11/11   2 February 2011

The OFT today welcomed a landmark High Court ruling that promotions distributed by the companies and individuals behind five UK prize draw promotions are in breach of the law.

Following the ruling in the first substantive case before the High Court under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), the Court has indicated that it will make enforcement orders against Purely Creative Limited, Strike Lucky Games Limited, McIntyre & Dodd Marketing Limited, The Winners Club Limited, Dodd Marketing Limited and certain of their directors.

In his judgment today, Mr Justice Briggs said that this is 'clearly a case in which an enforcement order should be made'. He also held that, 'the infringements of the Regulations … have occurred on a large scale …and within a short period of time. Very large numbers of consumers have been affected by those promotion... There has been a wholesale engagement in conduct altogether prohibited and, save in certain very limited respects, the aggregate effect of the misleading acts or omissions which I have found to be proved has been such as to satisfy the relatively stringent test for causation laid down by the Regulations.'

The businesses promote various premium-rate prize draw scratch-cards which are distributed through inserts in magazines and newspapers, as well as direct mailings. 

Ways in which the promotions were held by the court to be in breach of the CPRs included the following:

• by creating the impression that the recipient has won a prize, when in substance the consumer is simply being offered the chance to purchase a low value item
• by deceiving consumers as to the geographical origin of particular products, or by describing a holiday voucher as a prize, when it would cost the consumer a significant sum actually to go on the holiday
• by downplaying the costs to consumers of calling a premium number to find out what they have won.

As part of its recent Advertising of Prices Market Study, the OFT completed a detailed study the behavioural biases of consumers. This found that material which conceals or downplays the overall price a consumer may need to pay for something* can affect their willingness to pay.

Jason Freeman, Legal Director of the OFT's Consumer Group, said:

'This judgment has helped to clarify how the law applies to prize promotions, and vindicates our position that it is not acceptable to tell consumers they have won a prize, when in fact they are simply being given the chance to buy it.

'The companies' business model depended on consumers not being aware of the full facts, and as a result spending significant sums on premium phone services and delivery charges. The Defendants profited from misleading people, and this judgment means they will have to change their conduct considerably.

'This case reinforces how important it is that traders do not take advantage of how consumers respond to advertising by misleading them.'

* For example anchoring and adjustment, where people focus on an initial reference point (such as the description of a product as a 'prize'), and then fail to make sufficient adjustments when the overall price increases (such through premium rate costs and costs of delivery). A further bias is loss aversion and endowment effect, whereby the person places a higher value on an object that they own, or imagine they own (such as where they have been informed it is a prize they are entitled to), and therefore are willing to pay more not to lose it.

NOTES

1. Purely Creative Limited has a registered office of Kings Buildings, Lydney, Gloucestershire, GL15 5HE. Strike Lucky Games Limited and McIntyre and Dodd Marketing Limited, and the Winners Club Limited have the same registered office of Green Heys, Walford Road, Ross on Wye, Herefordshire, HR9 5DB. 
2. The OFT issued High Court proceedings against the companies and its officers (Adrian John Williams, a common director of all the companies, and Wendy Elaine Ruck, the common secretary, as well as Catherine Cummings a second director of Purely Creative Limited, and Peter Jude Henry, a previous director of The Winners Club Limited) in December 2009 having been unable to secure a voluntary agreement from the Defendants to stop the distribution of misleading promotional materials.
3. Download a copy of the High Court judgment (pdf 3.5Mb)
4. The CPRs came into force on 26 May 2008 implementing the EC Directive on unfair commercial practices. The CPRs prohibit unfair commercial practices which distort consumers' decisions. They introduce a general duty not to trade unfairly on businesses dealing with consumers. They prohibit misleading consumers by action or omission. They also contain prohibitions against aggressive practices, as well as 31 specific practices that are always considered unfair. The relevant practice states that 'Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either (a) there is no prize or other equivalent benefit, or (b) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost', is prohibited.  
5. McIntyre & Dodd Marketing Ltd, Strike Lucky Games Ltd, Adrian Williams and Wendy Ruck signed undertakings in October 2010 not to continue using names that include the words British, Council, National, Registry and Register without first obtaining the required approvals. For further information about this case and the companies' acceptance that their promotions which use these terms contravene the Companies Act, please see OFT secures undertakings from prize draw promoter (press release, 21 October 2010).
6. Read more information relating to the OFT's Advertising of Prices Market Study.