Unfair Commercial Practices Directive
This EU Directive is to be become effective within the UK from April 2008. A number of existing laws will either be repealed or amended to avoid duplication and/or overlaps that would otherwise result.Why is there a need for a Directive on unfair commercial practices?
As the European Union develops, the potential for the internal market becomes ever greater. However, many consumers still hesitate when it comes to cross border transactions, worried that they will not be guaranteed the same level of protection that exists in their own country or confused about the different laws in other Member States.
The Unfair Commercial Practices Directive has been adopted precisely to overcome this obstacle. It will replace the multitude of rules in the various EU member countries with a common legislation and in so doing, will clarify and simplify the process of defining an unfair commercial practice. It will provide both consumers and traders with a single European reference point stating their respective rights whilst at the same time making it clear which commercial practices are and are not allowed.
What commercial practices will be covered by this new law?
Commercial practice refers to activities linked to the promotion, sale or supply of a product to consumers. It covers any act, omission, course of conduct, representation or commercial communication - including advertising and marketing - which is carried out by a trader. If a commercial practice is considered unfair, this means it is deemed to be unacceptable with regards to the consumer, according to specified criteria. In the past the notion of an unfair commercial practice was subject to variations between Member States. Now as a result of this Directive practices will be assessed according to the same criteria right across the European Union.
How is this Directive structured and what types of behaviour will be prohibited?
There is a general clause which contains the general ban on unfair commercial practices. This provision will replace Member States' existing, divergent general clauses and thus remove internal market barriers. In addition, there are two main categories of unfair commercial practices "misleading actions or omissions" and "aggressive" practices. It is likely that the vast majority of practices which would be considered unfair will fall under these two particular provisions. Finally, there is a list of 31 practices which will in all circumstances be regarded as unfair and thus will be banned.
How will these provisions be applied?
Firstly it is important to note that the Directive only applies to business to consumer transactions. Practices will be assessed in the light of the result they have, or are likely to have, on the average consumer*. That is, the effect a particular unfair commercial practice has on the consumer's economic interests.
*(The European Court of Justice refers to the "average consumer" as being a consumer who is "reasonably well-informed and reasonably observant and circumspect", taking into account social, cultural and linguistic factors.)
What will be a misleading action in a commercial practice?
A commercial practice will be misleading if it either:
· 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 correct AND
· causes or is likely to cause the consumer to take a transactional decision that he/she would not otherwise have taken.
The Directive in action:
A consumer in the UK receives a direct mailing from a company in another country selling a product that will help his hair to grow back in three weeks. The mailing says that the product is "tried and tested". But the product does not work.
The Directive specifically tackles traders who make false claims about the effect of a product. A trader who makes a claim about the effect of a product will have to be able to back it up - wherever in the EU the trader is based.
What will be a misleading omission in a commercial practice?
Omissions refer to the fact that consumers need information to make informed choices. A trader must provide material information that the average consumer needs. It will be misleading to:
· omit material information that the average consumer needs, according to the context to take an informed transactional decision
· hide or provide material information in an unclear, unintelligible ambiguous or untimely manner
· fail to identify the commercial intent of the commercial practice if not already apparent from the context.
When assessing practices for omissions, the following aspects are taken into consideration:
· What counts is the effect of the commercial practice in its entirety, including the presentation
· Information must be displayed clearly; obscure presentation is likely to amount to an omission to inform
The Directive in action:
A small garden centre opened its doors selling foreign species of plants and shrubs for gardens. A consumer purchased a certain type of plan but it died one week later. The consumer then found out that the type of plant was actually a house plant that should not have been planted in the garden. When the consumer returned to the garden centre to ask for a refund, he was told that it was his fault that the plant had died and that he should have understood what type of plant it was.
The garden centre will have to give the consumer key information needed to make a transaction unless it is apparent from the context. Here, the context in which the plant was sold misled the consumer about the product i.e. a house plant being sold as a plant for gardens.
What will be regarded as an aggressive commercial practice?
A practice will be considered aggressive if the average consumer's freedom of choice or conduct is significantly impaired as a result. The Directive contains a list of criteria to help determine whether a commercial practice uses harassment or coercion, including physical force or undue influence. (Undue influence means exploiting a position of power in relation to the consumer so as to apply pressure, with or without using or threatening physical force, in a way which significantly limits the consumer's ability to make an informed decision.)
The Directive in action:
A consumer contracted with a plumber to fix a faulty radiatior. He was initially told that the job would cost £80.00. However, instead the bill came to £450.00. When the consumer refused to pay the additional amount the plumber disconnected the consumer's hot water supply.
The Directive would class this behaviour as an aggressive practice. The plumber is using undue influence to exploit a position of power over the consumer.
How will unfair commercial practices be identified?
There will be two defining criteria used to identify an unfair commercial practice where they are not caught under the specifics of misleading or aggressive practices. The following therefore only relates to the general ban on unfair commercial practices. A commercial practice will be unfair if it is contrary to the requirement of professional diligence* AND materially impairs or is likely to impair the average consumer's ability to make an informed decision AND causes the average consumer to take a transactional decision* they would not have otherwise taken.
*Professional diligence: the standard of special skill and care which a trader is reasonable expected to exercise in line with honest market practice and/or the general principle of good faith in the trader's field of activity.
*Transactional decision: e.g. whether or not to buy, on what terms to buy, how much to pay, whether to pay all money in advance, whether to keep a product, whether to dispose of it, whether to exercise a transactional right.
Misleading actions/omissions will be assessed only on the basis of the effect such conduct has had on the consumer's transactional decision.
Aggressive practices will be assessed on the effect such practices have had on the average consumer's freedom of choice or conduct and the resulting transactional decision made.
There is no impairment or transactional decision tests needed in connection with the 31 specified banned practices. They will automatically be deemed unfair.
Will this Directive result in criminal offences being introduced?
Yes but only for the most serious breaches. In the main the Regulations that will implement this Directive in the UK will be enforceable by civil proceedings under the Enterprise Act 2002. Currently the Government has still to confirm in detail how the criminal sanctions will work.
How many UK laws are going to be affected by this Directive?
A total of 22 laws will be affected. 13 will be repealed outright and 9 will be repealed in part. The Trade Descriptions Act 1968 is one which will be affected. This Act's broad offences are almost entirely replicated by the Directive so the bulk of this Act will be repealed subject to criminal sanctions with defences where appropriate being included in the new Regulations.
Further information on this Directive can be located on the Department of Trade & Industry's website. Additional information will be available in the coming months.
