What is greenwashing?
The Australian Securities and Investment Commission defines greenwashing as “the practice of misrepresenting the extent to which a [product or service] is environmentally friendly, sustainable or ethical”. While greenwashing covers more than environmental claims, environmental claims have attracted the most attention to date.
Why should you care?
Environmental, social and governance (ESG) claims are increasingly influencing consumer behaviour. As a result, greenwashing will receive (and is receiving) significant regulatory focus as inaccurate, or unsubstantiated ESG claims have the potential to mislead consumers. The Financial Markets Authority, Commerce Commission and Advertising Standards Authority have all released guidance on how to make appropriate ESG claims.
How are regulators approaching greenwashing claims?
New Zealand regulators have not been as active as overseas regulators in this area, but we expect that to change over the next few years.
In 2022, the Australian Competition and Consumer Commission reviewed over 240 websites for sustainability representations and noted that many claims were vague and unqualified (i.e. using terms such as ‘responsible’ or ‘sustainable’ without explanation), there was often a failure to substantiate these claims, and use of absolute claims (zero emissions, 100% carbon positive) and comparisons (60% less emissions) without explaining further context.
How can your organisation manage risks?
We recommend that you take the following steps to manage risks associated with ESG-related claims:
- Identify current ESG-related claims within your organisation.
- Conduct a risk assessment of existing claims (seek external legal advice as appropriate).
- Determine your organisation’s risk appetite and develop an approach for future claims.
- If ESG claims have misled or confused customers, consider options for customer redress.
Current Commerce Commission enforcement trendsSome of the key Commerce Commission enforcement trends our experts have observed in the past few years:
- Long delays in resolving Commission investigations, no news isn't necessarily good news.
- Be cautious if the Commission indicates its intention to publish an ongoing investigation on its public register, as it may signify an upcoming enforcement response.
- Keep your business Fair Trading Act compliant to stay ahead – the Commission is particularly focused on representations made to consumers regarding their statutory or contractual rights.
- The Commission often targets "repeat offenders" or companies that are already on its radar.
- Enforcement of product safety standards and investigations into cartel conduct remain enduring priorities for the Commission.
- The Commission is currently placing emphasis on investigating anti-competitive land covenants following its market study into the grocery sector.
Advertising a product or service as ‘free’
Businesses frequently advertise promotions where products or services are offered as “free”, however it is important to ensure that these products/services are genuinely free, without any concealed costs, otherwise such practices may be false/misleading under the Fair Trading Act 1986 (this also applies to “2 for 1” deals). Here are some practical tips for compliance:
- Assess what your standard price point is for products or services, especially if you offer a wide range of price options, before determining whether to offer a product/service as “free”.
- Analyse how different promotional offers interact with each other to avoid misleading consumers.
- Exercise caution if you offer a “free” product or service as part of a higher-priced package, as this could imply that the ‘free’ item has inflated the package price.
- Discounts should not be offered when consumers decline the “free” item, if it is genuinely free.
- Avoid hidden additional costs.
- Clearly state any qualifiers for receiving a free item or service, such as a minimum spend threshold.
- Ensure that items or services advertised as “free” are logged in as free in your system.
For more detail, see the Commission’s guidance available on their website.
Recent Australian cases on unfair contract terms
The Commission has recently filed proceedings against Bachcare (an online platform for booking short term accommodation) seeking declarations that the terms used in its consumer contracts are unfair. This is only the third case brought by the Commission alleging that terms are unfair. While we wait for the outcome of those proceedings we can glean some guidance as to what may constitute an unfair contract term for the purposes of the Fair Trading Act from recent proceedings in Australia under the equivalent Australian prohibition on unfair contract terms.
In Lobux Pty v Willshaun Pty, the Federal Court of Australia found that a general security clause in Lobux’s standard contract was unfair because it went beyond that necessary to protect Lobux’s legitimate interest and was excessive having regard to the other valid forms of security provided under the contract. It also found a unilateral price variation clause with no corresponding right to terminate unfair. In another decision of the Federal Court AIBI Holdings v Virtual Technology Services, the Court commented in obiter that a unilateral pricing clause may not be unfair where the clause permits price increases upon the happening of a certain event, for example if the clause permitted increases where a fixed cost borne by the service provider increased. The Court also commented that a term permitting a supplier to suspend services whilst an amount arising under a separate contract remains unpaid would be found unfair.
When considering whether terms in your standard form consumer or small trade contacts are unfair, it is important to consider:
- How broad is the term – does it go beyond what is needed to protect you legitimate interests?
- Can you draft the term more narrowly so that your interests are still protected in a more limited way?
- Can you include any mitigating terms in the agreement? For example, a right to terminate if a unilateral right to vary terms is exercised.
New misuse of market power prohibition
The misuse of market power prohibition under section 36 of the Commerce Act 1986 was recently expanded placing businesses that hold a substantial degree of market power (SMP) under increased scrutiny.
When does a business hold substantial market power?
Whether a person holds a SMP in a market depends on the extent to which the business faces competitive constraints, including from existing competitors, potential competitors, customers and suppliers. Factors the court considers when determining if a person holds a SMP include its market share, the power of existing competitor(s) in that same market, the nature and extent of barriers to market entry and expansion, the countervailing power of customers and suppliers, and the nature and impact of any regulation.
The revised s 36 now applies where a person with SMP engages in conduct that has a purpose, effect or likely effect of substantially lessening competition in a market the person operates in or related markets. This requires a consideration of the state of competition in the relevant market(s) with and without the impugned conduct. Unlike the previous prohibition, no nexus between the impugned conduct and the market power is required for a breach to be established.
In the Commission’s recent guidelines on the revised prohibition, it lists non-exhaustive examples of conduct that has the potential to harm competition if engaged in by a person with SMP:
- Refusals to supply.
- Margin/price squeezing.
- Exclusive dealing.
- Loyalty rebates.
- Predatory pricing.
Australia introduced the same misuse of market power prohibition in 2017 and the vast majority of the cases brought to date have been by private litigants.
This content was co-authored by Jovana Nedeljkov (Senior Solicitor) and Soomin Yang (Solicitor) in our Corporate and Commercial team.
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