Purely Creative Ltd and related companies encouraged punters by newspaper inserts and mailings to get in touch to claim a prize. The OFT claimed this practice multiply breached the Consumer Protection from Unfair Trading Regulations 2008. An epic battle ensued and Manana Shrimpling reports the epic judgment.
Topic: Consumer protection
Who: Purely Creative Ltd and others
Where: High Court
When: 2 February 2011
Law as stated at: 28 February 2011
Purely Creative Ltd and its group, which promote prize draw competitions to consumers, were found by the High Court to have breached the Consumer Protection from Unfair Trading Regulations 2008 ("Regulations") by sending misleading promotions to consumers.
The OFT claimed that promotions sent by the defendants to consumers in the form of personalised letters, inserts in newspapers and magazines, and invitations to claim prizes, awards or rewards, were prohibited under the Regulations and applied for an order under s.215 of the Enterprise Act 2002 to prevent the defendants from continuing to distribute promotions to consumers.
High Court ruling
The judge held that the promotions breached Regulations 5 and 6 (which prohibit misleading consumers by action or omission) and paragraph 31 of Schedule 1 (which prohibits the creation of a 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). Importantly, the judge also considered how the Regulations should be construed.
Requirement to pay to claim prize
Purely Creative's prize promotions required the consumer to incur costs for finding out what prize he had won (by telephone, SMS or by sending a stamped addressed envelope). The consumer also had to pay "insurance and delivery" costs for claiming some prizes.
The judge disagreed with the OFT that any requirement to pay something, however small, would make a prize promotion misleading, saying that the critical requirement in proving any breach of paragraph 31 was that a false impression had been created. Thus the imposition of clearly identifiable minimal cost (such as buying a stamp or making a minimum charge phone call) which is minimal in comparison to the value of the prize won would not constitute a misleading or aggressive commercial practice. However, a sufficiently clear statement of the cost or expense of claiming the prize may nonetheless create a false impression that a prize has been won if, for example, the trader says nothing about the value of the prize, which in fact is not substantially more than the cost of claiming the prize. Providing an alternative claims route which involves minimal cost is not in itself enough to stop a false impression being created.
One of the prizes, a "Zurich Watch" cost the defendant a total of £9.36 to provide to the consumer, while the consumer incurred costs of between £9.50 and £18 for finding out what their prize was and then claiming it. The judge held that the consumer had in reality bought rather than won the watch. The £8.50 payment which was said to include "insurance and delivery" was misleading since the item was not insured by the defendant and the delivery costs were in fact only £3.25.
Interpretation of the Regulations
Regulations 5 and 6 require it to be shown that the misleading act or omission of material information by a trader "causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise". The judge considered in detail the construction of "average consumer", "transactional decision" and "material information".
The judge construed the meaning of "material information" to be that which was necessary to enable the average consumer to take an informed transactional decision, not that which would merely assist or be relevant. He proposed that "average consumer" assumes that the consumer is reasonably well informed, observant and circumspect and that the Regulations exist to protect consumers who take reasonable care of themselves, rather than ignorant, careless or over-hasty consumers.
However, whether the "average consumer" would be required to read the entirety of the small print relating to a particular promotion will depend on the facts of each case.
A "transactional decision" is any decision with an economic consequence, even if it is only a decision between doing nothing or responding to a promotion by posting a letter, making a premium rate telephone call or sending a text message. The judge considered that the phrase "causes or is likely to cause" is equivalent to the standard of the balance of probabilities. The question to ask is whether, but for the relevant misleading action or omission of the trader, the average consumer would have made a different transactional decision from that which he did make. The misleading act or omission does not have to be the sole cause of the decision, but if the consumer would nonetheless have decided as he did, the Regulations will not be infringed. The appropriate test is therefore to ascertain the combined effect of all the misleading acts and omissions and then assess whether the consumer would nonetheless have decided as he did.
In relation to the Purely Creative promotions, the aggregate serious omissions of material information about the terms and conditions of a prize of a "Mediterranean Cruise" (which, due to additional supplements payable by him, a consumer would in fact have to spend £399 per person to go on) were held to be sufficient that, had the matter been fully and fairly explained to the consumer, the average consumer would not have incurred the expense of participating in the promotion.
Similarly, the use of a Swiss shield emblem alongside the "Zurich Watch" prize created a misleading impression of the geographical origin or place of manufacture of the watch (which was not in fact Switzerland) which would lead an average consumer to attribute a higher value to the prize.
Why this matters:
This is the first substantive High Court case on the Regulations and provides guidance on how courts will interpret the concepts and definitions in the Regulations.
It highlights the importance of clear and truthful statements about the costs a consumer may incur in claiming a prize and that the costs cannot be so high as to in effect mean that the consumer has bought the item rather than won it.
As the question of whether a false impression has been created will be answered by reference to the whole of the communication to the consumer, the layout and get-up of a communication must be considered when putting together a promotion, as well as the words used.