For a change it was businesses rather than consumers which the Mercantile Court recently stepped in to protect in action by Croydon Trading Standards under the Business Protection from Misleading Marketing Regulations. Judith Gordon reports on this key judgment.
Topic: Misleading advertising
Who: Croydon London Borough Council v Hogarth & Ors
When: April 2011
Where: London Mercantile Court
Law stated as at: 5 April 2011
Croydon London Borough Council applied to the Mercantile Court for an injunction under regulation 15 of the Business Protection from Misleading Marketing Regulations 2008 against a husband and wife team, in order to restrain their misleading advertising activities.
The couple, Mr and Mrs Hogarth, ran two companies called Digital Equipment Communication Maintenance Limited ("DECM") and Ceefax Systems Limited ("Ceefax"), which were in the business of servicing office machinery such as printers and faxes. The local authority received numerous complaints from businesses, who claimed that the companies had tricked them into thinking that they already had contracts in place with them, and into paying invoices for equipment maintenance that had not been performed.
A document headed 'Business Equipment Maintenance Agreement' which purported to act as a notification of transfer of liabilities in relation to equipment maintenance contracts from Ceefax to DECM, was sent to businesses, along with backdated invoices stamped "PAID" so as to give the impression of an existing financial arrangement. A fresh invoice for next payment was also enclosed, along with a new contract instructing the business to sign and return the document to the company.
Earlier complaint to ASA upheld
Following Croydon Council's investigation of these complaints, it emerged that the Advertising Standards Authority had upheld a complaint against the couple for similar practices in 2006, and in 2008, the Office of Fair Trading ("OFT") had threatened them with further action should they continue such practices.
The couple were given the opportunity to sign an undertaking not to carry out further similar conduct, but had refused to do so. Croydon Council therefore proceeded with an application for an injunction under the Business Protection from Misleading Marketing Regulations 2008 ("BPRs"). These prohibit advertising that is misleading in any way and which "deceives or is likely to deceive the traders to whom it is addressed or whom it reaches; and by reason of its deceptive nature, is likely to affect their economic behaviour".
The Mercantile Court held that the couple's communications to businesses were indeed 'advertisements' under the BPRs and were "plainly misleading". The injunction was granted, the judge stating that there was "no evidence that the respondents would desist from their course of conduct unless compelled to do so" and further commenting on the "chilling effect" such scams had on the economy, adding to businesses' costs.
Why this matters:
The wider implications of the case are found in the comments of the court.
In his judgment, former solicitor Judge Mackie QC, appointed in 2006 as the first head of the newly opened London Mercantile Court, stated that local authorities should consider bringing more of such claims for injunctions in the Mercantile Court.
It was likely to be quicker and cheaper, and there was no need for these applications to be considered by anyone higher than a senior circuit judge.
Mercantile Courts were first established in the 1990s Their purpose was to provide a modern accessible and efficient specialist court service around the country to citizens, businesses and companies involved in commercial transactions and disputes.
They are regional courts of the Queen's Bench Division of the High Court, with specialist judges sitting in main city centres.
Whilst only the OFT and certain local authorities are able to enforce the BPRs (which do not give other traders a right of action) the use of injunctions in this context is still a powerful tool in deterring future misleading advertising behaviour, as breaching such an injunction could mean an unlimited fine or even jail for contempt of court.
We may therefore see a significant increase in such applications being brought in the Mercantile Court as local authorities seek quicker, cheaper ways to curb misleading advertising practices.
Wide "advertising" definition
The judgment is also noteworthy for spotlighting the wide definition of "advertising" contained in the BPRs, viz:
"Any form of representation which is made in connection with a trade, business, craft or profession in order to promote the supply or transfer of a product".
This was clearly capable of covering the type of communication in question in this case, even though many would otherwise question whether a document headed 'Business Equipment Maintenance Agreement' which purported to act as a notification of transfer of liabilities in relation to equipment maintenance contracts could classify as "advertising."
Interestingly "advertising" is not defined at all in the CAP Code or in the sister regulations to the BPRs, the Consumer Protection from Unfair Trading Regulations. Maybe one day, we will see harmonised definitions of such key terms that apply across the board. Something for Brussels to tackle perhaps!
Osborne Clarke, London