The Free Movement of Goods

Introduction

The Internal Market, promoting the free movement of goods, services, capital and people, is one of the most significant and consistently progressing objectives for the European Union (EU). The EU, which spans an area of twenty seven member states and a population of almost half a billion potential consumers, aims to create a single harmonised and borderless market where competition is free and undistorted, a market where persons and goods can move freely. In order to attain this objective, the EU since the mid 1970’s, has endeavoured to develop clear measures and legislation aimed at facilitating cross border trade between member states by increasing consumer confidence and safeguarding the interests of consumers. This has recently led to the adoption of the Unfair Commercial Practices Directive 2005 (UCPD), one of the latest and perhaps most important pieces of legislation concerning consumer protection to come from the EU. The Directive has been implemented in the UK by the Consumer Protection from Unfair Trading Regulations 2008 (CPR), resulting in a major upheaval of consumer protection law in the UK.

The Directive was introduced to further advance consumer protection and encourage more cross border trade, by establishing a uniform framework of protection across all member states. It is aimed at prohibiting unfair commercial practices by traders towards consumers, where this harmful commercial practice impairs a consumer’s economic activity and interests. Such practices may include for example, pressure selling, misleading and aggressive marketing and misleading advertising. The directive is unusual in that it is a “maximum” or full harmonisation directive. This requires member states to provide the protection that is necessary under the Directive, neither falling below nor going above that standard. In the UK, this has resulted in a large body of domestic legislation being amended or repealed in order to implement the directive. It is clear that the directive seeks to promote equality between all member states, with regards to consumer rights and protection. This will result in ensuring that the half a billion consumers in the EU benefit from the same level of protection, which will in turn contribute to the increased growth and economic development of the EU.

The coming into force of the CRP marked one of the most significant changes to UK consumer protection legislation for many years. A generally wide and over arching duty not to trade unfairly was established, introducing a universal prohibition intended to act as a safety net to consumer protection legislation. With this came the introduction of a number of new concepts into UK law, the most notable of these new concepts was the notion of the ‘average consumer’ (AC). Under the regulation, to be able to judge whether a commercial practice breaches the prohibition against unfair practices, reference will have to be made to the AC. It is the notional AC whom the commercial practice reaches or to whom it is addressed that is relevant here. The concept of the AC as we shall see below originated and was developed by the case law of the European Court of Justice (ECJ).

The court, in its desire to promote the free movement of goods between Member Sates, established a general European AC who was to be ‘reasonably well informed, reasonably observant and circumspect’. This principle has now found legislative permanence and recognition in the provisions of the CPR. There has been a great deal of text dedicated to examining exactly what this hypothetic notion of the AC consists of, much of it to be found in ECJ cases and jurisprudence. There are some commentators who take the view that the AC concept is an excessively restricted and highly demanding notion to use in relation to consumer protection legislation. The concept, it is suggested, is over simplistic and does not realistically represent the real world of consumer behaviour. It is argued that the definition of the AC is qualified, and as a result it’s inclusion in the CPR has arguably lowered the standard of protection actually available to consumers under the legislation. In this essay it will be agreed that the concept of the AC, when examined and interpreted in a literal and limited manner, does appear to confer an overly demanding standard of reasoning and information on to the consumer. However, it will also be argued that this should not be the approach of interpretation and application to be adopted by national courts and regulators. It will be suggested that in fact, the AC concept should be interpreted in light of ECJ jurisprudence discussing the scope and application of the notion, where a wide and purposive method has been adopted. Some suggestions on how the AC test should be applied will be made, assessing whether the definition allows for the successful application of the regulations. In considering and analysing this argument reference will be made to the origins, scope, interpretation and application of the “average consumer”.

This essay seeks to examine the significance of applying the AC test as a basis for judicial and regulatory application of the CPR. First, part one of this essay will consider the scope and extent of the AC definition, with reference to it’s implications on the interpretation and application of the regulations. Following this, the second part of this essay will involve an investigation as to whether the AC definition affects the successful application of the regulations. Finally, a conclusion of these arguments and considerations will be brought together.

It will be argued that harmonised consumer protection is an essential feature of a successful single market and a failure to provide effective protection to consumers is bound to weaken consumer confidence and thus the success of the single market. A critical analysis of the origins, scope and relevance of the definition of the AC as provided for under the CPR, will reveal that the test is excessively challenging on the consumer and exaggerates the level of attention and information most consumers actually possess in the real world. In adopting such a high and overly demanding notion of the AC, a hypothetical consumer required to be ‘reasonably well informed, observant and circumspect’ the UCPD and CPR may actually impede rather than foster consumer protection. Thus, the UCPD and CRP by adopting this notion of an ‘all knowing consumer’, actually have the unintended affect of diluting the protection they were meant to advance. The high standard of attention and information the consumer is required to possess by the UCPD and CPR is artificial and overly demanding, thus suggesting that the AC standard when being applied must be revisited by national regulators and courts in a way that makes the concept more meaningful, and realistic. National courts must look to the ECJ and its approach to the AC for guidance, when deliberating over what standard of ‘consumer’ it should adopt. The ECJ has, as we shall come to discover below, taken a more flexible and practical approach in adopting and developing AC test. It will be suggested that national courts should embrace the same methods used by the ECJ when deciding the benchmark of the relevant AC. It is clear that if the AC is interpreted too restrictedly and too artificially, ignoring realities such as consumer behaviour in practice and the diversity of goods now available on the market, the UCPD and CPR in their desire to promote a free market, may hinder rather than promote consumer protection and confidence.

1. The Scope Of The “Average Consumer” Definition And The Impact This Definition Has On The Interpretation And Application Of The Regulations

The success of the internal market primarily lies with consumers. Their willingness to trade, and their confidence in the market is paramount for the achievement of a harmonised and economically integrated market. The EU has legislated, and continues to legislate, extensively in the field of consumer law in order to achieve the goal of a more harmonised market place. Some examples of the measures brought into force include, the regulation of unfair terms in consumer contracts, and measures protecting consumers in respect of distance selling and e-commerce. Such strong commitments to the development of a European consumer protection policy, indicates that the EU and its Member States share concerns regarding the consumer, and his or her weakness to the possibilities of exploitation by traders. The response by the EU has been to equip consumers with extensive rights and safeguards by way of legislation. Therefore, any interpretation of the UCPD or the CPR should be done within this wider constitutional purpose and context. The AC, as it will be argued below, should be the beneficiary of the legal protections granted by the EU.

Before a consideration is made regarding the scope of the AC, it is valuable to make a few points about the overall scope of the CPR. As already mentioned above, the main aim of the CPR is to prevent harmful and unfair commercial practices, including advertising and marketing, related to goods and services directed at consumers. Reg.3(1) plainly asserts the main purpose of the regulations, that ‘unfair commercial practices are prohibited’. This statement at a first glance seems very broad in scope, however, Reg.1 makes it clear that only business to consumer unfair commercial practices are covered, where a commercial practice is defined as “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”. As a result the main focus of the regulations is limited to business to consumer contracts, business to business contracts will not be regulated under these provisions. However, the Business Protection from Misleading Marketing Regulations 2008 prohibiting misleading business to business advertising was brought into force at the same time as the CPR to ensure that there would be no reduction in protection for businesses. It is important to understand exactly what is meant by a “commercial practice” under the CPR, and to bear in mind the extent of its definition when evaluating the application of the regulations as a whole. It can immediately be inferred from an examination of the above definition, that a “commercial practice” has a very extensive scope, ensuring an application to a broad range of various unfair and misleading marketing and sales activities. This makes certain that a variety of consumers in many diverse circumstances are protected by the CPR against the unfair practices of rogue traders. Such harmful commercial practices will be whether they occur before, during or after a commercial transaction. Consequently this means that practices that are made before a contract is concluded, such as high pressure selling techniques, will fall foul of the regulations, as well as practices that come after the contract has been concluded such as after sales communications and services. The result of this is that the regulations are given a relatively wide definition over all. This is an effective measure to take, for the reasons that many foul commercial practices may be caught, providing European consumers with even greater protection.

A commercial practice will only be unfair if it is considered to be a misleading action under the provisions of reg.5, a misleading omission under the provisions of reg.6, an aggressive practice under the provisions of reg.7 or it is a practice outlined in the blacklist of Schedule 1. Any unfair commercial practice that fails to fall under these provisions may still be caught under the general prohibition of reg.3, where the practice contravenes the requirements of professional diligence and materially distorts the AC economic behaviour. The significance of inserting this over-arching general prohibition ensures that the scope and application of the legislation is widened to catch a variety of different unfair commercial practices. It is an indication that the definition of what an “unfair commercial practice” is, is by no means meant to be qualified. It allows for the regulations to develop and adapt to new and changing trading and marketing practices with the passage of time. Already we can start to see that the very nature of the CPR and its drafting, promotes a general “principles based approach” with a broad scope of application. In addition to a commercial practice being one that is prohibited, it must also materially distort a consumer’s economic decision before it is deemed ‘unfair’. One exception to this, is that the thirty-one banned practices in Schedule 1 are strictly prohibited, and therefore it need not be shown that a distortion of the consumers economic behaviour took place as a result. So the over all ambition of the CPR is that it has the broadest of application with regards to consumers and unfair commercial practices. A wide and principles based approach to the regulation of unfair commercial practices has been taken with the introduction of the CPR. To guarantee that the regulations are capable of adapting to new and changing marketing practices, as well as allowing a diverse consumer audience to benefit from its protection. This generally wider approach adopted by the CPR should be born in mind, when considering the interpretation and application of its provisions and the ‘average consumer’ concept.

To consider the scope of the AC we must look to the wording of the regulations. According to Reg.2(2) when determining the effect of a commercial practice on the AC, account must be taken of the ‘material characteristics of such an average consumer including his being reasonably well informed, reasonably observant and circumspect’. This appears to indicate that the CPR will not provide protection for the consumer who is distracted or uninformed about the goods or services with regards to a commercial practice. Nor does it seem that the regulations will have regard for those consumers naively cheated into believing unreliable and exaggerated advertising. The regulations only protect the AC, a hypothetical consumer concept derived from ECJ case law, now to be used by national courts as a benchmark for assessing unfair commercial practices. Looked at in this light, the AC concept adopted by the CPR seems a high and overly demanding yardstick to achieve. As a result, the use of the concept runs the risk of severely limiting the scope and application of the relevant provisions. It requires a consumer to possess a high degree of awareness and information in relation to any goods or services he or she may encounter. The result is that by employing an all knowing, and at all times sensible and prudent consumer test, the success of the CPR in promoting greater consumer protection will be gravely diminished. So at a first glance, it seems the scope of the AC definition in reg.

2(2) has been harshly limited to only the most prudent of shoppers, in turn restricting the application of the regulations as a whole and the extent of consumer protection it can offer. However, to fully appreciate the extent of this AC definition we must consider it fully with reference to its context, background origins, and in light of the overriding purposes the CPR was introduced for. An important point to note in relation to the actual wording of the definition is that it does not necessarily require or demand the AC to be well informed, observant and circumspect, it simply states that “…account shall be taken of the material characteristics of such an average consumer including his being reasonably well informed…”. This seems to imply that a level of flexibility can be allowed for, and that not every consumer can be expected to meet this high standard of an observant and well informed consumer, in order to receive protection. The characteristics of an AC to be considered may include but are not essentially restricted to his ability to be well informed, observant and circumspect. The regulations do not stop here, in relation to defining who the AC may be. Reg.

2(4) provides some more insight into what should be considered, it states that: “where the practice is directed to a particular group of consumers, a reference to the average consumer shall be read as referring to the average member of that group” continuing in reg.2(5)(a) to declare that “where a clearly identifiable group of consumers is particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity…a reference to the average consumer shall be read as referring to the average consumer of the average member of that group.”. So in these circumstances the AC is to be considered within his or her appropriate context, and not with reference to an abstract theoretical benchmark. The purpose of this is to allow the scope of the regulation to be extended to vulnerable groups of consumers, indicating that the regulations do not prohibit targeted consumer protection where this is needed. The recognition of a “vulnerable consumer” in the unfair commercial practices regime shows that the UCPD and the CPR do not exclude targeted consumer protection aimed at particular groups of consumers or consumers with particular characteristics. So to sum up, the CPR provides for a set AC benchmark to be used when assessing the impact of unfair commercial practices, but this test should be used and applied purposively in line with the wider aims of the EU with regards to consumer protection. The regulations clearly do not strictly exclude the possibility of protecting certain consumers whose characteristics differ from that of the AC. The notion of the AC is not limited in its scope or application, and national courts and judges should avoid proposing that it does.

The AC definition analysed as a whole suggests that it is an adaptable definition, open to be interpreted by the courts in a more realistic and practical manner, depending on the facts of each case and the consumer involved. In doing so, the scope and application of the AC definition will be extended much further than it first appears, widened in order to successfully provide protection to consumers in a variety of circumstances and thus effectively promoting and executing the aims of the CPR. The regulations to effectively achieve their purpose, should be read within the wider context of European consumer law. This is a sensible approach to take, and it is hoped, one that will be adopted by the courts in the UK.

To further understand and realise the wide extent of the AC definition in reg.2(2) of the CPR, we must look to the UCPD and the provisions the concept was adopted from. This is because national courts when interpreting and applying legislation are under a duty to interpret existing national law, wherever possible, in a way that gives effect to European law. As a result any analysis of the AC notion under reg.2(2) will have to be considered in light of the definition given in the directive. According to recital 18 of the UCPD the AC test is not a statistical test. It is emphasised that national courts and authorities “will have to exercise their own faculty of judgement, having regard to the case-law of the Court of Justice”, to determine the typical reaction of the AC in a given case. This is an extremely significant and relevant statement to include in the UCPD, as it clearly indicates the standard test of the AC as provided for by the directive is by no means meant to be restricted to the absolute wording of the legislation. Recital 18 also states that “this Directive takes as a benchmark the average consumer, who is reasonably well informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors, as interpreted by the Court of Justice”. Clearly recital 18 encourages national courts and authorities to look beyond the literal definition of the AC as being ‘reasonably well informed, reasonably observant and circumspect’.

For that reason then, the scope and application of the AC as found in regulation 2(2) of the CPR will have to be considered in conjunction with ECJ case law and jurisprudence. An interesting point to note is that “social, cultural and linguistic factors” are to be taken account of when judging how well informed and observant a consumer is. This highlights the fact that the concept of the AC is not intended to be pre-defined or permanently set in stone by the literal wording of the regulations, instead it is a notion that will have to be assessed and scrutinised by the judges of national courts, who may take into account other factors in deciding what standard of consumer to measure the commercial practice against. Such factors to be considered may include; a consumers emotional or social disposition; a consumers lack of attention and contemplation when purchasing a particular good, his gullibility in accepting exaggerated information in advertising and marketing material, or his purchasing patterns and behaviour in the real market. An analysis of the scope and extent of the AC test in reg.2(2) has exposed it to be a rather extensive definition capable of a broad and flexible interpretation and application by the courts. It is clear from considering it in its context, and examining its background origin as adopted from the UCPD that it is a definition that must be interpreted in such a way as to ensure the successful application of the CPR and its aims in promoting greater consumer protection and cross border trade. Having considered the AC and the extent of his scope in the CPR and UCPD, we shall now turn to a discussion and analysis of the approach taken by the ECJ in adopting and interpreting the notion of the AC. This investigation will consider what impact the definition of the AC will have on the future interpretation and application of the regulations.

The concept of the AC, made its first appearance in ECJ cases involving trademarks and the misleading advertisement of goods. The case often cited as having given authoritative origin of the AC test is Gut Springenheide. The ECJ in considering what notion of ‘consumer’ to use as a standard in determining whether a particular statement designed to promote the sale of eggs was likely to mislead the public, held that in order to determine whether such a statement was misleading the court must take into account the presumed expectations of an AC, a consumer “who is reasonably well-informed and reasonably observant and circumspect”. This concept was to be reiterated frequently in subsequent cases decided by the ECJ. It became a useful test for the Court in assessing what benchmark of ‘consumer’ to use when deciding, mainly trademark and misleading advertising cases.

The ECJ after having declared this formula of the ‘average consumer’ in Gut Springenheide, went on to stress that in making this assessment, it did not exclude the possibility, in circumstances where the national court had a particular difficulty in assessing the misleading nature of the statement or description in question, that it could resort to other factors such as consumer research polls or expert reports. Indicating that the Court did not intend to formulate a rigid and inflexible principle to be applied strictly by national courts, instead the notion was to be used as a guiding standard. A standard capable of taking into account outside factors, such as the realities of consumer behaviour and expectation with regards to a particular type of good or service. A guiding consumer standard vulnerable to modifications in cases where this was called for. The test was not meant to be excessively restricted to judicial notions and perceptions of what the AC may be, the test was to consider other consumer “characteristics” based on actualities of consumer activity. Following the Gut Springenheide judgement, the ECJ in subsequent case law sought to further develop the definition of the AC by adopting a case by case approach when deliberating on what particular standard of the AC to apply as a basis in deciding a given case.

The court took the view that not all consumers could be well observant and well informed at all times regarding every possible consumer good that a consumer could encounter. This was emphasised in Lloyd, a case considering the likelihood of confusion between two trademark names, where the characteristics of the hypothetical AC were expanded on further. The ECJ having quoted the AC formula established in Gut Springenheide, then went onto add that, ‘it should also be borne in mind that the average consumer’s level of attention is likely to vary according to the category of goods or services in question’. Furthermore, in the Estee Lauder Cosmetics the Court reorganised the judgement of its AC formula once again. In deciding the case it noted that ‘social, cultural or linguistic factors’ may justify special local anxiety about particular practices tolerated elsewhere. Thus, a recognition that consumers are different across Europe was stated by the ECJ. EU consumer protection law, and in particular the detailed interpretation of the UCPD, should take the same realistic view of consumers. To make assumptions or over-estimate the rational capabilities of consumers, is dangerous and detrimental to the efficient application and scope of the CPR.

To sum up, according to the ECJ, when examining what standard of the to adopt in any given case, the formula in Gut Springenheide, (that of the reasonably well informed, observant and circumspect consumer) will be used as a basis in assessing the effect of the commercial practice against the presumed expectations of that AC. However, the ECJ has also acknowledged that in some circumstances particular consumer characteristics may cause the standard of the AC to be modified. It will be for the national courts to verify what requirements the average consumer needs to satisfy in any given case. The CPR should be read with reference to the Courts case law, and a full contextual account of the individual consumer characteristics in any given case should be considered when applying the CPR.

The UCPD is still a relatively new piece of legislation, and thus not many cases concerning its application and interpretation have been brought forward. A small number of cases have reached the Court, but none consist of a discussion concerning the interpretation and application of the concept of the AC. So we are yet to see a thorough discussion by the ECJ on the interpretation and application of the AC test under the UCPD. It is presumed, and hoped that the ECJ will follow the principles laid down in previously decided cases dealing with the notion of the AC. It should also be noted that there is a well settled principle that national courts as far as is possible, must apply the rules of Community law, as interpreted by the Court, to the facts of the case to be consideration.. Therefore national courts should take guidance from the discussions of the ECJ when interpreting who the AC is.

The model of the test for the AC has proved a useful tool for the judiciary. The ECJ embraced the notion of a hypothetical consumer, using it as a basis for deciding and developing the test for customer confusion in misleading advertising cases. Central to its development was the guiding principle the ECJ wished to instil, that of the free movement of goods and an internal free market. The test still continues to be used by judges as a device for solving a variety of problems. It is appropriate that such a concept should now be enshrined in legislation. Its application to the CPR, legislation which seeks to encourage freedom of the market, is fitting. As the AC test was developed to inspire and preserve the free movement of goods, it is a concept that establishes an equal notion of treatment in all member sates. A common framework, needs a common standard and the AC provides this common standard.

It is not surprising that a notional consumer has been implemented into legislation that seeks to support the success of an internal market, it an essential feature in developing equal treatment and standard throughout the Member States. However, this is not to say that the AC should be strictly based on the theoretical perceptions of the judiciary. It is not a test that should ruthlessly be executed according to the exact construction of the legislation. The more appropriate approach to take of this important concept is a flexible and purposive one, as not all consumers are uniform. Consumer expectations will vary enormously all over Europe, it may be useful, even desired to have some sort of set standard to promote an unrestricted equal market to test the expectations of consumers against, but in practice, in the real world there is no such thing as an average consumer. The judiciary will have to bear this in mind when interpreting and implementing the CPR. The AC gives maximum play to the free market, and this should be welcomed. The courts have found him to be a useful figure, but he should not strictly be confined to judicial tests. It is suggested that in certain situations the perceptions of the AC may not, and should not always be readily assumed by the courts. It is submitted that in such cases, the courts should be wary of making judgements without seeking further evidence and to avoid making rigid and inflexible presumptions of what the AC entails.

It is not easy to reach a balance of understanding that makes the AC standard a predictable one, capable of determination by the courts. The case law depicts the AC as informed, observant and circumspect, but it also recognises that he or she may have an imperfect understanding of a product purchase and may not even pay attention to some features of the product. At a first glance the test for the AC in the CPR seems a restrictive and overly demanding test to impose on the consumer. But, by looking at ECJ case law establishing and developing the concept, we can see that the ECJ recognises that in some cases the test of the “reasonably well informed, reasonably observant and circumspect” consumer will have to be modified with regards to the goods and circumstances in question. According to the ECJ, as it has been demonstrated, the AC test is flexible in its application. Consumers do not fall into a consistent, invariable category and thus the ECJ in choosing the benchmark AC has taken into account other considerations which may have an impact on the reasonably well informed and observant AC. Although much of the discussed case law above is largely to do with misleading advertising which relates to the interpretation of the AC in other directives, and not necessarily unfair commercial practices, it is apparent that the ECJ in keeping in line with its previous jurisprudence of the AC, will use the same methods of interpretation and application in relation to the UCPD. There are sound practical reasons for assuming the existence of the AC, as the law on unfair commercial practices develops assumptions about the AC perceptions may equally mature and develop based on pragmatic evidence rather than on the hard and fast rules of the judiciary.

To conclude then, it has been observed above that the notion of an AC is capable of a wide scope and application. It has proven to be a useful concept in advancing the free movement of goods and solving many disputes. However, it is not a test that should be interpreted strictly by the courts or confined to judicial perceptions of what the AC is. For the reason, that the AC is not so robust as not to need no more than a bare minimum of legal protection. The AC adopted by the legislation is that of a smart and informed individual, but it should be recognised that this smart consumer may not always be a rational actor in the market, and should be able to benefit from protective rules. This should be the proper interpretation and benchmark used to apply the AC. The ECJ had recognised an average test to use as