In the case of OFT vs. Purely Creative, the Court of Appeal has now deferred to the Court of Justice of the European Union on various questions including the precise meaning of “always unfair” commercial practice # 31 on creating a false impression that a consumer has already won. Simon Fisher reports.
Topic: Promotion Marketing
Who: Office of Fair Trading, Purely Creative Ltd and others
Where: Court of Appeal
When: 29 July 2011
Law as stated at: 30 August 2011
Purely Creative Ltd and its group ("the defendants"), which promote prize draws to consumers using scratchcards, were found by the High Court to have breached the Consumer Protection from Unfair Trading Regulations 2008 ("Regulations") by sending misleading promotions to consumers.
Certain aspects of the decision by the High Court were appealed by the defendants, and cross-appealed by the Office of Fair Trading ("OFT"), which instituted the enforcement proceedings. In issuing its judgement, the Court of Appeal has referred certain questions in respect of the interpretation of the Regulations to the Court of Justice of the European Union ("CJEU"). In the meantime, the order of the High Court remains in place.
High Court ruling
The defendants send promotions to consumers in the form of personalised letters, inserts in newspapers and magazines, and invitations to claim prizes, awards or rewards. The judge held that such 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).
– Requirement to pay to claim prize
Purely Creative's prize promotions required the consumer to incur costs in order to find 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.
For example, 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 to find out what his prize was and then claim it.
The High Court held that a 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.
– False Impression
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 promoter 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 costs is not in itself enough to stop a "false impression" being created by the more expensive route.
The High Court held that while the consumer's payment was stated to include "insurance and delivery", this was misleading since the item was not insured by the defendant and the delivery costs were in fact only £3.25.
Similarly omissions in 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) and the use of a Swiss shield emblem alongside the "Zurich Watch" (which was not in fact made in Switzerland), were held by the court to create a "false impression".
Court of Appeal's referral to the ECJ
In deciding the appeal, the Court of Appeal has referred the following questions of interpretation of the Regulations to the ECJ:
- Do the Regulations prohibit consumers from incurring any cost when claiming a prize (trivial or otherwise)?
- Does a promoter breach the Regulations if one of the methods, in a variety of methods for claiming a prize, involves incurring a cost (even if only trivial)?
- If the Regulations do not prohibit consumers from incurring a cost when claiming a prize, how should a court determine whether the amount of that cost is appropriate and is the necessity of that cost relevant?
- What is a "false impression", how is it created and is this an additional factor which courts must consider when determining whether a consumer may incur a cost when claiming a prize?
Why this matters:
Not only is this the first substantive High Court case on the Regulations, it is now hoped that the ECJ will provide clear guidance on how courts will interpret the concepts and definitions in the Regulations.
This case 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.