Identifying your greenwashing litigation risk: Misrepresentation
In this series of articles, we are exploring five potential causes of action which could give rise to claims in the courts of England & Wales. In recent weeks, we have looked at claims under the statutory framework provided by the Financial Services and Market Act 2000, derivative claims by activist shareholders, and claims arising from breaches of fiduciary duties. In this article, we consider the potential claims arising from misrepresentations and negligent misstatements.
Potential Cause 4: Claims for misrepresentation and negligent misstatement, both at common law and under the Misrepresentation Act 1967
The law: misrepresentation
A misrepresentation is a statement of fact or law made to a claimant which induces them to enter into a contract, and thereby causes their loss. Representations can be made directly to a claimant, to those it can be expected the representation would be passed on, or to members of a class at which the representation was directed. Ultimately, claimant must prove that they had understood the representation and relied on it. Misrepresentation claims can be brought under the Misrepresentation Act 1967 or at common law.
What does this mean for greenwashing risk?
In the context of greenwashing, if a business overstates the sustainability of, for example, its manufacturing processes without proper verification, and consumers or counterparties rely on these claims when making purchasing decisions to their detriment, it may be possible for a claim to be brought. The key to claimants bringing successful claims is likely to be in establishing detriment.
This detriment may come from an increasingly active regulatory landscape, where regulators can impose sanctions and are due to receive enhanced powers to issue fines:
- the Advertising Standards Authority ("ASA") have sanctioned a number of financial institutions and energy companies in recent years regarding adverts which were found to be misleading due to their omission of significant information about the overall environmental impact of their businesses. While the ASA does not have the power to impose financial sanctions, its findings have can have far reaching reputational consequences which could in turn depress share prices;
- the CMA's enforcement powers are slated to be enhanced in Autumn 2024 to allow it to impose fines of up to 10% of an entity's global turnover under the Digital Markets, Competition and Consumers Bill; and
- in the EU, the implementation of the Green Claims Directive could lead to authorities in member states imposing fines of up to 4% of a company's total annual turnover if that business fails to comply with requirements to substantiate and communicate its green claims, including third-party verification of claims.
Businesses therefore need to pay close attention to the claims they make, as well as the claims being made to them, in the sustainability space.
At Stephenson Harwood, we have expertise in all aspects of greenwashing risk: regulatory compliance, civil fraud, commercial and corporate litigation, competition and consumer protection. We are well placed to advise in every major industry and sector, ranging from multinational corporations, financial institutions, large and medium sized companies, and professionals.
Our greenwashing risk team is international with specialists spread across our offices in Europe, Asia, and the Middle East, which means that we can support you wherever your business interests are based.
