Monthly commercial law update: Top 5 developments in March

How the months come and go! It's April already. How did that happen*?

Anyhow, here's this month's top 5 commercial law developments taken from our March LexisPSL Commercial monthly round-up.

*As helpful as it may be, please refrain from writing to us here at Comet to explain how the calendar works. We are going to try to work it out for ourselves on this occasion. Thanks :-)

Advertising and marketing: ASA and CAP issue guidance for bloggers and new guidance on price comparisons

The Committee on Advertising Practice has published answers to FAQs that it provided to bloggers following the Advertising Standards Authority's publication of guidance on blogging in late 2013.

In summary, the ASA requires bloggers who are paid (directly or in kind) by a third-party to write reviews or comments about a product or service and who cede editorial control of the blog to that third party to be up-front with their followers by making clear that it is advertising.

Following that announcement, the ASA and CAP received a significant volume of queries from bloggers and brands asking for further information about the rules that are in place and how they can stick to them. These rules also apply to companies; so, any business or PR agency looking to promote products and services by entering into commercial relationships with bloggers should also be aware of them.

The guidance makes clear that bloggers and brands should also be mindful of fair trading laws under which companies are required to disclose* commercial relationships beyond what is required under the The UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code).

As well as the guidance on blogging, CAP has also issued guidance on comparing prices with your competitors, which highlights the rules 3.33 to 3.40 in the CAP Code. The guidance provides links to further guidance on lowest price claims and on retailer's price comparisons.

* Don't forget that the OFT closed yesterday. See our blog post for details of who is now responsible for what.

Consumer credit: Policy Statement: PS14/3—Final rules for consumer credit firms

The Financial Conduct Authority has issued detailed rules for consumer credit firms.

The FCA took over the regulation of around 50,000 consumer credit firms from the Office of Fair Trading on 1 April 2014. The final rules carry across many standards from the Consumer Credit Act 1974 (CCA) and the OFT guidance, and contain higher standards for payday and other high-cost short-term lenders and for debt management firms. Firms with an OFT licence wishing to continue carrying out consumer credit activities should have registered with the FCA for interim permission by 31 March 2014.

The rules follow the FCA's October 2013 consultation paper outlining its proposals. Around 300 responses were received, along with feedback from road shows held around the UK. Those who responded generally welcomed the FCA’s approach to regulating consumer credit, and the proposals have not been significantly changed. These included setting higher standards for high-cost short-term credit, including payday lending, and debt management firms.

The new rules also change how payday lenders and debt management companies treat their customers including mandatory affordability checks for payday borrowers and giving the FCA the power to ban any misleading adverts from payday lenders.

The rules will affect:

  • firms which currently hold individual credit licences or are covered by group licences issued by the OFT under the CCA
  • firms considering carrying out consumer credit activities
  • operators of peer-to-peer platforms
  • trade bodies representing consumer credit firms
  • consumer organisations
  • not-for-profit bodies providing debt counselling, debt adjusting and credit information services
  • firms which have registered for interim permission
  • local authorities which carry on lending within the scope of the Consumer Credit Directive 2008/48/EC
  • other bodies currently involved in regulating consumer credit, and
  • consumers who have taken out a loan, used a credit card, had difficulties repaying debts or looked for advice on debt problems.

The biggest changes come for payday lenders and debt management companies, including:

  • limiting the number of loan roll-overs to two
  • restricting (to two) the number of times a firm can seek repayment using a continuous payment authority
  • a requirement to provide information to customers on how to get free debt advice, and
  • requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money

Consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly. The FCA has also confirmed the following approach:

  • firms that carry out higher risk business and pose a potentially greater risk to consumers will face an intense and hands on supervisory experience
  • a robust authorisation gateway to ensure that any firm or individual authorised to do consumer credit business is fit and proper, and that firms have suitable and sustainable business models, and
  • dedicated supervision and enforcement teams will crack down on poor practice, money laundering and unauthorised business. Firms that break the rules may face detailed investigations and tough fines

Most of the rules came into force on 1 April 2014. Others will commence on 1 July and 1 October 2014, 1 April 2015 and 1 April 2017.

Consumer credit: Supreme Court rules in 15-year old laptop case

In the case of Durkin v DSG Retail Limited and another [2014] UKSC 21, the customer, Richard Durkin, visited a PC world store in December 1998 to purchase a laptop computer, making it clear that he needed one with an internal modem. A sales assistant identified a laptop but told Mr Durkin that he wasn’t sure whether it had an internal modem. He agreed that Mr Durkin could return the computer if it didn’t. Accordingly, Mr Durkin paid a deposit of £50 and signed a consumer credit agreement with HFC Bank plc for the remaining £1,449 of the purchase price. When Mr Durkin returned home he noticed that the computer did not have a modem. He returned it to the store, asked for his deposit back and that the credit agreement be cancelled. The deposit was eventually returned although no monies were ever paid to HFC Bank plc under the credit agreement who nonetheless pursued him for payments and placed entries on credit registers preventing him from opening accounts with other lenders.

At first instance Mr Durkin was awarded £8,000 for injury to credit, £6,880 for additional interest that he had to pay, and £101,794 for the loss in respect of certain property.

On appeal to the Supreme Court it was held that Mr Durkin was entitled to rescind the credit agreement and validly did so by giving notice to HFC in about February 1999. The court also found that the law will imply a term into this type of credit agreement that it is conditional upon the survival of the supply agreement that it financed (eg in this case: the agreement for the purchase of the laptop). Accordingly, the debtor, on rejecting the goods and thereby rescinding the supply agreement for breach of contract, may also rescind the credit agreement by invoking this condition. The fact that HFC Bank plc knew of Mr Durkin’s assertion that the credit agreement had been rescinded, placed it was under a delictual duty (in Scottish law) to investigate that assertion in order reasonably to satisfy itself that the credit agreement remained enforceable before reporting to the credit reference agencies that he was in default. Although a breach of duty was established and the award of £8,000 for damage to credit was upheld, the court rejected the attempt to restore the first instance award of damages for extra interest and loss of property. Not the sum of money Mr Durkin expected but consumers should take heart.

Contract: liens and electronic databases

The Court of Appeal has considered the question of whether it was possible to exercise a common law possessory lien over an electronic database in Your Response Ltd v Datateam Business Media Ltd [2014] All ER (D) 156 (Mar) [2014] EWCA Civ 281.

The claimant refused to return an electronic database to the defendant publisher until outstanding fees were paid and issued proceedings against the defendant for breach of contract.

The first instance judge held that the claimant was entitled to withhold the data and the defendant appealed.

The Court of Appeal effectively decided that you cannot have a common law lien over a database, and that the database service provider may not withhold access to the database until they receive payment for their fees, although this can be dealt with in the contract. The court also considered a question about the reasonableness of a three month notice period, and rejected the appeal on that point, holding that the notice period was reasonable.

Financing: An on demand loan really is repayable 'on demand'

The Court of Appeal has confirmed in Swallowfalls v Monaco Yachting & Technologies SAM [2014] EWCA Civ 186 that a provision in a loan agreement which allowed the lender to give the borrower notice that the loan was immediately due and repayable should be construed as meaning that the loan was repayable on demand.

The court noted that: 'If a clause is to be repaid "on the first to occur of" a number of events (i) to (v) and one of those events is "the date on which the Lender gives the Borrower notice that the Loan is immediately due and payable", the natural construction of the words is that, once such notice is given, the loan is to be repaid.'

The court rejected the appellant's arguments that interpreting the relevant clause in this way rendered the other parts of the clause (eg that the loan was also repayable on the occurrence of an event of default) of no practical purpose

So that's it folks. Same time, same place next month? 

If you have any burning thoughts in the meantime on the above developments, let us know below. Equally, if you have a spare minute, why not enter your name and email address in the box on the right hand side of this page? If you do so, you will receive all of the developments highlighted in our monthly round-up for free along with other exclusive content courtesy of our new Comet newsletter.

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