December 2020

Overcharging at the checkout leads to $78,000 penalty

In the lead-up to Christmas and with increased competition for discretionary spend (thanks to COVID-19), retailers must be careful when adopting pricing and promotional campaigns and ensure the point-of-sale pricing is accurate. This recent case highlights the need to quickly respond to customer complaints and correct pricing errors or risk substantial penalties, even where the financial gain to the retailer is minimal.

Background

On 19 December 2019, the Commerce Commission (the Commission) announced that it was bringing proceedings against Kennedy’s Foodcentre (2003) Limited (trading as PAK’nSAVE Mangere) (Kennedy’s). The Commission laid 12 charges against Kennedy’s under the Fair Trading Act 1986 (Fair Trading Act) for charging a higher price at the till than what was promoted/advertised, thereby overcharging its customers.

Section 13(g) of the Fair Trading Act states that no person in trade shall, in connection with the supply or promotion of goods and services, make a false or misleading representation with respect to the price of any goods or services. Each charge under this section carries a maximum penalty of $600,000.

After a number of customer complaints, the Commission used mystery shoppers on six dates between June and October 2018 to gather evidence of the overcharging and the proceedings were based on their experiences. The price differences related to food products and baby wipes – ranging from 18 cents to two dollars and totalling $20.99 (extra at the till). In some cases, price discrepancies were still in place even after informing employees of Kennedy’s.

Sentencing by Judge McNaughton

Kennedy’s pleaded guilty to six charges under section 13(g) of the Fair Trading Act.

Judge McNaughton considered, amongst other things, the following factors:

• The pricing discrepancies were inadvertent, potentially due to the wrong barcode being scanned, the wrong sign being displayed, or an internal pricing system error.
• Kennedy’s was co-operative with the Commission throughout the investigation but did not remedy the price discrepancies in some cases until the Commission got involved.
• Kennedy’s had now taken steps to identify and remove pricing discrepancies.
• The overcharging was unlikely to exceed $10,000 in total and the profits were likely to be a fraction of this.
• On 1 July 2019, a mystery shopper sent by the Commission purchased 42 items at Kennedy’s and did not discover any price discrepancies.

Looking at penalties imposed in similar cases, and in light of the considerations above, Judge McNaughton took a starting point of a $100,000 penalty and then applied a 20 percent uplift to recognise that Kennedy’s failed to take immediate steps to correct pricing discrepancies pointed out by the Commission’s mystery shoppers. A 10 percent ‘standard’ discount was applied for remedial steps (eventually) taken and a lack of previous convictions, plus a 25 percent discount for an early guilty plea.

A $78,000 penalty was imposed, being $13,000 per charge.

Points to note

Consumers are entitled to rely on an error-free pricing system. It is not a defence that a business is high volume – this business model is an intentional choice and is the engine of the business’s profits. Similarly, carelessness is not a defence.

Businesses need to take their customers’ complaints seriously and remedy any aspects of their business that may lead to liability under the Fair Trading Act (whether or not it is due to carelessness or inadvertence).

To protect consumer interests (a purpose of the Fair Trading Act), courts may hand down significant penalties for their deterrent value, even in cases where profits from a breach of the Fair Trading Act may be comparatively small or inconsequential.