Consumer redress for misleading and aggressive practices CM 8323

190 Pages·2012·1.26 MB·English

Law
Commission
Reforming the law
Consumer Redress for Misleading and Aggressive
Practices
Law Com No 332 / Scot Law Com No 226
The Law Commission
and
The Scottish Law Commission
(LAW COM No 332)
(SCOT LAW COM No 226)

CONSUMER REDRESS FOR
MISLEADING AND AGGRESSIVE
PRACTICES

Presented to the Parliament of the United Kingdom by the Lord Chancellor
and Secretary of State for Justice
by Command of Her Majesty
Laid before the Scottish Parliament by the Scottish Ministers
March 2012

Cm 8323
SG/2012/21
© Crown copyright 2012
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ii
The Law Commission and the Scottish Law Commission were set up by the Law
Commissions Act 1965 for the purpose of promoting the reform of the law.
The Law Commissioners are:
The Right Honourable Lord Justice Munby, Chairman
Professor Elizabeth Cooke
Mr David Hertzell
Professor David Ormerod
Miss Frances Patterson QC
The Chief Executive of the Law Commission is Elaine Lorimer.
The Law Commission is located at Steel House, 11 Tothill Street, London SW1H 9LJ.
The Scottish Law Commissioners are:
Laura J Dunlop QC
Patrick Layden QC, TD
Professor Hector L MacQueen
Dr Andrew J M Steven
The Chief Executive of the Scottish Law Commission is Malcolm McMillan.
The Scottish Law Commission is located at 140 Causewayside, Edinburgh, EH9 1PR.

The terms of this report were agreed on 20 February 2012.
The text of this report is available on the Internet at:
http://www.lawcom.gov.uk (See A–Z of projects > Consumer Redress for Misleading and
Aggressive Practices)
http://www.scotlawcom.gov.uk (See News column)
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THE LAW COMMISSION
THE SCOTTISH LAW COMMISSION

CONSUMER REDRESS FOR MISLEADING AND
AGGRESSIVE PRACTICES

CONTENTS
Paragraph Page

SUMMARY viii

LIST OF ABBREVIATIONS USED IN THIS REPORT xviii

PART 1: INTRODUCTION 1

This project 1.5 1
Background 1.7 2
Terms of reference 1.10 3
Preliminary consultation 1.12 4
The consultation proposals 1.17 6
Responses to the Consultation Paper 1.28 7
Where next? 1.40 9
The structure of this Report 1.44 10
Thanks 1.48 11

PART 2: THE CONSUMER PROTECTION FROM UNFAIR 12
TRADING REGULATIONS 2008

Implementing the European Directive 2.3 12
Scope 2.8 13
Unfair practices 2.12 14
When is a practice misleading or aggressive? 2.16 15
Causing the average consumer’s transactional decision 2.29 17

The “due diligence” defence 2.37 19
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Paragraph Page
Enforcement 2.39 20
Conclusion 2.50 22

PART 3: THE CURRENT LAW: PRIVATE REDRESS FOR 23
MISLEADING AND AGGRESSIVE PRACTICES

Private redress for misleading actions 3.3 23
Private redress for misleading omissions 3.33 32
Private redress for aggressive practices 3.49 35
Conclusion 3.72 40

PART 4: THE CASE FOR REFORM 41

Problems with the law on misleading practices 4.5 41
Problems with the law on aggressive practices 4.17 43
Unfair payment collection 4.34 46
A targeted reform 4.40 47

PART 5: RECOMMENDATIONS: AN OVERVIEW 52

A new Act 5.2 52
A targeted reform 5.5 52
The elements of liability 5.6 52
A replacement statute 5.16 54
Remedies 5.18 54
Creditor liability 5.24 56

PART 6: RECOMMENDATIONS I: SCOPE 57

What is a consumer? 6.3 57
Which transactional decisions should give rise to redress? 6.23 61

Against whom should redress be available? 6.61 66
Which products should be covered? 6.93 72

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Paragraph Page
PART 7: RECOMMENDATIONS II: LIABILITY 77

Introduction 7.1 77
Misleading omissions 7.3 77
The definition of “misleading” 7.38 83
The definition of aggressive commercial practices 7.62 86
The causation test 7.85 90
The impact on existing law 7.117 94

PART 8: RECOMMENDATIONS III: REMEDIES 98

Reliance damages or expectation damages? 8.3 98
An appropriate balance between certainty and flexibility? 8.16 101

Two tiers of remedies 8.24 102
Tier 1A: the right to unwind 8.27 104
Tier 1B: a discount on the price 8.118 118
Tier 2 remedies 8.142 121

PART 9: UNFAIR PAYMENT COLLECTION 127

Introduction 9.1 127
How consumers are affected 9.9 128
Which collection activities are covered by the Regulations? 9.34 133

Should the Regulations be amended? 9.47 136
Should misleading or aggressive demands for payment be 9.60 138
covered by the new Act?

Should demands for damages against alleged wrongdoers be 9.77 142
covered by the new Act?

PART 10: CREDITOR LIABILITY 146

Introduction 10.1 146
Direct lending and connected lending 10.5 147
A problem with direct lending 10.6 147
Our proposals: direct lending 10.10 148
Our proposals: connected lending 10.18 149
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Paragraph Page
PART 11: ASSESSING THE IMPACT OF REFORM 155

Benefits 11.4 155
Costs 11.22 158
Conclusion 11.42 161

PART 12: LIST OF RECOMMENDATIONS 162

APPENDIX: LIST OF RESPONDENTS 168

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THE LAW COMMISSION
AND
THE SCOTTISH LAW COMMISSION

CONSUMER REDRESS FOR MISLEADING AND
AGGRESSIVE PRACTICES

SUMMARY

S.1 This Joint Report by the Law Commission and Scottish Law Commission
considers the redress available to consumers who have been the victims of
misleading or aggressive practices by traders.
S.2 Sanctions against such practices are set out in the Consumer Protection from
Unfair Trading Regulations 2008 (the Regulations).1 The Regulations concern
public enforcement rather than private redress. They do not give consumers the
right to start civil actions to obtain compensation or other remedies. Instead,
consumers must rely on existing private law doctrines, such as the law of
misrepresentation and duress. This is problematic: the law of misrepresentation
is complex and uncertain; while the law of duress leaves gaps in protection.
S.3 Misleading and aggressive trade practices are common and lead to a high level
of consumer detriment.2 They are a particular problem for vulnerable consumers.
In the course of this project, we were given many examples of elderly consumers
who had suffered unscrupulous hard-selling on the doorstep, where, for example,
salesmen pretended to be from social services or refused to leave when asked.
CALLS FOR REFORM (Part 1)
S.4 In 2009, Consumer Focus called for a private right of redress for all consumers
who suffered loss through a breach of the Regulations. They pointed out that
scams are all too common but relatively few prosecutions are brought. They
thought that enforcement would be more effective if public authorities and
consumers “worked in tandem”, using both private and public enforcement
sanctions.3

1 SI 2008/1277.
2 Consumer Focus, Waiting to be heard: Giving consumers the right of redress over Unfair
Commercial Practices (August 2009) p 3.
3 Above.
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S.5 These calls were echoed at European level. In 2009, the European Parliament
asked member states “to consider the necessity of giving consumers a direct
right of redress” to ensure that they are sufficiently protected against unfair
commercial practices.4
S.6 In 2010, the Department for Business, Innovation and Skills (BIS) asked the Law
Commission and Scottish Law Commission to conduct this review.5 Our aims are:
(1) to simplify redress for misleading commercial practices;
(2) to simplify redress for aggressive commercial practices; and
(3) to fill gaps in protection, where a consumer is unable to gain redress for
serious breaches of the Regulations.
S.7 This Report does not include a draft Bill, but we understand that our
recommendations will be considered as part of the Government’s proposed new
Consumer Bill of Rights.
THE CURRENT LAW
S.8 At present, misleading and aggressive trade practices are covered by two sets of
law. One is concerned with public enforcement and the other with private redress.
The two systems are completely different: although they both address the same
conduct, they use different terminology and concepts and lead to varied
outcomes.
Public law (Part 2)
S.9 The Regulations were introduced in 2008 to implement the Unfair Commercial
Practices Directive 2005.6 They replaced 23 previous enactments, including most
of the Trade Descriptions Act 1968.
S.10 Under the Regulations, traders may not engage in misleading or aggressive
practices which would be likely to cause “the average consumer to take a
transactional decision he would not have taken otherwise”.7 The terms “the
average consumer” and “a transactional decision” follow the wording of the
Directive, and implement European law. These concepts seemed strange at first,
but enforcement agencies are now becoming more familiar with them, and
gradually finding them easier to use.

4 European Parliament Resolution on the Transposition, Implementation and Enforcement of
Directive 2005/29/EC and Directive 2006/114/EC OJ C 46 of 13 January 2009, para 12.
5 For the full terms of reference please see paras 1.10 – 1.11 of this Report.
6 Directive 2005/29/EC (OJ 2005 L l49).
7 See for example Regs 5(2)(b) and 7(1)(b).
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