6

Unfair Commercial Practices

Directive—A Missed Opportunity?

GERAINT HOWELLS*

1. INTRODUCTION

THE UNFAIR COMMERCIAL Practices Directive (UCPD)1 was a bold measure. The field it covers is broad and notoriously difficult to regulate. The introduction of a European general clause was the fulfilment of a long-term ambition for many in the consumer movement and was especially welcome in countries like the United Kingdom where there had been no previous general clause regulating fair trading. Why then do I describe it as a missed opportunity? This is because of the juxtaposition of two sets of factors. First, I will make some criticisms of the form of the European legislation. In and of themselves these would not be damning. This is a difficult area to legislate on even at the national level, but, given the need to find a European consensus the drafters of the Directive, can be considered to have made a good first effort. The problem is that the newcomer European legislators believe they have found the perfect solution and have imposed it on all Member States and prohibited any greater protection being offered. It is the option of maximal harmonisation that turns the spotlight on the quality of the drafting and makes this a missed opportunity. Along the way this may have an important impact on the form and style of enforcement as specific punctual laws give way to reliance on general clauses and injunctions take over from criminal sanctions as front

line tools of consumer protection.

* This chapter draws upon work done by me for European Fair Trading—The Unfair Commercial Practices Directive (with Hans Micklitz and Thomas Wilhelmsson) (Aldershot, Ashgate, 2006) and the section on maximal harmonisation is taken from ‘The Rise of European Consumer Law—Whither National Consumer Law?’ (2006) 28 Sydney Law Review 63. The paper this chapter is based on was presented in Malta on 17 Mar 2006 at a regional conference of the International Association of Consumer Law on Promoting Consumer Interests.

1 Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market [2005] OJ L 149/22.

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First some background. The prospect of a general directive on unfair commercial practices came on to the agenda with the Green Paper on EU Consumer Protection.2 Despite its broad title it really focused in on trade practices law and canvassed opinion on whether future European interventions should continue to be by punctual specific regulations (like the ideas that were developing around sales promotions) or whether a framework directive should be adopted. Even at this early stage the tone made it obvious that the Commission had ambitions for a general directive and this was confirmed in the Follow–up Communication on EU Consumer Law.3 This concentrated on the form such a general framework directive should adopt, and it was clear that it would be based on a general clause and limited to business-to-consumer contracts. Some Member States favoured extending it to allow businesses to challenge unfair practices of competitors, but the Commission did not want to go that far.

On 18 June 2003 the Commission adopted a proposal for a directive concerning unfair business-to-consumer practices in the Internal Market.4 The structure of the final Directive closely resembles that of the Proposal. At the same time the Commission also proposed a Regulation on Sales Promotion,5 which would have forced a greater liberalisation of the sales promotions allowed in Member States. It was strange for these two initiatives to have come forward at the same time from two different branches of the Commission. DG SANCO promoted the UCPD, whereas DG Markt is promoting the Sales Promotion Regulation as part of its services strategy. It was unfortunate in many respects that the two projects were not better co-ordinated, for whilst the Green Paper on Consumer Protection tried to open a debate on the nature of European regulation, the Regulation would dictate directly the form of regulation in a major area of European fair trading law.

The Sales Promotion Regulation has, however, proven to be very controversial and little progress has been made; it now looks likely to be abandoned. By contrast, given the broad ambitions of the Directive, the different national traditions in this field and the complex nature of the law and practice in this area, the proposal made relatively brisk progress through the political decision-making process. A political agreement was reached in Competitiveness Council on 18 May 2004 with a common position being agreed on 15 November 2004.6 The Directive was adopted at the Competitiveness Council on 7 March 2005 and Directive 2005/29/

2COM(2001)531.

3COM(2002)531.

4COM(2003)356.

5COM(2001)546 and the revised proposal at COM(2002)585. This is likely to be abandoned.

6[2005] OJ C 38/E/1.

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well-informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors, as interpreted by the Court of Justice’.9 There was a desire not to include a precise definition so as to allow jurisprudence to develop. Equally consumer advocates were keen to include references to social, cultural and linguistic factors to reflect the nuanced approach of the Court and to prevent the impression that European law uncritically assumed that everyone was always able to process information correctly and not be misled. It is therefore still a matter for debate whether European law will follow the hard-nosed European Court approach or allow (perhaps at the level of national application) more consumer friendly interpretations of the average consumer.10

Article 5 attempts to vary the average consumer standard to take account of the average member of a group that is particularly targeted. Moreover when a practice is aimed at the general public, but it is foreseeable that it is likely materially to distort the economic behaviour of only a clearly identifiable group which is particularly vulnerable to the practice or underlying product because of their mental or physical infirmity, age or credulity, then the practice is judged by the average member of that group. Especially the introduction of credulity risks undermining the general policy of judging practices by the average consumer standard. Moreover it is not clear whether these variations on the average consumer standard apply only to Article 5 or also the provisions on misleading and aggressive practices. This also turns on whether Article 5 should be viewed as the central provision or merely a fall-back clause.

A transactional decision requirement was built into the unfairness standard to underline that the test related to economic considerations, but has led to concerns about how much it limits the impact of the Directive. Consumer groups had concerns about the impact of this requirement on the need to establish causation between the practice and consumer detriment and also because there were difficulties in applying it to some situations where either unfair practices did not affect a transactional decision (for instance, when consumers ignored aggressive practices) or there was no opportunity for consumers to make a transactional decision (such as post-contractual removal of services by a trader). These concerns were not so much addressed as said not to be real concerns in practice. The transactional decision test is thought not to be a very high hurdle for consumers; we wait to see if the courts take a similar approach.

Annex I contains a list of commercial practices which are considered unfair in all circumstances. The original proposal listed 28 practices, which in the final version was extended to 31. Whereas some of these are

9Recital 18 ibid.

10See T Wilhelmsson, ‘The Informed Consumer v the Vulnerable Consumer in European Commercial Practices Law—a Comment’ (2006) 1 Yearbook of Consumer Law 211.

UCPD – A Missed Opportunity? 107

straightforward, others touch complex issues such as pyramid selling,11 and one might wonder whether there is a need for more detailed rules than are found in the Annex I. Also the matters listed appear to be a rather rag bag collection of unfair practices. Although they are listed under two headings dealing with misleading and aggressive practices it is not even clear that all the practices are listed under the appropriate heading, and in some cases one might question whether they all are indeed examples of misleading and aggressive practices. Some seem to be simply objectionable practices that have been listed with little attention being paid to defining the underlying policy for the prohibition.

This reveals a more fundamental problem of aligning the underlying philosophy of the Directive with some of its provisions. This is especially true of aggressive practices. Aggressive practice must have two causal effects. They must impair the consumer’s freedom of choice or conduct, and in turn this lack of freedom must cause her to take a transactional decision that she would not otherwise have taken. The requirement that the aggressive practice must significantly impair or be likely to impair the average consumer’s freedom of choice or conduct with regard to the product encapsulates the core mischief the rules on aggressive practices are aimed at. However, this highlights a more fundamental flaw in a test based on impairment of choice. This may work with many examples concerning coercion and undue influence. Even if a particular individual is able to withstand such pressure in appropriate cases it will be possible to argue that the average consumer would have freedom of choice or conduct significantly impaired. Impact of freedom of choice is, however, not the objection to many practices considered to be harassing that also fall within the definition of aggressive practices. Many such practices concern protection of the consumer’s private sphere rather than fears that they are forcing consumers into choices or conducts they would not normally make.12 For instance, few people actually respond to unsolicited e-mails. It does not affect transactional decision-making for most consumers, but it does irritate many, and it is often considered antisocial and should fall for consideration as an aggressive practice. Likewise the making of persistent and unwanted solicitations by telephone is unlikely to impair the freedom of the average consumer.13 One might even predict that it would have a negative effect on the average consumer and put him or her off trading with that business. But this is a practice that is always regarded as aggressive. It is hard to see a way of resolving this conundrum. One must conclude that the Article is badly drafted if the intention was, as it obviously was, to include such practices.

11Item 14, Annex I to the Directive, above n 1.

12H Köhler and T Lettl, ‘Das geltende europäische Lauterkeitsrecht, der Vorschlag für eine EG-Richtlinie über unlautere Geschäftpraktiken und die UWG-Reform’ [2003] Wettbewerb in Recht und Praxis 1019.

13Item 26, Annex I to the Directive, above n 1.