Reed Smith Client Alerts

Authors: Sakil A. Suleman

Type: Client Alerts

Executive summary

  • From 1 October 2014, consumers will have a new right of direct action against traders who engage in misleading or aggressive commercial practices.
  • Such practices must have been a “significant factor” in the consumer’s decision to enter into a transaction.
  • The new remedies available to consumers are the right to: (i) unwind the contract and receive a full refund; or (ii) receive a discount; and (iii) receive damages.
  • If all reasonable precautions are taken to avoid committing aggressive or misleading practices, the maximum extent of the trader’s liability to the consumer is the price paid for the goods or services.

Background On 1 October 2014,the Consumer Protection (Amendment) Regulations 2014 (SI/2014/870) (Regulations) will come into force amidst a wave of consumer protection law reform. The Regulations principally update the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), in a drive to empower consumers by simplifying private redress in this area.

Although under the CPRs it is essentially a criminal offence for traders to use misleading or aggressive commercial practices against consumers, this is currently only enforceable by the Competition Markets Authority and Trading Standards. Individual consumers seeking redress have to rely on technical civil law remedies based on misrepresentation, undue influence, harassment and duress. The Regulations seek to resolve this issue by providing consumers with a new direct right of action. The CPRs do, however, still apply and must be referred to in order to establish what constitutes aggressive and misleading practices.

Who is exposed to claims by consumers? Consumers can bring claims against the other party to the contract and/or the person who received payment from the consumer (referred to in the Regulations as the “trader”). In most cases this will be the retailer or service provider. Consumers do not have any rights against those further up the supply chain. However, where a producer has engaged in aggressive or misleading practices, the consumer will have a remedy against the trader if the trader could reasonably be expected to be aware of the producer’s conduct. “Producer” is defined in the Regulations as either a manufacturer or importer, or a person purporting to be a producer by placing the person’s name or other distinctive logo on the goods.

What commercial practices are covered? The Regulations introduce remedies for victims of misleading or aggressive commercial practices (as detailed in the CPRs). Such practices must have been a “significant factor” in the consumer’s decision to enter into a transaction they would not otherwise have entered into (note that this is a subjective test).

An action by a business is misleading if it contains false information or, taken as a whole, is likely to mislead the average consumer in its overall presentation. A typical example is an advertisement which promises an impossible level of performance.

Aggressive practices are those which would significantly impair the average consumer’s freedom of choice or conduct, including harassment, coercion or undue influence. For instance, a door-to-door seller refusing to leave until a purchase has been agreed would amount to an aggressive commercial practice.

The conduct in question is assessed objectively, by reference to the “average consumer” who is reasonably well informed, observant and circumspect. However, where commercial practices are targeted at or likely to affect distinct groups of vulnerable consumers, the objective test would not be appropriate and such consumers would be protected. Examples of “vulnerable consumers” given by the Department for Business Innovation and Skills (BIS) include the elderly and cancer patients subjected to misleading statements about the healing qualities of nutritional supplements. Easily influenced or particularly gullible consumers are not afforded the same protection.

What remedies are available to the consumer? Where a business’ commercial practices are found to be aggressive or misleading, several remedies may be available to a consumer.

A. Unwind the contract

First, victims of misleading or aggressive commercial practices can unwind the contract and have their position restored to that which he or she was in before entering into the contract or making the payment. There are, however, two limits to this right:

  1. The consumer must complain within 90 days.

    This 90 day period starts from either the date of the contract or of delivery of the goods or supply of the services (whichever is later). The complaint does not have to be in writing, but it must be a clear indication to the trader that the consumer rejects the product or service.
  2. It must be possible to return the goods (or at least some part of the goods) or to have rejected the service (at least some element of the service).

    Clearly, if the goods have been fully consumed or the service has been fully performed, it is not possible to unwind the contract and restore the parties to their original position.

Generally, the consumer will receive the full contract price refunded. However, a reduction will be applied if the contract was for the continuous or regular supply of goods or services (for example, a utility contract for electricity) and the consumer has consumed the goods or services for more than one month. In such cases, the market price of the goods or services will be deducted from the price paid by the consumer, before a refund is provided.

B. Receive a discount

If the right to unwind is not possible, either because the claim was not made within 90 days or because the goods have been fully consumed or services fully performed, the consumer will have the right to receive a discount on the amount originally paid. The amount of discount applied depends on the value of the contract.

  1. For goods or services that cost £5,000 or less:

    A fixed 25, 50, 75 or 100 per cent discount applies, depending on the severity of the misleading or aggressive practice. This is assessed by reference to the impact of the trader’s behaviour on the consumer, and the amount of the delay in raising a complaint.
  2. For goods or services that cost more than £5,000:

    The discount applied is the difference between the price paid by the consumer and the market price of the product at the time of the contract (of which there is clear evidence). For instance, if a consumer paid £6,000 for a car, which had a market value of £5,500 at the time of contracting (according to quotes obtained from competing traders), the trader will reimburse the consumer with £500.

C. Receive damages

Damages will be available for consequential financial loss (for instance, any associated remedial costs) and/or alarm, distress or physical inconvenience or discomfort. In accordance with general legal principles, only reasonably foreseeable losses are recoverable and (according to the BIS) only in exceptional circumstances would these exceed £1,000.

Unlike for remedies A and B above (where liability is strict), a trader can put forward a defence in response to a claim for damages. If the trader is able to show that the aggressive or misleading practice happened as a result of a mistake or other cause beyond the trader’s control, and that they took all reasonable precautions to avoid the practices from occurring, then this would constitute a defence to a claim for damages. This is referred to in the Regulations as the “due diligence” defence.

What do the Regulations mean for traders? The introduction of the Regulations opens the door to private civil claims made by aggrieved customers against traders. In addition, such claims may run in parallel with enforcement action taken by regulators. This raises the stakes and makes it more important for businesses to ensure that their practices are compliant with consumer protection law and that staff are being properly trained.

If all reasonable precautions are taken by a trader to prevent aggressive or misleading practices, the maximum extent of the trader’s liability to the consumer is a refund of the price paid for the goods or services. Traders are advised to consider conducting staff training and general due diligence; not only will this serve as a preventative measure, it will also ensure that traders are equipped with the due diligence defence to fend off the bulk of direct consumer claims.