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Unfair Commercial Practices

Info: 2443 words (10 pages) Law Essay
Published: 6th Aug 2019

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Jurisdiction(s): UK LawEU Law

The 2008 Regulations, implemented the Unfair Commercial Practices Directive 2005/29/EC which prohibits unfair commercial practices that infringe the requirements of professional diligence, misleading actions, misleading omissions, aggressive commercial practices and commercial practices of the kind specified in Schedule 1.

The 2005 Directive provides a ‘maximum’ harmonisation measure. Stricter laws are not permitted in any of the EU member states. This has resulted in the abolition of certain consumer protection laws in the UK (Journal of Business Law (2009), Howells, Geraint).

Under reg.3(1) of the Consumer Protection from Unfair Trading Regulations 2008, unfair commercial practices are prohibited.

Paragraph 3 states that ‘a commercial practice is unfair if (a) it contravenes the requirements of professional diligence; and (b) it materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product.’

Under Part 1, General 2. ‘Interpretation’ of the 2008 Regulations, “professional diligence” means ‘the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers which is commensurate with either (a) honest market practice in the trader’s field of activity, or (b) the general principle of good faith in the trader’s field of activity.’

This can be likened to section 10(6) of the Trade Marks Act 1994 whereby the use of a competitor’s Trade mark must be ‘honest’. If a registered mark is used ‘not in accordance with honest practices in industrial or commercial matters’, there would be infringement.

In Tiscali UK Ltd v British Telecommunications plc [2008] EWHC 3129 (QB), Justice Eady noticed the inclusion of the requirement not to fall below the required standard of “professional diligence” in reg 3(3) of the 2008 Regulations, which introduced, what he dubbed ‘relatively unfamiliar concepts’ viz. “honest market practice” and “the general principle of good faith”.

Alluding to Regulation 8 (Part 3 offences – Offences relating to unfair commercial practices) of the 2008 Regulations, Eady J stated that ‘it is a relatively new concept in English law that there is an “objective” test of dishonesty; that is to say, in this context it is not necessary to demonstrate that at the time the offending statement was made its maker knew it to be false or had no honest belief in its truth.’ (Tiscali UK Limited v British Telecommunications Plc [2008] EWHC 3129 (QB)).

However, this objective test for dishonesty is akin to the reasonable man’s standard of care as required in the tort of negligence. This standard is objective in that it does not take account of subjective elements of the accused (Glasgow Corporation v Muir [1943] A.C. 448 (HL)). As stated in Barclays Bank Plc v RBS Advanta [1997] E.T.M.R. 199, the ascertainment of honesty ‘was an objective test which depended on whether the use would be considered honest by members of a reasonable audience.’

The definition of ‘dishonesty’ that Eady J was referring to can be found in Reg.8(1)(a)&(b) 2008 Regulations, wherein ‘A trader is guilty of an offence if (a) he knowingly or recklessly engages in a commercial practice which contravenes the requirements of professional diligence under regulation 3(3)(a); and (b) the practice materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product under regulation 3(3)(b).’

The requirement of dishonesty therefore indicates a mens rea element of the offence (the mental element of a crime or the required state of mind of the defendant). This marks a departure from the strict liability offences contained within the Consumer Protection Act 1987. Under the 1987 Act, if injury or damage is caused by a defective product, there is no need to prove negligence on the part of the defendant – only the actus reus.

Eady J noticed a problem with an objective test for mens rea. He stated that, ‘a breach may be found even in the absence of dishonesty’ which he believes runs counter to traditional domestic jurisprudence. Therefore, even if a defendant has in fact acted honestly, an objective test may not reveal this fact.

In the context of the accessory liability principle, Lord Nicholls in Royal Brunei Airlines Sdn. Bhd. Appellant v Philip Tan Kok Ming Respondent [1995] 2 A.C. 378, stated that ‘acting dishonestly … means simply not acting as an honest person would in the circumstances. This is an objective standard.’

However, he did observe the prima facie interpretation of dishonesty: ‘at first sight this [objective standard] may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety… However…the position is not always so straightforward. This can best be illustrated by considering one particular area: the taking of risks.’

If Lord Nicholls’ comments are applied to the process of ascertaining whether a defendant has acted dishonestly in a reckless manner, rather than knowingly, in breach of the 2008 regulations, the difficulty in applying an objective test is clear. This can be contrasted with the advertent act of a defendant knowingly engaging in a commercial practice, which contravenes the requirements of professional diligence.

Section 8(1)(a)&(b) of the 2008 Regulations should be read in conjunction with Reg.8(2) which defines the concept of recklessness: ‘For the purposes of paragraph (1)(a) a trader who engages in a commercial practice without regard to whether the practice contravenes the requirements of professional diligence shall be deemed recklessly to engage in the practice, whether or not the trader has reason for believing that the practice might contravene those requirements.’ This risk element of recklessness can be likened to Lord Nicholls’ assessment of risk in the Royal Brunei Airlines case.

However, in MFI Warehouses Ltd v. Nattrass [1973] 1 All ER 762, Widgery LCJ stated that ‘Recklessly in the context of [section 14 of the Trade Descriptions Act 1968] does not involve dishonesty. Accordingly, it is not necessary to prove that the statement was made with that degree of irresponsibility, which is implied in the phrase ‘careless whether it be true or false.’ I think it suffices for present purposes if the prosecution can show that the advertiser did not have regard to the truth or falsity of his advertisement even though it cannot be shown that he was deliberately closing his eyes to the truth, or that he had any kind of dishonest mind.’ He submitted that a statement is made recklessly if made ‘regardless of whether it is true or false’ and ‘whether or not the person making it had reasons for believing that it might be false’.

According to Victor Smith, Widgery’s interpretation can be applied directly to the 2008 Regulations. He submitted that the wording contained within reg.8(2) of the 2008 Regulations was designed to reflect the meaning of “recklessly” in the former s.14(2)(b) of the Trade Descriptions Act 1968. (The Trade Descriptions Act 1968 is Dead: Long Live The Consumer Protection from Unfair Trading Regulations 2008 – Part 2 (2008) 172 JPN 536).

This interpretation does not sit well with the unequivocal wording of section 47 of the Financial Services Act 1986 which refers to ‘any person who recklessly makes (dishonestly or otherwise) a statement …’

The ascertainment and concept of ‘reckless dishonesty’ has not escaped judicial criticism. In R. v Hugh Dennis Feeny [1992] 94 Cr. App. R 1 Judge J stated that, ‘the very concept of reckless dishonesty, will almost inevitably cause a jury, or indeed any tribunal, considerable difficulty. The situations in which it should ever be necessary to embark on an investigation of recklessness… in the context of section 15 of the Theft Act 1968 will be very limited indeed.’

Before the implementation of the 2005 Directive, there has been mush debate over whether a defendant’s mental state of recklessness should be judged objectively, or conversely – subjectively.

The House of Lords’ judgment in R. v G [2003] UKHL 50 is a case in point. This overruled R v Cauldwell [1982] A.C. 341, and followed the concept of recklessness as accepted in R v Cunningham (Roy) [1957] 2 Q.B. 396 (CCA) wherein the court held that a subjective test of recklessness should be adopted. ‘A defendant could not be regarded as culpable so as to be convicted of the offence if, due to his age or personal characteristics, he genuinely did not appreciate or foresee the risks involved in his actions.’ (R. v G [2003] UKHL 50).

The Law Commission, in favour of Cunningham, published a suggestion for the definition of recklessness in 1971 which included subjective elements: ‘a person is reckless if (a) Knowing that there is a risk that an event may arise from his conduct or that a circumstance may exist, he takes that risk, and (b) It is unreasonable for him to take it having regard to the degree and nature of the risk which he knows to be present.’

The case of Twinsectra Ltd v Yardley [2002] UKHL 12 discussed the application of dishonesty. Lord Hutton, drawing the distinction between subjective and objective dishonesty, referred to and compared three possible standards, which can be applied to determine whether a defendant has acted dishonestly: The Robin Hood test; the purely objective standard; and the combined test.

The Robin Hood test is purely subjective: ‘a person is only regarded as dishonest if he transgresses his own standard of honesty, even if that standard is contrary to that of reasonable and honest people.’ Lord Hutton submitted that the Robin Hood test has been rejected by the courts following Walker v Stones [2000] Lloyds Rep PN 864, 877, wherein Sir Christopher Slade cited Royal Brunei Airways Sdn Bhd v Tan [1995] 2 AC 378, and stated that, ‘Honesty is to be judged objectively, and acting dishonestly means not acting as an honest person would act in the circumstances.’

The purely objective standard, whereby the defendant must fall below the ordinary standards of a reasonable and honest person, notwithstanding that the defendant fails to realise this, was also rejected as contrary to the general principle for ascertaining dishonesty.

However, the third possible standard of dishonesty was accepted as the correct approach for the courts to take. This combines both objective and subjective elements: ‘before there can be a finding of dishonesty it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people [the objective element] and that he himself realised that by those standards his conduct was dishonest [the subjective element].’

Section 24 of the Trade Descriptions Act 1968, provides a defence for an offence under the 1968 Act, and also incorporates a subjective element: ‘it shall, subject to subsection (2) of this section, be a defence for the person charged to prove (a) that the commission of the offence was due to a mistake or to reliance on information supplied to him … and (b) that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence by himself or any person under his control.’ Proving that a false statement was made without knowing it to be false, together with the s.24(2)(b) requirements would therefore be a defence for an offence under the 1968 Act.

In R v. Southwood [1987] 1 WLR 1361 the Court of Appeal advised that a trader could rely on s.24(1) ‘by frankly disclosing the result of his enquiries in such a way that any purchaser would be in the same state of knowledge as the dealer himself’. However, as stated by R G Lawson, Consultant in marketing and trading law, in ‘Sale of Goods – On disclaiming liability for a false mileometer’ referring to the Southwood case, ‘the Court of Appeal was not, though, prepared to allow a party who had falsified a mileometer to plead this subsection.’

The claimant’s defence was that he had disclaimed the accuracy of the odometers. However, his efforts to escape s.24 of the 1968 Act were not effective and seemingly failed to satisfy Lord Widgery CJ’s test in Norman v Bennett (supra) who stated that ‘where a false trade description is attached to the goods, its effect can be neutralised by an express disclaimer or contradiction of the message contained in the trade description. In other words, the disclaimer must equal the trade description in the extent to which it is likely to get home to anyone interested in receiving the goods.’ In R v Hammerton Motors Ltd [1976] RTR 516 the Court of Appeal approved Lord Widgery CJ’s test.

In conclusion, whereas before the 2008 Regulations, the concept of recklessness as accepted in R v Cunningham was generally subjective in its approach, there seems to be a move towards a more objective approach. For example, the Trade Marks Act 1994; Barclays Bank Plc v RBS Advanta; Royal Brunei Airlines Sdn. Bhd. Appellant v Philip Tan Kok Ming Respondent; and the 2008 Regulations itself. In light of this, Eady J’s statement that the objective test for dishonesty contained within the 2008 Regulations is a relatively new concept in English law, appears to be correct.

However, there are mixed reviews concerning whether recklessness will fall into the category of dishonesty. It would seem that conscious or deliberate breaches may be easier to identify as dishonest acts than reckless breaches.

Whether the courts continue to construe the 2008 Regulations as Eady J in respect of the mens rea element, remains to be seen, but as these regulations are relatively new to English courts, whatever precedents are set will depend upon inter alia the method of interpretation.

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