The answer to whether you can set the resale price on a Consignment Agreement at first looks like a “no” – as the Competition and Consumer Act 2010 (Cth) (“CCA”) prohibits resale price maintenance.
In other words, it is generally illegal for suppliers to:
- Put pressure on businesses to charge their recommended retail price or any other set price, for example by threatening to stop supplying to the reseller; or
- Stop resellers from advertising, displaying or selling goods from the supplier below a specified price
Resellers also can’t ask their suppliers to use recommended price lists to stop competitors from discounting.
Suppliers can generally recommend a resale price, and specifying maximum prices is usually OK too. They just must not put any pressure on the reseller to charge the recommended price/s, or any other price (e.g. the recommended price less 10%).
However, when the reseller is acting as your legal agent (which is the case in some types of consignment arrangements), then you can dictate the sale price, as the reseller is not acting as a reseller but rather as your agent, and acts on your behalf with your authority to form a contract directly between you and the end consumer.
You need to have your consignment agreement professionally drafted to ensure they have this effect and are not just the usual “sale or return” type consignment agreements, as resale price maintenance in the latter case will breach the CCA.
You should also be aware that the GST treatment of each type of consignment agreement is very different so you should also look into this thoroughly as part of the process.
Consignment Agreement (Agency) vs Consignment Agreement (Sale or Return)
The best guide to this we have found is the ATO website – because of the differences in the GST treatment, they have tried to clarify precisely the difference between these two different types of relationship, which has come in handy for us when drafting reseller (consignment agency) agreements for our clients.
The ATO guide can be found here.
It suggests that a consignment (agency) sale is one where the consignee (agent):
- does not set the sale price of the goods;
- receives either a flat rate or percentage commission on completion of the sale;
- does not hold the goods out in their own right;
- agrees with the owner of the goods agree that they will act as an agent.
The last feature is often misunderstood by clients. An agent in a legal sense is expressly authorised by their principal (you) to enter into contracts with others (the end buyers in this case) on your behalf. There is never any contract formed between the agent and the end buyer. The only sales contract is formed between you and the end buyer. They are not, in a strict legal sense, acting as a reseller, the correct term is consignment agent.
But don’t get too bogged down in the legalities – that’s what we are here for. We have lots of experience in drafting Consignment Agreements for clients who wish to set the retail price for their products, and if that’s what you want to do, we can help you too.
Get in touch today on 1300 544 755. Our Contract Lawyers are happy to provide a fixed-fee quote!