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HG Alert: Emissions trading and misleading and deceptive conduct - 28 July 2009

On 11 June 2009, the Australian Conservation Foundation submitted a complaint (Contradictory Carbon Claims – ACCC Complaint at www.acfonline.org.au) to the Australian Competition and Consumer Commission, alleging that six Australian companies had breached the misleading and deceptive conduct provisions of the Trade Practices Act.

This complaint is a timely reminder that companies need to exercise extra caution with regards to what they tell their shareholders on the one hand, and what they plead to the Government on the other.

The Australian Conservation Foundation complaint lists 14 instances where Boral, BlueScope Steel, Caltex Australia, Rio Tinto, Woodside Petroleum and Xstrata are alleged to have displayed a clear disjuncture between statements regarding the Government’s proposed Carbon Pollution Reduction Scheme and its effect upon the operations, profitability and workforce, as opposed to the public statements the companies have made to shareholders and investors in relation to their operations and profitability.

Trade Practices Act 1974

The Australian Conservation Foundation alleges that the public statements by the companies are in breach of section 52 of the Trade Practices Act. The Act primarily provides for the protection of consumers by regulating the practices of companies within Australia. The provisions of the Trade Practices Act are mirrored in the Fair Trading Acts provided in each State, which also protect consumers by regulating the practices of individuals. The Trade Practices Act establishes and is regulated by the Australian Competition and Consumer Commission.

Section 52 of the Trade Practices Act prohibits corporations from engaging in conduct in trade or commerce which is misleading or deceptive or is likely to mislead or deceive. For the six companies to have breached section 52 of the Trade Practices Act, they must have made representations in trade or commerce that were misleading or deceptive and were capable of inducing a class of people into error.

The first question is whether the public statements made by the six corporations about the effect of the Government’s Carbon Pollution Reduction Scheme on operations and profitability were made in trade or commerce. The Australian Conservation Foundation alleges that the statements were designed to influence politicians and members of the public, and that the six companies obtained a competitive advantage over less polluting corporations when coupled with the success of the companies in obtaining such things as:

  • increased financial support and the allocation of free permits;
  • the delayed commencement of the Carbon Pollution Reduction Scheme; and 
  • the price cap of $10 per permit for the first year of Carbon Pollution Reduction Scheme.

The Australian Conservation Foundation says that this advantage was obtained in the course of the companies’ trading and commercial activities and was therefore “in” trade and commerce.

The second question is whether the representations were misleading. If a corporation makes a representation about a future matter, then under section 51A of the Trade Practices Act that representation can be taken to be misleading.
The corporation can only escape liability by proving that it had reasonable grounds to make the representation. The Australian Conservation Foundation alleges that the six companies involved have made representations to the Government about the future alleged detrimental effects of the Carbon Pollution Reduction Scheme, while at the same time, issuing statements to shareholders and investors that fail to specifically disclose the costs or impact of the Carbon Pollution Reduction Scheme on their future operations and profitability.

Whether or not such statements contravene the Trade Practices Act and whether a class of people (such as shareholders and investors) has been led into error, or is likely to be led into error, remains to be seen.

Remedies

The range of remedies available to a person affected by a corporation’s misleading and deceptive conduct includes the ability to recover amounts lost, not only from the companies, but in some circumstances, also from the directors who assisted in the conduct.

The Australian Competition and Consumer Commission also has the power to seek orders compelling companies to publish public apologies and undertake trade practices compliance programs for misleading and deceptive conduct.

The Australian Conservation Foundation is seeking a number of remedies against the six companies, including a requirement that the companies’ political statements regarding the Carbon Pollution Reduction Scheme be reconciled with their statements to shareholders and investors, and for the companies to publicly address the misleading conduct in order to prevent it from occurring again.

Conclusion

Some detractors have labeled the Australian Conservation Foundation complaint as “dubious” and a “public relations ambush” (The Weekend Australian, 20 June 2009, p 27). The only company of the six to respond to the Australian Conservation Foundation is Boral, which issued a media release on 15 June 2009 (Boral’s Response to the ACF/ACJP Report on Corporate Climate Risk Disclosure (media release) at www.boral.com.au). Boral has strongly refuted the allegations made by the Australian Conservation Foundation, saying that its “reporting and public statements have been consistent … and not false and misleading”.

The Australian Competition and Consumer Commission is yet to announce its intentions. However, this complaint serves as a timely reminder to all companies. As the roll out of the Government’s Carbon Pollution Reduction Scheme continues and companies attempt to lobby the Government in relation to aspects of the legislation, they should at the same time ensure that their disclosure obligations to shareholders and investors under the Corporations Act are also being met and there is no clear disjuncture between the two.

HopgoodGanim’s detailed analysis of the proposed Carbon Pollution Reduction Scheme legislation is available online. For more information on the Carbon Pollution Reduction Scheme’s impact on the Trade Practices Act, please contact HopgoodGanim’s climate change specialists.