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The definition of "commercial practice"

Traffic lights iStock 000003944828XSmall 146 x 219A recent Divisional Court ruling on unfair commercial practices will be of interest to trading standards teams across the country, writes Tony Watkin.

The recent decision of the Divisional Court in Warwickshire County Council v Halfords (Competition and Markets Authority Intervening) [2018] EWHC 3007 (Admin) is a welcome clarification of the law regarding the scope of offences by a trader under Part 3 of the Consumer Protection from Unfair Trading Regulations (‘the Regulations’), and makes clear that an individual business transaction which does not involve a consumer is capable of amounting to an Unfair Commercial Practice within the meaning of the Regulations.

On one view of this case however it potentially widens the scope of such offences so that, perhaps counter intuitively, misleading and unfair Business to Business transactions could amount to offences under Part 3 of the Regulations.

The background to the case involved a set of circumstances that are the bread and butter of Trading Standards Services throughout the country. Warwickshire Trading Standards had commissioned a test purchasing operation targeted at garages offering motor vehicle servicing across the county.

One such test purchase was made at the Halfords Garage in Stratford-Upon-Avon. As is usual in these operations, a Trading Standards Officer booked a car in for the service over the telephone. The particular vehicle had been pre-inspected by a mechanical expert who had noted a number of issues about the car’s condition and also introduced a number of faults in the process. The officer took the car to the garage where the service was carried out and the officer collected the car and paid for the service upon being presented with an invoice setting out the costs. On reinspection of the vehicle it was found that a number of easily detectable faults which should have formed part of the service had been missed.

So far so uneventful and as would be expected, in due course the garage was charged by the local authority with engaging in a commercial practice which was a misleading action, contrary to r.9 of the Regulation. There was little in dispute between the defence and prosecution as regards the facts, however at the conclusion of the prosecution case, defence counsel submitted that there was no case to answer because (§20 of the Judgment):

  1. the “commercial practice” upon which the charge was based was restricted in the charge to the giving of the invoice to the officer,
  2. the officer was not a “consumer” within the definition of the 2008 Regulations, and so,
  3. the giving of the invoice to him was consequently not a prohibited “commercial practice” because it was not “directly connected with the promotion, sale or supply of a product to or from consumers”.

The findings of the Deputy District Judge (‘DDJ’) are set out at §21 of the judgment. He made two findings of significance here:

  • The Trading Standards Officer was not a consumer and therefore the giving of the invoice to him was not a commercial practice in that it was not directly or indirectly concerned with the supply of a product to or from a consumer.
  • The definition of a consumer in regulation 2(1) of the Regulations could not be interpreted to include a trading standards officer.

In conclusion the Deputy District Judge found that there was no commercial practice and dismissed the prosecution case. Warwickshire appealed to the Divisional Court by way of case stated. Three issues were raised, of which two are significant here namely:

  • That the Deputy District Judge was wrong to find that a Test Purchasing Officer was not a consumer within the meaning of the Regulations, alternatively;
  • If the officer was not a consumer, this was irrelevant to the question of whether the garage had engaged in a commercial practice. 

It is useful at this stage to remind the reader of the essential elements of an offence under r.9.

  • The defendant must be a ‘Trader’ (r.2(1));
  • The defendant must engage in a commercial practice as defined under r.2(1);
  • That commercial practice must contain false information (r.5(2); and
  • That false information must be untruthful in relation to any of the matters in r.5(4) or the overall presentation must deceive or be likely to deceive the average consumer in relation to any of those matters;
  • That commercial practice must cause or be likely to cause the average consumer to take a transactional decision he would not have taken otherwise (r.5(2)(b)).

It is clear from §25 of the judgment of the Divisional Court that it was not in issue that the garage was a trader, or that the invoice presented to the officer misrepresented that a full service had been carried out and therefore contained false information in relation to the r.5(4) matters; nor was it in dispute that an average consumer would have been likely to take a different transactional decision based on being presented with that information (indeed the DDJ so found). The issue came down to the definition of “commercial practice”. 

R.2(1) defines a “commercial practice” as (with my emphasis):

  1. any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product;

The argument on behalf of the defendant garage (§30 of the judgment) was that, although in certain circumstances a practice directed at consumers but not involving a particular consumer could be directly connected with the promotion etc to consumers e.g. an advertisement for a vehicle service, where the charge was limited to one transaction not involving a consumer it could not be. They argued that an individual vehicle service and in particular the presentation of the invoice in respect of that service, to a trading standards officer who (they said) was not a consumer was not directly connected with the promotion, sale or supply of a product to or from consumers. Accordingly they argued that the Deputy District Judge was correct to dismiss the charge.

In the event the Divisional Court did not decide the interesting question of whether the Trading Standards Officer was acting as a consumer (although given the definitions of “consumer” and “business” in r.2(1) this was not perhaps the strongest argument). The Divisional Court made the assumption that the officer was not acting as a consumer.

Hickinbottom LJ giving the Court’s judgment held that in interpreting the Regulations:

  1. The Regulations transpose the Unfair Commercial Practices Directive (2005/29/EC) into UK law.
  2. The Directive is a maximum harmonisation directive with the objective of providing a common high level of consumer protection throughout the EU.
  3. The terms of the Regulations and the Directive fall to be given “an independent and uniform interpretation throughout the European Union”;
  4. The term “commercial practice” is intended to have a “very broad meaning” and is to be construed purposively to give effect to the high level of consumer protection intended by the Regulations;
  5. There is nothing in the legislation which suggests that for there to be a proven commercial practice it is necessary for a particular consumer to be involved in a particular transaction.

The Court found that the argument that there could not be a commercial practice because the officer was not a consumer ran counter to the aims of the Directive and had an air of unreality since it was entirely fortuitous (§37 Judgment) that the service was provided to an officer and not a consumer. The Court stated that the requirement for the transaction to be directly connected with consumers was  “….clearly not intended to require a nexus with a particular commercial transaction, but rather to limit the scope of the regime to practices that bear a direct connection with consumers in the broad sense….this appears to focus upon practices which are in a broad sense targeted at consumers, rather than practices that are necessarily connected to a particular consumer transaction (§35 Judgment). 

The officer was testing a service of a type offered to consumers, the business thought it was providing a consumer service and in the circumstances therefore the presentation of the invoice was “directly connected with the promotion, sale or supply of a product to or from consumers” and was clearly a commercial practice within the Regulations. 

This decision is plainly correct in its outcome but does leave open some interesting and I suspect not entirely academic questions about the scope of a commercial practice. There would appear to be no distinction to be drawn between a Test Purchasing Officer, and for example a commercial delivery company taking their delivery vehicle into a garage for a service. In those circumstances, if the service is of a type provided to consumers albeit provided in this instance to a trader, the garage may be guilty of an offence under part 3 (assuming the other elements are made out). This opens up the possibility of the disgruntled trader who purchases goods from its stationary supplier, making a criminal complaint to Trading Standards on the basis that the goods could have been sold to a consumer. In those circumstances does such a potential offence fall within the remit of Trading Standards?

What was not considered in the Halfords case is what happens in the event that the garage provides different services to different types of customer. For example if the garage affords more or less contractual rights to a customer according to whether they are a consumer or business.  In this instance even though the particular work on the motor vehicle is still the same as that provided to a consumer can it still be said that the service is “directly connected with the promotion, sale or supply of a product to or from consumers” if the terms upon which that service or supply is given are different? Does it make a difference whether the business identifies itself as such at the time of purchase? 

There still remain therefore a number of questions which one or more local authority may find themselves having to grapple with despite the welcome clarification from the Divisional Court.

Tony Watkin is a barrister at St Ives Chambers.

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