House of Commons - Regulatory Reform

Select Committee on Regulatory Reform Ninth Report

6 Assessment of the proposal against the Standing Order No. 141(6) criteria

Inappropriate use of delegated legislation

19. The proposal appears to be appropriate for delegated legislation.

20. The proposal would remove the burden of compliance with the Trading Stamps Act 1964 from those who operate, or who may in future choose to operate, a trading stamp scheme, through the repeal of that Act. The various component burdens of compliance with the 1964 Act are described in detail at paragraph 23-62 below.

21. The Department has argued that one of the burdens which will be removed on the repeal of the 1964 Act is "the restriction on certain people being able to undertake a trading stamp scheme".[12] This is a rather misleading description, as the 1964 Act restricts the promotion of trading stamp schemes to companies and industrial and provident societies. The effect of repealing the Act is not so much to allow certain people to promote such schemes as to allow anyone at all to act in that capacity.

Necessary protections and expectations as to the exercise of reasonable rights and freedoms

22. The Department has argued that the proposal will continue all of the protections in the 1964 Act which are necessary, in some cases by means of other existing legislation which provides comparable protections to those currently enjoyed by consumers under the enactment to be repealed.

Protection 1: Restriction on persons who may carry on business as the promoter of a trading stamp scheme

23. The Department acknowledges that the 1964 Act sought to create a degree of protection for consumers by restricting the operation of trading stamps schemes to companies and industrial and provident societies. Since companies are required to place information concerning their owners and managers in the public domain and to produce accounts which must be audited by professionally qualified persons, it was considered that this provision would require a degree of transparency of trading stamp scheme promoters, and would have the effect of discouraging the promotion of schemes by people who were not in good financial standing, or who might otherwise be disreputable.

24. The Department notes that the repeal of this restriction would allow Limited Liability Partnerships to operate trading stamps schemes. The Limited Liability Partnerships Act 2000 requires that these bodies meet similar requirements in respect of registration at Companies House and applies the accounting and audit provisions of the Companies Act 1985 to such partnerships. On this basis, the Department believes there is no reason to prevent such partnerships from acting as trading stamp scheme promoters.

25. The substance of the proposal on this point is that there should be no restriction on who can promote a trading stamp scheme. The Department notes that none of its consultees expressed any view as to whether the present restriction amounted to a necessary protection and its conclusion was it was not necessary to preserve the restriction in the interests of consumers.

26. We asked the Department to comment further on its reasons for advocating the abolition of the current restriction. Its view is that there is no reason to suppose that traders taking forms other than those specified in the 1964 Act will behave in ways which are prejudicial to the interests of consumers.[13] It further considers that perpetrators of fraudulent or abusive commercial practices are unlikely to promote trading stamp schemes for profit as these schemes require too great a degree of investment to establish and operate over a timescale which makes them unsuitable for these purposes. The Department does not consider that the requirement to establish a company itself would actually deter a person who intended unfairly to exploit consumers through a trading stamps scheme.[14] We agree that there is no reason to believe there is a relationship between the form of constitution of a business and its level of reliability or good faith as a trading stamp scheme promoter.

27. The Department believes there is no evidence of an active threat to consumers' interests from consumer promotion schemes, whether these take the form of trading stamps schemes or not. Given that promotional schemes which do not involve the issue and redemption of trading stamps currently operate without any restrictions as to the kinds of organisations which may run them, and seemingly have not proved vehicles for fraud or the abuse of consumers, it sees no reason to believe that the equalisation of the law with respect to all forms of promotional scheme will give rise to new forms of exploitation of consumers through those which happen to involve tokens or vouchers. It therefore considers that the protection offered by this element of the 1964 Act is without any substantive purpose. We are satisfied that this element of the proposal does not remove a necessary protection.

Protection 2: Statements required on the face of trading stamps

28. This provision was designed to protect consumers by requiring that each trading stamp be printed with the name of the scheme promoter and the amount for which the stamp could be exchanged for cash.[15] At the time the 1964 Act was passed rival trading stamp schemes were in operation and the protections were designed to ensure consumers could readily understand who was running a given scheme (as they would clearly need to do if they needed to seek redress in instances where goods might be found to be unsatisfactory). This protection might be especially useful where retailer and promoter were not identical, and to enable consumers to compare the respective benefits available to them through competing schemes.

29. In promoting the proposal, the Department argues that mandatory requirements in these respects are no longer necessary, as information about the identity of the promoter of a scheme will always "automatically" appear on trading stamps.[16] Consultation responses by businesses operating current retail promotion schemes included comments about the impracticality of printing this information on trading stamps, given that the stamps were typically very small. This might suggest that these businesses might prefer not to print this information on their trading stamps if it was legally possible for them not to do so.

30. We asked the Department whether it believed that the change proposed to the law under this heading would in practice lead to a change in the information supplied on trading stamps, and what impact any such change might be expected to have on the ability of consumers to identify the promoters of trading stamp schemes. The Department considered that, as the purpose of trading stamp schemes and other consumer promotions was to encourage consumers to make purchases and to attract and keep their loyalty to particular brands or retail outlets, it would be in the interests of those who operate such schemes - retailers themselves or specialist scheme promotion businesses - to ensure that schemes are transparent.[17] For this reason the Department argued that there would be no change in practice in the information supplied on trading stamps or similar promotional documents and that, were such information not printed on trading stamps themselves, other information, such as helpline numbers or internet addresses, would be supplied and this would be adequate in terms of transparency. It stated that those promotional schemes which do not currently fall within the scope of the 1964 Act operate without any evidence that the identity of the promoter is disguised or for any reason difficult for consumers to identify.

31. It was also suggested that consumers experiencing difficulties with a trading stamps scheme could seek the assistance of trading standards departments and that enforcement orders under Part 8 the Enterprise Act 2002 could be a means whereby cases of consumer detriment could be swiftly addressed. The Committee does not understand how powers under that Act could be used to assist consumers, as once the 1964 Act is repealed, there would be no relevant statutory requirements on which the relevant provisions of the Enterprise Act 2002 could bite.

32. We are not convinced by the Department's reasoning in this respect. We also consider that it will continue to be important for consumers to be able to identify the promoter of any future trading stamps schemes and to be able readily to ascertain his address. This would be particularly important in any situation where consumers wished to seek redress against the promoter of a trading stamp scheme.

33. We are not persuaded that the proposal will not lead, in at least some instances, to a change in commercial practice with respect to the information carried on the face of trading stamps. We nevertheless accept the Department's broader contention that the purpose of all promotional schemes is to win the loyalty and approval of consumers and "to stimulate interest and participation and thereby to encourage repeat sales".[18] On this basis, we do believe that it will be in the interest of retailers to provide information sufficient to permit consumers to identify and contact a scheme promoter.

34. We therefore consider that this element of the proposal will not remove any necessary protection.

Protection 3: Redeemability of trading stamps for cash

35. The 1964 Act requires promoters to exchange trading stamps for cash, provided that the consumer presents stamps with a cash exchange value of at least 25p for exchange. The Act leaves promoters free to specify the cash amount for which any individual trading stamp may be redeemed. It has therefore been the practice of promoters to assign such small values that thousands of stamps are needed before the right of encashment can be exercised. This statutory right is therefore seen by the Department as having been thwarted or rendered valueless in the light of commercial practice. Respondents to the consultation exercise also felt that the protection afforded to consumers by this part of the 1964 Act was ineffective or illusory. We agree that repeal of this provision will not result in the loss of any necessary protection.

Protection 4: Warranties to be implied on redemption of trading stamps for goods

36. The 1964 Act protects consumers by implying warranties into the exchange of trading stamps for goods. These warranties protect consumers against defects in goods so supplied in respect of:

i. Title - so that the person transferring the goods undertakes that he has the right to give the goods in exchange for trading stamps;

ii. Quiet possession and freedom from encumbrance - so that the person receiving goods from the promoter in exchange for trading stamps can expect them not to be subject to any undisclosed rights of any other person (as, for example would be the case if the goods were legally security for the payment of an undischarged debt on the part of the scheme promoter);

iii. Satisfactory quality - goods supplied for trading stamps are required to meet the standard that a reasonable person would regard as satisfactory in all circumstances except for any defects disclosed by the person giving them in exchange, or any defects which should be apparent to a person examining them at the time of redemption.

The warranties provided in respect of these aspects of goods give consumers a right to pursue a claim for damages wherever the goods fall short of the implied standard.

37. These protections would be lost on repeal of the 1964 Act and replaced with an alternative set of protections derived from the Supply of Goods and Services Act 1982, which presently exempts trading stamp transactions from falling within its terms.

38. Most of the consumer protections in the 1982 Act take the form of conditions implied into contracts; some others are warranties like the protections in the 1964 Act. A breach of warranty gives a consumer the right to damages; if goods are subject to a breach of condition, the consumer may treat the contract as repudiated and reject the goods. An implied condition may therefore be considered a stronger form of protection than a warranty.

Protections as to the title to goods

39. The 1964 Act implies a warranty that the promoter of a trading stamp scheme, when giving goods in exchange for trading stamps, has a right to give the requested goods in exchange (that is he owns the goods or is free to dispose of them).

40. The comparable provision in the 1982 Act states that a transferor of goods gives them in the context of an implied condition that he has the right to give them, or that in agreeing to transfer goods, he will have such a right at the time the transfer is made.

41. The Department argue that the protection given to the consumer is greater under the 1982 Act for the reason that it extends to an agreement to transfer property, as well as the transfer of property in itself (although it acknowledges that the redemption of trading stamps is unlikely to involve the making of a contract for a transfer of property at a later time).

42. We consider that necessary protection would be continued in this respect.

Protections as to quiet possession and freedom from encumbrance

43. The protections under this heading take the same form under both the 1964 and 1982 Acts. When goods are supplied, both provide that warranties are implied:

i. that the goods are free from any encumbrance not made known to the person obtaining the goods at the time of redemption; and

ii. that the person obtaining the goods will enjoy quiet possession of them except in cases where this is disturbed by the person having the benefit of any charge or encumbrance made known at the time of redemption.

44. The situations against which consumers are protected by this provision are likely to occur rarely if at all with respect to goods given in consumer promotion schemes. We consider no necessary protection is lost.

Protections as to the satisfactory quality of goods

45. The 1964 Act provides that when goods are exchanged for trading stamps it is with an implied warranty that they are of satisfactory quality. The Act specifies that "goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods and all the other relevant circumstances". "Quality" is defined in Section 4(2) of the 1964 Act as including their state and condition together with the following aspects which apply as they are appropriate:

a) fitness for all the purposes for which goods of the kind in question are commonly supplied;

b) appearance and finish;

c) freedom from minor defects;

d) safety; and

e) durability.

46. The Department considers that the provisions of the 1982 Act in respect of these points are very similar. The differences are that i) the implied terms are conditions not warranties under the 1982 Act and ii) in defining satisfactory quality, the 1982 Act requires that price be taken into account where relevant (although the Department also considers that price would probably be considered a relevant factor under section 4(2) of the 1964 Act).[19]

47. We are satisfied that necessary protections are continued in this respect.

Protections where goods are exchanged for both trading stamps and cash

48. The Department have noted that modern consumer incentive schemes often involve the issuing of coupons or vouchers which entitle customers to purchase goods at a reduced price, as distinct from the more traditional trading stamp schemes where specified quantities of stamps are exchanged for goods entire.[20] Some such discount schemes which operate by issuing coupons and vouchers are likely to fall within the definition of a trading stamps scheme in the 1964 Act. The Department considers that such mixed transactions involving both the redemption of coupons and the payment of cash to obtain goods are presently governed by the 1964 Act; specifically it has stated in response to a question we raised with it that such transactions do not at present also fall within the compass of the Sale of Goods Act 1979. We are surprised that the Department should consider that a transaction for which a purchaser may pay almost the full retail price but where he may enjoy the benefit of a marginal discount through the use of trading stamps should not be considered a sale of goods under the 1979 Act. We question whether this interpretation is correct.

49. The 1979 Act implies terms relating to fitness for purpose, sale by description and sale by sample which are without any equivalent in the 1964 Act. It is therefore important they do apply in mixed transactions for consumers to enjoy the full range of necessary legal protection. The 1979 Act also implies terms in relation to the right to transfer goods and satisfactory quality, but these terms are implied as conditions, rather than as warranties as under the 1964 Act. The Department argues that the effect of section 62(3) of the 1979 Act is to exclude the application of that Act to mixed transactions. That section precludes the Act from affecting "any enactment relating to the sale of goods which is not explicitly repealed or amended by that Act." The 1964 Act is not repealed or amended by the 1979 Act. The Department argues that the 1979 Act "affects" the 1964 Act because "if both Acts applied to one transaction, it would be unclear whether the terms relating to the right to transfer property and satisfactory quality would be warranties or conditions. This would leave the rights of transferor and transferee uncertain".[21] The Department goes on to argue that the two Acts cannot bear simultaneously on the same transaction because it would be "unclear and clumsy" for differing implied terms from each Act to apply to any one transaction.[22] The Department therefore takes the view that the application of section 4 of the 1964 Act precludes the application of sections 12-15 of the 1979 Act. The Department does not, however, consider whether the 1964 Act is "an enactment relating to the sale of goods". We doubt whether it is, and are therefore not persuaded the Department's view of the matter is correct.

50. In its explanatory statement the Department stated that, if the 1964 Act is repealed as proposed, mixed transactions will be governed by the 1982 Act. We asked the Department to explain this statement. The Department now acknowledges that, if the 1964 Act is repealed, section 62(3) of the 1979 Act will cease to be relevant and that mixed transactions will be governed by the 1979 Act; and they indicate that the reference in the explanatory statement to the 1982 Act is erroneous.

51. We consider that necessary protection is continued under the proposal in respect of transactions which involve both coupons or vouchers and cash as the consideration for goods.

Protection 5: Catalogues and stamp books required to include the name and address of the scheme promoter

52. As with the comparable requirements under Section 2 of the 1964 Act, this provision is designed to ensure that consumers can easily identify the promoter of any trading stamp scheme. The Department argues that the Companies Act 1985 and the Industrial and Provident Societies Act 1965 require that "notices and official publications" issued by any such corporation must specify its name (but not its address) and that catalogues and possibly stamp books (to the extent that these still exist) can be considered as being 'official publications' for the purposes of these Acts. While this may be the case, the effect of the proposal is to allow any person, not only those falling into the categories referred to above, to run a trading stamp scheme. Protections in the Companies Act 1985 and the Industrial and Provident Societies Act 1965 will offer no protection in respect of scheme promoters who do not fall within the scope of these two Acts.

53. We asked the Department whether it believed there was any benefit in requiring disclosure of scheme promoters' names and addresses on documents issued in the course of a scheme. The Department's view is that there is no reason why the publication of such information should be statutorily required, because the commercial interests of retailers will mean that this information will always be made available.[23] Although a statutory protection would be lost, the Department believes there will no adverse affect on the ability of consumers to secure their rights under the law as a result. We agree that the effect of the proposal under this heading will not in practice lead to the loss of any necessary protection.

Protection 6: Requirement that retail premises display notices specifying the worth of trading stamps

54. This part of the 1964 Act currently prevents the advertisement of trading stamps in terms which misleadingly associate the worth of a given number of trading stamps with the amount which consumers would generally need to spend in order to obtain that quantity of stamps (the Department helpfully illustrates this with the example "£1 worth of extra stamps for every £1 spent", where an unwary customer might assume that trading stamps exchangeable for £1 worth of goods for each £1 spent were on offer, rather than a further allocation of stamps for each £1 spent calculated at the standard ratio of allocation).

55. The Department's view is that no specific controls are required for the advertising of trading stamp schemes, given the broader body of legislation which exists to prevent misleading advertisements and, in particular, the provisions of the Control of Misleading Advertisements Regulations 1988. At our request the Department provided an analysis of the protections against misleading advertising available under these Regulations and the 1964 Act. The Regulations define advertising as "any form of representation which is made in connection with a trade, business, craft, or profession in order to promote the supply or transfer of goods or services, immovable property, rights or obligations".[24] The Department argues that the practices which section 6 of the 1964 Act protects against would fall within the definition of advertising in the Regulations quoted above.

56. The Regulations state that an advertisement is deceptive where "in any way, including its presentation, it deceives or is likely to deceive the person to whom it is addressed or whom it reaches and if, by reason of its deceptive nature, it is likely to affect their economic behaviour". An advertisement of the kind referred to in paragraph 54 above will therefore fall within the definition of misleading advertising in the Regulations. The Department considers that it is possible that the Regulations apply only where there is a deliberate intent on the part of advertiser to deceive, and that for a statement to be deceptive, the person making it must have intended to deceive.[25]

57. While the 1964 Act provides that contravening Section 6 of the Act is an offence, the Regulations instead provide that a complaint about an advertisement which is felt to be misleading may be made to the Office of Fair Trading which, if it agrees that it is, may apply to the courts for an injunction to restrain that advertisement and others which may be of a similarly misleading type.[26] The Department notes that to breach such an injunction would be a contempt of court, which could then result in criminal proceedings. The OFT may also take action in the courts of other Member States against misleading advertising by companies based within those jurisdictions under Directive 98/27/EC of the European Parliament and Council concerning injunctions for the protection of consumers' interests.

58. The Department's view is that the Regulations provide full protection for consumers against misleading advertisement of trading stamps schemes and there is no reason to require that such schemes should be subject to additional regulatory provisions not applicable to other forms of retail activity. As Section 6 of the 1964 Act does not afford consumers any protections they do not enjoy through other statutory provisions it does indeed appear that this part of the Act is redundant. We are satisfied that necessary protection is maintained on the repeal of this part of the 1964 Act.

Protection 7: Display of information required in shops

59. Section 7 of the 1964 Act requires that details of the cash values of trading stamps be displayed in shops, together with the number of stamps allocated to customers for a given amount of spending. It also requires that the scheme catalogue, where there is one, must be available in shops for customers to consult.

60. The Department notes that information about the numbers of stamps allotted for any given purchase and the details of goods offered in exchange for stamps are in practice made very widely available in retail premises, through direct mailing and by other means as an incentive to consumers. As it appears that it is in retailers' interests to be forthcoming with this information in the same ways as are prescribed in the 1964 Act, it does not believe that commercial practice would change should the Act be repealed. While the law would indeed become less demanding on retailers operating trading stamps schemes, it is felt that no legal compulsion will be necessary as scheme organizers will wish to inform consumers of those matters which are the subject of the current set of requirements.

61. A matter which we asked the Department to consider further was whether the requirement to state the cash value of trading stamps within shops and on the stamps themselves (required under Section 2 of the 1964 Act) constituted a form of protection for consumers in circumstances where the encashment value is either very small (as it typically is at present) or in a situation where a stamp was not exchangeable for cash at all (as would presumably be the case subsequent to a repeal of the 1964 Act). Our concern was whether there was a need to require businesses to make clear they were not offering any kind of cash incentives when issuing tokens and vouchers which have an exchange value for goods denominated with a cash amount. The Department believed that consumers were fully accustomed to businesses setting the terms within which credit accumulated in various kinds of promotion can be redeemed. It also considered that there was no evidence from the operation of those promotional schemes not subject to the 1964 Act that customers suffered detriment as a result of failures to provide sufficient information about the conditions on which accumulated credit could be redeemed. It further noted that any business which made statements which led its customers to conclude its coupons or vouchers were redeemable for cash when in fact they were not could be subject to legal action under the Control of Misleading Advertising Regulations.[27]

62. We are satisfied that no necessary protection would be lost on repeal of Section 7 of the 1964 Act.

New burdens imposed by the proposal

63. The new burdens imposed by the proposal are the burdens of compliance with the provisions of the Supply of Goods and Services Act 1982 which would be imposed on those businesses which exchange goods on the redemption of trading stamps. In many instances, these burdens are close parallels of those which presently exist in the 1964 Act, while some of the implied terms in the 1982 Act constitute new burdens.

Proportionality

64. Our consideration of each of the new burdens with respect to the proportionality requirements of the Regulatory Reform Act is set out below.

Section 2(1): Implied condition that that the transferor has the right to transfer the property

65. The 1982 Act implies a term which in substance is identical with that currently implied by the 1964 Act, but which takes the form of condition, rather than a warranty. The new provision may therefore be in a very limited sense more burdensome than that which is replaced, on the basis that transferees gain enhanced rights from transferors where goods fall short of the implied standard. The Department consider that the new burden is proportionate for the reason that it gives necessary protection to consumers. We agree.

Sections 2(2) to (5): Implied warranties that goods are free from encumbrance and that the transferee will enjoy quiet possession of them

66. These terms of the 1982 Act grant consumers rights of warranty against being supplied with goods over which persons other than the transferor and the transferee have enforceable rights.

67. The burden under this section is identical with that in the 1964 Act. The Department believe the re-enacted burden is proportionate as it sustains a beneficial protection for consumers. We agree.

Section 3: Implied term that goods will correspond to the description, where transfer is by description

68. This term has no precedent in the 1964 Act. The Department considers that the new term may well be of particular relevance to transfers which take place as part of consumer promotions, as these often involve the selection of goods from a catalogue. It argues that this new burden meets the proportionality test because it imposes standards which are the same as those applied to the supply of goods other than for trading stamps. As an enhancement of their rights, this clearly benefits consumers. Although Section 3 of the 1982 Act imposes a new burden on traders supplying goods on redemption of trading stamps it may also be considered that, insofar as the law in general in respect of the supply of goods is being harmonised by the provision, the fact of the new burden actually also benefits traders on the basis that it is a simplification of the law. We consider that the new burden is proportionate.

Section 4: Implied term that goods supplied are of satisfactory quality

69. The implied terms under the present law and those to be effected by the proposal are the same, except for the provision in the 1982 Act that 'satisfactory quality' will take into account any public statements made about the goods by the producer, the transferor or his representative. The Department has argued that, since the 1964 Act requires that "all relevant circumstances" must be taken into account in determining whether goods are of satisfactory quality, it is likely that price and public statements would be equally relevant to the determination of satisfactory quality under the present law. It therefore regards this element of the proposal as continuing a necessary protection for consumers, and considers that the re-enacted burden is proportionate on that basis. We agree.

Section 4(5): Implied term as to fitness for a particular purpose

70. There is no such implied term in the 1964 Act, and this therefore constitutes a new burden. The effect of the provision is to imply a condition, when goods are supplied, that they will be reasonably fit for any particular purpose which the person acquiring them makes known to the transferor, whether expressly or by implication. The Department considers that the provision is of doubtful relevance to the redemption of trading stamps for goods, as consumers are unlikely to indicate in that context that they have an intention of making use of goods for any particular purpose. It notes that goods are generally chosen from a catalogue and that in this situation there is usually no conversation between transferor and transferee about the uses for which particular goods may be fitted.

71. We consider that the new burden is proportionate.

Section 5: Implied term where transfer is by sample

72. The effect of this provision is to create an implied condition that, where goods are transferred by reference to a sample, the bulk will correspond with the sample in quality and that the goods will be free from defects not apparent on reasonable examination of the sample. The Department has concluded that this term is also unlikely to be relevant to the exchange of goods in trading stamp schemes. In the explanatory statement it stated that the test of proportionality did not arise in relation to this new burden because it was unlikely that such transfers would be made. In response to our further enquiries on this point, the Department states that it has no evidence of any such transaction ever having occurred. It considers that the imposition of this new burden is proportionate since it would have a nugatory or negligible impact on businesses, and because of the overall harmonisation of the law within which the imposition of this nominal burden would take place.[28] We agree the new burden is proportionate.

Section 5A: Modification of remedies for breach of statutory condition in non-consumer cases

73. The 1964 Act provides that terms are implied in contracts for the provision of goods in the form of warranties, thus allowing a transferee to claim damages in respect of any breach of them, but not to reject the goods and treat the contract as repudiated. The 1982 Act provides that terms relating to conformity with descriptions or samples and the quality of goods are to be treated as conditions and the protections for consumers in respect of these conditions is therefore, in principle, stronger than the equivalent warranties in the 1964 Act.

74. The 1982 Act further provides that, where a person acquiring goods does not act as consumer of them (that is, the goods are acquired in the course of a business) and a breach of the specified condition occurs which is so minor that it would be unreasonable for the person acquiring the goods to treat the contract as repudiated, the relevant implied terms in the 1982 Act shall be treated as warranties. The effect of the Department's proposal is therefore to make a distinction in the degree of protection afforded to those acquiring goods for trading stamps, depending on whether that person is the consumer of the goods. Section 5A(3) of the 1982 Act provides that it is for the person supplying the goods to show that it would be unreasonable for the non-consumer receiver of them to repudiate the contract on the grounds that the breach of condition is very minor in nature. The limitation on the rights of non-consumers is therefore carefully qualified and applies only in very narrowly defined circumstances. The level of legal protection for consumers would be enhanced with respect to that enjoyed under the 1964 Act; for non-consumers the level of protection is also enhanced but not to the same extent as is provided for consumers.

75. The Department did not make any comment on the qualification which its proposal would create as to the degree of breach of condition under section 5A of the 1982 Act. The imposition of the requirement at section 5A of the 1982 Act, which itself qualifies burdens imposed elsewhere in the proposal, is proportionate in the view of the Department on the basis that it is unlikely that suppliers of goods would draw a distinction between the redemption of trading stamps and the supply of goods in any other kind of contract. The proposal removes the current special statutory provision governing trading stamp redemptions (the 1964 Act) and brings such exchanges under the general legislative regime governing the supply of goods. Its effect is therefore to create greater clarity and consistency in the law.[29]

76. We consider that section 5A of the 1982 Act qualifies burdens otherwise imposed by the proposal and that it therefore bears upon the proportionality of those burdens. By reducing the burden of promoters in non-consumer cases, section 5A does not raise an issue of proportionality. As (where it applies) it continues the effect of the 1964 Act, it also continues the existing protections in that Act.

Parties to implied warranties and conditions

77. The Department has acknowledged that the proposal will effect a change in the way in which the identity of the person against whom the consumers' contractual rights are implied (the counterparty) is determined. The 1964 Act states that the terms which it implies are obligations of the promoter of the trading stamp scheme. The Department notes that under the 1964 Act the promoter is defined as including "a person carrying on a retail trade or business who assumes responsibility for the redemption of trading stamps".[30] In defining the promoter in this way, the Act thus implies warranties on the part of the person issuing the stamps and on the part of the retailer who exchanges stamps for goods and both can be regarded as "promoters" for the purposes of the 1964 Act. Consumers therefore have rights against the stamp issuer and the retailer.

78. The 1982 Act instead implies conditions and warranties on the part of the transferor of goods, defined as "a person who transfers the property in the goods under the contract, or a person who agrees to do so, or a person to whom the duties under the contract of either of those persons have passed".[31] The Department noted that a difference between the present and proposed legal regimes would arise in situations where goods were provided by a retailer from his showroom or shop on behalf of another acting as the issuer of stamps[32]. Instead of benefiting from a dual accountability for the satisfactory quality of those goods on the part of both the stamp issuer and the retailer, the consumer would only have rights against the person owning the goods so transferred, in this instance the stamp issuer. The Department asserted in its explanatory statement that, in such a situation, the warranties and conditions are implied on the part of the retailer. We asked the Department to consider whether a retailer might supply goods on behalf of a trading stamp scheme promoter, those goods remaining the property of the latter until the time of redemption. In this instance, our concern was that rights would be implied against the promoter, as transferor of the goods for the purposes of the 1982 Act yet this might not be apparent to the consumer. Consumers will need to be aware of the transferor's identity if they are to be enabled to obtain remedies for any goods which are found to be unsatisfactory.

79. In its further response on this issue, the Department agreed that the transferor could be other than the retailer, when the latter supplied goods on behalf of another person (i.e. the scheme promoter would be the transferor in that instance).[33] It considered that the issue of whether the retailer or promoter is transferor under the 1982 Act will depend on whether and to what extent the retailer discloses to the consumer the fact that he is acting as agent.

80. The Department therefore commented on three possible scenarios which could obtain in situations where an agency arrangement exists between scheme promoter and retailer. Firstly, where an agency is disclosed, the consumer is aware that the goods are supplied (in contractual terms) by the promoter and he is in a position to pursue his rights with the promoter should the need arise. Secondly, where the fact of the agency is not disclosed, the consumer will certainly assume that the retailer acts on his own behalf and the goods supplied are his own property. In such a situation the Department argues that the common law will regard the contract as one between retailer and consumer, notwithstanding the fact of the undisclosed agency arrangement, so that the retailer must provide the remedy for any goods found defective under the 1982 Act.

81. The third possibility the Department described would be where a retailer makes known the fact that he acts as agent but does not disclose for whom he acts. The Department considers that if the retailer were actually to refuse to reveal the identity of the promoter when asked, a court would be likely to conclude that the claimed agency did not in fact exist and the retailer was acting for himself.

82. The Department acknowledges, however, that in a situation where a retailer was sufficiently careful in phrasing his disclosure of the agency arrangement and did not reveal for whom he acted, it may be possible for him to escape any liability for the contract. In that situation, the consumer would be unable to obtain redress for unsatisfactory goods. It concedes that this possibility amounts to a loss or diminution of protection for consumers but considers that, as the protection against this eventuality derives from the 1964 Act, and does not apply to the sale or supply of goods other than for trading stamps, it would sustain an anomaly to continue that protection. On this basis, it argues that the law should be amended in the way provided in its draft proposal.

83. We have considered this issue carefully and we are concerned that the draft proposal should not remove a protection from consumers for the reason that consumers do not enjoy that protection when they acquire goods other than for trading stamps. We are not persuaded by the Department's argument that harmonising the law in this respect is a sufficient justification for removing protection of the kind which the 1964 Act affords consumers against the supply of defective goods provided through a carefully contrived agency arrangement as described above. While such an exploitative situation of this kind might be expected to be rare, we see no reason why the current protections of the law against it should be removed simply in order to harmonise levels of protection downwards to match those applying where that same problem occurs in non-trading stamp transactions.

84. We also feel that the Department should exercise careful consideration before making any proposal which, while having benefits for business, would have the effect of reducing the rights of consumers. We are not clear from the evidence we have seen that the Department has paid adequate attention to the rights of consumers in this instance.

85. We consider that the proposal should be amended to provide that those redeeming trading stamps will continue to be able to enforce their contractual rights against both the promoter of a trading stamp scheme and a retailer who assumes responsibility for the redemption of trading stamps.

Section 6: Provision of hired goods for trading stamps

86. The Department does not believe that the 1964 Act implies warranties of satisfactory quality on the hiring of goods in exchange for trading stamps.[34] This is because section 4(1)(a) of the 1964 Act refers to the warranty that, where goods are given in exchange for trading stamps, the promoter has the right to give those goods in exchange. It argues that the word 'give' is not consonant with the hiring of goods.

87. Section 6 of the 1982 Act implies a warranty with respect to the hiring of goods. The Department believes a new burden is therefore created with respect to transactions involving trading stamps and the law is harmonised thereby with that applying to the supply of goods in other situations. We are satisfied that the new burden is proportionate.

Fair balance

88. The Department has not approached the test of fair balance under the Regulatory Reform Act in the way which would be expected. The requirement of the Act is that the Minister is of the opinion that the order, taken as a whole, strikes a fair balance between the public interest, and the interests of those persons affected by the new burdens. In the present instance the public interest is the proper protection of persons redeeming trading stamps and improving the clarity and coherence of the law. The Department has instead commented on the fairness of each of the burdens under the 1982 Act which would be applied to trading stamp transactions by its proposal. While the Department's reasoning may be persuasive in respect of the individual judgements it offers on these various aspects of the proposal, these judgements do not amount to a correct application of the fair balance test of the Regulatory Reform Act.

89. We consider that, subject to the reservation expressed at paragraph 85 above, the proposal meets the fair balance test by:

a) repealing unnecessary requirements of the 1964 Act whilst continuing or strengthening relevant protections for consumers; and

b) by imposing proportionate burdens on promoters regarding the goods they supply on redemption of trading stamps.

Burdens in the 1982 Act and the desirability test

90. The Department argues that the proposal meets the test of desirability since its effect would be to harmonise the law in respect of the supply of goods and free the promoters of trading stamp schemes from the burdens of compliance with the 1964 Act, including administrative and legal costs of compliance (or of costs which arise in relation to the process of designing promotional schemes so that they fall outside the definition of a trading stamp scheme).

91. We therefore consider that the proposal meets the desirability test on the basis of the harmonisation of the law it would achieve and of the reductions in legal and administrative work it will deliver regarding sales promotions.

Savings, costs and other benefits

Savings and costs

92. The Department has addressed the issue of the savings and costs it expects from the proposal in its full regulatory impact assessment, although it has concluded that it is hard to give any precise or authoritative figures, for the reason that many of the companies presently operating promotional schemes are themselves uncertain whether their schemes are trading stamp schemes for the purposes of the 1964 Act.[35] On the basis of statistics produced from information supplied by a small number of large retail concerns, the Department has concluded that potential savings to these businesses should be between £250,000 and £750,000 per year, not including legal costs, which are said to be "not directly relevant". The Department believes that little or no activity falling under the 1964 Act takes place within small businesses and that the financial benefits of the proposal, though relatively modest in aggregate, are therefore likely to be concentrated amongst a small number of major firms.

93. The Department does not believe that the proposal would give rise to any additional costs for businesses, which would not be obliged to make changes to any existing promotional schemes. On this basis, there would be no loss of benefit for consumers as the result of the withdrawal of any current opportunities they have to benefit through incentive schemes.

Other benefits

94. The Department also believes that additional benefits may arise in the form of more innovative, attractive and beneficial opportunities for consumers as retailers compete for their custom. This may involve enhanced opportunities to obtain price concessions from retailers. It is envisaged that the repeal of the 1964 Act will make it easier for businesses to design and operate new promotional schemes, and the responses from retailers to the consultation exercise give support for this view. It is harder to demonstrate whether the loosening of regulatory control of consumer promotions would actually lead to an expansion in the number of, and consumer participation in, such schemes, and the advantageousness with which they operate with respect to consumers.

95. On the basis of the regulatory impact assessment which has been prepared, we are satisfied that the proposals have been the subject of, and taken appropriate account of, estimates of increases or reductions in costs or other benefits which may result from the implementation of the proposed order.

Adequate consultation

96. The Department published its consultation document on 21 May 2003 and the consultation period then ran for three months until 20 August 2003. The document asked a number of specific questions about the proposal, as well as giving consultees the opportunity to give any other comments they wished to make. The document was sent to more than 230 businesses, organisations and individuals, including a range of trade and consumer bodies and relevant Government departments and agencies; it was also made available to the public on three Government websites.[36]

97. The Department received only seventeen substantive responses to the consultation document: fewer than 10% of those who were consulted offered any response. All of these respondents expressed their support for the proposal. Eleven respondents also made further more detailed comments on specific features. All respondents who commented on the issue of necessary protection believed that this would be continued by the proposal.

98. There was a wide variation in views among respondents concerning the extent to which modern promotional schemes fell within the scope of the 1964 Act and whether various forms of document issued during the course of various current schemes would constitute trading stamps for the purposes of that Act. Among the operators of current major schemes, Boots plc said that they understood that points accumulated in electronic reward schemes fall within the 1964 Act and should be treated as trading stamps. Boots also considered that they had received confirmation from Trading Standards authorities for this interpretation. The view of the Trading Standards Institute was that the 1964 Act had little or no relevance to modern loyalty card schemes and that it was unlikely that any further significant loyalty scheme would be promoted which fell within the regulation of the Act. As we note at paragraph 12, the Department considers that electronic points accrued under modern consumer loyalty schemes cannot be trading stamps for the purposes of the 1964 Act, as the Act supposes that a trading stamp will be a physical object.

99. Consultation respondents generally felt that current promotional schemes involving the issue and use of vouchers and tokens might be considered trading stamp schemes. In addition to Boots, Esso and Tesco indicated that, in planning and administering their schemes they needed to take steps to ensure compliance with the 1964 Act at cost to themselves. In their view, these steps did not provide any corresponding benefits to consumers. Evidence provided in the consultation exercise suggests that the costs of compliance (or of so designing a scheme that it does not fall within the terms of the 1964 Act) are marginal in the context of the turnovers of the major modern retailers, but that the continued existence of the Act nonetheless has clear effects on the format and running of schemes in which many million of consumers take part.

100. We are satisfied that the proposal has been the subject of and has taken appropriate account of, adequate consultation.

Compatibility with obligations arising from membership of the European Union

101. The Department states that the proposal is compatible with present European legislation. It also notes that the European Council and European Parliament are considering a draft European Regulation on Sales Promotions and that this would, if adopted as a result of the co-decision procedure, apply directly in UK law. The proposed Regulation would create a harmonised European regime for sales promotions and would, among other things, require promoters of schemes to identify themselves in ways similar to those required under the 1964 Act, and to provide an option for the cash redemption of scheme vouchers or coupons. The Department, in response to our enquiries, has stated its opinion that the proposed Regulation will have the effect of requiring Member States to legislate against any rogue cross-border promotional schemes which presently can operate in the UK from Member States where domestic law is less restrictive than in the UK.[37]

102. We are satisfied that no incompatibility exists between the proposal and obligations arising from membership of the European Union.

12 Explanatory statement, paragraph 18 Back

13 Appendix B paragraph 3 Back

14 Appendix B, paragraph 3 Back

15 The mandatory exchangeability of trading stamps for cash is addressed at paragraph 35 below. Back

16 Explanatory statement, paragraph 30 Back

17 Appendix B, paragraph 4 Back

18 Appendix B, paragraph 4 Back

19 Explanatory statement, paragraph 38 Back