On 31 July 2024, the UK’s Competition and Markets Authority (CMA) opened a six-week consultation on the guidance (which it is required to publish under the Digital Markets, Competition and Consumers Act 2024 (DMCCA) on how it will exercise its sweeping new powers to enforce UK consumer law.
The CMA’s new powers include imposing financial penalties of up to 10% of global turnover for breaches of consumer law. The CMA is required by s.199 of DMCCA to publish a statement of policy on financial penalties and the draft guidance document is designed to meet this requirement.
According to the draft guidance, the CMA’s first step in determining the size of any financial penalty will be to decide on the level of harm (or risk of harm) caused by the consumer law infringement in question. Given the fundamental focus on harm, it is useful to consider the relevance and meaning of “harm” for DMCCA purposes and how the draft guidance helps explain the concept to those exposed to potential penalties.
Harm, risk of harm and the HCIC test
Harm is an essential pre-condition to the exercise of the CMA’s new powers. Under s.148 of DMCCA, the only type of consumer law breach which can result in (among other things) the imposition of financial penalties (otherwise known as a “relevant infringement”) is one which, “harms the collective interests of consumers” (the HCIC test).
In examining the HCIC test (which derives from EU consumer protection legislation), the UK courts have concluded that there must be harm to a section of the public who are consumers and that this harm can be inferred from the accumulation of individual instances of harm (see, OFT v Miller [2009] EWCA Civ 34 and OFT v MB Designs 2005 SLT 691).
According to the Court of Session in MB Designs, the HCIC test connotes, “harm or a risk of harm to the public generally, or more precisely to members of the public who may buy the particular goods or services in question” (para.14). Section 148(5)(a) of DMCCA underlines that impacts on potential consumers must be taken into account.
According to para.899 of the explanatory notes to DMCCA, s.148(5)(a) makes it clear that impacts on potential consumers require consideration of the risk of continuation or repetition of an act or omission, “on the basis that repetition […] would harm the interests of potential future customers of the trader”. This echoes the view in MB Designs that the, “occasional instance where defective goods or services are supplied cannot be said to harm the collective interests of consumers” (para.14).
The Court of Appeal in Miller also expressed the view that the HCIC test might be satisfied by a single act or omission, “as where a supplier puts on to the market a large consignment of a beverage stated to be a healthy drink for a baby that is wholly unsuitable for this purpose” (para.44). Section 148(5)(b) of DMCCA confirms that that is the case.
The notion of harm in the draft guidance
Whilst the draft guidance discusses the HCIC test, it does not specifically consider its application in the context of exercising the new financial penalties powers. This seems odd, given the fundamental role played by the HCIC test in authorising the use of those powers.
Including a discussion of the test might also help clarify how the CMA will determine about what it describes as “the level of harm” under its penalties policy.
As it stands, the draft guidance (at paras.7.23 to 7.25) sets out a very high level approach to the assessment of the level of harm, with the highest level (category 1) reserved for infringements “causing major economic or non-economic harm to consumers” (emphasis in original) or for those which would otherwise fall into the next level (category 2) but for the application of aggravating factors. Categories 2 and 3 are expressed in similar terms (albeit referring respectively to “significant” and “moderate” rather than “major” harm) and include infringements which “created a risk of” the conditions in the next higher category being satisfied. The lowest level (category 4) covers infringements which created a risk of the category 3 conditions being met along with, “Any other infringements”.
The draft guidance provides no steer as to what the CMA means by the expressions “major”, “significant” and “moderate” in this context, or how it will use them to distinguish between cases. This would be useful and is something which it already offers in its statement of policy on fixing penalties under the Competition Act 1998.
Bringing in reference to the HCIC test into this section of the draft guidance would also provide a useful opportunity to clarify its role in assessing harm. Thus, for instance, whilst category 1 refers to “harm to consumers”, it is unclear whether (in light of the HCIC test) it is also intended to include the risk of (major) harm to consumers. Similarly, it could be clarified that category 4 cannot apply to infringements that do not satisfy the HCIC test.