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Don’t put yourself on the hook with bait advertising

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The Australian Competition and Consumer Commission (ACCC) recently issued six Western Australian Harvey Norman franchisees with infringement notices of $6,600 each when it was found that they had engaged in bait advertising.

The franchisees were found by the ACCC to have advertised a particular camera in a widely distributed catalogue when these franchisees did not stock the camera to supply to consumers.

The conduct was found to be in breach of bait advertising provisions of the Trade Practices Act (TPA) which remained in operation at the time of the conduct. The bait advertising provisions of the TPA have been mirrored in the Australian Consumer Law (ACL) which took effect on 1 January 2011.

Bait advertising is considered to arise where goods or services are advertised at a specified price if there are reasonable grounds for believing that those goods or services will not be able to offered at that price for a period that is, and in quantities that are, reasonable, having regard to:

  • the nature of the market in which the person or company carries on business; and
  • the nature of the advertisement.

In order to be considered to have engaged in bait advertising, the person or company in question must be aware or ought reasonably to be aware that the goods or services could not reasonably be offered.

Prohibitions against bait advertising are intended to combat the use of ‘super’ specials used to lure consumers into a business with a view that consumers will instead purchase other more expensive items when the ‘super’ specials are found to not be in stock.

Penalties of up to $1,100,000 for a body corporate or $220,000 for an individual are able to be issued in instances of proven bait advertising where prosecuted by the ACCC.

Alternatively, the ACCC is able – as it did in the case of the six Harvey Norman franchisees in WA –┬áto issue infringement notices. The penalty amount in an infringement notice may vary according to the contravention but will generally be fixed at $6,600 for a corporation and $1,320 for an individual for each alleged contravention.

Particular care in the preparation of catalogues and other advertising is therefore recommended. Franchisors are strongly advised to ensure that franchise operations manuals reflect the need for franchisees to ensure that they always have sufficient stock of products to be advertised for sale.

Businesses should also bear in mind that the prohibition against bait advertising is not limited to interactions with retail consumers but also apply to a supply of goods or services to another business, irrespective of the size of the proposed transaction.

Businesses requiring further information on bait advertising or any other aspect of the Australian Consumer Law are encouraged to contact the MST Corporate Advisory team for further information.

Author: Katie Sweatman