Bills Digest no. 38 2008–09
Trade Practices Amendment (Clarity in Pricing) Bill 2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Trade
Practices Amendment (Clarity in Pricing) Bill 2008
Date introduced: 25
September 2008
House: House
of Representatives
Portfolio: Competition
Policy and Consumer Affairs
Commencement: Sections
1–3 on the day of the Royal Assent; Schedule 2 on the day after the Royal
Assent; and Schedule 1 on a day to be fixed by Proclamation or six months
after the Royal Assent, whichever is the earlier.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading speech
can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills
have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
The purpose of the Bill is to amend the Trade Practices
Act 1974 (TPA) to require corporations to prominently specify a single
figure price that a consumer must pay to obtain a product or service.
The Bill does contain some exceptions to this requirement such as:
- for charges relating to sending goods from a supplier to a customer
- where a single price is not quantifiable and
- for business to business transactions.
Section 53C of the TPA requires advertisers to state the cash price in
relation to advertisements for goods and services. The Explanatory Memorandum
for the Trade Practices Revision Bill 1986, which inserted section 53C
into the TPA states that:
The new section 53C prohibits a corporation advertising
part only of the consideration payable for goods or services without
disclosing the total consideration for which the goods or services may
be purchased outright. This provision is directed at a trader advertising
that a consumer may buy a product for a low deposit without disclosing
the total price payable.[1]
In Trade Practices Commission v Autoways Pty Limited[2] the Court observed:
the policy [of section 53C] is to cause advertisers
to tell the whole story and at least in one respect – if selling goods
on time payment – they must say how much you could buy the good for
by paying the cash price. This is likely to be of assistance, particularly
to the less sophisticated buyers, in determining whether a purchase
is desirable, and also in comparing the desirability of one purchase
against that of another.[3]
Despite this intention, the decision of the Federal Court of Australia
in Australian Competition and Consumer Commission v Dell Computer Pty
Ltd (the Dell Computer case)[4] suggested that section 53C of the
TPA does not require a single figure price to be specified.
In that case, advertisements by Dell Computer Pty Ltd had a prominent
display or statement of the price for computer products and, elsewhere
in the advertisement, a reference to an additional charge for delivery.
The complaint to the Australian Competition and Consumer Commission (ACCC)
was that the advertisements did not make it sufficiently clear to potential
customers that the delivery fee that was charged by Dell was compulsory
and not optional.[5]
The question for the court was about the definition in the TPA of ‘price’,
that is, whether the sums of money which were specified in the advertisements
as the price of the computer products, constituted part only of the consideration
for their supply, having regard to the fact that a compulsory delivery
charge was payable.[6]
The court decided that there was no breach of section 53C.
Justice Branson considered that it was not necessary to specify a whole
price in dollar terms. In her view a cash price specified as $1 999 plus
$99 is as much a specification of the whole price as a statement that
the single cash price is
$2 098.[7]
Similarly, in the case of Australian Competition and Consumer Commission
v Signature Security Group Pty Limited[8] the court determined
that the expression ‘$295 plus GST’ is a compound statement of price which
did not breach section 53C of the TPA.[9]
This Bill seeks to address the issue of compound statements of price,
also referred to as ‘component pricing’. Component pricing occurs when
a trader advertises a price in its component parts, rather than as a single
all-inclusive figure.[10]
Complaints were aired in the media in 2005 about ‘businesses that suck
consumers in with a cheap price, then bump up the final bill with taxes,
fees and other charges’.[11]
The motor vehicle industry, the airline industry and the rental car industry
were singled out for particular criticism.
Draft amendments to the TPA to respond to component pricing were released
for public consideration by the former government on 10 March 2006. Those
draft amendments were expected to be part of the Trade Practices Legislation
Amendment Bill (No 3) 2006. They were intended to implement the Australian
Government’s announcement in April 2005 that it would amend the TPA to
respond to the increased use of component pricing.[12]
However, the proposed legislation was not introduced. Instead, on 11
December 2006 the Hon Chris Pearce, then Parliamentary Secretary to the
Treasurer announced that the Productivity Commission would commence a
year long public inquiry into Australia’s consumer policy framework and
its administration stating that:
[The] inquiry reflects the Australian Government’s
commitment to leadership in consumer policy reform and will build on
the Government’s ongoing reform agenda, including reform of Australia’s
consumer product safety system and the laws governing component pricing.[13]
The Terms of Reference of the inquiry do not make specific mention of
component pricing.[14]
The Productivity Commission issued a draft report on 12 December 2007.
Its final report
was published on 8 May 2008. However it does not appear to make specific
recommendations about component pricing.
In March 2008, without waiting for the final Productivity Committee report,
the current government circulated draft legislation to address the issue
of component pricing in advertising to consumers.[15]
A number of formal submissions were made to Treasury in response to the
draft legislation. In particular, the submission by the Business Council
of Australia[16] was not
supportive of the proposed amendments to the TPA on the following grounds:
- the absence of a clearly articulated problem at which the proposed
amendments are aimed
- the absence of clear cost-benefit analysis
- practical problems associated with businesses attempting to comply
with these provisions which will, in turn, impose costs on business
and create uncertainties for consumers and
- the possibility for disproportionate penalties, given that the proposed
amendments are likely to be difficult to implement in practice, which
may result in businesses inadvertently contravening the law.[17]
Many of the drafting issues raised in the submissions by Choice[18]
and the Law Council of Australia[19]
were incorporated into the current Bill.
It is important to note that this Bill is different from the draft bills
which were circulated both by the former and current governments. In
particular, the 2006 draft bill proposed that similar amendments would
be made to the Australian Securities and Investments Commission Act
2001.[20] This Bill does not affect financial
services. No formal explanation for this has been given. However, it
is noted that financial services are already covered by the financial
disclosure provisions of the Corporations Act 2001.[21]
The current Bill will particularly target the advertising of cheap air
fares. The Hon. Chris Bowen is reported as stating:
It is not appropriate that additional compulsory fees
and charges are disclosed in fine print disclaimers, particularly when
those additional compulsory charges may be significantly larger than
the component price that is highlighted.
The Australian Competition and Consumer Commission
received 430 complaints over confusing component pricing last year.
Many other consumers were probably misled, but had not complained to
a regulator[22]
At its meeting of 25 September 2008, the Selection
of Bills Committee deferred consideration of the Bill until its next meeting.[23]
According to the Explanatory Memorandum, the Bill has no significant
financial impact on Commonwealth expenditure or revenue.[24]
Schedule
1
Schedule 1 of the Bill makes changes to the TPA in relation to component
pricing.
Item 1 of Schedule 1 repeals the existing section 53C and substitutes
proposed section 53C. Proposed subsection 53C(1) introduces
the term ‘relevant person’ which is repeated in various
subsections of proposed section 53C. Proposed subsection 53C(1)
applies to a corporation in connection with:
- the supply (or possible supply) of goods or services[25] to a person (the ‘relevant
person’) or
- the promotion by any means of the supply of goods or services to a
person (the ‘relevant person’) or
- the promotion by any means of the use of goods or services by a person
(the ‘relevant person’).
The corporation must not, in trade or commerce, make a representation
about an amount that, if paid by the relevant person, would constitute
only part of the total amount to be paid for the supply of goods or services
unless the corporation also specifies in a prominent way, and as a single
figure, the ‘single price’[26]
for the goods and services: proposed paragraph 53C(1)(c). These
two concepts of a ‘single figure’ and a ‘single price’ are repeated throughout
the Bill.
Proposed subsection 53C(7) defines the term ‘single price’
as the minimum quantifiable consideration for the relevant supply at the
time of the representation to the relevant person and is to include each
of the following amounts that can be quantifiable at that time:
- a charge of any description, payable by the relevant person, other
than a charge that is payable at the option of the relevant person:
proposed paragraph 53C(7)(a)[27]
- the amount of any tax, duty, fee, levy or charge imposed on the corporation
making the representation in relation to the relevant supply: proposed
paragraph 53C(7)(b)[28]
- the amount paid or payable by the corporation in relation to the relevant
supply with respect to any tax, duty, fee, levy or charge: proposed
paragraph 53C(7)(c).[29]
The submission by Choice took issue with the use of the term ‘quantifiable’
in proposed subsection 53C(7), citing the motor vehicle industry
as an example. Choice strongly recommended that where a charge is ‘unquantifiable’,
and thus excluded from the single price, the advertiser should be required
to state in a prominent way the fact that the charge is payable and the
nature of the charge.[30]
There is an exception to the requirement that the corporation must specify
the single price, namely, where the supply relates to goods
for which a delivery charge may apply: proposed subsection 53C(2).
However, where the corporation knows, at the time of making the representation
about the amount to be paid for the supply of the goods, the minimum charge
for sending the goods to the ‘relevant person’, then the corporation must
also specify that minimum amount: proposed paragraph 53C(1)(d).
A corporation will not have satisfied the requirement that the single
price be specified in a prominent way unless the single price is at least
as prominent as the most prominent of the component parts of the consideration:
proposed subsection 53C(4).
According to proposed subsection 53C(5) the ‘at least as prominent
as’ requirement in proposed subsection 53C(4) does not apply to
services supplied under a contract in the following circumstances:
- the contract provides for the supply of services for the term of the
contract
- the contract provides for periodic payments for the services to be
made during the term of the contract
- if the contract also provides for the supply of goods – the goods
are directly related to the supply of the services.
The Explanatory Memorandum provides the following example of the circumstances
in which this proposed subsection would apply:
a corporation may offer telecommunications services
at a cost of $20 per month, provided that the customer enters into a
contract for provision of those services for a minimum of 24 months.
The single price for those services is $480 ($20 x 24 months). The
corporation is still required to state the $480 single price prominently,
but it may also display the $20 per month more prominently, if it chooses
to; however;
if the contract also provides for the supply of goods,
for subsection 53C(5) to apply those goods must be directly related
to the supply of the services (for example, a mobile phone would be
directly related to a mobile telecommunications service but a DVD player
would not be).[31]
Proposed subsection 53C(6) provides that a reference to goods
or services is a reference to goods or services of a kind ordinarily acquired
for personal, domestic or household use or consumption. This means that
the Bill does not apply to supplies by a corporation in trade or commerce
with another corporation or non-corporate business or a government. It
does not apply to business to business transactions.[32]
Item 2 of Schedule 1 repeals existing subsection 75AZF(1) which
is in similar terms to existing section 53C. The subsection provides
for criminal penalties in cases where a corporation fails to specify the
cash price in relation to advertisements for goods and services. Item
2 also substitutes proposed subsection 75AZF(1) which is a
criminal offence provision. As with its predecessor, it is in similar
terms to proposed section 53C, that is, it provides that a corporation
must not, in trade or commerce, make a representation about an amount
that, if paid by the ‘relevant person’, would constitute only part of
the total amount to be paid for the supply of goods or services. The
maximum penalty for making such a representation is 10,000 penalty units.[33] According to existing (and unchanged) subsection 75AZF(3),
the offence is one of strict liability.
Item 3 of Schedule 1 repeals existing subsection 75AZF(2) and
substitutes proposed subsections 75AZF(2)–(2D) which provide exceptions
to rule in proposed subsection 75AZF(1). It will not be
a criminal offence if a corporation fails to make a representation of
the single price to be paid by the relevant person for a supply of goods
and services in the following circumstances:
- if the corporation specifies both the single price for the goods or
services and where, there is a delivery charge for sending the
goods to the relevant person, the minimum amount of the delivery charge,
if that amount is known to the corporation at the time of making the
representation: proposed subsection 75AZF(2)[34]
- where the representation is made exclusively to a body corporate:
proposed subsection 75AZF(2B)[35].
- in the circumstances set out in proposed subsection 53C(5),
that is, in relation to contracts that provide for the supply of services
for the term of the contract, which also provide for periodic payments,
and if goods are also supplied under the contract that those goods are
directly related to the supply of the services.
Item 4 inserts proposed subsections 75AZF(4) and (5) which
are in the same terms as proposed subsections 53C(6) and (7) and
effectively insert mirror provisions into the offences section of Part
VC of the TPA.
Item 5 of Schedule 1 is an applications provision which confirms
that amendments made by Schedule 1 of the Bill apply to conduct engaged
in after its commencement.
Schedule 2 of the Bill contains miscellaneous amendments to the TPA.
Items 1 and 2 are minor consequential amendments.
Existing section 65E sets out the power of the Minister to declare by
notice in writing published in the Gazette, product safety or information
standards. Item 3 amends existing subsection 65E(2) so that where
such a notice is published, the standard referred to in the notice is
taken to be:
- for section 65C[36]
– a prescribed consumer product safety standard: proposed paragraph
65E(2)(a)
- for section 65D[37]
– a prescribed consumer product safety information standard: proposed
paragraph 65E(2)(b)
- for section 75AZS[38]
– a consumer product safety standard prescribed by regulations: proposed
paragraph 65E(2)(c)
- for section 75AZT[39]
– a consumer product safety information standard: proposed paragraph
65E(2)(d)
Items 5 and 6 add notes to existing sections 75AZS and 75AZT to
clarify that a breach of a notice about a standard which has been published
in the Gazette under existing section 65E may be a criminal offence.
[21]. Part 7.9 of the Corporations Act 2001 contains financial
product disclosure and other provisions relating to issue, sale and purchase
of financial products.
Paula Pyburne
13 October 2008
Bills Digest Service
Parliamentary Library
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