Office of Fair Trading v Purely Creative Ltd & Ors

Factual and Procedural Background

This opinion concerns an application by a governmental enforcement authority ("the Enforcer") for an order under section 215 of the Enterprise Act 2002 to prevent a group of defendants ("the Defendants") from continuing to distribute consumer promotions alleged to involve unfair commercial practices prohibited by the Consumer Protection from Unfair Trading Regulations 2008 ("the Regulations"). The disputed promotions consisted of personalised letters and inserts in newspapers and magazines inviting consumers to claim prizes, awards, or rewards, which the Enforcer alleges to be misleading in multiple respects.

The Enforcer sought an enforcement order following extensive consultation and negotiation with the Defendants, which failed to produce satisfactory undertakings. The Defendants contended that the undertakings sought would effectively require them to cease their promotions business, while the Enforcer maintained that the Defendants’ offered undertakings were insufficient to address the conduct complained of.

The case focuses on five specific promotions conducted in 2008 ("the 2008 promotions"). These promotions occurred after earlier undertakings ("the Assurances") given by the Defendants in 2007 under a predecessor consumer protection regime. The Enforcer alleged that the 2008 promotions breached both the Assurances and the Regulations, or alternatively that the Assurances were inadequate to ensure compliance with the Regulations as enacted in May 2008. The Defendants denied any breach and challenged the necessity and form of the enforcement order sought.

There was no dispute as to primary facts, and the parties agreed that cross-examination was unnecessary. The Defendants provided extensive information about their conduct. The principal contested issues involved interpretation of the Regulations, whether the promotions were misleading to the "average consumer," and whether breaches caused relevant consumer harm warranting an enforcement order.

The Defendants comprised several related companies and individuals involved in promoting prize draw competitions. The Enforcer relied on statutory powers to bring the matter before the High Court, which has jurisdiction over enforcement orders under the Act.

Legal Issues Presented

1. Did the 2008 promotions involve breaches of the Consumer Protection from Unfair Trading Regulations 2008 or the Assurances previously given?
2. If breaches occurred, should the court exercise its discretion to make an enforcement order?
3. If an enforcement order is appropriate, what precise form should it take, and should undertakings be accepted in lieu of an order?

Arguments of the Parties

Enforcer's Arguments

• The Defendants’ promotions involved misleading commercial practices prohibited by Regulation 3 of the Regulations, specifically under Paragraph 31 of Schedule 1 and Regulations 5 and 6 concerning misleading actions and omissions.
• Any cost, however small, imposed on consumers to claim prizes falsifies the impression that a prize has been won, thus breaching Paragraph 31.
• The Assurances previously given by the Defendants were breached in letter and spirit by the 2008 promotions.
• The breaches harmed the collective interests of consumers, justifying an enforcement order.
• The Defendants’ undertakings were insufficient to secure compliance, necessitating court intervention.

Defendants' Arguments

• There was no breach of the Regulations or the Assurances, in letter or spirit.
• Paragraph 31 requires proof that a false impression was created; mere imposition of a cost, if properly disclosed, does not suffice.
• A de minimis cost relative to the prize value does not falsify the impression of winning.
• Terms such as "selected" or "award" do not fall within Paragraph 31’s scope limited to "win" or "prize".
• The enforcement order sought was too broad and imprecise, making compliance uncertain.
• The primary regulators of their business activities are other bodies, not the Enforcer, making these proceedings inappropriate.
• One individual defendant argued that having ceased involvement, it would be inappropriate to make an order against him.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by interpreting the key provisions of the Consumer Protection from Unfair Trading Regulations 2008, focusing on Paragraph 31 of Schedule 1, which prohibits creating the false impression that a consumer has won a prize when in fact either there is no prize or claiming it involves a cost.

The court rejected the Enforcer’s broad interpretation that any cost, however small or de minimis, would infringe Paragraph 31. Instead, it held that the critical requirement is that a false impression is created. A minimal cost such as postage or a short phone call, if properly disclosed and insignificant compared to the prize value, does not falsify the impression of winning.

The court emphasised the need to construe the Regulations purposively, consistent with the EU Unfair Commercial Practices Directive (UCPD) and its goal of harmonising consumer protection while avoiding disproportionate restrictions on trade. It noted that the Regulations must be interpreted in light of EU jurisprudence, with the "average consumer" defined as reasonably informed, observant, and circumspect.

Applying these principles, the court analysed each of the five 2008 promotions in detail. It found that the promotions conveyed misleading impressions that consumers had won prizes when, in reality, the cost of claiming the prizes (including premium rate telephone calls, text messages, and payments described as delivery and insurance) amounted to purchasing the prizes rather than winning them.

In particular, the court found that:

• The promotions encouraged consumers to use more expensive methods of response, which generated the Defendants’ profits, while concealing or downplaying these costs.
• The small print disclosures of costs were insufficiently prominent to dispel the false impression created by the overall presentation.
• The use of terms such as "prize," "award," and "reward" created an impression of winning, contradicted by the economic reality of the transaction.
• Misleading omissions and acts under Regulations 5 and 6 occurred, including failure to adequately disclose costs and conditions, and misleading descriptions of products (such as geographical origin of watches).
• The causation test was satisfied: the aggregate misleading acts and omissions would likely cause the average consumer to take transactional decisions they would not otherwise have taken.

The court also considered the Assurances previously given by the Defendants, concluding that breaches of the Assurances occurred but that these did not fully address the infringements of the Regulations. The Assurances were an imperfect tool and did not preclude the need for enforcement.

The Defendants’ arguments that the Enforcer’s proceedings were inappropriate due to other regulatory bodies having jurisdiction were rejected, as was the argument that one individual defendant should be exempted from an enforcement order despite having ceased involvement.

Overall, the court found clear and serious breaches of the Regulations on a large scale affecting millions of consumers, justifying the making of an enforcement order.

Holding and Implications

The court’s final decision is to GRANT THE ENFORCER’S APPLICATION FOR AN ENFORCEMENT ORDER against the Defendants in respect of the 2008 promotions.

The enforcement order will be formulated following further submissions and consultation between the parties. The court left open the possibility of accepting undertakings in lieu of an order but emphasized the seriousness and scale of the breaches demonstrated.

This decision directly restrains the Defendants from continuing the unfair commercial practices identified and affirms the application of the Consumer Protection from Unfair Trading Regulations 2008 in protecting collective consumer interests. No new legal precedent was established beyond the application and interpretation of existing statutory and EU law provisions in this specific context.