"Stop now" orders: a new UK regulatory mechanism

Overview

The UK Government brought the new regulatory mechanism of "Stop Now" Orders into effect on 1 June 2001, to implement the EC "Injunctions Directive" 98/27. The Directive allows a qualifying public body or consumer organisation based in one member state to apply for an injunction in the courts of another member state to stop the infringement of certain defined consumer interests in the first state.

The UK Government has extended this mechanism also to domestic infringements of the defined consumer interests, in place of section 35 of the Fair Trading Act 1973, thereby significantly widening the authorities' enforcement powers by displacing the pre-existing requirement that before bringing proceedings the Director General of Fair Trading first had to use his best endeavours to obtain a satisfactory written assurance from the trader that he will refrain from continuing the offending course of conduct.

Further, it is likely that the Stop Now Orders mechanism will be used as the basis of wide enforcement powers under the Enterprise Bill which the Government is to propose in early 2002. Industry views with great concern the wide use of threat of injunctions by a regulator to avoid meeting the criminal standard of proof required for a prosecution.

The UK implementing provision is the Stop Now Orders (E.C. Directive) Regulations 2001. [1] CMS Cameron McKenna has been supporting the Confederation of British Industry in its consultations with first the Department of Trade and Industry on the Regulations and now the Office of Fair Trading in its guidelines and practice. The CBI has expressed concern at the enforcement policy already adopted by the OFT in firing off warning letters before guidance has been finalised and proposing to use the new mechanism to obtain court rulings on major issues of unresolved legal issues.

The Injunctions Directive

Action may be taken under Directive 98/27/EC [2] on injunctions for the protection of consumers' interests by qualified entities. A "qualified entity" is defined as [3] either an independent public body specifically responsible for protecting the collective interests of consumers, or an organisation whose purpose is to protect such interests: in either case, the entity must be properly constituted according to the law of a Member State, and have a legitimate interest in ensuring that the purpose of protection of the collective interests of consumers are complied with in relation to areas specified in the following Directives:

• Misleading advertising (84/450/EEC as amended by 97/55/EC);
• Contracts negotiated away from business premises (doorstep selling) 85/577/EEC);
• Consumer credit (87/102/EEC as last amended by 98/7/EC);
• TV broadcasting activities (89/552/EEC (Articles 10 to 21) as amended by 97/36/EC);
• Package travel, package holidays and package tours (90/314/EEC);
• Advertising of medicinal products for human use (92/13/EEC);
• Unfair terms in consumer contracts (93/13/EEC);
• Time share (94/47/EC); and
• Distance contracts (distance selling) (97/7/EC).

It is intended to add future directives to this list, including the draft e-commerce directive and the consumer goods and associated guarantees directive (99/44/EC).

Authorities entitled to take action

(a) Public authorities

Powers may be exercised under the Directive by one or more independent public bodies specifically responsible for protecting the collective interests of consumers. The UK Regulations designate the Director General of Fair Trading as, in effect, lead authority, who may exert considerable influence, first through guidance which he has to publish on how the scheme is to operate, [4] secondly, since a qualified entity must before bringing proceedings try for two weeks to achieve the cessation of the infringement in consultation with the Director and the proposed defendant, [5] and, thirdly, through exercising power dispense with the consultation requirement in circumstances where he thinks that proceedings should be brought without delay. [6]

Other public bodies specified in the Regulations are:

1. The Information Commissioner
2. The Civil Aviation Authority
3. The Gas and Electricity Markets Authority
4. The Director General of Electricity Supply for Northern Ireland
5. The Director General of Gas for Northern Ireland
6. The Director General of Telecommunications
7. The Director General of Water Services
8. The Rail Regulator
9. Every weights and measures authority in Great Britain
10. The Department of Enterprise and Investment in Northern Ireland

(b) Consumer organisations

The extension of enforcement powers to consumer organisations is a phenomenon not unknown in some other member states, [7] and is beginning to gain ground in Community law [8], but is entirely novel to some member states, including the UK, and is viewed with great suspicion by industry as encouraging unnecessary and disproportionate enforcement action, duplicating and inconsistent with action by public authorities. Enabling representative claims to be brought by consumer organisations and others has even recently been proposed by the LCD as a horizontal mechanism. [9]

Qualified entities under the Injunctions Directive must be notified to the Commission, [10] who must draw up a list which provides to the courts or administrative entities proof of the legal capacity of the listed entity, without prejudice to their right to examine whether the purpose of the qualified entity justifies its taking action in a specific case. [11]

The UK Regulations have included criteria which arguably go beyond the scope of the Directive and require that power to designate a qualified entity, whose purpose is to protect the collective interests of consumers included in the specified Directives, rests with the Secretary of State for Trade and Industry, who must consider that the organisation meets the following criteria, on the basis of such evidence provided with the organisation's application as he may require: [12]

(a) that the organisation is so constituted, managed and controlled as to be expected to act independently, impartially and with complete integrity;
(b) that the organisation has demonstrated the ability to protect the collective interests of consumers included in the Directives by promoting high standards of integrity and fair dealing in the conduct of business in relation to such consumers;>br> (c) that the organisation is ready and willing to co-operate, by the sharing of information and otherwise, with the Director, other qualified entities and any other authority, body or person having responsibility for the regulation of the matters covered by these Regulations.

A designation may be for all purposes or only in relation to particular types of Community infringement [13] and may be withdrawn or amended if it appears to the Secretary of State that the organisation no longer meets the specified criteria. [14]

It is likely that only the Consumers' Association would qualify under the UK criteria, whereas twenty-six organisations have been listed by the Commission in relation to Germany and eight in both Austria and Finland. [15] It will be interesting to monitor whether, as a result of this Directive, there is an increase in enforcement activity, or change in governmental or commercial behaviour by potential defendants, and whether any enforcement activity is disproportionate.

Footnotes

[1] SI 2001 No 1422
[2] OJ L166/51, 11.6.98.
[3] Directive 98/27/EC, Article 3.
[4] Regulation 6
[5] Regulations, Schedule 2, para 3
[6] Regulations, Schedule 2, paras 2 and 3
[7] for example the French "action d'intérêt collectif".
[8] see Directive 93/13/EEC on unfair terms in consumer contracts, article 7.2
[9] "Representative Claims: Proposed New Procedures. A Consultation Paper", Lord Chancellor's Department, Feb 2001
[10] see Directive 93/13/EEC on unfair terms in consumer contracts, article 7.2
[11] Directive 98/27/EC, Article 4.1.
[12] Directive 98/27/EC, Article 4.4.
[13] The Stop Now Regulations, Regulation 4(1) and (2).
[14] Ibid, Regulation 4(4).
[15] Commission communication concerning Article 4(3) of Directive 98/27EC of the European Parlieament and of the Council on injunctions for the protection of consumers’ interests, concerning the entities qualified to bring an action under Article 2 of this Directive, 2001/C/222/07, OJ C 222/12, 8.8.2001.