New guidance provides further detail on how the UK government envisages the new regulations that provide private rights for consumers to sue traders will work when they come into force on 1 October. In addition to being able to unwind the contract or claim a discount where they have been affected by misleading or aggressive commercial practices, consumers will also have a right to claim compensation for other losses in certain circumstances. This is an area that all businesses ought to watch, and one where consumer facing businesses should take appropriate action to prepare themselves for claims.
What the guidance says
The UK Department of Business Innovation & Skills has now published Misleading and aggressive commercial practices - new private rights for consumers: Guidance on the Consumer Protection (Amendment) Regulations 2014. With effect from 1 October, the Regulations will provide consumers with new rights to sue traders for compensation, along with other remedies. The rights are triggered where consumers are affected by a misleading action or aggressive commercial practice by a trader, and where this was a significant factor in the consumer’s decision to enter into the relevant contract.
Our previous briefing, New rights of consumer redress, sets out further details on the new rights.
The guidance is divided into two parts, the following points are of note:
Part one: what triggers the new rights
- Misleading omissions: the Regulations do not provide consumers with a private remedy against a trader for misleading omissions. However, the guidance confirms that this limitation is likely to be relatively narrow in practice. It suggests that omitting material information is likely to create a misleading overall presentation in most situations and will, therefore, count as a misleading action;
- Banned practices: schedule one of the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs) sets out a “blacklist” of practices which will always be considered unfair. These include marketing directly to children and falsely claiming that a product is able to cure illnesses. The guidance clarifies that blacklisted practices will not automatically give rise to rights for consumers to sue. However, such conduct will, in many circumstances, be either misleading actions or aggressive commercial practices, triggering the new remedies available;
- The consumer’s decision: the new Regulations stipulate that the misleading action or aggressive commercial practice must have been a ‘significant factor’ in the consumer’s decision to enter into the contract. The guidance provides only limited clarity on what a significant factor is; this will be for the courts to decide in line with existing case law on the subject. However, the guidance indicates that it is not necessary to show that the prohibited behaviour was the only, or even the main cause, of the consumer’s decision to contract;
- Average consumer test: the new Regulations only apply if the ‘average consumer’ would have entered into the contract in the same circumstances. There is an abundance of existing case law on the concept of the ‘average consumer’, which we would expect to apply here. The guidance notes, for example, that where an offer is patently too good to be true, this may mean that a consumer who nonetheless decides to contract will have no right to sue under the new rules;
- Producers: if a producer of a product is engaged in a misleading or aggressive commercial practice, a consumer may have a remedy against a trader if the trader was, or could reasonably be expected to be, aware of it. The guidance suggests a trader may be liable where, for example, a high profile advertising campaign is conducted by the producer claiming products had features which they in fact did not have. This will be of particular concern to retailers and will need to be borne in mind when allocating litigation risk in agreements with suppliers and brand owners.
Part two: what the new rights are
The standard remedies
- The right to unwind the contract: this depends on being able to return the goods or reject the service, within the 90-day deadline. The guidance confirms this is not an all-or-nothing requirement. Accordingly, it is enough that it is possible to return some element of the product, or, in the case of services, that the consumer rejected some element of the service before it is fully performed. Further, there is no allowance for use unless the conditions relating to continuous supply contracts (e.g. utility contracts for gas and electricity) apply; or
- The right to a discount: for goods or services, costing £5,000 or less, the seriousness of the misleading or aggressive commercial practice is to be assessed by reference to the behaviour of the trader, its impact on the consumer, and the amount of delay. Discounts apply to both future payments and those already made. The guidance contains an example relating to the sale and supply of double glazing. It suggests a more than minor event, leading to a 25 per cent discount, might occur where a misleading representation has been made regarding the characteristics of the product which means that whilst it still works, it is not as effective as claimed. At the other end of the scale, a very serious event leading to a 100 per cent discount may involve the need to undertake replacement works due to the lack of effectiveness of the double glazing, coupled with pressure selling tactics by a doorstop seller who had specifically targeted an elderly person, including telling him/ her that the works were required by the local authority.
Note that the consumer does not need to need to demonstrate any loss to take advantage of either of the standard remedies. Nor does the consumer have to show the trader acted dishonestly, recklessly or even negligently as they apply on a strict liability basis.
- Damages: the remedies for damages apply where the consumer’s losses exceed the price paid for the goods or services in question. The guidance indicates that the government anticipates the amount that a consumer can claim by way of damages for distress and inconvenience would only in exceptional circumstances exceed £1,000. Consumers will also be able to claim for consequential financial loss, e.g. any additional cost involved in undertaking remedial or replacement works. To succeed in a damages claim, consumers would also need to provide evidence of their actual loss, and prove that the loss was reasonably foreseeable.
- Due diligence defence: A trader will not be liable to pay compensation if it can make out a “due diligence” defence in respect of the claim. This would involve the trader showing it had taken reasonable care to avoid committing the misleading or aggressive commercial practice complained of. However, importantly, the defence is not available in respect of standard remedies, only to damages claims. In practice, this will mean that, in the words of the guidelines, “if a trader takes all reasonable precautions to avoid committing misleading and aggressive practices, the maximum extent of its liability to the consumer is the price paid.”
How will these new rights work in practice?
These new rights are likely to be of interest to consumers and to claimant lawyers when they come into force on 1 October. The examples given in the guidance all point to fairly obvious misleading or aggressive commercial practices. What is less obvious is how the new rights will apply where the practice is more nuanced and the law is less clear.
These new consumer rights need to be seen in the wider context, both of the significant changes to UK consumer law and landscape that are currently underway (see Consumer Rights Bill receives first reading and New rights of consumer redress) and of civil litigation practice more generally. Both may in fact limit their application in practice.
Imagine, for example, that it is clear that a producer or retailer has run a misleading advertising campaign in relation to a consumer product. Such a situation could, for example, result from a decision of the Advertising Standards Authority or a successful prosecution under the CPRs.
In those circumstances, individual consumers may ask the trader for a refund of the purchase price using these new rules, but only in exceptional cases should they have any additional claim for damages. This may limit the willingness of claimant law firms to take on such cases, particularly in circumstances where the only mechanism for representation of a class of affected consumers is – as at present – based on individual consumers having to “opt in” to the group. There may, however, be more interest from the claimant bar in very high profile cases, and we would also expect to see these new rights being pleaded as “add-on” causes of action in product liability litigation where claims are issued after 1 October, in which allegations concerning the marketing of products are already common.
In addition, on the same fact pattern, the producer or retailer could, however, still face significant financial exposure as a result of parallel reforms, which will allow courts to make compensation orders on behalf of classes of consumers where regulators apply for them to do so (see New rights of consumer redress).
This is an area that all businesses should watch. The changes raise the stakes in terms of the threat of consumer litigation. Against this back-drop, consumer facing businesses particularly should:
- assess their internal processes and systems to spot and take steps to prevent conduct that infringes consumer or product safety law;
- critique consumer-facing business models and activities to ensure they credibly defend against accusations of taking advantage of, or misleading, consumers; and
- ensure the central compliance or legal function has a complete view of consumer-facing activities across all markets and channels.