Directive 2005/29/EC The Unfair Commercial Practices Directive

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Directive 2005/29/EC, ^[1] the Unfair Commercial Practices Directive, is a major reform of the law concerning unfair business practices in the European Union. Like any European Union Directive, it needs national rules to incorporate it in each national legal system (English, Scottish, French law etc.), although even without that it may have some effect in national law. Generally speaking, it will be difficult to predict exactly what the impact of the Directive is in a particular country without consulting the national implementing laws. In some states those laws may not yet exist.

The idea behind the Directive was to combine a high level of consumer protection with freeing up international trade in the European Union. The theory is that differences in fair trading laws from country to country caused obstacles to trade (see Article 1 of the Directive and the recitals to it). In other words, the problem is not how strong consumer protection laws are in one country or another country, but rather the fact that the consumer protection laws are different from country to country. The Directive is supposed to reduce those differences, but keep a good level of consumer protection. That is supposed to be good for both business and consumers:- good for businesses because they do not need to worry quite as much as before about different rules in different legal systems (though some difficulties are inevitable), and good for consumers because we have a decent level of consumer protection. Consumers can also expect the same kinds of consumer protection from country to country (again with some exceptions), which may make them feel safer buying things from abroad.

The Directive can be found on the Consumers section of the European Commission's website accessible via the European Union's website at http://europa.eu or directly at http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/index_en.htm

The Directive is designed to achieve what is called "maximum harmonisation" of business-to-consumer fair trading law. The idea of "maximum harmonisation" is that as well as requiring member states of the European Union to apply the standards set out in European legislation, the European legislation means that the member states are not allowed to apply higher standards. In other words, the Directive tells European countries to give consumers the protection set out in the Directive, but nothing better than that. That maximum harmonisation is not yet in force.

The Directive requires the member states to pass laws by no later than June 12, 2007 incorporating it into their own internal national law by December 12, 2007. However, until at least 12 June 2013, Member States will continue to be able to apply more protective national rules deriving from European directives insofar as it is necessary and proportionate to do so (Article 3(5)), meaning that maximum harmonisation may not be complete before that date. There will be a major review of the operation of the Directive by 12 June 2011 (Article 18).

The Directive is concerned mainly with the "substantive" law (meaning in this context the standards of behaviour required of traders). To some extent it leaves to member states the choice of appropriate domestic enforcement procedures and penalties for non-compliance (Articles 11 to 13 of the Directive).

The structure of the Directive is that it starts with a general prohibition on unfair business-to-consumer commercial practices (Articles 3(1) and 5(1)) and then goes into progressively greater detail defining what that means. The Directive says that "unfair commercial practices" are practices which are "contrary to the requirements of professional diligence" (Article 5(2)(a), and see further Article 2(h)) and which are likely to materially distort the economic behaviour of the average consumer (Article 5(2)(b)). The effect of commercial practices on particular kinds of consumers, especially those who are unusually vulnerable, can replace the "average consumer" test if the practices are directed at those kinds of consumers or will foreseeably affect them (Articles 5(2)(b) and 5(3)). The Directive describes two major categories of unfair commercial practices:- those which are misleading (Articles 5(4)(a), 6 and 7) and those which are aggressive (Articles 5(4)(b), 8 and 9). Annex 1 to the Directive sets out a list of "commercial practices which are in all circumstances considered unfair" (a black-list of bad behaviour). These are divided into "misleading commercial practices" (23 examples) and "aggressive commercial practices" (8 examples).

On a literal reading of the Directive, misleading or aggressive commercial practices which would not affect the average consumer's economic behaviour, but would distort the economic behaviour of particular kinds of consumer, may be prohibited only by the general clause in Articles 5(1) to 5(3), and not by the specific clauses in Articles 6 to 9. This is because the latter provisions refer exclusively to the "average consumer" (although Article 9(c) also refers to the "exploitation of any specific misfortune or circumstance of such gravity as to impair the consumer's judgement, of which the trader is aware..."). However, it might be fairer to read Articles 5(2)(b) and 5(3) as supplanting the references to the "average consumer" in Articles 6 to 9 in appropriate cases. The UK Government's Department for Trade and Industry published a consultation paper in December 2005 which suggested that that was indeed the intention. There is no clear basis in the text for the favoured interpretation, but the UK Government supports its interpretation with reference to the European Commission's Explanatory Memorandum. This could be important because depending on the answer to this question it may be easier or harder to pin down a breach of the Directive.

The Directive is expressly "without prejudice to contract law and, in particular, to the rules on the validity, formation or effect of a contract" (Article 3(2) of the Directive, and see also the 9th recital to the Directive). It does not seek to harmonise unfair competition law regulating "commercial practices which, although not harming consumers, may hurt competitors and business customers" (8th recital to the Directive).

The rules referred to in the actual text of the Directive in relation to codes of conduct are quite limited (e.g. Article 6(2)(b), prohibiting non-compliance with codes of conduct in some circumstances, and Article 10). However, the 20th recital states:- "It is appropriate to provide a role for codes of conduct ... In sectors where there are specific mandatory requirements ... these will also provide evidence as to the requirements of professional diligence in that sector. ... consumers' organisations could be informed and involved in the drafting of codes of conduct." Subscribers to a code of conduct drafted with the input of and endorsed by a major consumers' organisation could seek to argue during enforcement proceedings that compliance with the code of conduct is therefore evidence that they have not engaged in unfair commercial practices. Those charged with promoting and administering membership of codes of conduct will take note that Article 11(1) in effect contemplates the possibility of class-actions brought by consumer groups against code-owners where the code promotes non-compliance with legal requirements. Taken together, these provisions may be an incentive for those who administer and promote codes of conduct to consult with consumers' groups and take careful legal advice in relation to the drafting of such codes.