Who does this affect?

All businesses that advertise prices in component parts.

What do you need to do?

Given these proposed provisions create a criminal offence, you need to know exactly what you are required to disclose in your consumer advertisements. Consider whether you wish to make a submission to Treasury on the Bill. Ensure that your internal trade practices compliance policies are up to date. We can help with this.

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Caroline Coops  
Partner
T +61 3 9643 4097

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Sydney
Vishal Ahuja  
Sharon Henrick  

Melbourne
Amanda Bodger  
Caroline Coops  
Lisa Huett  
Renae Lattey  
Andrew Monotti  
Roger Featherston  

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On 30 March 2008, the Minister for Competition Policy and Consumer Affairs unveiled a proposed amendment to the Trade Practices Act 1974 (TPA) relating to the use of component pricing in consumer advertising. If passed, the proposed changes will affect consumer advertising across the board.

Component pricing occurs when a business advertises a price in its component parts, rather than as a single, all-inclusive figure.

The Exposure Draft “Trade Practices Amendment (Component Pricing and Other Measures) Bill 2008” (Bill) and accompanying Explanatory Memorandum (EM) follows in the footsteps of a similar draft bill released by the Howard Government in March 2006.

The Bill represents a significant improvement on the previous 2006 draft legislation. With consumer-friendly policy in mind, the Rudd Government’s Bill limits component pricing to “advertisements” rather than to “representations” (which would have included contracts, quotes, bids and tenders).

The Bill also contains more detailed drafting including an attempt to confine the Bill’s application to consumers and a definition of what constitutes a “single price”.

However, whilst component pricing legislation originally stemmed from a concern over misleading airline pricing trends, the current Bill fails to capture those original policy objectives. If passed, the proposed amendments would see a small business being criminally liable for failing to include GST in the advertised price for one of its products. To this extent, the Bill has lost touch with the consumers it is trying to protect.

Also, the Bill fails to capture the intentions expressed in the EM. The Bill should be refined so that it precisely reflects the limitations and practicalities address in the EM.

Given the serious criminal provisions that attach to the proposed component pricing amendments, it is important that businesses understand their disclosure obligations for consumer advertising.

Treasury has invited interested parties to submit comments in relation to the Bill, but has set a very tight deadline of 17 April 2008.

Outline of the Bill

In essence the Bill repeals the existing section 53C and section 75AZF of the TPA and replaces these sections with prohibitions on corporations from:

“making a representation in an advertisement with respect to an amount which, if paid, would constitute a part of the consideration for the supply of the goods or services unless the corporation also specifies, in a prominent way, and as a single figure, the single price for the goods or services”.

Representations in advertisements

The scope of the new section 53C is confined to price representations in “advertisements”, which involves a narrower application of the current sections which refer generally to a “representation”.

Consumers, not B2B or B2G

It is the Government’s intention that the Bill’s application be restricted to contexts where a business advertises the price of goods or services to consumers and not to other businesses or governments. This is reflected in the EM and other materials, as well as within the section itself through:

• the insertion of a new sub-section 53C(2) which provides that a reference to “goods or services” in the revised sections only refers to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, and
• use of the term “the consumer” in describing the person the subject of the advertisement in 53C(1) and 75AZF(1).

However, the Bill does not successfully confine its application to consumers in all circumstances. For instance, there are many goods and services “of a kind ordinarily acquired for personal, domestic or household use or consumption” that are acquired by business customers.

Quantifiable vs Non-quantifiable amounts

The proposed revisions to the TPA attempt to define the concept of a “single price” as including amounts that are quantifiable at the time the relevant representation is made. According to the EM, the total price is not quantifiable if at the time of the representation “it cannot be readily converted into a dollar amount”. It is far from clear what is meant by “quantifiable” for the purposes of a “single price”. For instance, in circumstances where there are month-to-month services which rely on variable customer up-take or usage, such as gas, electricity or telecommunication services, the legal effect of these terms is unclear.

However, the EM states that where a final price includes both quantifiable and non-quantifiable amounts, the quantifiable amounts should be represented in the “single price” but, in order to comply with other provisions of the TPA, the representation must also state that not all price components are included in this figure.

It is important to note that that whilst the EM provides clarity in this instance and others, it is not legislative in nature and cannot therefore be relied upon by corporations unless the legislation is ambiguous, which it should not be.

Definition of “single price”

The definition of a “single price” includes:

• charges “of any description payable by the consumer to the corporation” except for charges that are:

• taxes, duties, fees, levies or charges imposed on the corporation in relation to the supply (eg. GST), and
• the amount paid/payable by the corporation in relation to the supply with respect to any taxes, duties, fees, levies or charges if the amount is paid or payable under an agreement or arrangement made under a law and that tax, duty, fee, levy or charge would have otherwise been payable by the consumer in relation to the supply concerned.

The EM also makes clear that if the total price depends on the quantity purchased by a consumer, it should be specified as a per quantity amount (eg. bananas $4.00 per kilogram).

Some of these elements are not as clear-cut as they at first appear. For example, some stamp duties usually paid by a purchaser may also be duties for which the corporation has a joint and several liability. Also, what would prevent a corporation inflating its charges for postage and handling to limit the amount of the “single price”?

“In a prominent way”

The single price must be displayed in the advertisement “in a prominent way”. Although this term is not defined in the Bill, the EM provides guidance by stating that specification of a single price in the small print of a newspaper advertisement does not satisfy the requirement. Presumably, single prices must be disclosed at least in body copy. It is unclear whether the single price must be displayed in the same size or font as the component or part prices.

Does not apply to financial services

Financial services will be exempt from the single price requirement.

Going forward

Please contact us immediately if we can assist with a submission to Treasury in response to this Bill or if you would like specific advice on the application of these proposals to your advertising.