A Commerce Commission investigation that began on 23 December 2016 finally resulted in a decision yesterday when the District Court released its verdict on the failed prosecution of Bunnings Warehouse for misleading and deceptive conduct and representations under the Fair Trading Act 1986 (FTA).
As we have mentioned in our previous Alerts, these types of FTA prosecutions are not typically defended, so a proper analysis of FTA issues by the courts is welcomed. The Court also went further and provided much-needed guidance on the use of taglines and how often retailers' prices have to be the lowest when making "lowest prices" claims.
What was the case about?
For nearly 20 years, Bunnings has offered, and widely promoted, its "Lowest Price Guarantee" which advises customers that if they find a lower price on the same stocked item, Bunnings will beat it by 15%. In addition to its policy, Bunnings regularly makes use of a number of generic "low price" representations in its marketing materials, such as "unbeatable prices", "nobody beats our prices" and "lowest prices" for particular goods or categories.
The Commission alleged that Bunnings' advertisements, including its well-known "Lowest Price Guarantee" and slogan "Lowest prices are just the beginning", conveyed the impression that Bunnings offered the lowest prices in the market on all of its products, in all of its stores, all of the time (with "rare exceptions" allowed). The Commission alleged that, for many of Bunnings' products, this was not the case.
According to the Commission, the "rare exceptions" would be where, due to the vast number of products in stock, and the competitive nature of retailing, Bunnings had not become aware within a reasonable time that competitors had lowered their prices on a small percentage of items.
The Commission contended that the Lowest Price Guarantee was essentially secondary to Bunnings' low price representations – the message to consumers would be that they would almost never need to rely on this Guarantee, as the prices were already the lowest in the market all the time.
Bunnings argued that its low price representations would not be understood by consumers to mean that Bunnings would always have the lowest price – this would be impossible. The existence of the Lowest Price Guarantee supported this interpretation. Rather, the Guarantee existed to address any instances where Bunnings did not in fact have the lowest price.
Interestingly, neither party contended the claims were "simply advertising puffery". It is also worth noting that the Commission had written to Bunnings and Mitre 10 in 2011 noting that it considered the "lowest prices" representation was in breach of the FTA. The case serves as a reminder that it is the courts that decide what is misleading, not the Commission. Mitre 10 stopped making the claims; Bunnings continued to do so, and no action was taken by the Commission until 2016 following a detailed complaint by Mitre 10.
What did the Court find?
Both parties called upon a number of expert witnesses to:
- (i) explain the overall impression that consumers would take away from Bunnings' advertisements; and
- (ii) present market research on prices.
However, the Court was critical that the Commission did not have any evidence of consumers being misled (even though case law is clear that this is not strictly required), nor had it received any complaints from consumers over the last 20 years. The Court made clear it would have found a survey of consumers useful, which was acknowledged by the Commission's own experts.
The Court ultimately agreed with Bunnings. It held that the Lowest Price Guarantee militated against any absolute and literal interpretations of the advertising messaging. It signalled to consumers that Bunnings might not necessarily have the lowest price on every product in every store. The Court noted that "consumers can be trusted to use their common sense" and would understand it was not possible for Bunnings to know on a daily basis exactly where its competitors' pricing was pitched.
As a result, the Court found that Bunnings' advertising would be unlikely to mislead a consumer unless the Commission could establish a pattern of prices higher than Bunnings' competitors across the range of goods that exceed what would be reasonable in all circumstances. Based on the pricing data it was provided with, the Court did not consider that the Commission could prove that this was the case. Of interest, were the following findings:
Only 0.11% of Bunnings' overall customer sales resulted in customers returning after identifying a lower price elsewhere to claim on the Guarantee.
Bunnings reviewed its prices twice a year and ensured comparisons were "like for like" – this may not be appropriate for other industries where prices fluctuate more frequently.
Bunnings monitored competitors' pricing using an external surveyor agency.
The class of consumers was those interested in DIY and home improvement/general living products eg outdoor furniture and plants. These consumers are aware of the types of stores operated by Bunnings and Mitre 10 and that they carry a huge number of stock-keeping units (SKUs). They would therefore appreciate that Bunnings needed time to carry out surveys of competitors' pricing and react.
Bunnings' approximately 60,000 SKUs make it very difficult to obtain accurate and reliable survey evidence on price comparisons, including "like for like" and representative comparisons. Comparative visits to stores inevitably lead to human error.
Taglines are not necessarily to be seen as precise, literal meaning type statements.
The Court provided guidance that an acceptable range for Bunnings not to have the lowest prices would be approximately 15%. On those occasions, the Guarantee acted as a "backstop". It is very helpful to see the Court issuing this type of guidance.
This case is a helpful reminder to businesses that they need to be careful with superlative representations such as "lowest prices", but these can be made. As always, the key is what consumers, using their common sense, will take from the representations, and this is not always the same view as that of the Commission. However, it is evident from the judgment that significant costs and resources are required to defend any such prosecution.
A full copy of the judgment can be found here.