The clarity in pricing – Trade Practices Act Amendments May Muddy Waters who

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Introduction

Since the vote, the Rudd government has been actively exploring ways to amend Trade Practices Act 1974 ( TPA) to prohibit different types of business. For example, the Federal Government has moved quickly to introduce legislation to criminalize hard-core cartels with a maximum 10 years’ jail.

The federal government has also recently issued a report recommending the establishment of “Australian Consumer Law” which, among other changes, is likely to give the ACCC a number of new powers to protect consumers, such as the ability to search civil penalties and disqualification orders, and to issue a public warning power and infringement notices.

Among this flurry of activity, another very important change in the TPA has passed largely unnoticed. The federal government has introduced a new law, which took effect on 25 May 2009, which govern how companies can advertise the price of goods and services. Lack of attention to this proposed law among companies and legal experts is particularly surprising given that the legislation will introduce significant criminal penalties for not advertising one price of goods and services. This article will outline the main provisions of the legislation Trade Practices Amendment (Clarity in Pricing) Act 2008 (CIPA) and the effects of business.

Background

Currently, the tPA, it is mandatory to specify the cash for goods and services in certain cases. Section 53C provides that –

A corporation shall not trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services that representation with respect to the amount that, if paid, would constitute a part of the consideration for the supply of goods or services unless the company also defines cash price for goods or services.

Current s.53C to require companies to specify the cash for products or services the company represents the amount that would be part of the consideration. Indirectly, s.53C require companies to specify the full cash price of good and services.

Section 53C was only sporadically enforced by the Australian Competition and Consumer Commission (ACCC) for 2000. However, in 2000, the section was especially important with the introduction of Goods and Services Tax (GST). During this period, the ACCC relied heavily s.53C to force companies to reveal the full cash price for goods and services, inclusive of GST. In fact, s.53C became a major weapon ACCC prevent companies from representative GST-exclusive price to their customers.

The ACCC want to use s.53C rather than s.52 of the TPA to reach GST- included pricing because, according to the previous section, there was no obligation on the ACCC to demonstrate that the conduct was misleading or deceptive. All ACCC had to prove to the contrary s.53C was that the company would not represent the full cash price in circumstances where the company has represented part of the discussion.

One indication of the approach ACCC is s.53C was that it did not distinguish between representatives aimed at consumers and representation aimed at businesses. Therefore GST period ACCC would often require companies to represent their prices as GST included even when they were offering goods or services only to corporate consumers. Many business groups were very critical of the situation ACCC is advertising GST in business-to-business transactions. These groups argued that the company should not be required to represent the GST-inclusive price in business-to-business because GST part was irrelevant to companies that could claim the input tax credit. In other words, customers were only interested in knowing the price net of GST.

While the ACCC understood about these business groups, it was faced with a dilemma. A significant number of complaints received by the ACCC of the GST period of the GST-exclusive advertising came from small businesses maintained that they had been misled by other companies advertising GST-exclusive price. The picture became even more confusing in an industry where some companies listed GST-exclusive price and other listed GST-inclusive price.

Indeed, more than once, ACCC wrote the company was advertising GST-exclusive price to other companies, only to be told they had recently switched from GST inclusive advertising because their competitors were advertising GST- exclusive price. When ACCC pushed these companies to explain why they felt the need to change, they said they had to change the GST-exclusive pricing because they were losing too many customers to competitors who were advertising GST-exclusive price. These types of stories provided ACCC with the basis for the conclusion that many small businesses may actually be in a similar situation of consumers with respect to distract GST-exclusive advertising.

Reason for clarity Pricing Act

In the Explanatory Memorandum for CIPA, the argument for legislative change based on perceived flaws in the interpretation placed on sv53C of Federal Court in two cases taken by the ACCC.

In the first case, ACCC V Dell Computers Pty Limited ACCC alleged that Dell had violated s.53C by specifying the full cash price of their computers because not considered mandatory charges delivery. In this case, Justice Branson thought the statement that “$ 1,999 plus $ 99” was sufficient to satisfy the requirements s.53C to indicate the full cash price.

Secondly, ACCC V Signature Security Group Pty Limited ACCC alleged that Signature Security had violated s.53C of advertising GST-exclusive price for various services security. In this case, Justice Stone that the term “$ 295 plus GST” was a compound statement of prices not violate s.53C.

Based on the results of these two cases, the federal government concluded that s .53C was not sufficient to achieve the broader goal of ensuring that companies listed and quoted the full price for goods and services. Accordingly, the government identified the need for specific legislation, ie CIPA, to solve this perceived problem.

Trade Practices Amendment (Clarity in Pricing) Act 2008

The CIPA has repealed existing s.53C and replace it with the following provisions –

(1) A corporation may not, in trade or commerce, in the context of

(a) the supply or possible supply of goods or services to a person (which the person concerned ); or

(b) the promotion by any means of the supply of goods or services to a person (which the person concerned ) or use a product or service by an individual (the the person concerned );

make representations against the amount if paid, be considered a part of the consideration for the supply of goods or services unless the company also

(c) specify, in a prominent manner and as a single figure on a price for the products or services; and

(d) if, in relation to the goods

(i) the company does not take on a fee payable in connection with sending goods from supplier to the person concerned, and

(ii) a corporation knows, at the time represented, the minimum amount of fees associated with sending the product from the supplier to the party that has to pay the person concerned

specifies the minimum.

The main difference between the current and new s.53C s.53C is that companies will have to specify the full price for goods or services that one picture, prominent.

Subsection 53C (7) defines the term “one price” as “minimum quantitative discussion of supply relevant at the time based person …” The section lists the following types of charges that would fall under the concept of “one price “- ie, taxes, duties and charges. Fees are payable at the buyer’s selection are excluded from the definition of “one price”.

Subsection 53C (4) states that the price will be specified in a prominent way if one price is “at least as prominent as the most prominent parts of the consideration for the supply.” This seems to suggest that –

  • one price will be the same or larger font than any representation on the part of one price and
  • not part of the single will be represented in a more pronounced way than one price with the use of such devices as bold underline.

Further indication of subsection 53C (4) that may no longer allow the use of stars like, because with a star, one price will not be as pronounced as part of the price, if one price is located the bottom of the ad.

companies will not be required to specify the charges to return the product to the customer as part of a “single number”. However, companies must specify the minimum no shipping costs will fall on the customer. The reason for this exemption is that the delivery charges often fluctuate depending on where the customer is located. Accordingly, it would be impossible for a company to advertise a single figure included delivery for all potential customers instead.

Subsection 53C (3) states that the obligation in subsection 53C (1) shall not apply where the representation is for a body corporate. While this seems to exclude business-to-business transactions, this is not the case presentation incorporated company as the only traders and partnerships are not excluded from the s.53C (3). For example, price statements to large law, medicine or accounting cooperation would have to be in accordance with s.53C (1).

In addition, the claim that prices representation must do only to corporate to get exemption is s.53C (3) is likely to broaden the application of the legislation. Even if the presentation is made to the number of incorporated companies, if the presentation is also even one sole trader or partnership, the exemption in s.53C (3) would not apply.

One limiting principle that the scope s.53C be found in Section 53C (6) which states –

Reference is made in this part of the goods or services referred to goods or services set

usually acquired for personal, domestic or household use or consumption.

This paragraph will limit the scope s.53C (1) products and services usually acquired for personal, domestic or household use or consumption. This will automatically exclude a wide range of business-to-business transactions in which goods or services are clearly in business. The provision will also introduce some added complexity, as it will mean that a preliminary step to determine whether s.53C applies in a particular situation, must specify whether the goods or services are “of the kind normally collected personal., Domestic or household use or consumption “

Subsection 53C (5) excludes services provided under contract by s.53 (4) if the number of conditions are met –

1. The agreement provides for the provision of services for duration of the contract,

2. The agreement provides for periodic payments for services to make the duration of the contract,

3. if the contract also provides for the delivery of goods – products are directly related to the supply services

Section 53C (4) do not apply to services provided under the agreement are paid by periodic payments. . Supply of goods under such agreements will also be exempt where the first two conditions are met and the supply of goods is directly related to the provision of services.

Exemption s.53C (5) operates to relieve a company from ensuring that any part of one will be as prominent as one price. For example, products and services that meet the elements s53C (5) can display advertising GST-exclusive part of will be large, prominent writing one, the full price of the smaller, less noticeable in writing.

The most obvious area where this exemption applies, is advertising mobile phone plans. These ads usually show prominent headline prices for mobile if certain budget estimates and a price schedule in your contract a much smaller and less flashy writing. S.53C (5) means that this work can continue.

The ACCC is able to search a range of civil remedies for violations of the new s.53C including injunctions, declarations, claims, corrective advertising and not -punitive orders. Financial penalties will not be available for a fraction of s.53C.

The CIPA also makes it a criminal offense to fail to represent a single price. Under s.75AZF (1) it will be a criminal offense to “… the representation with respect to the amount that, if paid, would constitute a part of the consideration for the supply of goods or services”. Section 75AZF is really like s, 53C in all respects, with one major exception – the maximum criminal penalty for violation s.75AZF is $ 1.1 million for companies and $ 220,000 per person

Implications for companies

main indicator of CIPA for companies is that they will be exposed to legal action, including possible criminal proceedings, for failing to specify the prices for their products and services. With maximum criminal fines $ 1.1 million for one example, to represent one price for a product or service, companies must ensure that they take great care when prices representation in their advertising, including newspaper ads, promotions, catalogs, price lists , the web-sites and even when supply will be oral.

Although it is very unlikely that the ACCC would decide to refer the brief to the Commonwealth Director of Public Prosecutions for violations of s.75AZF unless the company had a very blatant act or the repeat offender, the fact that such serious criminal penalties for this type of behavior is a concern. For example, a company could be exposed to liability under s.75AZF where they have accidentally been able to represent one price to customers because they did not know that particular client was unlisted. Furthermore, responsibility may depend on whether a particular product or service is correctly described as “usually bought for personal, domestic or household use or consumption.”

Examples of conduct that would be subject to CIPA is the availability of pricing for office products with large multinational office supply company to a large accounting operation. It seems that the presentation will be in this situation would be caught by CIPA because the goods are of a kind normally acquired for personal, domestic or household recipient prices is not taken.

Further evidence for the company resulting from CIPA will be needed for the company to potentially prepare both inclusive GST and GST-exclusive pricing depending on the nature of the product sold. If a company sells products form usually acquired for personal, domestic or household use or consumption and commercial products, it may need to prepare two different tariffs. The need for different tariffs may also arise where companies deal with both incorporated and unincorporated customers. It may be more prudent for such businesses to simply use the GST-inclusive price for all its products and services and customers to avoid potential problems under the new s.53C.

The CIPA is likely to have a significant impact on how companies advertise their products and services. Unfortunately CIPA is unnecessarily complex and has not been able to rule out many business-to-business transactions from its scope. Therefore, when preparing price advertising and price lists. companies must carefully consider both the nature of the products they sell to determine whether they may be exempted, and the types of customers they are likely to reach with their advertising.

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