A New Zealand retailer has been fined close to $1 Million for misleading the public with its Advertising and Sales policy.
The prosecution, brought by the the Commerce Commission under the Fair Trading Act, had charged Bike Barn and Bikes International with advertising heavily discounted deals on stock which in fact were being sold at the full price.
A Bike worth $499 retail would commonly be stickered at $999 and then sold at the “discounted” rate of $499.
The judge, in describing their misleading activities, called the tactics “calculated”, “misleading” and “pervasive” and ruled that consumers were disadvantaged by the false representations contained in Bike Barn’s advertisements.
This behaviour had been a near constant norm for almost two years, with adverts for the illusory sales being broadcast on radio stations 3700 times during that period.
Commerce Commission lawyers had asked for the imposition of a $1.2M fine, which the Judge cut by 33% due to the Companies’ early guilty plea and co-operation with the investigators.
In this instance, as the misleading activity would appear to be directed from the top, it would be hard to make an Insurance claim, as the test is often whether the breach was unintentional.
However, some breaches of statutes, like Fair Trading, Health and Safety etc, can be, and are, deemed to be unintentional. It does not mean that a prosecution would not be brought and, if guilty, a fine imposed; but it might mean however that a Statutory Liability policy would come to the rescue, in part or in full.
Most Statutory Liability policies do contain cover against breaches of the Fair Trading and many other Acts: here’s how a leading Insurer in NZ describes it’s policy:
The Statutory Liability policy provides protection to businesses for:
Defence costs associated with alleged breaches of the Building Act, Consumer Guarantees Act, Fair Trading Act, Privacy Act and most other statutes affecting commercial activities. The notable exceptions are police prosecutions and taxation legislation.
The costs of representation at an investigation or inquiry.
Any fine or cash penalty payable by the insured following conviction for an offence under the insured statutes, except under the Health & Safety in Employment Act.
Who is Protected
The policy protects the interests of the:
Company, including any declared subsidiary, for its own liability.
Company, by way of reimbursement to the extent that the company has directly indemnified any officer as it was legally obliged or permitted to do so.
Officers, which includes directors, trustees, managers and employees, in that capacity, to the extent that the company has not directly indemnified them.
Statutory Liability is a relatively inexpensive cover and can generally offer protection from $250,000 up to $1 Million. Make sure you include it in your discussions with your broker. It may keep your business on the road.
To learn more about Business Insurance, go to our website page business insurance
The NZ Herald story in full:
Bike Barn has been ordered to pay $800,000 over an intensive advertising campaign which claimed bikes had been heavily discounted when in fact they were being sold for full price.
Bike Retail Group and Bikes International, which were operating as Bike B
arn during the two-year period in question, were sentenced in Auckland District Court by Judge David Sharp today.
The companies earlier pleaded guilty to 16 charges brought by the Commerce Commission under the Fair Trading Act.
The court was told that in addition to falsely claiming that bikes were being sold at half price, Bike Barn’s so-called “clearance sales” were no different to their day-to-day retail operation.
According to the agreed summary of facts, a common tactic was to represent savings using was/now claims – “was $999, now $499”.
The company also presented a sense of urgency to their sales, advertising “final days” clearances which were in fact no different to standard prices.
Bike Barn spent about $2 million a year on its advertising campaigns, according to the summary.
Judge Sharp called the offending “calculated”, “misleading” and “pervasive”, stating that consumers were disadvantaged by the false representations contained in Bike Barn’s advertisements.
Bike Barn’s turnover was “significantly increased” during the time the campaigns were running.
However, Judge Sharp said he was unable to see this as an aggravating factor as he did not know enough about the companies’ operations.
He acknowledged the companies’ early guilty pleas and cooperation with the Commerce Commission, giving them a 33 per cent discount from his $1.2 million starting point.
Commission lawyer Alysha McClintock said Bike Barn’s campaigns were the “essence” of its business model.
She said staff took the price they wanted to sell the bike for, doubled it and put that on the sticker.
“At its core, what Bike Barn did was to represent that they had bikes on very special deals that were not usually available. In fact, often the opposite was the case – they were usually available at that so-called discount price,” she told the court.
“The sticker price was entirely illusory.”
She said senior management were well aware that the discounts were being overstated, yet the “sales” continued, nearly constantly, for some two years.
“It was a deliberate strategy that they adopted,” she said.
The Commission’s other lawyer, James Cairney, said each of the charges encapsulated thousands of representations, with one particular ad being broadcast some 3700 times across the country’s largest radio stations.
After the Commission launched its investigation, Cairney told the court that Bike Barn staff were offered a $50 bonus to sell bikes for the full price.
“The Commission says simply that this is serious conduct … the offending strikes at the very heart of the Fair Trading Act.”
Bike Barn lawyer Rob Coltman said the company had “gone beyond” co-operation with the Commission’s investigation, and had shown genuine remorse.
“There’s been willing compliance and active change and change in personnel,” he said.
Bike Barn’s “unblemished” record to date was also relevant.
“I suppose the issue that, if anything, rankles with Bike Barn, accepting as it does that it is guilty of the charges that it faces today, is that there does not appear to be evidence of consumer complaints,” he said.
Bike Retail Group was ordered to pay $720,000 and Bikes International $80,000.
Bike Barn today apologised for any confusion caused by its advertising.
“The company has co-operated fully with the Commission throughout this process and voluntarily changed Bike Barn advertising in late 2015 to address the Commission’s concerns.
“The company says that a bike is a significant purchase and it would always encourage customers to compare prices for bikes before they purchase.”
Bike Barn has 15 company owned stores around New Zealand.