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UNILEVER FACING CMA INVESTIGATION OVER GREEN CLAIMS
On 12 December 2023, the CMA launched a formal investigation into Unilever after an initial review sparked various concerns regarding the consumer giant’s advertising practices. Dove soap and Hellman’s mayonnaise manufacturer, Unilever, allegedly overstated certain products’ green credentials.
The CMA highlighted:
- Some products’ packaging language is ‘vague and broad’, misleading consumers about their environmental impact.
- Some ingredients on the packaging exaggerate how ‘natural’ the products are.
- Statements focusing on a single aspect of products will likely give consumers the impression that the whole product is environmentally friendly.
- Unclear statements around recyclability, whether they relate to all or part of an item or the packaging.
- The use of logos and images, such as green leaves, may suggest that the products are greener than they are.
The CMA is now gathering information from Unilever to aid with its investigation.
Suppose the CMA concludes that consumer protection laws have been breached (the critical piece of legislation governing consumer rights is the Consumer Protection from Unfair Trading Regulations 2008). In that case, it can secure undertakings from Unilever to change its practices or take Unilever to court for enforcement.
Note that once the Digital Markets, Competition and Consumer Bill becomes law, the CMA will have the power to enforce consumer rights directly instead of going through lengthy court procedures.
The bigger picture
The CMA takes on Unilever amid a broader crackdown on greenwashing. Last year, the CMA investigated fashion brands ASOS, Boohoo and George at Asda and recently investigated a boiler company’s green claims that its products are ‘hydrogen-blend ready’.
The CMA expanded its probe into corporate greenwashing in January 2023 to include consumer goods (with a consumer spend of £130bn last year), and a significant number of these goods are marketed as environmentally friendly to tap into the growing number of consumers basing their purchasing decision at least partly on the products’ green credentials.
Unilever will not be the only company in the FMCG industry being scrutinised by the CMA, given that a preliminary 2020 study found that 40% of consumer goods falsified or exaggerated green credentials. Moreover, investigations will likely occur in other sectors, such as the travel industry.
Looking beyond the UK, regulators in Europe and the US are also doubling efforts to protect consumer rights and scrutinise green claims by companies. In Europe, consumer rights organisations filed a legal complaint last month against Coca-Cola, Nestle, and Danone, alleging their use of misleading statements such as ‘100 per cent recycled’ and ‘100 per cent recyclable’ on plastic waste bottles.
Increased scrutiny by regulators over corporate greenwashing is suitable for consumers who want to play a part in contributing to sustainable practices. It is also good to store trust in business and reward companies for doing the right thing. It also ensures that money from environmentally-focused funds goes to genuine companies, promoting innovation and facilitating environmental progress.
Impact on the legal sector
Increased regulatory scrutiny means more need for lawyers to assist companies in complying with evolving laws and regulations and advise businesses on best practices to prevent future investigations or disputes.
In the UK, companies must review the Green Claims Code published by the CMA in September 2021, a set of guidelines to ensure that companies’ environmental claims are not misleading.
Companies being investigated by regulatory bodies would need lawyers to assist during the regulatory review, for instance, with disclosure. Lawyers would liaise with barristers to defend their clients if the matter is brought to court.
Class actions can also be brought against companies, in which case lawyers would assist with companies’ defence.
Article was written by Trinh Nguyen
THE UK SFO MUST COMPENSATE THE ENRC AFTER A BOTCHED CORRUPTION INVESTIGATION
Eurasian Natural Resources Corporation (ENRC) must be compensated by the UK’s Serious Fraud Office (SFO) for a ‘serious breach’ in its corruption investigation. The violation entailed inappropriate contact with a Dechert lawyer hired by ENRC for an internal bribery probe.
The Court determined that the SFO’s activities sparked an investigation, emphasising the importance of procedural integrity. This decision reflects increasing scrutiny of the SFO’s enforcement missteps and shines a light on the fine line between law enforcement and corporate rights.
In a subsequent trial, the Court will assess the significant damages. Dechert, who was also held responsible, intends to settle damages.
According to ENRC, unauthorised backchannel communications increased legal expenses. The SFO terminated the investigation in August, citing the exhaustion of all legitimate lines of inquiry.
Key issue
This development emphasises the need for transparency and ethical behaviour in regulatory investigations to sustain public and corporate trust.
The Court’s decision strongly conveys to law enforcement that utilising defence lawyers as concealed informants against their clients is illegal. The decision, therefore, has more considerable consequences for corporate-legal ties and establishes a precedent for protecting investigative integrity.
Companies may now emphasise the significance of procedural adherence and demand responsibility in their interactions with regulatory agencies to avoid undue reputational and financial consequences.
Legal landscape
The legal landscape around corporate investigations and regulatory agencies is changing, requiring organisations to be cautious in developing legal strategies.
The ruling forces a rethinking of internal inquiry methods, highlighting the importance of safe and authorised connections with regulatory organisations. It also underlines the possible financial implications for regulatory bodies found in breach, encouraging them to be more cautious and ethical in their interactions with firms.
This case illustrates the importance of legal partnerships for firms and the possible impact of regulatory measures on reputation and capital. The ruling serves as a reminder to businesses as they navigate the regulatory climate of the significance of building and maintaining strong legal and compliance structures. It emphasises the need for legal practitioners to protect company interests and overcome regulatory traps.
Subsequently, the ENRC case adds to the current narrative about regulatory standards, stressing the importance of improved procedural adherence and ethical behaviour. It calls for businesses to strengthen their legal and compliance frameworks to robustly protect company interests in an environment where regulatory scrutiny is evolving.
Article was written by Asil Serhan
THE BINANCE SCANDAL
With the largest corporate penalty in U.S. Treasury history, Binance CEO Changpeng Zhao, more commonly known as CZ, has pleaded guilty to money-laundering charges, and the company agreed to pay $4.3 billion in settlements for violations of the Bank Secrecy Act and multiple violations of sanctions programs.
He has stepped down as Binance’s leader and agreed to pay a $50 million fine, whilst Chief Compliance Officer Samuel Lim also agreed to pay a $1.5 million fine to government agencies.
About Binance
Binance is a blockchain-based cryptocurrency exchange operator that has grown to be the largest in terms of daily trading volume of cryptocurrencies. In 2021, Binance’s monthly trade volume was more significant than the subsequent four biggest exchanges combined.
It was founded in 2017, with its original headquarters in China. However, owing to the Chinese government’s ban on crypto regulations soon after its establishment, it moved to Japan. Currently, it has no official headquarters.
Behind the scandal
After a while, Binance stopped disclosing where it was based. Zhao pointed out the shift in the company’s policies, stating, ‘We’re moving away from the company concept. We’re really just an organisation or a community that’s working together.’
Binance ran into problems with the strict regulations of the United States. In 2019, about a fifth (41.17 million) of Binance users were based in the region. Binance US was launched in September 2019 to comply with the rules, which were to be operated independently of the original company and Zhao. However, the launch was reported by the Wall Street Journal in 2019 as the development of a plan to avoid the threat of prosecution by U.S. authorities.
In May 2021, Binance was reported to be under investigation by the Internal Revenue Service and the United States Department of Justice on allegations of money laundering and tax offences.
A string of issues gripped the company in 2023:
- In March, the Commodity Futures Trading Commission (CFTC) sued Binance, alleging that the company continued operating illegally in the US.
- In May, Binance pulled out of Canada, citing regulatory changes.
- In June, the Securities and Exchange Commission (SEC) filed a lawsuit against Zhao and Binance, claiming maintenance of undisclosed control over Binance in the US and allegedly operating a ‘web of deception.’
- In November, EZ pleaded guilty to a criminal charge, violating anti-money laundering requirements, and Binance planned to pay the Department of Justice $4.3 billion in tax. The deal permits Binance’s continued operations, and EZ will retain a majority ownership.
Legal implications
In January 2024, the Indian government blocked access to nine offshore cryptocurrency platforms, including Binance, for failing to comply with regulations preventing money laundering.
It comes in the aftermath of heightened calls for necessary action to protect the interests of those using digital currency channels across the globe. Such stringent actions against anti-money laundering violations could intensify regulatory scrutiny and prompt authorities to strengthen their regulatory framework.
This could result in more thorough due diligence undertaken by law firms when entering cryptocurrency exchange transactions. Firms associated with other cryptocurrency exchanges may need to provide more proactive regulatory guidance to their cryptocurrency exchange clients in response to potential increased scrutiny from regulators and law enforcement agencies.
Article was written by Sanket Keshav
THE LOSS OF CHANCE DOCTRINE
The ‘loss of chance’ doctrine is utilised in contract and tort law to assess potential deprivation of benefits or the causation behind a party’s inability to avoid a typically adverse happenstance. This doctrine contrasts claims for damages where harm has already been sustained, although both fall under the ‘compensation of losses’ principle.
Although the loss of chance is a widely encompassing doctrine, its applicability has some limitations, especially in seemingly comparable areas of law.
Its application
This doctrine ascertains causation and assesses damages in professional negligence and personal injury cases. More so, in instances whereby claimants have lost the opportunity to seek pursuable actions which bore the chance of achieving some benefits, typically quantum. Such losses are primarily evident when a fiduciary duty is owed to a party and a tort is subsequently incurred by the claimant.
Whilst a contracted party has stipulations for compensation and is thus entitled in instances of non-performance under contract law, for those affected by tort, it is far more challenging to secure compensation.
However, the claimant is responsible for proving that they were negatively impacted by an action or inaction that led to this loss of opportunity or expectation or that either move may have led them to incur a loss or prevented them from gaining due benefits, all of which must be proven on a balance of probability basis.
In all, loss of chance invites an assessor to evaluate hypothetical scenarios that may have affected a claimant or third party due to the tortfeasor’s actions.
Some limitations
Claimants face considerable difficulty using the loss of chance principle in clinical or medical negligence cases, with the House of Lords being historically restrictive of the opportunity to permit a claimant to sue for liability due to the alleged tortfeasor’s inability to prevent the claimant from avoiding injury.
This restriction is primarily due to the incapability to prove or establish causation, an unnegotiable requirement in such cases, such as in Hotson v East Berkshire Area Health Authority [1987] and Gregg v Scott [2005], and coupled with the strict adherence to the principle of remoteness, translates to a claimant having almost no chance of establishing a claim.
It is impossible to accurately calculate the quantum of future losses and gains despite the courts’ utilising longstanding methods. This impossibility is primarily because of the principle of remoteness. The courts use remoteness to establish causation (an integral element clarifying the relationship between the defendant and the alleged conduct) in determining what damages may be payable in a negligence claim.
Notably, the claimant not only has to contend with factual causation, the requirement of tangible evidence proving the fault for harm caused, but also legal causation, which is whether the actions of a tortfeasor were substantial in causing the alleged harm and that the injury was foreseeable, in that would a ‘reasonable’ person could have anticipated harm due to the defendant’s actions.
The issue here is that legal causation is based on opinions, which could prove crucial in determining the quantum awarded. Therefore, there are possibilities, however marginal, that a claimant may be awarded too little or too much in damages following a successful loss of chance claim. Further, predicting all conditions that may affect such outcomes is impossible.
Further, the House of Lords is wary of employing the principle in said cases to palliate exposing the NHS to floodgate claims, especially to nuisance value claims. However, a few successful claims have been rooted in principle, such as in XYZ v Portsmouth Hospitals NHS Trust [2011], where the claimant sued for loss of earnings and potential business dealings, resulting in a damages award of £5.8 million.
Also, its restrictive application helps to mitigate adulteration of the doctrine’s principles, and the issue of reconciling the doctrine with time-hallowed tortious principles proves challenging, with just and fair outcomes being at risk during attempts to do so.
Impact on the legal sector
The legal industry is not exempt from loss of chance claims; for example, in the circumstances were it not for the actions or inaction of an appointed solicitor amounting to negligence, a client may have won a case and succeeded in claiming damages or monetary benefits, seen in Allied Maples Group Ltd v Simmons & Simmons [1995] where the former party was successful in its claim that negligent advice from a solicitor led to the induced liabilities upon completion of a transaction.
There is also the more recent case of Centenary 6 Ltd v TLT LLP [2023]. C6 Ltd employed the firm’s services to launch a claim against liquidators for an affiliate’s breach of duty. However, they failed in their claim owing to a procedural error caused by the firm’s lawyers, resulting in a lawsuit against TLT LLP by C6 Ltd. TLT LLP admitted liability and was ordered to pay £12.5m in damages to C6 Ltd.
Therefore, law firms must heed that the maladministration of a client’s business or case could lead to damages payout, whether they, the law firms, admit liability and irrespective of the reasons behind the mismanagement. This means that firms must ensure their professionals are consistently well-versed in civil procedures and the inactions or actions that may risk claims being made against them.
