It has been one month since the introduction of the carbon price. In that time, we've observed that the Australian Competition and Consumer Commission (ACCC) is carrying through on its promise to pursue businesses that make misleading carbon price claims. So far we have seen a new announcement almost every week of another business having been caught.
We've also observed that the businesses caught so far have been treated rather leniently by the ACCC, although we don't expect this to continue indefinitely. The media has not been so lenient, with all businesses caught so far being reported on nationally. We've also seen a high level job loss with the resignation of the Brumby's Managing Director.
So it's an issue that businesses can't ignore. What should businesses do? We'll take a look at mistakes made by businesses so far and what businesses can do to avoid falling into similar traps.
What the law says
The law says that businesses can't mislead or make false representations. This extends to representations about the impact of the carbon price. Penalties include fines of up to $1.1million.
Businesses making representations about future matters - such as the likely impact of the carbon price must have 'reasonable grounds' for those representations. Businesses making representations about existing matters must ensure those representations are accurate.
ACCC activity so far
The ACCC has set up a carbon price claims hotline. In less than a month, the ACCC received 1260 complaints. The ACCC resolved claims against the first four companies by accepting undertakings rather than imposing fines. On 1 August 2012, the ACCC announced its first fine.
Polaris Solar and ACT Renewable Energy
First up was an announcement by the ACCC on 5 July 2012 that it had accepted undertakings from 2 solar panel suppliers (Polaris Solar and ACT Renewable Energy). The companies had produced and distributed leaflets to households claiming that electricity prices would increase by 20% due to the introduction of the carbon price and that if this continued, electricity prices would increase in excess of 400% by 2019. The leaflet represented that the figures were based on independent studies when in fact they were based on unverified claims in a newspaper advertisement. ACCC Acting Chairman Dr Michael Schaper stated that the 'ACCC (was) of the view that these representations were clearly misleading. There was no reasonable basis for these claims to be made'.
On 16 July 2012, we saw the most high profile instance so far which concerned the infamous memo to franchisees by Brumby's now former Managing Director. The Managing Director had sent an internal memo to 300 franchisees advising them to 'take an opportunity to make some moves in June and July, let the Carbon Tax take the blame, after all your costs will be going up due to it'. ACCC Chairman Rod Sims stated that the 'ACCC (considered) that Brumby's carbon price statement may have had the effect of inducing or encouraging Brumby's franchisees to make representations to retail customers linking product price increases to the carbon price without reasonable basis'.
On 25 July 2012, the ACCC announced that it had again opted to accept an undertaking rather than impose fines for misleading carbon price claims. This time, a South Australian refrigeration contractor, Equipserve Solutions, had sent an email to its customers stating that the entire amount of a price rise was due to the carbon price when in fact this was not the case. Equipserve Solutions acknowledged that its statement was misleading and offered to provide an undertaking and implement a training program. The ACCC noted Equipserve Solutions' full cooperation with the ACCC to promptly resolve this matter.
Genesis Fitness Club – Berwick
On 1 August 2012, the ACCC announced its first fine for misleading carbon price claims. Genesis Fitness Club Berwick sent a letter to 2,122 members promoting a 'RATE FREEZE' offer and represented that by taking up this offer members could avoid a fee increase of 9-15 per cent due to the carbon price. ACCC chairman Rod Sims said, 'The ACCC believes that Genesis Fitness Club Berwick did not have a reasonable basis for claiming the carbon price would increase the cost of gym memberships by 9-15 per cent. We understand that over 200 members took up the offer and extended their contract. We are concerned that the false claims about the carbon price may have encouraged these people to sign lengthy contract extensions they otherwise would not have.'
Observations and lessons
The ACCC has been relatively lenient in its treatment of these companies, with four receiving undertakings and no fines and the 5th receiving a minor fine of $6,600.
Why was the ACCC relatively lenient? The ACCC would have taken into account that the companies cooperated with the ACCC and offered to give undertakings. This is an important lesson/reminder for businesses, particularly if it is clear that they have made misleading representations. The Brumby's matter also demonstrates the importance of acting promptly, and if appropriate publically, to redress any impacts. Their Managing Director resigned and there was a very public apology.
The ACCC may have also taken into account that the representations took place when businesses were less aware of the risk of misleading carbon price claims. The ACCC may be less lenient as time progresses.
The initial matters demonstrate a number of risks: the Polaris matter highlights the risk of relying on unsupported third party sources for carbon price information and the Brumby's matter highlights the risk of internal communications and flippant or careless comments, and the risk of encouraging others to mislead.
It is also worth noting that all businesses caught so far have been reported on nationally. The Brumby's matter in particular demonstrates the tremendous public relations risks associated with misleading carbon price claims and the need for caution.
How can you avoid making misleading claims?
- Review all existing and intended communications relating to carbon price to ensure they are not misleading. Ensure they do not overstate or misstate the impact of carbon price.
- If you want to link a price hike to the likely impact of the carbon price (and there are likely to be good commercial reasons for doing so), you must have "reasonable grounds" for believing that the likely impact of the carbon price on your price is equivalent to the actual price rise.
- The first step is to investigate the likely impact of the carbon price on your particular business. Possible steps include asking suppliers for details of the impact, considering how any information received applies to your particular business, using an online calculator, checking figures against industry ranges, engaging advisers etc. You should consider the adequacy of particular steps for your particular business and be wary of relying on unsupported third party sources for carbon price information.
- Keep evidence to support your determination of both the likely impact of the carbon price on your business and the price rise needed to offset that likely impact.
- If this all proves too difficult or uncertain, consider either not linking a price hike to the carbon price or making a statement such as 'the price increase is due to an increase in the overall cost of running the business' or 'the price increase is due to a range of factors including the carbon price'.
- Keep in mind that you can increase price as you see fit but if you do provide a reason, the reason can't be misleading.
- When considering if any statements or representations that you want to make could be misleading, consider the overall impression of the statement or representation as opposed to just the specific words used and ensure that the overall impression is not misleading.
- Ensure that employees are properly briefed on this issue so that they do not mislead consumers.
- Don't encourage others to mislead and don't make flippant comments about this issue (as in the Brumby's matter).
- If in doubt, seek advice.
- Don't ignore the issue as the ACCC is focussing on this area and businesses are getting caught.
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.