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Articles Banking, Finance & Financial Services 30th Jan 2014

Consumer Credit Column July 2012

Richard Mawrey QC’s Consumer Credit Column July 2012

Swings and Roundabouts

Weep not for little Léonie,
Abducted by a French Marquis.
Though loss of honour was a wrench,
Just think how it’s improved her French

Who now reads Harry Graham (1874-1936)? Yet in his day he was compared to W.S. Gilbert as a writer of light verse and operetta librettist (White Horse Inn, Land of Smiles). Graham specialised in black humour – Léonie appears in More Ruthless Rhymes for Heartless Homes – an odd career for an Eton and Sandhurst educated Coldstream Guardsman.

Little Léonie came to mind as charmingly encapsulating the proposition that even apparently unfortunate events can have a positive aspect. The trigger for this uncharacteristic mood of optimism – well, perhaps, lightened pessimism might be nearer the mark – was the publication by the English and Scottish Law Commissions of their final report Consumer redress of misleading and aggressive practices. Faithful readers (damit, there must be some) will recall my mentioning the consultation for this report in my piece a year ago (Was the Artful Dodger a consumer?) As may be expected, the Commission (the singular is more convenient) has been unable to resist most of the pressure of the mighty consumerist lobby, though here and there small rays of common sense keep breaking through the consumerist clouds. Any citations hereafter come from the Summary of the Report published in March 2012.

The ostensible objective of the exercise was to examine whether the practices made criminal in the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) should be expanded into affording their victims redress in a civil law action. That’s what the consumerists were demanding – even the European Parliament was calling for it, having, as usual, nothing better to occupy its time. Being the Law Commission, however, and thus usually Good Eggs and on our side (no, really), this unpromising peg was used to hang a possible (and much overdue) review of the whole law of misrepresentation and duress. As the Summary says of private law doctrines ‘the law of misrepresentation is complex and uncertain; while the law of duress leaves gaps in protection’.  This critique is undoubtedly fair.

The English law of misrepresentation (this Sassenach will not be so foolhardy as to speculate as to Caledonia stern and wild) is notoriously a mess, made worse by the Misrepresentation Act 1967. When a misrepresentation gives rise to a right of rescission and when such a right is lost, when damages are or are not available, the overlap between contractual and tortious misrepresentation, all these have kept the courts busy and lawyers well fee-d for donkey’s years. The law relating to duress is, in practical terms, almost never applicable to consumer transactions. The Commission is therefore pushing on an open door when it says that there is a case of reform.

Like the Curate’s Egg, parts it are excellent, My Lord’. The Commission has wisely rejected the more extreme of the consumerists’ demands. ‘We do not propose that consumers should have a right of redress simply because there has been a breach of the Regulations. Instead we recommend a new right only where there is a clear problem in the marketplace’. Instead the Commission recommends a targeted approach:

  • Land transactions and financial services should be excluded
  • There would have to be a contract between the parties (fine) or ‘a payment made by the consumer’ (hmmm). No compensation if the consumer ‘visited a shop in response to a misleading advertisement but did not buy anything’.
  • No separate right to compensation for consumers ‘being misled about their rights’.
  • Rights against the other party to the contract only and not further up the supply chain.
  • The list of banned practices in the Schedule to the Regulations not to give automatic right of redress: the conduct must have actually affected the consumer.
  • No civil redress for commercial practices which are ‘contrary to the requirements of professional diligence’.
  • No civil liability for ‘pure omissions’ (big tick for the Commission on this one because it was daring to defy the OFT on the question).
  • Beyond re-defining ‘misleading’ to conform to the new law, no changes to the Consumer Credit Act 1974 ss 75 & 75A.

What the consumer would need to prove under the proposed changes would be

  1. The trader carried out a misleading or aggressive practice which
  2. would be likely to cause ‘the average consumer to take a decision to enter into a contract or make a payment they would not have taken otherwise’ and
  3. the practice was a significant factor in the consumer’s own decision to enter into the contract or make the payment.

A commercial practice would be ‘misleading’ if it ‘contains false information or is likely to mislead the average consumer…’. Thus far the law on misleading practices very much mirrors the existing law of misrepresentation with the added bonus of doing away with the current tiresome and illogical distinctions between misrepresentations of fact and misrepresentations of law and between statements of present fact and statements of future intention. Where things start to go awry is when we come to the ‘average consumer’. This ‘hypothetical’ (the Report) or ‘mythical’ (me) person is ‘reasonably well informed, reasonably observant and circumspect’. O, where is such paragon to be found and won’t we just have fun arguing his virtues and vices in the courts? Worse is to come. The Commission has bowed to the mob and recommended carrying over from the Regulations the concept of the ‘average vulnerable consumer’. This is a recipe for trouble, if ever I saw one. The problem is that we are all agreed that little old ladies are likely to be vulnerable: it’s drawing the line marking the boundary between vulnerable and non-vulnerable (none of us is invulnerable) that will be impossible. Will it be enough simply to be a Liverpudlian? In my response to the consultation I argued against this, backed by the Council of Circuit Judges, because we all saw the horrendous litigation possibilities of having a category of ‘vulnerable consumers’. Sadly we were contra mundum on that one and will have to content ourselves by saying ‘told you so’ when proved right.

When comes to remedies, the Report provokes considerable unease. Of course, the law of rescission and affirmation was unsatisfactory but the cure is somewhat worse than the disease. The Report proposes two ‘tiers’ of remedy. Tier 1 would be based on strict liability – so any proved misleading or aggressive conduct will give rise to a remedy – all distinctions between fraudulent, negligent and innocent misrepresentations will go. Here the remedy will depend on time limits and whether the product has been ‘fully consumed’. The objective will be restitution: unless the product has been fully consumed (in which case all the claimant will get is a discount on the price) then within 90 days the claimant can ‘unwind’ the transaction. This right will replace rescission and, significantly, will permit partial unwinding so that only part of the goods can be returned or the services refused. In each case the customer gets all (or the appropriate portion) of his money back. The 90 days will run from the date of the contract. I argued this was too rough and ready and contrasted with other provisions of the law (such as limitation) where time runs from the date of actual or imputed knowledge of the right of action. The Commission is being a little naïve to assume that any significant defect will come to light in 90 days – faulty brake pads, computer glitches? After 90 days the remedy is a discount in price only.

Tier 2 remedies on the other hand will encompass claims for economic loss and ‘damages for distress and inconvenience’. Astonishingly, however, this head of claim will not follow the usual contractual rule but will be subject to the ‘due diligence’ defence imported from the Regulations. This is patently barmy and, of course, will actually deprive the consumer of rights he enjoys under the current law of contract. Surely a right to contractual damages cannot depend on the degree of moral fault of the supplier. If I am sold a defective car and it breaks down in some distant land, costing me a fortune to get myself and my family home, why on earth should it become a defence for the car dealer to say ‘I used all due diligence before selling it to you’?

It has to be said that very little thought has been given by the Report to the possible interaction between these new ‘rights’ and the existing rights possessed by the consumer under the Scale of Goods Act 1979, the Supply of Goods (Implied Terms) Act 1973 and the Supply of Goods and Services Act 1982. Are the new rights to be in addition to, or in substitution for, the existing rights? Will consumers actually be worse off (for example there is no arbitrary time limit for rejecting faulty goods under the SGA)?

Where I found myself in a minority (often of one) in responding to the consultation comes with the proposed remedies for ‘aggressive practices’ and for ‘unfair payment collection’. The lynch mob has clamoured for and obtained a recommendation that aggressive practices should give a contracting party a right to ‘unwind’ a contract or to damages. Nobody really answered my point that these practices are easy to illustrate with extreme examples but very difficult to establish in practice. When allied to the concept of the ‘vulnerable consumer’, one is simply inviting litigation. The claims farmers will have a field day.

The Report recommends affording remedies for misleading or aggressive demands for payment. Nobody, least of all myself, suggested that those who demand money which is not lawfully due should escape the rigours of the law. Where I differed from the majority was in saying that this is much better dealt with by the criminal law of blackmail – after all it should always be unlawful to demand money that is not due – and that civil remedies are inappropriate. The real danger lies, however, in those cases where the money is due or the ‘consumer’ is faced with a valid claim for damages. After all, the victim will always claim that the person demanding money is being aggressive – a mere demand is aggressive. What of litigation? Will a letter before action itself give rise to any action? Once again, so keen have the consumerists been to grant the Artful Dodger the status of consumer, that this problem has simply not been thought through.

So what would be the consequences of the Report’s recommendations being adopted? The downside (Léonie’s abduction) is that law will be reduced to a state of unworkable chaos (and ten gets you five that it will be compounded by appalling drafting of the legislation). The upside is that it will not only improve Léonie’s French, it will greatly improve the bank balances of lawyers who practice in the field of consumer law. It may be what I myself would like but I have to be honest and ask: ‘is this what the public needs?’ The Report itself is more than generous in setting out my responses to the consultation, even when, as is often the case, I am a lone voice and I gave the responses in the full knowledge that I was as Dame Partington against the consumerist tide. Having issued my warning, though, my conscience is as the noonday clear and, with my fellow consumer lawyers, I hope to clean up big on the resulting shambles.

But there is a caveat. ‘This Report does not include a draft Bill’ (very wise, drafting will be virtually impossible) ‘but we understand that our recommendations will be considered as part of the Government proposed new Consumer Bill of Rights.’  Phew! I can spot long grass with all the acuity of the Chairman of Atco and that is where these reforms have been kicked. Long may they lie there.

Richard Mawrey QC is a consumer credit expert. He has been a specialist editor of Goode: Consumer Credit Law and Practice for thirty years and is co-author of Blackstone’s Guide to the Consumer Credit Act 2006 and Butterworths Consumer and Commercial Law Handbook

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