The UCPD and its General Prohibition 15

is not explicitly prohibited is allowed. The Directive is principle-based, being founded on the principle not to trade unfairly and on a general prohibition of unfair commercial practices. Given its very broad scope, the general prohibition should not easily be circumvented even by the most imaginative rogue traders.

2. THE SCOPE (ARTICLE 3)

Article 3 specifies what is within the scope of the Directive and, equally important, what is not.18 The Directive applies to commercial practices both before and after any purchase by a consumer. The post-sale application is necessary to capture situations where the consumer has a continuing relationship with the trader, such as in the case of a magazine subscription or the purchase of a car from a dealer. It ensures that aspects of the relationship which are not governed by the underlying contract can be dealt with and that, where promises made to consumers pre-sale are not honoured, this unfair practice can be resolved per se, in addition to any contractual remedies available to the consumer. Take, for example, an Internet service provider which promises in its advertising free 24-hour online service availability. If, after the consumer has subscribed to the contract, the ISP does not provide such a service or does not answer the consumer’s telephone calls, this will be an unfair practice. Another clear-cut example of an unfair commercial practice conducted after the sale is a unilateral breach of contract.19

The Directive protects the economic interests of consumers, and as such harmonises only the business-to-consumer economic aspects of the marketing laws of the Member States.20 Issues of taste and decency are outside its scope. These issues are rooted in the cultural traditions of the Member States and can hardly be harmonised at the European level. Ethical issues, such as corporate social responsibility, are also outside its ambit, but they become relevant if the trader establishes a clear link between its commitments in these areas and the marketing of its products. For example, if the

18Art 3 of the Directive, above n 2.

19In the US Orkin, a company providing disinfecting and pest control services, had entered into contracts with consumers to provide lifetime termite protection services for a fixed annual fee. There was no contractual basis for Orkin to raise these fees. In 1980, Orkin unilaterally breached 207,000 of these contracts by raising the annual fee. In 1986 The Federal Trade Commission found that this widespread, unilateral breach of contract was unfair: see Orkin Exterminating Co. Inc., 108 FTC 263 (1986); affirmedin, FTC v Orkin, 849 F 2d 1354 (11th Circ, 1988).

20For the purpose of this chapter, marketing laws may be defined as those which regulate how products and services can be lawfully marketed. These laws cover a boundless number of issues ranging, eg, from the protection of the economic interests of consumer (eg misleading advertising addressed to consumers), to unfair competition, to food law.

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trader falsely states in its advertising that it does not use child labour for the manufacture of its products, this will be misleading under the Directive.

Consumer health and safety aspects of products and services are also outside its scope, but they become relevant when the corresponding information is provided to the consumer in a way that is unfair under the Directive. For example, the Directive does not regulate the safety requirements of goods and services and is not concerned with the consequences stemming from placing unsafe products on the market. However, if a trader makes a false or otherwise misleading claim as to the safety of a product (eg in relation the quantities of fat in food), the claim will be misleading under the Directive. This is because misleading claims can impair the consumer’s ability to make an informed economic choice and, thus, may harm his economic interests.

The Directive does not deal with contract law and has no bearing on the conditions of formation, validity or effect of the contract. This means that the fact that a consumer has concluded a contract because, for example, he has been misled by an unfair commercial practice is irrelevant under the Directive, which provides for no remedies to invalidate the contract. Of course, the Directive will not limit the general contract law remedies (eg rescission of the contract or appropriate reduction of the price) available to the consumer who has entered into a contract upon being misled. In that case, the consumer will have to institute an action in a civil court, and the fact that the contract has been preceded by a misleading practice will be an important factor that the court will have to take into account.

A more complex matter is the relationship between the Directive and the laws of the Member States on unfair competition. The immediate aim of the Directive is to protect the economic interests of consumers from unfair commercial practices. In doing so, it also protects legitimate business from unfair competition, ensures the integrity of the market and facilitates lawful competition. If a company misleads consumers about its product, it could unlawfully steal business from its fair-dealing competitors who abide by the rules in their dealings with consumers. Unfair commercial practices may also cause an atmosphere of consumer distrust, which can reduce total welfare in several ways. These unlawful practices carried out by a group of traders may:

lead consumers to doubt the integrity of an entire industry or to distrust markets generally. Deception by Internet sellers, for example, could discourage consumers from using the Internet to gather information and make purchases. Truthful sellers must resort to extraordinary measures to persuade consumers of their honesty.21

21 TJ Muris, ‘The Interface of Competition and Consumer Protection’, Prepared Remarks at the Fordham Corporate Law Institute’s 29th Annual Conference on International Antitrust Law and Policy, New York City, 31 Oct 2002, available at www.ftc.gov/speeches/muris/ 021031fordham.pdf, at 5.

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The protection of competitors from unfair competition is, however, an indirect effect of the Directive. The precondition for applying the Directive is the economic harm to the consumer. If a commercial practice harms only the competitor but does not hurt the consumer, it will fall outside the scope of the Directive. As a result, an act may violate the standard of unfair competition in certain Member States but still not be subject to the Directive. This is, for example, the case with denigration and slavish imitation (ie slavish copying independent of the risk of confusion for the consumer). The latter is forbidden in certain countries as an act of unfair competition because they consider that the company copying the product is taking undue advantage of the reputation or expenditure of a competitor. 22 Consumers may derive an advantage from the placing on the market of such products, which may be substitutes having the same quality as the branded products but lower prices. Therefore, such an action does not all foul of the Directive. Practices that are classified as unfair competition and do harm the economic interests of consumers, such as confusing marketing (ie marketing which generates a risk of confusion with the products and distinctive signs of a competitor), fall within the scope of the Directive.

It goes without saying that the Directive does not deal with antitrust matters, such as anti-competitive agreements, abuses of dominant positions, mergers and acquisitions. The Directive also does not call into question the laws of the Member States establishing the conditions of establishment or the authorisation regimes for the exercise of professions. It does not affect the codes of conduct and other specific rules governing regulated professions that the Member States may impose on professionals.

The Directive is a framework law which applies only when there is no sector-specific legislation regulating unfair commercial practices. In application of the principle lex specialis derogat legi generali, when such specific legislation exists and harmonises the subject matter in an exhaustive manner, its provisions will prevail over those of the Directive. For example, the special provisions on labelling of cosmetic products contained in Article 6 of Directive 76/768 take precedence over the Directive.23

Where a sectoral legal instrument regulates only certain elements of commercial practices, such as the pre-contractual information requirements, the Directive will be applicable for the other outstanding elements. For example, the Directive will come into play if the general information to be provided by service providers under the E-commerce Directive is provided

22Eg It is prohibited in France: Art 1382 of the Code civil, but not in the UK.

23Council Directive 76/768/EEC of 27 July 1976 on the approximation of the laws of the Member States relating to cosmetic products [1976] OJ L 262/169, as amended by Council Directive 93/35/EEC of 14 June 1993, [1993] OJ L 151/32. On this lex specialis issue see Case C–99/01 Linhart & Biffl v Unabhängiger Verwaltungssenat [2002] ECR I–09375, paras 17–21.

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in a misleading way.24 In this context, the Directive may be described as a gap-filler, since it will fill the consumer protection lacunas in existing sector-specific legislation.

3. INTERNAL MARKET (ARTICLE 4)

Article 4 is an important provision that enables the Directive to achieve its Internal Market effects in full.25 By enshrining the principle of mutual recognition, it prevents the Member States from restricting the free movement of goods and services on grounds falling within the field coordinated by the Directive. This means that the Member State of the consumer (the country of destination) will not be able to stop, or make it more difficult for, a trader operating from another Member State (the country of origin) to market its product on account of differences between its national law transposing the Directive and the law of the trader.

Mutual recognition applies in the field harmonised by the Directive. It does not apply to matters which are outside the scope of the Directive (eg taste and decency). The Directive is the first European consumer protection law containing a mutual recognition clause. The Commission included such a clause in the Directive because it considered that the full harmonisation and the high common level of consumer protection introduced by the Directive created the conditions to make mutual recognition politically acceptable and workable in this field.

Unlike the original proposal of the Commission,26 the Directive contains no choice of law rules. In private actions, the applicable law (ie the law determining the extra-contractual liability of the trader) will, therefore, have to be determined on the basis of the international private law rules.27

24Directive 2000/31/EC of the European Parliament and of the Council, of 8 June 2000, on certain legal aspects of information society services, in particular electronic commerce in the Internal Market [2000] OJ L 178/1.

25Art 4 of the Directive, above n 2.

26Under Art 4(1) of the Commission proposal, ‘[t]raders shall only comply with the national provisions falling within the field approximated by this Directive, of the Member State where they are established. The Member State in which the trader is established shall ensure such compliance’: Proposal for a Directive of the European Parliament and of the Council, concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC, COM(2003)356 final. Art 4(1) was deleted during the legislative procedure.

27Once adopted, in the EU these will be the rules contained in the Proposal for a European Parliament and Council Regulation of 22 July 2003 on the law applicable to non-contractual obligations (‘Rome II’), COM(2003)427 final. Under Art 5 of the Proposal, ‘the law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are or are likely to be directly and substantially affected’. This means that legal actions originating from cross-border disputes involving the provisions of the Directive will normally be subject to the law of the country of destination, which is the country of the consumer.

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The principle of mutual recognition in Article 4, it is argued, should be applied regardless of whether the applicable law, designated by the international private law rules, is the law of the country of destination. If the commercial practice is in conformity with the law of the country of origin, but the applicable law is the law of the country of destination and the practice is not in conformity with this law, the court hearing the case will have to disregard the law of the country of destination. In this case, the law of the country of destination insofar as it restricts the practice, for example by imposing additional requirements on the trade, will be an Internal Market barrier incompatible with Article 4.

Given the maximum harmonisation brought about by the Directive and its level of detail, the question of the applicable law should become much less relevant.28 The Directive should reduce considerably the differences between the laws of the Member States and so make the issue of whether the law of the country of origin or of the country of destination is applicable in cross-border cases of little importance. This point is illustrated by the recent Duchesne case, where the UK Office of Fair Trading (‘OFT’) sought the first ever cross-border injunction in Europe.29 The OFT obtained the injunction against the Duchesne company in the Brussels Commercial Court to stop a Belgian trader from sending Misleading Prize Notifications to consumers in the UK. The OFT brought proceedings for breaches of the Belgian and English laws implementing the Misleading Advertising Directive. In granting the injunction, the Belgian court ruled that the applicable law was English law. Duchesne appealed against the injunction. The Court of Appeal upheld the original ruling, but took the view that the applicable law was Belgian law.30 This case shows that unfair cross-border practices will normally constitute an offence under the laws both of the country of origin and of the country of destination.31 Nevertheless, there may still be

28The substantive provisions of the Directive, it is submitted, could in theory be directly applicable without requiring any transposition act of the Member States. These provisions are imperative and sufficiently precise as to confer individual rights on consumers and, therefore, in accordance with the case law of the Court of Justice, could be directly applied even if the Directive were not transposed: eg see Case C–431/92 Commission v Germany [1995] ECR I–2189, at 2224.

29The OFT initiated the action under s 8 of the Enterprise Act 2002, which gives effect to the Injunctions Directive. This directive gives an enforcement body or organisation designated by one Member State (such as the OFT in the UK) the power to take action before a court in another Member State (eg Belgium) against traders based in that Member State. The precondition for seeking the injunction is that the trader through an infringment of certain EU consumer protection laws is harming the collective interests of the consumers of the country of the enforcer (eg the UK): Directive 98/27 of the European Parliament and of the Council of 19 May 1998, on injunctions for the protection of consumers’ interests [1998] OJ L 166/51.

30D Duchesne v OFT, Court of Appeal, Brussels, 8 Dec 2005.

31The conclusion that is drawn from Duchesne, which is about the cross-border application of the Minimum Harmonisation Directive on Misleading Advertising, is a fortiori valid for the Directive, which provides for full harmonisation.