Small Business and the Trade Practices Act

The Australian Competition and Consumer Commission (ACCC formerly the Trade Practices Commission) is one of the most active business regulators in the country.

Articles highlighting different companies found to be in breach of the Trade Practices Act, such as Telstra, TNT and IPEC to name a few, appear in newspapers almost every day.

Importantly, following recent reforms, small businesses are not immune to ACCC (nor State Corporate Affairs) scrutiny.

Accordingly,small businesses must be mindful of a number of well established legal principles, some of which are discussed below.

Selling Your Goods and Services

Imaginative promotion of products or services is a normal part of attracting customers to your business and encouraging them to buy.

However, when you advertise or talk with customers you must take care that each selling point is factually correct.

The only exception is ‘puffery’ or self-evident exaggeration, such as ‘whiter than white’ or ‘the best thing since sliced bread’, where it is unlikely that any customer would take the claims seriously.

You must also be careful that the overall impression you create about the goods or services you sell is not misleading. In other words, it is not sufficient that each point is technically or narrowly correct.

It is just as important to look at the overall impression created in the minds of average consumers in the target audience by considering all the facts together.

Even silence can be misleading when it is clear that your customer has the wrong idea about the product or service and is relying on your advice.

Predictions can also be misleading if there is no reasonable basis for making them.

Special care must be taken when you refer to:

  • the characteristics of the product or service that will probably be very important to your customers;
  • your competitors’ products, services or business; and
  • the characteristics of the product or service that are subject to variation.

Advertising Price

Any price savings or discounts advertised must be genuine and give the customer enough information to explain how they are calculated. For example, state whether your new prices are a reduction on:

  • your normal selling price (ie. the price at which you usually supplied the goods before the advertisement);
  • the manufacturer’s recommended retail price (so long ‘as this is the price at which the goods are normally sold); or
  • competitors’ prices (but you must be sure you know what your competitors’ minimum prices actually are).

Any price comparisons must be between like goods or services.

When advertising or using point of sale promotional material which discusses price you must:

  • state clearly the full cash price if you are quoting a deposit, or weekly or monthly terms;
  • make it clear if other charges, eg. for delivery or installation, are included in the stated price; and
  • make sure consumers know what accessories, if any, are included or not included in the price.

12 Tips for Avoiding Misleading Representations and Product Descriptions

Do

  • Give current and correct information.
  • Give all the relevant facts.
  • Make sure that the overall impression is correct.
  • Avoid ambiguous statements.
  • Back up claims with facts.
  • Note important limitations or exemptions.
  • Correct misunderstandings.

Do Not

  • Guess the facts.
  • Leave relevant information out.
  • Use unnecessary technical jargon.
  • Make promises you can’t keep.
  • Make predictions without a reasonable basis.

Refunds

Generally your customers are entitled to a full refund when:

  • the goods or workmanship is faulty;
  • the goods are unsuitable for the purpose the customer told you about before the buying;
  • the goods do not match the sample the customer was shown; or
  • the goods differ from the way you described them or as they described on the packaging.

Generally you do not have to provide refunds where customers:

  • have changed their mind about the purchase;
  • have discovered they can buy the goods or service more cheaply elsewhere;
  • examined the goods before buying and ought to have seen any fault; or
  • had any defect drawn to their attention before buying (it is useful to note any such defects on the invoice or docket).

Price Fixing

Any agreement between you and one or more of your competitors on the price you intend to charge is illegal. Such agreements do not have to be in writing – it could even be just a ‘nod and wink’ understanding that can take place anywhere.

Sharing Your Market

Agreeing to share the market among competitors is illegal. The Commission has found businesses illegally sharing markets by various means including:

  • agreeing to not sell certain products where those products are sold by a competitor;
  • allocating customers to each competitor in a market with an understanding not to ‘poach’ customers;
  • agreeing to not compete outside a specified area; and
  • agreeing to share customers or products so that a sales revenue parity may be maintained between competitors.

Small Business in Competition with a Market Leader

A firm with a substantial degree of power in a particular market cannot use their power for the purpose of damaging a ‘small’ competitor by refusing to deal or by offering to do business on such unfavourable terms that the offer amounts to refusal to deal.
Small business adversely affected by such practices can lodge a complaint with the Commission.

However, a supplier does not have to supply everyone. The onus is on the business seeking supplies to show that the suppliers action was taken with the purpose of eliminating or substantially damaging it, or deterring or preventing it from entering or competing in that market.

A Compliance Program

To ensure compliance with the Trade Practices Act it is imperative that a small business fosters an ethical environment whereby its owners, managers and staff are fully aware of the law and their responsibilities.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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