Clarity in Pricing - Trade Practices Act Changes May Muddy the Waters

IntroductionSubsection 53C(7) defines the term "single price" as
Since being elected, the Rudd Government has been"the minimum quantifiable consideration for the supply
active in exploring ways to amend the Tradeconcerned at the time of the representation
Practices Act 1974 (TPA) to prohibit different types ofconcerned..." The subsection lists the following types of
business conduct. For example, the Federalcharges which would be covered by the term "single
Government has moved quickly to introduce legislationprice" - namely, taxes, duties, and levies. Charges
to criminalise hard-core cartels with a maximum jailwhich are payable at the option of the purchaser are
term of 10 years.excluded from the definition of "single price".
The federal government has also recently issued aSubsection 53C(4) states that a price will be specified
report recommending the creation of "an Australianin a prominent way if the single price is "at least as
Consumer Law" which, amongst other changes, isprominent as the most prominent of the parts of the
likely to give the ACCC a range of new powers toconsideration for the supply". This would seem to
protect consumers, such as the ability to seek civilindicate that -
penalties and disqualification orders, and to issue public- the single price will have to be in the same or larger
warning powers and infringement notices.font than any representation of a component of the
Amongst this flurry of activity, another very importantsingle price and
change to the TPA has passed largely unnoticed. The- no component of the single price can be represented
federal government has introduced new laws, whichin a more prominent way than the single price by the
came into effect on 25 May 2009, which regulate theuse of such devices as bold font or underlining.
way that businesses can advertise the prices of theirA further implication of subsection 53C(4) is that the
goods and services. The lack of attention to theseuse of asterisks may no longer be permitted as, by
proposed laws amongst businesses and legalusing an asterisk, the single price will not be as
practitioners is particularly surprising given that theprominent as the component prices, if the single price is
legislation will introduce significant criminal penalties forlocated at the bottom of the advertisement.
failing to advertise the single price of goods andBusinesses will not be required to specify charges for
services. In This article will outline the key provisions ofdelivering goods to a customer as part of the "single
the legislation, the Trade Practices Amendment (Clarityfigure". However, businesses must specify the
in Pricing) Act 2008 (CIPA) and explore the implicationsminimum amount of any delivery charge which will be
for business.incurred by the customer. The reason for this
Backgroundexception is that delivery charges often fluctuate
Currently, under the TPA, there is an obligation to statedepending on where the customer is located.
the cash price for goods and services in certainAccordingly, it would be impossible for a business to
circumstances. Section 53C provides that -advertise the single figure inclusive of delivery for
A corporation shall not, in trade or commerce, inevery potential customer location.
connection with the supply or possible supply of goodsSubsection 53C(3) states that the obligation in
or services or in connection with the promotion by anysubsection 53C(1) does not apply when the
means of the supply or use of goods or services,representation is made exclusively to a body
make a representation with respect to an amount that,corporate. While this would appear to exclude
if paid, would constitute a part of the consideration forbusiness-to-business transactions, this is not the case
the supply of the goods or services unless theas representations to unincorporated businesses such
corporation also specifies the cash price for the goodsas sole traders and partnerships are not exempted by
or services.s.53C(3). For example, price representations made to
The current s.53C places an obligation on businesseslarge legal, medical or accounting partnerships would
to state the cash price for goods or services wherehave to comply with s.53C(1).
the business represents an amount which wouldIn addition, the requirement that the price representation
constitute a part of the consideration. By implication,must be made exclusively to a body corporate to
s.53C requires businesses to state the full cash pricequalify for the exemption contained in s.53C(3) is likely
for good and services.to broaden the application of the legislation. Even if a
Section 53C was only enforced sporadically by therepresentation is made to a large number of
Australian Competition and Consumer Commissionincorporated businesses, if the representation is also
(ACCC) prior to 2000. However, in 2000, the sectionmade to even one sole trader or partnership, the
took on particular importance with the introduction ofexemption in s.53C(3) would not apply.
the Goods and Services Tax (GST). During this period,One limiting principle to the scope of s.53C is contained
the ACCC relied heavily on s.53C to force businessesin subsection 53C(6) which states -
to show the full cash price for goods and services,A reference in this section to goods or services is a
inclusive of the GST. In fact, s.53C became thereference to goods or services of a kindordinarily
ACCC's major weapon in preventing businesses fromacquired for personal, domestic or household use or
representing GST-exclusive prices to their customers.consumption.
The ACCC preferred to use s.53C rather than s.52 ofThis subsection will restrict the scope of s.53C(1) to
the TPA to achieve GST-inclusive pricing because,goods and services ordinarily acquired for personal,
under the former section, there was no obligation ondomestic or household use or consumption. This will
the ACCC to demonstrate that the conduct wasautomatically exclude a wide range of
misleading or deceptive. All the ACCC had to prove tobusiness-to-business transactions, where the goods or
establish a contravention of s.53C was that theservices are clearly of a commercial character.
business had failed to represent the full cash price inHowever, the provision will also introduce some added
circumstances where the business has representedcomplexity, as it will mean that a preliminary step to
part of the consideration.determining whether s.53C applies in a particular
One implication of the ACCC's approach to s.53C wassituation, will be to define whether the relevant goods
that it did not distinguish between representationsor services are "of a kind ordinarily acquired for
aimed at consumers and representations aimed atpersonal, domestic or household use or consumption".
businesses. Therefore, during the GST period theSubsection 53C(5) excludes services supplied under
ACCC would often require businesses to representcontract from s.53(4) if a number of conditions are
their prices as GST-inclusive even when they weresatisfied -
supplying goods or services exclusively to business1. the contract provides for the supply of services for
consumers. Many business groups were highly criticalthe term of the contract;
of the ACCC's position on advertising the GST in2. the contract provides for periodic payments for the
business-to-business transactions. These groupsservices to be made during the term of the contract;
argued that businesses should not be required to3. if the contract also provides for the supply of goods
represent GST-inclusive prices in business-to-business- the goods are directly related to the supply of the
transactions because the GST component wasservices.
irrelevant to businesses which could claim an input taxSection 53C(4) will not apply to services supplied under
credit. In other words, business customers were onlya contract which are paid for through periodic
interested in knowing the price net of GST.payments. The supply of goods under such contracts
While the ACCC understood the concerns of thesewill also be exempt where the first two conditions are
business groups, it was faced with a dilemma. Asatisfied and the supply of the goods is directly related
significant number of complaints received by theto the supply of services.
ACCC in the GST period about GST-exclusiveThe exemption in s.53C(5) operates to relieve a
advertising came from small businesses which claimedbusiness from ensuring that any component of the
that they had been misled by other businessessingle price be as prominent as the single price. For
advertising GST-exclusive prices. The picture becameexample, goods and services which satisfy the
even more confusing in industries where someelements of s53C(5) can be advertised showing the
businesses advertised GST-exclusive prices andGST-exclusive component of the price in large,
others advertised GST-inclusive prices.prominent writing and the single, full price in smaller, less
Indeed, on more than one occasion, the ACCC wroteprominent writing.
to a business which was advertising GST-exclusiveThe most obvious area where this exemption will
prices to other businesses, only to be told that theyapply is in the advertising of mobile phone plans. These
had recently changed from GST-inclusive advertisingadvertisements usually show a prominent headline
because their competitors were advertisingprice for the mobile phone if a particular plan is entered
GST-exclusive prices. When the ACCC pressedinto and a single price of the plan over the life of the
these businesses to explain why they had felt thecontract in much smaller and less prominent writing.
need to change, they claimed they had to change toS.53C(5) means that this practice can continue.
GST-exclusive pricing because they were losing tooThe ACCC is able to seek a range of civil remedies
many customers to competitors which werefor a breach of the new s.53C including injunctions,
advertising GST-exclusive prices. These types ofdeclarations, compensation, corrective advertising and
stories provided the ACCC with a basis for concludingnon-punitive orders. Financial penalties will not be
that many small businesses may in fact be in a similaravailable for a breach of s.53C.
position to consumers in terms of being misled byThe CIPA also makes it a criminal offence to fail to
GST-exclusive advertising.represent a single price. Under s.75AZF(1) it will be a
Reasons for the Clarity in Pricing Actcriminal offence to "...make a representation with
In the Explanatory Memorandum for the CIPA, therespect to an amount that, if paid, would constitute a
justification for the legislative change was based onpart of the consideration for the supply of goods or
the perceived shortcomings of the interpretationservices". Section 75AZF is effectively identical to
placed on sv53C by the Federal Court in two casess,53C in all respects, with one major exception - the
taken by the ACCC.maximum criminal penalty for contravening s.75AZF is
In the first case, ACCC v Dell Computers Pty Limited,$1.1 million for a corporation and $220,000 for an
the ACCC alleged that Dell had breached s.53C byindividual.
not stating the full cash price of their computersImplications for business
because of not including the mandatory deliveryThe main implication of the CIPA for businesses is that
charges. In this case, Justice Branson held that athey will be exposed to legal action, including potentially
statement to the effect of "$1999 plus $99" wasa criminal prosecution, for failing to specify a single
sufficient to satisfy the requirements of s.53C ofprice for their goods and services. With maximum
stating the full cash price.criminal fines of $1.1 million for a single instance of failing
In the second case, ACCC v Signature Security Groupto represent the single price for goods or services,
Pty Limited, the ACCC alleged that Signature Securitycorporations must ensure that they take a great
had breached s.53C by advertising GST-exclusivedegree of care when making price representations in
prices for various security services. In this case, Justicetheir advertising, including newspaper advertisements,
Stone found that the expression "$295 plus GST" waspromotional brochures, price lists, on their web-sites
a compound statement of price which did notand even when providing prices verbally.
contravene s.53C.While it is highly unlikely that the ACCC would decide
Based on the outcome in these two cases, the federalto refer a brief to the Commonwealth Director of
government concluded that s.53C was not adequatePublic Prosecutions for a breach of s.75AZF unless
to achieve the broader goal of ensuring thatthe business had engaged in very blatant conduct or
businesses advertised and quoted the full price forwas a repeat offender, the fact that such serious
goods and services. Accordingly, the governmentcriminal penalties apply to this type of conduct is cause
identified the need for specific legislation, namely thefor concern. For example, businesses could be
CIPA, to resolve this perceived problem.exposed to liability under s.75AZF where they have
Trade Practices Amendment (Clarity in Pricing) Actinadvertently failed to represent a single price to a
2008customer because they did not know that particular
The CIPA has repealed the existing s.53C and replacecustomer was unincorporated. Furthermore, liability
it with the following provision -may depend on whether a particular good or service
(1) A corporation must not, in trade or commerce, inis properly characterised as "ordinarily acquired for
connection with:personal, domestic or household use or consumption."
(a) the supply or possible supply of goods or servicesAn example of conduct which would be subject to the
to a person (the relevant person); orCIPA is the supply of a price list for office products by
(b) the promotion by any means of the supply ofa large multinational office supply company to a large
goods or services to a person (the relevant person) oraccountancy partnership. It would appear that the
of the use of goods or services by a person (therepresentation of prices in this situation would be
relevant person);make a representation with respect tocaught by the CIPA because the goods are of a kind
an amount that, if paid, would constitute a part of theordinarily acquired for personal, domestic or household
consideration for the supply of the goods or servicesuse and the recipient of the price list is not
unless the corporation also:incorporated.
(c) specifies, in a prominent way and as a single figure,A further implication for business arising from the CIPA
the single price for the goods or services; andwill be the need for businesses to potentially prepare
(d) if, in relation to goods:both GST-inclusive and GST-exclusive price lists
(i) the corporation does not include in the single price adepending on the nature of the goods sold. If the
charge that is payable in relation to sending the goodsbusiness sells products of a kind ordinarily acquired for
from the supplier to the relevant person; andpersonal, domestic or household use or consumption
(ii) the corporation knows, at the time of theas well as commercial products, it may need to
representation, the minimum amount of a charge inprepare two different price lists. The need for different
relation to sending the goods from the supplier to theprice lists may also arise where companies deal with
relevant person that must be paid by the relevantboth incorporated and unincorporated business
person;specifies that minimum amount.customers. It may be more prudent for such
The main difference between the existing s.53C andbusinesses to simply use GST-inclusive price lists for all
the new s.53C is that businesses will be required totheir goods and services and customers to avoid any
specify the full price for the goods or services as apotential problems under the new s.53C.
single figure, in a prominent way.