By Robb M. Stewart 

MELBOURNE, Australia--Australia's consumer watchdog is suing Volkswagen AG for misleading consumers and allegedly concealing software in tens of thousands of vehicles to cheat emissions testing.

In a statement Thursday, the Australian Competition and Consumer Commission said it had begun proceedings in the Federal Court of Australia against the German car maker and its Australian subsidiary. It accused the company of engaging in misleading or deceptive conduct, making false or misleading representations and engaging in conduct liable to mislead the public over its diesel-vehicle emissions.

It raises pressure the on Volkswagen, which is already defending a class-action suit in Sydney brought in November by law firms Maurice Blackburn and Bannister Law.

Australia's emission regulations are almost identical to European Union laws. If an Australian court determines that Volkswagen's emissions system contained an illegal element known as a defeat device, Australia could become a precedent for billions of euros in claims in Europe.

In response to the latest case, Volkswagen Group Australia Pty. Ltd. said it was reviewing the claims made by the regulator. It said it didn't think the suit offered any practical benefit for consumers, as the company will soon introduce software solutions for cars affected by its voluntary recall.

"The best outcome for customers whose vehicle is affected is to have the voluntary recall service updates installed," said Michael Bartsch, managing director of Australian operations.

The regulator alleged that between 2011 and 2015, Volkswagen installed and hid defeat software that caused diesel vehicles to produce lower nitrogen oxide emissions under laboratory test conditions, but switched to a different mode under normal driving conditions. The company claimed its vehicles complied with Australian and European standards and marketed the vehicles in Australia as environmentally friendly and clean burning, when that wasn't normally the case, the ACCC said in its claim.

The case covers more than 57,000 vehicles sold by Volkswagen in Australia, including Golf, Jetta and Polo cars and Amarok pickup trucks.

In July, Volkswagen's attorneys told the federal court that was hearing the class action there was no defeat device to manipulate emissions.

Volkswagen in February began a recall of vehicles, starting with 8,694 affected Amaroks, relating to specific diesel engines built between 2008 and 2015 to resolve what it said was a software issue that permitted deviations in nitrogen oxide emissions performance.

In the U.S., Volkswagen admitted to using a defeat device. In June, It agreed to pay up to US$14.7 billion to settle emissions-cheating claims with U.S. consumers and regulators.

Volkswagen has said the situation in Australia and Europe differs to that in the U.S., where regulations covering nitrogen oxide emissions limits are much stricter and engine variants differ significantly. Standards in Australia and Europe--where the company said there is no compensation for customers--focus on lowering carbon monoxide emissions and fuel consumption.

"Consumers rightly expect that their vehicle's emissions would operate as advertised during their day-to-day use, and we allege that this was not the case," said Rod Sims, chairman of the ACCC. "These allegations involve extraordinary conduct of a serious and deliberate nature by a global corporation and its Australian subsidiary misleading consumers and the Australian public."

The regulator is seeking financial penalties, a public declaration of misconduct and corrective advertising from the company.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 31, 2016 23:40 ET (03:40 GMT)

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