Dalton v Volkswagen AG

Federal Court of Australia|2018-02-20|Before: Foster J

Background 6 I have delivered two interlocutory judgments in these and related matters. The first was Cantor v Audi Australia Pty Limited (No 2) [2017] FCA 1042 (VW No 2) and the second was Cantor v Audi Australia Pty Limited (No 3) [2017] FCA 1079 (VW No 3). 7 In VW No 2, at [1]-[16], I explained the nature of the seven sets of proceedings with which I am concerned involving the so-called diesel scandal and set out the separate questions which I will determine at the Stage 1 trial which is fixed to commence on 5 March 2018. I need not set out those paragraphs here although those paragraphs are sufficient for present purposes to provide a context in which the present applications are to be determined. A reader of this judgment should also read those paragraphs in VW No 2. 8 In VW No 3, I resolved a number of issues in relation to discovery and interrogatories. In particular, I considered whether the respondents in the MB proceedings should be required to answer three further interrogatories. At [55]-[67] of VW No 3, I explained why I proposed to require the respondents in those proceedings to answer interrogatories 1 and 2 then under consideration. The third interrogatory addressed in VW No 3 is not presently relevant. 9 At [55]-[60] in VW No 3, I said: … The applicants have propounded the terms of interrogatories 1 and 2. Those interrogatories are substantially in the following terms (I have altered the language slightly): (a) Was the software installed in the engine control unit (ECU) of vehicles equipped with the EA189 diesel engine which effected two different modes of operation, one of which was optimised for NOx and other pollutant emissions and the other of which was optimised for comfort, different as between the Australian affected vehicles and their European equivalents, on the one hand, and vehicles equipped with the EA189 engine sold in the United States, on the other hand? If so, specify the differences. (b) State the reasons why the respondents installed in the engine control unit (ECU) of the affected vehicles and their European equivalents, software which effected two different modes of operation, one of which was optimised for NOx and other pollutant emissions, and the other of which was optimised for comfort. Volkswagen AG and perhaps other related corporate entities entered into a plea agreement and other settlement arrangements in respect of alleged breaches of statutory clean air provisions in the United States of America. The respondents have agreed to produce documents which relate to those arrangements (as to which see categories 21 to 26 of the further categories for discovery ordered on 4 September 2017). In the present proceedings, the respondents contend that the regulatory requirements in the United States of America are different from those which obtain in Europe and in Australia. In due course, that contention will need to be investigated in order to determine whether or not it is correct. The respondents submitted that the subject matter of proposed interrogatory 1 was not a matter appropriate for an interrogatory. They said that it strayed into matters for which expert evidence would be required. They went on to submit that it was not a simple or mechanical task to identify the differences in software as between the Australian affected vehicles and the relevant United States vehicles but rather required a person skilled in the art of software to review the relevant source code for the software, to identify the differences and, to the extent that there are differences, explain how those differences arise. In this way, so it was submitted, the interrogatory would require the respondents to form opinions, exercise judgment or draw conclusions, all of which matters tended against the grant of leave to administer it. The points which I have summarised at [59] above may or may not obtain to some extent in the present case. However, I consider that it is well within the capability of the respondents to answer interrogatory 1. 10 At [61]-[62], I considered two further contentions advanced by the respondents, namely, that interrogatory 1 was oppressive and its text unclear. I rejected those contentions. 11 I then moved to consider whether I should give leave to the MB applicants to administer interrogatory 2. Interrogatory 2 is not presently relevant. 12 On 13 September 2017, in conformity with the reasons which I had given in VW No 2, I ordered the respondents to answer interrogatory 1 and to do so by 16 October 2017. That deadline was subsequently extended. 13 On 8 November 2017, the solicitors for the respondents (Clayton Utz) served an answer to interrogatory 1(b) which had been administered to the respondents pursuant to the Orders made by me on 13 September 2017. Interrogatory 1(b) is set out in the extract from VW No 3 at [9] above. The answer given was in the following terms: The boards of the Respondents were not informed about and thus were not aware of the development and installation of the software in Australian cars and their European equivalents at the time when the software was originally developed for installation in the affected vehicles and therefore the boards of the Respondents did not know the reasons for installing the software in those vehicles at that time. Insofar as the reasons of persons who were involved in developing and installing the software in the engine control unit (ECU) of the affected vehicles and their European equivalents are concerned, to the best of the Respondents' knowledge, information and belief, the software was installed in the affected vehicles and their European equivalents to optimise engine performance for the production of NOx while driving in the NEDC cycle on the test bench and to optimise for the production of particulates and comfort while driving on the road. 14 The answer given by the respondents was verified by an affidavit sworn by Philip Haarmann, an in-house lawyer with Volkswagen AG, on 7 November 2017. 15 Interrogatory 1(b) ordered by me on 13 September 2017 has become known amongst the parties and the Court as "the purpose interrogatory". 16 The MB applicants were dissatisfied with the respondents' answer to the purpose interrogatory. 17 For this reason, on 9 November 2017, the MB applicants filed an Interlocutory Application dated 8 November 2017 in which they sought the following relief: 1. An order, pursuant to Rule 21.05(a) of the Federal Court Rules 2011 (Cth) (Federal Court Rules), that: a. the Respondents give a sufficient answer to Interrogatory 1(b) ordered on 13 September 2017; and b. the answer be verified by affidavit in accordance with Rule 21.04 of the Federal Court Rules. 18 I shall refer to that Interlocutory Application as the "9 November IA". 19 The 9 November IA was addressed by the parties and me on 9 November 2017 but only for the purposes of case management. 20 On 13 December 2017, I heard the 9 November IA. 21 As a result of the argument which took place on that day, I adjourned further consideration of the 9 November IA to 7 February 2018. The expectation of the parties and of the Court at that time was that the MB applicants would consider whether they wished to reformulate the interrogatories which they wanted to ask and, if they intended to re-cast those interrogatories, they would do so as soon as possible. It was apparent to all parties that I was of the opinion that appropriately worded interrogatories directed to the purpose and reasons of the respondents and their employees and agents in designing, developing and installing the two-mode switching software described in interrogatory 1(b) ordered on 13 September 2017 would be permissible and would be allowed by me. 22 As expected, the MB applicants took up the suggestion that they reformulate the purpose interrogatory. They did so by filing their current Interlocutory Application which was made returnable before me on 7 February 2018. 23 During the Christmas vacation, the ACCC drafted the interrogatories which it now seeks to have answered and then filed its current Interlocutory Application on 5 February 2018. 24 When the matters came before the Court on 7 February 2018, I was informed that the respondents opposed being ordered to answer any interrogatories prior to the end of the Stage 1 trial. The submission made on behalf of the respondents was that the proposed interrogatories required a great deal of work on their part which could not properly be completed before the end of the Stage 1 trial and which would, if they were required to answer the interrogatories before that time, prejudicially distract them from their preparation for the Stage 1 trial. 25 When confronted with this stance adopted by the respondents, the MB applicants and the ACCC suggested that I should hear on an urgent basis their application for an order that the respondents be required to answer those interrogatories which the applicants considered they needed for the Stage 1 trial and that I should defer hearing until a later date, being a date after the end of the Stage 1 trial, their applications in respect of the remaining interrogatories. The applicants also informed me that they were prepared not to press certain of the interrogatories which were the subject of their Interlocutory Applications and to re-draft some of those which they did intend to press. 26 In light of the above matters, I adopted the bifurcated approach suggested by the applicants and required the parties to focus on those interrogatories which the applicants submitted they needed to have answered by no later than 7 March 2018. 7 March 2018 is the third day in the block of days presently set aside for the Stage 1 trial which is fixed to commence on 5 March 2018. 27 I then fixed 14 February 2018 for the hearing of the MB applicants' and the ACCC's applications for orders requiring the respondents to answer those interrogatories which the applicants pressed to be answered by 7 March 2018. Those applications were supported by Written Submissions from the MB applicants and from the ACCC. The respondents also made Written Submissions. The respondents and the ACCC supplemented their initial Written Submissions with further Written Submissions forwarded to me on 15 February 2018 (the respondents) and on 16 February 2018 (the ACCC). 28 In the next section of these Reasons, I set out verbatim the final versions of the interrogatories which were pressed by the MB applicants and the ACCC which, if ordered, will require answers by no later than 7 March 2018. As I have already mentioned, both sets of applicants intend to press for additional orders requiring answers to the remaining interrogatories in due course. The MB applicants also reserved their right to seek to obtain an order for further interrogatories relating to the same subject matter as those which are now being pressed.

The Final Versions of the Proposed Interrogatories (First Tranche) 29 The MB applicants applied for an order requiring the respondents in their proceedings to answer the following interrogatories by 7 March 2018: Definitions The following definitions apply in this interrogatory: • Affected Vehicles means the affected Volkswagen, Audi and Skoda branded vehicle models equipped with EA189 diesel engines set out in paragraphs 35 and 38 of the Second Further Amended Statements of Claim filed in proceedings NSD 1459, 1472 and 1473 on 15 September 2017; • Diesel issue has the meaning given to that term by VWAG in its press releases dated 3 November 2015 and 25 November 2015; • Relevant Period means the period between 1 January 2006 and 17 September 2015; • Software means that part of the software installed or to be installed in the engine control unit (ECU) of vehicles equipped with the EA189 diesel engine which effected two different modes of operation, one of which, according to paragraph 92 of the Agreed Technical Document dated 17 February 2017, was "optimised for NOx and other pollutant emissions" (mode 1), and the other of which was "optimised for comfort" (mode 2); • US Plea Agreement means the Statement of Facts appearing as Exhibit 2 to the plea agreement reached between Volkswagen AG and the United States of America by and through the Department of Justice, dated 11 January 2017. • VWAG means Volkswagen AG; • Volkswagen Group includes Volkswagen AG, Audi AG, Volkswagen Group Australia Pty Ltd, Audi Australia Pty Ltd, Skoda Auto a.s. Interrogatories 1. For the Relevant Period identify in respect of any Affected Vehicles or their European Equivalents: 1.1. each individual employed by the Volkswagen Group during the Relevant Period involved in the development, design, creation or modification of the Software; 1.2. each individual employed by the Volkswagen Group during the Relevant Period who approved, authorised or permitted the installation or use of the Software. 1.3. [Not pressed for Stage 1] 2. For each individual identified in response to question 1, above, identify: 2.1. the employing or retaining entity of that individual; 2.2. the position(s) or title(s) held by that individual during the Relevant Period and the individual's responsibilities in the identified role(s); 2.3. [Not pressed for Stage 1] 2.4. [Not pressed for Stage 1] 2.5. when and how each (i) was involved in the development, design, creation or modification of the Software; or (ii) approved, authorised or permitted the installation or use of the Software; 2.6. in respect of each individual who (i) was involved in the development, design, creation or modification of the Software; (ii) approved, authorised or permitted the installation or use of the Software: 2.6.1. the reason(s) why the individual participated in the development, design creation or modification of the Software, or why the individual authorised, approved or permitted the installation or use of the Software; 2.6.2. the purpose of each individual for their conduct; 2.6.3. whether any part of the individual's purpose included: (i) ensuring that vehicles met NOx limits during emission testing, or (ii) ensuring that vehicles which would not otherwise have met NOx limits during emission testing met those NOx limits during emission testing (and in each case specify the NOx limits to which the person's purpose was directed); 2.7. [Not pressed for Stage 1] 2.8. [Not pressed for Stage 1] 2.9. [Not pressed for Stage 1] 3. [Not pressed for Stage 1] 4. [Not pressed for Stage 1] 5. [Not used] 6. [Not used] 7. [Not used] 8. [Not pressed for Stage 1] 9. Please specify the following matters in relation to the Affected Vehicles and their European equivalents: 9.1. the amount set aside by way of provisions for field activities (service measures and recalls) and repurchases (as those terms are used at page 216 of Volkswagen AG's 2016 Annual Report) arising out of the 'diesel issue' globally as at the date of this interrogatory; 9.2. the total amount spent on field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' globally as at the date of this interrogatory; 9.3. the amount set aside by way of provisions for field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' in Australia as at the date of this interrogatory; 9.4. the total amount spent on field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' in Australia as at the date of this interrogatory. 10. [Not pressed for Stage 1] 11. Identify the company described as Company A in the US Plea Agreement. 12. Identify the individuals described by the following pseudonyms in the US Plea Agreement: 12.1. Supervisor A; 12.2. Supervisor B; 12.3. Supervisor C; 12.4. Supervisor D; 12.5. Supervisor E; 12.6. Supervisor F; 12.7. Attorney A. 13. [Not pressed for Stage 1] 14. For the document annexed to the affidavit of Gregory John Williams dated 29 November 2017 and identified as annexure GJW-86, identify: 14.1. the author of the document and each other individual who assisted with its preparation and/or to whom it was provided for review before being finalised; 14.2. the purpose for which the document was created and the period of time over which the document (including any drafts) was developed. 14.3. [Not pressed for Stage 1] (Emphasis in original) 30 The ACCC sought an order requiring the respondents in their proceedings to answer the following interrogatories by 7 March 2018: Definitions The following definitions apply in this interrogatory: • Affected Vehicles means the affected Volkswagen and Audi branded vehicle models equipped with EA189 diesel engines set out in Annexures 1 and 2 which were supplied in Australia between 1 January 2006 and 3 October 2015; • Diesel issue has the meaning given to that term by VWAG in its press releases dated 3 November 2015 and 25 November 2015; • Relevant Period means the period between 1 January 2006 and 17 September 2015; • Software means that part of the software installed or to be installed in the engine control unit (ECU) of vehicles equipped with the EA189 diesel engine which effected two different modes of operation, one of which, according to paragraph 92 of the Agreed Technical Document dated 17 February 2017, was "optimised for NOx and other pollutant emissions" (mode 1), and the other of which was "optimised for comfort" (mode 2) • Volkswagen Group includes Volkswagen AG, Audi AG, Volkswagen Group Australia Pty Ltd, Audi Australia Pty Ltd and Volkswagen Group of America Inc Interrogatories 1. For the Relevant Period identify in respect of (i) any Affected Vehicles or their European Equivalents; and/or (ii) any vehicles equipped with the EA189 diesel engine (including US vehicles): 1.1. each individual employed by the Volkswagen Group during the Relevant Period who was involved in the development, design, creation or modification of the Software; 1.2. each individual employed by the Volkswagen Group during the Relevant Period who approved, authorised or permitted the installation or use of the Software; 1.3. [not pressed for stage 1] 2. For each individual identified in response to question 1 above, identify: 2.1. the employing or retaining entity of that individual; 2.2. the position(s) or title(s) held by that individual during the Relevant Period and the individual's responsibilities in the identified role(s); 2.3. [not pressed for stage 1] 2.4. [not pressed for stage 1] 2.5. when and how each (i) was involved in the development, design, creation or modification of the Software, or (ii) approved, authorised or permitted the installation or use of the Software; 2.6. in respect of each individual who (i) was involved in the development, design, creation or modification of the Software, or (ii) approved, authorised or permitted the installation or use of the Software: 2.6.1. the reason(s) why the individual participated in the development, design, creation or modification of the Software, or why the individual authorised, approved or permitted the installation or use of the Software; 2.6.2. the purpose of each individual for their conduct; 2.6.3. whether any part of the individual's purpose included: (i) ensuring that vehicles met NOx limits during emission testing, or (ii) ensuring that vehicles which would not otherwise have met NOx limits during emission testing met those NOx limits during emission testing (and in each case specify the NOx limits to which the person's purpose was directed); 2.7. [not pressed for stage 1] 2.8. [not pressed for stage 1] 2.9. [not pressed for stage 1] 3. [not pressed for stage 1] 4. [not pressed for stage 1] 5. Please state: 5.1. [not pressed] 5.2. [not pressed] 5.3. [not pressed] 5.4. when and how the development and/or operation of the Software diverged from the development and/or operation of the software installed in US vehicles with an EA189 engine (as described in the document titled Narrative Responses to EPA Section 208 Information Requests at annexure GJW-85 to the affidavit of Gregory John Williams dated 29 November 2017), including, in particular, for Model Year 2014 Subject Vehicles described on page 13 of annexure GJW-85, why the pre-condition configuration set 'the combustion process itself (EGR and fuel injunction from the common rail)' in mode 2 while 'the exhaust after-treatment was set to operate' in mode 1) and whether this or a similar function applied to the Audi Q5 vehicles or their European equivalents; 5.5. if the functional specifications of the Software in the Affected Vehicles or their European equivalents were modified over time (whether with respect to Generation 1 vehicles, Generation 2 vehicles or otherwise) provide a detailed explanation of: 5.5.1. when each modification occurred; 5.5.2. to the extent known by any individual(s) identified in response to paragraph 1, the reason(s) for the modification; and 5.5.3. any instructions provided in connection with the modification (including identifying any "change request" or similar documents prepared in relation to the modification). 6. [not pressed] 7. [not pressed] 8. [not pressed] 9. Please specify the following matters in relation to the Affected Vehicles and their European equivalents: 9.1. the amount set aside by way of provisions for field activities (service measures and recalls) and repurchases (as those terms are used at page 216 of Volkswagen AG's 2016 Annual Report) arising out of the 'diesel issue' globally as at the date of this interrogatory; 9.2. the total amount spent on field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' globally as at the date of this interrogatory; 9.3. the amount set aside by way of provisions for field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' in Australia as at the date of this interrogatory; 9.4. the total amount spent on field activities (service measures and recalls) and repurchases arising out of the 'diesel issue' in Australia as at the date of this interrogatory. 10. [not pressed for stage 1] 11. [not pressed for stage 1] 12. [not pressed for stage 1] 13. [not pressed for stage 1] 14. For the document annexed to the affidavit of Gregory John Williams dated 29 November 2017 and identified as annexure GJW-86, identify: 14.1. the author of the document and each other individual who assisted with its preparation and/or to whom it was provided for review before being finalised; 14.2. the purpose for which the document was created and the period of time over which the document (including any drafts) was developed; 14.3. each individual to whom the final document was provided and the purpose or purposes for which the final document was used. 31 The points of contention which remain between the MB applicants and the ACCC, on the one hand, and the respondents, on the other hand, are: (a) The applicants press for an order requiring those interrogatories which are ultimately ordered by the Court (if any) to be answered by 7 March 2018. The respondents argue that they should not be required to provide their answers until a date which is some weeks after the end of the Stage 1 trial. (b) The MB applicants press for an order requiring the respondents to answer an interrogatory in the form of interrogatory 1.1 in their set of proposed interrogatories. The respondents wish to have deleted therefrom the word "modification". That change would flow into interrogatory 2. (c) By way of separate argument not supported by the MB applicants, the ACCC contends that interrogatories 1, 2, 5.4 and 5.5 should cover US vehicles and relate to some extent to individuals who worked only in and in relation to the US whereas the respondents submit that those interrogatories delve too far into events which took place in the US and are, for that reason, both irrelevant and oppressive. (d) Both the MB applicants and the ACCC press interrogatory 9. The respondents say that this interrogatory seeks information which is plainly irrelevant and, for that reason, should not be allowed. (e) The ACCC presses interrogatory 14.3. The respondents argue that this interrogatory seeks information which is irrelevant and is oppressive.

Consideration and Decision 32 I will address the question of when verified answers to interrogatories will need to be served when I come to consider which particular interrogatories I am prepared to order. It is sufficient at the moment to simply note that I am not persuaded that none of the interrogatories should be required to be answered until after the Stage 1 trial.

The Relevance of the US Events 33 The first issue is this: Should the ACCC be permitted to interrogate the respondents about their activities in the US in the manner proposed in their draft interrogatories 1, 2, 5.4 and 5.5? 34 In support of its position, the ACCC read and relied upon two affidavits affirmed by Alexander John Gilmore Tate on 2 February 2018 and on 13 February 2018 respectively and made detailed submissions both in writing and orally. Mr Tate is a solicitor employed by the Australian Government Solicitor and is one of several lawyers working on these matters on behalf of the ACCC. 35 The respondents, for their part, read and relied upon two affidavits sworn by Gregory John Williams, the solicitor for the respondents, on 12 February 2018 and on 15 February 2018 respectively. They also made submissions both in writing and orally. 36 The differences between the MB applicants' proposed interrogatories 1.1 and 1.2 and those proposed by the ACCC may be summarised as follows: (a) In the introductory words to interrogatory 1, the ACCC wishes to have included after reference to the EA 189 diesel engine the following words in brackets: "… including US vehicles". (b) The ACCC also seeks to have included within the definition of the Volkswagen Group for the purposes of the proposed interrogatories the US-incorporated company "Volkswagen Group of America Inc". By this definitional change, the ACCC seeks to have the class of individuals to which interrogatories 1.1 and 1.2 relate, enlarged in order to include therein persons employed by Volkswagen Group of America Inc (the US corporation). 37 As I have already mentioned, both sets of applicants resist the submission made by the respondents that the word "modification" in proposed interrogatory 1.1 should be deleted. The deletion of that word would affect both versions of interrogatories 1 and 2. 38 Any changes made to interrogatory 1 will flow through to interrogatory 2. 39 The MB applicants abandoned their application insofar as it sought interrogatories in the form of interrogatories 5, 6 and 7 included in their Interlocutory Application. They deferred interrogatory 8. The ACCC took the same position in respect of interrogatories 5.1, 5.2, 5.3, 6, 7 and 8 in their Amended Interlocutory Application but pressed a modified version of interrogatories 5.4 and 5.5. Interrogatories 5.4 and 5.5 (as modified) seek information about US vehicles and thus raise, in part, similar issues to those which are raised in respect of interrogatories 1 and 2 sought by the ACCC.

The ACCC's Submissions 40 The ACCC submitted that both it and the MB applicants had been seeking an answer to the purpose interrogatory since September 2017. It also submitted that the answer which was ultimately provided was wholly inadequate. The ACCC submitted that Volkswagen AG had conducted extensive investigations into the causes of the so-called diesel scandal since around September 2015 and that this fact should be borne in mind when I came to consider whether these interrogatories should be ordered and, if so, how much time I should allow the respondents to answer them. I accept these submissions. 41 In a press release made on 2 March 2016, Volkswagen AG had said the following: The starting point of the diesel matter was, in hindsight, the strategic decision by Volkswagen in 2005 to start a major diesel campaign in the United States and to facilitate a breakthrough for this technology which at that time was already very popular in Europe. For this purpose, the Company decided to develop a new diesel powertrain unit with the EA 189 type diesel engine that features high performance and cost-efficient production. 42 In the submissions to which I now refer, the ACCC drew heavily upon the evidence of Mr Tate. That evidence was not challenged or disputed by the respondents. 43 In around March 2014, some employees of Volkswagen AG learned of a study which had been undertaken by students at West Virginia University which had found substantial discrepancies between NOx emissions from certain 2.0 litre diesel-powered vehicles sold in the US when tested on the road as opposed to the level of NOx emissions from the same vehicles when tested on a dynamometer. 44 In a press release issued in late August 2015, Volkswagen AG said: Volkswagen technicians gave a full explanation of the technical causes for the irregularities discovered regarding the emission of nitrogen oxides in the US to lawyers from the Volkswagen Legal Department as well as to the US attorneys from Kirkland & Ellis. These detailed explanations led to the Management Board members' realization that the modification of the engine management software constituted a prohibited defeat device under US law. 45 On or about 3 September 2015, Volkswagen AG admitted at a meeting with the Californian Air Resources Board and the US Environmental Protection Agency, that Volkswagen AG and the US corporation, which was a wholly owned subsidiary of Volkswagen AG, had installed a defeat device in certain diesel-powered vehicles sold in the US. 46 On 22 September 2015, Volkswagen AG published an ad hoc press release announcing "discrepancies [which] relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide". The press release went on to state "A noticeable deviation between bench test results and actual road use was established solely for this type of engine". 47 In the months following September 2015, Volkswagen AG made a number of public statements to the effect that the corporation intended to fully investigate the so-called diesel scandal and to find out what had actually happened. The company informed the public that it had retained US law firm Jones Day to conduct an independent and comprehensive investigation of the issues. 48 By late April 2016, Volkswagen AG reported that Jones Day had conducted 450 interviews and planned to conclude its investigation in the fourth quarter of 2016. 49 One of the annexures to Mr Tate's first affidavit is a confidential document which records a number of matters (claimed by the applicants to be admissions) concerning communications made by Volkswagen AG to the relevant US authorities on a date which is presently unknown. Included within the statements made by Volkswagen AG in that document was a statement that the cycle recognition software which had been included in the diesel engine EA 189 had initially been created and developed for the US market and was first used there in 2009. The document also contained a detailed exposition of the history of the development and use of that software in the US. 50 On 11 January 2017, admissions were made by Volkswagen AG in the Statement of Facts (Exhibit 2) to the US Plea Agreement entered into between Volkswagen AG and the relevant US prosecuting authorities. I shall refer to that document as the US Plea Agreement. In that document, Volkswagen AG accepted responsibility for the conduct of its employees. This contrasts with the stance adopted in the seven proceedings in this Court. Here, it is said that Volkswagen AG and its related corporations are not relevantly legally responsible for the conduct of those of its employees who decided to design, develop and install the cycle recognition software in vehicles sold in Australia. 51 In the US Plea Agreement, Volkswagen AG admitted the following matters: (a) Volkswagen AG first developed the EA 189 engine to enter the US market; (b) From approximately May 2006 to approximately November 2015, Volkswagen AG, through Supervisors A to F (designations which appear specifically in the US Plea Agreement) and other VW employees "agreed to deceive US regulators and US customers about whether the Subject Vehicles and Porsche vehicles complied with US emissions standards". Volkswagen AG admitted that the persons referred to knew that Volkswagen AG and the US corporation were using software to "cheat the US testing process". Supervisor A was the supervisor in charge of Engine Development for all of Volkswagen AG. Supervisors B, C, D and F were supervisors in charge of VW Brand Engine Development at various times. Supervisor E was a supervisor with responsibility for Volkswagen AG's Quality Management and Product Safety Department from about 2007 to about 2014. VW Brand was an operational unit within Volkswagen AG that developed engines to be sold under the "Volkswagen" brand worldwide; (c) "Volkswagen AG employees acting at the direction of Supervisors B, C and F, and others, designed, created and implemented a software function to detect, evade and defeat US emissions standards." (d) Those Volkswagen AG employees "designed the VW defeat device to recognise whether the vehicle was undergoing standard US emissions testing on a dynamometer (or "dyna") or whether the vehicle was being driven on the road under normal driving conditions. The defeat device accomplished this by recognising the standard drive cycles used by US regulators. If the vehicle's software detected that it was being tested, the vehicle performed in one mode, which satisfied US NOx emissions standards. If the defeat device detected that the vehicle was not being tested, it operated in a different mode, in which the effectiveness of the vehicle's emissions control systems was reduced substantially, causing the vehicle to emit substantially higher NOx, sometimes 35 times higher than US standards"; and (e) "In designing the defeat device, VW engineers borrowed the original concept of the dual-mode, emissions cycle-beating software from Audi". 52 It seems that the admissions in the US Plea Agreement were a product of the Jones Day investigations. 53 On 10 May 2017, the Chairman of the Supervisory Board of Volkswagen AG, Hans Dieter Poetsch, provided the following update to the Annual General Meeting of Volkswagen AG: The [Jones Day] investigation has been one of the most comprehensive ones in Germany's economic history. More than 750 interviews have been conducted with employees and executives of the Volkswagen Group to date and a data room of more than 100 million documents have been evaluated. … … Now Jones Day made regular verbal reports to the Supervisory Board and the Special Committee on Diesel Engines on the status of their investigation and their conclusions. 54 The ACCC submitted that it is plain that the Jones Day investigations were not confined to the role of individuals employed within the US corporation but extended also to employees of Volkswagen AG itself and to conduct by Volkswagen AG itself. 55 The ACCC referred to another statement made by Mr Poetsch at the 10 May 2017 AGM of Volkswagen AG when he said: We have a number of external law firms assisting us in the clarification process when it goes forward, while it goes forward, and they do coordinate the work and cooperate with Jones Day. 56 The ACCC submitted that the material to which I have referred above is a sufficient basis at the moment for the Court to infer that the switching software had been developed initially for the US market in order to defeat US emissions standards and was subsequently adapted for use worldwide, including in Australia. The ACCC went on to submit that it was artificial and unreal for the Court to draw a bright line between the circumstances in which vehicles equipped with the EA 189 diesel engine containing the admitted defeat device were sold in the US and the circumstances in which vehicles equipped with the same engine which contained cycle recognition software which seemed to function in substantially the same manner were sold elsewhere in the world including Australia upon the basis that the regulatory rules in the US are different from those obtaining elsewhere.

The Respondents' Submissions 57 In his first affidavit, Mr Williams described in a very general fashion the steps which had been taken by him and his legal team at Clayton Utz since September 2017 to answer the purpose interrogatory. He did not address the Jones Day investigations at all. At pars 7-9 of his first affidavit, he was at some pains to inform the Court of those things which the respondents had not done in order to answer the purpose interrogatory. At pars 8 and 9 of his first affidavit, Mr Williams said: As a result of that process, we have concluded on the information presently available to us that there are 12 people who are considered to be the key personnel employed by the Volkswagen Group involved in the design, installation and approval of the Software as it pertained to Affected Vehicles (as defined in the Interlocutory Applications) or their European equivalents. We have not sought to identify persons: (a) who were not employed by the Volkswagen Group during the Relevant Period defined in the Interlocutory Applications (Relevant Period); (b) whose involvement with the Software was limited to modifications of the Software over the Relevant Period; or (c) whose involvement with the Software was limited only to the Software which was installed in US vehicles, because each of these types of activity fell outside the scope of the activities described in the original purpose interrogatory administered in September 2017. 58 At pars 10-14 of his first affidavit, Mr Williams described the further enquiries which he understood would be necessary to be carried out by the respondents and lawyers at Clayton Utz in order to enable them fully to answer proposed interrogatories 1 and 2. The evidence which he gave in those paragraphs was given upon information and belief. The source of that information was a lawyer at Freshfields Bruckhaus Deringer LLP (Freshfields), a European law firm which is the global coordinating Counsel for the Volkswagen Group in relation to all diesel emissions issues (except apparently for the US and Canada). Mr Williams' evidence was that, in light of information which he had received from Freshfields, partial answers to interrogatories 1 and 2 could be given by 16 March 2018 and that other responses would take much longer. This evidence was qualified by the contents of pars 7-9 which made clear that the respondents were not intending to speak to employees and former employees of the US corporation if those persons had no involvement in the diesel scandal beyond the US. 59 In his first affidavit, Mr Williams also referred to previous Court documentation filed in the present proceedings in which the differences between the engines marketed and sold in the US and those marketed and sold in Europe and Australia were described. His point was that there were quite a number of technical differences between the two engines including in respect of the software used in those engines. 60 In his second affidavit, Mr Williams informed the Court that, in addition to speaking with Freshfields, he would consult with any relevant US law firms if he considered it necessary to do so in order to comply with the orders of this Court. He also informed the Court of further information which he had obtained since swearing his first affidavit concerning the particular roles of Supervisors A, B, C, D, E and F. Mr Williams said that he had been informed by a lawyer at Freshfields that Supervisors A, D and E were not involved at all in the development of the switching software and that their involvement in the events the subject of the US Plea Agreement had occurred later. He went on to say that the 12 individuals of whom the respondents proposed to make enquiries as specified in his first affidavit included persons who were involved in the original development of the relevant software in the US as well as in Europe. The burden of Mr Williams' second affidavit was, in part, that there was no utility whatsoever in compelling the respondents to make enquiries of Supervisors A, D and E and that, if the respondents were required to make enquiries of those persons, the suggested 7 March 2018 deadline could not be met. 61 At par 13 of his second affidavit, Mr Williams said: If the interrogatory is extended to US vehicles we will need to undertake a similar exercise for additional individuals to determine whether they fall within the scope of the interrogatory and if so to prepare an answer and then determine what further inquiries might need to be made. To the extent that there is information already held by Volkswagen or its lawyers which would enable the preparation of all or a substantial part of the answer to an interrogatory directed at US vehicles, the task of locating and gathering that information it [sic] is in itself significant and will be measured in weeks. Based on the inquiries I have made to date, I am not yet able to say how many individuals this would involve. 62 At par 14 of the same affidavit, Mr Williams made the point that, if the word "modification" remained in proposed interrogatory 1.1, the logistical problems to which he referred at par 13 of his affidavit would be "multiplied". 63 In their Submissions, the respondents argued that the US position was entirely irrelevant. For the reasons articulated by the ACCC, I do not agree with this submission. 64 The respondents submitted that they should not be compelled to answer proposed interrogatories 1 and 2 in respect of individuals whose only involvement was with the US market.

Decision (Interrogatories 1 and 2) 65 The evidence led by the ACCC in support of its present application established that the Volkswagen companies and Jones Day conducted comprehensive investigations in 2015 and 2016 with a view to ascertaining: (a) The identity of those employees of the Volkswagen group of companies who decided to create, design, develop and install the switching software into the EA 189 diesel engine; (b) When those decisions were made; and (c) Why those decisions were made. 66 I have no doubt that, as a result of those investigations, it is highly likely that senior management personnel within Volkswagen AG and senior lawyers at Jones Day and at Freshfields are already in possession of information which includes the information described at [65] above. If that be true, then I see no reason why interrogatories 1 and 2 cannot be answered by 7 March 2018. It is not appropriate to assess the task involved by reference only to enquiries made since December 2017 at the instigation of Clayton Utz. Much was done by Volkswagen AG and its European and US lawyers long before then. I do not accept Mr Williams' evidence in par 11 of his second affidavit. He has done his best to estimate the time involved but the weight to be given to his views is largely dependent on information given to him by others who did not give evidence in the present applications. 67 Further, the evidence led by the ACCC is sufficient for present purposes to satisfy me that the switching software was initially developed in order to be installed in the EA 189 diesel engines used in vehicles intended to be sold in the US and was subsequently (either in its original form or adapted) installed in EA 189 diesel engines used in vehicles which were intended to be and which were, in fact, sold in other places around the world including in Australia. 68 I think that the respondents should be required to provide information in the form of a verified answer to interrogatories which informs the Court and their opponents of the identity of all persons involved in the development, design and creation of the switching software (including for the purposes of the US market) and in the modification of that software both for the purposes of the US market and other markets (including Australia) as well as the other matters specified in interrogatories 1 and 2. I do not agree that the obligation to make all reasonable enquiries imposed upon the respondents should be confined to the 12 persons referred to in par 8 of Mr Williams' first affidavit. 69 The answers to interrogatories 1 and 2 assume particular importance in the proceedings before me because the respondents seek to disown those employees who were responsible for designing and installing the switching software in the relevant engines and because no current or former employee of any of the respondents is to be called to give evidence at the Stage 1 trial. Further, as Senior Counsel for the MB applicants correctly submitted, for the respondents to be in a position to argue that those responsible for this so-called scandal were acting outside their authority, the respondents must know the identity of those persons, the positions which they occupied and what they actually did. 70 I see no reason to delete the word "modification" from interrogatory 1.1 given that I am satisfied for present purposes that the idea to develop and install switching software in the EA 189 diesel engine was initially pursued for the US market.

Interrogatories 5.4 and 5.5 71 Initially, the respondents opposed the whole of interrogatory 5 on technical legal grounds. Some of those objections were addressed in subsequent iterations of interrogatories 5.4 and 5.5 and by the abandonment of interrogatories 5.1, 5.2 and 5.3. 72 Ultimately, the respondents maintained their objection to interrogatories 5.4 and 5.5 upon the following grounds: (a) Interrogatory 5.4 still requires a narrative statement in respect of when and how the development of the software in vehicles sold in Australia diverged from the development and/or operation of the software installed in the US vehicles. This is objectionable because it requires the respondents to form opinions, to exercise judgment and to draw conclusions in relation to technical matters. These are complex questions of fact that are inappropriate for an interrogatory; (b) The oppressive nature of interrogatories 1 and 2 is magnified if interrogatories 5.4 and 5.5 are allowed. To date, no work has been done, in the context of dealing with the purpose interrogatory, to identify persons whose involvement was limited to US vehicles. For this reason, to answer interrogatories 5.4 and 5.5 would take many months; and (c) The respondents' preparation for the Stage 1 trial will be prejudicially affected if they are required to answer interrogatory 5.4. The respondents have already been asked to describe the differences between the US vehicles with the relevant software installed and vehicles sold in Australia with the relevant software installed and have answered such interrogatories including by filing detailed submissions addressing the relevant question on 29 November 2017. The respondents will also be prejudiced in their preparation of the Stage 1 trial by being required to answer interrogatory 5.5. That interrogatory calls for comprehensive explanations as to the modifications made to the software from time to time and requires an exposition of the reasons for each such modification. The reasons sought are those which were known by any of the individuals identified in response to interrogatory 1. Discovery has been given of relevant change requests and other documents which should be adequate for the ACCC's legitimate Stage 1 trial purposes. 73 The ACCC submitted that interrogatories 5.4 and 5.5 are aimed at clarifying the differences between the US and European/Australian software in the EA 189 diesel engine and its close variants. The ACCC submitted that, because the respondents intend to object at the Stage 1 trial to the tender of material designed to establish the relevance of certain admissions and other communications made by the respondents in the US, the ACCC was entitled to interrogate the respondents about the differences between the US vehicles and those sold and marketed in Australia with a view to demonstrating that those differences did not justify the rejection of documentary material designed to establish relevant evidence (in particular, by way of admission). The ACCC went on to submit that some of the confidential US documents demonstrated that the US and the European/Australian software is intrinsically interlinked and that there were significant overlaps between those two types of software. 74 The ACCC stressed that interrogatories 5.4 and 5.5 were not directed to all of the software in the engine control unit but rather only to that software which was defined in the Definitions section of its proposed interrogatories. It submitted that this was a narrow definition which had not been fully appreciated by the respondents in the submissions which they made in support of their contention that, to require them to answer interrogatories 5.4 and 5.5, would be oppressive. The ACCC also argued that, in substance, all that interrogatories 5.4 and 5.5 required the respondents to do was to provide a specific account of the divergences (if any) between the specific emissions control switching component of the software in the US vehicles and the same component in those vehicles sold or marketed in Australia and their European equivalents. The ACCC contended that it is the respondents who advance the proposition that the switching software in the US vehicles is substantially different from the switching software in the Australian vehicles and their European equivalents. Therefore, it is they who should be required to explain those differences. That proposition underpins many of the respondents' objections to the applicants' documentary tenders, amongst other things. 75 Interrogatory 5.4 requires the respondents to make an evaluative judgment as to when and how the development and/or operation of the switching software deployed in Australia (as defined for the purposes of the interrogatories) diverged from the development and/or operation of the US switching software as described in a document prepared for the purposes of certain US litigation. The ACCC has the US document, has expert assistance in relation to the detailed workings of the relevant software and, it seems to me, ought to be in a position to tender expert evidence as to whether or not there is any difference of substance between the relevant software in the US vehicles and the relevant software in the Australian vehicles and their European equivalents. 76 Interrogatory 5.4 seeks to extract new information not previously sought from the respondents at a time which is very close to the commencement of the Stage 1 trial. In my judgment, there is a real risk that requiring the respondents to answer such an interrogatory at this point in time may well cause serious prejudice to their preparation for the Stage 1 trial. In addition, there seems to be little prospect that a complete answer to interrogatory 5.4 could be given in time for it to be tendered and otherwise deployed at the Stage 1 trial. I think that, on balance, I should decline to require the respondents to answer interrogatory 5.4. 77 Interrogatory 5.5 requires detailed answers in relation to modifications effected to the switching software as originally installed in vehicles sold and marketed in Australia or their European equivalents. Insofar as the reasons sought by interrogatory 5.5.2 are concerned, the individuals to whom that interrogatory relates are not confined to individuals actually involved in the modification of switching software in vehicles sold or marketed in Australia and their European equivalents. I think that interrogatory 5.5 also has the potential prejudicially to affect the respondents' preparation for the Stage 1 trial. It raises entirely new subject matter and should not be permitted at this late stage. For reasons similar to those given for declining to allow interrogatory 5.4, I refuse the ACCC's application for interrogatory 5.5. 78 I now turn to address interrogatory 9.

Interrogatory 9 79 By this interrogatory, the applicants seek to have the respondents separate out from certain aggregated figures which appear in the 2016 Annual Report of Volkswagen AG those amounts set aside by way of provisions for field activities arising out of the diesel issue and also to separate out other particular amounts. I confess to having some difficulty understanding the relevance of the financial information which interrogatory 9 is designed to extract. As explained to me, the applicants seek to have this information so that they can support a submission with evidence to the effect that substantial amounts were expended by the respondents in order to modify the switching software in preference to deleting it altogether from the relevant engines. Apparently, it will be submitted at the Stage 1 trial that these circumstances will go to support an inference that the relevant vehicles could never have satisfied the emissions standards in mode 2. The submission will be that the respondents would never have spent large amounts of money on modifying the switching software unless they had to. 80 The respondents object to being required to answer interrogatory 9 on the grounds that it seeks information which is wholly irrelevant to the issues currently before the Court. I have a good deal of sympathy for this submission. The use to which the answers will be put seems somewhat problematic to me. However, it is extremely difficult in a case such as this to be confident that a relevance objection of the kind now being taken is undoubtedly correct. No submission based upon oppression in respect of interrogatory 9 was made by the respondents. In those circumstances, I propose to allow interrogatory 9.

Interrogatory 14.3 81 The final interrogatory which is a matter of contest is interrogatory 14.3. The MB applicants do not press interrogatory 14.3 at this stage. The ACCC is the only applicant party pressing for an answer to interrogatory 14.3 at this time. 82 The ACCC wants to know to whom the documents referred to in interrogatory 14 were sent or, perhaps more relevantly, to whom the contents of the documents referred to in that interrogatory were presented by way of PowerPoint presentation. The ACCC suggested that the presentation was made to the US Congress or some committee thereof and that the fact that such a presentation took place "… may be relevant in considering the weight which should be given to the document and its use in these proceedings". 83 I do not think that the justification advanced by the ACCC for interrogatory 14.3 is a good one. At the moment, I cannot see how the identification of persons to whom the contents of the document were presented will add to its weight or admissibility in the present proceedings. I therefore refuse to order that an interrogatory in the form of interrogatory 14.3 be answered.

Conclusions 84 In light of the above reasons, I propose to order that the respondents provide verified answers to interrogatories 1, 2 and 9 as sought by the MB applicants in the three proceedings with which they are directly concerned. I also propose to allow interrogatories 1, 2 and 9 in the ACCC proceedings in the form sought by the ACCC. Necessarily, that involves requiring the respondents to provide certain information concerning events in the US. I do so upon the basis that, for present purposes, I consider that there is a sufficient connection in the manner which I have described between events which took place in the US in relation to the design of the switching software and the installation of that software in vehicles to be sold in the US, on the one hand, and the decision by the respondents to install substantially similar software in vehicles to be sold in Australia and in their European equivalents, on the other hand. 85 I decline to order interrogatories 5.4, 5.5 and 14.3. 86 The MB applicants have had complete success in respect of the interrogatories sought by them which were opposed by the respondents. In due course, they should have the costs of their 5 February 2018 Interlocutory Application incurred in relation to the contest which took place on 14 February 2018. For the present, and until I have finally disposed of the MB applicants' 5 February 2018 Interlocutory Application, I will reserve the costs of that application. 87 Each side of the record in the ACCC proceedings has experienced some success and some failure in relation to the matters of contention as between them. In those circumstances, in due course, I propose to order that the costs of and incidental to the arguments which took place on 14 February 2018 in respect of the ACCC's Amended Interlocutory Application be costs in the ACCC proceedings. 88 For the present, I will also reserve the costs of that application. 89 At some stage, it will be necessary to address the disposition of the 9 November IA. I am inclined to think at the moment that, in all the circumstances, that Application ought now to be dismissed and that the costs thereof should be costs in the MB applicants' proceedings. If the parties to the MB applicants' proceedings have a different view, I will entertain further argument in relation to those matters. 90 I propose to direct the MB applicants and the ACCC to submit a form of orders in each of the relevant proceedings giving effect to these Reasons for Judgment. Those orders should include orders in relation to interrogatories which were not opposed. I will then make Orders in Chambers. 91 All interrogatories now to be ordered must be verified and answered by 5.00 pm on 7 March 2018. I certify that the preceding ninety-one (91) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

By 4.00 pm on 21 February 2018, the applicant lodge with the Associate to Foster J a soft copy in Word format of the orders which she submits give effect to Reasons for Judgment of Foster J published this day (20 February 2018) (Dalton v Volkswagen AG (No 1) [2018] FCA 123).
Thereafter, Orders giving effect to the said Reasons be made in Chambers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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