On 18 October 2012 the Court of Justice of the European Union (the "CJEU"), in the case of Purely Creative and Others v Office of Fair Trading, issued a judgment clarifying the interpretation of the Unfair Consumer Practices Directive (2005/29/EC) (the "Directive").
Although the legal scope of the Directive does not extend beyond the European Union (and so does not apply to the Isle of Man), Isle of Man based promoters should still take the CJEU's judgment into consideration when considering good practice.
The Unfair Consumer Practices Directive
The Directive aims to clarify consumers' rights and simplify cross-border trade by harmonising the legislation across the European Union which prevents business practices that are unfair to consumers.
The Directive contains a general prohibition on unfair commercial practices and, in particular, contains prohibitions on misleading and aggressive commercial practices.
The Directive contains a general prohibition on unfair practices and sets out an exhaustive list of 31 commercial practices which in all circumstances are considered to be unfair, without the need for a case-by-case assessment. One of those prohibited practices is creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either: (a) there is no prize or other equivalent benefit; or (b) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.
The second part of paragraph 31 of Annex I to the Directive (i.e. the prize or benefit is subject to the consumer paying money or incurring a cost) bans promoters from creating a false impression that a consumer has won a prize when the consumer is required to make a payment or incur a cost in order to claim that prize.
Purely Creative and Others v Office of Fair Trading
The reference to the CJEU in the case of Purely Creative and Others v Office of Fair Trading arose out of a dispute between the UK's Office of Fair Trading and five British traders (promoters) engaged in promotions that involved mailings and inserts (such as scratch cards) placed in newspapers and magazines, together with a number of people who have worked for those promoters. The consumers were offered a number of options in order to discover their prizes and obtain their claim numbers. They could call a premium rate telephone number, use an SMS service or obtain the information by ordinary post. In certain cases, consumers had to pay additional costs such as delivery and insurance of the prizes they had won.
The UK's Office of Fair Trading took issue with these commercial practices and brought proceedings before the High Court of Justice seeking to restrain the promoters from distributing promotions on the basis that such promotions breached the UK's Consumer Protection from Unfair Trading Regulations 2008 (the "Regulations"), which implemented the Directive into UK law. The High Court found that the commercial practices would only be acceptable if the payment required was minimal compared with the value of the prize won and no part of the payment would benefit the promoter.
The case was appealed and referred to the CJEU.
The CJEU adopted a very strict, absolute interpretation of paragraph 31 of Annex I to the Directive. The CJEU found that the expression 'incur a cost' in paragraph 31 does not allow the consumer to bear any cost whatsoever, even if the cost is minimal compared with the value of the prize and even if it does not procure any advantage for the promoter.
The CJEU found that the Directive creates an absolute prohibition on imposing any cost to claim a prize or other equivalent benefit. As such, offering a consumer a number of options for claiming his prize will still amount to an unfair practice if any of those options require the consumer to bear a cost (even if such cost is minimal). The promoters argued that there can be no unfair practice if the consumer is sufficiently informed of the cost of claiming the prize but the CJEU disagreed.
In light of the CJEU's ruling, telling a consumer that he has won when in fact he has to pay something to claim his prize will always create a false impression, even if the consumer only has to bear a minimal cost compared to the value of the prize or if he has to bear a cost which does not benefit the promoter (such as the price of a stamp).
The obvious result of the CJEU's decision is that, if any costs are to be incurred in finding out about, claiming, or taking possession of, a prize, such costs must now fall on the promoter.
What does the CJEU's judgment mean for Isle of Man based promoters?
As mentioned above, the legal scope of the Directive does not extend beyond the European Union. Although the UK, as a member of the European Union, is required to implement the Directive (and has done so under the Regulations), the Isle of Man is not. However, the Directive reflects what will effectively be considered best practice, and voluntary compliance by promoters in the Isle of Man may be appropriate.
Although neither the Directive nor the Regulations apply in the Isle of Man, guidance issued by the Isle of Man's Office of Fair Trading follows similar principles in connection with paying to claim prizes as the Isle of Man's Office of Fair Trading's website states that, if a participant has won a prize, that participant should not have to pay anything to receive it.
It is possible that prize promotions engaged in by Isle of Man promoters will be governed by Isle of Man gambling legislation under the Online Gambling Regulation Act 2001 or the Gaming, Betting and Lotteries Act 1988 and/ or that other legislation might apply. Such considerations are beyond the scope of this article and promoters should take legal advice before embarking on promotions with prizes to ensure that the mechanisms involved will not fall foul of the relevant legislation.
As originally appeared in the Isle of Man Regulatory Update – February 2013
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.