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VW - Learning from the scandal

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At the moment it’s all speculation but with new information emerging on a daily basis, the interest in Volkswagen shows no sign of letting up. Here at Brethertons we’ve been speculating about where this could all end and the answer appears – universally – to be ‘in litigation’.

Leaving aside any regulatory penalties or sanctions which might be imposed, there are a number of claims which can be brought against a company or (by some groups) its directors in these types of circumstances.

Private Customers
Claims by customers are most likely to be claims for breach of contract with the remedy being damages. The rules are set out in the Sale of Goods Act 1979 which states that damages will be an amount equal to the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty [that the goods were as described]. As damages for non-monetary losses are generally barred, it remains to be seen whether claims for other losses (such as loss of enjoyment) will be recoverable. 

Business Customers – in the case of VW, Dealerships
Even more pertinent to dealers than customers is the effect that the scandal is likely to have on the company’s reputation. Loss of reputation leads to lower sales and dealerships could struggle in the coming months as this scandal plays out. They might yet have a cause of action against VW for breach of the contract under which VW supplies the cars to the dealers. Much may depend on the terms of those contracts but, again, the claim is likely to be for economic damages.

With the loss of reputation, VW’s shares have taken a dive in value – 30% at the time of writing. When this happens, shareholders often wish to bring a claim.

In the UK, the claims available to a shareholder in these circumstances are set out in the Companies Act 2006 (CA 2006) and include:
•    The presentation of an unfair prejudice petition under section 994 when the affairs of the company are being conducted in a manner that is unfairly prejudicial to the member's interests as a member.
•    The bringing of a derivative action under section 260 for an alleged breach of the codified directors' duties under Chapter 2 of Part 10 of the CA 2006.

Both of these claims, along with the other remedies available to shareholders under the CA 2006 or the Insolvency Act 1986, give shareholders of any company powers over the directors who, otherwise, have almost complete control over the day-today management of the company. They are therefore always worth bearing in mind if you’re the shareholder of a company with an errant board of management.

If you would like advice please contact our team.