Seminar Unfair Commercial Practices Belgrade 27 -28 November

Seminar Unfair Commercial Practices Belgrade, 27 -28 November 2013 Dr Christine Riefa

Unfair commercial practices typology General prohibition (Art 5) Banned practices (Annex 1) unfair commercial practices subject to unfairness testing Misleading actions (Art 6) Misleading omissions (Art 7) Aggressive practices (Art 8)

Scope of legislation (Art 3) B 2 C Commercial practice Trader Before, during and after a commercial transaction Consumer In relation to a product

Banned Practices Banned practices • Always unfair • 31 practices listed in Annex 1 of the Directive • Strict/ literal interpretation

Examples of banned practices Trust Bait & Switch Other misleading practices • Code of conduct membership • Claiming Endorsement a trader does not have or is not compliant with • Advertising without sufficient quantities • Invitation to purchase with intention to promote a different product • Limited time only • After sale language • Illegal goods • Legal right = commercial favour • Advertorial • “Your baby will die! Practices” • imitation products • Pyramid sales • Cease-trading sales • Inertia sales • False C 2 C Sales • After sale abroad • “win at a game of chance” – beat the casino • Magic bracelet will cure your disease • False market condition report • Prize competition • It’s FREE

Bait & Switch practices • A camera firm advertises nationally using the line ‘digital cameras for £ 3’. They only planned to have a very small number of such cameras available at that price. In fact they only have 50. • Breaches Directive because the number of cameras available for £ 3 would not be sufficient to meet the demand (scale of advertising is national). Advert fails to explain limited quantities available.

Examples of banned practices (2) Aggressive practices banned • “You cannot leave” the shop • Doorstep selling @ home ignoring request to leave and not return • Persistent unsolicited commercial communications • Obstacle course! • Pester power • Inertia selling • Begging • False impression of gain

Pester power • Advertising a comic book for children stating ‘read about the adventures of Fluffy the Bunny in this new comic book each week – ask your mum to buy it from your local newsagents. • Technique that was used in the past by Mac Donald’s using Ronald Mac. Donald’s visiting school (US example).

Misleading action test False information OR Factually correct information That deceives or is likely to deceive Average consumer Information on one or more element in list Causes or likely to cause consumer to take a different transactional decision

‘Elements on the list’ Elements on list in Article 6(1) • Existence or nature of the product • Main characteristics of the product (availability, benefits, risks, execution, composition, delivery, fitness for purpose, etc. ) • Extent of the trader’s commitments • Price • Need for service, part, replacement or repair • Nature, attributes and rights of the trader • Extent of consumer rights

Example of a misleading action (1) • A trader tries to sell a consumer a satellite television package. The consumer is falsely told that the package includes certain key channels, which are in fact available at an additional subscription cost. • Trader provides false information about the main characteristics of the product, causing the average consumer to take a different transactional decision about the package (i. e. to buy it, when he may not have if he had known he had to pay extra to get the channels).

Example of a misleading action (2) Thierry bought a television on a website. It arrived yesterday. He is disappointed by the quality of the picture and wishes to return it for a refund. When he contacts the trader, he is told that he has bought it and unless it is broken he cannot return the television • Thierry is within the period for cancellation under the Distance Selling Directive. He has a right to return the goods. • The trader is giving untruthful information about the extent of Thierry’s consumer rights that are likely to cause him to make a different transactional decision, i. e. not return the television. Scope: before, during and after a commercial transaction!

Specific misleading action Article 6(2) From factual context, taking account of all features and circumstances Advertising which creates confusion (incl. comparative advertising) Non-compliance with codes of practices Causes of likely to cause Average consumer Different transaction than would have otherwise taken

Misleading omission test Omits or hides material information or provides unclear, unintelligible, ambiguous or untimely information Average consumer Needs to make an informed transactional decision Information on one or more element in list Causes or likely to cause consumer to take a transactional decision he would not have taken

Material information concerning invitation to purchase Article 7 (5) • Annex II – information requirements established by Community law • Includes distance selling Directive, package travel Directive, timesharing, price indication Directive, electronic commerce Directive, consumer credit Directive, etc. Article 7(4) • Main characteristics of product • Contact details & Identity of the trader • Price including taxes, and postage and packing • Arrangements for payment, delivery, complaint handling policy if different than professional diligence • Right to cancel

Example of a misleading omission • Snezana heard an advert on the radio for cheap flights to Spain from 10 euros per way. She is buying a 2 flight tickets for her holidays in Spain with her husband. She flies with a well known low cost airline and is using their website. She has selected a return flight for 40 euros both ways for 2. As she continues booking, she now realises that this does not include adding a piece of luggage for 25 euros each way person. She is happy that she managed to secure the low price for the ticket, and not sure what the information on luggage means, so she proceeds with adding luggage as well. As she is about to enter her credit card details, she realises that she will be charged an additional 5 euros per way per passenger for processing the credit card payment. • Her total bill is not 40 euros as she thought but 40 + (100 for luggage) + 20 (card payment) = 160 euros. But she is now feeling committed to the purchase and worries that if she does not take the tickets now, she will not find a better price later.

Example of a misleading omission • The airline has given the information about the total price of the flight tickets but in an untimely fashion. • This has caused Snezana to take a transactional decision she would not have otherwise taken. She feels committed to the purchase.

Aggressive practices test From factual context, taking into account all of its features and circumstances Harassment, coercion, (incl. use of physical force) or undue influence Significantly impairs (or likely to) Average consumer Freedom of choice impaired causing or likely to cause consumer to take a decision he would not have otherwise taken

Assessing harassment, coercion and undue influence Elements to take into account (Art 9) • Timing, location, nature or persistence • Use of threatening language or behaviour • Exploitation of misfortune • onerous or disproportionate noncontractual barriers to exercise contractual right • Threat to take legal action that is not available

Example of an aggressive practice • Staff working in a funeral parlour put pressure on a recently bereaved relative, who is deciding on a coffin, to buy a more expensive coffin to avoid bringing shame to the family. • This could amount to coercion or undue influence (exploitation of a specific misfortune, timing)

General prohibition – Art 5 Materially distorts or likely to distort economic behaviour Contrary to the requirements of professional diligence Average consumer or average member of target group Unfair Practice Cumulative test

General Prohibition • Safety net – used for all practices that cannot be caught under other tests • future proof • Practice tested against standard of professional diligence • Would a good trader in the same trade use this practice?

Unfair commercial practices typology General prohibition (Art 5) Banned practices (Annex 1) unfair commercial practices subject to unfairness testing Misleading actions (Art 6) Misleading omissions (Art 7) Aggressive practices (Art 8)

Case study SCRATCH CARDS

Case study – SCRACTH CARDS • CJEU case C-428/11 of 18 October 2012, Purely Creative Ltd v Office of Fair Trading • Interpretation of Annex 31: ‘creating the false impression that the consumer has already won, will win or will on ding a particular act win, a prize or other equivalent benefit, when in fact either: – There is no prize or equivalent benefit, or – Taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost’

Case study – SCRACTH CARDS • • Paragraph 31, second indent, of Annex I to Directive 2005/29/EC must be interpreted as prohibiting aggressive practices by which traders, such as those at issue in the main proceedings, give the false impression that the consumer has already won a prize, while the taking of any action in relation to claiming that prize, be it requesting information concerning the nature of that prize or taking possession of it, is subject to an obligation on the consumer to pay money or to incur any cost whatsoever; It is irrelevant 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 procure the trader any benefit; It is also irrelevant that the trader offers the consumer a number of methods by which he may claim the prize, at least one of which is free of charge, if, according to one or more of the proposed methods, the consumer would incur a cost in order to obtain information on the prize or how to acquire it; It is for the national courts to assess the information provided to consumers in the light of recitals 18 and 19 in the preamble to Directive 2005/29 and Article 5(2)(b) thereof, that is to say, by taking into account whether that information is clear and can be understood by the public targeted by the practice.

Case study – CLOCKED ODOMETER • Rob is a car salesman. He specialised in second hand car. He sells this lovely BMW to Tamara. The odometer shows 20, 000 miles on the clock. Tamara is delighted as this is a very good price for a car that has such low mileage. • A few days later, the car does not start and the engine is no longer usable. • After closer inspection the odometer had been altered and the car in fact had 120, 000 miles. Tamara discovers the car sales man knew about it but did not tell her.

Case study – CLOCKED ODOMETER • Misleading action on the part of the person who clocked the car (false information + in relation to main characteristics of the car + need for a service, part, replacement or repair + causing average consumer to take a different decision – buy the car – than he would otherwise have take) • Misleading omission on the part of the sales man if he did not clock the car (car salesman did hide information about main characteristics that the average consumer needs to take an informed decision + causes a different decision to be taken)

Case study – HOME VISITS • Bob repairs roofs. He stopped by Nina’s home and told her the roof was clearly in need of repair. She did not let him into the house. She spoke to him outside and said, she was going to call her husband to see what he thought of having repairs to the roof. While she is inside calling, Bob lets himself in the garden and climbs on the roof removing some tiles… • As Nina re-appears she finds Bob on the roof and asks him to leave… Bob refuses saying he has started work and if she wants him to stop she will have to pay him for the work he has already carried out. • He demands 200 euros. Nina does not have this kind of money at home. Bob say not to worry, he will drive her to the cash point!

Case study – HOME VISITS • Aggressive practices for getting on the roof and refusing to leave before he is paid – Annex 1 – practice 25 ‘conducting personal visits to the consumer’s home ignoring the consumer’s request to leave or not to return…’ • Aggressive practices for offering to drive her to the cash point (coercion to pay since will get the consumer to the cash point + this impairs consumer’s freedom of choice or conduct taking a transactional decision she would not have otherwise taken.

Any questions? Christine. riefa@brunel. ac. uk Key bibliography Most of the examples used in this presentation and many more can be found in: OFT guidance Consumer protection from unfair trading, http: //www. oft. gov. uk/shared_oft/business_leaflets/cpreg s/oft 1008. pdf