Office of Fair Trading v The Officers Club Ltd & Anor, Court of Appeal - Chancery Division, May 26, 2005, [2005] EWHC 1080 (Ch)

Resolution Date:May 26, 2005
Issuing Organization:Chancery Division
Actores:Office of Fair Trading v The Officers Club Ltd & Anor

Neutral Citation Number: [2005] EWHC 1080 (Ch)Case No: HC0400727IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 26 May 2005 Before :MR JUSTICE ETHERTON- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Miss M Carss-Frisk QC and Ms K Bacon (instructed by The Treasury Solicitor) for the ClaimantMr I Croxford QC and Mr T de la Mare (instructed by Hadaway & Hadaway) for the DefendantsHearing dates: 28-29 April - 3-6 May 2005- - - - - - - - - - - - - - - - - - - - -JudgmentIndexMr Justice Etherton : Introduction1. In these proceedings the Office of Fair Trading (``the OFT'') seeks an order, pursuant to the Control of Misleading Advertisements Regulations 1988 SI 1988/915 (``the Regulations'') and the Enterprise Act 2002 (``EA 2002''), restraining the Defendants from publishing advertisements which the OFT claims are misleading. 2. The First Defendant, the Officers Club Limited (``TOC'') operates, in addition to other retail outlets with which these proceedings are not concerned, a chain of stores known as ``The Officers Club'', ``Blakes Menswear'' and ``Petroleum'' (``TOC's stores''), all of which sell garments and accessories to the public. It has approximately 146 such stores nationwide.3. The Second Defendant, David Charlton (``Mr Charlton'') was the founder of TOC. He has been at all relevant times a director of TOC, and is the owner of its entire issued share capital. The central issue4. Until recently TOC operated a ``70% off'' sales strategy, under which all goods were initially marketed at ``Red Star'' prices in a very limited number of TOC's stores for 28 days and were then sold throughout all or most of TOC's stores at a 70% discount off the ``Red Star'' prices. 5. The issue which has been tried before me, following an order for an expedited hearing, is whether TOC's advertisements promoting its ``70% off'' sales strategy were misleading and, hence, unlawful under the Regulations and EA 2002. Other issues in the proceedings have been stayed by order of Lindsay J made on 3 November 2004.Background Facts6. Following a visit to the United States in 1992, where he was impressed by businesses selling to the public a high volume of goods discounted from a higher price, Mr Charlton purchased TOC as a shelf company. TOC began trading with a single store in Sunderland. 7. TOC is now a very substantial enterprise. It has over 2000 employees and an annual turnover of some £100m. For the year ending August 2004 TOC recorded some 5.8 million transactions, in which 9.9 million items were sold.8. TOC operated its ``70% off'' strategy from January 1993 until June 2004. In that respect, TOC was a market leader.9. In very broad terms, that strategy was implemented in the following way.10. The products sold in TOC's stores are TOC's ``own brand'', ordered from suppliers in the United Kingdom and usually manufactured in the Far East. Small numbers of ``full price'' items, labelled ``Red Star'' items, were delivered to TOC by its suppliers in advance of the bulk of the goods. The ``Red Star'' items were sold for 28 days in a relatively small number of TOC's stores. In recent years 19 of the stores were earmarked to sell ``Red Star'' items. Usually, only a small proportion of those 19 stores sold a particular line at the ``Red Star'' prices. During the 28 day period or shortly afterwards bulk supplies of the goods were delivered to TOC. Immediately after expiry of the 28 days (or, if later, on delivery of the bulk) those goods were offered for sale in TOC's stores at the ``70% off'' price, and the ``Red Star'' items were reduced to the same discounted price. 11. TOC placed advertisements in each of its stores promoting and explaining the ``70% off'' sales strategy.12. ``70% off everything'' advertisements were typically displayed on large window signs and posters within the stores, as well as by way of other in-store advertising material. Labels on shelves and on the garments were marked with corresponding ``was'' and ``now'' prices. 13. A representative example of the ``70% off'' advertisements was the signage displayed on 6 September 2001 in TOC's Kingston store:(a) In the windows posters announced:``70% off''EVERYTHINGOFFER EXCLUDES ``RED STAR'' ITEMS(b) Inside the store, hanging signs stated:``70% off'' EVERYTHING DISCOUNT GIVEN AT TILL (c) A ``Petroleum, Enzym'' long sleeved T-shirt was advertised both on the shelf edge marker and on the garment's price tag as ``Was £29.00, You pay £9.00, ``70% off'' everything''.(d) A sweatshirt was advertised on a swing tag as ``Was £39.99 You pay £12.00''.(e) Jerseys were displayed with tag and shelf edge labels stating ``Was £34.99, You pay £10.50''.(f) There were also notices stating:``All discounted goods have been for sale at the higher price at six or more of our branches for a minimum of 28 days in the preceding six months.''14. As I have said, the large majority of goods (whether measured by number or sales value) sold by TOC were goods exposed for sale at a price lower than the price at which such goods had previously been offered.15. By way of example, on 31 May 2003 only 19 of TOC's 159 stores offered ``full price'' items. None of those 19 stores offered more than 0.36% of its stock at the full price, none offered more than 3 styles at the full price, and none offered more than 2 sizes of a particular style at the full price. Three of the stores stocked a total of only 4 individual items at the full price, constituting respectively 0.05%, 0.04% and 0.05% of those stores' total stock. 16. It is common ground that the position as at 31 May 2003 provides a fair reflection of the position generally.17. During the period from 1 September 2002 to 28 June 2003, only 0.15% of the total number of items sold in TOC's stores were at the ``full price''18. The Kingston store did not either on 6 September 2001 or on 31 May 2003 offer any ``full price'' items.19. It is common ground, as illustrated by those facts, that TOC's standard prices were in fact those marketed as being ``70% off''.20. The OFT began investigation of TOC's ``70% off'' strategy following a number of complaints referred to it by Trading Standard Departments (``TSDs''). The complaints, which emanated from 10 TSDs across the country, and which included details of complaints from 9 individual consumers, cover the period of time between about 4 December 1999 and 5 December 2003. They fall into three main categories: (1) complaints regarding the ``70% off'' advertisements, (2) complaints regarding store closure and stock clearance type advertisements and (3) complaints about the combination of the ``70% off'' advertisements with other promotional advertisements such as store closure and store clearance advertisements.21. Discussions and correspondence between the OFT and TOC took place from 26 April 2002 until February 2004, during which the OFT sought to obtain undertakings or assurances from TOC in relation to all three categories of advertisements about which complaint had been made.22. By December 2003, the position was that broad agreement had been reached on assurances relating to the complaints in the second and third categories mentioned above, and TOC had announced it was abandoning the ``70% off'' everything'' strategy. TOC refused, nonetheless, to sign the assurances sought by the OFT, to which TOC had objections on legal and commercial grounds.23. A letter before claim was sent by the OFT on 19 December 2003. After a further unsuccessful meeting between the parties on 27 January 2004 the present proceedings were commenced on 1 March 2004.24. TOC has now ceased its ``70% off'' marketing strategy. It was phased out from the beginning of 2004. TOC now displays all its goods in all its stores at an initial flat price without deduction. TOC has stated to the OFT that it has no present plans to use the ``70% off'' strategy again, but it wishes to reserve its right to do so if, and so long as, such strategy is lawful, and if, and so far as, it is desirable to do so in order to compete with other retailers, including, in particular, traders who employ a similar strategy.25. Following certain assurances given by TOC to the OFT in October 2004, Lindsay J, as I have said, granted a stay of all issues other than the issue whether TOC's advertisements promoting the ``70% off'' strategy were misleading and unlawful. The legal contextThe Directive26. The Regulations implement Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising (the ``Directive'').27. The Directive, in its preamble, noted that the Members States' laws against misleading advertising differed widely (recital 1) and that it was necessary to establish ``minimum and objective criteria'' for determining whether advertising was misleading (recital 7).28. Those minimum criteria were set out in Article 2.2 of the Directive, which specified that: ```misleading advertising' means any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor''.The Regulations29. The Regulations implement the Directive. They came into force on 20 June 1988.30. Reg. 2(2) of the Regulations closely follows Article 2.2 of the Directive. It defines a misleading advertisement as follows:``For the purposes of these Regulations an advertisement is misleading if in any way, including its presentation, it deceives or is likely to deceive the persons 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 or, for those reasons, injures or is likely to...

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