UK: The Unfair Commercial Practices Directive What Does It All Mean?

Originally published in Lawrence Graham's 'SmartLaw' newsletter, March 2007

© Lawrence Graham LLP

The Unfair Commercial Practices Directive (2005/29/EC), replacing Europe’s patchwork of national regimes with a standardised set of EU-wide regulations, will be transposed into UK law by June 2007 and come into force by December 2007. So, what will it mean in practice?

By harmonising the EU’s unfair trading laws, the new Unfair Commercial Practices Directive (the Directive) will clarify consumer rights and so facilitate cross-border trade; its ruling concept of ‘maximum harmonisation’ will in most cases also prevent Member States from applying provisions stricter than those required by the Directive. In essence, the new Directive imposes a general obligation on all businesses not to treat consumers unfairly. In so doing it will capture a very wide range of unfair conduct across all business sectors including unfair practices that have not yet been dreamt up. It will also prohibit businesses from misleading consumers or subjecting them to aggressive selling techniques. There are extra protections for vulnerable consumers, so often the primary target of unfair commercial practices.

Even though the Directive applies only to business-to- consumer commercial practices, the DTI has already indicated that, even where the consumer’s only direct commercial contact is with a retailer, it will apply the law further up the supply chain, for example against a manufacturer who falsely labels its products.

The Directive contains clear rules to determine when a commercial practice will be deemed unfair. These fall broadly into three categories:

• general prohibitions;

• specific examples of misleading actions/omissions and aggressive commercial practices;

• an annex of 31 practices that will be deemed unfair in any circumstances.

An "unfair commercial practice" is one that runs contrary to the requirements of professional diligence and which materially distorts a consumer’s economic behaviour, or is likely so to do.

This benchmark will normally be judged by the standards of "the average consumer", although in certain circumstances it will be adjusted to the more exacting standards of "the vulnerable consumer".

The vast majority of commercial practices defined as unfair under the general prohibition will fall into two categories; they will be "misleading" and/or "aggressive". An important objective of the Directive is to create greater legal certainty, so the ways in which a commercial practice can stray into this territory is set out in detail.

A misleading commercial practice will contain false information (i.e. be untruthful) or will in some way deceive, or be likely to deceive, the average consumer into taking a transactional decision that he would not otherwise have made. An aggressive commercial practice achieves much the same outcome but by means of harassment, coercion (including physical force) or undue influence so as to significantly impair (or be likely to impair) the average consumer’s freedom of choice or conduct.

The list of the 31 practices which will always be considered unfair contains both misleading and aggressive commercial practices which are all too common, including:

• falsely claiming to be a signatory to a code of conduct or to be approved by a recognised body;

• advertising a product as a special offer without disclosing that it may in fact be unavailable (these are called ‘bait advertising’ scams);

• falsely stating that a product will be available for a very limited time in order to obtain an immediate decision;

• falsely claiming that a product facilitates success in games of chance;

• significantly misrepresenting the risk to the consumer or his family of a decision not to purchase the product in question;

• creating the impression that the consumer cannot leave the business premises until a contract has been formed;

• making personal visits to the consumer’s home and ignoring the consumer’s request to leave and/or stay away;

• failing to respond to pertinent correspondence in order to dissuade a consumer from exercising his contractual rights;

• demanding payment for products supplied even though they were not ordered by the consumer in the first place (inertia selling); and

• establishing, operating or promoting a pyramid promotional scheme.

The government has plans for an enforcement regime which, it says, will tackle unfair practices without over-burdening businesses that trade fairly. It is likely to include the use of civil sanctions (including injunctions brought under the Enterprise Act 2002) as well as criminal penalties (the results of a consultation on criminal sanctions are yet to be published).

The Directive also allows for enforcement action to be taken against groups of traders who are all using similar unfair practices. Individuals or organisations considered under national law to have "a legitimate interest in combating unfair commercial practices" – consumer organisations, for example – are also entitled to apply to the courts for orders halting or preventing unfair commercial practices.

The DTI has issued consultation documents on the implementation of the Directive and is currently investigating whether or not criminal sanctions are required to help enforce its provisions. Draft legislation is expected in early April 2007.

The UK is one of the few EU countries not to already have some form of general fair trading duty incorporated into its national law. Instead we rely mainly on sector-specific legislation. The Directive will become the mainstay of the UK’s fair trading legislation, and the ‘maximum harmonisation’ approach will require the government to undertake a wide-ranging simplification of existing consumer laws (in particular the Consumer Protection Act 1987, Trade Descriptions Act 1968 and the Weights and Measures Act 1985) to ensure that where they overlap with the new Directive they conform to its principles.

Put succinctly, if your business supplies or markets goods and services to or for consumers then the Directive may well have an impact on your operations and you would be wise to familiarise yourself with the new legislation, in particular the general prohibition on treating consumers unfairly.

A simplified legal framework could be good news, improving the business community’s understanding of consumer legislation, making it easier to conform and, therefore, reducing time spent on compliance. However, there will be initial costs associated with familiarisation and the repeal of some long-standing consumer legislation could lead to legal uncertainty where, for example, old prescriptive rules are replaced by a general duty. In some situations this new uncertainty may not lift until the courts examine some individual test cases.

So, this is an important Directive for three main reasons:

• Its scope and the principles-based approach mean that it will catch unfair practices which currently fall between existing UK and EU rules. It also sets a standard against which all new practices will automatically be judged.

• The general prohibition on unfair trading means that there should be no need to introduce specific regulations against new unfair practices as they emerge.

• It strengthens and harmonises consumer rules across the EU helping to build consumer confidence in the internal market.

Though the precise scope of how the Directive will be implemented in the UK remains to be seen, it is clear that its implementation will have a considerable impact on UK consumer legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.