A pedestrian shelters under an umbrella as he passes a Volkswagen AG (VW) showroom in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

VW Seeks Diesel Case Settlement Ahead of Top Court Ruling, Sources Say

(Bloomberg) -- Volkswagen AG, facing claims by thousands of German owners of tainted diesel vehicles, was dealt a blow when the nation’s top court undercut the carmaker’s defense strategy in a rare rebuke.

The Federal Court of Justice batted down VW’s arguments that its cheating software was legal under European Union law and therefore the company isn’t required to compensate affected customers. The court unusually laid out its opinion on Friday, despite having to cancel a much-anticipated Feb. 27 hearing after a plaintiff withdrew his complaint.

VW had sought to reach a settlement in the case to avoid a ruling against it by the court that could weaken its efforts to sidestep claims over its rigged diesel vehicles. Unlike in the U.S., the company has refused to compensate affected customers in Europe, and some 400,000 customers have signed up for a mass suit against the world’s largest automaker.

The court statement doesn’t allow “concrete conclusions” regarding its impact on other legal claims, Volkswagen said in a statement. The company reiterated that delivering a new vehicle in the case in question is “impossible,” because the Tiguan sold to the customer in 2015 is “totally different” from the current version.

Volkswagen has struggled to move past the three-year-old scandal. In 2015, it admitted to rigging diesel cars to detect test conditions and lower emissions levels to legal limits, while polluting more on the road. The crisis involved as many as 11 million diesel cars worldwide and has cost VW about 28 billion euros ($32 billion) so far. Probes by German prosecutors into the root of the engine rigging are also ongoing.

Click here for related news on VW’s attempts to settle diesel cases

The customer in the case that was supposed to be heard next week had demanded a new car because the Tiguan diesel SUV he bought in July 2015 -- two months before U.S. authorities uncovered the engine manipulations -- was rigged.

The VW dealer in the case has claimed it can’t deliver a new car because it’s not produced any more. The current Tiguan SUV, which starts at 27,775 euros, is the successor model.

The court said in its statement that the dealer had the obligation to provide a vehicle free from defect and that the model change doesn’t preclude a replacement.

In Friday’s case, the judges didn’t have to address the issue of how the software update ordered by Germany’s transport regulator and implemented in most diesel cars affected the situation. Lower courts have ruled that the updates make up for the vehicles’ deficiencies and rule out compensation.

The case is: BGH: VIII ZR 225/17

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