Within one week, the ACCC has had two high-profile consumer law cases thrown out of the Federal Court – against Kimberly-Clark1 and Woolworths2, separately.
Both cases involved the use of environmental claims by the respondents which highlighted the sustainable nature of the products. In particular, Kimberly-Clark described certain wipes as “flushable”. Woolworths, on the other hand, claimed that its ‘Select eco’ range of disposable plates, bowls, and cutlery was “biodegradable and compostable”. The ACCC argued that both Kimberly-Clark and Woolworths lacked substantiation for their claims and so had made false and misleading claims in breach of the Australian Consumer Law (ACL).
Environmental claims are becoming increasingly popular with marketers as companies seek to win over environmentally conscious consumers. The ACCC has had notable wins in this space in the past, including against Pental which was ordered by the Federal Court in April 2018 to pay a $700,000 penalty for claims about its White King “flushable” toilet and bathroom cleaning wipes.3
So, what went wrong for the ACCC here?
Quite simply, the evidence just wasn’t on the ACCC’s side.
In the Kimberly-Clark decision, the Federal Court ruled that there was insufficient evidence to show that the company’s “flushable” wipes – as opposed to other wipes such as baby wipes and household cleaning wipes – had contributed to problems in household and municipal sewerage systems. This was so notwithstanding that the wipes were found to pose a greater risk of harm than toilet paper, due to their inferior properties of breakdown and dispersion. The Federal Court took the view that this risk of harm posed by the “flushable” wipes did not eventuate as “the instances of blockages identified by the complaints are so few in the context of the total sales of the wipes that they are properly characterised as insignificant”.
As for Woolworths, a considerable amount of expert evidence was adduced to show that the relevant products were capable of biodegrading and being turned into compost. This was sufficient to satisfy the legal test as construed by the Federal Court. In particular, the Federal Court disagreed with the ACCC’s view that the relevant products needed to break down or compost “within a reasonable time” in order to justify the claims.
It was a tough week in Court this time for the ACCC – but in the new world order of bigger pecuniary penalties under the ACL, this is no time for businesses to relax.
What does this mean for you and your environmental marketing claims?
- You must be able to substantiate all claims All marketing claims, including broadly worded and vague claims which are capable of multiple meanings, must be capable of substantiation. Therefore, you should limit claims to what can be verified having regard to the evidence which you currently have available. For instance, don’t use a claim such as “Packaging made from recycled parts” if only part of the packaging is made from recycled parts (e.g. the bottle itself but not the plastic label or lid). Any key qualifications must be called out upfront. For claims subject to conditions or variables, e.g. claims regarding energy savings which are based on specific usage criteria, you should use a disclaimer to clarify and limit the scope of your claim. Further, the ACCC notes that environmental claims should take into account the entire product life cycle. It therefore recommends avoiding broad claims like “environmentally friendly” or “green”. This is because almost every product will have some negative impact on the environment at some point in its lifespan – whether at the input sourcing stage or the manufacturing, packaging, use, or disposal stage.
- Compliance with industry standards may provide evidentiary support for a claim The test for truth in advertising under the ACL is whether a not insignificant number of reasonable consumers in the relevant target market would reach an erroneous view of the facts, based on an overall impression of the claim. Accordingly, each case must be determined on its facts having regard to this “reasonable consumer” test, and not according to some third party technical standard. Nevertheless, compliance with a reputable industry standard may help to provide evidentiary support for a claim. Here, Kimberly-Clark was able to demonstrate its compliance with international industry standards regarding flushability. Despite being heavily criticised by the ACCC, these standards were accepted by the Federal Court upon careful consideration as a “conscientious and scientific effort to establish an appropriate framework for assessing flushability” which provided strong support for Kimberly-Clark’s flushability claim.
- You must maintain strict internal processes for approving marketing claims Businesses should have robust systems in place for signing off all marketing claims at senior management level. Approvers must be provided with, and must review, all relevant substantiation before signing off on those claims. This is particularly critical for claims regarding future matters, e.g. “We will be carbon neutral by 2025”. This is because a future representation is deemed misleading under the ACL unless its maker can provide sufficient evidence of reasonable grounds for making that representation. This is why it is so important to keep clear records of all marketing sign-offs and supporting documentation, bearing in mind that the limitation period for bringing an action for misleading or deceptive conduct under the ACL is 6 years. The ACCC tried to argue that Woolworths’ “biodegradable” and “compostable” claims were future representations. This argument was rejected by the Federal Court. However, the Federal Court noted that if the claims were characterised as future representations, then it would be necessary to consider whether Woolworths had reasonable grounds to make the claims. The Federal Court found that, whilst substantiation for the claims was in fact available, Woolworths could not point to any actual reliance on that information by a relevant decision-maker within its business. Nor could Woolworths identify who had in fact approved the use of the relevant claims.
These cases are great wins for Kimberly-Clark and Woolworths.
However, the comments by the Federal Court around internal compliance processes are a timely reminder that marketing approvals should be more than just a process for rubber stamping marketing materials. They are there to protect your business in the event that someone, e.g. a competitor or the ACCC, challenges the truth of your marketing claims.