Prize draw promoters: aggressive and misleading prize draw promotions

Office of Fair Trading (OFT) closed consumer enforcement case.

From:
Competition and Markets Authority
Published
1 March 2013
Case type:
Consumer enforcement
Case state:
Closed
Market sector:
Distribution and service industries
Outcome:
Consumer enforcement - court order
Opened:
1 April 2008
Closed:
1 March 2013

Investigation into prize draw promoters Purely Creative Limited, Strike Lucky Games Limited, McIntyre& Dodd Marketing Limited and The Winners Club Limited.

Case reference number: CRE-E/16752

Summary of work/background

Following OFT enforcement action against a number of  prize draw promoters, a landmark decision by the Court of Justice of the European Union (ECJ) held that aggressive practices which give the consumer the impression that he has won a prize while he is invited to pay a cost to claim it are prohibited absolutely.

Background

High Court Order

Purely Creative Limited and Strike Lucky Games Limited promote various premium-rate prize draw scratch-cards which are distributed nationally through inserts in magazines and newspapers. McIntyre & Dodd Marketing Limited and The Winners Club Limited issue direct mailings.

On 22 December 2009 the OFT issued High Court proceedings against the companies and individuals behind these prize draw promotions which the OFT considered were misleading and in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). The action was taken under the Enterprise Act 2002 (EA) for alleged breaches of the CPRs. The companies believed that their promotions complied with the relevant laws and guidelines and refused to cease their publication.

The OFT welcomed a landmark High Court ruling on 2 February 2011 that the promotions distributed by the above mentioned companies and individuals were in breach of the law. The Court indicated that it would make orders (or consider accepting undertakings to the Court) against the companies and its officers which would require them to cease or otherwise discontinue breaches of consumer law identified in the judgment. At a hearing on 17 March 2011, the Court ruled that it would accept undertakings from the defendants. The undertakings were incorporated into an Order (pdf 139kb) and were endorsed by the Court on 10 May 2011.

Court of Appeal hearing

On 6 April 2011 the defendants (with the exception of the 9th defendant) ('the Appellants') appealed certain findings of the High Court in relation to Annex Practice 31 of the CPRs. On 15 April 2011 the OFT sought permission to cross-appeal.

The Court of Appeal issued a judgment (pdf 133kb) on 29 July 2011 in which it stayed the appeal and cross-appeal and referred certain questions on the interpretation of Annex Practice 31 of the CPRs to the European Court of Justice (ECJ) (pdf 264kb). The High Court Order remained in place.

ECJ preliminary ruling

The OFT welcomed landmark decision by the ECJ on the 18 October 2012 which held that aggressive practices which give the consumer the impression that he has won a prize while he is invited to pay a cost to claim it are prohibited absolutely.

The ECJ said that the concept of a true 'prize' should be preserved, meaning that a prize in respect of which the consumer is obliged to make a payment of whatever kind in order to claim it cannot be regarded as a 'prize'. Where people are told they have won a prize, this has a psychological effect on them, meaning that they may be more willing to call a premium rate number, travel to collect an item or pay delivery costs for it. The court concluded that 'it is the very prospect of taking possession of the prize which influences the consumer and may cause him to take a decision he would not take otherwise, such as choosing the quickest method of finding out what prize he has won, even though that may be the most expensive method'.

The ECJ ruled that: 

  • Where a trader informs consumers that they have won a prize, they must not ask the consumer to pay money or 'to incur any cost whatsoever' in order to claim it. Consumers must be able to register their entitlement to a prize, find out more information about it, and take possession of it, without being invited to spend money.

  • Prohibited costs include:

    • costs that are very small in relation to the value of the prize 
    • costs that do not benefit the prize promoter (such as the cost of a stamp).
  • Further, traders are not allowed to offer consumers a number of methods of claim, even if one of which is free, if any of the other methods offered involves the consumer incurring a cost.
  • Finally, traders should also make clear what the prize on offer actually is, so that consumers can identify it and assess its nature. Wording must be clear and legible, and also understood by the people targeted by the promotion. For example, in the case of a cruise offered as a prize, the promotion must make clear the itinerary, points of departure and arrival, and the type of accommodation and meals provided. However precisely what information is necessary will depend on the details of the promotion being run, and so should be assessed by national courts.

The ECJ's preliminary ruling ensures the uniform interpretation of the Unfair Commercial Practices Directive (which the CPRs implement in the UK) in all Member States.

Court of Appeal Order

Following the ECJ's ruling, the appeals were concluded by the making an Order (pdf 982kb), by consent, and which was endorsed by the Court of Appeal on 19 March 2013. The Order sets aside and replaces the High Court Order and orders that the Appellants' appeal is dismissed and the OFT's cross-appeal allowed.

Published 1 March 2013

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