Legal perspective on civil fines in spring Budget 2017 In this feature l fining powers l Enterprise act l cPrs Hit them where it hurts Regulators could soon be given fining powers, adding the most effective deterrent of all to trading standards arsenal, says Giles Bedloe G If a criticism exists of the part 8 enforcement regime, it is that civil litigation can be lengthy and unpredictable iven the hornets nest whipped up over National Insurance contributions for the self-employed, commentators can be forgiven for having overlooked some of the more esoteric elements of the spring Budget. One such nugget, announced by the Chancellor among other measures to improve the fair and efficient operation of consumer markets, was: Legislating at the earliest opportunity to allow consumer enforcement bodies, such as the Competition and Markets Authority, to ask the courts to order civil fines against companies that break consumer law. This will be a strong and effective deterrent, and will enable consumer bodies to take tough action against firms that mislead or mistreat consumers. This proposal would represent a further enhancement to the civil enforcement powers contained within Part 8 of the Enterprise Act 2002 (EA), a piece of legislation that has evolved organically with the markets requirement for tougher sanctions to be made available to consumer enforcement bodies. The Budget perhaps misrepresents the current position, in that bodies such as the Competition and Markets Authority and trading standards already have a potent range of measures available. However, there is no doubt that the inclusion of the power to seek a fine from the courts would introduce to the arsenal the most effective deterrent of all. In its original form, the EA gave enforcers the power to obtain undertakings from traders and businesses, or to go one step further and obtain an enforcement order from the civil courts. As a litigation option, this process was generally intended to be quicker, cheaper and less risky than criminal prosecution. One of the principle advantages of civil enforcement over criminal prosecution is that it is forward-looking, having a greater preventative effect, and seeking to ensure a traders future compliance in the wider interests of consumers. Moreover, in the majority of cases where a firms conduct fell short of criminal behaviour, the EA introduced an efficient, judicially regulated mechanism of controlling those that infringed consumer rights. The arrival of the Consumer Protection from Unfair Trading Regulations (CPRs) 2008 significantly expanded the range of conduct that consumer enforcement bodies can regulate, defining with much greater precision matters that would generally have fallen under the umbrella ofbreaches of implied terms or unfair contract terms. These measures a vestige of European jurisprudence that it is assumed will remain part of the UKs legislative canon in a post-EU world have since been widely used. Nevertheless, enforcement orders lacked teeth, required separate proceedings in case of breach, and were not quick enough in theresponse required of businesses. To avoid the effect of an order, many businesses folded, or resumed operation under new identities orin otherareas. For consumer contracts entered into on, or after, 1 October 2015, theConsumer Rights Act 2015(CRA) consolidated the disparate statutory provisions protecting consumers in respect of the sale of goods, the supply of services and contracts that contain unfair terms. Sector-specific legislation covering the provision of digital content was introduced for the first time. The implied term satisfactory quality remains key to the enforcement of contracts for the sale of goods or provision of digital content. Services are to be supplied or performed with reasonable care and skill. In terms of consumer safety, these provisions cater for defective and/or counterfeit products. More importantly, the CRAintroduced a new range of bolton options to Part 8 proceedings under the EA, which make civil enforcement more attractive either as a stand-alone option, or in addition to criminal prosecution. The amendments to the legislation, inserted in the EAbythe CRA section 79andSchedule 7, give enforcers and regulators the opportunity of seeking from the court redress, compliance and/or the provision of information. Where these new measures are in the public interest and just, proportionate and reasonable, the enforcer should be seeking them from the court. Redress is a particularly attractive introduction for enforcers, rendering a far greater prospect of obtaining financial restitution for multiple consumers affected by the offending conduct of a trader than specified complainants receiving compensation at the conclusion of successful criminal proceedings. Yet even then, the beefed-up EA process lacks the final, killer blow. After all, the measures progressively added to Part 8 enforcement achieve no more than securing a business ongoing and future compliance with existing consumer protection legislation, and the correction of any detriment caused in the past to the consumer; in effect, restoring the benefit obtained by the business as a consequence of its misconduct. Where businesses feel the impact of regulatory intervention most is when it hits revenue. Consider the 20m fine handed down to Thames Water by Aylesbury Crown Court in March, following a regulatory prosecution brought by the Environment Agency, or the 42m fine given to BT by communications regulator Ofcom. In smaller businesses, fines even at a much lower level will directly affect shareholders dividends and directors remuneration. So, it is a logical progression that businesses causing detriment to consumers should feel the impact of that misconduct in their yearend accounts. Of course, intervention through litigation remains the recourse of last resort for enforcers. The most effective results are achieved through engagement with businesses and advisory action to correct a business where it is going wrong. However, there are always businesses whose conduct is sufficiently bad to warrant direct intervention: businesses which repeatedly or flagrantly breach consumer protection legislation, which disregard or fail to cooperate with the enforcers attempts to engage. There will always be cases where the conduct although not amounting to a criminal offence issuch that it is in the public interest to commence proceedings. Unlike the fines imposed by regulators, such as Ofcom, the enforcers will not have the power to fine directly. The check of judicial oversight will ensure that financial penalties are proportionate, and that recipients feel they have had a fair crack of the whip. It remains to be seen by what civil justice route or process the proposed fines will be delivered. If a criticism exists of the part 8 enforcement regime, it is that civil litigation can be lengthy and unpredictable. That is clearly a drawback given the often immediate nature of the problem faced by enforcers and, by the time a court finally determines an application, the sting may very much have left the tail. Enforcers do have the option of applying for an interim order, pending substantive determination of the application, although any fine imposed will come at the very end of the process. Financial penalty may be particularly welcomed by enforcers because it offers a meaningful and effective sanction in cases where businesses breach the enforcement order. Overall, this was a small but important contribution to the Budget. Itwill be welcomed by enforcers across the spectrum, offering a greater range of options in the fight against non-compliant businesses. The government may be business-friendly and anti excessive EU red tape, but this signals the continued intention to increase protection for consumers, to clamp down on traders that flout the law, and to ensure that businesses playing by the rules feel their less scrupulous competitors are not being treated with undue lenience. Credits Giles Bedloeis a barrister at Drystone Chambers. Images: iStock.com / selensergen To share this page, in the toolbar click on There are always businesses whose conduct is sufficiently bad to warrant direct intervention Where businesses feel the impact of regulatory intervention most is when it hits revenue You might also like One to watch March 2017