Introduction

In August 2011 the Court of Appeal referred the case of Purely Creative and Others v. Office of Fair Trading to the CJEU for a preliminary ruling on the interpretation of paragraph 31 of Annex I to Directive 2005/29/EC concerning unfair business-to-consumer commercial practices (the “Unfair Commercial Practices Directive”).  Annex I lists those commercial practices which are regarded as unfair in all circumstances.  It includes:

“Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either:

- there is no prize or other equivalent benefit, or

- taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.”

Background

The original proceedings were brought by the OFT against Purely Creative and other traders in the High Court in December 2009.  The OFT was seeking to restrain the traders from continuing to distribute certain promotions, including individually addressed letters, scratch-cards and other advertising inserts placed in newspapers and magazines.  These promotions would inform the consumer that he was entitled to claim one of a number of specified prizes ranging from high to negligible in value.  In order to find out which prize he had won, the consumer was required to either call a premium rate telephone number, use a reverse SMS text messaging service, or obtain the information by ordinary post.  Less prominence was given to the postal method than the premium rate method.

In relation to the premium rate telephone number, the consumer was told the cost per minute and the maximum duration of the call.  He was not told, however, that in order to obtain the information necessary to claim the most common award (that of the lowest value), he would be required to make a call only a few seconds shorter than the maximum call duration, or that from the charge of £1.50 per minute, the promoter took £1.21.  Over 99% of those who claimed a prize were only entitled to receive the award of lowest value.  However, the process of claiming the award incurred a substantial proportion of the value of the prize through telephone or text charges and delivery and insurance charges.  It was not disputed that the prizes were genuinely available to the consumers concerned.

The High Court held that the promotions involved unfair practices, although on a more limited basis than argued for by the OFT.  The traders appealed against this decision and the OFT submitted a cross-appeal.

The Court of Appeal made a reference to the CJEU regarding the interpretation of paragraph 31.  The questions to be determined included the interpretation of the expression “false impression” and whether that provision prohibits the imposition of a cost, even de minimis in nature, on a consumer who has been informed that they have won a prize.

CJEU Decision

The traders argued that “false impression”, as referred to in paragraph 31, was a separate element from those situations set out in the second part of paragraph 31.  Under this interpretation, there could therefore be no unfair practice if the consumer was sufficiently informed of the cost of claiming the prize, there then being no false impression.

However, the CJEU rejected this interpretation, stating that the second part of paragraph 31 further explains the phrase “false impression”.  That phrase does not in itself constitute a separate element of the unfair practice.  The prohibited practice lies in creating one of the impressions referred to in the first part of the paragraph, when, as stated in the second part of the paragraph, those impressions do not correspond to reality.  The term “false” merely reinforces the sentence.

It is straightforward to see how a false impression is created if there is in reality, no prize at all.  However, the CJEU appears also to be saying that the very fact that a winner is required to pay a cost means that it is creating a false impression to say that he has won a prize at all.  The CJEU commented: “the concept of a true ‘prize’ should be preserved”.  The CJEU found that the wording of paragraph 31 does not allow for any exception.  The expression “incur a cost” prohibits the consumer from bearing any cost whatsoever, even if it is de minimis compared with the value of the prize, or a cost which would not procure any advantage for the trader, such as the cost of a stamp.  The wording “action in relation to claiming the prize” covers any step taken by the consumer to obtain information about the nature of his prize or to collect it.

The traders had argued that there could be no unfair practice where the consumer could choose between a number of options, one of which involved either a de minimis or no cost to claim the prize.  However, the CJEU held that even offering a number of options would not eliminate the unfair character of the practice if any of the options required the consumer to bear any cost whatsoever, as “a prize in respect of which the consumer is obliged to make a payment of whatever kind cannot be regarded as a ‘prize’”.

The traders used the example of the prize of a luxury car which had to be collected by the consumer in the country of manufacture, the consumer being required to bear the cost of registration and insurance.  The CJEU denied that it would be impossible to organise such promotional campaigns, stating that the trader could impose a geographic limitation on participation.  This would reduce the costs associated with travel by the consumer to take possession of the prize, which the promoter would have to bear.  When determining the value of the prizes, the trader is permitted to take into account the communication or delivery costs he will incur.

The CJEU emphasised the need for clear and sufficient information to be provided to the consumer in order to enable them to identify precisely the nature of the prize.  By way of example, the CJEU stated that a prize defined as an “entrance ticket” for a football match would not cover the costs of transport from the consumer’s home to the football stadium.  However, a prize of “attendance” at the game, would require the trader to bear the travel costs.  The CJEU has left the assessment of the clarity and comprehensibility of information to the national courts.

Comment

The part of this ruling dealing with the cost of claiming a prize has a potentially huge impact on promotions offering prizes conducted in the EU.  It appears to go much further than curtailing the type of promotions run by Purely Creative, by banning any prize promotion unless the prize can be structured in such a way as to avoid the need for the consumer to incur any cost whatsoever associated with claiming the prize.  For example, a promotion where the only such cost to the consumer is a local rate telephone call – even where there is an option of claiming a prize free of charge, for example by email – would be prohibited.

This ruling does not prevent promotions offering free gifts with purchase, or where there is a cost associated with collecting or delivering the item.  Under the Unfair Commercial Practices Directive consumers may be required to pay the unavoidable cost of responding to the promotion and of collection or delivery of a gift.  The decision also does not affect entry to a competition, where, for example, traders may still require consumers to purchase a product as a condition of their being entered into a prize draw (except in Northern Ireland, where under gambling legislation a free-entry route must still be offered).

In future, prize draws will need to be structured with considerable care.  In particular, promoters should take care to delineate the scope of prizes exactly – though the additional verbiage this will require may make marketing collateral less attractive and marketing messages less punchy.

The case will now return to the Court of Appeal and the full impact of the decision will be seen when the Court of Appeal hands down its final judgment.  This will be interesting as the High Court judge had stated: “I cannot, for example, conceive of any reason why a consumer who has won, say a new car for free delivery at the consumer’s home, requires to be protected from the cost of telephoning or posting a letter to the promoter specifying his address, and a convenient time at which he will be at home in order to receive his prize.”  Until that time, promoters should proceed with caution when conducting such promotions.  The Institute of Promotional Marketing Legal Advisory Service is already warning promoters that they must ensure that there is no cost involved to winners in claiming their prizes.

Case C-428/11, Purely Creative and others v. Office of Fair Trading, 18 October 2012.