Misleading Practices
Cases
Carrefour Hypermarches (Judgment)
[2017] EUECJ C-562/15
Consideration of the questions referred
18 By its three questions, which should be considered together, the referring court asks, in essence, whether Article 4(a) and (c) of Directive 2006/114 must be interpreted as meaning that advertising, such as that at issue in the main proceedings, which compares the prices of products sold in shops having different sizes or formats is unlawful. Furthermore, the referring court is unsure whether the fact that the shops whose prices are being compared are of different sizes or formats constitutes material information, within the meaning of Article 7(1) and (2) of Directive 2005/29, to which Article 4(a) of Directive 2006/114 refers, and, where relevant, what degree and what medium of communication that information must have.
19 It should be noted that Directive 2006/114 codifies Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising (OJ 1984 L 250, p. 17), which, after having been amended on several occasions, was repealed and replaced by Directive 2006/114, with the result that the Court’s case-law on the interpretation of Directive 84/450 is fully applicable to situations covered by Directive 2006/114.
20 Accordingly, it should be noted that Directive 2006/114 carries out an exhaustive harmonisation of the conditions under which comparative advertising in Member States might be permitted and that such harmonisation implies by its nature that the lawfulness of comparative advertising throughout the European Union is to be assessed solely in the light of the criteria laid down by the European Union legislature (judgments of 8 April 2003, Pippig Augenoptik, C-44/01, EU:C:2003:205, paragraph 44, and of 18 November 2010, Lidl, C-159/09, EU:C:2010:696, paragraph 22).
21 Furthermore, according to settled case-law of the Court, since comparative advertising contributes to demonstrating, in an objective manner, the advantages of various comparable goods and thus to stimulating competition between suppliers of goods and services to the consumer’s advantage, the conditions to be met for such advertising must be interpreted in the sense most favourable to that advertising, while ensuring at the same time that comparative advertising is not used anticompetitively and unfairly or in a manner which affects adversely the interests of consumers (see, to that effect, judgments of 25 October 2001, Toshiba Europe, C-112/99, EU:C:2001:566, paragraphs 36 and 37; of 19 September 2006, Lidl Belgium, C-356/04, EU:C:2006:585, paragraph 22; and of 18 November 2010, Lidl, C-159/09, EU:C:2010:696, paragraphs 20 and 21 and the case-law cited).
22 However, on the one hand, Article 4 of Directive 2006/114 does not require the format or size of the shops selling the goods whose prices are being compared to be similar and, on the other hand, a comparison of the prices of comparable products sold in shops of different formats and sizes, in itself, is likely to contribute to the achievement of the objectives of comparative advertising referred to in the preceding paragraph of this judgment and does not undermine fair competition or the interests of consumers.
23 That being said, advertising which compares the price of products sold in shops of different sizes or formats cannot be regarded as permitted, within the meaning of Article 4 of Directive 2006/114, unless all of the conditions laid down in that article are satisfied.
24 In particular, such advertising must compare prices objectively and must not be misleading.
25 It follows from Article 4(c) of Directive 2006/114 that the prices must be compared objectively (see, to that effect, judgment of 19 September 2006, Lidl Belgium, C-356/04, EU:C:2006:585, paragraph 45).
26 However, in certain circumstances the difference in size or format of the shops in which the prices being compared by the advertiser have been identified may distort the objectivity of the comparison. This may be the case where the advertiser and the competitors whose prices have been identified belong to retail chains which each have a range of shops of different sizes and formats and where the advertiser compares the prices charged in shops in its retail chain having larger sizes and formats with those identified in shops having smaller sizes and formats in competing retail chains, without that fact appearing in the advertising.
27 As observed by the Advocate General in points 43 and 57 of his Opinion, the prices of consumer products are likely to vary according to the format or size of the shop, with the result that an asymmetric comparison of that kind may have the effect of artificially creating or increasing the difference between the advertiser’s prices and the prices of competitors, depending on the selection of the shops used in the comparison.
28 However, Article 4(a) of Directive 2006/114 requires comparative advertising not to be misleading, within the meaning of Article 2(b) of that directive or of Articles 6 and 7 of Directive 2005/29.
29 It is apparent from those provisions that comparative advertising will be misleading if it may in any way, either by action or omission, deceive the consumers to whom it is addressed and affect the economic behaviour of those consumers or, for those reasons, adversely affect a competitor. Advertising will, therefore, be misleading under, inter alia, Article 4(a) of Directive 2006/114, read in conjunction with Article 7(1) and (2) of Directive 2005/29, if it omits material information that the average consumer requires, according to the context, in order to take an informed transactional decision or if it hides such information or provides it in an unclear, unintelligible, ambiguous or untimely manner and which consequently may cause the average consumer to take a transactional decision that he would not have taken otherwise.
30 While Directive 2005/29 does not define the concept of ‘material information’, it is nevertheless apparent from Article 7(1) and (2) of that directive that information which the average consumer requires, according to the context, in order to take an informed transactional decision and the omission of which, therefore, may cause that consumer to take a transactional decision that he would not have taken otherwise is ‘material’.
31 It is for national courts to ascertain, in the light of the circumstances of each particular case, whether, bearing in mind the consumers to whom it is addressed, advertising may be misleading (see, to that effect, judgments of 18 November 2010, Lidl, C-159/09, EU:C:2010:696, paragraph 46 and the case-law cited, and of 12 May 2011, Ving Sverige, C-122/10, EU:C:2011:299, paragraph 51). In order to do that, national courts must, first, take into account the perception of an average consumer of the goods or services being advertised who is reasonably well informed and reasonably observant and circumspect and, secondly, take account of all the relevant factors in the case, having regard, as follows from Article 3 of Directive 2006/114, to the information contained in the advertisement at issue and, more generally, to all of its features (see, to that effect, judgment of 18 November 2010, Lidl, C-159/09, EU:C:2010:696, paragraphs 47 and 48 and the case-law cited).
32 In the present case, advertising in which the advertiser, with a view to comparing the prices of products sold in its shops with those of products sold in competitors’ shops, uses, on the one hand, the prices charged in shops having larger sizes or formats in its retail chain and, on the other hand, the prices charged in shops having smaller sizes or formats in the retail chains of competitors, whereas each of those retail chains contains a range of shops of different sizes and formats, is liable to deceive the average consumer by giving that consumer the impression that all the shops forming part of those retail chains have been taken into consideration in making the comparison and that the price differences indicated are valid for all the shops in each chain irrespective of their size or format, whereas, for the reasons set out in paragraph 27 of the present judgment, that is not necessarily the case.
33 That advertising is liable to influence the economic behaviour of the consumer by causing him to take a decision in the mistaken belief that he will benefit from the price differences claimed in the advertising when buying the products concerned in all the shops in the advertiser’s retail chain rather than in shops belonging to the competing retail chains.
34 It follows that such advertising is liable to be misleading within the meaning of Article 4(a) of Directive 2006/114.
35 That will not be the case, however, if the consumer is informed that the advertising in question compares the prices charged in shops having larger sizes or formats in the advertiser’s retail chain with the prices displayed in shops having smaller sizes or formats in the retail chains of competitors, since the consumer will then know that it is only when buying the products concerned in the shops having larger sizes or formats in the advertiser’s retail chain that he can benefit from the price differences claimed in the advertising. Consequently, that information, in the context of such advertising comparing the prices charged in shops forming part of retail chains each possessing a range of shops of different sizes and formats, is necessary to enable the consumer to take an informed decision to buy the products concerned in the advertiser’s shops rather than in competitors’ shops and not to take a decision to purchase which he would not otherwise have taken. Therefore, the issue in this context is one of material information, within the meaning of Article 7(1) and (2) of Directive 2005/29.
36 It follows from the foregoing considerations that advertising, such as that at issue in the main proceedings, comparing the prices of products sold in shops having different sizes or formats is liable, where those shops are part of retail chains each having a range of shops having different sizes and formats and the advertiser compares the prices charged in shops having larger sizes or formats in its retail chain with those displayed in shops having smaller sizes or formats belonging to a competing retail chain, not to comply with the requirement that there be an objective comparison under Article 4(c) of Directive 2006/114 and to be misleading, within the meaning of Article 4(a) of that directive, unless consumers are informed that the comparison was made between prices charged in shops having larger sizes or formats in the advertiser’s retail chain with those displayed in shops having smaller sizes or formats in competitors’ retail chains.
37 Concerning the question of the degree to which such material information must be communicated, and by what medium this must be done, it should be noted that Directive 2005/29 does not contain any specific details in that regard. Nevertheless, it is apparent, first, from Article 7(2) of that directive that material information cannot be hidden or provided in an unclear, unintelligible, ambiguous or untimely manner and, secondly, from Article 7(1) and (3) of that directive that, in order to assess whether information has been omitted, account must be taken of the limitations of the communication medium used and, where that medium imposes limits of space or time, any measures taken by the trader to make the information available to consumers by other means.
38 With regard to advertising such as that at issue in the main proceedings, it follows from the foregoing considerations that the information on the basis of which the comparison was made between the prices charged in shops having larger sizes or formats in the advertiser’s retail chain and those displayed in shops having smaller sizes or formats in competitors’ retail chains is information in the absence of which it is highly likely that the advertising would fail to fulfil the objective comparison requirement and would be misleading. Therefore, that information must not only be provided clearly but, as the Advocate General stated in points 75 to 79 of his Opinion, be contained in the advertisement itself.
39 It is for the referring court to ascertain whether, in the case in the main proceedings, in the light of the circumstances of the case, the advertising at issue fails to meet the objective comparison requirement and is misleading, taking into consideration the information referred to in paragraph 31 of the present judgment, in particular the indications given in the advertising itself concerning shops in the advertiser’s retail chain and those in the retail chains of competitors whose prices have been compared, that information being relevant for the purpose of assessing both the objectivity of the comparison and whether that advertising is misleading.
40 Having regard to all of the foregoing considerations, the answer to the questions referred is as follows:
– Article 4(a) and (c) of Directive 2006/114, read in conjunction with Article 7(1) to (3) of Directive 2005/29, must be interpreted as meaning that advertising, such as that at issue in the main proceedings, which compares the prices of products sold in shops having different sizes or formats, where those shops are part of retail chains each of which includes a range of shops having different sizes or formats and where the advertiser compares the prices charged in shops having larger sizes or formats in its retail chain with those displayed in shops with smaller sizes or formats in the retail chains of competitors, is liable to be unlawful, within the meaning of Article 4(a) and (c) of Directive 2006/114, unless consumers are informed clearly and in the advertisement itself that the comparison was made between the prices charged in shops in the advertiser’s retail chain having larger sizes or formats and those indicated in the shops of competing retail chains having smaller sizes or formats.
– It is for the referring court, in order to assess the lawfulness of such advertising, to ascertain whether, in the case in the main proceedings, in the light of the circumstances of the present case, the advertising at issue satisfies the objective comparison requirement and/or is misleading, first, by taking into consideration the average consumer of the products in question who is reasonably well informed and reasonably observant and circumspect and, secondly, by taking into account the information contained in that advertising, in particular the information concerning the shops in the advertiser’s retail chain and those in the retail chains of competitors whose prices have been compared and, more generally, all of the elements in that advertising.
On those grounds, the Court (Second Chamber) hereby rules:
Article 4(a) and (c) of Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising, read in conjunction with Article 7(1) to (3) of Directive 2005/29/EC of the European Parliament and Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council, and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’), must be interpreted as meaning that advertising, such as that at issue in the main proceedings, which compares the prices of products sold in shops having different sizes or formats, where those shops are part of retail chains each of which includes a range of shops having different sizes or formats and where the advertiser compares the prices charged in shops having larger sizes or formats in its retail chain with those displayed in shops having smaller sizes or formats in the retail chains of competitors, is liable to be unlawful, within the meaning of Article 4(a) and (c) of Directive 2006/114, unless consumers are informed clearly and in the advertisement itself that the comparison was made between the prices charged in shops in the advertiser’s retail chain having larger sizes or formats and those indicated in the shops of competing retail chains having smaller sizes or formats.
It is for the referring court, in order to assess the lawfulness of such advertising, to ascertain whether, in the case in the main proceedings, in the light of the circumstances of the present case, the advertising at issue satisfies the objective comparison requirement and/or is misleading, first, by taking into consideration the average consumer of the products in question who is reasonably well informed and reasonably observant and circumspect and, secondly, by taking into account the information contained in that advertising, in particular the information concerning the shops in the advertiser’s retail chain and those in the retail chains of competitors whose prices have been compared and, more generally, all of the elements in that advertising.
Canal Digital Danmark
[2016] EUECJ C-611/14, [2016] WLR(D) 550, [2017] Bus LR 1099
The first question
24 By its first question, the referring court asks, in essence, whether Article 7(1) and (3) of Directive 2005/29 must be interpreted as meaning that, for the purposes of assessing whether a commercial practice must be considered as a misleading omission, consideration should be given to the context in which that practice takes place, in particular the limitations of time and space imposed by the communications medium used, even though such a requirement is not expressly referred to in the wording of the national legislation in question.
25 It should be pointed out that Directive 2005/29 is intended to establish, in accordance with recitals 5 and 6 in the preamble thereto and Article 1 thereof, uniform rules on unfair business-to-consumer commercial practices in order to contribute to the proper functioning of the internal market and to achieve a high level of consumer protection (judgment of 23 April 2009 in VTB-VAB and Galatea, C-261/07 and C-299/07, EU:C:2009:244, paragraph 51).
26 Thus, that directive fully harmonises those rules at the EU level. Accordingly, as Article 4 thereof expressly provides, Member States may not adopt stricter rules than those provided for in that directive, even in order to achieve a higher level of consumer protection (judgment of 23 April 2009, VTB-VAB and Galatea, C-261/07 and C-299/07, EU:C:2009:244, paragraph 52).
27 It must also be pointed out that Article 7(1) and (3) of Directive 2005/29 delimits the assessment of commercial practices, stating that it is necessary to have regard to the context in which those practices take place, as well as the limitations of time and space imposed by the communications medium, in order to determine whether they must be considered as misleading practices or omissions.
28 It appears, therefore, that a national regulation, according to which there is no need, for the purposes of assessing whether a commercial practice must be considered as a misleading omission, within the meaning of Article 7 of Directive 2005/29, to take into account the context in which that practice takes place, in particular the limitations of time and space imposed by the communications medium used for the purposes of that commercial practice and any measures taken by the trader to make the information available to consumers by other means, would fail to satisfy the requirements laid down by that directive.
29 While the national legislation applicable to the main proceedings does not explicitly mention that it is appropriate, in the context of the assessment of the commercial practice at issue, to take into account the context in which that practice takes place and, more specifically, the conditions and limitations related to the mode of communication used, the referring court states, however, that the statement of reasons of the draft law transposing Directive 2005/29 refers to such a requirement. In that regard, the Danish Government argued, in the context of the written procedure, that the preparatory work has a special status in the legal tradition of the Kingdom of Denmark and northern European countries, in so far as the courts and public administrations, it is contended, attach great importance to that work when they have to interpret a legislative act.
30 In those circumstances, it should be noted that the obligation, arising from a directive, to achieve the result envisaged by that directive and the duty to take all appropriate measures, whether general or particular, to ensure the fulfilment of that obligation in accordance with the principle of sincere cooperation in the second subparagraph of Article 4(3) TEU is binding on all the authorities of the Member States, including, for matters within their jurisdiction, the courts (see, inter alia, judgments of 10 April 1984 in von Colson and Kamann, 14/83, EU:C:1984:153, paragraph 26; of 8 September 2011 in Rosado Santana, C-177/10, EU:C:2011:557, paragraph 51, and of 19 April 2016 in DI, C-441/14, EU:C:2016:278, paragraph 30).
31 It is the responsibility of the national courts, in particular, to provide the legal protection which individuals derive from the rules of EU law and to ensure that those rules are fully effective (judgment of 8 September 2011 in Rosado Santana, C-177/10, EU:C:2011:557, paragraph 52).
32 Thus, when it applies domestic law, and in particular legislative provisions specifically adopted for the purpose of implementing the requirements of a directive, the national court is bound to interpret national law, so far as possible, in the light of the wording and the purpose of the directive concerned in order to achieve the result sought by the directive and consequently comply with the third paragraph of Article 288 TFEU (judgments of 5 October 2004 in Pfeiffer and Others, C-397/01 to C-403/01, EU:C:2004:584, paragraph 113 and the case-law cited, and of 19 April 2016 in DI, C-441/14, EU:C:2016:278, paragraph 31).
33 The requirement for national law to be interpreted in conformity with EU law is inherent in the system of the TFEU, since it permits the national court, for the matters within its jurisdiction, to ensure the full effectiveness of EU law when it determines the dispute before it (judgment of 5 October 2004 in Pfeiffer and Others, C-397/01 to C-403/01, EU:C:2004:584, paragraph 114).
34 In the present case, therefore, the national court, when hearing cases which, like the present proceedings, fall within the scope of Directive 2005/29 and derive from facts postdating expiry of the period for implementing the directive, must, when applying the provisions of national law specifically intended to implement the directive, interpret those provisions so far as possible in such a way that they are applied in conformity with the objectives of the directive (judgments of 5 October 2004 in Pfeiffer and Others, C-397/01 to C-403/01, EU:C:2004:584, paragraph 117, and 19 April 2016 in DI, C-441/14, EU:C:2016:278, paragraph 31).
35 In the light of the above considerations, the answer to the first question is that Article 7(1) and (3) of Directive 2005/29 must be interpreted as meaning that, for the purposes of assessing whether a commercial practice must be considered as a misleading omission, consideration should be given to the context in which that practice takes place, in particular the limitations of the communications medium used for the purposes of that commercial practice, the limitations of time and space imposed by that communications medium and any measures taken by the trader to make the information available to consumers by other means, even though that requirement is not expressly referred to in the wording of the national legislation in question.
The second question
36 By its second question, the referring court asks, in essence, whether Article 6(1) of Directive 2005/29 is to be interpreted as meaning that — in situations where a trader has opted to state the price for a subscription so that the consumer must pay both a monthly charge and a six-monthly charge — that practice will be considered a misleading action if the monthly charge is particularly highlighted in the marketing, whilst the six-month charge is omitted entirely or presented only in a less conspicuous manner.
37 Under Article 6(1) of Directive 2005/29, a commercial practice is to be regarded as misleading if, in any way, including overall presentation, first, it deceives or is likely to deceive the average consumer in relation to one or more of the elements listed in that provision, which include, in particular, the price or the manner in which the price is calculated, and, secondly, causes or is likely to cause the consumer to take a transactional decision that he would not have taken otherwise.
38 It follows from the wording of that provision that the constituent features of a misleading commercial practice, as set out in that provision, are in essence expressed with reference to the consumer as the person to whom unfair commercial practices are applied (judgment of 19 September 2013, CHS Tour Services, C-435/11, EU:C:2013:574, paragraph 43).
39 It must be noted, in that regard, that the benchmark to be used is that of the average consumer, who is reasonably well-informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors (judgment of 12 May 2011, Ving Sverige, C-122/10, EU:C:2011:299, paragraph 22). It should be added that, as is apparent from recital 18 in the preamble to Directive 2005/29, the ‘average consumer’ test is not a statistical test and that, to determine the typical reaction of that consumer in a given case, the national courts and authorities have to exercise their own faculty of judgment.
40 It follows that, for the purposes of assessing whether commercial practices, such as those at issue in the main proceedings, deceive or are likely to deceive the average consumer in relation to the price, it is for the referring court to determine, having regard to all the relevant circumstances, whether the commercial communication concerned has the effect of suggesting to the average consumer an attractive price which, ultimately, is proven to be misleading.
41 In circumstances such as those in the main proceedings, consideration may be given, where relevant, to the fact that offers for TV channels are characterised by a wide variety of proposals and combinations that are generally highly structured, both in terms of cost and content, resulting in a significant asymmetry of information that is likely to confuse consumers.
42 It should be noted that, unlike Article 7(1) and (2) of Directive 2005/29, Article 6(1) of that directive contains no reference to limitations of space or time related to the communication medium used. Accordingly, it must be held that the time constraints that may apply to certain communication media, such as television commercials, cannot be taken into account when assessing whether a commercial practice is misleading under Article 6(1) of that directive.
43 Where the price of a product, as defined in Article 2(c) of Directive 2005/29, is divided into several components, one being particularly emphasised in the marketing, while the other, which nevertheless constitutes an inevitable and foreseeable element of the price, is completely omitted or is presented less prominently, an assessment should be made, in particular, whether that presentation is likely to lead to a mistaken perception of the overall offer.
44 This will be the case, in particular, if the average consumer is likely to have the mistaken impression that he is offered a particularly advantageous price, due to the fact that he could believe, wrongly, that he only had to pay the emphasised component of the price, which it is for the referring court to assess.
45 In accordance with the wording of Article 6(1) of Directive 2005/29, the relevant commercial practice must, moreover, cause, or be likely to cause an average consumer ‘to take a transactional decision that he would not have taken otherwise’.
46 It should be noted, in that regard, that the price is, in principle, a determining factor in the mind of the average consumer, when he has to make a transactional decision.
47 Where the price is divided into several components, it is particularly relevant, when assessing whether the commercial practice at issue is likely to cause an average consumer to take a transactional decision that he would not have taken otherwise, that the omitted or less visible component represents a significant element of the total price.
48 As regards the fact that the total subscription price relating to the commitment period is mentioned, it is for the referring court to assess whether the general presentation of the commercial practices at issue and, in particular, that of the total subscription price, allowed an average consumer to make an informed transactional decision or whether, on the contrary, the commercial communication at issue in the main proceedings was, overall, likely to create a mistaken perception of the offer. It should be determined, in particular, whether the average consumer was able to understand that a subscription involved costs other than those relating to the monthly charge.
49 In the light of those considerations, the answer to the second question is that Article 6(1) of Directive 2005/29 must be interpreted as meaning that a commercial practice which consists of dividing the price of a product into several components and highlighting one of them, must be regarded as misleading, since that practice would be likely, first, to give the average consumer the false impression that he has been offered a favourable price and, secondly, cause him to make a transactional decision that he would not have made otherwise, which it is for the referring court to ascertain, taking into account all the relevant circumstances of the main proceedings. However, the time constraints that may apply to certain communication media, such as television commercials, cannot be taken into account when assessing whether a commercial practice is misleading under Article 6(1) of that directive.
The third question
50 By its third question, the referring court asks, in essence, whether Article 7 of Directive [2005/29] is to be interpreted as meaning that — in situations where a trader has opted to state a total price for a subscription so that the consumer must pay both a monthly charge and a six-monthly charge — that practice will be considered a misleading omission if the monthly charge is particularly highlighted in the marketing, whilst the six-monthly charge is omitted entirely or presented only in a less conspicuous manner?
51 It should be pointed out, first, that Article 7 of Directive 2005/29 distinguishes invitations to purchase, as defined in Article 2(i) of that directive, from other commercial practices. Whereas all commercial practices, including invitations to purchase, are subject to the requirements of Article 7(1) to (3) and (5) of that directive, only commercial practices which are categorised as invitations to purchase are covered by Article 7(4) of that directive (see, to that effect, judgment of 12 May 2011 in Ving Sverige, C-122/10, EU:C:2011:299, paragraph 24).
52 It is for the national court to determine whether the commercial communication at issue can be categorised as an invitation to purchase within the meaning of Article 2(i) of Directive 2005/29, it being further stipulated that a commercial communication need not include an actual opportunity to purchase or appear in proximity to such an opportunity in order to constitute an invitation to purchase (see, to that effect, judgment of 12 May 2011 in Ving Sverige, C-122/10, EU:C:2011:299, paragraph 32).
53 It must also be noted that, in accordance with Article 7(1) of Directive 2005/29 ‘[a] commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise’.
54 Under Article 7(2) of that directive, a commercial practice is also be regarded as a misleading omission when a trader hides material information that the consumer needs or provides it in an unclear, unintelligible, ambiguous or untimely manner and where this causes or is likely to cause the consumer to take a transactional decision that he would not have taken otherwise.
55 In so far as the price is, in principle, a determining factor in the consumer’s mind, when it must make a transactional decision, it must be considered necessary information to enable the consumer to make such a fully informed decision.
56 Furthermore, it follows from Article 7(4) of that directive that a commercial practice, which is categorised beforehand as an invitation to purchase, must contain a number of key items of information, which are listed in that article and are considered to be material, which the consumer needs in order to take an informed transactional decision. In the absence of that information, which includes the price, an invitation to purchase is therefore deemed to be misleading (see, to that effect, judgment of 12 May 2011 in Ving Sverige, C-122/10, EU:C:2011:299, paragraph 24).
57 As stated in paragraph 39 of the present judgment, it is for the referring court to determine whether the commercial practices at issue are misleading, taking into account the perception of an average consumer who is reasonably well informed and reasonably observant and circumspect, having regard to social, cultural and linguistic factors.
58 The national court, by taking into account, in accordance with Article 7(1) to (4)(c) of Directive 2005/29, the factual context of the commercial practice at issue, the medium used to communicate, in particular the limitations of that medium, as well as the nature and characteristics of the product in question, must therefore assess on a case-by-case basis, whether omission of material information, such as the price, caused or could cause the consumer to take a transactional decision that he would not have taken otherwise (see, to that effect, judgment of 12 May 2011 in Ving Sverige, C-122/10, EU:C:2011:299, paragraphs 52, 53 and 58).
59 It is for the referring court, in particular, to verify that the information relating the total price of the subscription for the commitment period, although mentioned in the commercial communication, was not hidden or provided in an unclear, unintelligible, ambiguous or untimely manner, thus preventing an average consumer from understanding that a subscription involved costs other than those relating to the monthly charge and, consequently, from taking an informed transactional decision.
60 As regards the use of a television advertisement, the referring court must take account of the time constraints that apply to that communication medium. In that regard, it must also be noted that, under Article 2(i) of that directive, in relation to invitations to purchase, the characteristics of the product must be indicated in a way appropriate to the means used. It follows from this, therefore, that the same degree of detail cannot be required in the description of the product irrespective of the form — radio, television, electronic or paper — which the commercial communication takes (see judgment of 12 May 2011 in Ving Sverige, C-122/10, EU:C:2011:299, paragraph 45). Moreover, it is clear that the time available for the consumer to assess the information provided to him in a television advertisement is also limited.
61 Likewise, regarding the reference made to the trader’s website, where the six monthly charge is indicated, it must be pointed out that, in accordance with Article 7(3) of that directive, account is to be taken, in deciding whether information has been omitted, of the limitations of space and time of the medium of communication used and of the measures taken by the trader to make that information available to consumers by other means.
62 However, as is clear from the wording of Article 7(1) and (2) of Directive 2005/29, read in the light of the objective pursued by that directive, consisting of ensuring a high level of consumer protection, the limitations of time and space imposed by the communication medium used must be weighed against the nature and characteristics of the product in question, in order to determine whether the trader concerned in fact found it impossible to include the information at issue or to provide it in a clear, intelligible and unambiguous manner in the initial communication.
63 It follows that, where, having regard to the intrinsic characteristics of the product at issue and the limitations relating to the communication medium used, it was impossible to provide all the material information concerning that product, the commercial practice may mention only some of them, if the trader refers to its website for the rest, provided that that website contains the material information relating to the main characteristics of that product, the price and other conditions, as required under Article 7 of Directive 2005/29.
64 In the light of those considerations, the answer to the third question is that Article 7 of Directive 2005/29 must be interpreted as meaning that, where a trader has opted to state the price for a subscription so that the consumer must pay both a monthly charge and a six-monthly charge, that practice must be regarded as a misleading omission if the price of the monthly charge is particularly highlighted in the marketing, whilst the six-monthly charge is omitted entirely or presented only in a less conspicuous manner, if such failure causes the consumer to take a transactional decision that he would not have taken otherwise. It is for the referring court to assess, taking into account the limitations of the communication medium used, the nature and characteristics of the product and the other measures that the trader has actually taken to make material information about the product available to the consumer.
……
On those grounds, the Court (Fifth Chamber) hereby rules:
1. Article 7(1) and (3) of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) must be interpreted as meaning that, for the purposes of assessing whether a commercial practice must be regarded as a misleading omission, consideration should be given to the context in which that practice takes place, in particular the limitations of the communications medium used for the purposes of that commercial practice, the limitations of time and space imposed by that communications medium and any measures taken by the trader to make the information available to consumers by other means, even though that requirement is not expressly referred to in the wording of the national legislation in question.
2. Article 6(1) of Directive 2005/29 must be interpreted as meaning that a commercial practice which consists of dividing the price of a product into several components and highlighting one of them, must be regarded as misleading, since that practice would be likely, first, to give the average consumer the false impression that he has been offered a favourable price and, secondly, cause him to take a transactional decision that he would not have taken otherwise, which it is for the referring court to ascertain, taking into account all the relevant circumstances of the main proceedings. However, the time constraints that may apply to certain communication media, such as television commercials, cannot be taken into account when assessing whether a commercial practice is misleading under Article 6(1) of that directive.
3. Article 7 of Directive 2005/29 must be interpreted as meaning that, where a trader has opted to state the price for a subscription so that the consumer must pay both a monthly charge and a six-monthly charge, that practice must be regarded as a misleading omission if the price of the monthly charge is particularly highlighted in the marketing, whilst the six-monthly charge is omitted entirely or presented only in a less conspicuous manner, if such failure causes the consumer to take a transactional decision that he would not have taken otherwise. It is for the referring court to assess this, taking into account the limitations of the communication medium used, the nature and characteristics of the product and the other measures that the trader has actually taken to make material information about the product available to the consumer.
4. Article 7(4) of Directive 2005/29 must be interpreted as meaning that it contains an exhaustive list of the material information that must be included in an invitation to purchase. It is for the national court to determine whether the trader at issue has satisfied its duty to provide information, taking into account the nature and characteristics of the product but also the communication medium used for the invitation to purchase and additional information possibly provided by that trader. The fact that a trader provides, in an invitation to purchase, all the information listed in Article 7(4) of that directive does not preclude that invitation from being regarded as a misleading commercial practice within the meaning of Article 6(1) or Article 7(2) of that directive.
Untoy -v- GE Capital Woodchester Ltd (t/a GE Money)
[2015] IEHC 557
O’Malley J
The Consumer Protection Act 2007
56. This Act implements the Unfair Commercial Practices Directive (Directive 2005/29/EC). A “commercial practice” is defined as
“any conduct (whether an act or omission), course of conduct or representation by the trader in relation to a consumer transaction, including any such conduct or representation made or engaged in before, during or after the consumer transaction”.
57. Section 41 of the Act prohibits unfair commercial practices in the following terms:
(1) A trader shall not engage in an unfair commercial practice.
(2) A commercial practice is unfair if it-
(a) is contrary to one or both of the following (the requirements of professional diligence):
(i) the general principle of good faith in the trader’s field of activity;
(ii) the standard of skill and care that the trader may reasonably be expected to exercise in respect of consumers,
and
(b) would be likely to –
(i) cause appreciable impairment of the average consumer’s ability to make an informed choice in relation to the product concerned, and
(ii) cause the average consumer to make a transactional decision that the average consumer would not otherwise make.
(3) In determining whether a commercial practice is unfair under subsection (2), the commercial practice shall be considered in its factual context, taking account of all of its features and the circumstances.
58. Section 42(1) provides that a trader shall not engage in a “misleading commercial practice”. This concept is expanded upon in ss. 43 to 46. Section 43(2) defines it in part as follows:
“A commercial practice is misleading if it would be likely to cause the average consumer to be deceived or misled in relation to any matter set out in subsection (3) and to make a transactional decision that the average consumer would not otherwise make.”
59. Section 43(3) sets out a lengthy list of matters covered by the “misleading practice” concept. The plaintiff relies on s.43(3) (b) (iv) (the characteristics of a product, including its benefits or fitness for purpose); s.43(3)(c) (the price of the product, the manner in which that price is calculated or the existence or nature of a specific price advantage); s. 43(3)(f) (the identity of the trader, including its affiliation or connection with others); s.43(3)(g) (the extent of the trader’s commitments) and s.43(3)(h) (the trader’s motives for the commercial practice).
60. Subsection (4) of s.43 provides that if the misleading commercial practice involves the provision of information, it is not a defence in any proceeding to show that the information is correct.
61. To engage in a misleading practice as described in s. 43(1) or (2) is an offence.
62. Section 46(1) provides further definition as follows:
“A commercial practice is misleading if the trader omits or conceals material information that the average consumer would need, in the context, to make an informed transactional decision (“material information”) and such practice would be likely to cause the average consumer to make a transactional decision that the average consumer would not otherwise make.”
63. Subsection (3) lists certain types of information that are to be considered as “material”. Subsection (4) stipulates that:
“The material information set out in subsection (3) is in addition to and not instead of any other information that the trader is required by law to provide to a consumer, including, without limitation, any information required to be provided by regulations under this Act.”
64. The plaintiff says that the defendant failed to provide material information about its relationship with the insurer and the commission earned on the sale.
65. Section 74 (2) provides to a consumer who is aggrieved by a prohibited act or practice a right of action for damages, which may include exemplary damages, against the trader. (By virtue of subs.(1), a “prohibited act or practice” does not include a misleading commercial practice described in s.45. However, this latter provision is not relied upon in the instant case).
The disclosure of commission
66. The plaintiff submits that the level of commission, particularly where it is substantial, has a bearing on the assessment of the fairness of the relationship. Its disclosure would alert prospective consumers to the motivation of the intermediary, and whether it was putting its own financial interests ahead of those of the consumer.
67. As mentioned above, reliance is placed on Plevin v Paragon Personal Finance Ltd.
68. Before considering this authority, it is necessary to put it in context. Sections 140A and 140B of the Consumer Credit Act 1974 (as added in 2006) permit a court in the United Kingdom to reopen a credit agreement if it determines that the relationship between the creditor and the debtor is “unfair to the debtor” having regard a list of factors. The court is given discretion to order inter alia the repayment of any sum paid to the creditor. After the list of potential factors to be considered, s.140A(1)(c) refers to a general consideration of
“any other thing done (or not done) by, or on behalf of, the creditor”.
69. It must be noted that the legislation provides that, if a debtor asserts that a contract was unfair, it is for the creditor to prove that it was not.
70. The Insurance Mediation Directive does not require the disclosure of commissions. The ICOB rules in operation at the time did require such disclosure, but only in limited circumstances involving commercial customers. It was noted in Plevin that this was a considered policy on the part of the Financial Services Authority.
71. At p. 635 of Plevin Lord Sumption summarised the then leading authority on the issue as follows:
“The current leading case on the relationship between section 140A and the ICOB rules is the decision of the Court of Appeal in Harrison v Black Horse Ltd [2012] Lloyd’s Rep IR 521. The Court of Appeal considered an application by a borrower under section 140A to recover the single premium paid on a PPI policy sold with a loan. There was no credit broker involved. The borrower dealt directly with the lender, who acted as an intermediary with the insurer. The commission taken by the lender was 87%. Tomlinson LJ, delivering the only reasoned judgment, described this level of commission as “quite startling”, adding that there would be “many who would regard it as unacceptable conduct on the part of lending institutions to have profited in this way”. But he declined to find that the relationship was thereby rendered unfair, because the lender had committed no breach of the ICOB rules either in charging the commission or in failing to disclose it. At para 58, he said:
“…the touchstone must in my view be the standard imposed by the regulatory authorities pursuant to their statutory duties, not resort to a visceral instinct that the relevant conduct is beyond the Pale. In that regard it is clear that the ICOB regime, after due consultation and consideration, does not require the disclosure of the receipt of commission. It would be an anomalous result if a lender was obliged to disclose receipt of a commission in order to escape a finding of unfairness under section 140A of the Act but yet not obliged to disclose it pursuant to the statutorily imposed regulatory framework under which it operates.”
72. Lord Sumption went on:
“The result of this decision was that in the present case both the Recorder and the Court of Appeal were bound to dismiss Mrs Plevin’s claim so far as it was based on non-disclosure of the commission. The Court of Appeal expressed dismay at this outcome. In my opinion, the dismay was justified. I think that Harrison was wrongly decided.
The view which a court takes of the fairness or unfairness of a debtor-creditor relationship may legitimately be influenced by the standard of commercial conduct reasonably to be expected of the creditor. The ICOB rules are some evidence of what that standard is. But they cannot be determinative of the question posed by section 140A, because they are doing different things. The fundamental difference is that the ICOB rules impose obligations on insurers and insurance intermediaries. Section 140A, by comparison, does not impose any obligation and is not concerned with the question whether the creditor or anyone else is in breach of a duty. It is concerned with the question whether the creditor’s relationship with the debtor was unfair. It may be unfair for a variety of reasons, which do not have to involve a breach of duty. There are other differences, which flow from this. The ICOB rules impose a minimum standard of conduct applicable in a wide range of situations, enforceable by action and sounding in damages. Section 140A introduces a broader test of fairness applied to the particular debtor-creditor relationship, which may lead to the transaction being reopened as a matter of judicial discretion. The standard of conduct required of practitioners by the ICOB rules is laid down in advance by the Financial Services Authority (now the Financial Conduct Authority), whereas the standard of fairness in a debtor-creditor relationship is a matter for the court, on which it must make its own assessment. Most of the ICOB rules, including those relating to the disclosure of commission, impose hard-edged requirements, whereas the question of fairness involves a large element of forensic judgment. It follows that the question whether the debtor-creditor relationship is fair cannot be the same as the question whether the creditor has complied with the ICOB rules, and the facts which may be relevant to answer it are manifestly different. An altogether wider range of considerations may be relevant to the fairness of the relationship, most of which would not be relevant to the application of the rules. They include the characteristics of the borrower, her sophistication or vulnerability, the facts which she could reasonably be expected to know or assume, the range of choices available to her, and the degree to which the creditor was or should have been aware of these matters.
I turn therefore to the question whether the non-disclosure of the commissions payable out of Mrs Plevin’s PPI premium made her relationship with Paragon unfair. In my opinion, it did. A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. It is a question of degree. Mrs Plevin must be taken to have known that some commission would be payable to intermediaries out of the premium before it reached the insurer. The fact was stated in the FISA borrowers’ guide and, given that she was not paying LLP for their services, there was no other way that they could have been remunerated. But at some point commissions may become so large that the relationship cannot be regarded as fair if the customer is kept in ignorance. At what point is difficult to say, but wherever the tipping point may lie the commissions paid in this case are a long way beyond it. Mrs Plevin’s evidence, as recorded by the Recorder, was that if she had known that 71.8% of the premium would be paid out in commissions, she would have “certainly questioned this.” I do not find that evidence surprising. The information was of critical relevance. Of course, had she shopped around, she would not necessarily have got better terms. As the Competition Commission’s report suggests, this was not a competitive market. But Mrs Plevin did not have to take PPI at all. Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.
The next question is whether that state of affairs arose from something done or not done by or on behalf of Paragon…
…On that footing, I think it clear that the unfairness which arose from the non-disclosure of the amount of the commissions was the responsibility of Paragon. Paragon were the only party who must necessarily have known the size of both commissions. They could have disclosed them to Mrs Plevin. Given its significance for her decision, I consider that in the interests of fairness it would have been reasonable to expect them to do so. Had they done so this particular source of unfairness would have been removed because Mrs Plevin would then have been able to make a properly informed judgment about the value of the PPI policy. This is sufficiently demonstrated by her evidence that she would have questioned the commissions if she had known about them, even if the evidence does not establish what decision she would ultimately have made.”
73. Mr. Moran accepts, of course, that the statutory context is different to that pertaining in this jurisdiction. However, he relies on the Court’s analysis of the importance of the information to the customer.
The defendant’s case
74. As noted above, the defendants object to the form of the case stated. They also object to each question raised as being framed in overly vague or general terms, and/or as raising matters that were not argued in the District Court, and/or as raising matters that are not in dispute, and/or as raising issues that are moot.
75. It is submitted that some of the issues could not be determined in the absence of evidence, and that it was incumbent on the plaintiff to call evidence on such matters. This argument is made in relation to the assertion on behalf of the plaintiff that advice should have been given – there was no evidence as to what such advice might have been. It is also made in respect of the question about available options, on the basis that no evidence was adduced as to what the available options were. The range of options is publicly available. Such evidence, from a witness with knowledge of the market, would be required before a court could reach any determination.
76. Similarly it is contended that, where there is an allegation of breach of a duty of care, a plaintiff would be expected to call evidence as to what is to be expected of an intermediary. No such evidence was adduced.
The submissions on the questions
Questions (i) and (ii) (whether an insurance intermediary owes the customer any duty of care, and if so what duty is owed; whether the duty is affected by the relationship between intermediary and underwriter; whether the duty is affected by the customer’s status as a consumer)
77. Mr. Moran points to the acceptance by the defendants that they have a duty to act honestly and in good faith, fairly and professionally in the best interests of the customer and to act with due skill, care and diligence in the best interests of the customer.
78. Mr. McCullough says that these questions are phrased at such a level of generality as to be, in effect, unanswerable and that they do not arise from the factual findings made by the trial judge. There was no evidence before the District Court as to what advice was or should have been given.
79. However it is accepted that insurance intermediaries are governed by the 2005 Regulations. It is further accepted that they have to comply with certain general principles under the consumer Protection Code, including the duty to act honestly, fairly and professionally in the best interests of the customer, and to act with due skill, care and diligence to the same end. Quoting from Breslin, Banking Law (Third ed. 2013) at 6-20, it is said that the Code
“effectively imposes a duty of care on the bank to provide sufficient information to its customers so that the customer is in a position to make an informed choice as to the contract options open to it.”
80. It is submitted that the Code is “one of the factors which informs the duty of care owed by an insurance intermediary to a customer.” Other factors will, it is said, vary from case to case.
81. The defendant denies that the relationship between the intermediary and the underwriter is a factor affecting or informing the duty of care, and objects to this aspect of the question on the basis that it was not raised in the District Court. The status of the customer as a consumer affects the duty, in so far as the intermediary is bound to comply with the Consumer Protection Code in selling financial products to consumers.
Questions (iii) and (iv) (whether an intermediary is under a positive obligation to advise a customer, and whether an intermediary is under an obligation to assess suitability in relation to payment protection insurance)
82. Counsel for the plaintiff submits that the answer to both questions is “Yes”. He says that the acceptance by the plaintiff in cross-examination that the product sold to him was suitable is irrelevant and does not amount to a discharge of the defendants’ duty. The obligation to advise is, he suggests, probably not distinct from the obligation to assess suitability.
83. Again, the defendants say that these questions are too vague and general to be of assistance. It is submitted that no suggestion has been made as to the source, content or extent of such obligations.
84. It is also submitted that they do not arise out of the factual findings of the District Court, given the plaintiff’s acceptance that the PPI products sold to him were suitable for him and that he was eligible to benefit from them.
85. Without prejudice to the foregoing, the defendant says that an intermediary is not under a positive obligation to advise a customer in relation to the sale of PPI.
86. However, it is accepted that the Consumer Protection Code and the Regulations require the intermediary to carry out a “customer fact find” and to provide the customer with a product suitability statement.
87. It is further accepted that the Code (Ch. 2, 24 – 31) and Regulation 19(7) require a regulated entity to gather sufficient information from the consumer to enable it to make a recommendation for a product or service suitable to that consumer. The level of information gathered should be appropriate to the nature and complexity of the product being provided.
88. Mr. McCullough submits that these provisions do not require an intermediary to assess suitability of the range of products across the market as a whole.
89. The defendant says that since PPI is a relatively simple product, it is deemed to be suitable for the customer if the customer is deemed to be eligible to purchase it.
Question (v) (whether an intermediary is under a positive obligation to inform a customer of the available options; whether such an obligation could be affected by letters of appointment held by the intermediary)
90. It is submitted by Mr. Moran that the duty to act openly, honestly and fairly and in the customer’s best interests means that the intermediary is obliged to present all of the available options and make a recommendation on the most suitable. He says that it is clear on the evidence, including the letter from the defendants, that they had conducted no assessment of the plaintiff’s employment status and had not recommended the most suitable option.
91. Mr. McCullough again says that the question is too vague and was not considered in the District Court. It does not arise, given the plaintiff’s acceptance that the PPI products purchased by him were suitable. It is further submitted that, in the absence of any evidence that there were other, more suitable options available that might have been better for the plaintiff, it would not be possible to find that there had been a breach of such a duty and that damage flowed from it.
Question (vi) (what material facts, if any, must be brought to the attention of the customer in relation to payment protection insurance)
92. Mr. Moran says that the customer must be informed of anything that might have a material affect on his or her assessment of the transaction, including the nature of the relationship between an intermediary and an underwriter (including levels of commission); the options available to the customer; an explanation as to suitability and the reasons why the product recommended is the most suitable. All of this information should be placed in the context of the customer’s financial position and requirements.
93. It is submitted by the defendant that the material facts which must be brought to the customer’s attention are those set out in Regulations 19 and 20 of the 2005 Regulations, and perhaps the matters set out in the Code.
94. The defendant accepts that there was a breach of regulation 19(1)(d) in that the plaintiff was not informed that the companies were connected. However, it says that no damage flowed from the breach, since the plaintiff said that he had assumed that GE Money and the underwriter were “the same entity”, or parts of the same larger entity. Since that was in fact the case, the breach of the regulation made no difference to him. He had not given evidence that it would have made a difference, and it would not be open to this court to find that he would have acted differently, had he been informed.
Question (vii) and (ix)(whether, if there is a duty to advise or inform, breach of such duty constitutes a misleading and/or aggressive commercial practice within the meaning of the Consumer Protection Act 2007; and what is the test of causation in action for breach of statutory duty)
95. It is not suggested by the plaintiff that the definition of an “aggressive” practice applies. The case made is that the defendant engaged in a misleading practice.
96. In relation to causation, the plaintiff says that if a breach is found to have occurred, the court must consider whether it was likely to have led to a transactional decision that the average consumer would not otherwise have made. Under s.74(2) of the Act it would also have to consider an award of damages irrespective of loss. On a common law approach, the test would be as set out by Floyd L.J. in Saville v. Central Capital – whether, if the duty had not been breached, the plaintiff would have purchased the policy.
97. The defendant says that Question (vii) is “unworkably” vague. In any event it does not arise, since there was no finding that any such duty was breached.
98. Mr. McCullough submits that Question (ix) is premised on an assumption that there had been a finding that if the plaintiff had been given different information, he would not have purchased the PPI. The question does not in fact arise, given the findings of the trial judge. Without prejudice, the defendant’s position is that the normal rules in relation to causation apply. The plaintiff must show that but for the breach complained of the damage complained of would not have occurred.
Question (viii) (as to where the burden of proof lies in relation to a dispute about the discharge of a duty of care)
99. Mr. Moran relies here on the statement of principle by Sir Stanley Burton in Saville v Central Capital, favouring the burden being placed on the defendant. He argues that if the plaintiff is correct in believing that the commission was so large that it created a conflict between the financial motivation of GE Money and the interests of the plaintiff, that would be a point he could not prove unless the burden was shifted.
100. It is submitted on behalf of the defendant that this issue does not arise since there is nothing to suggest that the onus of proof played any part in the decision of the trial judge. It is further submitted that, as in practically all civil litigation, the burden of proof is on the plaintiff to establish on the balance of probabilities that a duty of care has not been discharged. The comments made by Sir Stanley Burton in Saville are described as obiter. They were in any event made in the context of consideration of the ICOB rules, and the statutory provisions that made those rules actionable.
Question (x) (whether there is a duty to disclose commission)
101. The plaintiff relies here on the judgment of the United Kingdom Supreme Court in Plevin. Mr. Moran says that in both jurisdictions, there was no express regulatory obligation to disclose commission. However, the findings of that Court demonstrate that commission may become relevant depending on its size. In this case, the trial judge decided that it was not relevant, regardless of size.
102. On the question of disclosure of commission, Mr. McCullough submits that it is not required by either the Regulations or the Code. It is accepted that the common law duty of care is informed by the Code. However, it is submitted that, in the first instance, the Code is not directly enforceable or actionable in itself. In this regard the judgment of Birmingham J. in Zurich Bank v McConnon [2011] IEHC 75 is relied upon.
103. Secondly, it is submitted that the Code does not require disclosure of commission. The reference to “charges” in General Principle 6 is to costs or fees payable by the customer to the regulated entity and does not encompass commission, since that is not payable by the customer.
104. The review of the Code conducted by the Central Bank in December 2008 is relied on in support of this position. The consideration of the issue in that document proceeded on the basis that there was no such requirement in respect of non-life assurance, and the question whether such a regulation should be introduced was discussed. On foot of the issues identified, new rules were introduced in the 2012 Code.
105. It is argued that there is no duty of disclosure at common law and that the principle that contracts of insurance are uberrima fides has no application. In any event there were no factual findings in the case as to what the consequences of such an obligation would be.
106. Referring to the Consumer Protection Act 2007, Mr. McCullough says that it would not be possible for the court to determine whether the sections relied upon can apply without embarking on a fact-finding exercise. “The general principle of good faith”, “the standard of skill that the trader may reasonably be expected to exercise”, the question whether false information was provided, and the likelihood that an “average consumer” would be affected in making a decision are, he says, all matters that require to be grounded in expert evidence.
107. It is also submitted that if there was no obligation to disclose commission under the 2006 Code, failure to disclose it could not be considered to have been an unfair or misleading commercial practice, at least in the absence of “extensive factual analysis and evidence”.
108. It is submitted that Plevin cannot assist the plaintiff given the differences in the statutory context. In the first place, the provisions in question were concerned with the relationship between creditors and debtors, and not with insurance intermediaries.
109. Secondly, it is noted that the ICOB rules were, by statute, specifically made actionable but they did not require disclosure of commission. The result in Plevin therefore turned on the provisions of s.140A, and the finding of the Court that the commission paid in the case made the contractual relationship “unfair” within the meaning of that section so as to permit a court to re-open the agreement and grant relief.
110. Mr. McCullough points out that there is an equivalent provision in ss. 47 and 48 of the Consumer Credit Act 1995 but, again, it applies only to credit agreements. He submits that any duty to disclose commission could only arise in a statutory context or by virtue of a Code. No such duty has been imposed in any context.
Question (xi) (whether a breach of the European Communities (Insurance Mediation) Regulations, and particularly reg.19, amounts to a breach of statutory duty, and, if so, whether the breach was actionable by a customer)
111. The plaintiff relies on Law v. FSO on this aspect. Baker J. found that the Ombudsman had erred in finding that the documentation supplied to the appellants, although lacking certain prescribed information, was sufficient to comply with the statutory requirements.
“In doing so he failed to take into account the mandatory nature of the Regulations and the absence of information at the time of investment as to what the investment services were to cost the appellants in fees to the intermediary…”
112. It is submitted in the instant case that the learned trial judge appears to have placed excessive weight on the evidence that the plaintiff knew that the PPI was optional and had signed the contract, in circumstances where there had been a failure to provide the information about the inter-company relationship required by the regulation and a failure to comply with the common law duty to disclose the commission.
113. Mr. McCullough says that at an abstract level the answer to this question is probably yes, but it does not arise in this case. The plaintiff’s evidence was that he assumed that GE and the insurer were the same company. The admitted breach of the regulation therefore caused him no loss.
Question (xii) (whether the communication of optionality and/or the existence of a cooling-off period discharges the duty of the intermediary)
114. The plaintiff submits that the answer is “No”, and these obligations should be seen as additional to those otherwise identified by him.
115. The defendant complains that this question is vague and ambiguous, and fails to identify the duty in issue. It had been argued by the defendant in the District Court that optionality and the cooling-off period were relevant but no finding of fact was made raising this question.
Question (xiii) (whether the intermediary is entitled to rely on contractual warranties and/or estoppel to the effect that the customer has understood the optional nature and main terms of PPI)
116. Mr. Moran accepts that the District Judge found that the plaintiff knew that the policy was optional, and that the plaintiff said in cross-examination that it was suitable and had signed it. However, he says that the court is obliged to embark upon a “holistic” assessment having regard to the judgment of Baker J. in Law v FSO.
117. Mr. McCullough says that it was clear that the plaintiff understood that PPI was optional, and elected to buy it. No issue of contractual warranties or estoppel arises. There is nothing to indicate that the learned District Judge had placed excessive weight on the fact of the plaintiff’s signature.
118. Question (xiv) was not pursued.
Discussion and conclusions
119. It seems to me that the concern expressed by the court about the content of the case stated, and many of the submissions made thereon on behalf of the defendant, are valid. It is clear that many of the questions in this case simply cannot be answered without embarking upon a treatise on consumer rights in the area of the sale of insurance policies, without reference to the facts of the case. The plaintiff’s representatives have, I think, attempted to create far too large a structure of law on the relatively small foundations of the case.
120. However, in the circumstances, I do not believe that it would be helpful to remit the matter for amendment. There are, I consider, sufficient findings of fact to enable the court to deal with those aspects of the case that appear to be of most relevance to the transactions in question. For this purpose I propose to amend the questions.
121. Having regard to the findings of fact (which I think I am justified in taking as including implicit findings that the policies were sold to the plaintiff, and that the issue of commission was not relevant), the overarching issue is whether the trial judge applied the correct principles of law in assessing the facts and dismissing the plaintiff’s claim. The questions that seem to me to be pertinent to that issue are these: –
1. Was the defendant obliged to ensure that the policies sold to the plaintiff were suitable to his circumstances?
2. Did the failure to inform the plaintiff as to the relationship between the defendant and the underwriter have any legal consequence?
3. Did the non-disclosure of the fact of, and the amount of, the commission to be earned by the defendant have any legal consequence?
122. It appears that any doubt as to suitability arose from the advice of a friend of the plaintiff to the effect that the policies were of no benefit to him, because of the nature of the plaintiff’s employment. However no issue in this regard was actually established in evidence.
123. The problem here is not, in my view, really about the burden of proof, but is, rather, a matter of locus standi. Although it was pleaded that the policies were unsuitable, that plea was made without specificity as to the reasons for the alleged unsuitability. As it happens, the plaintiff’s evidence was to the effect that the policies were suitable. That is the only evidence on the issue. It was therefore not, in my view, open to him to contend that the defendant should have taken steps to ensure that they were suitable, and that the failure to take such steps sounds in damages.
124. If I am wrong about that I would accept the argument made by the defendant that the plaintiff bears the burden of proof in relation to the question of unsuitability. I do not think that the plaintiff is correct in characterising the plea that the product was unsuitable as a negative assertion. It is as much a positive assertion as a plea in a road traffic case that the defendant failed to comply with the rules of the road. In any event, even if a burden did lie on the defendant I would consider that it was discharged by eliciting, in cross-examination, the plaintiff’s evidence that the product was suitable. The “peculiar knowledge” principle does not have any application in circumstances where the issue as to suitability, in so far as it arose at all, turned on the employment status of the plaintiff. That was a matter for him to establish if it was relevant.
125. On the second question, I note that the admitted breach was described by counsel for the defendant as “accidental”, “technical” and “inadvertent”. There was, of course, no evidence that it was accidental or inadvertent, and that certainly is a matter within the knowledge of the defendant. The use of the word “technical” is not particularly helpful. The defendant’s main point is that the breach was irrelevant in this particular case because the plaintiff said that he had assumed that GE Money and the underwriter were “the same entity” and they were were in fact related companies, or parts of the same entity.
126. I think that counsel for the plaintiff is correct in saying that this aspect should be considered in conjunction with the issue of disclosure of the commission.
127. It is obvious that the policy behind all of the statutory and regulatory provisions referred to above is that the consumer should be given adequate information before entering into a transaction. There is an express requirement in the 2005 Regulations that the consumer must be told the nature of the relationship between the insurance intermediary and the underwriter. This requirement cannot be regarded as mere window-dressing – it is a mandatory part of the information structure.
128. The defendant says that nothing turns on this admitted breach because the plaintiff said that he assumed that the intermediary and the underwriter were the same entity, and they were in fact parts of the same entity. However, this is where, in my view, the question of commission becomes material. If a consumer believes that the one entity is selling both the loan and the insurance, he or she is unlikely to think that commission arises. Where the services are being provided by entirely separate entities, commission becomes a more likely possibility and one which the average consumer might enquire into. Where the companies are related, and one is paying commission to the other, it seems to me that both of these pieces of information are material since the consumer may well not realise that he or she is, in effect, paying “on the double” to related entities. At that point, the size of the commission becomes relevant for the reasons identified by Lord Sumption in Plevin. Depending on the ratio between the premium for the insurance and the commission, a customer might well feel that the product was not good value and might be less likely to buy it. I do not believe that this is a matter requiring expert evidence.
129. I accept that it was the view of the 2008 Review Group that commission for non-life assurance products did not require to be disclosed under the 2006 Code, but that seems to have been on the basis that there was no express requirement to that effect. “Relevance” and “materiality” are both concepts that have to be assessed in context. The context of this case was that the defendant had failed to provide one mandatory piece of information, the absence of which could be found to have to some extent obscured, from the consumer’s point of view, the fact that commission was being charged.
130. The Code is not in itself actionable, although it is accepted by the defendant that it informs the content of an insurance intermediary’s duty of care. However, it seems to me that the defendant’s conduct was capable of amounting to a misleading commercial practice within the meaning of s.43(2) and s.43 (3)(c). The non-disclosure of commission, particularly if combined with a failure to give adequate information as to the connection between the intermediary and the underwriter, is something likely to cause a consumer to be misled in relation to the manner in which the price of the product is calculated. That is a matter giving rise to an action for damages. I note that the Review Group does not appear to have considered the applicability of this provision.
131. In the instant case, the plaintiff’s evidence was that
“…had he known he was paying extra for insurance in the form of commission and where he was not informed of other options at the point of sale, he might have instead gone to the insurer directly or looked for other options from third parties.”
(Para.4 (ii))
132. I therefore consider that the learned trial judge fell into error in holding that the conduct of the defendant was “beyond reproach” having regard to the admitted failure to comply with a mandatory requirement to disclose the relationship between the companies. I further consider that he erred in holding that commission was not relevant to the case.
133. I will hear the parties as to the form of the final order
Sainsbury’s Supermarkets Ltd,v The Independent Reviewer of Advertising Standards Authority Adjudications
[2014] EWHC Wilkie J
The Unfair Commercial Practices Directive and the Consumer Protection Regulations
A related and expressly interlinked legal regime (see Article 4(a) of the 2005 Directive) is provided for by the 2005 Directive. The 2005 Directive provides, at Article 5, that “unfair commercial practices” shall be prohibited, and that practices which are “misleading” as set out in Articles 6 and 7 shall be unfair.
Articles 6 and 7, respectively, make provision on misleading actions and misleading omissions.
Article 6(1) provides that a commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more specified elements, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.
The specified elements for these purposes include at Article 6(1)(b) (bold emphasis added):
“The main characteristics of the product, such as its availability, benefits, risks, execution, composition, accessories, after-sale customer assistance and complaint handling, method and date of manufacture or provision, delivery, fitness for purpose, usage, quantity, specification, geographical or commercial origin or the results to be expected from its use, or the results and material features of tests or checks carried out on the product.”
Article 7(1) provides that a commercial practice shall be regarded as misleading if, in its factual context, taking account of all the features and circumstances and the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.
Article 7(4) provides that, in the case of an invitation to purchase, the information that shall be regarded as material, if not already apparent from the context, includes the “main characteristics of the product”, to an extent appropriate to the medium and the product. “Invitation to purchase” is a term of art defined by Article 2 in a restrictive way. It is not suggested that it applies to the advertising complained of in this case.
The 2005 Directive is implemented in domestic law by the Consumer Protection from Unfair Trading Regulations 2008 (“the Consumer Protection Regulations”), where its provisions are replicated.
The case law
Lidl v Vierzon
[2011] 2 CMLR 10
This is the leading authority, a decision of the CJEU, in which a number of important principles were stated. The legislation being construed was Directive 84/450. Those principles, insofar as relevant, can be summarised:
i) The aim of Article [4] was to stimulate competition to the consumer’s advantage by allowing competitors to highlight objectively the merits of comparable products whilst prohibiting the practices which might distort competition and have an adverse effect on consumer choice. The conditions in the Directive had to be interpreted in the sense most favourable to permitting advertisements which objectively compared the characteristics of goods or services, while ensuring at the same time that comparative advertising was not used anti-competitively or unfairly, or in a manner which affected the interests of consumers. The comparing of rival offers, particularly as regards to price, was inherent in comparative advertising. The comparison of the price only of goods and services should be possible if that comparison respected certain conditions, in particular that it not be misleading. [Judgment paras 20, 21, 23, 24]
ii) Article [4] provided that, if comparative advertising was to be permitted, the comparison must relate to goods or services which met the same needs or were intended for the same purpose. That condition implied that the goods being compared had to display a sufficient degree of inter-changeability for consumers. The angle from which the comparison was made, namely price in the present case, had no bearing on whether two products met the condition provided for by the Article. [Judgment paras 25 and 27]
iii) In order to prevent comparative advertising being used in an anti-competitive and unfair manner, only comparisons between competing goods and services meeting the same needs or intended for the same purpose should be permitted. The key element of comparative advertising was the identification of a competitor of the advertiser or of the goods and services which it offered. The fact that products were, to a certain extent, capable of meeting identical needs led to the conclusion that there was a certain degree of substitution for one another. However, before it could be concluded that there was a real possibility of substitution, in accordance with the Article, an individual and specific assessment of products which were specifically the subject of the comparison in the advertisement was necessary. Such a specific assessment of the degree of substitution fell within the jurisdiction of the national courts. [Judgment paras 29-30, 32-33]
iv) There was nothing in the wording of Article [4b] to suggest an interpretation which would prohibit comparative advertising relating to food products unless such products were identical. Such a prohibition would lead to a considerable restriction on the scope of comparative advertising and would rule out a real possibility of comparative advertising regarding a particularly important category of consumer goods, irrespective of the angle from which the comparison was made. Such a prohibition would run counter to the court’s established case law that the conditions required of comparative advertising must be interpreted in the sense most favourable to it. [Judgment paras 34-38]
v) Article [4b] was to be interpreted as meaning that the fact alone that food products differed, in terms of the extent to which the consumers would like to eat them and the pleasure to be derived from consuming them, according to the conditions and the place of production, their ingredients and who produced them, could not preclude the possibility that the comparison of such products might meet the requirement laid down in that provision that the products compared met the same needs or were intended for the same purpose, that is to say, that they displayed a sufficient degree of interchangeability. [Judgment para 39]
vi) Article [4a] provided that if comparative advertising was to be permitted the comparison must not be misleading as defined by the other Articles within the Directive. [Judgment paras 41 and 44]
vii) It was for the referring court to ascertain, in the circumstances of each particular case and bearing in mind the consumers to which such advertising was addressed, whether the latter might be misleading. That court must first take into account the perception of the average consumer of the products or services being advertised who is reasonably well-informed and reasonably observant and circumspect. As regards an advertisement such as that at issue, it was not disputed that it was addressed not to a specialist public but to end consumers who purchased their basic consumables in a chain of stores. In carrying out the requisite assessment, the national court must also take account of all the relevant factors in the case, having regard to the information contained in the advertisement at issue and more generally to all its features. [Judgment para 46-48]
viii) An advertisement such as that at issue could also be misleading if the referring court found that, for the purposes of the price based comparison in the advertisement, food products were selected which were in fact objectively different and the differences were capable of significantly affecting the buyer’s choice. If such differences were not disclosed such advertising, where it was based solely on price, might be perceived by the average consumer as claiming, by implication, that the other characteristics of the products in question, which might also have a significant effect on the choices made by such a consumer, were equivalent. In such cases, the fact that the consumer was not informed of the differences between the products being compared in terms of price alone might deceive the consumer as to the reasons for the difference in prices claimed and the financial advantage that could in fact be obtained by the consumer by buying his goods from the advertiser rather than from a given competitor and have a corresponding effect on the consumer’s economic behaviour. The latter might just be led to believe that he would in fact obtain an economic advantage because of the competitive nature of the advertisers offer and not because of objective differences between the products being compared. [Judgment paras 51-52 and 55]
I have been referred to a number of decisions of the CJEU which predate the Lidl case.
In my Judgment, there is nothing in the case of Pippig v Hartlauer [2004] 1 CMLR 39 which adds to the comprehensive treatment of the issues in Lidl.
The Claimant places some reliance on passages in the judgment in the Landtsheer case [2007] 2 CMLR 43. In particular, at paragraph 48, reference is made to certain criteria identified in paragraphs 36-41 of the judgment as applying “mutatis mutandis” to [Article 4b] of the Directive. Those criteria include the need to consider not only the present state of the market but the possibilities for development of the market, not limited to consumer habits in a particular member state or given region, and to have regard to the likely evolution of purchasing decisions of customers in step with consumer recognition of the merits of the goods or services, their specific characteristics which the advertising is seeking to promote.
I am reminded that there is a difference between different provisions in the Directive (for example Article 2(2A) and Article 3a(1)(b)) though they are obviously close. In particular, at paragraph 47 of the judgment, it says:
“… whilst the definition of comparative advertising given in Article 2(2a) assumes that there is a competitive relationship between undertakings proving, for that purpose, sufficient to ascertain whether the products they offer generally display a certain degree of substitutability for one another, the condition laid down in Article 3a(1)(b) requires an individual and specific assessment of the products which are specifically the subject of the comparison in the advertisement before it can be concluded that there is a real possibility of substitution.”
It is also pointed out that, whilst paragraph 48 notes that the criteria in paragraph 36-41 apply “mutatis mutandis”, nonetheless, the criteria for establishing the existence of a competitive relationship within Article 2(2a) of the Directive are not identical to those for determining whether the comparison fulfils the condition in Article 3a(1)(b) of the same Directive.
The Products
Sainsburys’ marketing director Sarah Warby first raised Sainsburys’ concerns in respect of the advertising of Tesco’s Price Promise scheme, in a letter to Tesco’s marketing director David Wood on 18 January 2013. Correspondence in respect of Sainsburys’ concerns continued between Sainsburys’ and Tesco’s legal and marketing teams until the beginning of March 2013.
Having been unable to resolve the matter through correspondence, Sainsbury’s complained to the ASA by letter dated 8 March 2013.
The following disputed comparisons were identified:
i) Sainsbury’s Basics Fairtrade tea bags (80x), compared with Tesco Everyday Value tea bags (80x). Sainsburys’ product is “Fairtrade” Certified, Tesco’s product is not.
ii) Sainsbury’s Basics eggs (6x), compared with Tesco Everyday Value eggs (6x). Sainsburys’ product is “Freedom Food” Certified, Tesco’s product is not. Tesco has accepted that these products should not be compared by its letter dated 1 February 2013. It has done so, it says, as a gesture of good will.
iii) Sainsbury’s free range Woodland eggs (12x), compared to Tesco Free Range eggs (12x). Sainsburys’ product is “Woodland” and “Freedom Food” Certified, Tesco’s product is neither.
iv) Sainsbury’s Haddock Fillets, compared with Tesco Haddock Fillets. Sainsburys’ product is 100% line caught and “MSC” Certified, Tesco’s product is not.
v) Sainsbury’s Cod Fillets, compared with Tesco Cod Fillets. Sainsburys’ product is 100% line caught and “MSC” Certified, Tesco’s product is not.
vi) Sainsbury’s Chicken Korma & Basmati Rice (500g), compared with Tesco Chicken Korma & Pilau Rice (550g). Sainsburys’ product is 100% British chicken, Tesco’s product is not.
vii) Sainsbury’s Basics Ham, compared with Tesco Everyday Value Ham. Sainsburys’ product is British, whereas Tesco’s product is “sourced from EU”.
The ASA adjudication
The adjudication identified the issue as follows:
“Sainsbury’s challenged whether the claim “You won’t lose out on big brands, own label, or fresh food” was misleading in relation to own label and fresh food as important product attributes had not been taken into account. Sainsbury’s considered that some of the products compared were not comparable and, furthermore, considered that the basis of the price match policy had not been made clear.”
The adjudication then set out a full summary of Tesco’s response. This account included a number of lines of argument, which I summarise as follows:
i) Branded products could be matched on an identical basis. When identifying comparable products for own label goods, Tesco began matching products according to “brand hierarchy”, eg. Sainsbury’s Basics with Tesco Everyday Value products. As part of that matching process, they checked if there was an exact match. Where a match for own label products and fresh products could not be found, those products were matched with ones which met the same need and/or were intended for the same purpose.
Secretary of State for Business, Innovation And Skills v PLT Anti-Marketing Ltd
[2015] EWCA Civ 76 [2015] CTLC 8, [2015] WLR(D) 63, [2015] EWCA Civ 76, [2015] BUS LR 959, [2015] Bus LR 959, [2015] ECC 12 Briggs LJ
At the heart of the present appeal lies the question what, as a matter of interpretation of the Regulations in the light of the UCPD is, or is not, “material information” in the context of an alleged misleading omission contrary to Regulation 6. Mr. Popplewell pointed out that, whereas Regulation 6(3) contains a specific and (subject only to Regulation 6(4)) exclusive definition of “material information”, the corresponding Article 7 of the UCPD does not do so in terms. In my judgment that is a distinction without a difference since, unaided by the Regulations, I would have interpreted Article 7.1 as defining “material information” by reference to information that the average consumer needs, according to the context, to take an informed transactional decision, subject again only to Article 7.4.
We were shown no European jurisprudence about the meaning of “material information” but both Mr. Popplewell and Miss Simor QC for the Respondent agreed that we could properly follow and apply an attempt of mine to shed light on the meaning of that phrase in paragraph 74 of OFT v Purely Creative & ors [2011] EWHC 106 (Ch). I have included paragraph 73 in the citation which follows, to enable paragraph 74 to be read in context:
“The final question of interpretation, which arises only in relation to Regulation 6, relates to the provision in paragraph (3)(a) that “material information” means inter alia:
“The information that the average consumer needs, according to the context, to take an informed transactional decision;”
The starting point under English common law in relation to pre-contractual negotiations is caveat emptor. That may be qualified both by statute and even by the common law in relation to particular types of transaction, such as the obligation to disclose latent defects when negotiating a sale of land, and the obligation of utmost good faith on an applicant for insurance. Again, these English law concepts must be put on one side, not least because in systems of civil law widely used in Europe there exist general obligations of good faith in contractual relationships which have no parallel in the common law.
A literal reading of Regulation 6(3)(a) and its equivalent in Article 7.1 of the UCPD might suggest that something approaching an utmost good faith obligation is imposed in relation not merely to the consumer’s decision whether to contract, but also to every transactional decision, such as, in the present case, a decision whether to respond to a promotion by post, text message or premium rate telephone call. Although qualified by the causation requirement to which I have referred, I regard that analysis as imposing an excessively high hurdle, and counsel did not suggest otherwise. It cannot have been the intention of the framers of the UCPD to require that level of disclosure, and to do so would indeed cause barriers to the free movement of goods and services beyond that necessary to achieve a high degree of consumer protection. In my judgment the key to understanding this paragraph is the concept of “need”. The question is not whether the omitted information would assist, or be relevant, but whether its provision is necessary to enable the average consumer to take an informed transactional decision.”
Counsel were also broadly agreed that the Regulations did not impose any general requirement upon a trader to inform a consumer about the availability, nature, qualities and price of alternative goods or services, alternative that is to those which the trader was inviting the consumer to acquire, even if it might be said that such information was needed to enable the average consumer to make an informed transactional decision. Thus in paragraph 14 of their skeleton argument, Miss Simor and Mr. Mohyuddin said that:
“It is not misleading per se for traders not to provide comparative pricing because in most cases consumers will not need that information in order to take an informed transactional decision.”
In her oral submissions, Miss Simor said that it was no part of the Secretary of State’s case that a trader who charges for a service must inform the consumer of a free competing service. But she was at pains to say, both in writing and orally, that everything depended upon context, as indeed Regulation 6 and Article 7 make very clear.
Mr. Popplewell went considerably further down this road. He submitted that Regulation 6 (and Article 7) were only about what he labelled “inward-facing” information. That is, information about the trader and its product, and not information about other traders and other products, which he labelled “outward-facing” information. He placed particular reliance upon the undoubted fact that all the types of information specified in Regulation 6.4 (and Article 7.4) were, and were only, types of inward-facing information, suggesting that those framing the UCPD and the Regulations simply did not have outward-facing information in mind at all when dealing with misleading omissions, so that an appeal to a particular context could not produce any different outcome.
In my judgment the resolution of this issue depends on a closer analysis than that which I conducted in the Purely Creative case of the mechanism by which the question whether information is material (in the context of misleading omissions) is to be determined by reference to the average consumer’s need for it. It may readily be said that, in relation to a transactional decision whether to purchase goods or services, the average consumer may need to have information about the availability, quality and prices of alternative products, even if some consumers might be content with the price proposed, without wishing to shop around. But the average consumer is defined as being reasonably well-informed, reasonably observant and circumspect and, as I said in the Purely Creative case, at paragraph 62, the requirement to make those assumptions reflects the common sense proposition that the UCPD exists to protect from being misled consumers who take reasonable care of themselves, rather than the ignorant, the careless or the over-hasty consumer.
In my judgment, the critical question, particularly in the context of information about alternative products, is whether the average consumer can be said to need to obtain that information from the trader in question, rather than obtain it (for example) by shopping around, and finding out for himself whether something better, or cheaper, is on offer. Generally, inward-facing information is likely to be available only from the trader in question, because it is information about that trader, or its goods or services. By contrast, information about alternative or competing products may generally be supposed to be available in the marketplace, to the extent that a particular consumer wishes to obtain it before deciding whether to make a purchase from the trader in question. In short, shopping around for information about alternative products (whether goods or services) is characteristic of the reasonably well-informed, observant and circumspect consumer.
Nonetheless, I agree with Miss Simor that an expectation that the average consumer will make his or her own enquiries about alternative competing products can be no more than a general assumption or starting point, and therefore one which may yield to particular aspects of the context in which the alleged omission arises. Both Article 7.1 and Regulation 6.1 go out of their way to emphasise the importance of context, both in express terms, and in requiring all the features and circumstances of the commercial practice to be taken into account.
Counsel were also broadly agreed that neither the Regulations nor the UCPD in general required a trader to disclose to a consumer its mark-up or the cost which it would incur in obtaining all or part of the product offered to the consumer from a third party, such as a wholesaler, manufacturer or (in relation to services) sub-contractor. I agree that this must be so, but the reason for it is perhaps less easily attributable to any particular part of the language of the Regulations or the UCPD. That information may truly be said to be inward- rather than outward-facing, and commonly a matter of commercial confidentiality, so that the average consumer could not be expected to obtain it from any other source. In my judgment the reason why this concession is generally correct is because, viewed objectively, the consumer does not need to know how much profit the trader is seeking to make from selling to him. The consumer can form his own view about whether the price demanded is worth paying for the product on offer, having regard to anything comparable available elsewhere on the market. The average consumer may also need to consider his or her own ability to pay for and service the product, but again, this is not information which the consumer needs to obtain from the trader in question.
The foregoing observations are, I think, as far as one can usefully go in addressing the issue on this appeal as a matter of construction of the Regulations, in the light of the UCPD. I turn therefore to an analysis of the question how Regulation 6 is properly to be applied to the particular facts of the present case.
Analysis
There is in my view a serious difficulty at the threshold of this analysis. It is that legislation which is heavily dependent for its effect upon particular context was applied by the judge by way of preliminary issue, at a stage when substantial parts of the “features and circumstances of the commercial practice” in question were a matter of dispute between the parties, which could only satisfactorily be resolved at the final hearing of the Petition. This appeal has been argued upon the implicit assumption that the only available conclusions were that non-disclosure that TPS’s and MPS’s services were free either was or was not a breach of Regulation 6. But in my judgment an alternative available answer was that this question could only be resolved at trial, when all the features and circumstances of the commercial practice were definitively known.
The judge’s conclusion that the fact that TPS and MPS offered their services for free was material information under Regulation 6 was based upon a very simple analysis, encapsulated in the following extracts from paragraphs 41 and 42 of his judgment:
“I have no difficulty in arriving at the conclusion that the fact that consumers can obtain a similar service to that provided by the company for free elsewhere is indeed material information for the purposes of the Regulation. … Applying the test formulated by Mr. Justice Briggs in The Office of Fair Trading v Purely Creative, namely, the concept of need, in my judgment the omitted information is not merely information that would assist or be relevant to the consumer. Rather, it is information, the provision of which is necessary to enable the average consumer to take an informed transaction decision. It seems to me clear that it is material to a prospective consumer who receives the call utilising the proposed telephone script to know that he is to be charged for a service that is available for free. He is told that the company will register his details with the [TPS and MPS]. It seems to me material that he should know that he can register himself with those services for free.
The crucial feature in the present case is that an important part of the very service the company is offering is available free of charge from the very persons, namely the MPS and TPS, who the company will be approaching to provide that service. This is not a case where the company has to trawl the market to investigate products being produced by its competitors. … It knows, and is charging, upon the basis that such registration is free. I agree that there is, in general, no obligation on a supplier to identify its particular mark-up however, in my judgment, it is an obligation on a supplier of a service to say that the service for which it is proposing to charge can be obtained for free from an alternative supplier.”
I respectfully disagree with that analysis. In my view it contains the following errors. The first is the assumption that information is material information on the basis of need regardless whether that information could be obtained by a reasonably well-informed, observant and circumspect (and therefore average) consumer otherwise than from PLT.
The second error is that it treats as decisive (or “crucial” as the judge put it) the fact that, because PLT is obtaining registration with TPS and MPS as part of its business plan, it knows that it is available for free, and does not have to “trawl the market” to find that out. That would be true of any case where the allegedly material information consisted of the price at which the trader obtains part of the product offered from a wholesaler, manufacturer or sub-contractor. The judge appeared to have been alert to that difficulty, in his observation that there is in general no obligation on a supplier to identify its particular mark-up. But this led to the judge’s erection, as a general principle, of the proposition that a supplier of a service for which it is proposing to charge will always be obliged to inform the consumer (if it be the case) that the same service is available free from an alternative supplier.
This is, in my view, clearly erroneous. Indeed, Miss Simor expressly disclaimed any such principle in her oral submissions, as I have set them out above. The proposition must in my judgment be a fortiori erroneous if it is only part of the service which the trader is offering that can be obtained free from an alternative supplier.
Taking those three points in turn, I have already explained why I have found it necessary to look more closely at the “needs” test which I formulated in the Purely Creative case, and upon which the judge understandably relied. A critical question in the present case is whether the average consumer, being offered a service which includes (but is not limited to) registration of his name and contact details with TPS and MPS, may be supposed to be able to find out that this part of PLT’s service can be obtained direct from those entities, and at no charge (apart from his own time and trouble). The judge’s assumption that this is information which the average consumer needs to have, begs the question whether he needs to obtain it from PLT.
Miss Simor relied very heavily in her submissions upon what the judge described as the “crucial” feature of the case, but for a slightly different reason than the judge himself. She said that this was not, in substance, a case about information as to alternative services, but about information about the very service actually being provided by PLT. It was, therefore, (using Mr Popplewell’s nomenclature) inward-facing information about an important part of PLT’s offering to customers.
Mr Popplewell protested that this was a radical departure from the way in which the alleged breach of Regulation 6 had been pleaded in the Petition, where the allegation (which I have quoted above) was precisely that the omission related to the free availability of a “similar” (and therefore alternative) service rather than the very service being offered by PLT. To that objection Miss Simor responded that, whereas the Petition had been addressed to the service apparently offered by PLT prior to the presentation of the Petition, the preliminary issue raised by the variation application concerned a proposed new or different service. In any event, she submitted that, as noted by the judge at paragraph 40, the Secretary of State’s submission at the hearing clearly was that which the judge regarded as crucial. No objection to that submission was taken on the basis that it had not been pleaded.
I am not disposed to rule against the judge’s analysis (vigorously supported by Miss Simor on appeal) on pleading grounds. The question is really one of analysis. PLT was not itself offering a registration service, in the sense that it was providing the relevant public registers, or using TPS or MPS as its sub-contractors for that purpose. On the contrary, PLT was offering to do on behalf of its customers what the customers could have done for themselves, namely apply for and obtain registration on TPS’s and MPS’s registers. That was not a service provided, free or otherwise, by TPS or MPS. They simply offered access to a place on their respective registers, free of charge, to all customers who took the time and trouble to apply. The real alternative to the registration application service being offered by PLT was not one which TPS, MPS or even any other intermediary was known to be providing free of charge. The real alternative was for the customer to do it himself, at no cost other than his own time and effort in filling in and sending (electronically or otherwise) the relevant forms. The real omission was, therefore, not a failure to inform consumers that the very service being offered was available free, but only that no part of PLT’s cost of discharging that part of its service would include a registration fee payable to TPS or MPS. That is properly to be characterised as an aspect of the internal cost to PLT of providing part of the service which it proffers to its prospective customers, and not something which, as the judge acknowledged and the Secretary of State accepts on this appeal, is generally disclosable as material information to consumers.
It does not however follow from my disagreement with the judge’s analysis (and with Miss Simor’s valiant attempt to support it) that the only correct conclusion is that the fact that TPS and MPS provide their services free is not material information within the meaning of Regulation 6, so that PLT could trade as proposed in its evidence in support of its variation application without breach of Regulation 6. In my view the answer to that question depends on all the features and circumstances of its commercial practice, viewed as a whole (see Regulation 6(2)(a)). Some of the relevant circumstances, such as the fact that a prospective customer’s agreement is generally sought by a cold call, appear to be common ground but the circumstances as a whole have yet to be either agreed or, where disputed, established at trial. It is in my view perfectly possible (so that there is an arguable case) that when PLT’s commercial practice, viewed as a whole, has been subjected to the intense forensic analysis only achievable at trial, it may be shown that the fact that prospective customers can obtain registration with TPS and MPS free, together with a complaints service by each entity, will be material information within the meaning of Regulation 6. For present purposes, I need, and can, go no further than to say that in my judgment the preliminary issue should not have been finally and bindingly determined against PLT, on the basis that the information about the free availability of TPS and MPS’s services was material information within the meaning of Regulation 6. But nor should it be determined that the information was not material information, in advance of a trial. It is a contextual question for which the necessary contextual facts have yet to be established.
I have thus far said nothing about PLT’s second ground of appeal which was that, even if the information was material in the relevant sense, nonetheless the average consumer would have made no different transactional decision if provided with it, because he or she would be likely already to know that information anyway.
The judge roundly rejected that proposition, at paragraph 43 of his judgment. He said:
“As Mr Popplewell submits, this is a matter for the court to determine having regard to the court’s own faculty of judgment. In arriving at that judgment, I can not ignore the fact that, as Mr Mohyuddin submits, and as I accept, the company’s reluctance to tell customers that the two Preference Services can be obtained for free can only be explained on the basis that the company fears that to do so would have a detrimental effect on its business. I have to ask myself: why does the company not want to have to notify customers that they can register with TPS and MPS themselves for free? The only answer that I can supply, and that is consistent with the answer given by Mr Mohyuddin, is that the company is concerned that if the information were to be provided, an appreciable number of customers would decline the service that is being offered by the company.”
On this appeal Mr Popplewell criticises the judge’s analysis on the basis that, rather than apply his own faculty of judgment, he simply relied upon a single piece of evidence, namely PLT’s own reluctance to provide this information when cold-calling prospective customers, and treated it as conclusive in relation to what should have been a multi-factorial balancing exercise, having regard to all the evidence.
Again, it seems to me that, although the judge’s simple analysis is at first sight very persuasive, he was hampered by conducting this part of his analysis of the preliminary issue in advance of trial. The causation question which Regulation 6(1) (and Article 7.1) requires to be answered is to be addressed in its full factual context, taking into account all the features and circumstances of the commercial practice in question.
My conclusion that the Secretary of State has an arguable case at trial for the proposition that the information that TPS and MPS provide their services free of charge is material information, because the average consumer needs to have it from PLT (rather than from some other source) when making the transactional decision whether to contract for PLT’s service, makes it impossible to conclude at this interim stage that the average consumer may safely be treated as already knowing the information withheld. It follows that this second ground of appeal offers no alternative route to a conclusion at this interim stage that PLT’s proposed method of trading cannot involve a breach of Regulation 6.
When it became apparent to us, unfortunately after the conclusion of the hearing, that the preliminary issue might admit, in addition to a yes or no answer, the answer that it could not properly be determined before trial, we warned the parties of that possibility and sought their written submissions about it. They have been duly provided. For PLT it is submitted that this is an outcome for which no-one contended before the judge (although the Secretary of State submitted that the issue was inappropriate because purely hypothetical). Nor was it contended for by either party on appeal, or by way of cross appeal. Therefore it should not be entertained now, and certainly not without a further oral hearing. For the Secretary of State it was submitted that this court could take that intermediate course, but should nonetheless make clear, even if obiter, its views on the questions argued, because of their importance in the public interest.
As for PLT’s request for a further oral hearing, I am satisfied that the point has been fully ventilated in the exchange of written submissions which we have received, so that a further oral hearing is neither required nor justified.
I do not consider that this court should in effect be forced into treating a question as admitting only a yes or no answer, merely because of the binary way in which an appeal has been argued, if it considers after anxious thought that it is not equipped finally to decide the question on the material available. This problem not infrequently arises, even after a trial at first instance, where a different legal analysis by an appellate court forces a re-trial, because the appellate court lacks the further findings of fact upon which to apply its analysis of the law. Of course the appellate court will think hard before directing a re-trial because of the serious cost and delay to which the parties are thereby subjected.
Here by contrast there has been no trial, and a trial of the Petition has still to take place, even though now much delayed by this appeal. It is in my view both artificial and wrong to treat this preliminary issue as admitting of only a yes or no answer, all the more so because of the prominence given to context, both in Regulation 6 and in Article 7. It is, for the reasons already given, simply not a question which, asked in the abstract, admits of only one answer. To do so would be to mislead the public into thinking that non-disclosure of the fact that a comparable service, or part of the service offered, may be obtained free will always be lawful, or always unlawful, regardless of the context in which that non-disclosure occurs.
Relief
I need say little by way of explanation for our conclusion, already communicated during the hearing of this appeal, that it would in any event be inappropriate for this court to address the question whether the undertakings should be varied as sought by PLT. Nonetheless my conclusion that a negative answer to the issue as to breach of Regulation 6 can not properly be arrived at prior to trial, by way of preliminary issue, means that the judge’s original conclusion that it was a triable issue, in paragraph 37 of his extempore judgment on 13 May 2013, remains undisturbed as a result of PLT’s variation application as re-determined by this appeal. It was in part because the judge considered that there was an arguable case of breach of Regulation 6 that he required the undertakings now sought to be varied. In the circumstances, it seems to me that to require the variation question now to be referred for further consideration at first instance would be an arid exercise.
Conclusion
For those reasons, I would allow the appeal to the extent of setting aside the judge’s determination of the preliminary issue, upon the basis that it is an issue which should be determined only at the final hearing of the Petition. But I would not disturb the judge’s order refusing to vary PLT’s undertakings.
Lord Justice Ryder
I agree.
Lord Justice Richards
I also agree.
4finance (UAB)
[2014] Bus LR 574, [2014] EUECJ C-515/12, EU:C:2014:211, ECLI:EU:C:2014:211, [2014] WLR(D) 156
The questions referred for a preliminary ruling
16 By its questions, which it is appropriate to examine together, the referring court asks the Court to rule on the conditions under which a system of trade promotion can be considered a ‘pyramid promotional scheme’ within the meaning of Annex I, point 14, of Directive 2005/29 and, therefore, is prohibited in all circumstances.
17 It is apparent from the reference for a preliminary ruling that Article 7(22) of the Law constitutes a faithful transposition of the German and Lithuanian versions of Annex I, point 14 of Directive 2005/29. However, according to the referring court, that latter provision specifies, in several of its other language versions, an additional condition for a pyramid promotional scheme to be prohibited, according to which ‘the consumer gives consideration’ in order to be able to benefit from the scheme. That court asks whether point 14 requires the consumer to be obliged to give such consideration. If so, it asks whether any sum, regardless of the amount, must be regarded as consideration within the meaning of point 14.
18 Finally, the referring court asks the Court whether classification as a pyramid promotional scheme requires it to be established that the compensation a consumer can receive is financed, partly or primarily, by the consideration given subsequently by other consumers.
19 It should be recalled that, according to the settled case-law of the Court of Justice, the need of uniform application and of uniform interpretation of an act of EU law makes it impossible to consider one language version of the text in isolation, but requires that measure to be interpreted on the basis of both the real intention of its author and the aim that the latter seeks to achieve, in the light, in particular, of the versions in all the languages (see Case C-569/08 Internetportal und Marketing, EU:C:2010:311, paragraph 35 and the case-law cited).
20 In that regard, it should be noted that the prohibition of pyramid promotional schemes is based, in all language versions of Annex I, point 14 of Regulation 2005/29, on three common conditions. First, such a promotion is based on the promise that the consumer will have the opportunity of making a commercial profit. Next, the realisation of that promise depends on the introduction of other consumers into the scheme. Finally, the greater part of the revenue to fund the compensation promised to consumers does not result from a real economic activity.
21 It is common ground that, when there is no effective economic activity to generate enough revenue to fund the compensation promised to consumers, such a promotion scheme is necessarily based on the economic contribution of its participants, since the opportunity for a member of that scheme to receive compensation depends essentially on the fees paid by additional members.
22 Such a scheme can only be a ‘pyramid’ in the sense that its sustainability requires the subscription of an ever increasing number of new participants to fund the compensation paid to existing members. It also means that the most recent members are less likely to receive compensation for their participation. That scheme ceases to be viable when the growth in membership, which should theoretically tend to infinity in order for the scheme to continue, is no longer sufficient to fund the compensation promised to all participants.
23 It follows from the foregoing that the recognition of a ‘pyramid promotional scheme’ within the meaning of Annex I, point 14 of Directive 2005/29 requires, first, the members of such a scheme to give financial consideration.
24 That interpretation is supported by the purpose of Directive 2005/29, which, according to recital 8 in its preamble, ‘directly protects consumer economic interests from unfair business-to-consumer commercial practices’ and which, according to Article 1, provides ‘a high level of consumer protection by approximating the laws, regulations and administrative provisions of the Member States on unfair commercial practices harming consumers’ economic interests’ (Case C-206/11 Köck EU:C:2013:14, paragraph 29 and the case-law cited). As the Advocate General’s Opinion, without financial consideration from the consumer, it would be difficult to identify the economic behaviour that requires consumer protection under that directive.
25 In addition, the wording of most of the language versions of Annex I, point 14 of Directive 2005/29 confirms that consideration given by the consumer is a constituent element of a pyramid promotional scheme within the meaning of that provision.
26 As to the question whether any sum paid by a member of a promotional scheme must be viewed, regardless its amount, as consideration within the meaning of Annex I, point 14 of Directive 2005/29, it should be noted that that provision does not provide for any minimum amount in the language versions that mention the existence of financial consideration given by the consumer (see, by analogy, Case C-428/11 Purely Creative and Others EU:C:2012:651, paragraph 30). Furthermore, the objective of providing greater legal certainty in the identification of unfair commercial practices, referred to in recital 17 in the preamble to Directive 2005/29, would not be ensured if the Member States could decide what amounts are to be regarded as financial consideration. Accordingly, the concept of consumer consideration includes any financial contribution from the consumer, regardless of the amount.
27 Secondly, it necessarily follows from paragraphs 20 to 22 of the present judgment that classification as a ‘pyramid promotional scheme’ within the meaning of Annex I, point 14 of Directive 2005/29 requires the existence of a link between the consideration given by new members and the compensation received by existing members.
28 That interpretation is confirmed by the wording of most language versions of Annex I, point 14 of Directive 2005/29, from which it is apparent that the funding of the compensation that a consumer may receive depends ‘primarily’ or ‘mostly’ on consideration given subsequently by new participants in the scheme.
29 Contrary to what the Lithuanian Government maintains, such an interpretation of Annex I, point 14 of Directive 2005/29 does not prejudice the objective of ensuring a high level of consumer protection.
30 In that regard, it should be noted that the practices prohibited under Article 5 of that directive are divided into two categories.
31 First, Annex I of Directive 2005/29 includes the commercial practices which are, in all circumstances, unfair and which, therefore, do not require a case-by-case assessment against the provisions of Articles 5 to 9 of that directive. Secondly, the practices which are not listed in that annex may be declared unfair after a case-by-case examination of their characteristics, having regard to the criteria set out in those Articles 5 to 9 (Purely Creative and Others EU:C:2012:651, paragraph 45, and Köck EU:C:2013:14, paragraph 35).
32 It follows from this that only those commercial practices that are most harmful to consumers are subject to an absolute prohibition, but that a practice not covered by Annex I to Directive 2005/29 may nevertheless be prohibited where a specific and concrete assessment leads to the conclusion that it is unfair within the meaning of Articles 5 to 9 of that directive.
33 In the present case, it is apparent from the request for a preliminary ruling that, under the promotional scheme system established by 4finance, the bonuses paid to existing members were funded only to a very small extent by the financial consideration required from new members. In such a scheme, it seems that the second condition set out in paragraph 27 of the present judgment is not met. If that is the case, which it is for the referring court to ascertain, that scheme could not, therefore, be subject to a prohibition on the basis of Annex I, point 14 of Directive 2005/29.
34 Having regard to all the foregoing considerations, the answer to the questions referred is that Annex I, point 14 of Directive 2005/29 must be interpreted as meaning that a pyramid promotional scheme constitutes an unfair commercial practice only where such a scheme requires the consumer to give financial consideration, regardless of its amount, for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.
Costs
35 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Second Chamber) hereby rules:
Annex I, point 14, of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’), must be interpreted as meaning that a pyramid promotional scheme constitutes an unfair commercial practice only where such a scheme requires the consumer to give financial consideration, regardless of its amount, for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.
Trento Sviluppo and Centrale Adriatica
[2013] EUECJ C-281/12 [2014] 1 All ER (Comm) 113, EU:C:2013:859, [2014] 1 WLR 890, ECLI:EU:C:2013:859, [2014] WLR 890
The question referred for a preliminary ruling
23 By its question, the referring court asks essentially whether a commercial practice must be classified as ‘misleading’ for the purposes of Article 6(1) of Directive 2005/29 on the sole ground that that practice contains false information or that it is likely to deceive the average consumer, or whether it is also necessary that that practice be likely to cause the consumer to take a transactional decision that he would not have taken otherwise.
24 Article 6(1) of Directive 2005/29 provides that a commercial practice is to be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer in relation to, inter alia, the main characteristics of a product, such as its availability, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.
25 It must be stated in this respect that, whereas the Italian-language version uses the expression ‘e in ogni caso’ – which, according to the referring court, is made up of words introducing a sort of ‘closing phrase’ pursuant to which the mere fact of a commercial practice being likely to distort the economic behaviour of the consumer is sufficient for such a practice to be classified as misleading – the Spanish, English and French versions of Article 6(1), on the other hand, use the expressions ‘y en calquiera de estos casos’, ‘and in either case’ and ‘et dans un cas comme dans l’autre’ respectively. By expressly referring to the two cases relating to the misleading character of the commercial practice concerned, those three language versions indicate that the commercial practice must also cause the consumer to take a transactional decision that he would not have taken otherwise.
26 It is settled case-law that the wording used in one language version of a Union provision cannot serve as the sole basis for the interpretation of that provision, or be made to override the other language versions in that regard. Such an approach would be incompatible with the requirement that Union law be applied uniformly. In the event of divergence between the language versions, the provision in question must accordingly be interpreted by reference to the purpose and general scheme of the rules of which it forms a part (see Case C-149/97 Institute of the Motor Industry [1998] ECR I-7053, paragraph 16, and Case C-451/08 Helmut Müller [2010] ECR I-2673, paragraph 38).
27 As regards, first, the general scheme of Article 6(1) of Directive 2005/29, it should be noted that misleading commercial practices for the purposes of Article 6 of Directive 2005/29 constitute a specific category of unfair commercial practices prohibited by Article 5 of that directive (see, to that effect, Joined Cases C-261/07 and C-299/07 VTB-VAB and Galatea [2009] ECR I-2949, paragraph 55, and Case C-435/11 CHS Tour Services [2013] ECR I-0000, paragraph 37).
28 In accordance with Article 5(2) of Directive 2005/29, a commercial practice is unfair if it is contrary to the requirements of professional diligence and materially distorts or is likely materially to distort the economic behaviour of the average consumer with regard to the product (VTB-VAB and Galatea, paragraph 54, and CHS Tour Services, paragraph 36).
29 Under the terms of Article 2(e) of Directive 2005/29, ‘to materially distort the economic behaviour of consumers’ means using a commercial practice to impair appreciably the consumer’s ability to make an informed decision, thereby causing the consumer to take a transactional decision that he would not have taken otherwise. It follows that, for a practice to be unfair for the purposes of Article 5 of Directive 2005/29, it must be likely to cause the consumer to take a transactional decision that he would not have taken otherwise.
30 Since the misleading commercial practices referred to in Article 6 of Directive 2005/29 constitute a specific category of unfair commercial practices,referred to in Article 5(2) of that directive, they must necessarily combine all the constituent elements of such unfairness, including, in consequence, the element relating to the ability of the practice to materially distort the economic behaviour of the consumer by causing him to take a transactional decision that he would not have taken otherwise.
31 As regards, secondly, the objective pursued by Article 6(1) of Directive 2005/29, it should be noted that the directive is based on Article 169 TFEU and its aim is to achieve a high level of consumer protection by approximating the provisions of the Member States on unfair commercial practices harming consumers’ economic interests. Recital 7 to Directive 2005/29 states that the directive addresses commercial practices directly related to influencing consumers’ transactional decisions in relation to products. Recital 11 to that directive mentions that it establishes a single general prohibition of unfair commercial practices that distort consumers’ economic behaviour. According to recital 13 to the directive, it is the two types of commercial practice that are by far the most common – namely, misleading commercial practices and aggressive commercial practices – which justified the adoption of specific rules in order to combat those practices. It can be seen from recital 14 to Directive 2005/29 that the directive is intended to use the concept of ‘misleading commercial practices’ in such a way as to cover those practices which, by deceiving the consumer, prevent him from making an informed and thus efficient choice.
32 It follows that, in order to achieve a high level of consumer protection, Directive 2005/29 establishes a general prohibition of unfair commercial practicesthat distort consumers’ economic behaviour.
33 Consequently, for a commercial practice to be classified as ‘misleading’ for the purposes of Article 6(1) of Directive 2005/29, it must inter alia be likely to cause the consumer to take a transactional decision that he would not have taken otherwise.
34 That interpretation is also borne out by the case-law of the Court. According to paragraph 47 of the judgment in Case C-453/10 Perenicová and Perenic [2012] ECR I-0000 and paragraph 42 of the judgment in CHS Tour Services, a commercial practice is considered to be misleading for the purposes of Article 6(1) of Directive 2005/29 to the extent that the information is misleading and is likely to cause the consumer to take a transactional decision that he would not have taken in the absence of such a practice.
35 In addition, in order to provide the referring court with all the necessary information enabling it to reach a decision in the dispute before it, it is necessary to determine the scope of the concept of ‘transactional decision’ for the purposes of Article 2(k) of Directive 2005/29. Since the commercial practice at issue in the main proceedings concerns information relating to the availability of a product at an attractive price during a certain period, it must be determined whether the acts preparatory to the purchase of a product, such as the consumer’s trip to the shop or the act of entering the shop, may be regarded as constituting transactional decisions for the purposes of the directive.
36 It is apparent from the very wording of Article 2(k) of Directive 2005/29 that the concept of ‘transactional decision’ is broadly defined. In the words of that provision, ‘any decision taken by a consumer concerning whether, how and on what terms to purchase’ is a transactional decision. That concept therefore covers not only the decision whether or not to purchase a product, but also the decision directly related to that decision, in particular the decision to enter the shop.
37 Article 3(1) of Directive 2005/29 also lends support for such an interpretation since, in accordance with that provision, the directive applies to unfair business-to-consumer commercial practices before, during and after a commercial transaction in relation to a product.
38 Consequently, the answer to the question referred is that a commercial practice must be classified as ‘misleading’ for the purposes of Article 6(1) of Directive 2005/29 where that practice contains false information, or is likely to deceive the average consumer, and is likely to cause the consumer to take a transactional decision that he would not have taken otherwise. Article 2(k) of the directive must be interpreted as meaning that any decision directly related to the decision whether or not to purchase a product is covered by the concept of ‘transactional decision’.
Costs
39 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Sixth Chamber) hereby rules:
A commercial practice must be classified as ‘misleading’ for the purposes of Article 6(1) of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) where that practice contains false information, or is likely to deceive the average consumer, and is likely to cause the consumer to take a transactional decision that he would not have taken otherwise. Article 2(k) of the directive must be interpreted as meaning that any decision directly related to the decision whether or not to purchase a product is covered by the concept of ‘transactional decision’.
Secretary of State for Business, Innovation & Skills v PLT Anti-Marketing Ltd
[2013] EWHC 3626 (Ch) Hodge J
The crucial feature in the present case is that an important part of the very service the company is offering is available free of charge from the very persons, namely, the MPS and TPS, who the company will be approaching to provide that service. This is not a case where the company has to trawl the market to investigate products being produced by its competitors. As Mr Mohyuddin submitted, its business model involves registration with TPS and MPS; and it knows, and is charging, upon the basis that such registration is free. I agree that there is, in general, no obligation on a supplier to identify its particular mark-up. However, in my judgment it is an obligation on a supplier of a service to say that the service for which it is proposing to charge can be obtained for free from an alternative supplier. Therefore, I accept the submissions of Mr Mohyuddin and reject the competing submissions of Mr Popplewell.
Having found that the fact that a similar service is available for free elsewhere is material information for the purposes of Regulation 6, I have to go on to consider whether the omission of this material information causes, or is likely to cause, the average consumer to take a transactional decision he would not have taken otherwise. I have to focus upon the concept of the average consumer, as described in the Regulations and Directive, and bearing in mind the official guidance that has been cited to me, and the observations in the judgment of Mr Justice Briggs. As Mr Popplewell submits, this is a matter for the court to determine having regard to the court’s own faculty of judgment. In arriving at that judgment, I cannot ignore the fact that, as Mr Mohyuddin submits, and as I accept, the company’s reluctance to tell customers that the two Preference Services can be obtained for free can only be explained on the basis that the company fears that to do so would have a detrimental effect upon its business. I have to ask myself: why does the company not want to have to notify consumers that they can register with TPS and MPS themselves for free? The only answer that I can supply, and that is consistent with the answer given by Mr Mohyuddin, is that the company is concerned that if that information were to be provided, an appreciable number of customers would decline the service that is being offered by the company. I have to bear in mind that this selling operation is conducted over the telephone, using a script following the form to which I have already made reference and which is in evidence before me. Although there are rights of cancellation that are even more generous than those strictly required by statute, nevertheless the consumer is being signed up on the phone there and then. Without wishing in any way to adopt a paternalistic approach to the provision of services and to the protection of consumers, it does seem to me that the average consumer, even though he is reasonably well-informed, observant and circumspect, is, as a result of the omission of what I have found to be material information, likely to be caused to take a transactional decision that he would not have taken otherwise.
In my judgment, again for the reasons given by Mr Mohyuddin, and contrary to the submissions of Mr Popplewell, I reject the latter’s submission that the fact that the company does not expressly inform consumers that there is a similar service available for free elsewhere cannot affect, or be likely to affect, the average consumer’s transactional decision. I cannot accept that the average consumer would already be well aware, not simply of the existence of the Telephone and Mail Preference Services, but also, as Mr Mohyuddin rightly emphasises, that such services are available to the consumer for free. As I say, it seems to me that that is borne out by the vigour with which the company is pursuing the present application, in order to be able to trade without informing prospective customers of this fact.
Therefore, for those reasons, I find that the proposed manner of trading would indeed be in breach of Regulation 6.