Question

Savalot Shopping Centre Ltd (“SSC”) recently opened a new store in your city. SSC is a membership warehouse club: - this means customers must become a member before they can shop at SSC. As a new business in the area, SSC was keen to attract as many new members as possible so it started an advertising campaign.

The advertising campaign included a catalogue with the following wording at the top of the front page in large bold font:

Do you want to save $$$$ you know you do!!!!!!

Huge savings for all new members

Get a HUGE 25% off all products if you join right now! Today in fact! 30 todays only!

Memberships will go fast, first in best dressed. Be late be disappointed – memberships are limited

At the very bottom of the advertisement, there is additional wording in very small print which states:

“The 25% price reduction for new members only applies to the first $150.00 of items purchased. Fruit and vegetables excluded.”

Dess saw the advertisement flyer and picked it up. Dess thought he could save money by buying bulk supplies for his large family, however, he basically stopped reading at 25% discount and didn’t notice the fine print.

Dess didn’t want to miss out on the limited memberships, so he went to SSC the next day and paid a $10 monthly membership fee, signed some terms and conditions which he briefly glanced at, got his membership card and started shopping. Dess filled five trollies with bulk household items worth about $1200.00.

At the checkout, Dess is told that the 25% discount only applies to the first $100.00 of items purchased. Dess complained and was referred to Miss Strict, a “customer care representative”.

Miss Strict showed Dess the fine print in the advertisement. Dess got very angry and decided not to buy anything. Dess then asked Miss Strict to cancel his membership. However, Miss Strict reminded Dess he signed the terms and conditions which included the following term:

1. The Customer is not permitted to cancel the membership before the expiry of 12 months unless the customer pays a cancellation fee of $150.00.

Dess attempted to negotiate with Miss Strict arguing it was just ridiculous to have such small printing and this was an entirely unacceptable to charge $150 to cancel a $10 membership However, Miss Strict told Dess:

“This is your fault, you should have read the advertisement more carefully, and you indicated you read the terms and conditions by ticking this box and signing the terms and conditions. I think it is unreasonable you think you have grounds to complain.”

Dess stalks out of SSC and decided to lodge a complaint with the Australian Competition and Consumer Commission (“the ACCC”).

Required

Part A ( 15 Marks)

Using the IRAC legal problem solving process give your conclusion on whether the ACCC have any grounds to start legal proceedings against “SSC”?

Please limit your response to a consideration of the general protections under the Australian Consumer Law.

Answer 1

Issue : Dess took membership of the SSC hoping to make huge savings in his bill as advertised on the SSC catalogue. After becoming a member he realised that the savings were limited to $100 and that some product ranges such as fruits and vegetables were not included in the deal. When Dess decided to cancel his membership and get his initial $10 back, he was told that cancellation would cost $150.

Rule : The ACL contains specific prohibitions of unfair practices such as making false and misleading representations to a customer. The SSC took advantage of the terms and conditions section to modify the initial statements made on the flyer. Thus resulting in the consumer, Dess, having a very different experience to what was promoted on the flyer.

Application : The SSC is required to ensure accurate and honest information in their flyers to consumers. Any deals made must be honoured as proposed else they will be considered false statements. If any statement has an exclusion or exception that is valid - such as the fruits and vegetables, then it should be denoted with the use of an asterix (*) or a T&C (terms and conditions apply) as a way to indicate that the offer is subject to some differences. The SSC's violated the General protections laws of the ACL in the following ways :

1. The flyer had statements proclaiming discounts on 'all products', however this was not intended. At the bottom of the flyer was a footnote in fine print that excluded fruits and vegetables from this deal. There was no notation to indicate this statement had any exception conditions.

2. The flyer also implied that the savings extended to all purchases and not just to the $150 listed in the fine print. Again, no notations were provided to indicate the limitation.

3. At the checkout counter, Dess was told that only $100 was the extent of the savings - not even the $150 it said on the flyer. This was a blatantly false representation by SSC as it did not honour the commitment that was made by it on the flyer.

The lock-in period for the membership and subsequent cancellation fee were included in the terms and conditions page and so these once accepted by the buyer were part of a legal contract between the two parties.

Conclusion : SSC deliberately misrepresented content on the flyer with no intention of honouring the deals it had set out to attract customers. In essence, it was an entrapment using falsehoods. The consumer, Dess, took the right action by lodging a complaint with the ACCC. The ACCC has ample grounds (3 at least) to start legal proceedings against the seller, SSC, for violating the specific prohibition against making false and misrepresenting statements to consumers about goods and services.