Australia: Component pricing: just the facts

Introduction

Do you sell goods or services that are "ordinarily acquired for personal, domestic or household use or consumption"? If so, you will be affected by the Trade Practices Amendment (Clarity in Pricing) Act 2008, which commenced on 25 May 2009.

The act amends section 53C of the Trade Practices Act (TPA) in order to more explicitly regulate what is commonly referred to as "component pricing", being the practice of advertising goods and services in their component parts.

The new section 53C states that:

A corporation must not, in trade or commerce, in connection with:

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

(b) the promotion by any means of the supply of goods or services to a person or the use of goods or services by a person

make a representation with respect to an amount that, 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...

In amending the TPA, the Government's aim was to ensure that consumers were able to readily identify the price payable for goods or services, and to compare prices for similar goods or services.

What the new law requires

The new section 53C prohibits a corporation from making a representation as to the price of a "component" of goods or services, unless it also specifies the total price payable in a prominent way.

The key elements of the new section are discussed below.

There must be a "representation"

In order to breach s53C, the price must be conveyed in a "representation". Although not defined in the TPA, given its ordinary meaning, this will include all types of advertisements (such as newspaper, television, radio, internet and catalogue promotions) as well as verbal statements. It is also likely to capture non-verbal representations, such as a failure to rectify a customer's misapprehension as to whether or not GST is included in a price.

The representation must:

1. be made to an entity other than a "body corporate"
   
   Section 53C(3) states that the component pricing provisions will not apply where the representation is made exclusively to a body corporate. However, if the representation is made to body corporates as well as other consumers (such as an advertisement in a newspaper), then section 53C will apply.
   
2. refer to goods or services "ordinarily acquired for personal, domestic or household use or consumption"
   
   Whether or not goods or services are acquired for personal, domestic or household use or consumption is a question of fact. Historically, courts have interpreted this requirement broadly finding that things such as commercial quantities of carpet were captured by the definition. However, commercial loans, large tractors and reduction photocopies are examples of goods and services that the courts have determined have not been acquired for personal, domestic or household use.
3. include a "single price"
   
   As stated above, component pricing is not prohibited, but if it is used, a total "single price" must also be stated.
   
   The definition of "single price" in s53(7) of the TPA is set out below. We have also included examples and explanations of the various elements of the definition.
   
   Single Price means:
   
   The minimum quantifiable consideration for the supply...at the time of the representation...including each of the following amounts (if any) that is quantifiable at the time:
   
   The explanatory memorandum states that a price will be "quantifiable" if it is easily converted into a total dollar amount.
   
   The TPA does not prohibit businesses and consumers from negotiating a lower price than the represented price.
   
   (a) a charge of any description payable by the relevant person [i.e. the consumer] to the corporation...(other than a charge that is payable at the option of the relevant person);
   
   The TPA provides the example of the cost of fabric protection on the purchase of a lounge suite as such an "optional extra". On this basis, the costs of components such as extended warranties and metallic paint can be excluded from the "single price".
   
   However, mandatory "add-ons" payable by the consumer to the supplier must be included.
   
   (b) the amount which reflects any tax, duty, fee, levy or charge imposed, on the corporation... in relation to the supply concerned;
   
   The TPA states that GST is an example of such a fee, as it is imposed on the supplier.
   
   Costs imposed on the supplier that are not passed onto the consumer do not need to be included in the stated price.
   
   Taxes, and other fees that are imposed directly on the consumer and which are paid directly by the consumer to the relevant authority, do not need to be included.
   
   (c) any amount paid or payable, by the corporation... in relation to the supply concerned with respect to any tax, duty, fee, levy or charge if:
   
   (i) the amount is paid or payable under an agreement or arrangement made under a law [being an Australian law] and
   (ii) the tax, duty, fee, levy or charge would have otherwise been payable by the relevant person...
   
   This clause is intended to capture statutory costs that are ordinarily imposed on the consumer, but which are paid by the relevant supplier. For example, under the Passenger Movement Act, airlines may pay the "passenger movement charges" that are otherwise payable by the consumer.

The single price must be displayed in a "prominent way"

Where component pricing is used, the single price must be displayed in a "prominent way". Although not defined in the TPA, the explanatory memorandum to the Bill states that this means that the single price must be displayed "...at least as prominently as the most prominent of the other components of the price".

Consequences of breaching the TPA

The failure to comply with the component pricing provisions will constitute a breach of the TPA, and be punishable by fines of up to $1,100,000.

It is also a strict liability offence under s75B of the TPA and any person who has been directly or indirectly knowingly concerned in the breach may face criminal penalties.

Checklist

When assessing a price representation, the following questions should be asked:

• Is a representation regarding the price of goods or services being made?
• Are the goods or services "ordinarily acquired for personal, domestic or household use or consumption"?
• Is the representation being made to a party other than a body corporate?

If yes:

• Have the following costs been considered when calculating the total price payable for the goods or services:
  • All mandatory charges payable by the consumer to the supplier?
  • All taxes, duties, fees, levies and other charges imposed on the supplier that will be passed onto the consumer (e.g. GST)?
  • Any tax, duty, fee, levy or charge paid by the supplier on the customer's behalf?
• Has careful consideration been given to other costs that a consumer would assume would be included in the price?
• If component pricing is being used, is the single price also stated in a prominent way?

Advertising examples

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.