When green wash won’t wash: Avoiding misleading environmental claims

This article first appeared in the Law Society Journal (November 2008), Vol 46, No 10, pp. 50-54.

Introduction

Businesses are increasingly keen to present an environmentally friendly or "green" image to their customers. Both large and small businesses realise that it makes good business sense to offer environmentally conscious consumers the option of a green product or service. Customers are often willing to pay a significant price premium for a green product.

Unfortunately, many businesses, including large businesses, have made fundamental mistakes in their green marketing. Instead of getting positive publicity for offering a green alternative, these companies have received negative publicity for their “green wash”. In some cases, these companies have had to grapple with unwanted attention from the ACCC.

This article explores some of the green marketing mistakes that businesses have made in trying to sell their green credentials and proposes some guidelines that practitioners can use to help their clients to avoid these kinds of mistakes.

Relevant law

The Trade Practice Act 1974 (TPA) contains two main civil provisions which can be used to attack false or misleading green claims. 

Section 52 prohibits corporations from engaging in conduct which is misleading or deceptive, or is likely to mislead or deceive, while s.53 prohibits corporations from falsely representing:

that goods are of a particular standard, quality, composition or have had a particular history; or that goods have performance characteristics or benefits they do not have.

These provisions are mirrored under state fair trading legislation which applies to corporations, individuals and unincorporated entities.

The remedies available for a contravention of ss.52 and 53 include injunctions, declarations, damages, corrective advertising and non-punitive orders.

Practitioners should be aware criminal penalties of up to $1.1 million per contravention[1] may be available to punish more serious misrepresentations about environmental benefits.

One important aspect of the civil liability regime under the TPA is that it establishes a reverse onus of proof for representations about future matters.[2] Therefore, if your client makes a representation about the future environmental benefits of their product, it may bear the onus of demonstrating that it had reasonable basis for such representations.

Getting caught out

There are many groups monitoring the green claims made by business and there is a high likelihood of getting caught out if you make false green claims. First, the Australian Competition and Consumer Commission (ACCC) appears to have made green claims an enforcement priority. The ACCC has been very active in this area, having taken an increasing number of green representation cases in the last 12 months.

Second, there are a large number of vigilant and sophisticated non-government organisations constantly on the lookout for green claims that are misleading. For example, a complaint by the Total Environment Centre prompted the ACCC to investigate EnergyAustralia (discussed below). These organisations can also initiate their own private actions of breaches of the relevant civil provisions of the TPA.

The final major risk is posed by competing businesses. Competitors will be very keen to complain to the ACCC about a green claim which does not stack up.

ACCC enforcementThe ACCC is increasingly active in the area of green marketing claims. In the last 12 months it has concluded eight investigations into green claims.

The first notable series of environmental investigations taken by the ACCC relate to claims made by the Australian air-conditioning industry that its products were “environmentally friendly”. The first case was taken against Sanyo Airconditioning Manufacturing Singapore Pte Ltd,[3] which claimed that its Eco Multi Series air conditioners had "environmentally-friendly HFC 'R407C' Added" and were "for a new ozone era - keeping the world green".

A problem with this representation is that R407C is considered to be a potent greenhouse gas and as such is hardly “environmentally friendly”. Another gas used in the Eco Multi Series was R22, an ozone depleting hydrochloroflurocarbon, is clearly not beneficial to the ozone layer.

Two important issues arise from this case (which was settled by consent).

First, the ACCC seems to have taken the view that “environmentally friendly” is a representation that a product will have a neutral effect, as opposed to a beneficial effect, on the environment. Therefore a product that does not harm the environment could arguably be described as environmentally friendly.

Second, the ACCC took action against Sanyo Airconditioning for both the text used in its marketing materials as well as the images of trees, the sea and the moon. The ACCC formed the view that such images conveyed a strong environmental message to consumers.

Following this case, there were two further notable investigations into Daikin[4] and Dimplex[5] for making similar representations. In each of these cases the companies entered into s.87B undertakings to cease making the green representations and carry out a range of corrective remedies, including publishing corrective notices on their websites and industry magazines and writing corrective letters to customers and distributors.

Another area of ACCC activity relates to green representations made in relation to motor vehicles.

Recently, the Federal Court declared by consent that representations made by GM Holden Ltd about the environmental benefits of Saab motor vehicles were misleading.[6] In particular, GMH made the claim that “Every Saab is green. With carbon emissions neutral across the entire Saab range”. The basis for this claim was that GMH would plant 17 native trees per vehicle to offset the emissions generated during the life of each motor vehicle. In actual fact, the 17 trees would have only offset the carbon emissions for one year of motor vehicle’s operation.

GMH was ordered to refrain from making such representations in the future and to retrain its marketing staff. However, the largest cost to GMH (apart from the damage to its credibility as a seller of “green” products) was its offer to plant an additional 12,500 trees to offset the carbon emissions from the motor vehicles which it did sell during the Saab "Grrrrrreen" advertising campaign.

Another recent ACCC matter involved green representations by V8 Supercars as part of its ‘Racing Green Program’.[7] V8 Supercars claimed that planting 10,000 native trees would offset the carbon emissions from the V8 Championship Series as well as all associated transport emissions of the racing teams travelling to events. The ACCC was concerned that consumers would understand that the 10,000 trees would absorb the carbon emissions in a short period of time, when in actual fact the emissions from one year of racing would only be absorbed by these trees over several decades.

The final matter involved representations made by Goodyear about its Eagle LS2000 range of tyres.[8] Goodyear said that this tyre range was environmentally friendly, designed for minimal environmental impact, and that its production processes resulted in reduced carbon dioxide emissions. Goodyear settled this matter with the ACCC by providing a s.87B undertaking in which it admitted that these environmental benefits could not be substantiated.

The ACCC has also looked at green claims made by energy companies. It investigated EnergyAustralia’s representations about its CleanAir and GreenFuture non-accredited electricity products.[9] EnergyAustralia claimed that consumers who signed up would get “100% green electricity at no extra cost” and that “for every kilowatt hour of electricity you buy, the same amount of electricity will be generated from 100% renewable sources, and that’s guaranteed”.

The ACCC was concerned that consumers would conclude that they were supporting new sources of renewable energy rather than simply offsetting their electricity against existing sources. While EnergyAustralia did not admit that its representations were misleading, it did acknowledge that customers may have been confused by the representations. EnergyAustralia agreed to a range of remedies including compensation, corrective letters to customers and a contribution of $100,000 to an educational brochure to explain the difference accredited and non-accredited products.

Lessons

The main lessons to come out of this review of ACCC investigations are: 

• don’t let your client make a green representation unless it has the scientific evidence to back up the claim; 

• be careful how your client uses images in green marketing material as the ACCC will be looking carefully at any images used, and not just the text; 

• don’t let your client overstate the environmental benefits of a green initiative; 

• make sure your client’s green representations are not too confusing for consumers; and 

• recognise that some environmental benefits are simply too complex to translate into a short and sharp marketing message. 

Resources

There are three key resources for practitioners who are advising clients in the area of green marketing claims:

• “Green marketing and the Trade Practices Act”.[10]

• “Carbon claims and the Trade Practices Act”.[11]

• “Environmental labels and declarations – Self-declared environmental claims”.[12]

“Green marketing and the Trade Practices Act”

This guide was released by the ACCC in 2008. It explains the specific sections of the TPA that may apply to green marketing claims.

In section 2 the guide sets out a range of principles that businesses should consider prior to making environmental claims. One important principle is that when a business makes a green claim it should consider the whole life cycle of the product. Even if a product is not environmentally detrimental during its useful life, if it has significant environmental impacts when discarded, a business should avoid making broad unqualified environmental claims about it.

In section 4 there is a useful “Checklist for marketers”. This checklist provides a list of the types of questions practitioners should be asking their clients about their products before signing off on any environmental marketing campaign or advertisement.

"Carbon claims and the Trade Practices Act"

This guide was also issued in 2008. It provides a useful guide to how businesses can make carbon claims that will stand up to scrutiny. There are three main types of claim: 

• a claim that a business has acquired carbon offsets for their product (as in the Saab and V8 racing examples); 

• that a product is carbon neutral; and 

• that the product’s carbon footprint has been reduced, for example, through the use of new technology (as in the Goodyear example). 

Section 2 deals with carbon offsets. The section defines relevant terms and provides an insight into some of the issues to be aware of – for example:

• additionality – the benefits of the carbon reduction should be “in addition” to those that would have happened anyway; 

• double-counted offsets – defined as when an offset is not “retired” and two or more businesses claim the same emission reduction; and 

• low-quality offsets – not all offsets have equal value so it is important to ensure that the offsets purchased will match the level of emissions a company is claiming to reduce. 

Section 3 deals with carbon neutral and low carbon claims. Reference is made to the generally accepted means of understanding and quantifying greenhouse gas emissions under the Greenhouse Gas Protocol.[13] This protocol uses the term “scopes” to describe emission sources as either: 

• scope 1 – direct emissions; 

• scope 2 – indirect energy emissions; or 

• scope 3 – other indirect emissions. 

The ACCC encourages businesses to use these concepts when making carbon neutrality claims. This is helpful advice as a business is likely to breach the TPA if it claims that a product is carbon neutral on the basis of scope 1 – direct emissions, but fails to consider scopes 2 and 3. Any marketing claim should be qualified to clearly explain the extent of the carbon neutrality.

The ACCC also provides some practical advice on how to assess a business’s carbon footprint by use of a footprint calculator. Like any such calculation, the end result is only as good as the information fed into it. Businesses need to be very careful to ensure that they have reliable and detailed information before trying to work out their carbon footprint.

The guide also talks about the risks of making low carbon claims. The ACCC is of the view that if a business fails to explain the appropriate context for such claims, they will usually be too vague to be properly understood by consumers.

Finally, in section 4 the ACCC provides a checklist for businesses which are intending to make a carbon claim.

“Environmental labels and declarations – Self-declared environmental claims”

This Australian and New Zealand Standard has been in existence since 2000. While it is still not a mandatory standard, given the interest in green marketing claims in the community, it is only a matter of time before a mandatory standard is introduced. Accordingly, it is worthwhile to consider the main aspects of this standard as it provides some good insights on how to ensure green marketing claims are not misleading or deceptive.

The objective of this standard is described as “to harmonize the various national guidelines on environmental claims used in product labels and in marketing generally, in order to facilitate trade in the global marketplace and to give consumers confidence in environmental claims”.

The object of giving consumers confidence in environmental claims is particularly important in the green marketing area. Consumers do not have the time to fully research the scientific evidence which bears on a green claim. Accordingly, consumers are more reliant on the accuracy of the green marketing material when making their purchasing decision.

The specific objects of the standard are listed in clause 4 and include such objectives as:

• ensuring that companies make accurate and verifiable environmental claims that are not misleading; 

• the prevention or minimisation of unwarranted claims; and 

• the reduction of marketplace confusion. 

Clause 5.3 states that “An environmental claim that is vague or non-specific or which broadly implies that a product is environmentally beneficial or environmentally benign shall not be used. Therefore, environmental claims such as ‘environmentally safe’, ‘environmentally friendly’, ‘earth friendly’, ‘non-polluting’, ‘green’, ‘nature’s friend’, and ‘ozone friendly’ shall not be used.”

Clause 5.4 states that claims that a product is “free” of an environmentally damaging substance should also not be used. The reason being that such claims cannot generally be demonstrated to be literally true owing to the presence of trace contaminants.

Clause 5.5 prohibits the making of sustainability claims as there are no definitive methods of “measuring sustainability or measuring its accomplishment”.

Clause 5.7 provides a checklist of specific requirements that every environmental claim should meet in order to satisfy the standard. For example there is a requirement that environmental claims be accurate and not misleading, and that they can be substantiated and verified. There are also requirements to ensure that consideration is given to the entire life cycle of the product and that any comparative claims are clear and accurate.

Conclusion

Green marketing claims are becoming an increasingly important area for businesses. Businesses risk breaching the TPA if they make sloppy, vague or unresearched green representations.

However, if businesses and their practitioners carefully consider the key resources identified in this article, namely the green marketing and carbon claims guides issued by the ACCC and the current Australian Standard on self-declared environmental claims, they will minimise this risk.

Practitioners should recognise that one implication of following these guides is that sometimes a proposed environmental claim will simply be too qualified or complex to be used in any marketing campaign. However, it is much better to abandon the use of a claim at an early stage than to be the subject of an ACCC investigation, with the resultant negative publicity, if an oversimplified or otherwise misleading green claim is caught short.

[1] Part VC TPA – Section 75AZC(1)(a), (b), (e).[2] Section 51A, TPA.[3] ACCC institutes court action against Sanyo Airconditioners Manufacturing Singapore Pte Ltd: http://www.accc.gov.au/content/index.phtml/itemId/365424/fromItemId/621575.
Federal Court finds "Green" claims to be misleading: http://www.accc.gov.au/content/index.phtml/itemId/398527/fromItemId/621575.
(The author ran this investigation and litigation at the ACCC.)[4] Warning to air conditioning industry after Daikin 'green' claims challenged by ACCC: http://www.accc.gov.au/content/index.phtml/itemId/596776/fromItemId/621575.
(The author ran this investigation at the ACCC.)[5] Dimplex chills out on "environmentally friendly" claims: http://www.accc.gov.au/content/index.phtml/itemId/770506/fromItemId/621575.
(The author ran this investigation at the ACCC.)[6] ACCC takes action against GM Holden Ltd over Saab 'green' claims: http://www.accc.gov.au/content/index.phtml/itemId/808355/fromItemId/621575.
Saab 'Grrrrrreen' claims declared misleading by Federal Court: http://www.accc.gov.au/content/index.phtml/itemId/843395.[7] V8 Supercars corrects carbon emissions claims: http://www.accc.gov.au/content/index.phtml/itemId/843360.[8] Goodyear Tyres apologises, offers compensation for unsubstantiated environmental claims: http://www.accc.gov.au/content/index.phtml?itemId=833219.[9] EnergyAustralia clears air about green electricity claims: http://www.accc.gov.au/content/index.phtml/itemId/806650/fromItemId/621575.
(The author ran this investigation at the ACCC.)[10] Green marketing and the Trade Practices Act, ACCC, 2008 – electronic version available for free download at http://www.accc.gov.au/content/index.phtml/itemId/815763.[11] Carbon claims and the Trade Practices Act, ACCC, 2008 – electronic version available for free download at http://www.accc.gov.au/content/index.phtml/itemId/833279.[12] Environmental labels and declarations – Self-declared environmental claims, AS/NZS ISO 14021: 2000, available for purchase at http://www.saiglobal.com/.[13] http://www.ghgprotocol.org/.

The ten biggest mistakes companies make when dealing with the ACCC

This article first appeared in Keeping good companies, Journal of Chartered Secretaries Australia Ltd, December 2008, Volume 60 No. 11, pp. 681-684

Introduction

Even if you educate your staff regularly on compliance with the Trade Practices Act 1974 (TPA) and have lawyers review all your communications rigorously, that’s no guarantee that your company will never be the subject of a complaint to the Australian Competition and Consumer Commission (ACCC). When that happens, some companies make fundamental mistakes. Other mistakes raise more subtle issues. So, if you are investigated by the ACCC, what should you do? Or, to look at it another way, what should you not do?

1. Being needlessly aggressive

Be firm in your dealings with the ACCC, but needless aggression is not helpful. Rather than intimidating an ACCC investigator into backing off, it is more likely to push them to ask more questions and request additional information.

Investigators have two universal traits: suspiciousness and stubbornness. (I say this as a former ACCC investigator). If you are needlessly aggressive, you will simply arouse the investigator’s suspicions that your company is hiding something. If an investigator forms this opinion, it may take a long time for them to change their mind.

2. Attacking the credibility of the complainant

Whether the identity of the complainant is known or just suspected, companies often devote considerable effort to explaining how a complainant has a score to settle and is unreliable or dishonest. This is a waste of time. The ACCC receives a significant portion of its evidence from disgruntled former employees who have a score to settle with their former employer and is used to assessing their credibility.

Unless you can provide some fairly hard evidence about their lack of reliability, it is doubly useless. ACCC investigators have to determine the honesty and likely reliability of prospective witness in court. Be wary of making such claims because they are more likely to increase an investigator’s suspicions that your company has something to hide.

3. Not properly responding to ACCC information requests

It is surprising how often companies do not respond properly to the ACCC’s information requests. Often companies don’t respond fully to questions or do not respond to some questions at all.

Possibly, the company does not understand the ACCC’s questions or it rushed its response. However, an investigator may interpret this failure as a sign that the company has something to hide or is not taking the issue seriously.

If you do not fully understand the ACCC’s questions, call the ACCC contact officer to discuss them. The questions might not have been clearly expressed. It is also important that the person from your company who will prepare the information speaks directly to the ACCC contact officer (in the presence of your legal adviser if need be) so nothing is lost in translation.

You should never feel pressured to provide information voluntarily to the ACCC before it is ready. Sometimes inadequate responses to ACCC questions stem from the company rushing to collect and provide information. If your company is struggling to collect all the requested information by the due date, you should call the ACCC and propose a staged delivery of information. The ACCC investigator’s main concern is to ensure that they have enough information to keep the investigation moving forward. An investigator would prefer to get some information quickly, rather than waiting months for complete production.

Finally, be careful to ensure the accuracy and completeness of the information provided voluntarily to the ACCC. It is a criminal offence to provide false, misleading or incomplete information to the ACCC. This offence carries a maximum penalty of 12 months imprisonment (s 137.1 of the Criminal Code).

4. Arguing few customer complaints in mitigation

Many companies argue that the complaints received by the ACCC comprise a very small proportion of their total number of customer inquiries and sales. This is a bad strategy for a number of reasons.

First, in consumer protection circles it is often argued that an absence of complaints can be good evidence that a deception is effective. Customers do not complain about a misleading representation if they do not know it is misleading. A good example is a representation that your company offers the lowest prices. Customers will not complain unless they have compared prices and subsequently realised that your company is not offering the lowest prices. Obviously there are other types of misrepresentations which will be discovered quickly by the consumer, such as bogus free offers.

Second, many consumers often do not complain even if they are misled. Either they never get around to complaining or they blame themselves for having been taken in. In addition, the fact that a customer does not complain to the ACCC does not mean that they have not complained to their family and friends.

Finally, a claim that only a few customers have complained sends the wrong message to the ACCC. It suggests that your company does not value the concerns of a section of its customer base, however small. It also suggests that your company may be taking a cost/benefit approach to dealing with customer complaints.

Instead of dismissing complaints as a minority of customers, carefully investigate each of the complaints and explain to the ACCC the reason for each complaint. The main focus of your internal investigation is to satisfy the ACCC that the complaints are not symptomatic of a wider problem within the organisation, but represent isolated incidents.

5. Being too reactive in dealing with the ACCC about its media release

Many companies neglect the issue of the ACCC media release until the very end of the investigation. Then they seek a range of concessions from the ACCC such as the right to agree the content of the media release, the right to edit the media release or the opportunity to provide comments on the media release before it is issued. However, the ACCC will rarely compromise the integrity of its media release.

Consider other ways to influence both the content of the ACCC media release and its impact. The way your company responds to the ACCC during the investigation will have a bearing on the content of the media release. Obviously if your company has not cooperated with the investigation, it can hardly expect praise. But if your company cooperates in a timely way it is entitled to have that acknowledged.

The ACCC media release concerning GIO’s refund of GST payments on car leases is a good example of the ACCC acknowledging the cooperation of a company. GIO made sure it commenced the process of providing refunds prior to the issue of the media release so that it would get positive comments from the ACCC.[1]

Make sure you contact the ACCC in writing before the end of the investigation requesting that it mention in its media release the cooperation your company provided during the investigation. Emphasize the benefits to the ACCC of this approach. If the ACCC praises your company for constructively resolving a problem, this will provide an incentive for other companies to come forward to resolve their own problems (as happened following the GIO media release referred to above).

Your company should also ensure that it has a contact person available for reporters to call when an investigation is resolved and the ACCC media release is issued.[2] It would be very unfortunate to have a report in the newspapers the day after the ACCC media release along the lines that ‘the Managing Director of XYZ Pty Ltd was unavailable for comment.’ Your company should provide the ACCC investigator with the name, position and contact details of the relevant person and ask that this information be provided to the ACCC’s Media Unit. When reporters call the ACCC for further information about its media release, the Media Unit will be in a position to provide these details.

Finally, it is surprising how few companies issue media releases themselves following an ACCC media release. The ACCC announcement will rarely cover all issues which are important to your company. For example your media release could reassure customers that the TPA problems have been fixed and that they were not systemic but isolated.

If your company was particularly strategic you could issue your own media release before the ACCC issued its media release. By taking this approach, you will more or less guarantee that the ACCC media release does not get much coverage. However, be aware that if you adopt this approach, it may upset the ACCC.

6. Saying that everybody else is doing it

The effect of this statement on an investigator is clear. They immediately get much more excited about the investigation as they realise they are now dealing with a broad industry problem rather than an isolated incident. Also, the fact that many companies in an industry engage in the same conduct makes the investigation a much higher priority.

Clearly, if it’s true, your company should advise the ACCC as early as possible that the alleged conduct is common in the industry. However, you should try to turn this to your advantage. To do this, you need to be aware of some of the enforcement philosophies of regulators such as the ACCC. In taking enforcement action, a regulator will try to achieve both specific and general deterrence. As it cannot take on every case, it has to select the cases which will best achieve both goals.

Accordingly, there are three broad enforcement approaches. The ACCC may pursue a case against: 

• the market leader because a successful outcome will achieve general deterrence by getting smaller players to fall into line 

• the company which is engaging in the most blatant conduct in breach of the TPA, as the ACCC is likely to both win this case and get the most extensive remedies or 

• the company which has a history of similar conduct, as this may provide an opportunity to secure the most severe sanctions such as a criminal conviction. 

If the ACCC approaches your company about an issue which is a widespread industry problem, try to persuade the ACCC to pursue somebody else. For example, if you are the market leader, you may want to suggest to the ACCC that it focus its efforts on another company which is engaging in more blatant conduct or is a repeat offender. Alternatively, if you are a repeat offender you may try to focus the ACCC on a company which is engaging in more blatant conduct. However, if your company is engaging in the most blatant conduct, I suggest you give up as soon as possible.

7. Not using a lawyer who specialises in the Trade Practices Act

While it may come as a surprise, many companies use lawyers who have little or no knowledge or experience of the TPA or the ACCC. The TPA is a specialised area and companies should retain a specialist lawyer to represent them. The exception to this may be straightforward instances of misleading and deceptive conduct.

However, in all other matters, your company should ensure its lawyer has appropriate experience. Ask your lawyer for details of the trade practices matters they have managed and then check to see how successful they have been. You would probably want to know whether your lawyer had lost every trade practices case that they had run.

8. Being too reactive about remedies

Companies often err in being too reactive in terms of the remedies required to fix a contravention of the TPA. They often provide masses of information to the ACCC voluntarily, but may never suggest remedies to the ACCC to resolve the problem. Rather, they will wait for the ACCC to propose a remedies package which may contain all manner of elaborate remedies, many of which are not acceptable to the company. Then the company will spend weeks trying to whittle down the ACCC’s proposals to something it can live with.

Instead, try to get on the front foot by proposing a range of remedies to the ACCC at an early stage. By doing this, you will shift the onus to the ACCC to explain to your company why the remedies you have proposed are inadequate and why additional or more elaborate remedies are needed. You should try to set the agenda on appropriate remedies, rather than allow the ACCC to do it.

9. Not implementing remedies immediately

Many companies are willing to implement remedies from an early stage in the investigation, but don’t do so because they think it is better to wait for ACCC approval. By not implementing the remedies you are happy to implement immediately, your company runs the risk of the ACCC upping the ante and proposing additional and more elaborate remedies.

If you acknowledge that there is a need to take remedial steps, you should implement these steps immediately even if the investigation is still ongoing. There are a number of strategic benefits from taking this pre-emptive approach in dealing with the ACCC.

First, your company will show the ACCC that it responded positively to the concerns at the earliest possible stage. Second, this will reduce the likelihood that the ACCC will make demands for additional or more elaborate remedies. In other words, the ACCC will be in the position of having to explain why the measures you have already implemented did not fix the problem. Finally, if your company has already implemented a range of remedies, there is less likelihood that the ACCC will press for a court enforceable undertaking, as there will be few, if any, remedies left to implement.

10. Agreeing to a section 87B undertaking too readily

The biggest mistake a company can make is to agree to a s87B undertaking too readily. Section 87B is an administrative tool which permits the ACCC to accept undertakings from companies to settle investigations, including consumer protection, restrictive trade practices and merger investigations.[3] Though a s87B undertaking is not approved or otherwise brought to the attention of the Federal Court when it is executed, it can be enforced in the Federal Court if its terms are breached.

Many companies don’t understand that, when they sign a s87B undertaking, they are exposed to a range of broad and open-ended remedies if the undertaking is breached. The court can order the company in breach of the undertaking to:

• pay to the Commonwealth the amount of the financial benefit obtained directly or indirectly and reasonably attributable to the breach and / or 

• compensate any other person who has suffered loss or damage as a result of the breach. 

An order to pay the Commonwealth the amount of the financial benefit obtained could be a significant sum of money, for example, all the revenue that a misleading advertising campaign has generated.

In dealing with the ACCC, companies should seek to enter into a dialogue about the reasons why it is seeking a s87B undertaking. The ACCC usually tries to resolve investigations in one of three ways: an administrative undertaking, a s87B court enforceable undertaking, or through court action. 

The ACCC will generally take court action if:

• a company refuses to provide remedies to resolve a TPA problem 

• the contravention is considered to be particularly blatant or 

• the company is a repeat offender.

However, the basis for an ACCC decision to seek a s87B undertaking is often far from clear. Some people see the s87B undertaking as constituting a greater punishment than an administrative undertaking. There are strong grounds for arguing that a s 87B undertaking should only be sought if the ACCC has genuine concerns that your company cannot be trusted to comply with the terms of an administrative undertaking.

The best way for you to reduce the likelihood of the ACCC requiring a s 87B undertaking is to start implementing corrective remedies prior to the settlement of the investigation. Your company will thus be able to counter any claims by the ACCC that a s87B undertaking is required because it cannot be trusted to implement the agreed remedies.

A further benefit of implementing remedies at an early stage is that you will remove much of the ACCC’s leverage in the settlement negotiations. The main leverage which the ACCC has in seeking a s87B undertaking is that it will commence legal proceedings unless your company agrees to the undertaking. However if some of the proposed remedies have already been implemented, there is very little justification for the ACCC to go to court to get the balance of the remedies it is seeking.

[1] ‘GIO provides 2,800 GST refunds on car leases’ ACCC media release MR 231/00, 24 August 2000 - http://www.accc.gov.au/content/index.phtml/itemId/87475/fromItemId/621406

[2] See also C Anderson ‘Managing communications and reputation’ Keeping good companies, Vol 60 No 9, pp. 565-568.[3] See also C Coops ‘Take it away! – approaching section 87B undertakings in a merger context’, Keeping good companies, Vol 60 No 8, pp. 481-483.