclosure requirements under capital market law in connection with the acquisition of ordinary shares in Volkswagen AG by Porsche SE in 2008. The damages currently being sought based on allegedly assigned rights amounted to approximately €2.26 billion plus interest. In April 2016, the Regional Court in Hanover had formulated numerous objects of declaratory judgment that the cartel senate of the Higher Regional Court in Celle will decide on in model case proceedings under the KapMuG. In the first hearing on October 12, 2017, the Court already indicated that it currently does not see claims against Volkswagen AG as justified, both for want of sufficiently specific pleadings and for reasons of law. Volkswagen AG sees the statements of the court’s senate as confirmation that the claims made against the Company have absolutely no basis.
At the time in question (2010/2011), other investors had also asserted claims – including claims against Volkswagen AG – arising out of the same circumstances in an approximate total amount of €4.6 billion and initiated conciliation proceedings. Volkswagen AG always refused to participate in these conciliation proceedings; since then, these claims have not been pursued further.
In June 2013, the Annual General Meeting of MAN SE approved the conclusion of a control and profit and loss transfer agreement between MAN SE and TRATON SE (at that time Truck & Bus GmbH), a subsidiary of Volkswagen AG. In July 2013, an award proceeding was instituted to review the appropriateness of the cash settlement set out in the agreement in accordance with § 305 of the Aktiengesetz (AktG – German Stock Corporation Act) and the cash compensation in accordance with § 304 of the AktG. By ruling of June 26, 2018 (supplemented and amended by the rulings of July 30, 2018 and December 17, 2018), the Munich Higher Regional Court rendered a final decision increasing the annual compensation claim under § 304 AktG to €5.47 gross per share (less any corporate income tax and any solidarity surcharge at the respective tax rate applicable to these taxes for the financial year in question). The cash settlement in the amount of €90.29 per share, increased in the first instance by the Munich I Regional Court, was affirmed. The decisions by the Munich Higher Regional Court are final and were published in the German Federal Gazette on August 6, 2018 and January 10, 2019.
In Brazil, the Brazilian tax authorities commenced tax proceedings against MAN Latin America; at issue in these proceedings are the tax consequences of the acquisition structure chosen for MAN Latin America in 2009. In December 2017, a second instance judgment that was negative for MAN Latin America was rendered in administrative court proceedings. MAN Latin America initiated proceedings against this judgment before the regular court in 2018. Due to the difference in the penalties plus interest which could potentially apply under Brazilian law, the estimated size of the risk in the event that the tax authorities are able to prevail overall with their view is laden with uncertainty. However, a positive outcome continues to be expected for MAN Latin America. Should the opposite occur, this could result in a risk of about €0.7 billion for the contested period from 2009 onwards, which has been stated within the contingent liabilities in the notes.
In 2011, the European Commission conducted searches at European truck manufacturers on suspicion of an unlawful exchange of information during the period 1997–2011 and issued a statement of objections to MAN, Scania and the other truck manufacturers concerned in November 2014. With its settlement decision in July 2016, the European Commission fined five European truck manufacturers. MAN’s fine was waived in full as the company had informed the European Commission about the irregularities as a key witness.
In September 2017, the European Commission fined Scania €0.88 billion. Scania has appealed to the European Court of Justice in Luxembourg and will use all means at its disposal to defend itself. Scania had already recognized a provision of €0.4 billion in 2016.
Furthermore, antitrust lawsuits for damages from customers were received. As is the case in any antitrust proceedings, this may result in further lawsuits for damages. Neither provisions nor contingent liabilities were stated because the early stage of proceedings makes an assessment currently impossible.
As part of the cartel investigations in the automotive industry already known to the public, the European Commission took the procedural step of initiating formal proceedings against affected undertakings on September 18, 2018. The investigations have been ongoing for some time. As the European Commission’s press statement indicates, the European Commission is now restricting the scope of the investigation to the subject of emissions. The formal initiation of proceedings is standard and is a purely procedural step in the process, which was expected by Volkswagen. The Volkswagen Group and the relevant Group brands have been cooperating fully with the European Commission and will continue to cooperate.
In addition, the Italian Competition Authority initiated proceedings to investigate potential competition law infringements (alleged exchange of competitively sensitive information) by a number of captive automotive finance companies, including Volkswagen Bank GmbH. The proceedings were later extended to the relevant parent companies, including Volkswagen AG. In October 2018, Volkswagen Bank GmbH and Volkswagen AG received a statement of objections summarizing the findings by the authority and describing the alleged infringement. Volkswagen AG and Volkswagen Bank GmbH transmitted their respective replies to the Italian Competition Authority in November 2018. In January 2019, the Italian Competition Authority imposed a fine of €163 million against Volkswagen AG and Volkswagen Bank GmbH. Provisions were recognized by Volkswagen Bank GmbH. Volkswagen AG and Volkswagen Bank GmbH intend to appeal this decision. Lawsuits seeking damages are possible in this proceeding as well.
In 2017, plaintiffs filed numerous complaints in various US jurisdictions on behalf of putative classes of purchasers of German luxury vehicles against several automobile manufacturers, including Volkswagen AG and other Group companies, that are now pending in two consolidated class actions in the multidistrict litigation in the State of California. The complaints allege that since the 1990s, defendants engaged in a conspiracy to unlawfully increase the prices of German luxury vehicles in violation of US antitrust and consumer protection law. Plaintiffs in Canada filed claims with similar allegations on behalf of putative classes of purchasers of German luxury vehicles against several automobile manufacturers, including Volkswagen Canada Inc., Audi Canada Inc., and other Group companies. Neither provisions nor contingent liabilities were stated because the early stage of proceedings makes an assessment currently impossible.
In addition, a few national and international authorities have initiated antitrust investigations. Volkswagen is cooperating closely with the responsible authorities in these investigations. An assessment of the underlying situation is not possible at this early stage.
For certain T6 models (M1 class) with Euro 6 diesel engines registered as passenger cars, the inspection regarding the conformity of the current production of new vehicles with the approved type (conformity of production) identified that certain technical data could not be fully confirmed. To ensure this conformity of production for new vehicles, Volkswagen AG developed a software measure, which was approved by the KBA at the end of February 2018 and was applied to newly produced vehicles as well as to new vehicles (approximately 30 thousand in all) that had not been delivered by then. Volkswagen AG also conducted in-use tests (tests to verify the conformity of vehicles in use to their type approval) to determine whether the roughly 200 thousand T6 used vehicles already on the market conform to the technical data. The tests carried out on the proposal of Volkswagen AG were taking place in close collaboration with the KBA, which included this process in a decision dated March 1, 2018. Following further tests in August 2018, at the proposal of Volkswagen AG and in accordance with this decision, there is also a software measure for used T6 vehicles to ensure conformity with the approved vehicle type.
Since November 2016, Volkswagen has been responding to information requests from the EPA and CARB related to automatic transmissions in certain vehicles with gasoline engines.
Additionally, putative class actions filed against Audi AG and certain affiliates have been transferred to the federal multidistrict litigation proceeding in the State of California and consolidated. The lawsuits allege that defendants concealed the existence of defeat devices in Audi brand vehicles with automatic transmissions. Other actions alleging similar claims are also pending in the Northern District of California and two provincial courts in Canada.
In the summer of 2017, plaintiffs filed a complaint, on behalf of a putative class of purchasers of Volkswagen AG’s American Depositary Receipts, against Volkswagen AG and against three former and one current member of Volkswagen AG’s Board of Management, in the US District Court for the Eastern District of New York. On July 13, 2018, plaintiffs filed an amended complaint, which defendants moved to dismiss. Plaintiffs assert securities claims alleging that defendants made material misstatements and omissions concerning Volkswagen AG’s compliance measures, in particular those relating to competition and antitrust law as well as allegations in an antitrust litigation against Volkswagen AG in the Northern District of California. Defendants believe that the alleged claims are without merit.
Provisions were recognized by Volkswagen Bank GmbH and Volkswagen Leasing GmbH for possible claims in connection with financial services provided to consumers.
In addition, various proceedings are pending worldwide, particularly in the USA, in which customers are asserting purported claims either individually or in class actions. These claims are as a rule based on alleged vehicle defects, including defects alleged in vehicle parts supplied to the Volkswagen Group (for instance, in the Takata case).
Risks may also result from patent infringement actions, particularly in Germany and the USA. These actions seeking injunctive relief and damages pertain among other things to patents for semiconductor technology used in vehicles.
In line with IAS 37.92, no further statements have been made concerning estimates of financial impact or about uncertainty regarding the amount or maturity of provisions and contingent liabilities in relation to additional important legal cases. This is so as to not compromise the results of the proceedings or the interests of the Company.