JUSTICE SERVED

Julio Cesar Centeno
August 03, 1996

The ruling by the court of appeals of the Advertising Standards Committee of The Netherlands, made public on July 29, 1996, has brought a final settlement to two of the points of controversy in the teak scandal raging there: the false claim to an FSC certificate, and the misleading nature of advertisements on rates of return, both used to lure the general public into investing in one of these ventures. The case involves the FSC, the Rainforest Alliance, and WWF-NL.

Background
Final statement of the court of appeals commission

The decision
The press
Implications for the rainforest alliance and the FSC
References

topBACKGROUND

On May 09, 1996, the Reclame Code Commissie of the Netherlands [Advertising Standards Committee, also referred to as the Code of Ethics Committee on Advertising] made decisions related to two complaints which had been introduced there [dossier 95.8994]. The first related to the rates of return on investments in teak plantations established in Costa Rica by the company Flor y Fauna, as promoted by its partner, the Dutch insurance company OHRA, in newspaper advertisements:

<< Your Return: 14%, 18% or More! >>.

The other related to the claim to an "FSC Certificate" for the same plantations, made in public advertisement through the press and promotional brochures, from August to December of 1995.

NOTE: The Flor y Fauna plantations were certified as "well managed" by the Rainforest Alliance in April of 1995. The RA was accredited as a certifier by the Forest Stewardship Council almost one year later. The claims to an FSC certificate thus took place before the RA became an FSC accredited certifier. There was, therefore, no legitimate reason to involve the FSC, or for the FSC to get involved. Nevertheless, in December of 1995 the FSC Secretariat ruled that the Flor y Fauna evaluation report was "thorough and competent" [1].

With regard to the rates of return promised to investors, the decision of the Committee highlighted:

<< With regard to the return, the advertiser [OHRA] leaves no doubt that there is no certainty at all about that >>

OHRA made the following allegations:

<< The yield of the first cut, taking place only after 20 years, depends upon 3 variables, namely the growth of the trees, the exchange rate of the dollar, and the development of the price of the timber. Of course at this moment no certainty exists about the development of these variables >>

<< The return can vary. This implies that the return can also be less than the percentages named in the expression >>

The Committee further elaborated:

<< The guarantee, which goes according to the advertiser [OHRA] not much further that the paid premiums, once more points out that certainty with regard to the achievable returns is missing >>

Following these considerations, the Committee concluded:

<<...the possible achievable return is not pictured brighter than it is >>

With regard to the FSC certificate, the Committee simply indicated:

"..in the advertising submitted to the Committee it is not stated that the Flor y Fauna project is provided with an official certificate by the FSC. This part of the complaint is therefore lacking actual basis".

The Committee ruled on advertisements which did not contain the claim to an FSC certificate. The decision of the Committee indicates:

"The complaint concerns an advertisement in DE TELEGRAAF, of May 29, 1995, and an advertisement in the magazine PANDA, issue of Winter 1996."

Neither of these advertisements included the claim to an FSC certificate. The claim to such a false certificate was made in over 1.5 million full-page ads in at least the following newspapers:

Volkskrant, issue of 19-08-95
Volkskrant, issue of 23-09-95
De Telegraaf, issue of 07-10-95
NRC-Handelsblad of 25-11-95.

Plus hundreds of thousands of brochures and letters delivered to potential investors by OHRA.

WWF-Netherlands also claimed that Flor y Fauna had received an FSC certificate, in a full-color brochure with an FSC logo on its cover, distributed from December of 1995 to March of 1996. It could easily be considered a joint publication by WWF and the FSC, due to the prominent use of the FSC name and logo [2].

Nevertheless, the day after the ruling, on May 10, 1996, the Netherlands office of the World Wide Fund for Nature [WWF-NL] published a statement presenting the conclusions of the Reclame Code Commissie [RCC] as follows:

<< The Dutch Advertising Code Committee concludes that:

OHRA has NOT published misleading advertisements;

OHRA has NOT painted a too rosy picture of the returns; and

OHRA has NOT made false claims regarding the FSC certification >>

NOTE: The Netherlands office of WWF has officially endorsed this plantation initiative, and is an active partner of OHRA and Flor y Fauna in the promotion of investments in the project. The name and logo of the organization is used in public advertising, and its officers actively promote such investments. In return it expects to receive 85 million dollars [1]

The decisions of the Advertising Standards Committee were appealed to a higher court by the interested parties. The final ruling was made public on July 29, 1996. The following is an unofficial translation. Judge for yourself.

topFINAL STATEMENT OF THE COURT OF APPEALS COMMISSION

The first appeal (regarding the FSC claim) was presented in vain, as it refers to an advertisement in NRC-Handelsblad of 25 November 1995, whereas the original advertisement, on which the Advertising Standards Committee based its ruling, did not contain any reference to the FSC.

However, OHRA admitted at the hearing (on July 18, 1996) that they have in fact incorrectly claimed in their advertisements that the Teakwood plantation had received an official certificate from the Forest Stewardship Council, and has agreed to ensure that this incorrect statement will not be made again.

The other appeals all refer to the considerations made by the Advertising Standards Committee with regard to the financial returns expressed in the advertisements. These appeals will be dealt with together.

Both parties submitted a great number of documents showing that opinions with regard to the expected wood volumes and financial returns vary greatly. There are notable differences in opinion about factors such as the growth of the trees, pests, diseases, and the development of the prices for teakwood.

OHRA is free to use its own projections in its advertisements, as long as these projections present a realistic picture. The Appeals Commission agrees with the Advertising Standards Committee that OHRA has made plausible that the financial returns mentioned in the advertisements are within the realms of possibility. At the same time, it must be concluded that these returns are based on an extremely favorable scenario, and that a financial return of 14 to 18% or more, as projected by OHRA, can only be realized under optimal conditions.

As, for example, the development of the price of oil during the past 25 years has clearly demonstrated, it is very difficult, it not impossible, to forecast the exchange rate of the dollar, the price of wood, and the possibility of natural disasters for a period of 20 years. Each of these factors, individually or together, would cause these high financial returns to be achieved only by exception, or - in the worst case - not at all.

Contrary to the Advertising Standards Committee, the Appeals Commission is of the opinion that it can not be assumed that the general public, to whom these advertisements are directed, is aware of these facts. Therefore, as this aspect has been completely left out of consideration, the advertisements must be regarded as misleading, in the context of Article 7 of the Dutch Advertising Code.

The sentence in De Telegraaf "The financial return may vary: 14%, 18% or more..." does not imply that the return may also be less than 14%. On the contrary; when read in the context of the heading

"Your return: 14%, 18% or more!"

this sentence rather creates the impression that the financial return will be 14% as a minimum.

When considered in their totality, the advertisements present a one-sided, too rosy impression of things, which does not reflect the possibility that the return might be considerably lower than 14%. This one-sided picture is not counter-balanced by the statement of "money -back-guarantee".

topTHE DECISION

The Appeals Commission:

Rescinds the verdict from the Advertising Standards Committee.

Deems the advertisements to be in conflict with article 7 of the Dutch Advertising Standards Code.

Recommends that in the future OHRA refrains from publishing advertisements of this kind.

Thus ruled in Amsterdam, on the 29th of July, 1996

topTHE PRESS

The results of this appeal have been plastered in most newspapers in The Netherlands, due to the interest generated by the public controversy which has revolved around this issue for months. The following is an extract from the largest newspaper in the country, DE TELEGRAAF, of August 1st, 1996:

HEADLINE: OHRA CONDEMNED AFTER ALL BECAUSE OF TEAKWOOD PUBLICITY

"Amsterdam, Thursday. The insurance Company OHRA has to point out with more clarity to investors the risks of their investment. This was decreed by the College van Beroep (Committee of Appeals) of the Reclame Code Commissie. In first instance, the Commission had judged that OHRA made it clear enough that its investments involved risks. The College van Beroep judged, however, that the advertisements by OHRA were "misleading", as well as " one-sided and overly rose-colored". The insurance company wrongly created the impression that the investments in teakwood will yield at least 14% yearly interest..."

topIMPLICATIONS FOR THE RAINFOREST ALLIANCE AND THE FSC

The Rainforest Alliance is an FSC accredited certifier. Even before this relationship was formally established, it served to abuse the FSC's name and reputation, in order to lure investors into this venture. The Rainforest Alliance has at times endorsed Flor y Fauna's yield projections [1]. Other times, it has insisted that its endorsement of this plantation does not imply it is in agreement with its yield and financial forecasts. It has argued this is not within its responsibilities. This position does not only seem to be in conflict with FSC Principle 7, which certifiers are bound to uphold [1]. It is also in contradiction with claims made by its own clients. In a press release of July 31, 1996, following the ruling mentioned above, which clearly refers to rates of return, OHRA insists:

"Our projections and assumptions are extremely well substantiated. This was proven by recent independent research by the Tropical Science Center and the Rainforest Alliance..."

This clear contradiction can only contribute to further erode the credibility of the certifier, and creates a situation requiring the intervention of the accrediting organization. Otherwise, the credibility of the FSC will also be further damaged.

topREFERENCES

1. Centeno, JC: THE ELUSIVE CREDIBILITY OF FOREST MANAGEMENT CERTIFICATION CLAIMS. Internet posting of June 20, 1996.

2. WWF-NL: NAAR EEN HOUTBARE WERELD. 1995.


August 03, 1996

JULIO CESAR CENTENO
PO BOX 750
MERIDA - VENEZUELA
Jcenteno@ciens.ula.ve