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Woolworths share price on watch as ACCC appeals court decision

Credit: Scott Lewis

The Woolworths Group Ltd (ASX: WOW) share price could slide lower this morning as the Australian Competition and Consumer Commission (ACCC) said it will appeal against a Federal Court decision on Woolworths’ ‘eco’ picnic product range.

What did the ACCC announce?

The ACCC has appealed the Federal Court’s decision to dismiss its case against Woolworths relating to the environmental claims Woolworths made about their homebrand ‘Select Eco’ picnic products.

The ACCC had alleged Woolworths made false or misleading claims about its range of disposable plates, bowls and cutlery, which were labelled “biodegradable and compostable”.

Part of the ACCC’s case was that these claims were about future matters and that Woolworths did not have reasonable grounds to make them, with the Federal Court dismissing the ACCC’s allegations in July 2019.

The trial judge found that the likely performance of Woolworths’ picnic products was not a ‘future matter’ because the reference to “biodegradable and compostable” was about the inherent characteristics of the product rather than a prediction, forecast, promise or opinion of a future event.

Accordingly, the Federal Court was not required to consider whether Woolworths had reasonable grounds for making the claims.

The Court did, however, find that if Woolworths had made the claims in the terms alleged by the ACCC, it would not have had reasonable grounds to do so.

“We are appealing this case because we think that the biodegradable and compostable claims made by Woolworths were predictions about what would happen to these products in the future,” ACCC Chair Rod Sims said.

He added, “Consumers who pay more for products which businesses represent are better for the environment should be able to assume those claims are true.”

“If businesses make claims about future matters, they must have a reasonable basis for those claims,” Mr Sims said.

A hearing for the appeal before the full Federal Court will be set at a later date.

What’s the story behind the court case?

The ACCC first took action against Woolworths in March 2018 for misleading claims relating to its ‘eco’ product range.

The Australian Consumer Law requires a business to have reasonable grounds for making representations when those representations are with respect to ‘future matters’.

Foolish takeaway

Given the news of the appeal, I’d expect to see the Woolworths share price to slide lower this morning with the increased uncertainty and potential court outcomes hanging over the company.

The Woolworths share price fell 0.5% yesterday as the S&P/ASX 200 (INDEXASX: XJO) index fell 1.90% on Chinese currency devaluation, but remains 22.1% up since the start of August.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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