In brief
On 28 May, the Consumer Affairs Agency (CAA) announced that it had issued an order to pay an administrative fine (called a “surcharge” under Japanese law) in the amount of JPY 1,655,940,000 to the Chugoku Electric Power Company, Incorporated (“Chugoku Electric”)1 under Article 8, Paragraph 1 of the Act against Unjustifiable Premiums and Misleading Representations (“Act“). The CAA alleged in its order that Chugoku Electric had violated the Act by displaying advertising messages regarding household electricity rate plans on its website that appeared to be cheaper than they were in reality. This is the largest fine ever ordered under the Act.
According to the official announcement, Chugoku Electric made representations with respect to the conditions of two electricity rate plans that were deemed likely to unfairly induce customers and impede independent and rational choices by ordinary consumers. The CAA determined that each of these representations constitutes a violation of the provisions of Article 5, Item 22 of the Act.
Specifically, Chugoku Electric claimed on its website that a rate plan called “Plan B” offered lower rates than a plan called “Plan A” when average monthly electricity usage was 400 kWh or less. Also, Chugoku Electric claimed on its website that electricity rates for a plan called “Plan C” were lower than those for Plan A when average monthly electricity usage exceeded 400 kWh.
However, in some cases, the electricity rates for Plan B were not lower than those for Plan A even with average monthly power consumption of less than 400 kWh. Likewise, in some cases, the electricity rates for Plan C were not lower than those for Plan A even with average monthly power consumption greater than 400 kWh.
Misleading Representations are subject to the “surcharge” system, under which they are penalized by the imposition of an administrative fine of 3% of sales associated with the misrepresentation. Since Chugoku Electric’s sales subject to the fine amounted to JPY 55,198.39 million yen, a surcharge of 3% of that amount (i.e., 1,655.94 million yen) was imposed. While the “surcharge” system is relatively new (introduced in 2016), there have been cases in which large fines have been imposed in recent years, as in this case. Businesses should take note of this and remain vigilant of this real and significant legal risk.
1 See the link below for the Japanese version of the official announcement: https://www.jftc.go.jp/houdou/pressrelease/2024/may/240528_chugoku_keihyou.html
2 Article 5, Item 2 reads as follows: No Entrepreneur may make a Representation as provided for in any one of the following items in connection with a transaction for goods or services which the Entrepreneur supplies:
(ii) Any Representation that could cause ordinary consumers to misunderstand the price or any other trade terms for goods or services to be significantly more advantageous than these terms are in reality, or significantly more advantageous than those of other Entrepreneurs who supply the same or similar goods or services, thereby making it likely that consumers could be induced unjustly to purchase the goods or services and interfering with ordinary consumers’ voluntary and rational decision-making.
