Price-related Representations

The Competition Act contains five provisions dealing specifically with price representations: four under the civil regime (false or misleading ordinary selling price representations [74.01(2) and 74.01(3)], bait and switch selling [74.04], sale above advertised price [74.05] ) and one under the criminal regime (double ticketing [54]). Price representations may also be addressed under the general provisions against false or misleading representations [section 52 or paragraph 74.01(1)(a)]. In addition to enforcing these provisions, the Bureau has endorsed the Scanner Price Accuracy Voluntary Code which provides a mechanism to provide redress to consumers when there is a scanner error.


False or Misleading Ordinary Selling Price Representations

Subsections 74.01(2) and 74.01(3) of the Competition Act are civil provisions. They prohibit the making, or the permitting of the making, of any materially false or misleading representation, to the public, as to the ordinary selling price of a product, in any form whatever. The ordinary selling price is determined by using one of two tests: either a substantial volume of the product was sold at that price or a higher price, within a reasonable period of time (volume test); or the product was offered for sale, in good faith, for a substantial period of time at that price or a higher price (time test).

  • In the event that the represented ordinary price refers to the ordinary price of suppliers in the market, unless these suppliers have sold a substantial volume of the product at the represented ordinary price, or alternatively, these suppliers have offered the product for sale in good faith at the represented ordinary price, this price can not be referenced as the ordinary price, and an issue is raised under subsection 74.01(2).
  • In the event that the represented ordinary price refers to the supplier's ordinary price, unless the supplier has sold a substantial volume of the products at the represented ordinary price, or alternatively, the supplier has offered the product for sale in good faith at the represented ordinary price, this price can not be referenced as the ordinary price, and an issue is raised under subsection 74.01(3).

Under these provisions, it is not necessary to demonstrate that any person was deceived or misled; that any member of the public to whom the representation was made was within Canada; or that the representation was made in a place to which the public had access. Subsection 74.03(5) directs that the general impression conveyed by a representation, as well as its literal meaning, be taken into account when determining whether or not the representation is false or misleading in a material respect.

If a court determines that a person has engaged in conduct contrary to subsection 74.01(2) or 74.01(3), it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.

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Bait and Switch Selling

Section 74.04 of the Competition Act is a civil provision. It prohibits "bait-and-switch" selling which occurs when a product is advertised at a bargain price, but is not available for sale in reasonable quantities. The provision does not apply if the advertiser can establish that the non-availability of the product was due to circumstances beyond its control, the quantity of the product obtained was reasonable, or the customer was offered a rain check when supplies were exhausted.

If a court determines that a person has engaged in conduct contrary to section 74.04, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.

Additional Information

1. Bargain Price

Section 74.04 does not come into play in all cases of non-availability. It is only relevant where a product is being advertised at a "bargain price" as defined in the section. However, other instances not involving bargain prices may fall within the scope of section 52 or paragraph 74.01(1)(a). The use of words in an advertisement such as "sale price" or "special" could bring an advertisement within the purview of this definition. In addition, if a product is advertised at a price that is significantly lower than the ordinary price for that product in the market, then the provision could also apply even if there is no direct mention in the advertisement that the advertised price is a bargain price.

2. Nature of the Market

This phrase, not specifically defined in the Act, refers to considerations such as geographic location, time-frame, method of advertising, type of product advertised and other factors which relate to the business or industry in question.

3. Nature of Advertisement

An advertiser may clear out old stock that would not normally amount to a reasonable quantity without contravening the section if he or she clearly specifies in the advertisement the number of items available. However, use of a general phrase, such as "quantities are limited," would not be an absolute defence under this section, although it may reduce the quantity that would otherwise be required for a reasonable supply in a given situation.

4. Advertiser-supplier Relationship and Franchise Advertising

Section 74.04 was drafted in contemplation of situations where the person who advertises the product would be the same as the one who supplies it. Quite often, however, retail outlets are operated as franchises, which may mean that the franchisor is not the same as the person operating an individual store. In these circumstances, there may be a co-operative agreement with respect to advertising.

Many franchise operations share advertising costs with the parent company which, in return, provides advertising, such as newspaper supplements or flyers, to promote products on behalf of franchised retailers. In such cases, a franchisee could be regarded as coming within the purview of the section if the franchisee is responsible for the non-availability to the public of reasonable quantities of an advertised special. In addition, the franchisor could be liable if it did not supply reasonable quantities of the advertised special to franchisees.

Particular problems regarding the non-availability of advertised products may arise:

  • where small retail outlets do not have the facilities to carry a full line of stock at all times;
  • where products are seasonal or are a special head office purchase made available to the retailer on request;
  • where there is limited supply in clearance sales of slow-moving or discontinued stock.

For the advertiser, the promotion of those products that are subject to any of these circumstances entails a corresponding responsibility to ensure that the public is properly informed of any applicable supply restrictions. Lacking such disclosure, a complaint of non-availability from the public could provide the Commissioner with reason to initiate an inquiry.

In order to avoid such an outcome, advertisers should take all reasonable steps to disclose prominently their store policy and the conditions generally applicable to their flyer sale advertising. Advertisers might therefore wish to consider the following suggestions for inclusion in such advertising:

  • if a discontinued line or clearance sale is being promoted, the total quantity of the product available nationally or regionally, if known, could be stated, noting that some stores may not have access to any supply;
  • where items listed in a sale flyer may have become unavailable before the commencement of the sale due to events beyond the retailer's control, a correction notice should, if possible, be placed on the front of the flyer; and
  • where items will only be available in some stores, the portion of the advertisement relating to those items should be clearly distinguished from the advertising of the products generally available. The phone numbers and retail store addresses of participating retailers should then be provided, with an indication that customers should phone ahead to check for supply availability of any items specifically distinguished in the flyer.

5. Defences Provided in Subsection 74.04(3)

5.1 Inability to Supply

There often may be legitimate reasons for an advertiser's inability to supply an advertised product. Since, for example, catalogue sale advertisements must be prepared weeks and even months in advance, and goods are often ordered for a delivery date to coincide with the opening of the sale, any events beyond an advertiser's control, for example transportation delays due to bad weather or strikes, could make it impossible to have the product available for the advertised sale period.

5.2 Reasonable Quantities

Although the crux of this reviewable matter depends on the definition of this term, it is not possible to specify what quantities might be considered reasonable since this is an issue to be determined on a case-by-case basis. What is reasonable will depend on the factors outlined in the section, some of which have already been discussed. In general, the best guide for an advertiser would be the history of consumer demand for the same or comparable products during previous sales using similar advertisements. If a reasonable quantity were available, the advertiser would likely have a good defence.

5.3 Rainchecks for Non-available Items

Offering and fulfilling rainchecks is another defence available to retailers should allegations be made that no reasonable supply of the special was made available.

However, it should be emphasized that this defence will only apply in a case of bona fide non-availability and not where there is a systematic practice of advertising at bargain prices with no genuine effort to supply in reasonable quantities during the currency of the sale.

Retailers should prominently display the terms and conditions of any raincheck policy in their stores as well as in their advertising. Although there is no legal requirement that a raincheck policy be displayed, it has been found that many complaints, and subsequent preliminary investigations, could have been avoided if the customer had known of the existence of a raincheck policy and of its terms and conditions.

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Sale Above Advertised Price

Section 74.05 of the Competition Act is a civil provision. It prohibits the sale or rent of a product at a price higher than its advertised price. The provision does not apply if the advertised price was a mistake and the error was immediately corrected.

If a court determines that a person has engaged in conduct contrary to section 74.05, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.

Additional Information

Section 74.05 of the Competition Act prohibits the sale or rent of a product at a price higher than its advertised price in the market to which the advertisement relates.

1. Market May Be Restricted

Subsection 74.05(3) gives the advertiser the opportunity to define the market more narrowly in the advertisement than the market which the advertisement could otherwise be reasonably expected to reach. Therefore, an advertisement in a local paper may restrict an offer to a specific store branch of a multi-store operation or even to a specific department of that branch, as long as it is clearly indicated in the advertisement. For example, an advertisement could be clearly restricted to the "bargain basement." Similarly, a business that has both catalogue and normal retail operations may limit its advertised prices to one or the other.

2. Exceptions

Section 74.05 does not apply in respect of an advertisement that appears in a catalogue in which it is prominently stated that the prices contained therein are subject to error, if the advertiser establishes that the price advertised is in error. Also, if an advertisement containing a price error is immediately followed by a corrective advertisement, this section would not apply.

Where securities are sold at higher prices on the open market during a period when a prospectus relating to them is still current, the section does not apply. Finally, the section does not apply to the sale of products by or on behalf of persons not in the business of selling those products.

3. Advertisements

It should be noted that the section applies only to an advertisement of a product for sale or rent in a market. Accordingly, it does not appear to apply to representations in other forms, such as oral statements and most labels, as do most of the other false or misleading representations and deceptive marketing practices provisions. Of course, section 52 and paragraph 74.01(1)(a), the general provisions, may still apply.

4. Sale Flyers — Are they "catalogues"?

The question has arisen as to whether sale flyers, such as those which appear as newspaper supplements, could be considered as catalogues and, consequently, whether the exemption relating to catalogues would be applicable.

This special defence is not applicable to flyers since they have much shorter lead times than catalogues and there would usually be ample opportunity to publish an immediate correction.

Many prosecutions under the former section 58 have related to advertisements by supermarket chains and their franchise operations for food items. Others have involved household, hardware, health and personal care items and automotive products.

Examples:

  • Airline tickets, advertised at a reduced rate of $299, but supplied at a higher price.
  • Coats, advertised for sale at a specified price with an accompanying illustration showing the coats to have fur collars, but in fact supplying the coats with fur collars at a higher price.

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Double Ticketing

Section 54 of the Competition Act is a criminal provision. It prohibits the supply of a product at a price that exceeds the lowest of two or more prices clearly expressed in respect of the product.

Any person who contravenes section 54, is guilty of an offence and liable to a fine of up to $10,000 and/or imprisonment up to one year on summary conviction.

Additional Information

The definition of "supply" includes an offer to sell. This section does not affect shelf stock revaluation if the old price is removed or is obscured so that it is no longer clearly expressed.

In the past, questions have been raised relating to whether the double-ticketing section would prohibit the pricing and sale of identical items of a product at different prices. Retailers have noted that they sometimes may have some older stock, (which may have been received at a lower cost), on display with newer, although identical, stock. They have asked whether a price sticker of $X may be affixed to items of the older stock while a slightly higher price of $Y would be affixed to the newer stock.

In the Commissioner's view the purpose of the section is to prevent incidents which might deceive or confuse consumers about the price to be charged for a product. In the circumstances described above, it would seem to be clear to potential customers which price was being charged for particular units of the product. Consequently, the Bureau would not take enforcement action under this section where a price of $X was marked on one unit of a product and a price of $Y was marked on another, so long as each was sold at its marked price. This view is also based on the assumption that only one price is clearly expressed on each unit and that there are no other prices displayed at point-of-purchase. It should also be noted that, if the lower price has been advertised, supplying the product at the higher price would be in contravention of section 74.05 respecting sale above advertised price.

Prosecutions under this section have rarely occurred.

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Scanner Price Accuracy

There is no federal legislation governing the question of price scanning accuracy per se. However, some types of price representations that result in overcharges to consumers may be examined under the Competition Act. In addition, it should be noted that the Bureau has endorsed the Scanner Price Accuracy Voluntary Code, which provides participating retailers of four major associations with a mechanism to provide redress to consumers when there is a scanner error. When the scanned price of an item without a price tag is higher than the shelf price, or any other displayed price, the customer is entitled to receive the item free when it is worth less than $10, or receive a $10 reduction for more expensive items. The Bureau regards scanner price accuracy as an important element of maintaining consumer confidence.

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