10 Mar 2009

Component pricing bill now law

by Michael Corrigan, Mihkel Wilding

Businesses should review their existing compliance procedures for advertising sign-off now that the Clarity in Pricing Bill has been passed.

On 12 November 2008, the clarity in pricing amendments to the TPA, which were proposed in September last year were passed by the Parliament.

The new section 53C will commence no later than 25 May 2009. It will apply to conduct that businesses engage in on or after that date.

What do the new rules require?

Once implemented, businesses will need to specify the single figure price of goods or services when making a representation about price to consumers. While business can continue to use component pricing, it may only do so if it also prominently states the single figure or total price for the goods or services (to the extent that that price is quantifiable at the time the representation is made). There will be an exception for representations made exclusively between corporations.

What do businesses need to do now?

Before the new law comes into effect, businesses should review their existing compliance procedures for advertising sign-off. 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 catalogues will need to ensure that any advertising / promotional materials display the single figure 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 which outline mandatory taxes, fees and other charges which are additional to the cost of the products or services being supplied, as these costs must now be incorporated in the single price.

By requiring business to specify a "minimum quantifiable price" at the time the representation is made, the new law will increase regulatory scrutiny of pricing and advertising by business.

Difficulties in determining a "minimum quantifiable price"

There are likely to be difficulties specifying a single or total price in certain types of transactions where the "minimum quantifiable price" cannot be ascertained.

In such cases, businesses may be able to provide an estimate of the single figure price based on past transactions of like products, together with an appropriately worded disclaimer which makes it clear that the single figure price is a "best estimate" which is subject to change when the other components of the price become known.

However, the effectiveness of such a disclaimer is likely to vary on a case-by-case basis. For example, if the quoted single figure price varies significantly from the actual price paid by consumer when the other elements of the price are included, then this kind of disclaimer is not likely to be permissible.

Penalties and remedial orders

The maximum pecuniary penalty for a breach of section 53C is $1.1 million for a company and $220,000 for an individual. Injunctions, declarations and damages to recover loss are also available for breach of section 53C, as are a range of other remedial orders.

As with the other fair trading provisions in the TPA, these include the making of probation orders lasting up to three years, community services orders, corrective advertising orders and orders to implement compliance programs.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.