CPUT Banned Practices

February 27, 2014

Staying clear of the black list

  1. The Consumer Protection from Unfair Trading Regulations 2008 provide a broad and flexible enforcement tool.  However, this very flexibility can sometimes make it hard to tell whether a practice is permissible or not.
  1. It should be rather easier, one would have thought, when considering whether an activity falls within the list of “banned practices” which appear in Schedule 1 to the Regulations.  The Schedule lists a total of 31 practices and a trader will be guilty of a criminal offence if he engages in conduct which falls within any one of 29 of those 31 practices.  However, even this may not be so simple.

What are the ingredients of a “banned practice” offence?

  1. Regulation 12 states that a trader is guilty of an offence if he engages in a commercial practice set out in any of paragraphs 1-10, 12-27 or 29-31.  This involves proof that:
    1. the defendant is a trader;
    2. he is engaged in a commercial practice; and
    3. this falls within one of the listed paragraphs.

Who can be a trader?

  1. In R (Surrey Trading Standards) v Scottish and Southern Energy plc [2012] C.T.L.C. 1, the Court of Appeal commented on the “width and elasticity” of the definition of “trader”.  In that case a holding company which did not itself trade was nonetheless held to be capable of being a trader.

What is a commercial practice?

  1. The next element – that of “commercial practice” – is similarly widely drawn, but thanks to some recent caselaw there is more room for argument.  It has been argued successfully in the Crown Court that a commercial practice has to be “an outwardly facing aspect of the commercial strategy of the organisation” (R (London Borough of Tower Hamlets) v Christopher Steele [2012] C.T.L.C. 109).  If that is correct, an employee’s default would not constitute a commercial practice and therefore no offence would be committed.

Examples of the banned practices

  1. The banned practices are best dealt with in a practical context.  Two case studies will be considered below, one of which has led to court action and the other resolved by undertakings given to the Office of Fair Trading.  Each of these cases shows that the terms of the banned practices need to be considered carefully.

Bait advertising and astroturfing

  1. An OFT investigation into the activities of a group-buying website “Groupola” uncovered evidence of bait advertising, in the form of a promotion for an iphone at a vastly reduced price.  It transpired that only eight handsets were actually available at the stated price, despite the presence during the sale of indications suggesting that many more had already been bought by consumers.  The activities of the trader were considered by the OFT, unsurprisingly, to be a breach of paragraph 5 of schedule 1, which specifically outlaws bait advertising.
  1. More interesting was the OFT’s assertion that paragraph 22 had been breached by the trader in circumstances where an employee had posted positive comments on its website relating to the sale.  Paragraph 22 bans traders from “falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer”.
  1. In that case the employee specifically asserted that he was not employed by Groupola, but businesses will need to take care if tempted to carry out such “astroturfing” in relation to their own products.

Illegal satellite decoders?

  1. Officers from Brent and Harrow Trading Standards Service investigated the sale of Albanian satellite decoder cards in March 2011, on the basis that the seller was acting in breach of paragraph 9 of Schedule 1, which prevents traders from “stating or otherwise creating the impression that a product can legally be sold when it cannot”.
  1. The Administrative Court disagreed, concluding in R v. Brent Magistrates’ Court [2012] EWCA 2140 (Admin) that it could not be said that it would be a criminal offence to sell such cards in the UK (for reasons relating to the interpretation of complex copyright legislation).  The most that could be said was that there would be a civil breach of contract if the cards were sold. Paragraph 22 was not intended to cover a sale which was simply a civil breach.

Conclusions

  1. Even the “banned practices” do not provide an “open and shut” enforcement tool.  Businesses should be alive to counter arguments such as those set out above.