Rogue traders are in the habit of sending out notifications by post, e-mail, phone call or text message telling consumers that they have won a prize. The hitch comes in the form of having to pay a fee to collect the prize, or to call a premium-rate phone number, or even worse to provide personal or financial information. These practices are squarely illegal.

Honest traders around the globe also indulge in legitimate sales promotions that involve the customer participating in a prize draw or competition in order to attract consumers. Indeed, prize promotions are an effective and increasingly popular marketing tool but it is not without its legal challenges.

The regulatory framework of prize promotion varies in the domestic legislations of the EU member states, some of which have a thorough regulatory regime while others don’t.

In providing a degree of legal certainty on the subject, the EU Directive on Unfair Commercial Practices governs practices that directly harm consumers’ economic interests. The directive takes as a benchmark the average consumer, who is reasonably well informed and observant.

In terms of this directive, traders cannot indulge in misleading commercial practices that are deemed to be automatically unfair. One such practice is that of claiming to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent.

Likewise, aggressive marketing practices are unfair as these are deemed to impair significantly the consumer’s freedom of choice. Such is the practice of creating a false impression that the consumer has already won – will win, or will win after doing a particular act – a prize when in fact either there is no prize to be won, or when claiming the prize will involve asking the consumer to pay money or incur a cost.

The CJEU stated that the concept of a true ‘prize’ should be preserved

The Court of Justice of the European Union (CJEU) was asked to give a preliminary ruling on this type of aggressive commercial practice in proceedings that were referred to it by the UK Court of Appeal.

The original proceedings were instituted by the UK Office for Fair Trading against a number of traders that were pushing certain promotions on the UK market, including individually-addressed letters, scratch-cards and other advertising inserts placed in newspapers and magazines. Essentially, through these promotions, consumers were informed that they were entitled to claim a prize. In order to find out what the prize was, the consumer was given the option of either calling a premium rate telephone number, using a reverse SMS text messaging service, or obtaining the information by ordinary post.

The latter option was given less prominence with the result that consumers were encouraged to use the first two, more expensive, routes. The process of claiming the prize led to a substantial proportion of the value of the prize being eaten up through telephone or text charges, and delivery and insurance charges.

The UK High Court found that the promotions involved unfair practices although it ruled that had the payment been de minimis (such as the purchase of a stamp or the cost of an ordinary telephone call), no part of which would benefit the trader concerned, then the practice would not be deemed unfair. The traders appealed against the decision of the High Court to the Court of Appeal, which made a reference to the CJEU.

The traders argued that no ‘false impression’ was created since the consumer was sufficiently informed of the costs of claiming the prize. However, the Court of Justice held that even where consumers knew they would have to incur a cost, a payment or a cost associated with claiming the prize amounted to an aggressive practice and was thus prohibited. The Court considered that a “false impression” still arose since the consumer, once told he had won a prize, would not have expected to have to pay anything in order to find out what it was or to claim it.

The Luxembourg Court ruled that the Directive imposed an unequivocal ban on any form of cost to the consumer, even if the cost is de minimis compared with the value of the prize, or a cost that would not procure any advantage for the trader. In its judgment, the CJEU stated that the concept of a true ‘prize’ should be preserved to the extent that a prize in respect of which the consumer is obliged to make a payment of whatever kind cannot be regarded as a ‘prize’.

jgrech@demarcoassociates.com

Josette Grech is adviser on EU law at Guido de Marco & Associates.

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