Australia: ACCC issues guidance for businesses in relation to carbon price claims

Landlord and Tenant Alert

Focus: The effect of the carbon price on costs
Services: Property & Projects
Industry Focus: Property

In its May alert, the DibbsBarker Leasing Team considered the carbon price impact on lease transactions. One of the conclusions from that alert was that the carbon price will likely drive costs upwards in some areas, and that landlords may seek to pass on any increased costs to tenants, and tenants may seek to pass them on to consumers.

The purpose of this June alert is to highlight the importance of ensuring that the effect of the carbon price on costs is not misrepresented, and that the carbon price is not used as a convenient scapegoat to mask other cost increases.

The Australian Competition and Consumer Commission (the ACCC) has been directed by the Australian government to undertake a compliance and enforcement role in relation to claims made about the impact of the carbon price.

The ACCC has released guides for businesses in relation to carbon price claims to assist businesses to understand their rights and obligations when making claims about the impact of a carbon price. The most recent guide can (at the time of writing) be found here.

What is the reason for the release of the guide?

A carbon price will apply in Australia to certain greenhouse emissions from 1 July 2012. Some businesses will be required to purchase carbon credits, which will result in price increases for certain goods and services.

The focus of the guide is to assist businesses to make claims that are not misleading, deceptive or false under the Australian Consumer Law (the ACL), which is part of the Competition and Consumer Act 2010 (Cth) (the Act).

Section 18 of the ACL prohibits businesses from engaging in conduct that is misleading or deceptive or that is likely to mislead or deceive.

Section 29 specifically prohibits businesses from making false or misleading representations about the price of goods or services.

The concern is that the introduction of the carbon price might lead to businesses misrepresenting the impact of it on their pricing. There are no new requirements or obligations being placed upon businesses when making price and price increase claims. Rather, the ACCC guide draws attention to the application of existing obligations to the current situation.

What claims can and cannot be made?

Any claim made by business must be truthful, accurate, not misleading based on reasonable grounds and be able to be substantiated. A carbon price claim to explain a price increase is no different.

Take this claim, for example: "Due to the new carbon price, we will be increasing the price of our products by 10% on 1 July 2012."

This claim may or may not be valid. It would be valid if it is factually correct, and the price increases are attributable to an increase in costs arising as a result of the carbon price. Equally, it would be invalid if the increase in costs is not due to the carbon price.

These cost increases can be those directly incurred by a supplier as an impact of the carbon price or, for example, flow on price increases that are attributable to an increase in the costs of products used by the supplier that are sourced from a third party, provided that increase is also as a result of the carbon price and not some other reason, such as rent or wage increases.

Businesses will find themselves in trouble where they make these sorts of statements and they are simply not true, or are an exaggeration of the impact of the carbon price, where only a proportion of the price increase is actually due to the carbon price.

Business may also be tempted to use the impact of the carbon price as a way of encouraging customers to purchase their products now, before the carbon price is introduced, and before any consequent price increases take place. "Beat the carbon tax – buy now" is an example highlighted by the ACCC in one of its guides.

This approach is likely to be fraught with danger as it implies real savings are to be made, and this would clearly need to be the case. A business would need to have made a proper assessment on the impact of the carbon price on its prices, and satisfied itself that there will be a sufficient increase to justify this type of statements. The real risk of making a statement like this now is that a business may not yet be sure as to what effect the carbon price will actually have on its prices. In addition, any third party suppliers may also not yet have calculated the impact of the carbon price on their costs.

It is not just written claims that can be caught

One difficulty that businesses will have to work out a way to manage is that it is not just written or spoken claims in adverts and catalogues, or on websites, that are caught, but also verbal representations made by staff on the shop floor, in meetings or in negotiations. For this reason, businesses should take a position on the issue and comprehensively communicate that position to their staff.

A business does not want its staff making assumptions and false statements without the facts.

Key points in the ACCC guide

The most recent guide published by the ACCC emphasises these key points:

  • claims your business makes about the impact of the carbon price must be truthful and have a reasonable basis
  • care should be taken when relying on third party information to support any claim about the impact of the carbon price
  • your business must determine its carbon costs and prices independently from its competitors
  • your business should avoid discussions and agreements with competitors about the price impact of the carbon price
  • if your business makes a claim about the carbon price, it must not overstate or misrepresent the impact of the carbon price, and
  • your business may also be responsible for claims made by its employees in relation to the impact of the carbon price.

Penalties and compliance

It is important that businesses get it right because the penalties for getting it wrong can be high. A body corporate can be fined up to AUD$1.1 million for each breach, and an individual up to AUD$220,000. The ACCC can also seek a wide range of orders from the Court, including an injunction, compensation orders, orders voiding or varying contracts, an order disqualifying a person from managing corporations, and an order seeking the establishment of a compliance program.

Outside of the court process, the ACCC has some powerful tools. One power which will no doubt be useful and widely used is the power to issue substantiation notices, requiring a business to substantiate any claims it is making within 21 days. It is important for businesses to therefore keep all information relied upon when making claims. It is an offence not to respond to one of these notices, or to respond with false or misleading information.

Take away

Businesses should remember the following:

  • price increases do not always need to be publically justified, but if you claim they are due to a particular cause, you must be able to substantiate that claim
  • the uncertainty as to the actual impact of the carbon price means that you really need to be careful when making carbon price related claims: if in doubt, do not make any carbon price related claims
  • if you are going to make carbon price related claims, do your homework and do your research: do not just guess
  • the ACCC has wide ranging powers including the ability to require you to substantiate any claims you make, and appears to be taking a pro-active stance around this issue
  • the penalties for non-compliance can be high, and
  • it is not only the ACCC that can bring an action for these types of false claims, but also consumers and other businesses, particularly competitors.

The ACCC is clearly heavily focussed on this role, and it will likely be vigilant as to the claims businesses make in relation to the impact of the carbon price. It has already announced that it has received over 200 complaints on this issue and is vigorously investigating at least four of those complaints, including within the property industry.

Any confusion surrounding the impact of the carbon price should not be used to take advantage of tenants or consumers. Given the guidance it has provided, and the emphasis it has placed on this issue, the ACCC is unlikely to show lenience to those that try.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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