Operators of Premium Rate Services consisting of prize-draw and download services payable by a repeat mobile charge may have been somewhat alarmed by the substance of the latest PhonepayPlus Compliance Update, circulated to the industry.
The reasonable and natural assumption of a provider of Premium Rate Services might be that compliance with the 12th version of the Code is the goal. If compliant, the service provider can sleep safe at night. It also might be assumed that if one had been found to be in breach of provisions of the Code, then the substantial and significant penalties exacted by the PhonepayPlus Tribunal would be the end of it. Not so, it would appear.
PhonepayPlus have reminded providers of their obligations under the Consumer Protection from Unfair Trading Regulations 2008 (the “Regulations”) as well as the Code. PhonepayPlus informs providers, having ‘sought independent legal advice’, that it has concerns that many services fall foul of the Regulations (e.g. that they are ‘misleading’ and that they constitute ‘aggressive commercial practices’).
The upshot, and this will no doubt cause shockwaves, is that PhonepayPlus recommends service providers entirely cease operation of the services in question, pending taking legal advice as to the operation of the services in terms of compliance with the Code, any applicable Guidance, and with the Regulations.
We have significant concerns at this latest development, concerns which doubtless are shared by the industry.
1. The Executive provides no details as to this independent legal advice – either who provided it or what form it took. We would suggest, however, that the correct response of the Regulator to such legal advice would be to ensure that the Code entirely reflects the Regulations. Asking service providers to ensure, potentially upon pain of imprisonment, that their services meet the requirements of legislation which pre-dated the 12th Code and as such ought to have informed the Code’s provisions, would appear draconian and overly complicated.
2. The Executive’s appetite for imposing sanctions upon wrong-doers appears now even to exceed the hefty penalties prescribed by the Code. Perhaps as an indicator of the somewhat over-zealous stance adopted by the Executive, we are aware of general advice circulated to certain providers within the industry suggesting that they cease provision of services which have already been fully investigated by the Executive, scrutinised by the PhonepayPlus Tribunal, and in respect of which appropriate sanctions have been imposed.
3. We wonder what prompted the Executive’s decision to seek independent legal advice on an issue which on any analysis has come from left-field. Indeed, we question whether the Executive is engaging in scaremongering: breach of the Regulations carries a maximum penalty of 2 years in prison.
4. The actions of the Executive amount to a ‘guilty until proven innocent’ policy: service providers are asked to cease the services in question – and moreover to incur the significant costs of obtaining independent legal advice to verify that their services are compliant – before there has been any ruling or even suggestion of breach.
5. In the Compliance Update, the Executive states that ‘where [they] suspect the Regulations have also been contravened [they] reserve the right to refer the matter to the appropriate enforcement authorities for further action under the Regulations, including both criminal and/or civil proceedings through the courts where appropriate’. We do not share the view of the ‘independent legal advisors’ as to whether the OFT – the principal ‘enforcement authority’ in question – would have much enthusiasm for the increased burden in case responsibility which the Executive would seek to impose. The 2008 Guidance Notes which it published to accompany the Regulations would suggest otherwise. See at para 11.6 and post, in respect of ‘Established Means’:
– 11.6 There are alternative well-founded and effective systems of regulation (including self-regulation) in place in the UK. If enforcers are satisfied that complaints and cases are clearly within the scope of these systems and can be adequately dealt with by them, they will be able to refer such complaints and cases to the relevant body (to ensure that businesses comply with the CPRs).
– 11.7 As under the previous consumer protection regime, the Advertising Standards Authority (ASA) and PhonepayPlus are considered to be established means in the areas described below, and appropriate cases falling within their areas of expertise will usually be referred to them for action.
– 11.10 PhonepayPlus (formerly ICSTIS) is responsible for regulating premium rate telephony services in the UK. Premium rate services can be defined as those which offer some form of content, product or service that is charged to a user’s phone bill. PhonepayPlus regulates content, promotion and overall operation of these services as an agency of Ofcom, as designated under s120 (1) of the Communications Act 2003.
6. Nor indeed would the Civil or Criminal Courts welcome the increased burden of such cases, which ought to fall under the Executive’s jurisdiction. We would suggest that one of the functions of a regulator is to assume responsibility for the industry sector, and so to relieve the ordinary Courts – which would have the responsibility for the civil and criminal actions threatened by the Executive and which are funded by the tax-payer rather than by the industry levy – of the burden thereof.
Conclusion
However unfair it might seem, this Guidance has significant implications for service providers within the industry. We comment as follows:
1. Previously the investigatory process has been neatly contained within the Code, and within the stepping stones of Tribunal / Review / Oral Hearing / IAB / Judicial Review. The Executive, of its own volition, is suggesting that this is not the end of the matter, and that there is in fact another jurisdiction and legal process for what is effectively the same offence. This prompts two observations, the ramifications of which suggest the Executive would be ill-advised to carry out its threat:
i) If the Executive could have recourse to ordinary civil procedure as an alternative to the route laid down in the Code, an investigated party could avail itself of the same right if subject to investigation?
ii) Interestingly, if the Executive were to bring a civil action as it suggests it might, presumably it would not enjoy the same costs immunity as under the current regime– where in effect it almost always recovers its own costs under an investigation and never bears the burden of the investigated party’s. The prospect of counter-claims and the chance of recovering costs could actually prove attractive to any service provider brought to account for breach of the Regulations.
2. In practice we do not believe that the OFT would welcome any shift of burden save in circumstances where the breaches of the Code were so heinous that the significant financial penalties were not deemed sufficient, and/or only criminal action would suffice;
However, perhaps of greater importance for any service providers from a practical perspective is the recommendation that relevant services are ceased pending ratification by legal advisors. Any breach letter issued by the Executive contains an ‘Aggravating and Mitigating Factors’ section, which includes, as a potentially ‘aggravating factor’ in the context of deciding the appropriate sanction to be imposed, the following question:
‘Did PhonepayPlus give relevant notice to industry, such as publication of a ‘Compliance Update’ or an adjudication, prior to these breaches occurring?’
Through issuing this ‘notice to the industry’, the Executive has effectively allowed itself to consider as an aggravating factor any failure on the part of investigated parties to seek independent legal advice in respect of infringing services. We would anticipate that many service providers will be caught by this – and the fines and sanctions imposed will doubtless be increased accordingly. We would question whether this is fair or proportionate. In any event, the advice from the Executive is unequivocal, however unfair it may seem.
Please do not hesitate to contact either Victoria Russell or Oliver Fetiveau should you require any assistance in this regard.
Oliver Fetiveau
M LAW LLP
