X Ltd, R. v

On 22 October 2012, in the Crown Court, X Ltd (‘the company’) faced trial on an indictment containing four counts each of which alleged engaging in an unfair commercial practice in contravention of different provisions of the Consumer Protection from Unfair Trading Regulations 2008 (‘the Regulations’). On 1 November 2012, in relation to each count, the judge acceded to a submission that there was no case to answer. Mr Richard Atkins Q.C. for the Crown (instructed by the relevant local authority) thereafter intimated that leave to appeal would be sought from this court and provided the required undertaking pursuant to s. 58(8) of the Criminal Justice Act 2003 that the company should be acquitted if leave was not obtained or the appeal abandoned. We grant leave.

By way of background facts, the company is in the business of selling domestic security systems such as CCTV and burglar alarms frequently by cold calling either by telephone or doorstep visits. The case concerned its dealings with a 76 year old widower (‘the customer’): by the conclusion of the prosecution case, it was common ground that, by reason of age and infirmity, he was properly described as vulnerable. The Crown contended that his memory was poor and his vulnerabilities would have been obvious to anyone who spent any amount of time in his presence or spoke to him.

In the event, after a company representative having spoken twice to the customer by telephone on 24 May 2010, on the following day a salesman visited his home. It was alleged he was there for over three hours whereupon the customer purchased a carbon monoxide detector, an electrical inspection of his home and a CCTV home security system, all totalling £2,574.04. On 7 June 2010, the CCTV system was installed and two days later the electrical inspection undertaken. On 11 June, a salesman visited again following which the customer purchased products and electrical work totalling £2,336.72. These works were carried out on 7 and 8 July 2010.

On 30 July, members of the customer’s family visited him and found that almost £5,000 which had been taken from his bank account appeared to relate to a CCTV system which was unplugged and about which he, whose mental condition was deteriorating, appeared to know nothing. Following a complaint and against that background, the relevant Trading Standards Service commenced an investigation: the prosecution was the result.

Count 1 of the Indictment charged engaging in an unfair commercial practice contrary to Regulation 12 and para. 12 Schedule 1 to the Regulations in that the company made a materially inaccurate claim or claims concerning the nature and extent of the risk to the personal security of the customer if he did not purchase a CCTV system. It is an offence of strict liability subject to a defence (the burden of which is on the defendant) of due diligence. By the end of the prosecution case, reliance was placed solely on a document produced by the salesman which stated that burglaries in his post code area had risen by 46.2% in the last 12 months and that, on average, 6.3 homes per month had been burgled in his post code area (the source being crime mapping UK).

The 46.2% statistic had been obtained from a crime mapper website using statistics provided by the police. When the full postal code was typed into the website, statistics for the ward area (larger than the area covered by the full postal code) were provided. A percentage increase or decrease in burglaries is also provided but with the qualification that it related to the same three month period. Thus, for the period up to the end of March 2010, the website would have stated “The average number of burglaries in this area has increased from 13 to 19 (46.2%) (compared with the same three month period last year)”.

In fact, the evidence was that over a twelve month period burglaries in the ward (not, we repeat, the postcode area) from May 2009-April 2010 compared with May 2008-April 2009 showed a reduction of 13.5% from 52 to 45. Further, the updated statistics to the end of April 2010 would have been updated on the computer no later than 24 May. There was an issue as to the sourcing of the information and, in particular, whether it was part of cold-calling research undertaken by the company or the salesman.

The judge drew inferences as to when the statistics were obtained and by whom (appearing to rely on assertions made by the company) and, in relation to the statistics, also observed:

“I cannot find any evidence to support the proposition that the data that was relied upon in the presumed presentation to [the customer] was materially inaccurate. The application of common sense tells me that any consumer of any security product is likely to be far more influenced by events that happened recently as opposed to events that happened many months ago, albeit within a 12 month parameter.”

As for the difference between post code area and ward, the judge said:

“Equally there is no basis at all for the jury to conclude that the use of the term ‘post-code area’ as the relevant geographical boundary as opposed to ‘ward’ provides any basis for any finding of material inaccuracy especially as the means of entry is the provision into the data base of the relevant post code.”

Mr Atkins argues that the case did not concern a ‘presumed presentation’ but a document with which he was provided and, furthermore, the question of influence is not to the point: it was whether there was material from which the jury could conclude that what was described was materially inaccurate. As for the geographical area, the ward was clearly much larger than the post code and, again, the information was simply inaccurate: it was for the jury to determine materiality.

Mr Jonathan Kirk Q.C., for the company, argued that there was no evidence that comparing two twelve month periods was more accurate than comparing two three month periods which was how the police published the annual comparison and, furthermore, that there was no evidence that a statistical consideration of the post code area (as opposed to the ward) would have made any difference. At its lowest, it was open to the judge to conclude that the differences were not material.

For our part, we simply do not understand how it can be said that there was no prima facie evidence that the data was not inaccurate. It was very clear that the police data covered only 3 months; it did not cover a year. The fact is that the rate of burglaries had not risen by 46.2% over 12 months; year on year, it had dropped. Similarly, if the company wished to rely on the data as representing the number of burglaries in the customer’s post code area, it was not enough simply to say that it had been accessed the data from some wider geographical basis by reference to his post-code. This may not matter for casual conversation but if being used to sell security equipment (especially to a vulnerable consumer), that there was a case of material inaccuracy seems to us to be clear: in our judgment, to assert that there was no such evidence is simply wrong. In relation to this count on the indictment, the appeal is allowed.

For convenience, we next turn to Count 3 which is a similar allegation of engaging in an unfair commercial practice albeit involving Regulations 5 and 9 of the Regulations. The Particulars of the Offence are as follows:

“[The company] between the 23^rd day of May 2010 and the 21^st day of August 2010 as a trader engaged in a commercial practice which was a misleading action in that they represented that the CCTV security system installation purchased by [the customer] and supplied to him would be an effective security measure, which contained false information and was untruthful in relation to the benefits and fitness for purpose of the product and it caused or was likely to cause the average consumer to take a transactional decision he would not have taken otherwise.”

Again, it is an offence of strict liability subject to the defendant establishing, on the balance of probabilities, the defence of due diligence. In short, the system proposed by the company’s salesman involved two cameras (as shown on a diagram) facing away from the house thereby enabling the face of anyone approaching to be captured. It was common ground that the proposal was sound and that one of the questions on the Customer Purchase Report (which was checked) reads “Customer made aware engineer will have final decision positioning equipment?”

Although the salesman had completed a diagram, no copy was kept by the company and it is not known whether the installer (who was an independent sub-contractor) saw the copy which the customer had been given. Whether he did or not, it is equally common ground that there was prima-facie evidence that the system was fitted in such a way that it did not constitute an effective security measure and, as fitted, was not fit for purpose. Before payment was taken, however, there was a telephone conversation between the company and the customer, in which he was asked whether he was happy with the installation and where the equipment had been sited. The customer replied in the affirmative.

The case on this count was opened on the basis that the company was engaged in a commercial practice namely the sale and supply of goods and services in which it was represented that the purchase and installation of the CCTV system would be an effective security measure against burglars, in particular those targeting the elderly: Mr Atkins submitted that the practice “contained false information and was untruthful in relation to the benefits and fitness for purpose of the product”. He argued before us that the representation as to fitness continued from the pre-contract negotiation until the approval for final payment which explains the bracket of dates in the count and the use of both verbs ‘purchased’ and ‘supplied’: the system operated by the company had no effective check built in to ensure that the product they supplied was an effective security measure.

Mr Kirk’s submission on this count (accepted by the judge) concerned the proper construction of the phrase “commercial practice”. The judge concluded that the purpose of the relevant directive was not to make individual errors unlawful but to make practices unlawful so that, in order to succeed, the prosecution had to demonstrate that there was evidence fit to be left to the jury evidencing that the inadequate installation of the equipment arose as a result of a practice as opposed, possibly, to a lack of interest on the part of the installer. Having said that it was not necessary for there to be more than one customer to evidence a practice, he went on:

“[I]n my judgment, there has to be evidence that what happened (by which I mean the failure to install the CCTV system in the manner and at the location as was promised) arose as a result of the commercial practice of the company (or their agents) rather than the failure of an individual.”

Before us, Mr Kirk argues that this ruling was correct in law; the word ‘practice’ connotes a habitual or repeated effect which is not what happened in this case. He also adopts an argument (made in the company’s defence case statement but not pursued before the judge) that the salesman’s drawing did not (at the time he drew it) contain false information: it was his proposal for what should be installed. What rendered the depiction inaccurate (and thus the system not fit for purpose) was the installation but it was not the installation that caused the consumer to make a transactional decision. The only basis on which this count could be made good was if the company knew that the installer would not do what the salesman had required: whether the company should have taken steps to check that the installer did perform the contract properly is not to the point. The charge is based on unfair commercial practice causing a consumer to take a transactional decision.

Mr Atkins, on the other hand, argues that the term ‘commercial practice’ is sufficiently wide to cover single acts conducted by traders against single customers or, alternatively, that the nature of the practice in this case was such that a jury could reasonably have concluded that it exemplified the company’s regular practice. He also submits that the transactional decisions include the later payment for the system following the telephone conversation.

The starting point in relation to both these arguments is a definition of the terms at Regulation 2 of the Regulations, which include:

“‘commercial practice’ means any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product. …

‘transactional decision’ means any decision taken by a consumer, whether it is to act or to refrain from acting, concerning:

(a)

whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product; or

(b)

whether, how and on what terms to exercise a contractual right in relation to a product.”

First, dealing with ‘commercial practice’, by using the phrases ‘any act’ and ‘any course of conduct’, it is argued by Mr Atkins that the regulation is intended to cover both isolated acts and repeated behaviour, as illustrated by examples set out in Schedule 1 which lists commercial practices which are “in all circumstances” unfair including (at 24) “explicitly informing a consumer that if he does not buy the product or service, the trader’s job or livelihood will be in jeopardy”.

In our judgment, there is considerable force in this submission, particularly as the definition includes ‘any act … by a trader which is directly connected withthe promotion, sale or supply of a product’ (our emphasis). The use of the plural (‘consumers’) does not take the matter further: Regulation 2(2) makes it clear that “in determining the effect of a commercial practice on the average consumer where the practice reaches or is addressed to a consumer or consumers account shall be taken …” (our emphasis). In the circumstances, it is clear that a commercial practice can be derived from a single incident. It will depend on the circumstances.

It goes further than that. The use of the words “(if any)” in the definition permit the conclusion that there need not be any commercial transaction at all. In our judgment, the concept is concerned with systems rather than individual transactions.

Reliance has been placed on R (London Borough of Tower Hamlets) v Christopher Steele [2012] CTLC 109which is a first instance decision of Mr Recorder Lowe Q.C. sitting in the Crown Court at Snaresbrook. He acceded to the submission that there was no case to answer in the context of a contract for building services with a consumer on the basis that the contract did not fall within the definition of ‘commercial practice’ within the Regulations. We must admit to surprise that this first instance decision of a judge neither of the High Court nor sitting in the High Court should be reported; under our law of precedent, it has no authoritative value. Whether it was rightly decided, we do not say. Suffice it that, for the purposes of this case, we do not consider its reasoning to be persuasive.

Second, as for the breadth of the term ‘transactional decision’, although we were initially attracted to the view that the indictment was limited to the formation of the contract, it is clear that a commercial practice can include a “course of conduct … directly connected with … the supply of a product … after a commercial transaction” can cover the implied (if not express) representation that the CCTV system as fitted is fit for the purpose and that transactional decisions arise both when determining “whether ... to … make payment” or “whether … to exercise a contractual right”.

Mr Kirk argued that this construction of the regulations did not accord with the Directive as described in Zentrale zur Bekampfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH [2011] All ER (EC) 338 which referred (at para. 37) to “an operator’s commercial strategy and relate directly to the promotion thereof and its sales development”. That observation, however, was concerned with the particular facts of that case. In the preceding paragraph, the judgment of the Court of Justice made it clear that art 2(d) of the relevant Directive (2005/29):

“gives a particularly wide definition to the concept of commercial practices: ‘… any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.”

That language is echoed in the Regulations. In our judgment, it does not limit the circumstances as Mr Kirk contends but is wide enough to embrace the facts in this case. Neither is this an undue burden placed on the company: if a failure is the fault of a third party and due diligence can be demonstrated, no offence is committed. The position is no different from that which obtains, for example, in relation to the inaccurate shelf pricing of goods offered for sale. In the circumstances, we conclude that there was a case to answer in relation to this count as well.

Counts 2 and 4 both concern engaging in an unfair commercial practice which contravenes the requirements of professional diligence contrary to Regulations 3 and 8 of the Regulations. As to count 2, it alleged that the company knowingly or recklessly engaged in a commercial practice with the customer in connection with the sale purchase and installation of a carbon monoxide monitor, periodic electrical inspection and CCTV system which was unfair in that it contravened the requirements of professional diligence and that practice materially distorted or was likely to materially distort the economic behaviour of the average consumer with regard to those products. Count 4 was a similar allegation in relation to the electrical equipment which formed the second transaction.

These are not offences of strict liability and the prosecution had to establish knowledge or recklessness on the part of the company as to the way in which their commercial practices failed (in fact) to meet their obligations to consumers. It sought to do so by pointing to every stage of contact with the customer from the first telephone call, the second telephone call, each visit and each installation and arguing that it had failed to operate according to the stringent guidelines which it set out in its own code of practice or in accordance with honest market practice and good faith. The critical feature upon which it relied was the vulnerability of the customer as eventually conceded by the company.

The judge put the matter this way:

“I am quite satisfied that the evidence of the installation of the CCTV and the evidence of the lamentable, indeed deplorable and dismissive tone of the customer operator in the recorded calls is evidence of a contravention of honest market practice or breach of good faith. Were that the only issue upon which evidence was required in support, then there would be evidence to be left to the jury.

However, there has to be evidence that at least one director of the company knew of the circumstances that would lead to the transaction with [the customer] or was indifferent to the risk and thus reckless.

There is no evidence at all that any of the four directors knew anything at all about [the customer] before the complaint was made by [a member of his family] at the end of July 2010.

In fact the prosecution do not say that any of them, or all of them, knew of this particular customer. Rather the prosecution say that this whole company trades on the premise and with the purpose of taking advantage of the vulnerable and that the Code of Practice … is in fact a sham, an active deception to permit the company to fulfil its trading strategy. …

I am not satisfied, despite my very real suspicion about the company, that the evidence exists in this trial to permit the jury to come to the conclusions the prosecution say are permissible. If the company is as corrupt as the prosecution say, where is the evidence to support this other than in the case of [the customer]?”

Mr Atkins submits that it is not sufficient for the controlling minds of the company to provide written directions requiring the exercise of professional diligence (which, by its Code of Practice, this company did); the controlling minds of the company had to go further and both monitor and enforce the exercise of due diligence. In this case, it is argued, the nature and extent of the failings by all those within the company who engaged with the customer were sufficiently consistent to give rise to the inference that the controlling minds of the company took no or no sufficient steps to ensure that the employees and independent contractors engaged by the company complied with the Code of Practice either because it was never their intention that they should or because they did not care less, one way or the other.

One example of the way in which the jury could draw this inference comes from what the judge described in his ruling as “the evidence of the lamentable, indeed deplorable and dismissive tone of the customer operator in the recorded calls” which he recognised as evidence of a contravention of honest market practice or breach of good faith. Mr Atkins made the point that supervisors and three of the directors reviewed this (and five other recordings of calls with the customer, two further recordings not having been disclosed); nobody had seen anything wrong with them. On that basis, he argued that there was evidence, at the very least, that the controlling minds were reckless of their obligations to consumers.

Mr Kirk submitted that the only evidence concerned one customer (which point the judge adopted with the rhetorical question he posed). For our part, we accept that a single failing (or perhaps more than one failing) to one customer may not be sufficient. In this case, however, on one view of the facts, the jury were able to infer that the failure ran (as Mr Atkins submitted) at every stage of the process from top to bottom. Assuming there is sufficient evidence in the case of one customer, and given the reactive nature of investigations of this type along with the time limits and geographical limitations facing Trading Standards Services, it cannot be a requirement that there be necessarily more than one customer about whom complaint is made. As with many cases, it will all depend on the facts.

The judge placed weight on the absence of evidence that at least one director knew of the circumstances that lead to the transaction with this particular customer. In our judgment, his approach was too narrow: the question was whether the depth of the evidence relating to this one customer led to the inference that the way in which the company operated (through at least one of its controlling minds) demonstrated reckless disregard for the requirements of professional diligence generally: in that regard, it matters not that the particular controlling mind cannot be identified: see the similar observation to that effect by McCowan LJ in Airtours plc v Shipley (1994) 158 JP 835.

Following the approach identified in R v Jabber [2006] EWCA Crim 2964, per Moses LJ (at para. 24), which itself was approved in R v Goring [2011] EWCA Crim 2, there was clearly evidence from which a jury could reasonably reject innocent explanations and reach a conclusion that the only proper inference to draw on the facts was that the company was knowingly or recklessly operating a commercial practice in contravention of the requirements of professional diligence, likely to distort the economic behaviour of the average consumer. This is not a question of inappropriately interfering with the discretion afforded to the judge: in our judgment, he approached the Galbraith submission on the wrong basis. In those circumstances, the appeals in relation to counts 2 and 4 are also allowed.

In the event, the appeal by the Crown in relation to each count of this indictment is allowed and it will be remitted back to the Crown Court to be tried afresh before a different judge. Given the significance of this ruling, we have anonymised the judgment and direct that s. 71 of the Criminal Justice Act 2003 shall not apply to it; we give leave for it to be published.