Aggressive Commercial Practices, Confidentiality Clauses, Consent Connivance and Due Diligence.
Whether a confidentiality clause could amount to an aggressive commercial practice and whether a director could connive therein by sending out such a clause in a letter drafted by a solicitor, fell to be decided in the recent case of R v Waters. First published as "Aggressive Commercial Practices" in the Criminal Law & Justice Weekly (2016) 180 JPN 736.
Aggressive Commercial Practices
The concept of an aggressive commercial practice was introduced into UK law by reg.7(1) Consumer Protection from Unfair Trading Regulations 2008 ("CPUTR") which provides: "A commercial practice is aggressive if, in its factual context, taking account of all its features and circumstances – (a) it significantly impairs or is likely significantly to impair the average consumer's freedom of choice or conduct in relation to the product concerned through the use of harassment, coercion or undue influence; and (b) it thereby causes or is likely to cause him to take a transactional decision he would not have taken otherwise." By virtue of reg.11 CPUTR, a trader who engages in such a practice is guilty of an offence. Regulation 15(1) provides that, where such an offence is committed by a body corporate, an officer of that body is guilty of the offence if was committed with his consent or connivance or it was attributable to any neglect on his part.
"Commercial practice" is defined in reg.2(1) as meaning "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;" and "undue influence" is defined in reg.7(3)(b) as "exploiting a position of power in relation to the consumer so as to apply pressure, even without using or threatening to use physical force, in a way which significantly limits the consumer's ability to make an informed decision."
R. v. Waters and Westminster Recliners Limited [2016] EWCA Crim 1112 ("Waters")
W was a director of a company, WRL, which sold reclining armchairs. V, aged 75, was interested in such a chair as she was disabled and housebound. When a salesman of WRL visited her home, V eventually ordered a chair and paid a 50% deposit of £795. She later regretted that decision and refused to accept delivery of the chair. She did not believe she could rely on the Notice of Cancellation she had been given by the salesman because it was not signed, but she subsequently telephoned WRL and was promised a refund. Thereafter, V received a letter from W drafted by a highly reputable firm of solicitors. The letter offered a full and final settlement whereby she could cancel her order and receive a £286.50 refund. She was, however, required to "agree that the fact of the offer and the terms of this settlement and letter will remain confidential to the parties and will not be disclosed to any third party". A number of charges were brought against WRL and W, as director thereof. The prosecution alleged that, in a number of cases, they had used high pressure sales techniques to sell their chairs and also to keep as much of the deposits paid as possible in the event of cancellation. The jury convicted both WRL and W, but only in relation to an allegation that the letter sent to V constituted an aggressive commercial practice, contrary to reg.11 CPUTR. On their appeal, the defendants contended that they should have been acquitted on the basis that there was no case to answer, that the guilty verdicts were inconsistent with their acquittals in relation to a similar letter sent to another customer, and, in the case of W, that it had not been proved that he knew the material facts and had agreed to the conduct of the salesman so as to make him guilty of connivance to the offence by the company under reg.15 CPUTR.
Confidentiality clause
In determining that the confidentiality clause in the letter did give rise to a case to answer, the Court of Appeal in a judgment delivered by Lord Thomas of Cwmgiedd CJ, noted that the definition of an "aggressive commercial practice" stressed the importance of the need to look at the commercial practice in context and at its effect on the average consumer. Furthermore, "commercial practice" was widely defined and applied to the whole of the contractual relationship including the sending of the letter.
The Court did not consider the confidentiality clause used in this case could in most circumstances be "judged commercially proper". Whilst its use in large commercial contracts or in cases involving those in the public eye were understandable, it was, "plainly in the public interest that members of the public should know about companies who deal with the elderly and vulnerable; it is therefore difficult to see how any reputable firm can advise that such a clause is proper." Although in some circumstances it might be right to impose confidentiality, looking at the whole of the factual context, there was a material distinction in the instant case because the letter contained references not only to the settlement, but also to the offer. The requirement not to disclose the offer to another person was prima facie, an attempt to restrict V from taking advice.
Inconsistent verdicts
Thomas LCJ, following R. v. Fanning [2016] EWCA Crim 550, and applying R. v. Stone [1955] Crim. L.R. 120, said that the sole test to determine whether verdicts were inconsistent required the appellant to satisfy the court that no reasonable jury, who had applied their minds properly to the facts in the case, could have arrived at the conclusion that the two verdicts could stand together. The guilty verdicts against the appellants in relation to the letter sent to V were not inconsistent with their acquittals in relation to a similar letter sent to another of WRL's customers. When looked at in the factual context of what had happened in each case, there were striking differences between the letters including the fact that the other customer had been given a signed Notice of Cancellation and had cancelled within the seven day period. There had been no reference to a seven day notice period in V's unsigned Notice of Cancellation.
Connivance by the director
It appears that, in the Crown Court, the question of whether W had connived in the offending by WRL was looked at by reference to the conduct of the salesman, thus overlooking the fact that it was W who had sent the letter to V. "He plainly knew of its terms … [and] it was open to the jury to infer that he had made proper enquiries as to whether there was the right paperwork referring to a cancellation period and that he would have checked the paperwork before sending the letter. He would also have been concerned to look at the sending of the letter in the context of dealing with someone of [V's] age and vulnerability." There was therefore little doubt that the letter was an aggressive commercial practice and that W had connived in that practice.
It was not argued that the fact that the letter had been drafted by a solicitor in any way affected the above conclusion. That was clearly right. The offence committed by WRL was one of strict liability requiring no proof of intent. The offence was committed with W's connivance in sending out the letter and that fact was not altered by any belief which he might have harboured that sending the letter was lawful.
At first blush it would appear that the decision that W was guilty by virtue of the inference that he would have checked the paperwork before sending the letter is in conflict with Lewin v. Bland (1984) 148 JP 69 ("Bland"); a decision in relation to what was s.20 Trade Descriptions Act 1968. In that case, a director delegated the task of compiling a duplicate vehicle service book and, had he checked it before sending it to the customer with his own covering letter, he would have "at once noticed" that the entries in the book were false. In dismissing the appeal against the justices' decision to acquit the director, Forbes J said: "There is nothing peculiar about the circumstances of this case which would mean that the managing director of what cannot be a small company should check the work of his senior staff. … He was entitled to delegate work to his senior staff and could expect that work to be completed in accordance with the instructions given." There are perhaps two distinctions to be drawn between the case of Bland and that of Waters. Firstly, the director in Bland was alleged to have been guilty of his company's offence due to his "neglect" whereas W was found to be guilty through his "connivance". If the prosecution had alleged "connivance" in Bland the outcome might have been different. It is now clear from such cases as Southend Borough Council v. White (1992) 156 JP 463, R v. T [2005] EWCA Crim 3511 and R v. E [2007] EWCA Crim 1937, that it is possible to allege in the same charge that a director is guilty of an offence through the alternatives of his neglect, consent or connivance and so prosecutors do not have to choose. The second, and probably more compelling, distinction between the two cases is that there was nothing "peculiar" to alert the director in Bland to the possibility that the enclosures might contain false information. By contrast, in the Waters case, it was the letter itself which contained the offending statement.
Defence of "due diligence" – reliance on legal advice
Although the judgment in Waters stated that "it is important to note that the regulations provide essentially for a defence of due diligence", that defence, in reg.17 CPUTR, was not recited. Moreover, there is no indication that either defendant had, at any stage, sought to rely on it. Whereas evidence was adduced before the jury that it was common practice to include the ill-worded confidentiality clause in letters of the kind sent to V, there was no argument that having the letter, not just vetted by a solicitor, but actually drafted by one, constituted "due diligence". But, could such a defence have been raised?
Continued in Part 2.