How much is that doggy in the window (and is the waggly tail included in the price)?

By Michael Corrigan and Mihkel Wilding.

Key Points:
Businesses face criminal prosecution for failing to specify the single figure price of a good or service when making a representation to consumers.

The Federal Government has introduced into Parliament proposed legislation regarding component pricing. The legislation is widely thought to be targeted at advertising that does not include all applicable fees and charges.

The Trade Practices Amendment (Clarity in Pricing) Bill 2008 seeks to amend the Trade Practices Act 1974 (Cth) (TPA) by introducing a new section 53C which will require single figure pricing in advertising for goods and services, quotes, tenders and contracts. Breach of the proposed new section will be a criminal offence. Civil remedies will also be available.

If implemented, the Bill will require that corporations specify the single figure price of a good or service when making a representation about price to consumers (to the extent that a single figure price is known at the time the representation is made). There is an exception for representations made exclusively to a corporation.

This reform will particularly affect:

• advertisers of goods or services that have ancillary charges (such as additional delivery charges or additional Government taxes or levies) associated with them;
• businesses that price their goods or services using a mixture of fixed and variable charges (such as volume- or time-based charging, or contingency fees); or
• businesses that sell bundled products.

Importantly, the requirements of the Bill will only apply to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.

As with the earlier component pricing amendments proposed in March 2008, the Bill does not prohibit component pricing altogether. Corporations will continue to be able to make component price representations to consumers provided the single figure price for the good or service is also prominently displayed at the same time.

However, corporations will still be required to comply with the other consumer protection provisions in the TPA, including the well known general and broad prohibition on misleading and deceptive conduct in section 52 of the TPA.

Single figure

Corporations are required to state the price of a good or service as a "single figure" to enable consumers to readily compare between like products. This "single figure" is an "aggregate" of all components included in the "single price".

Component pricing can still be used in advertisements provided the single price is also clearly stated in the advertisement in an equally prominent way.

For example, the Explanatory Memorandum states that it would be acceptable for a corporation to represent the price of a good or service in the following way:

• $299 + $29.90 GST for a total price of $328.90; or
• $79 + $35 taxes fees and charges for a total price of $114.

Minimum quantifiable consideration

The term "single price" only includes amounts that are quantifiable when the representation is made (ie. "minimum quantifiable consideration"). A total price is quantifiable if it can be converted into a dollar amount. Relevantly, this includes:

• a charge of any description payable by the customer to the corporation making the representation (excluding optional charges);
• any tax, duty, fee, levy or charge imposed on, and payable by, the corporation making the representation in relation to the good or service being supplied, such as GST or sales tax;
• any tax, duty, fee, levy or charge imposed on, or payable by, the consumer which is collected by the corporation under an agreement with the Government (airport departure taxes are an example).

The known and unknown charges

Where the final price will be a mixture of quantifiable and non-quantifiable charges, the charges that are quantifiable should be represented as a single figure, but you will probably also need to indicate that not all components are included in the single figure price (eg. by an appropriately worded and prominent disclaimer).

Where a total price is not quantifiable but a minimum total price is known, that minimum price must be disclosed as a single figure.

Optional charges

Certain elements of a price do not need to be included in the single price disclosure where they represent costs that are payable only at the option of the consumer, such as a credit card surcharge, if other payment options are available.

Delivery charges

Delivery charges for goods must either be included in the single price or displayed (if the amount is known) as a separate component.

The "equally prominent disclosure" requirement

A customer must be able to easily identify the single figure price in a price representation. The Bill would require a corporation to specify the single price for goods and services in a way that is "at least as prominent as the most prominent of the parts of the consideration for the supply" (eg. in terms of positioning in the advertisement and font used).

If you bundle goods and services together under a single contract, and the contract commits the customer to acquire the relevant services for the term of the contract, the "equally prominent disclosure" requirement will only apply to goods that are not directly related to the supply of the services.

For example, it appears that if you sell a mobile phone plan which bundles telecommunications services with a new mobile phone, you can display the monthly rate more prominently than the overall contract price, because the goods (the phone) are directly related to the services (call services which use the phone).

What should be done if the Bill passes?

While the Government believes the Bill will not impose unnecessary compliance burdens on businesses, the Bill does add a further layer of regulatory scrutiny to the making of price representations by business to consumers.

Generally, businesses should review advertising campaigns and sign-off procedures to ensure good compliance, not just with the new section 53C but also with the other consumer protection laws. In particular:

• Businesses will need to carefully and constantly monitor the minimum price of postage, couriers and packaging for goods to ensure that those costs are incorporated in the single figure price and are accurately represented. If they do not do so, they may infringe the new section by having "knowledge" of the minimum cost of such charges. They may also run the risk of infringing the other prohibitions of Part V of the TPA by not accurately representing the price of the goods sold.
• Those preparing promotional catalogues will also need to ensure that any advertising materials display the single price of a product in a way that is at least as prominent as any of the components of that price.
• Businesses will also need to revise their use of fine print disclaimers detailing mandatory taxes, fees and other charges which are additional to the cost of the goods or services being supplied, as these costs must now be incorporated in the single price.

For further information, please contact Michael Corrigan and Mihkel Wilding.