High Court backs OFT's action against scratchcard promoters

Out-Law News | 03 Feb 2011 | 10:20 am | 1 min. read

A series of linked scratchcard promotion companies must fundamentally change the way they do business or stop operating after the High Court ruled their promotions were unlawful.

The ruling was the result of the first use by consumer regulator the Office of Fair Trading of its powers to take such companies to court, the OFT said.

Five companies controlled by DM Plc and officers of those companies were taken to the High Court by the OFT under its powers to enforce the Consumer Protection from Unfair Trading Regulations (CPRs).

An OFT spokeswoman said that the case began in 2008, the year the Regulations became law. She said that this case proceeded to the High Court because unlike other operators the DM companies were unprepared to sign undertakings agreeing to change their behaviour.

The OFT asked the High Court to use the Enterprise Act to stop the companies distributing the promotions scratchcards to consumers because their actions breached the CPRs. Mr Justice Briggs agreed with the OFT.

"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," he said.

He ruled that the OFT had satisfied the demand that it show that the companies' actions harmed not just an individual consumer but the collective interests of consumers. He said that 11.5 million letters and inserts were made and that the demand had therefore been "amply satisfied".

The OFT said that the promotions had been found to breach the rules by creating the impression that someone has won a prize when in fact they are only being offered the opportunity to purchase an item.

They had also deceived consumers by offering as a prize holidays which would in fact cost consumers significant sums to go on; and by "downplaying" the costs of phoning premium rate phone numbers to participate in the schemes.

"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," said Jason Freeman, legal director of the OFT's consumer group.

"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," he said. "The Defendants profited from misleading people, and this judgment means they will have to change their conduct considerably."

The ruling was against DM-owned companies Purely Creative Limited, Strike Lucky Games Limited, McIntyre & Dodd Marketing Limited, The Winners Club Limited, Dodd Marketing Limited and four directors or former directors of the companies.