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Richard Lawson

Partner, Linder Myers

Rationalising spending

Rationalising spending


New consumer protection rules criminalising unfair commercial practices will place a strict burden on business. Richard Lawson explains

The Consumer Protection from Unfair Trading Regulations, which will implement the Draft Unfair Commercial Practices Directive (UCPD, Directive 2005/29/EC), will impose a UK ban on general unfair trading and aggressive marketing practices. Furthermore, various long-standing consumer protection enactments will be repealed. The regulations also contain an unintentional threat to prize promotions.

Breaching best practice

A commercial practice is unfair, and will be prohibited, if it both departs from the 'requirement of professional diligence' and thereby 'materially distorts' the 'economic behaviour' of the 'typical consumer'. Professional diligence is defined in terms of honest market practice and the general principles of good faith.

The 'typical consumer' is given a lengthy definition, but can be regarded as the average consumer, or the average member of a particular group of consumers. The phrase also includes the average member of a particularly vulnerable group of consumers such as the aged. The regulations do, however, spell out that no offence will arise when the advertising is of the 'common and legitimate type' whose claims are exaggerated and not 'to be taken literally'. Lager may now be claimed to 'refresh the parts others cannot reach' with impunity.

Marketing will also be unfair, and hence illegal, if it constitutes a 'misleading action'. Such an action arises, when, in essence, a trader is guilty of passing off. It will also arise if a trader, who indicates that he is subject to a code of conduct, fails to comply with a commitment in that code. No offence will arise, however, if the commitment is 'not aspirational'.

In this context, a code of conduct is one not imposed by law, thus excluding the advertising code for TV and radio, as adopted under the provisions of the Communication Act 2003. Quite separately, the Regulations also provide that if a code of practice itself contains a commercial practice which is unfair, then the code itself will also be prohibited as an unfair practice.

More compendiously, an action will also be 'misleading' if it is misleading or deceptive in relation to various matters, even if the particular information is factually correct. Among the matters referred to are: the main characteristics of the product (defined, inter alia, by reference to its availability) and the existence of a specific price advantage. The former is designed to catch the practice of 'bait and switch' whereby an advertiser claims to have available a particular product, only then to declare it unavailable, or sold out, but offering the consumer instead some higher-priced alternative. The latter will provide a more general prohibition against misleading pricing, and thus replaces the detailed provisions of the Consumer Protection Act 1987 and the statutory Code of Practice for Traders on Price Indications. The intention is to repeal the relevant parts of the Act and the entire Code.

As indicated above, the expression 'the main characteristics of the product' is given a wide definition. This not only covers the list of trade descriptions covered in s1 of the Trade Descriptions Act 1968, but goes further to cover, for example, the risks of the product, complaints-handling and after-sales service. The relevant parts of the 1968 Act will also be repealed.

Misleading omissions

The definition of an unfair, and hence illegal, practice is stated to embrace misleading omissions too. Thus, omitting or hiding essential information will count as misleading when the features or circumstances of the relevant practice embrace such matters as the limitations of the medium used to communicate the commercial practice (including limitations of space or time); and where the medium used to communicate the commercial practice imposes limitations of space or time, measures taken by the trader to make the information available to consumers by other means. Problems could thus arise for radio and TV advertising when the words or the on-screen instructions are spoken or displayed in too brief a period. It could also place in jeopardy the practice, often seen in booking halls, of indicating that full terms and conditions are available on request, or from a given website.

Aggressive commercial practices

Much of what has been discussed above, while for the first time making a criminal offence out of various commercial practices, has generally been covered by such enactments as the Consumer Protection Act and the Trade Descriptions Act, and also by such generalised codes as the Code of Advertising Practice (governing print and cinema advertising) and various trade-specific codes, such as that adopted by the Proprietary Association of Great Britain, or the Portman Group Code of Practice on the Naming, Packaging and Promotion of Alcoholic Drinks.

But the criminalising of aggressive commercial practices breaks new ground. Such conduct will occur when it significantly impairs the consumer's ability to make a rational decision, taking account of such matters as when and where the practice was employed; the use of threats or abuse; and taking advantage of any misfortune or grave matters affecting the consumer.

The regulations will contain a schedule of practices which are in all circumstances to be considered unfair. This goes further than the Unfair Terms in Consumer Contracts Regulations 1999/2083. The relevant schedule there does no more than list contract terms which may be unfair, but which could in the right circumstances be fair.

Some of the 31 items listed reflect the current position. Thus, it will automatically be unfair to describe a product as 'free' if more than the costs of collecting the goods or having them delivered. This is already covered by the CAP Code and under the Trade Descriptions Act (see Cowburn v Focus TV Rentals Ltd (1983) 147 JP 201). The listed items also refer to the practice of selling goods in the course of business, but claiming to be acting as a private party. Such a practice is currently prohibited under the Business Advertisements (Disclosure) Order 1977/1918, which the Regulations will also repeal. Some, though, are new. Thus, it will automatically be misleading to present rights already enjoyed by a consumer as a distinctive feature of the trader's offer. A trader could not, for example, claim that his goods are of satisfactory quality, given that this is a right automatically provided by the Sale of Goods Act 1979.

One wonders, though, of the precise consequences arising from the fact that it will automatically be misleading to offer a competition or prize promotion 'without awarding the prizes described or a reasonable equivalent'. There are many prize promotions on the market which involve tests of skill, such as spot the ball, where no one can guarantee that the right answer will be provided. On its face, such a promotion now seems to be unfair and hence prohibited, which surely cannot have been intended.

More seriously, though, it is arguable that the enactment of the Directive has imperilled the very idea of running a prize promotion at all. As noted above, it is a prohibited unfair practice for a trader to depart from the requirements of professional diligence, and if that practice materially distorts the consumer's decision to buy.

Professional diligence means acting in accordance with the general principles of good faith or honest market practice. The possible threat to prize promotions merges when consideration is given to such legislation as the German Unfair Competition Law 1909.

German experience

German legislation simply banned all unfair commercial trade practices, a concept which German courts interpreted to cover all trade practices which acted as an over-inducement to buy a product, thus over-influencing a consumer's decision to make a purchase.

The argument was that a prize promotion meant that a consumer made a purchase more because of the promotion attached to it than because of the quality of the product. So difficult did this make any kind of prize promotion in Germany, that the Law was much amended in 2004, but its basic structure remains in force, and still poses problems for those wishing to run the kind of prize promotion which is commonplace in this

country. The result of the new regulations is that it should be possible to argue that a prize promotion run in the UK, and which offers some superlative prize, runs foul of this wholly new concept of the unfair commercial trade practice.