Trading Standards Officers are keeping a watchful eye out to ensure that special offers, bargain prices, and mega-discounts are actually honest and genuine claims. Stuart Ponting, specialist Trading Standards lawyer, looks at the issues facing traders.

The law in relation to pricing is complicated. So, to assist traders, in October 2005 the Department of Trade and Industry issued guidance entitled "Code of Practice for Traders on Price Indications" to try to provide some clarity on the law and the obligations on traders. The Code is helpful in establishing what traders can and can't say about their special promotions, sales or discounts.

But first, let's deal with prices which are not part of a sale or promotion - these might be termed the 'ordinary selling price'. Here, there is actually very little legal regulation for traders to be concerned about and any that does exist is better saved as a cure for insomnia. The general position is that traders can charge any price that they want to for a product but of course, the risk is that customers won't pay unrealistic prices.

However, when a trader decides to run a special price promotion or perhaps offer a discount, the law requires that any representations made about the price are not misleading to the customer. Representations concerning prices can be made in a number of ways by the trader too, for example, in a TV or press advertisement, on a website, by email or text message, in a catalogue or leaflet, on notices, price tickets or shelf-edge marking in stores or representations could be made orally, for example, on the telephone.

SO HOW WOULD A TRADER GET INTO 'HOT WATER'?

Well, for example, signage displaying "All stock half price" when it isn't, or stating "50% off all ordinary prices" when in fact, all prices were increased the day before by 50%, thus artificially inflating the "ordinary price", are both prohibited and are illegal.

The Code is clear. Traders must make valid and accurate price comparisons.

The Code says this: "Generally, you should compare like with like and where a reduced price is claimed then the product should have been offered for sale at the higher price for at least 28 consecutive days in the previous 6 months in the same outlet. If your comparison does not meet those criteria then you should provide an explanation which is unambiguous, easily identifiable and (except where it is impractical, for instance, in distance contracts that are concluded orally) clearly legible to the consumer."

The price which has existed for 28 days at the same store in the last six months is known as the 'established price'. This is what a trader has to compare their new sale price with.

The Code of Practice sets various examples of 'established prices' and, at first glance, identifying an 'established price' is straightforward.

For example. Let's say a pair of shoes has been on sale for £100 for 6 months at all of a trader's stores. The £100 becomes an established price because it meets the requirements of the Code. This is what the trader must make any comparison against. So if the selling price is later reduced to £50, valid comparisons would be as follows: Was £100 Now £50; 50% off; or half price. These are all accurately asserted claims and are not misleading to the customer.

If after another two months of the selling price being £50 at all the stores, the price is then reduced to £25, the valid claims would again be Was £50 Now £25; 50% off; or half price. They would not be for example, 75% off or Was £100 Now £25. This is because the £50 had become an established price after 28 days and so that becomes the proper comparator for any subsequent price comparisons. However, there is no reason why the £100 cannot be mentioned as long as it does not mislead the customer. For example, was £100, then £50, now £25 would be an appropriate and accurate representation.

But what happens when a price is not established? Perhaps the price has not existed for 28 days or it has existed for more than 28 days but only at 10% of the trader's stores. This is where traders must understand the spirit of the Code. The Code is designed to prevent customers being misled and therefore, if traders want to make price comparisons but cannot 'establish' a price, they must not mislead the customer - instead they must give clear and accurate details as to how the price comparison the trader gives has been arrived at.

For example: The normal selling price of a pair of trainers is £20. The £20 is an established price. Then the trainers price is increased to £30 and is for sale at all of the trader's stores.

However, it has only been on sale for 26 days and the trader decides to reduce the price by 50% to £15 and will advertise "50% off trainers". However, the £30 price has not been 'established' in accordance with the Code. So, the Trader must provide a clear and meaningful explanation to the customer as to how the comparison is being made. A suitable explanation would be "These trainers have been on sale at a higher price of £30 for a period of 26 days in all our stores".

In this example, traders must always be aware that if they are making comparisons to a higher price, if that higher price was only used to artificially inflate any discount offered, that is a breach of the Code. Prices set by traders must be set at a level where they have a reasonable expectation that the goods could be sold at the higher price.

But what happens if you want to make a representation but the products or services are not identical? Well, again, in the spirit of the Code, if the representation is clear, honest and meaningful, it is unlikely to mislead your customer.

By being open, honest and clear with your customers you should avoid any unwanted attention from their local Trading Standards Department.

Traders must always also give consideration to the way that goods are displayed in-store. The Code gives some indications of what traders should do.

Goods which are in the sale or the subject of a special promotion should be clearly separated from goods which are not. Any signage which relates to the sales promotion should be clear, unambiguous and positioned very close to relevant goods.

Traders should also avoid ambiguous statements or claims such as "sale price £10" or "reduced to £50" as the customer is unable to identify the previous selling prices and in similar terms, traders should not use words like 'sale' or 'discount' where there actually is no sale or discount in relation to these goods.

The Code also provides guidance on a number of other areas such as 'free offers', sale prices with limited availability and non-optional extras. Traders should ensure that they are familiar with the provisions of the Code in those areas too!

What are the consequences for the trader if they get it wrong? Under Section 20(1) Consumer Protection Act 1987, the trader will have given a misleading price indication. Breaches of the Consumer Protection Act usually result in a formal investigation undertaken by the local Trading Standards Officer and quite often traders are prosecuted for their misleading indications. As with any regulatory investigation, this will disrupt the trader's business and will usually require the input of specialist regulatory lawyers. Finally, breaches of the Consumer Protection Act are dealt with in the criminal courts and any successful prosecution will usually result in a fine and a criminal conviction.

Stuart Ponting is a Corporate Defence lawyer at DLA Piper UK LLP. He specialises in trading standards law.

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