Topic: Consumer protection
Who: The Queen vs X Ltd
Where: Court of Appeal, London
When: May 2013
Law stated as at: 23 May 2013
The Court of Appeal handed down an important judgement on the correct interpretation of key provisions of the Consumer Protection from Unfair Trading Regulations 2008 (“CPRs”).
The defendant (unnamed as the case has now been remitted for a re-trial) sold CCTVs. It sold a domestic CCTV security system to a 76 year-old consumer (the “Consumer”). Over two telephone calls and two house visits, the defendant’s sales staff told the Consumer that burglaries in his postcode area had risen by over 46% in the last twelve months.
The position in reality was that although burglaries for that postcode for a recent three month period had increased compared with the same three month period the previous year, year-on-year statistics for the ward including that postcode indicated a reduction in burglaries from 52 to 45.
Common ground that the Consumer was vulnerable
It was common ground that the Consumer was a vulnerable consumer due to his age and infirmity. He agreed to purchase two sets of equipment after the defendant’s salesman was allegedly at his home for over three hours.
Call recordings of the defendant’s calls with the Consumer evidenced what the trial judge later held to be a “lamentable, indeed deplorable and dismissive tone of the customer operator.”
After installation, the defendant’s salesman telephoned the Consumer and asked if he was happy with the installation. He confirmed that he was and then arranged for payment. The sums involved exceeded £5,000.
Members of the Consumer’s family visited later and found the system was unconnected, with the elderly gentleman unaware of the system.
It was common ground that although the salesman’s drawing of the proposed security system during his sales visit was workmanlike, the system as fitted was not an effective security measure.
Following a complaint, Trading Standards prosecuted the defendant on four counts under the CPRs.
Count one charges an “always unfair” commercial practice
Count one charged the defendant with engaging in an unfair commercial practice contrary to Regulation 12 and para 12 of Schedule 1 of the CPRs. This is a strict liability offence in that if the commercial practice has occurred as described in the Schedule it will always be regarded as unfair, with the only defence then available being that of due diligence.
Para 12 states that a commercial practice will be regarded as unfair if it consists of:
“making a materially inaccurate claim concerning the nature and extent of the risk to the personal security of the consumer or his family if the consumer does not purchase the product.”
Count three charges a “misleading action”
Count three charged that contrary to Regulations 5 and 9 of the CPRs:
“the trader engaged in a misleading practice in that they represented that the CCTV security system installation purchased by the consumer and supplied to him would be an effective security measure which contained false information… in relation to the benefits and fitness for purpose of the product and caused or was likely to cause the average consumer to take a transactional decision he would not have taken otherwise.”
Counts 2 and 4 focus on professional diligence
Counts 2 and 4 charged that contrary to Regulations 3 and 8 of the CPRs, the defendant:
“knowingly or recklessly engaged in a commercial practice that was contrary to the requirements of professional diligence…. that materially distorted the economic behaviour of the average consumer with regard to the products in question.”
First instance judge finds no case to answer
The trial judge acceded to an application by the defendant that there was no case to answer on all counts, thus throwing the case out.
The Queen appeals
The prosecution appealed, challenging the following:
1. There was no prima facie basis for the proposition under count one that the burglary rate information given to the Consumer was materially inaccurate.
This was the finding of the first instance judge, but the 46% increase in burglaries claimed by the salesman was not over the last year but the last three months. It also related only to the postcode area, whilst year-on-year stats for the ward which included the postcode area indicated a reduction in burglaries from 52 to 45.
Based on this, the appeal judges “simply could not understand how it can be said that there was no prima facie evidence that the data was inaccurate.” Appeal allowed on this issue.
2. “Commercial practice” should be interpreted as requiring a pattern of repeated behaviour by the defendant company so that the events in question occurred as a result of the bad “practice” of the company as opposed to the failure of an individual.
The finding by the first instance judge was that as there was no evidence of a pattern of conduct in this case, there was no “commercial practice” as defined in the CPRs.
This proposition was rejected by the appeal judges. They held that a single act or incident would be sufficient if the other requirements of the offence were satisfied-for example the definition of “commercial practice” starts “any act…” so obviously envisages that a single instance of conduct can be sufficient.
3. There was no misleading action leading to a “transactional decision,” so no unfair commercial practice as charged in count two.
The defendant had submitted that on a proper interpretation of the CPRs, any transactional decision that was part of a charge had to have followed the unfair commercial practice in question.
This did not apply in this case, they submitted.
It was not the salesman’s description of the security system to the Consumer before he decided to buy that was false. It was the way in which it was actually installed, after the decision to buy, that rendered false its earlier depiction as an effective system.
The appeal judges rejected this submission, holding that “transactional decision” must be interpreted widely. This must be regarded, they said, as including:
“any course of conduct…whether occurring before, during or after a commercial transaction.”
However this wording is taken from the definition of “commercial practice,” so might be regarded as less on point than the appeal court’s decisive finding on the issue, namely that the decision of the Consumer to pay following the call to see if he was satisfied must be regarded as covered by the following examples of a transactional decision included in its definition at Regulation 2 (1) of the CPRs:
“whether to make payment” or “whether to exercise a contractual right.”
4. Evidence of more than one complaint is necessary for a finding that “professional diligence” has been contravened.
This had been the finding of the first instance judge, so given there was just one complaint in this case, there was no case to answer.
For the appeal judges’ part, whilst they conceded that a single failing affecting one customer may not be sufficient in all cases, it would depend on the facts of each case.
In this case, the appeal court held that on one view of the facts, there was sufficient evidence from which the jury might infer that failure ran “at every stage of the process from top to bottom”, thus potentially supporting a finding for the prosecution on this count.
Appeal allowed once again.
5. For a finding that the defendant had “knowingly or recklessly” engaged in the practice in question, there must be evidence that at least one director knew of the circumstances leading to the transaction in question.
The appeal court held that this approach, adopted by the first instance judge, was too narrow.
The more appropriate question was whether the depth of the evidence, including in this case, the call recordings and the incompetent installation of the system, could reasonably lead to the inference that the way in which the company operated (through at least one of its controlling minds) demonstrated reckless disregard for the requirements of due diligence generally.
Based on this, it did not matter that a particular controlling mind could not be identified. As the evidence, despite a Code of Practice that had been introduced by the defendant requiring the exercise of professional diligence, could in the appeal court’s give rise to an inference of at least reckless disregard, the appeal was allowed on this point also.
Appeal on all counts allowed and retrial ordered.
The Court of Appeal therefore allowed the appeal on each count and remitted the case back to the Crown Court to be tried afresh by a different judge.
Why this matters:
This is a significant judgment on a number of issues under the CPRs where there has as yet been no clear judicial guidance. It will probably not discourage ingenious arguments in future cases by creative defence counsel in what are still largely uncharted judicial waters, but the messages sent on the key points in issue are clear and worth noting by all B2C businesses.