On 18 October 2012, the Court of Justice of the European Union (“ECJ”) answered a preliminary question from a UK jurisdiction in case Purely Creative Ltd. et.al. v. Office of Fair Trading (C-428/11). The ECJ ruled that requiring a consumer to incur any cost whatsoever to claim a prize, after the trader gave the consumer the impression he has already won that price, is an aggressive and unfair commercial practice.
Paragraph 31 of Annex I to Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (the “Directive”) states that it is misleading to create “the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact (…) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost”.
Several traders had placed promotions in newspapers and magazines with individually addressed letters, scratch-cards and other advertising. Consumers were given the impression that they had won a prize. In order to obtain the prize, the consumer had to call a premium rate telephone number, use a reverse SMS text messaging service, or obtain information by ordinary post. The telephone and SMS method to obtain the prize were particularly expensive, resulting in charges which amounted to the equivalent or a substantial portion of the value of the prize.
The Office of Fair Trading (“OFT”), the UK's economic regulator in charge of consumer protection and competition law, claimed that these practices were unfair commercial practices, and brought suit before the High Court of Justice of England and Wales, Chancery Division (the “High Court”). It asked the High Court to set out an order prohibiting all of the above practices as unfair commercial practices. The traders opposed such a prohibition.
In its ruling, the High Court heavily relied on the words “creating the false impression” in Paragraph 31 of Annex 1 of the Directive. It found that requiring the consumer to incur a cost in order to obtain a prize already won was not an unfair commercial practice if:
(i) The payment required was minimal in comparison to the value of the prize won;
(ii) The payment required was small (e.g. the price of a stamp or ordinary telephone call); and
(iii) No part of the payment would benefit the trader concerned.
Both the traders and the OFT appealed the decision to the Court of Appeal. The Court of Appeal stayed the proceedings and referred a question to the ECJ for a preliminary ruling on whether it is acceptable under Paragraph 31 of Annex I of the Directive to impose any cost on a consumer to collect a prize, even of a de minimis nature, when that consumer was informed that he had won a prize.
In a very lengthy judgment, the ECJ followed the OFT’s position and stated that the prohibition to make the consumer bear any cost is absolute. The ECJ specified that the text of Paragraph 31 of Annex I of the Directive must be read as a whole. As such, the crux lies with “taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost”. The purpose of this prohibition is to prevent the exploitation of the psychological effect caused by the announcement of the winning of a prize, in order to induce the consumer to make a choice which is not always rational, such as calling a premium rate telephone number to ask for information about the nature of the prize or traveling at great expense to collect a low-value item.
The ECJ also referred to Paragraph 20 of Annex I of the Directive. This provision considers to be misleading the practice of describing a product as ‘gratis’, ‘free’ ‘without charge’ or similar if the consumer has to pay anything “other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item”. As Paragraph 31 of Annex I to the Directive does not contain a similar exception, the prohibition to make the consumer bear any cost in relation to a prize is absolute, “whether it be the cost of a stamp or of a simple telephone conversation”.
However, traders may find some leeway around this strict prohibition by playing with words. Indeed, the consumer can not be obliged to bear a cost which, according to the wording, is included in the announced prize. On the other hand, it is allowed to have the consumer bear costs which are not included in the announced prize. Such subtlety is only possible, however, if the information is clear and can be understood by the targeted consumer. The ECJ clarified with an example: “for instance, a prize defined as an ‘entrance ticket’ for a certain football match does not include the transport of the consumer from his home to the football stadium where the match takes place. On the other hand, if the prize is stated simply to be ‘attendance’ at that sports event, the trader must bear the costs of the consumer’s travel”.
In sum, the ECJ confirmed that if a trader declares to a consumer that he has won a prize, any cost borne by the consumer which should be included in the prize, is too much.
