In Verein für Konsumenteninformation (VKI) v Volkswagen AG, the European Court of Justice determined whether the special jurisdiction provisions of article 7(2) of the Brussels I (Recast) Regulation (1215/2012) should be interpreted in a way which permitted Austrian courts to exercise jurisdiction over Volkswagen, the German-domiciled car manufacturer, in respect of claims for compensation arising out of the purchase in Austria of VW cars which had been equipped in Germany with a software “defeat device” to manipulate emissions figures, contrary to the requirements of Regulation (EC) No 715/2007.
Article 7(2) of the Brussels I (Recast) Regulation
Article 7(2) permits the exercise of special jurisdiction “in matters relating to tort… in the courts for the place where the harmful event occurred or may occur”. The concept of the “place where the harmful event occurred” covers both the place where the damage occurred and the place of the event giving rise to it: with the result that a defendant may be sued, at the option of a claimant, in the courts for either of those places (see for example, Bier (C-21/76); Zuid-Chemie (C 189/08); Tibor-Trans (C 451/18). It was clear on the facts that the events giving rise to the damage all occurred in Germany where the motor vehicles had been equipped with software that manipulated data relating to exhaust gas emissions. But was Germany also the place where the (initial) damage occurred?
The court’s decision
The referring Austrian court had doubted they had jurisdiction under article 7(2), but the court had no such qualms. The court found that:
- In order to determine the place where the damage occurred, on the facts of the case it was clear that the harmful consequences only arose after the vehicle in question was purchased in another member state, that is, Austria.
- The damage claimed by VKI was compensation for the reduction in the value of the vehicles bought (estimated at 30% of their purchase price) allegedly occurred because of the installation of the software defeat device. Consequently, while those vehicles became defective as soon as that software had been installed, the damage asserted occurred only when those vehicles were purchased, as they were acquired for a price higher than their actual value.
- Such damage, which did not exist before the purchase of the vehicle by the final purchaser, constituted initial damage and not an indirect consequence of the harm initially suffered by other persons (unlike claims in cases such as Dumez France and Tracoba (C 220/88).
- The claimed damage did not constitute pure financial loss, but concerned material damage resulting from a loss in value of each vehicle concerned which, stemming from the installation of the defeat device, resulted in the purchaser receiving a defective vehicle that had a lower value than the price paid:
“It must therefore be concluded that, where vehicles equipped by their manufacturer with software that manipulates data relating to exhaust gas emissions are sold, the damage suffered by the final purchaser is neither indirect nor purely financial and occurs when such a vehicle is purchased from a third party.” (Paragraph 35.)
- Such an interpretation of article 7(2) met the objective of predictability of the rules governing jurisdiction that underpin the Brussels regime. The court noted that:
“By knowingly contravening the statutory requirements imposed on it, such a manufacturer must anticipate that damage will occur at the place where the vehicle in question has been purchased by a person who could legitimately expect that the vehicle was compliant with those requirements and who subsequently realises that the vehicle is defective and of lower value.” (Paragraph 37.)
The court also considered that their interpretation was consistent with the regulation’s objectives of proximity and of the sound administration of justice, as in order to determine the amount of the damage suffered, the national court may be required to assess the market conditions in the member state where that vehicle was purchased. Those courts are likely to have best access to the evidence needed to carry out those assessments.
Finally, the court considered that their interpretation satisfied the “requirement of consistency” with the Rome II Regulation, in so far as, in accordance with article 6(1) of that regulation, the place where the damage occurs in a case involving an act of unfair competition is the place where “competitive relations or the collective interests of consumers are, or are likely to be, affected”. As the court noted, the act complained of, by being likely to affect the collective interests of consumers as a group, constituted an act of unfair competition which may affect those interests in any member state within the territory of which the defective product is purchased by consumers. Thus, under the Rome II Regulation, the place where the damage occurs is the place in which such a product is purchased (see, by analogy, Tibor-Trans).
Accordingly, the court concluded that article 7(2) must be interpreted as meaning that:
“… where a manufacturer in a Member State has unlawfully equipped its vehicles with software that manipulates data relating to exhaust gas emissions before those vehicles are purchased from a third party in another Member State, the place where the damage occurs is in that latter Member State”.
The decision represents a broadening of the scope of article 7(2) for defective product cases.
Consequently, where a purchaser has a good arguable case that an alleged defect in a purchased product is the result of a deliberate, unlawful act on the part of a European manufacturer, they will be able to sue for compensation (reflecting the difference in value between the price paid and the true value of the defective product) in the member state where they purchased the product. In most cases, this will be the country of the purchaser’s own domicile rather than that of the manufacturer. A manufacturer will not be able to avoid article 7(2) jurisdiction by asserting that the initial damage for jurisdiction purposes occurred at that place of manufacture.
UK claimants contemplating actions in similar cases would be well-advised to issue proceedings before the expiry of the transition period to ensure they can take advantage of the court’s ruling.
To what extent, if any, the court’s interpretation in this case will also be applied to subsequently discovered, “innocently introduced” defects in a product which reduce its value to a purchaser remains to be seen.