Office of Fair Trading v Abbey National Plc and Others

JurisdictionEngland & Wales
JudgeSir Anthony Clarke
Judgment Date26 February 2009
Neutral Citation[2009] EWCA Civ 116
Docket NumberCase Nos: A3/2008/1396, 1400, 1401,1402, 1403, 1404, 1405, 1406, 1406(Y) and 1407
CourtCourt of Appeal (Civil Division)
Date26 February 2009

[2009] EWCA Civ 116

[2008] EWHC 875 (Comm)

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM COMMERCIAL COURT

THE HONOURABLE MR JUSTICE ANDREW SMITH

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sir Anthony Clarke Mr

Lord Justice Waller V-P and

Lord Justice Lloyd

Case Nos: A3/2008/1396, 1400, 1401,1402, 1403, 1404, 1405, 1406, 1406(Y) and 1407

Between
(1) Abbey National Plc
(2) Barclays Bank Plc
(3) Clydesdale Bank Plc
(4) HBOS Plc
(5) HSBC Bank Plc
(6) Lloyds Tsb Bank Plc
(7) Nationwide Building Society
(8) The Royal Bank of Scotland Group Plc
Appellants/Defendants
and
The Office of Fair Trading
Respondent/Claimant

Ali Malek QC and Richard Brent for Abbey National plc (instructed by Ashurst LLP)

Iain Milligan QC, Andrew Mitchell and Simon Atrill for Barclays Bank plc (instructed by Simmons & Simmons)

Richard Salter QC and John Odgers for Clydesdale Bank plc (instructed by Addleshaw Goddard LLP)

Robin Dicker QC, Timothy Howe QC and Jeremy Goldring for HBOS plc (instructed by Allen & Overy LLP)

Richard Snowden QC, Daniel Toledano and Patrick Goodall for HSBC Bank plc (instructed by Freshfields Bruckhaus Deringer LLP)

Bankim Thanki QC, Richard Handyside and James Duffy for Lloyds TSB Bank plc (instructed by Lovells LLP)

Geoffrey Vos QC and Sonia Tolaney for Nationwide Building Society (instructed by Slaughter and May)

Laurence Rabinowitz QC and David Blayney for The Royal Bank of Scotland Group plc (instructed by Linklaters LLP)

Jonathan Crow QC, Richard Coleman, Jemima Stratford and Sarah Love for

The Office of Fair Trading (instructed by The Office of Fair Trading)

Hearing dates: 28 and 29 October and 3, 4 and 5 November 2008

Sir Anthony Clarke

Sir Anthony Clarke:

This is the judgment of the court to which each of its members has contributed.

Introduction

1

This is an appeal from an order made by Andrew Smith J ('the judge') on 23 May 2008 to reflect the conclusions in his judgment which was handed down on 24 April 2008. The appeal is brought with the permission of the judge. It raises a question of construction of a few words in regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 ('the 1999 Regulations'). However, while it may concern the meaning of only a few words, it has given rise to much debate, both before the judge at first instance and before us. At the outset we would like to pay tribute to the high standard of the argument on both sides and to the forbearance of counsel for the appellants ('the Banks'). The Banks put in a single skeleton argument on all issues and their principal oral argument was advanced by Mr Rabinowitz QC. Other counsel made limited submissions on various matters without repeating anything said by Mr Rabinowitz. The oral argument on behalf of the respondent ('the OFT') was advanced by Mr Crow QC. We would also like to pay tribute to the quality and clarity of the judge's judgment, which is 450 paragraphs long.

2

The principal question before the judge and in this appeal was and is whether or not the OFT is entitled to assess the fairness of certain charges made by the Banks under the 1999 Regulations. It is common ground between the parties that, unless such an assessment is prohibited by regulation 6(2)(b) of the 1999 Regulations, the OFT is entitled to assess them for fairness. Albeit at the risk of taking it out of context, we should quote regulation 6(2) at the outset. It provides:

“(2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate—

(a) to the definition of the main subject matter of the contract, or

(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.”

Before the judge the Banks abandoned any reliance upon paragraph (a). It follows that both before the judge and in this appeal the question was and is whether, on the true construction of regulation 6(2)(b), an assessment of the fairness of the charges imposed pursuant to a particular term is prohibited in the circumstances of this case. The judge held that it is not. The question in this appeal is whether he was correct so to hold.

3

The 1999 Regulations were made under section 2(2) of the European Communities Act 1972. Their purpose was to give effect in the United Kingdom to Council Directive 93/13/EEC on unfair terms in consumer contracts (the “Directive”). There has accordingly been much debate as to the true construction and purpose of the Directive, to which we return below. However, none of the parties has asked for a reference to the European Court of Justice ('the ECJ'). We note in passing that, unsurprisingly, each of us is a customer of one or more of the Banks, but nobody has suggested that we should not hear this appeal.

The Relevant Charges

4

We will use the same terms as the judge did. As he explained at [1] of his judgment, this action is about charges made by the Banks to their customers who have personal current accounts with them when they are requested or instructed to make a payment for which they do not hold the necessary funds in the account and which is not covered by a facility arranged with the customer. Like the judge, we will refer to such requests or instructions as “Relevant Instructions”, to the charges as “Relevant Charges” and to the terms in the standard form contracts between bank and customer providing for the Relevant Charges as “Relevant Terms”.

5

As the judge explained at [6], the OFT identified four basic categories of Relevant Charges about which it is concerned: Unpaid Item Charges, Paid Item Charges, Overdraft Excess Charges and Guaranteed Paid Item Charges. As pleaded by the OFT, an Unpaid Item Charge is “levied when the customer gives an instruction for payment or, in some cases at least, withdrawal, that the bank declines to honour because the customer does not have sufficient funds in his account” or (as in the case of other charges) an arranged facility which covers it. A Paid Item Charge is “levied when the customer gives an instruction for payment or, in some cases at least, withdrawal, for which he has insufficient funds in his account and which the bank honours”. An Overdraft Excess Charge is “levied if, during a specified period (typically a day or a month) … an account is and/or goes overdrawn (and there is no overdraft facility), or … the debit balance is and/or goes above the limit on an existing overdraft facility, and in both cases irrespective of the reason why the excess has occurred”. A Guaranteed Paid Item Charge refers to a charge distinct from a Paid Item Charge which some of the Banks levy when they honour “in accordance with the guarantee, a cheque issued in conjunction with a cheque guarantee card (or, in the case of some banks, a debit card payment made under a guaranteed debit payment system) for which the customer does not have sufficient funds”.

6

The judge described the nature of current accounts at [42] to [54], of overdrawing on current accounts at [55] to [63] and of unarranged overdrafts at [64] to [82]. It is not necessary to set out those descriptions again for the purpose of resolving the issues in this appeal.

The background to the action

7

The judge described the background to this action at [2] to [5] of his judgment. It is sufficient for us to say this. The Relevant Terms and Relevant Charges are being challenged on two fronts. As already noted, under the 1999 Regulations the OFT is investigating the fairness of the Relevant Charges: see [3] of the judgment for more detail. Strictly, the investigation is of the fairness of the terms under which the Relevant Charges are imposed, but it is convenient and realistic, in most cases, to speak of the fairness of the Relevant Charges. In addition to the OFT investigation, a large number of individual actions have been brought by individual customers in county courts disputing charges levied by banks, many of them relying not only on the 1999 Regulations but also on common law rules about the unenforceability of penalties. Those actions have for the most part been stayed for the time being pending the outcome of these proceedings: see [3] to [5] of the judgment.

Issues before the judge

8

As already indicated, the principal issue before the judge was whether the OFT is entitled to carry out an assessment of the fairness of the Relevant Charges. It is not in dispute that it is for the Banks to show that the case falls within regulation 6(2)(b) of the 1999 Regulations. At [33] of his judgment the judge identified the first question as being whether assessment of fairness is prohibited because it would “relate … to the adequacy of the price or remuneration, as against the goods or services supplied in exchange” within the meaning of regulation 6(2)(b) of the 1999 Regulations. In this connection he identified the third question as being whether, if and in so far as regulation 6(2) applies, the protection afforded to the Banks is that the particular term is not to be assessed for fairness (the 'excluded term' construction) or whether the Banks are protected against a particular type of assessment (the 'excluded assessment' construction).

9

However, he also considered (among other things) whether specific contractual terms are in “plain intelligible language” and whether any of the terms giving rise to charges is a penalty at common law: see the second question identified at [33] and [35].

The declarations made by the judge

10

On the main point, in his order the judge made a declaration that an assessment of fairness of specific terms set out in the first schedule to the order, which were Relevant Terms,...

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7 cases
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1 books & journal articles
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    • United Kingdom
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