TheChek News Flow

California looks to seize profits from Big Oil in climate change lawsuit

Consumer protection and advertising laws used to pursue civil suit

California will attempt to use consumer protection laws to seize some of the world’s biggest oil companies’ profits as part of a lawsuit accusing them of deceiving the public for decades over their role in climate change.

State attorney-general Rob Bonta invoked a new state law on Monday that allows claimants to target company profits that can be identified from the violation of consumer protection and advertising laws.

In an updated filing, it lists recent examples of alleged “false advertising and misleading environmental marketing by some of the defendants” and seeks profits they have generated to be deposited into a victims’ restitution fund.

The effort is part of a lawsuit that was launched by California against ExxonMobil, Chevron, Shell, BP and ConocoPhillips last September, and broadly accuses fossil fuel companies of spreading misinformation, sowing doubt about climate science and claiming that some of their products are “clean”. 

The move comes as US states and cities increasingly turn to the courts to attack oil and gas companies using consumer protection, racketeering, product liability and other laws to obtain damages and cover climate-related costs.

Globally, the number of climate-related court cases has doubled in the five years between 2017 and summer 2023, according to research by the UN and Columbia University. The majority of the cases have been filed in the US.

The claim is also brought at a time when the fossil fuel industry has generated record profits as a result of surging energy prices following Russia’s invasion of Ukraine in 2022.

The top-10 listed US fossil fuel producers by value amassed a combined net income of $313bn in the first three years of the Biden administration, almost triple the amount in the same period under Trump. Oil and gas production in the US hit record levels in 2023.

California’s lawsuit alleges that oil and gas executives knew that relying on fossil fuels would have catastrophic results but suppressed the information. It claims the deception caused a delayed societal response to global warming, which has resulted in billions of dollars in damage including drought, sprawling wildfires and historic storms to California.

The state’s most recent filing adds new evidence of company lobbying, alongside the US’s industry group, the American Petroleum Institute (API), in making “false and misleading statements” in advertisements placed across a range of major US news outlets. 

The new allegations were filed in the superior court in San Francisco on Monday.

Ryan Meyers, API senior vice-president and general counsel, said climate policy was a matter for Congress to debate and decide, rather than a “patchwork of courts”.

“This ongoing, co-ordinated campaign to wage meritless, politicised lawsuits against a foundational American industry and its workers is nothing more than a distraction from important national conversations and an enormous waste of taxpayer resources,” he said.

Shell said the courtroom was not the right venue to address climate change. “Smart policy from government and action from all sectors is the appropriate way to reach solutions and drive progress,” said the company.

BP and ConocoPhillips said they would not comment on active litigation while the other corporate defendants named in the lawsuit did not immediately reply to a request for comment.

Mail-sorting group’s case follows Ofcom’s findings of anti-competitive behaviour by the former state-run postal service

Mail-sorting group Whistl has warned Czech billionaire Daniel Křetínský that he should prepare to shell out up to £600mn in damages following his takeover of Royal Mail, as it doubles down on a claim against the postal group for anti-competitive behaviour.

Nick Wells, Whistl’s executive chair, said Royal Mail’s current management had put its “head in the sand” since the company initially submitted its claim in 2018, but encouraged Křetínský to come to the negotiating table if he completes a takeover announced last month.

Křetínský’s investment group “should be very cognisant, when they’re buying Royal Mail, of the potential liability”, he told the Financial Times. 

Whistl, which sorts letters such as utility bills for business clients and passes them on to Royal Mail, is taking the former state-run postal service to the Competition Appeal Tribunal after Ofcom fined Royal Mail £50mn in 2018 for abuse of its dominant position in the bulk mail delivery market.

The postal regulator found that Royal Mail attempted to introduce a new pricing model that would have raised delivery costs for Whistl, a customer, in a deliberate move that prevented it launching a rival letter delivery service in 2014. The Supreme Court rejected Royal Mail’s appeal against Ofcom’s decision in 2022.

Whistl’s claim for damages, which is proceeding after Royal Mail’s appeal was rejected by the Supreme Court, poses yet another challenge for Křetínský as his EP Group prepares to buy Royal Mail’s owner, International Distribution Services. 

“We always remain open to a negotiated settlement [but] we remain confident and committed to the legal process . . . We’re expecting a substantial recompense,” said Wells. 

Whistl’s £600mn claim would exceed the pre-tax £114mn profit generated by IDS during the most recent financial year, as Royal Mail struggles with growing competition in the parcels market, substandard service levels and discontented postal workers. A trial date has been set for November 2025, after EP Group expects to complete a takeover that values IDS at £5.3bn including debt.

Royal Mail, whose current management has said the case is “without merit”, will “have to wake up and smell the coffee and realise that they’ve got to pay damages for what they did”, said Wells.

“It is inconceivable that Daniel Křetínský and his team won’t know about the potential liability . . . I would encourage [them] to engage, at the appropriate point.”

The Competition Appeal Tribunal has set a preliminary hearing for the case on Wednesday.

Given the existing rulings in its favour, Peel Hunt analyst Alexander Paterson warned that “Whistl has got a very good case”. Whoever owns Royal Mail when the court makes its decision “might find there’s a rather expensive bill to pay”. 

The potential damages could complicate Křetínský’s plans to plough money into services such as parcel lockers for Royal Mail, which he has said is not modernising fast enough. Royal Mail is lossmaking and all of IDS’s profits are generated by its Dutch parcel business, GLS.

Křetínský’s investment group was “talking about investment in [parcel lockers]”, said Wells. “They need to understand that there is a liability for damages for Whistl and that will either be negotiated beforehand or it will be decided by the courts.”

Royal Mail said Whistl’s claim was “unsubstantiated and entirely without merit. We will continue to defend our position robustly and if necessary to trial.”

EP Group declined to comment.

Billionaire Nassef Sawiris lambasts opaque penalties faced by clubs for breaches and says system cements status quo

The billionaire owner of Aston Villa has called for an overhaul of the Premier League’s rule book on spending, complaining that the current system had turned English football into a “financial game”.

Nassef Sawiris, Egypt’s richest man, said existing regulations governing what clubs can spend were preventing ambitious owners from challenging the established elite, and the system of penalties for breaking the rules lacked transparency.

Sawiris, who owns Birmingham team Aston Villa alongside US private equity billionaire Wes Edens, also described the Premier League’s so-called profit and sustainability rules as “anti-competitive”, and said he was seeking legal advice on whether to lodge a formal complaint against them.

“Some of the rules have actually resulted in cementing the status quo more than creating upward mobility and fluidity in the sport,” he told the Financial Times in an interview. “The rules do not make sense and are not good for football.”

The Premier League is the most-watched domestic competition in world club football, generating billions of pounds in TV revenue and making it a magnet for private equity firms, sovereign wealth funds and billionaires such as Sawiris.

But the increasing dominance on the pitch of Manchester City has undermined the league’s reputation for competitiveness and led to increased debate over how it is run. The northern English club, owned by Abu Dhabi royal Sheikh Mansour, has won four titles in a row, a Premier League record, while also being the subject of 115 allegations of financial rule breaches over a period of several years.

Separately, rival clubs Everton and Nottingham Forest — both slapped with points deductions for exceeding allowed financial losses — have also criticised the rules.

Sawiris said regulations limiting how much a club can lose over a three-year period — brought in to prevent reckless overspending — had instead created some perverse incentives for owners, such as encouraging investment in music venues to boost non-sporting revenue, or prioritising sales of homegrown players to maximise accounting profits.

“Managing a sports team has become more like being a treasurer or a bean counter rather than looking at what your team needs,” he said. “It’s more about creating paper profits, not real profits. It becomes a financial game, not a sporting game.”

Aston Villa finished fourth in the Premier League in the season just finished, qualifying for the lucrative Uefa Champions League. But the club has been losing money in pursuit of on-field success even as it has rapidly increased revenues. In the 2022-23 season, Villa swung to a net loss of roughly £120mn.

Sawiris and Edens first purchased a 55 per cent stake in Villa for £30mn in 2018 rescuing the club from a financial crisis and quickly gaining promotion to the Premier League. They held full control of the club until late last year, when US investor Atairos funded a capital increase that valued Villa at more than £500mn, the FT has reported.

While the Premier League has acknowledged the need to reform its spending regulations, team owners are deeply divided on what should replace the system. Some want rules tightened to prevent the richest clubs from driving up costs; others want to be given more leeway to spend in order to stay competitive on the pitch.

At the league’s annual meeting in Harrogate last week, clubs agreed to try out two new approaches to financial regulation. One limits spending on players to 85 per cent of revenue, while the other links the amount any club can spend to the income of the bottom-ranked team.

Both changes will be tested next season in tandem with existing regulations on profit and sustainability.

Sawiris complained financial regulations that incentivise sales of homegrown talent in effect penalise a club’s loyalty and commitment to their own young players. Selling an academy player — valued at zero in the books because of accounting rules — allows a club to book an immediate profit. However, management can then spend the proceeds on new players but spread the cost over several years of accounts. “This obvious flaw is to the detriment of the fans,” he said.

The league’s spending rules were designed to prevent clubs from going bust by limiting losses to £105mn over three seasons.

Sawiris complained the system had failed to keep up with inflation since being introduced in 2013. And the decision-making process for dictating penalties for breaches was “opaque and . . . seemingly arbitrary”, he said.

The Premier League is facing a legal challenge from City, which claims rules on related-party sponsorships and other transactions are unfair and anti-competitive.

English football is also preparing for the introduction of an independent football regulator, which will be given powers to oversee certain financial aspects of the game.

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