Advertisements such as '$24,990
plus on-road costs' and '$5 airfares plus taxes Melbourne to
Sydney' are now a thing of the past. The introduction of the Trade
Practices Amendment (Clarity in Pricing) Act 2008
(Act) amending section 53C of the Trade Practices
Act 1974 (TPA) on 25 May this year has had
significant consequences on how businesses advertise and provide
quotes for consumers.
What the Act addresses
Businesses are now restricted in their
use of component pricing. Basically, component pricing is the
practice of businesses pricing their goods and services in numerous
components (and commonly in small text in a different location),
rather than displaying a single figure to the consumer. Common
examples are found in the car dealership industry (ie, advertising
a car at $24,990 plus on road costs).
The new
requirements
Businesses are now prohibited from
making a representation to consumers on an amount that is only a
part of the total sum unless the business also specifies the total
amount for the goods or services:
- in a 'prominent way'; and
- as a 'single figure'.
The amendment to the TPA does not prevent the use of component
pricing; rather it requires businesses to specify a single price to
be displayed if component pricing is used. However, the consumer
should be able to identify the total price in the advertisement
just as easily as the prices for the components.
The single price
The single figure price must be
calculated at the time of supply and must include:
Qualifications to the prohibition
Business to business
transactions
Perhaps the most important
qualification in the legislation is that the new prohibitions
only apply to business to consumer transactions.
This means that representations made exclusively to another
corporation, non-corporate business or government are not bound by
the new clarity in pricing laws. However, it may be prudent for
organisations to consider whether there could be any intended or
unintended exposure to consumers who could receive, and
consequently act upon, any information that is presented to a
business and not compliant with the new laws.
Delivery
There is no need to include compulsory
delivery charges for an item as part of the 'single figure' under
the new laws. However, if the corporation knows the minimum price
for the delivery it must be specified, albeit as a separate price
to the 'single figure'.
Non-quantifiable costs
The single price is described as the
'minimum quantifiable consideration'. The amount is considered
quantifiable if it can readily be converted into a dollar
amount.
As such, where a total price is not quantifiable but a minimum
total price is known (eg, where the final price depends upon
consumer choice) the laws stipulate this minimum total price must
be publicised in the single figure.
Services which need goods to operate
If there is a contract for the supply
of services and also a provision for the supply of goods that is
inextricably linked to the services (eg, a mobile phone on a
specified plan), the single price should cover the cost of the
combined good and service. If the good could be sold separately,
then it does not need to be included in the single figure for the
service.
Prominence
The single price must be 'at least as
prominent as the most prominent parts' (s53C(4) of the Act) of the
component prices. The Act does not provide any guidance about how
this requirement should be interpreted, however it does specify an
exception to this requirement. That is, if a contract provides
for:
- the supply of services for the term of the contract;
- periodic payments for the services to be made; and
- the supply of goods directly related to the supply of
services,
the other costs may be displayed more
prominently than the single price during the contract.
Representation
The concept of a 'representation' is
considerably broader. A 'representation' can now include anything
which conveys a representation about the price of a good or
service. This could include letters of offer, advertisements (in
any media), flyers, quotations or price-tags.
Furthermore, the 'representation' provision does not only apply to
representations made by the corporations involved in the final
supply of a good or service to consumers. It also applies to
manufacturers who advertise the product which is then sold through
a distribution or dealer network.
How do the changes affect the transport industry?
The effect of the new laws will be
readily identifiable in car dealerships and travel agencies,
however all transport operators should be aware that if they make
representations directly to consumers, each must comply with the
new requirements and should consider factors such as the size,
placement, colour and font of the price in each representation. A
useful methodology for carriers (such as couriers) to adopt is to
remember their advertisements and quotes are provided to lay people
with little or no knowledge or experience in the industry. As a
result, transport operators could contravene the TPA if their
representations are in breach of the new laws.
Penalties
Failing to comply with the clarity in
pricing obligations are not treated lightly because it is a
criminal contravention of the TPA (s75AZF of the TPA) and can
result in a maximum fine of $1.1 million. As the offence is one of
strict liability, under 75B of the TPA, an individual who is
directly or indirectly knowingly involved in a contravention also
faces penalties.
For more information, please contact:
Ian Sinclair, Partner
Ph
(direct): +61 3 9608 2166
Email:
i.sinclair@cornwalls.com.au
or
Geoff Denton, Lawyer
Ph
(direct): +61 3 9608 2125
Email:
g.denton@cornwalls.com.au