Pricing claims - key points to consider when making any claims, statements or indications in relation to price.

Complaints against a Ford dealership, recently upheld by the Advertising Standards Authority, over its claim "that we simply refuse to be beaten", have highlighted again the problems that can be encountered in relation to any claim relating to price.

The motor trade is but one industry sector which competes heavily on price and, accordingly, runs a high risk of breaching the law and regulatory codes which apply to the area. However, all businesses must be equally aware of these rules as it is not just headline price promises that are caught. Any indication, inference, statement or claim as to price risks

• breaching criminal law
• being the subject of a civil law action, and/or
• breaching various regulatory codes.

The high profile Rover prosecution in 1994 over the misleading use of small print to qualify a headline price, the MFI prosecution in 1995 over its "Sale" prices and the Littlewoods prosecution for misleadingly pricing three items in a catalogue are further reminders of the need to be extremely vigilant whenever any price claim, statement or indication is made.

In addition, the number of complaints upheld by the ASA recently, which include Barclays Bank PLC ("Switch to a Barclaycard and we'll give you up to £150"), Asda Stores Limited ("the Asda Chip Crusade") and Britannia Music Company Limited ("Take five CD's or cassettes and only pay for one"), suggests that misleading price claims have become the subject of even closer scrutiny in recent times.

Criminal law

Consumer Protection Act 1987

The Consumer Protection Act 1987 ("CPA") (section 20) provides that an offence is committed where a trader "in the course of any business of his, gives... to any consumers an indication which is misleading as to the price at which any goods, services, accommodation or facilities are available."

"Consumers" include any persons who might wish to be supplied with goods, services or accommodation for private non-business purposes. "Price" means the total charge including all extras such as VAT, call-out charges, delivery charges, hire purchase instalments etc. "Misleading" is defined in section 21 of the CPA to include any indication conveyed, or reasonably inferred by consumers from the indication (or any omission from it):

• that a price is less than in fact it is
• that the applicability of a price does not depend on facts or circumstances on which in fact it does depend
• that the price covers matters in respect of which an additional charge is in fact to be made
• that the trader expects the price to be increased or reduced or maintained (whether or not for a particular time or by a particular amount) when he in fact has no such expectation
• that facts included (or omitted) on the basis of which consumers might judge the validity of any comparisons (e.g. with a manufacturer's recommended price lists) are not what in fact they are.

An offence will also be committed if

• a trader gives a price indication which becomes misleading after he has given it, and
• some or all consumers might reasonably be expected to rely on it at a time after it has become misleading, and
• the trader fails to take such steps as are reasonable to prevent this.

The Code of Practice on Price Indications

The DTI has published (under section 25 of the CPA) a code of practice to provide guidance on what is likely to be misleading. While a breach of the code is not an offence in itself, it may be relied upon as evidence of a breach of the CPA. For example, do not make statements like "Sale price £5" or "reduced to £39" without quoting the higher price to which they refer and clarifying the higher price, e.g. "our normal price". In any "Sale" comparison with your own previous price, that previous price should be the last price at which the product was available for at least 28 consecutive days in the previous six months at the same shop.

Price Marking Order 1991

The Order requires unit prices of any products to be accurately quoted in any advertising or marketing material which refers to price. It does not, however, apply to advertisements which simply indicate a recommended price. For example, most car manufacturers' advertisements will be exempt but the Order will apply to a local dealer advertisement. The cost of ancillary products or services must also be shown as prominently as the main price. Certain product groups, such as mobile phones, often fall foul of this provision.

Consumer Credit Act 1974

In addition to the general provisions discussed above, any advertisements indicating that the advertiser is willing to provide credit or to enter into an agreement for the hiring of goods will, if false or misleading to a material degree, breach the Consumer Credit Act 1974 ("CCA"). Further, traders need to comply with the Consumer Credit (Advertisements) Regulations 1989 which govern credit advertisements.

Will I be prosecuted? A few cases
Limitations of "small print"

The prosecution of Rover confirmed that no amount of small print will rescue fundamentally misleading headlines. The words "the Metro Advantage for just £5,995" were qualified by very small print: "Price correct at time of going to press. Excludes £480 cost of 12 months road tax, number plates, delivery to the dealer". Rover was convicted because the total purchase price was £6,475.

"Sale" goods not at higher price for 28 consecutive days
MFI did not follow the requirement in the Code of Practice on Price Indications that goods indicated as on "Sale" at a reduced price must have been on sale at the higher price for 28 consecutive days during the preceding six months and were duly convicted.

"Insignificant" amount discrepancies
It is dangerous to assume that you will not be prosecuted over what may seem to be a minimal price differential or a product sold at very low cost. The German owned supermarket chain Aldi were prosecuted over a 10p discrepancy in the price of a bunch of bananas!

Possible defences

It is a defence to proceedings under the CPA for a defendant to show he took all reasonable steps and exercised all due diligence to avoid committing the offence. Accordingly, you should ensure that comprehensive and clear internal procedures are in place, instructing staff on the relevant pricing legislation, and make regular checks on compliance.

Civil law

Malicious falsehood (trade libel)

To sue for malicious falsehood, a competitor has to show that

• a price statement has been published about himself or his goods, and
• the statement is false, and
• the statement was made maliciously, and
• the statement has caused actual or "special" damage or is likely to do so.

The term "malice" has a special meaning for these purposes, namely that the defendant made the statement, with disregard as to whether it was true or false, or from an improper motive. An improper motive can sometimes be shown from a particularly fierce "knocking" campaign of advertisements between competitors. A good example is the Compaq -v- Dell case. Compaq succeeded in obtaining an injunction against Dell as a Dell advertisement had not compared "like with like" (i.e. the systems and their capabilities were different). Dell had also quoted the lowest price available for its products whilst referring to Compaq's manufacturer price lists and not the actual marketplace cost which was substantially discounted.

Contract

Price statements can also, unwittingly, create contractual relations. Typical examples include "never knowingly undersold" and "if you can find it cheaper elsewhere we'll refund the difference". In an 1892 case, an advertisement claimed that a product guaranteed a cure for influenza and gave details of how payment could be obtained if anyone suffered from 'flu after using the product. This was held to be an offer to the world and binding upon the company when someone followed the instructions, nevertheless contracted 'flu and claimed the compensation advertised. In the United States, PepsiCo was sued last year in a similar fashion over its Pepsi Points promotion and an offer made in an advertisement.

Under this promotion consumers could collect points from Pepsi goods and redeem them to obtain various items, ranging from a T-shirt (80 points) to a Harrier Jet (7 million points). Consumers could also buy additional points. A student presented Pepsi with a cheque for US$1,700,008.50 for the points he was missing and asked for the Harrier Jet. Pepsi treated the request as a joke and the student sued!

Trade mark infringement

A misleading price comparison may render an otherwise acceptable reference to a competitor's registered trade mark an actionable infringement.

The codes

The various regulatory codes governing advertisements, such as the British Codes of Advertising and Sales Promotion ("BCASP") (Print) and the ITC Codes (Television), must also be complied with.

Examples from BCASP include requirements that prices be clear and relate to the product illustrated or shown, include VAT, unless exclusively addressed to the trade, and make any commitment to purchase additional goods clear.

Penalties and remedies

Companies and directors committing a criminal offence risk an unlimited fine (if tried in the Crown Court) and, under the CCA, up to two years imprisonment. In civil law there is the risk of damages, an account of profits, costly litigation and an injunction. Breaches of the regulatory codes can also result in an advertisement being required to be pulled, in addition to adverse publicity.

Pricing: key points

Law and codes: a brief summary

• Under the Consumer Protection Act 1987 ("CPA"), you are guilty of an offence if you give to consumers any indication which is misleading as to price.
• "Misleading" is defined as including any indication or inference:- -that the price is less than in fact it is; or -that the price does not depend on certain facts or other purchases (when it does in fact so depend); or -that you expect a price to be increased, reduced or maintained (when this is not the case); or -that any facts or circumstances are relevant comparison criteria as to price (when they are not).
• "Misleading" is also defined to include omissions, such as neglecting to mention that an additional charge is also to be made.
• No amount of small print or asterisks will rescue any fundamentally misleading price indication.
• Goods indicated as on "Sale" at a reduced price must have been on sale at the higher price for 28 consecutive days during the preceding six months.
• The Price Marking Order 1991 ("PMO") requires the price of any additional goods/services, which must be purchased in order to obtain an item, to be shown as prominently as the price of the original item.
• Misleading price claims may also expose you to prosecution under the Consumer Credit Act 1974 ("CCA").
• Beware civil claims, relating to, for example, prices misquoted or unfair comparisons.
• A misleading price claim is also a breach of the British Codes of Advertising and Sales Promotion and other relevant regulatory codes such as the ITC's.

Practical tips

Many pricing claims and offences can be avoided by following a few simple rules.

• Ensure, if additional goods or services must be bought to obtain an item, that the cost of the additional goods or services is shown as prominently as the cost of the item.
• Avoid ambiguous price statements, particularly those relying on explanatory "small print".
• If making any comparisons, ensure criteria selected are accurate, valid and verifiable; only compare "like with like".
• Retailers should instruct staff to make any necessary additional purchases or charges clear to consumers, even if not specifically requested.
• Retailers should ensure that staff are aware of the requirements relating to goods marked with a "Sale" price.
• Carefully review not just any comparative price claim or "price promise" but also any materials referring to price and, in particular, your price marking procedures.