The first major German court case against Volkswagen over the "dieselgate" scandal that has shaken up the car industry gets under way Monday, as investors pursue the world's largest automaker for billions in compensation.
From 10 am (0800 GMT) the regional court in Brunswick will examine whether the auto giant should have informed investors sooner about so-called "defeat devices" it built into 11 million cars worldwide to fool regulatory emissions tests.
On the first day, "we are hoping for first indications from the judges about their view of the facts and the legal position," said Andreas Tilp, a lawyer representing investment fund Deka.
The shareholder's "model case" against VW is supposed to clear up more than 200 questions common to some 3,650 claims totalling around 9.0 billion euros ($10.5 billion), with judges expected Monday to highlight timelines and priority issues in the massive case.
At issue is a 40-percent plunge in Volkswagen stock over two days in September 2015, which wiped billions off its market value.
After markets closed on Friday, September 18 that year, US authorities accused the group of using the defeat devices—engine software designed to cut harmful emissions during regulatory tests, only to allow them to rise again during on-road driving.
Investors say they could have avoided painful losses had executives—who are legally obliged to share promptly any information that could affect the share price—informed them sooner of the cheating.
Ahead of Monday's hearing, Volkswagen lawyer Markus Pfueller said the group was "confident" that it had "complied with its disclosure obligations toward shareholders and the capital markets".
So far, dieselgate has cost VW more than 27 billion euros in fines, vehicle buybacks and recalls and legal costs, mostly in the US.
'Every nut and bolt'
Judges are expected to take at least until next year to rule.
Deka lawyers argue that board members knew about the fraud and should have revealed it between the offending software's first deployment in 2008 and September 2015.
For its part, VW blames a handful of engineers acting without authorisation for the scheme, and says the information it had before the American authorities intervened was not significant enough to warrant warning capital markets.
At the centre of attention in the court case will be Martin Winterkorn, the trained engineer who claimed to know "every nut and bolt" of Volkswagen's entire range of models and ran the company as chief executive from 2007 to 2015.
VW said in 2016 that Winterkorn—who stepped down after the scandal became public—was sent a "memo" highlighting emissions irregularities in the manipulated EA189 engine, without confirming whether he ever read it.
Backed by government tax incentives, German and other European carmakers bet big on diesel in the 1990s and 2000s as a lower-carbon alternative to petrol engines.
But the "dieselgate" scandal has revealed the flipside of the technology, nitrogen oxides (NOx) emissions that can be harmful to health.
Investigations into Volkswagen and other manufacturers are dragging on.
Another investor probe starting Wednesday, against Porsche SE, the holding company with a controlling stake in VW, could be stalled or superseded by the Brunswick case.
Rupert Stadler, CEO of VW subsidiary Audi, is in custody on suspicion of fraud and issuing false certificates, and VW-owned Porsche, Mercedes-Benz manufacturer Daimler and components supplier Bosch are in prosecutors' sights.
Meanwhile, the fallout for German society has been far wider-ranging.
The EU has toughened emissions testing with a new procedure known as WLTP, which comes into force this month.
Car companies are hoping a flood of new battery-powered vehicles will help meet tighter fleet-wide CO2 targets that bite from 2021, rather than ever-more efficient diesels.
And courts are increasingly pressuring German cities to clean up their air, with a diesel ban on two major roads in Hamburg and city-wide exclusion zones for older vehicles coming in Stuttgart and Frankfurt.
Consumers have reacted to the prospect of more bans by shunning diesel, sending its share of the new car market plunging from 46.5 percent in August 2015 to 32.6 percent last month.
Potentially even more terrifying for carmakers is a law allowing collective class action-style lawsuits that Berlin aims to pass before the statue of limitations runs out for VW.
"Some two million owners could benefit," Justice Minister Katarina Barley said in May.
VW 'dieselgate' fraud: Timeline of a scandal
As Volkswagen faces the wrath of investors in the first mass "dieselgate" lawsuit on its home turf, here's a look at how the emissions cheating was uncovered and the fallout for the auto giant:
US researchers at the University of West Virginia discover that certain VW diesel cars emit up to 40 times the permissible levels of harmful nitrogen oxide when tested on the road.
September 18: The US Environmental Protection Agency accuses VW of duping diesel emissions tests using so-called "defeat devices".
September 22: Volkswagen admits installing software designed to reduce emissions during lab tests in 11 million diesel engines worldwide. VW shares plunge by 40 percent in two days.
September 23: Chief executive Martin Winterkorn steps down but insists he knew nothing of the scam.
April 22: VW announces a net loss for 2015, its first in 20 years, after setting aside billions to cover the anticipated costs of the scandal.
June 28: VW agrees to pay $14.7 billion in buybacks, compensation and penalties in a mammoth settlement with US authorities. The deal, which covers 2.0 litre diesel engines only, includes cash payouts for nearly 500,000 US drivers.
September 21: The first VW investors file lawsuits in a German court seeking billions in damages. They accuse the automaker of failing to communicate about the crisis in a timely way.
December 8: The European Commission launches legal action against seven EU nations including Germany for failing to crack down on emissions cheating.
January 11: VW pleads guilty to three US charges including fraud and agrees to pay $4.3 billion in civil and criminal fines.
As part of the plea deal, VW signs up to a "statement of facts" in which it admits that the cheating dates back to 2006, but it remains unclear how much the top brass knew about the scam.
January 27: German prosecutors say they are investigating Winterkorn on suspicion of fraud, accusing him of knowing about the defeat devices earlier than admitted. He is already under investigation for suspected market manipulation over the scandal.
February 1: Car parts maker Bosch, which supplied elements of the software, agrees to pay nearly $330 million to US car owners and dealers but admits no wrongdoing.
VW says it will pay at least $1.2 billion to compensate some 80,000 US buyers of 3.0 litre engines as well as buying back or refitting their vehicles.
August 25: A Michigan court sentences VW engineer James Liang to 40 months in prison and a $200,000 fine, after he pleads guilty to conspiracy to defraud the US and to violating the US Clean Air Act. He had asked for a more lenient sentence after cooperating with investigators.
December 6: VW executive Oliver Schmidt, who was arrested while on holiday in Florida, is sentenced to seven years in jail after pleading guilty to fraud and violating the US Clean Air Act.
February 23: VW roars back to profit after record sales in 2017.
February 27: A German court paves the way for cities to ban the oldest diesels from their roads to combat air pollution.
April 12: VW brand chief Herbert Diess hastily replaces CEO Matthias Mueller after he too lands in prosecutors' sights.
April 20: A top manager at Porsche, a VW subsidiary, is arrested in Germany as part of "dieselgate" inquiries.
May 3: Winterkorn is indicted in the US, accused of trying to cover up the cheating.
June 13: VW agrees to pay a one-billion-euro fine in Germany, admitting its responsibility for the diesel crisis. The scandal has now cost the group over 27 billion euros.
June 18: Rupert Stadler, CEO of VW's Audi subsidiary, is arrested in Germany, accused of fraud and trying to suppress evidence.
Six things to know about Volkswagen's latest court case
The first major court case against Volkswagen over its cheating of emissions tests on 11 million diesel vehicles worldwide begins Monday. Here are six things to know about the trial.
What is the case about ?
The case in Brunswick, near VW's Wolfsburg headquarters in northern Germany, focuses on the plunge in the mammoth group's share price in September 2015.
After American authorities revealed its mass diesel cheating, the stock shed some 40 percent in two days.
Now investors are demanding compensation for their losses, saying Volkswagen should have warned them sooner about the risks.
Why should we care?
This is the first major trial related to "dieselgate" in Germany, where previously only a few individual customers have brought the carmaker to court and the results have not been made public.
In the US, VW settled claims with customers for some $14.7 billion, and two former managers were jailed.
While Monday's case deals with the technical aspects of how and when the group communicated with financial markets, the court will have to lay out a timeline of the scandal and determine when executives knew about the cheating.
Such details are vital to ongoing criminal investigations in Germany.
What must the court decide?
Brunswick judges will rule on more than 200 questions submitted by the two sides in the case.
Among the most vital are whether VW should have let investors know about its cheating software, whether it deliberately covered up the information, and which board members knew what—and when.
The answers will then be carried over to more than 3,000 pending court cases from investors against VW and Porsche SE, the holding company that owns a controlling stake, to determine whether compensation should be paid out.
What are the risks for VW ?
In total, the shareholders represented in those over 3,000 cases are demanding 9 billion euros ($10.5 billion) in compensation.
But if judges rule against VW, it will be up to the courts to decide in each case how much is owed.
So far, the group has paid out more than 27 billion euros in fines, legal costs and buy-backs over dieselgate in Europe and the US.
What do the investors say?
Lawyers for investment fund Deka, whose case is a "model" for the others with similar characteristics, argue VW should have informed investors at several points between 2008—the time of the cheat software's first deployment—and September 22 2015, when it first admitted to the fraud.
They argue that managers knew about the so-called "defeat device" and that that information would likely have an impact on the group's share price.
What's Volkswagen's defence?
The world's biggest carmaker says that information available at the time did not make communicating with shareholders legally necessary.
They argue that the cheating was a scheme by a small group of engineers acting without their superiors' knowledge or authorisation.
Once alerted by the US authorities, executives did not realise how serious the scandal would become, they add, believing it could be resolved amicably.
Explore further: Volkswagen faces German court showdown over 'dieselgate'