In a landmark judgment the Court of Justice of the European Union has held that requiring prize draw or competition winners to incur any cost in order to claim a prize is likely a breach of EU unfair commercial practices laws, as Stephen Groom and Nick Johnson report.
Topic: Promotion marketing
Who: Office of Fair Trading vs. Purely Creative Ltd and Ors Case C-428/11
When: October 2012
Where: Court of Justice of the European Union, Luxembourg
Law stated as at: 6 November 2012
In a landmark judgment, the European Court of Justice has adopted a strict interpretation of EU consumer protection laws of which all UK promotion marketers need to be aware, say Nick Johnson and Stephen Groom of Osborne Clarke’s London office.
In the case of Purely Creative Ltd & Ors (the “Defendants”) and Office of Fair Trading (case C-428/11) the Court of Justice of the European Union (“CJEU”) dealt with a request from the UK Court of Appeal for a preliminary ruling on key questions relating to the structuring and running of prize promotions.
The five promotions in question had one feature in common. All potential winners had to incur expense in order to either find out more about their prize, claim it or take possession of it.
In one case, a premium rate call costing £8.95 had to be made to find out what prize could be claimed or a claim sent by ordinary post. In another case £8.50 insurance and delivery charges had to be paid to receive a watch and in another case a Mediterranean sea cruise could be enjoyed once the winner paid £14.95 for insurance and delivery of a voucher, £159 for transfers to and from the port of embarkation and further sums for food and drink and port fees.
The Office of Fair Trading takes action
UK consumer protection body the Office of Fair Trading took enforcement action against the Defendants under UK laws based on the EU “unfair commercial practices” directive 2005/29/C. One practice this criminalises (at paragraph 31 of Annex 1) is the following “aggressive practice” (“Practice 31″):
“Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize…when in fact….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 Defendants argued that that since these charges were all disclosed to consumers before they entered, the “false impression” ingredient of the offence was not satisfied. Alternatively they submitted that as the alternative postal entry route offered in most cases involved the de minimis cost of a domestic postage stamp, the availability of this option removed the “subject to the consumer paying money or incurring a cost” ingredient of Practice 31.
Neither submission cut any ice with the EU appeal judges.
The only required falsity, they said, was that payment or cost was involved when the average consumer’s concept of “winning” a prize would be that it had no more strings attached.
“Psychological effect” of winner notification exploited
As for including an alternative, “de minimis” cost way of claiming a prize, this did not in any way detract from the fundamental consumer detriment, the CJEU said.
This lay in exploiting the psychological effect of informing a consumer that he or she has won a prize, so as to increase the likelihood of the consumer choosing the quickest way of finding out what has been won is chosen, even though this may be the most expensive method.
So the appeal judges answered the preliminary questions put to them bluntly as follows:
1. if there is any cost whatsoever involved in taking any action in relation to claiming a prize, be it requesting information about a prize or taking possession of it, then the aggressive practice prohibited by this limb of Practice 31 has been committed;
2. it makes no difference that the cost imposed on the consumer, such as the cost of a stamp, is de minimis compared with the value of the prize or that it does not benefit the promoter;
3. it is also irrelevant that an alternative way offered of finding out about a prize is free of charge if at least one of the other methods involves a cost;
4. it also makes no difference that the costs of claiming or taking possession of the prize are clearly disclosed to all participants in advance of entry;
5. in terms of any costs involved in enjoying a prize after it has been claimed, national courts must decide, based on their assessment of the average member of the section of their country’s public targeted by the practice in question, whether a prize, even though experiencing it involves a cost to the winner, is described sufficiently clearly for those additional costs to be fully within the expectation of participants such that there is no “false impression” of the kind required by Practice 31.
For instance, the court said, if a prize is described as a “ticket” for a certain soccer match, then it will be quite acceptable for the winner to have to pay for his own travel to and from the match.
But say on the other hand that the prize is described more generally as attendance at a sports event, for example “Your chance to be at the big game.” Then requiring winners to pay to get to the stadium and back will likely be unlawful, even if this is disclosed somewhere in the rules.
The case now goes back to the English court to determine whether on the facts, offences have been committed in light of the European court’s answers.
Offences against the unfair commercial practices Directive can, depending on the EU state in question lead to fines for promoters and/or fines and/or terms of imprisonment for (in the UK) any “director, manager, secretary or other similar officer” of the promoter or any person purporting to act in such a role if it is established that the offence was either committed with their consent or connivance or attributable to any neglect on their part.
Immediate and far-reaching impacts of the judgment
The impact of this judgment is immediate and potentially far-reaching. The following points are clear:
(a) when requiring potential winners to respond to a winner notification, for instance even just to confirm safe receipt of the notification and/or claim their prize, care should be taken to ensure that none of the ways suggested by which winners can respond involve any cost whatsoever for the winner. One exception may be email, although strictly even this involves the consumer in expense in the form of telecommunications costs;
(b) when first planning a prize promotion and looking at the cost benefit analysis, particular attention will need to be paid to all elements of any prize envisaged and all associated costs before determining what exactly the prize will be;
(c) similarly, promoters will need to focus clearly on the prize description, both in the rules and all promotional communications, ensuring that it is consistent and clear;
(d) prizes involving travel and accommodation will require particular care;
(e) promotion agencies should bear in mind that if a supplied promotion falls foul of this new interpretation of Practice 31, the client may well be supported by the UK courts if it refuses to pay the agency all related fees on grounds that the contract in question was for an illegal purpose. See Russell v Fulling & Page (The Times June 23rd 1999);
(f) given the immediate effect of this judgment, the question arises as to what promoters who are part way through a promotion should do if they believe it is now problematic as a result of this judgment. The answer is that they should take advice before making any substantive change, but depending on how far advanced the promotion is, there will hopefully be many cases where a change relieving potential winners of an obligation to incur expense will not be give rise to undue risks.