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Enterprise Act 2002

Introduction

455.This Part of the Act is intended to strengthen consumer protection by giving enforcement bodies wider powers to obtain court orders (similar to injunctions) against businesses which do not comply with their legal obligations to consumers. It will replace Part III of FTA 1973 and the Stop Now Orders (EC Directive) Regulations 2001 ('the SNORs').

456.Part III of FTA 1973 was intended to provide a means of dealing with traders who, ignoring the constraints imposed by civil or criminal law, operate their business in a way that is detrimental to the interests of consumers. Under FTA 1973 the DGFT can apply for an order that the trader refrain from continuing a course of conduct that is unlawful and detrimental to consumers.

457.Three principal defects have been identified with the Part III enforcement regime.

458.First, most traders whose behaviour raises concerns for the purposes of Part III operate at local level. Consumer protection legislation is largely enforced by weights and measures authorities (trading standards departments), but under Part III of FTA 1973 they have to refer cases suitable for action to the DGFT.

459.Second, the DGFT can only apply for a court order if, after using his best endeavours, he has been unable to obtain a satisfactory written assurance from the trader in question that he will refrain from continuing that course of conduct or a similar one, or that such an assurance has been broken. This has given traders scope for delay by entering into lengthy discussion about the terms of the assurance.

460.Third, the OFT has reported that the courts, in considering applications for Part III orders, require evidence of a large number of instances of unlawful conduct before they will find that a person has ‘persisted in a course of conduct’.

461.The 1999 Consumer White Paper ‘Modern Markets: Confident Consumers’ included a commitment to legislate to rectify the principal weaknesses in the Part III enforcement regime.

462.Partial reform of Part III has already taken place through the SNORs, which implement Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (known as the ‘Injunctions Directive’). The purpose of the Injunctions Directive is similar to that of Part III: it permits consumer protection bodies (‘qualified entities’) designated by the Member States to apply to the courts or competent administrative authorities for orders to require traders to cease conduct that constitutes a breach of any of the consumer protection directives listed in the annex to the Injunctions Directive and that harm the collective interests of consumers. Qualified entities can bring proceedings in their own Member State and in another Member State if an infringement there has effects on consumers in the qualified entity’s home State.

463.The Injunctions Directive was added to the European Economic Area Agreement by Decision No 121/1999 of the EEA Joint Committee, which came into force on 1 July 2000.

464.The effect of the SNORs was to replace the grounds for an order under Part III with that required by the Injunctions Directive and to correct other perceived defects with the Part III process, in so far as Part III applies to the UK legislation implementing the specified consumer protection directives. The SNORs:

  • extended enforcement jurisdiction to trading standards departments and other designated bodies;

  • limited the time during which voluntary compliance must be sought to two weeks; and

  • replaced the ‘persisted in a course of conduct’ test with a requirement that the enforcement authority demonstrate that the trader has engaged, or is likely to engage, in conduct that constitutes an infringement of one of the specified directives as transposed in the UK, where the infringement harms the collective interests of consumers.

465.The result has been the creation of two separate enforcement regimes aimed at rectifying similar conduct by similar offenders. The SNORs, which were made under section 2(2) of the European Communities Act 1972, could not have dealt with the perceived defects in Part III in respect of unlawful conduct detrimental to consumers outside the scope of the Injunctions Directive.

466.When brought into force, this Part of the Act will create a single, unified enforcement regime across the consumer field. The remedies to be available to enforcing bodies and the procedures to obtain them are based on those presently provided for in the SNORs. However, this Part will also enable a court order to be made to secure enforcement of domestic law requirements not covered by the SNORs but currently available under Part III of FTA 1973 only to the DGFT (‘domestic infringements’).

467.If requested to do so by the DGFT, the statutory regulators for the gas, electricity, water, rail, and telecommunications industries have the power to make applications under Part III within the fields they regulate. All of these statutory regulators are qualified to bring proceedings under the SNORs, and it is proposed to designate them as enforcers under this Part.

Section 210: Consumers

468.This section defines the class of consumers who are to benefit from the protection provided for in this Part. A distinction is made between a ‘consumer’ for the purposes of a ‘domestic infringement’ and a ‘consumer’ for the purposes of an infringement of the legislation to which the Injunctions Directive applies (a ‘Community infringement’).

469.A ‘consumer’ in relation to a domestic infringement is an individual who receives, or seeks to receive, goods or services other than in the course of his business, or with a view to setting up a business, from a person who supplies them in the course of business (subsections (2) to (4)). The definition of a consumer for the purposes of domestic infringements therefore excludes partnerships and corporate bodies.

470.The purpose of including prospective business people within the above definition of ‘consumer’ is to ensure that an enforcement order is available in respect of domestic infringements that harm the collective interests of individuals who participate in, for example, ‘homeworking schemes’ or who contract with so-called ‘vanity publishers’ or who purchase goods and services for the purpose of direct selling type schemes. As soon as an individual begins trading he will cease to be within the definition in respect of purchases for the purpose of his business, so business customers in general are not covered.

471.For the purpose of domestic infringements, it does not matter if the supplier has a place of business in the UK or not (subsection (5)). This means businesses will not be able to avoid the provisions of this Part by locating offshore.

472.The concept of “business” is relevant to the definition of a “consumer” for the purposes of a domestic infringement in two ways. The supply, actual or attempted, of goods or services must be “in the course of a business carried on” by the supplier, but the recipient must not receive them “in the course of a business carried on by him” at the time of receipt.

473.Subsection (8) defines a ‘business’ for the purpose of the definition of the supplier of goods and services and of a consumer in respect of domestic infringements. Any undertaking carried on ‘for gain or reward’ and any which charges for the supply of goods or services are businesses within the definition. This follows the existing definition in FTA 1973.

474.For the purposes of Community infringements, ‘consumers’ must include all persons who are consumers for the purposes of the individual directives listed in the annex to the Injunctions Directive; otherwise the Injunctions Directive would not be properly implemented. Subsection (6) accordingly provides that the meaning of ‘consumer’ in relation to a Community infringement is to be determined by the Injunctions Directive and the relevant listed directives.

475.There is no reference in the Injunctions Directive to infringements having been committed by a person in the course of business, or any similar limitation. Although the directives listed in the annex to the Injunctions Directive mainly require Member States to impose obligations on persons carrying on business in the general sense, the identification and definition of those persons vary considerably. For this reason there is no express requirement in this section that persons only engage in conduct constituting a Community infringement if they do so in the course of business.

476.Schedule 13 lists the individual directives, or parts of individual directives, to which the Injunctions Directive applies (subsection (7)). Subsection (9) provides the Secretary of State with an order-making power to modify Schedule 13 by adding or removing directives to reflect further amendments to the Injunctions Directive.

Sections 211 and 212: Domestic infringements & Community infringements

477.These sections set out the types of detrimental conduct in respect of which an enforcement order under this Part can be made.

478.Because the intention is that this Part should replace the SNORs while continuing to fully implement the requirements of the Injunctions Directive, the starting point for the scope of this new enforcement regime is the infringements to which the Injunctions Directive applies. The Injunctions Directive applies to any act contrary to the directives listed in the annex thereto as transposed into the internal legal order of an EEA State that harms the collective interests of consumers (Article 1.2). It also applies to breaches of national provisions that go beyond the minimum level of the listed directives as permitted by those directives (see below).

479.The listed directives (or parts of them) contain a wide range of consumer protection measures, including those on unfair contract terms, misleading advertising, doorstep and distance selling, electronic commerce, and the sale of consumer goods, as well as directives dealing with particular sectors such as package travel, consumer credit, timeshare and medicines advertising.

480.The Injunctions Directive does not affect the rules as to the applicable law in cross-border cases (see Article 2.2). It would not, for this reason, be sufficient for this Part to apply only to UK law transposing the listed directives because the Injunctions Directive would not then be properly implemented. This Part must be capable of providing for the situation where a UK court decides that the law of another EEA State should apply. This could happen where a trader’s unlawful conduct in the UK harms consumers in another EEA State. In most cases, the laws of the EEA States will be the same for the purpose of these cases, because they will all give effect to the listed directives. In most cases, it is only where an EEA State’s legislation provides greater protection for consumers as allowed for under the ‘minimum clause’ contained in most of the listed directives that there may be a significant difference in the outcome, depending upon which State’s law the court decides to apply.

Section 212: Community Infringements

481.Subsections (1) and (2) of section 212 provide a definition of a Community infringement that is in accordance with Article 1(2) of the Injunctions Directive. The definition refers to ‘acts or omissions’ that contravene provisions of listed directives as transposed by an EEA State. The concept of an omission is implicit in the Injunctions Directive because for some of the individual directives a contravention will arise (and in some cases will only arise) because of an omission. Schedule 13 lists the individual directives, or parts of individual directives, to which the Injunctions Directive, and therefore the definition of a Community infringement, applies (section 212(4)).

482.Section 212(3) provides the Secretary of State with an order-making power to specify, for the purpose of the definition of a Community infringement, the UK laws that give effect to the listed directives or that provide ‘additional permitted protections’.

483.‘Additional permitted protections’ are provisions that have been adopted or retained by an EEA State pursuant to the so-called ‘minimum clause’ contained in most of the directives (section 212(2)). These clauses enable EEA States to adopt or retain provisions that provide greater protection for consumers, on matters within the scope of the directive concerned, provided the protection does not breach the rules in the EU Treaty on, for example, the free movement of goods. A simple example would be where a directive provides for a cooling-off period, say seven days, during which a consumer may cancel the contract without penalty but an EEA State’s law provides a longer period, say ten days. In contrast, a measure that provides a type of protection that is outside the scope of a listed directive is not an ‘additional permitted protection’ because it cannot be said to rely on the minimum clause in the directive: the provision would not be within the scope of the directive and the infringement would not therefore fall within the Injunctions Directive. For example, the Consumer Credit Act 1974, which implements the Consumer Credit Directive, also regulates consumer hire agreements which are not dealt with in the directive at all. Breaches of the provisions on consumer hire will not therefore be Community infringements. But it is sometimes difficult to distinguish between national measures that rely on a minimum clause in a directive and measures that are not within the scope of a directive.

484.The power in section 212(3) will be used to specify the legislation that gives effect in UK law to the listed directives. This will be helpful to enforcers and the courts in dealing with cases.

485.For a Community infringement to have occurred it is not sufficient that there has been an act or omission contrary to one of the listed directives (including additional permitted protections in the EEA State concerned). The act must also ‘harm the collective interests of consumers’. The Injunctions Directive does not define the ‘collective interests of consumers’. But the term (already used in the SNORs) is used in the Act in defining Community infringements so as to be sure that the UK continues to fully implement the requirements of the Injunctions Directive. For consistency, the same test has been applied for domestic infringements.

486.For both Community and domestic infringements, the Department does not consider that harming the collective interests of consumers means that a large number of consumers must already have been harmed. The Department believes it simply means that a continuation or repetition of an act or omission specified as a Community or domestic infringement could harm the collective interests of consumers, since the interests of future customers of the trader are actually or will potentially be affected. For example, if a trader has not complied with the requirement to inform consumers of their rights to cancel under the Consumer Protection (Distance Selling) Regulations 2000 when they purchase by mail order, the Department would expect the court to find it would be harmful to the collective interests of consumers for the trader to repeat the omission.

487.Similarly, the Department considers that the “harm to the collective interests of consumers” test would be satisfied where an unlawful practice is employed in relation only to goods or services purchased by a very small minority of the community (eg expensive luxury goods) and the general mass of consumers are therefore unaffected.

488.The Department considers that the phrase ‘collective interests of consumers’ in the Injunctions Directive (and in the Act) is intended to produce the consequence that the procedure is not available to provide redress for individual consumers who may have been harmed by an infringement.

Section 211: Domestic Infringements

489.In addition to Community infringements this Part also applies to domestic infringements as defined in section 211. The definition of a domestic infringement consists of three elements: an act or omission must be done by a person in the course of business; it must fall within section 211(2); and it must harm the collective interests of consumers in the UK. The ‘harm test’ is the same as that for Community infringements described above.

490.Subsection (2), which provides the second element of the definition, gives the Secretary of State the power to specify by order the acts and omissions consisting of breaches of legislation or common law, as set out in section 211(2)(a)-(g), for the purposes of the definition of a domestic infringement. The legislation to which this provision applies includes Northern Ireland legislation.

491.Section 211(2)(a) enables the order to specify acts or omissions which consist of a contravention of an enactment that imposes a duty, prohibition or restriction enforceable by criminal proceedings. It is immaterial whether the duty, prohibition or restriction is imposed in relation to consumers or not, so that, for example, breaches of legislation that serve equally to protect businesses as well as consumers will qualify (section 211(4)(a)). It is not necessary for a person to have been convicted of any offence in respect of the act or omission (section 211(4)(d)).

492.Section 211(2)(b) and (c) enables an order to specify things done, or omitted to be done, in breach of contract or in breach of a non-contractual duty (for example, a statutory duty or a duty under the common law of negligence). It is immaterial whether civil proceedings in respect of the breach of contract or breach of duty have been brought or not (section 211(4)(c)). It is also to be immaterial whether or not that breach is waived by the consumer (section 211(4)(e)). For example, the consumer may decide to keep goods despite the fact that they were not supplied in the condition required by the contract. Another example would be where a consumer agrees to waive a breach of a contractual term such as a clause in a car hire agreement that the vehicle will have air conditioning.

493.Subsection (2)(a)-(c) reflects the existing scope of Part III of the FTA 1973. Section 211(2)(d) enables the order to specify as within the definition of a domestic infringement acts or omissions for which legislation provides a remedy or sanction enforceable in civil proceedings, although no duty is expressly placed on a person not to engage in such conduct. It is immaterial whether or not any remedy or sanction is provided for the benefit of consumers or not (section 211(4)(b)). For example, in relation to section 211(2)(d), a provision may require that a person must be compensated if another person does, or omits to do, something required by the provision. Also, under the Control of Misleading Advertisements Regulations 1988 a person concerned with the publication of a misleading advertisement may be subject to proceedings for an injunction brought by the DGFT; but there is no express duty on a person not to publish misleading advertisements. It is intended to list the Control of Misleading Advertisements Regulations 1998 in both the Community infringements regime and the domestic infringements regime for the reasons explained below.

494.Section 211(2)(e) enables the order to specify as within the definition of a domestic infringement things done or omitted to be done where an enactment creates a sanction of unenforceability. An example is the Consumer Credit Act 1974. A large number of ‘requirements’ of the Consumer Credit Act 1974 have as their sanction the unenforceability (against the debtor or hirer) of the consumer credit agreement or of the security of the agreement, or of rights under them. An example is requirements in relation to the form, content and signature of agreements in sections 60 and 61, and the duty to supply copies of the agreement and notice of the right to cancel in sections 62 to 64. In these cases, the court can allow the agreement to be enforced except in cases set out in sections 127(3) and (4) (e.g. unsigned agreements or where notice of the right to cancel is not given as required).

495.To the extent that requirements in the Consumer Credit Act 1974 transpose the Consumer Credit Directive (87/102/EEC), they would be covered by the definition of Community infringements in section 212. But the scope of the Consumer Credit Act 1974 goes beyond the giving of effect to the Consumer Credit Directive and ‘additional permitted protections’ within the meaning of section 212, although it is difficult to draw a clear dividing line. For this reason, it is intended to list the Consumer Credit Act 1974 in both the Community infringements regime and the domestic infringements regime.

496.Section 211(2)(f) enables an order to specify as within the definition of a domestic infringement any act or omission by which a person supplying goods or services purports or attempts to exercise any right relating to the supply when legislation restricts or excludes him from doing so in such circumstances. Subsection (2)(f) covers, for example, the creditor who seeks to enforce a term of a regulated credit agreement when he has failed to comply with a statutory pre-condition for enforcement, such as the requirement to give the debtor or hirer seven days’ notice of his intention to do so under section 76 of the Consumer Credit Act 1974. It would also cover cases where a creditor recovers possession of protected hire-purchase goods without a court order, as required by section 90 of the Consumer Credit Act 1974 and the business which claims money or the return of goods under a contract which is unenforceable.

497.A person who demands or accepts payments of sums when legislation relieves the payee of liability for them would also be purporting to exercise a right within subsection (2)(f). An example is section 93 of the Consumer Credit Act 1974, which provides that a debtor under a consumer credit agreement is not liable to pay increased interest when he is in default.

498.Section 211(2)(g) enables an order to specify as within the definition of a domestic infringement an act or omission by which a person supplying or seeking to supply goods or services purports or attempts to avoid liability relating to the supply in circumstances where such avoidance is restricted or prevented under an enactment. An example of an enactment which prevents the exclusion of liability is section 2(1) of the Unfair Contract Terms Act 1977. This section provides that contract terms or notices purporting to exclude or restrict liability for death or personal injury resulting from negligence are void and of no effect under all circumstances.

499.Section 211(3) makes clear that, when specifying acts or omissions within the legislation or common law provisions covered in an order under section 211(2), the Secretary of State may exclude a subcategory of the act or omission concerned from the scope of the order.

500.The Department intends to make orders defining UK law for the purpose of the definition of a Community infringement, and listing the UK legislation and civil law obligations to which the definition of a domestic infringement will apply, before this Part of the Act comes into force. As with the Injunctions Directive and the way the Office of Fair Trading has used its existing powers under Part III of FTA 1973, the intention is that the list for domestic infringements should initially be limited to breaches of legislation whose main focus is to protect the economic interests of consumers, together with breaches of contract for the supply of goods or services and of the duty of care in negligence.

501.As a general rule it would not be the Department’s intention to include UK law implementing the directives listed in the annex to the Injunctions Directive in the domestic infringements regime. This is because breach of these will in any case be a Community infringement. However, there will be some cases where this will be necessary, for example, where the Department wants to be sure of covering more than what could be said to transpose listed directives in reliance on the minimum clause. For example, as mentioned above, it is not possible to draw a clear distinction between some of the provisions of the Consumer Credit Act 1974 that implement the consumer credit directive and others that are outside the scope of the directive. It is therefore the Department’s intention to list the Consumer Credit Act 1974 in both the Community infringements regime and the domestic infringements regime.

502.A useful weapon against homeworking or outworking scams has been the Control of Misleading Advertising Regulations 1988, which implement the Misleading Advertising Directive (84/450/EEC). Although prospective business people are protected by this directive, they may not necessarily be ‘consumers’ for the purpose of the definition of a Community infringement. The Department therefore also intends to include the Control of Misleading Advertisements Regulations 1988 under the domestic infringements regime as well as the Community infringements regime.

Section 213: Enforcers

503.This section deals with those bodies who are to have enforcement powers under this Part.

504.Three categories of enforcement bodies are defined: ‘general enforcers’, ‘designated enforcers’ and ‘Community enforcers’.

505.‘General enforcers’ are the OFT, every weights and measures authority in Great Britain (trading standards departments) and the Department of Enterprise, Trade and Investment in Northern Ireland (subsection (1)).

506.The Secretary of State is given an order-making power to confer enforcement powers upon other UK public bodies and private consumers organisations that have as one of their purposes the protection of the collective interests of consumers (subsection (2)). These enforcers are termed ‘designated enforcers’. An order under this section may designate a body for the purposes of domestic and/or Community infringements, and for different types of infringement within each of those categories (subsections (6) and (7)).

507.The Secretary of State may only confer enforcement powers on a public body if it is independent (subsection (3)) and on a private consumer organisation if it fulfils such criteria as the Secretary of State specifies by order (subsection (4)). The designation of a body by virtue of subsection (3) will be conclusive evidence that the body is a public body for the purposes of this Part. This will be relevant, for example, in relation to whether the enforcer is to have the statutory power to obtain documents and information under section 225 (subsection (8)).

508.Regulation 4 of the SNORs contains the existing power to designate private consumer organisations (in the SNORs called ‘other UK qualified entities’) and sets out criteria according to which they may be designated. It is anticipated the Secretary of State will set similar criteria for designating private consumer organisations for the purposes of this Part. It is open to her to decide to set different criteria in respect of Community and domestic infringements, but at present we do not anticipate this will be the case. The power to designate includes power to revoke the designation from any body which ceases to meet the criteria.

509.It is intended that the first order made under this section will be to designate the public enforcement authorities (in the SNORs called ‘public UK qualified entities’), other than those who are general enforcers under this Part, at present listed in Schedule 3 to the SNORs for Community infringements. These are the statutory regulators for the gas, electricity, water, telecommunications and rail industries, the Information Commissioner and the Civil Aviation Authority. It may also designate any private consumer organisations which have been designated under the SNORs as ‘other UK qualified entities’ for Community infringements by the time this Part of the Act comes into force.

510.Community enforcers are entities from other EEA States that are listed in the Official Journal of the European Communities under Article 4.3 of the Injunctions Directive (subsection (5)). It is a requirement of the Injunctions Directive that the courts or administrative authorities of an EEA State must accept inclusion in this list as proof of the legal capacity of the entities to apply for injunctions in all EEA States to stop Community infringements.

511.In the same way, UK enforcers which are designated for the purposes of Community infringements can apply for injunctions in other Member States to protect UK consumers. At the request of a designated enforcer who has been designated for the purposes of one or more Community infringements, the Secretary of State must notify the European Commission that it should be added to the list of bodies published in the Official Journal of the European Communities as being qualified to bring proceedings in all Member States.

512.The Department considers that the Injunctions Directive only gives enforcement bodies the power to apply for injunctions in other EEA States in respect of those Community infringements for which it is designated in its home State. The notification to the Commission must include the types of Community infringement in respect of which the body is designated, in addition to the name and a general description of the purpose of the body, which are required under Article 4(2) of the Injunctions Directive (subsection (10)). It is up to the Commission how it deals with the publication, but the current Official Journal entry (OJ No. C30, 2002, Item 2) for Denmark includes a reference to the individual directives for which each of the Consumer Ombudsman and Danish Medicines Control Agency are qualified to bring actions.

513.The Secretary of State is required to notify the Commission if a designated enforcer ceases to be designated for the purpose of Community infringements or if its designation in relation to such infringements is varied. The Secretary of State must also inform the Commission of any change in the name or purpose of a designated enforcer (subsection (11)).

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