The fine line between Was and Now
On the 15th of February 2008 the Federal Court of Australia decided that a business which advertises a product at a discounted price is obliged to have actually discounted it. Simply quoting an inflated ‘Was’ price to give the appearance of a currently discounted ‘Now’ price is now both misleading and deceptive under sections 52 and 53 of the Trade Practices Act.
ACCC v Prouds Jewellers
The ACCC’s case against Prouds, a large Australian jewellery retailer, revolves around 17 product advertisements which appeared in various catalogue publications between January and December 2005. Each advertisement consisted of a ‘Was / Now!’ price statement designed to encourage a belief in the consumer that the product was being sold at a discount relative to a price at which it was ‘normally’ sold (actual advertised prices varied for each item). The ACCC and the general law takes no issue with this practice and a problem only arose when it was found that the products for sale had in fact not been immediately previously sold for their advertised ‘Was’ price (and so the ‘discount impression’ appeared fictitious).
Findings
The Court found that there were two significant issues for determination in this case:
- which consumers were likely to be deceived by Prouds’ price advertisements (if they were ultimately determined to be misleading); and
- by what criteria must a ‘previous sale price’ be judged.
The first of these issues was approached via a long and complicated series of case law authority and statutory interpretation but ultimately determined that Prouds’ actions affect anyone who might seek to purchase jewellery in Australia.
Of far more significance was how the Court decided what constituted a ‘previous sale’ or ‘Was’ price. In this regard it was found that the primary question which must be answered is ‘when was the item last offered at the ‘Was’ price’? The answer which the Prouds case arrived at is that the only valid use of a ‘Was’ price is with reference to the price at which a good is sold immediately before it is discounted. It is not sufficient that a product was sold at a specific price at some stage in the past, indeed it is not even sufficient that the item normally retails at a given price; whatever price it is sold for immediately before the discount is the only ‘Was’ price which can be advertised.
Impacts on pricing in Franchise businesses
The decision in the Prouds case has potentially far reaching implications for franchising businesses. Prouds, according to their own submissions, operate in a highly competitive marketplace and regularly offer products at discount prices (some items were in fact not sold at their normal retail price for the entirety of 2005). Regardless of the fact that every product has its own normal retail price, if the item is regularly discounted, it is this price which must be used as a reference for any further discounts (not the normal retail price). This means all franchise businesses must be aware of their own discount policies and cycles and must accurately reflect these prices when any comparative pricing information is published.
Further application
It can be dangerous to draw blanket assumptions from specific misleading and deceptive conduct cases given that most are fairly circumstance-sensitive.
Please contact for further information:
Derek Sutherland
T 61 7 3100 5065
Alicia Hill
The material contained in this publication is no more than general comment. Readers should not act on the basis of the material without taking professional advice relating to their particular circumstances.
