Earlier this month, the District Court dismissed all charges laid by the Commerce Commission against Bunnings under the Fair Trading Act (FTA). The Commission could not prove beyond a reasonable doubt that Bunnings had misled the public into thinking all of its prices were the lowest on offer in the market, and the Commission's evidence failed to show that Bunnings prices were not the lowest.
The Court also found Bunnings' 'lowest prices' taglines were not representations within the meaning of the FTA but that in any event they were not false or misleading even though Bunnings' prices were not always the lowest.
Fortunately, for businesses and consumers left wondering how to interpret such an outcome, the Court has also provided guidance as to how often it is acceptable not to have the lowest prices when you claim you do.
Background
Bunnings' claims and taglines focused on lowest prices are well known. Bunnings has been using them since 2002: 'lowest prices are just the beginning', 'lowest price guaranteed', 'lowest prices on all your DIY jobs', 'unbeatable prices'. Bunnings also promises to its customers that if they 'happen to find a lower price' on the same stocked item at a competitor's store, it will beat that by 15%.
The Commerce Commission first warned Bunnings that it considered the 'lowest prices' taglines were in breach of the FTA in 2011. At the time, it wrote to both Bunnings and Mitre 10, who for several years had also been using similar taglines. Mitre 10 discontinued its lowest price taglines, but Bunnings did not.
This led the Commission to investigate Bunnings' practices between June 2014 and February 2016. It concluded that in its view Bunnings had misled consumers with advertisements which conveyed the impression that it offered the lowest prices in the market on all of its products. It commenced proceedings in the District Court in December 2016.
What was Bunnings accused of?
The Commission laid 45 representative charges against Bunnings:
- Seven charges under section 10 of the FTA alleging that Bunnings engaged in conduct liable to mislead members of the public into thinking all of its prices were the lowest on offer in the market, when they were not; and
- 38 charges under section 13(g) of the FTA alleging false or misleading representations as to the price of its goods (that all of the prices were the lowest when they were not).
Trial took place in April and May 2021. Judge BA Gibson dismissed all charges in his judgment issued on 3 September 2021.
Why was Bunnings not guilty?
As with all cases decided under the FTA, the Court's enquiry was very fact-specific. The parties each adduced a significant amount of evidence (including from several marketing experts). The majority of the 50-page decision is a discussion of that evidence.
Under section 10 of the FTA
On the section 10 charges, the Court found that the price comparison surveys provided in evidence by the Commission were flawed. They were not “sufficiently robust and statistically reliable" to establish that Bunnings's prices were not the lowest. The Court could therefore not be satisfied that the Commission had proved beyond a reasonable doubt that Bunnings' advertising was liable to mislead the public into thinking its prices were the lowest.
The Court commented that evidence of actual confusion – of consumers being misled and having complained about prices not being the lowest – would have assisted the Court, as would have a consumer survey about their view of the meaning of the lowest prices taglines.
Under section 13 of the FTA
On the section 13 charges, the Court found that the lowest prices taglines were not representations within the meaning of the FTA. It found that on their own, they were no more than “holistic statements of Bunnings' position in the market" which consumers would not interpret literally as being capable of applying to all of Bunnings' products.
Bunnings' Lowest Price Guarantee ('we'll beat it by 15%') helped it here. In light of that guarantee, consumers would accept that there is a possibility that other retailers may sell the same products as Bunnings for a lower price. The guarantee meant Bunnings would remedy that and still provide them with the lowest price.
Ultimately, the Commission failed to establish a pattern of prices higher than Bunnings' competitors that exceeded what would be reasonable in all the circumstances.
The Court's guidance
Notably, the Court provided guidance as to what it meant by “reasonable in the circumstances".
The Commission had acknowledged that it would be acceptable for Bunnings not to have the lowest prices in “rare exceptions". The Court disagreed and commented that in light of the following circumstances:
- the vast number of products sold by Bunnings in New Zealand (approximately 62,000 items and up to 42,000 in its larger stores);
- the competitive nature of the market; and
- the lag for Bunnings to be able to adjust its prices once it became aware competitors selling the same products for a lower price
an acceptable range where Bunnings was not the lowest price on the same priced item would be approximately 15% provided the Lowest Price Guarantee in the form it was advertised was available (so as to remedy the situation and ensure a consumer could still obtain the lowest price).
Conclusion
This case was very fact-specific. It should in no way be interpreted to mean that it is acceptable not to always have the lowest prices when you claim you do. Had Bunnings not provided its lowest price guarantee, or had it operated smaller stores in a less competitive market, the outcome could have been very different.
As always under the FTA, consumer perception was key in this case. Interestingly, the Court decided to apply what it called “a degree of robust realism" because the ordinary person “can and does read between the lines in the light of their general knowledge and experience". This is a departure from the Commission's usually quite strict interpretation of pricing practices1, which explains why the Commission had been at odds with Bunnings for over 10 years.
The Court's approach also puts the burden on consumers to check that they are getting the lowest prices, as advertised, and to go to effort of claiming the price difference if they in fact haven't purchased goods at the lowest price.
A couple of weeks ago, the Commission warned packaging manufacturer Glopack Limited that if its hot drinks cups could not in fact be recycled in New Zealand it should not market them as 'recyclable' (even though they are technically recyclable) because consumers are entitled to take claims at face value when making quick, low-value purchasing decisions.2
Whilst the Commission's position has the merit of consistency in that it expects businesses to leave no room for interpretation of their claims (whether they relate to price or the environmental benefit of products) it is interesting to see the Courts taking a more nuanced approach.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.
1 As shown in the Commission's Fact Sheet on Pricing available at https://comcom.govt.nz/__data/assets/pdf_file/0026/90746/Pricing-Fact-sheet-June-2017.pdf.
2 https://www.bellgully.com/insights/commerce-commission-issues-warning-on-recyclable-claim-for-hot-drink-cups/