A recent judgment in a class action case against car manufacturing giant Volkswagen has highlighted the importance of the awareness condition in fraudulent misrepresentation cases. Aarti Chadda and Harry McGowan review the case here.
In Crossley & Ors v Volkswagen Aktiengesellschaft & Ors [2021] EWHC 3444 (“Crossley”), Mr Justice Waksman dismissed the defendants’ application to strike out the claimants’ deceit claim. The defendants’ application was made on the basis that the claimants had failed to satisfy one of the elements of the tort, namely the awareness condition. This judgment comes on the back of some recent judgments considering the awareness condition in the context of LIBOR-related fraudulent misrepresentation claims.
The background
In Crossley, the claimants consist of around 86,000 owners of VW, Audi, Skoda and SEAT diesel cars, which all use the EA189 engine or a relevant variant of it. The seven defendants consist of the manufacturers of the vehicles, VW’s financial services company and a group of authorised VW dealers (collectively referred to as “VW”).
The foundation of the claims is that each of the engines contained what is known as a “defeat device”, which enabled the engines to pass emission tests regarding the maximum permissible levels of nitrogen oxide and dioxide (“NOx Emissions”) under EU Regulations. The defeat device was able to recognise when vehicles were being tested for compliance and had two modes. In mode one, the defeat device ran so that the levels of Nox Emissions were below the permissible levels; in mode two, the Nox Emissions exceeded the permissible limits. The claimants made numerous claims, including a claim in fraudulent misrepresentation against VW (“the Deceit Claim”).
VW made an application to strike out or summarily dismiss the Deceit Claim on the basis that the claimants had not properly pleaded their claim. According to VW, the claimants had to plead and prove that they were “consciously aware” of the representation (“the Awareness Condition”). They argued it was inherently unlikely and implausible that the claimants would have turned their minds to their original representations at the time of purchase, and therefore the Deceit Claim should be summarily dismissed.
The Awareness Condition in previous authorities
The Awareness Condition was most recently considered in Leeds City Council and others v Barclays Bank [2021] EWHC 363 (“Leeds”), where Mrs Justice Cockerill ruled that in the context of alleged LIBOR-related fraudulent misrepresentations, claimants had to establish they were consciously aware of the representation in order to satisfy the test of reliance (see previous Stewarts article here). The representation must have had some impact on the claimant’s thinking when deciding to enter the contract, and merely relying on an assumption as to the representation having been made will be insufficient. This case was originally scheduled for the Court of Appeal on 22 February 2022, however a settlement was agreed just before the appeal.
Mrs Justice Cockerill pointed out in her judgment that she did not operate in a vacuum and had to take account of the two prior LIBOR-related fraudulent misrepresentation cases, namely Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch) (PAG) and Marme Inversiones 2007 v Natwest Markets plc [2019] EWHC 366 in making her decision as the fact pattern in those cases was similar to the one in Leeds. By contrast, the fact pattern in Crossley was different. As Mrs Justice Cockerill granted the claimants’ permission to appeal, it is implied that she must have taken the view that there was a real prospect of a successful appeal on this point of law.
Current case
Following developments at the hearing, including additional witness evidence from the claimants, it became apparent that the claimants could not show conscious awareness as distinct from an assumption or counterfactual of truth (ie if the claimants knew the truth that the vehicle was fitted with an illegal device and therefore it was illegal to drive it on the roads, they would not have bought it). The contest then between the claimants and defendants became whether there is a legal requirement for an Awareness Condition in order to sustain a claim in deceit in a case like this or not. That question includes sub-questions as to whether it is possible or appropriate to decide the question at a summary judgment stage.
Mr Justice Waksman reviewed the case law and focused on the case of Gordon v Seico (1986) 18 HLR 219 (“Gordon”), a case not cited to Mrs Justice Cockerill in Leeds and therefore not considered by her. This was a decision of the Court of Appeal in respect of a landlord that had covered up serious defects in a flat, including the deliberate concealment of dry rot. Mr Justice Goulding held that the builder’s concealment of the dry rot (attributed to the landlord) amounted to a positive representation that there was no dry rot, which was false and fraudulently so.
Mr Justice Goulding also held that there was reliance by the claimant in the counterfactual of truth (“CFOT”) sense, ie that if he knew of the concealment of the dry rot, he would not have purchased the flat. This case is significant since the Court of Appeal purported to apply the conventional law of deceit. Yet, while the claimant could readily say that had he known of the dry rot etc., he would not have purchased the flat, it is hard to see how he could have been “consciously aware” of the representation as distinct from making an assumption. Mr Justice Waksman noted that the editors of Clark & Lindsell on Torts in footnote 1792 to paragraph 17-35 in the first supplement to the 23rd edition state that Leeds is difficult to reconcile with Gordon.
Mr Justice Waksman then reviewed Spice Girls Ltd v Aprilia [2002] EWCA Civ 15 (“Spice Girls”) and took a different approach to that of Mrs Justice Cockerill in Leeds. The case involved a sponsorship agreement between the Spice Girls’ trading company and Aprilia, a motor scooter company. After the agreement had been made, Geri Halliwell left the band. Aprilia alleged misrepresentation on the basis that there had been implied representations to the effect that Spice Girls Limited did not know and had no reasonable grounds to believe that any of the Spice Girls would leave the group during the contract. In Leeds, Mrs Justice Cockerill dismissed Spice Girls on the basis that the question of awareness was not live. Mr Justice Waksman disagreed. In his view, awareness and CFOT were specifically taken up by counsel, and this case establishes that sometimes an implied representation, accompanied at least by CFOT, can be sufficient.
In his view, the case law showed that a single test for what amounts to the necessary awareness may not be possible. In particular, in some cases:
- the necessary awareness will be very close to an assumption derived from the relevant conduct, and
- the distinction between conscious awareness of the conduct that gives rise to the implied representation and conscious awareness of the implied representation itself may hardly exist.
Mr Justice Waksman rejected the defendants’ pleading that if a mere assumption or CFOT will suffice, then the distinction between a claim for damages based on non-disclosure (outside contracts of the utmost good faith or those containing fiduciary duties, etc.) and a conventional claim in deceit will disappear on the grounds that there still needs to be established that there is a representation (even if to be implied by conduct) rather than mere silence. In this case, it could be reasonably argued that by virtue of having a car dealer showroom with cars for sale, there is an implied representation by conduct that the cars are roadworthy and legal to drive on the public highways. Mr Justice Waksman decided that the claimants had a reasonable prospect of success of proving their Deceit Claim at trial and dismissed the defendants’ application.
Conclusions
The decision in Crossley indicates that this area of the law is still developing. There is potentially a wider scope to satisfying the Awareness Condition in deceit and fraudulent misrepresentation claims than the Leeds judgment would indicate, especially where the conduct gives rise to an implied representation.
This is particularly significant to claims under s.90 and s.90A of the Financial Services and Markets Act 2000 (FSMA), where claimants almost always plead implied misrepresentations, especially as the defendants tend to be listed companies with regulatory and reporting duties and those implied representations are sometimes derived from their conduct as a listed company. This decision has the potential to make it easier for claimants to satisfy the requirement in s.90 and s.90A cases.
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