CONSUMER REDRESS for MISLEADING and AGGRESSIVE PRACTICES a Joint Consultation Paper

The Law Commission Consultation Paper No 199 and The Scottish Law Commission Discussion Paper No 149 CONSUMER REDRESS FOR MISLEADING AND AGGRESSIVE PRACTICES A Joint Consultation Paper ii THE LAW COMMISSIONS: HOW WE CONSULT About the Commissions: The Law Commission and the Scottish Law Commission were set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Rt Hon Lord Justice Munby (Chairman), Professor Elizabeth Cooke, Mr David Hertzell, Professor David Ormerod and Frances Patterson QC. The Chief Executive is Mark Ormerod CB. The Scottish Law Commissioners are: The Honourable Lord Drummond Young (Chairman), Laura J Dunlop QC, Professor George L Gretton, Patrick Layden QC TD and Professor Hector L MacQueen. The Chief Executive is Malcolm McMillan. Topic: We ask how far consumers should be given a right to redress when a trader acts in a misleading or aggressive way, in breach of the Consumer Protection from Unfair Trading Regulations 2008. A summary of this paper is available from our websites. Geographical scope: England and Wales, Scotland. An impact assessment is available on our website, and is summarised in Part 16. Previous engagement: In March 2010, we published a short paper outlining the issues. We then held a series of meetings with stakeholders, and summarised our findings in October 2010. Duration of the consultation: 12 April 2011 to 12 July 2011. How to respond Send your responses either – By email to: [email protected] or By post to: Jessica Uguccioni, Law Commission, Steel House, 11 Tothill Street, London SW1H 9LJ Tel: 020 3334 0282 / Fax: 020 3334 0201 If you send your comments by post, it would be helpful if, where possible, you also sent them to us electronically (in any commonly used format). After the consultation: We plan to publish final recommendations in early 2012 and present them to Parliament. It will be for Parliament to decide whether to change the law. Freedom of information: We will treat all responses as public documents. We may attribute comments and publish a list of respondents’ names. If you wish to submit a confidential response, it is important to read our Freedom of Information Statement on the next page. Availability: You can download this consultation paper and the other documents free of charge from our websites at: http://www.lawcom.gov.uk (See A–Z of projects > Misleading and Aggressive Practices) and http://www.scotlawcom.gov.uk/download_file/view/672/. iii CODE OF PRACTICE ON CONSULTATION The Law Commission is a signatory to the Government’s Code of Practice described below. THE SEVEN CONSULTATION CRITERIA Criterion 1: When to consult Formal consultation should take place at a stage when there is scope to influence the policy outcome. Criterion 2: Duration of consultation exercise Consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible. Criterion 3: Clarity and scope of impact Consultation documents should be clear about the consultation process, what is being proposed, the scope to influence and the expected costs and benefits of the proposals. Criterion 4: Accessibility of consultation exercises Consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach. Criterion 5: The burden of consultation Keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees’ buy-in to the process is to be obtained. Criterion 6: Responsiveness of consultation exercises Consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation. Criterion 7: Capacity to consult Officials running consultations should seek guidance in how to run an effective consultation exercise and share what they have learned from the experience. CONSULTATION CO-ORDINATOR The Law Commission’s Consultation Co-ordinator is Phil Hodgson. You are invited to send comments to the Consultation Co-ordinator about the extent to which the criteria have been observed and any ways of improving the consultation process. Contact: Phil Hodgson, Law Commission, Steel House, 11 Tothill Street, London SW1H 9LJ Email: [email protected] Full details of the Government’s Code of Practice on Consultation are available on the BIS website at http://www.bis.gov.uk/policies/better-regulation/consultation-guidance. Freedom of Information statement Information provided in response to this consultation, including personal information, may be subject to publication or disclosure in accordanc e with the access to information regimes (such as the Freedom of Information Act 2000 and the Data Protection Act 1998 (DPA). If you want information that you provide to be treated as confidential, please explain to us why you regard the information as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Law Commission. The Law Commission will process your personal data in accordance with the DPA and in most circumstances this will mean that your personal data will not be disclosed to third parties. iv THE LAW COMMISSION THE SCOTTISH LAW COMMISSION CONSUMER REDRESS FOR MISLEADING AND AGGRESSIVE PRACTICES CONTENTS Paragraph Page Outline xiii Table of abbreviations xx BACKGROUND PART I: INTRODUCTION 1 Aggressive and misleading practices: a serious problem 1.4 1 Calls for a private right of redress 1.9 3 The background to the project 1.12 4 Terms of reference 1.15 4 Preliminary consultation 1.17 5 Guiding principles 1.20 6 The structure of this consultation paper 1.25 7 A presentational point 1.27 7 Acknowledgements 1.30 8 PUBLIC REGULATION PART 2: THE CONSUMER PROTECTION FROM UNFAIR TRADING REGULATIONS 2008: AN OVERVIEW 9 Introduction 2.1 9 The Unfair Commercial Practices Directive 2.3 9 The Consumer Protection Regulations 2008 2.10 11 OFT v Purely Creative 2.13 12 v Paragraph Page Scope 2.18 13 Core concepts 2.31 16 Misleading actions 2.53 21 Misleading omissions 2.59 22 Aggressive practices 2.67 24 The “due diligence” defence 2.73 26 Conclusion 2.76 26 PART 3: UNFAIR PAYMENT COLLECTION 28 Introduction 3.1 28 Evidence of problems 3.7 29 What collection activities are covered by the Regulations? 3.37 36 Conclusion 3.65 41 PART 4: HOW THE REGULATIONS ARE ENFORCED 43 Introduction 4.1 43 Who enforces the Regulations? 4.5 43 The enforcement pyramid 4.8 44 Formal action 4.10 45 Compensation orders in criminal proceedings 4.17 46 Reviews of regulatory enforcement 4.24 48 The Civil Sanctions Pilot 4.35 51 Conclusion 4.45 53 CURRENT PRIVATE LAW PART 5: PRIVATE REDRESS FOR MISLEADING ACTIONS 54 Introduction 5.1 54 Seven possible routes to a remedy 5.4 55 vi Paragraph Page Key concepts in the law of misrepresentation (England and Wales) 57 Key concepts in the law of misrepresentation (Scotland) 58 What is a misrepresentation? 5.8 59 Materiality 5.19 61 (1) Fraudulent misrepresentation 5.21 62 (2) Negligence at common law 5.26 63 (3) Negligent misrepresentation under statute 5.34 65 (4) Innocent misrepresentation 5.41 67 (5) Mistake in England and Wales 5.60 71 (6) Breach of contract 5.65 72 (7) Estoppel, equitable waiver and personal bar 5.72 73 A worked example 5.80 76 Conclusion 5.98 78 PART 6: PRIVATE REDRESS FOR MISLEADING OMISSIONS 80 Introduction 6.1 80 Omissions shading into positive misrepresentations 6.6 81 Contracts of “utmost good faith” 6.9 82 Fiduciary relationships 6.12 83 Implied terms in the sale of goods 6.13 83 Services and the duty to take reasonable care 6.16 84 Other implied terms 6.19 84 Other statutory duties of disclosure 6.24 85 Unfair terms 6.28 86 Conclusion 6.32 87 vii Paragraph Page PART 7: PRIVATE REDRESS FOR AGGRESSIVE PRACTICES 89 Introduction 7.1 89 (1) Duress 7.11 91 (2) Undue influence 7.30 95 (3) Unconscionable bargains 7.52 100 (4) Intimidation 7.59 102 Protection from aggressive debt collection 7.65 103 Conclusion 7.78 106 PART 8: CAUSATION AND REMEDIES 108 Introduction 8.1 108 Causation 8.4 108 Remedies 8.9 109 Unwinding the contract 8.10 110 Damages: when are they available? 8.26 113 The measure of damages 8.33 114 Damages for distress and inconvenience 8.57 120 Other forms of damages 8.66 122 Conclusion 8.72 123 PART 9: PRIVATE ENFORCEMENT 124 Introduction 9.1 124 Court action in England and Wales 9.5 124 Court action in Scotland 9.16 126 Small claims procedure at EU level 9.24 128 The need for simplicity 9.26 129 Alternative dispute resolution systems 9.28 129 New Zealand Disputes Tribunals 9.47 133 viii Paragraph Page Conclusion 9.54 134 THE CASE FOR REFORM PART 10: PROBLEMS WITH THE LAW 135 Problems with the law on misleading practices 10.5 135 Problems with the law on aggressive practices 10.31 140 A case study: the mobility aids market 10.34 141 Gaps in protection against aggressive practices 10.56 146 The need for reform 10.67 148 PART 11: LESSONS FROM OTHER JURISDICTIONS 151 Ireland 11.4 151 Australia 11.10 152 The United States 11.25 156 New Zealand 11.33 158 The Draft Common Frame of Reference 11.44 160 Conclusion 11.61 165 REFORM PROPOSALS PART 12: PROPOSALS FOR REFORM: OVERVIEW 167 A cautious reform 12.3 167 Reconciling private and public remedies 12.6 168

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