Office of Fair Trading v Abbey National Plc and Others (No 1)
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Andrew Smith |
| Judgment Date | 08 October 2008 |
| Neutral Citation | [2008] EWHC 2325 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 October 2008 |
| Docket Number | Case No: 20071186 |
[2008] EWHC 2325 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
MR JUSTICE ANDREW SMITH
Case No: 20071186
Jonathan Crow QC, Jemima Stratford, Richard Coleman and Sarah Love
(instructed by the Office of Fair Trading) for the Office of Fair Trading
Ali Malek QC and Richard Brent (instructed by Ashurst LLP) for Abbey National plc.
Iain Milligan QC and Simon Atrill
(instructed by Simmons and Simmons) for Barclays Bank plc.
Richard Salter QC and Adam Kramer (instructed by Addleshaw Goddard LLP) for Clydesdale Bank plc.
Robin Dicker QC and James McClelland (instructed by Allen & Overy LLP) for HBOS plc.
Richard Snowden QC, Daniel Toledano and Patrick Goodall (instructed by Freshfields Bruckhaus Deringer LLP) for HSBC Bank plc.
Bankim Thanki QC, Richard Handyside and James Duffy
(instructed by Lovells LLP) for Lloyds TSB Bank plc.
Sonia Tolaney (instructed by Slaughter and May) for Nationwide Building Society
Laurence Rabinowitz QC and David Blayney
(instructed by Linklaters LLP) for The Royal Bank of Scotland Group plc.
Hearing dates: 7, 8 and 9 July 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR. JUSTICE ANDREW SMITH
In my judgment in this action dated 24 April 2008, [2008] EWHC 875 (Comm) (my “April judgment”), in particular at paras 295 to 331, I considered the common law relating to penalties, and I made a declaration in an order dated 12 June 2008 that certain Relevant Terms giving rise to Relevant Charges are not penalty clauses at common law. (In this judgment, I use the same abbreviated terms as before.) For reasons that I explained in paras 36 to 38, the April judgment and the order were concerned only with some of the terms currently used by the Banks. However, as had been anticipated, my reasoning applied to other current and to historical terms, and in light of my judgment the OFT has accepted that many other Relevant Terms are not capable of being penal, leaving in dispute a relatively small number of terms used by seven of the Banks (those other than Nationwide).
The Banks seek declarations that Relevant Terms and Relevant Charges are “not capable of amounting to” penalties at common law. The questions before me about the controversial terms are those that I identified at paragraph 298 of my April judgment, namely (i) whether the term is truly of contractual effect (and not, for example, merely exhortatory or advisory); (ii) if it is of contractual effect, whether it imposes an obligation or prohibition on the customer (rather than, for example, stipulating a condition precedent to an obligation on the bank); and (iii) if it does impose a contractual obligation or prohibition upon the customer, whether a Relevant Charge is payable upon breach of it. There is no dispute between the OFT and the Banks that otherwise a term is not capable of being penal. The Banks submitted that the terms in issue did not meet one or more of these requirements, and that I should accordingly declare that they are not capable of being penal. They do not invite me to consider whether, if these conditions are met, the amounts levied were extravagant or unconscionable and more than a genuine pre-estimate of loss; and that was left for consideration, if necessary, on another occasion.
The OFT has not sought permission to appeal against my April judgment in respect of common law penalties, and no party sought to re-open any questions that I decided in that judgment. I should, however, record that the Banks did not repeat two arguments that I had rejected, namely their contention of waiver (see paras 325 to 327 of my April judgment) and their argument that the 1999 Regulations displace the common law on penalties (see paras 328 to 331). However, they reserved their position about these contentions upon any appeal. RBSG also reserved its position in relation to another argument that I rejected in my April judgment when considering the application of the 1999 Regulations to Relevant Charges, namely whether the Relevant Charges are the price, or part of the price, for services provided by the Bank, although for my part I find it more difficult to understand how this might affect the question of common law penalties.
The court has a discretionary jurisdiction under CPR 40.20 to make binding declarations, and will exercise it to grant declarations as to the parties' rights or as to the existence of facts or a principle of law, where the rights, facts or principles have been established to its satisfaction. As a matter of practice, the court is cautious about making declarations on the basis of admissions or concessions: see, for example, Wallersteiner v Moir, [1974] 1 WLR 991 at p.1029 and 1030, applying Williams v Powell, [1894] WN 141. Moreover, as a general rule it is desirable to hear from all persons whose rights might be affected by a declaration: see Zamir & Woolf, The Declaratory Judgment (3 rd Edition) at para 6.001. The declarations sought by the Banks might affect the rights of their customers whose current accounts are governed by Relevant Terms, and no customer appeared before me.
I must therefore exercise some caution before making the declarations sought by the Banks, and I accept the OFT's submission that I should not do so if there is a realistic possibility that further factual investigation might affect the position. That said, I also accept the Banks' contention that in large part the questions before me are of contractual construction that I can properly determine without further factual investigation or evidence.
There are particular reasons in this case that the court should be the more willing to exercise its declaratory jurisdiction. First, as I explained in my April judgment, one of the purposes of this action is to facilitate the expeditious, fair and orderly management of cases brought by individual customers in county courts, and the declarations are sought to that end. Secondly, the OFT has examined the Relevant Terms, drawn to my attention any which it considers might arguably be penal and made submissions in support of that view. It might be said that it has played the part of a representative bank customer. Moreover, the FSA (who was party to the Litigation Agreements to which I referred in my April judgment) was represented by counsel at the hearing before me and would, no doubt, have raised any concerns that it has. In my judgment the OFT has identified all of the Relevant Terms that might arguably be penal, and all its admissions and concessions have been properly made.
In the circumstances of this case, I consider that I should be prepared to make declarations such as the Banks seek provided I am satisfied of the legal position about whether the term is capable of being penal in its contractual context. I must be satisfied among other things that the provisions of the contract in question can be identified with sufficient certainty for a declaration to be properly and usefully made about whether its terms are capable of being penal. Of course, in any particular case a customer might have made his individual arrangements with his bank that varied or displaced those terms, but this consideration does not, I think, mean that it is necessarily inappropriate to make a declaration as to whether a contract on a bank's standard terms was capable of being penal in respect of particular provisions.
Provisions about the customer overdrawing on his account
I shall not repeat what I have previously said about the law of penalties. However, before considering the individual controversial terms, I should say something about two matters of some general application to what I have to decide.
First, as I put it in paras 64 and 66 of my April judgment, “Prima facie a customer is not in breach of his contract with his bank if he gives instructions to make a payment without having the necessary funds or facility to cover the payment (whether at the time when the instructions are given by the customer or when they are received by the bank or both). He is taken to be requesting overdraft facilities …. The contractual position between bank and customer is not affected by the customer using a cheque guarantee card provided by the bank to support a payment made to a third party. The effect of its use is simply that the bank, through the agency of the customer, undertakes to the third party (not strictly by way of guarantee) that it will not dishonour the cheque on presentation for want of funds in the account…”. I add that when a bank provides a debit card to a customer, it does not agree to provide the customer with credit: it is simply providing a convenient payment mechanism: see Goode, Consumer Law and Practice, Vol 1, Part 1C, para 24.84.
This is particularly relevant when considering the meaning and effect of statements in the Banks' documentation that a customer is not to overdraw his account without or in excess of a facility agreed in advance. In principle the parties could agree that the customer will be in breach of contract if he allows his account to become overdrawn. (As I explained in paras 325 to 327 of my April judgment, it would depend upon the facts of the particular case whether the customer would have a defence such as waiver or acquiescence.) Whether the parties have so agreed depends upon the wording of the particular contract between the Bank and the customer. However, I see force in the argument that it is unlikely that a bank and a current account customer would provide in their contract that the customer should...
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Bank Charges - The Next Instalment
...Office of Fair Trading v Abbey National Plc & Others [2008] EWHC 2325 (Comm), 8 October 2008, the Court that certain historic terms and conditions for personal current accounts were not capable of amounting to penalties. In Office of Fair Trading ?v- Abbey National Plc & Others [200......