Office of Fair Trading v Abbey National Plc and Others (No 2)

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLORD MANCE,LORD PHILLIPS,LORD WALKER,LADY HALE,LORD NEUBERGER
Judgment Date25 Nov 2009
Neutral Citation[2009] UKSC 6

[2009] UKSC 6

THE SUPREME COURT

Michaelmas Term

On appeal from: [2009] EWCA Civ 116

before

Lord Phillips, President

Lord Walker

Lady Hale

Lord Mance

Lord Neuberger

The Office of Fair Trading
(Respondents)
and
Abbey National plc

& Others

(Appellants)

Appellant (Abbey National plc)

Ali Malek QC

Richard Brent

(Instructed by Ashurst LLP)

Respondent (The Office of Fair Trading)

Jonathan Crow QC

Richard Coleman

Jemima Stratford

Sarah Love

(Instructed by the General Counsel, Office of Fair Trading)

Appellant (Barclays Bank Plc)

Jonathan Sumption QC

Andrew Mitchell

(Instructed by Simmons & Simmons)

Appellant (Nationwide Building Society)

Geoffrey Vos QC

Sonia Tolaney

(Instructed by Slaughter and May)

Appellant (Clydesdale Bank Plc)

Richard Salter QC

John Odgers

(Instructed by Addleshaw Goddard LLP)

Appellant (The Royal Bank of Scotland Group Plc)

Laurence Rabinowitz QC

David Blayney

(Instructed by Linklaters LLP)

Appellant (HBOS Plc)

Robin Dicker QC

(Instructed by Allen & Overy LLP)

Appellant (HSBC Bank Plc)

Mark Hoskins QC

Daniel Toledano QC

Patrick Goodall

(Instructed by Freshfields Bruckhaus Deringer LLP)

Appellant (Lloyds TSB Bank Plc)

Bankim Thanki QC

James Duffy

(Instructed by Lovells LLP)

LORD WALKER

The limited nature of the issue

1

The members of the Court are well aware of the limited nature of the issue which we have to decide in this appeal. But many of the general public (who are understandably taking a close interest in the matter) are not so well aware of its limited scope. It is therefore appropriate to spell out at the outset that the Court does not have the task of deciding whether the system of charging personal current account customers adopted by United Kingdom banks is fair. The appellants are seven of the largest banks in the United Kingdom and one building society (but I shall for convenience refer to them all as "the banks"). The appellants accept that the system of "free if in credit" banking prevalent in this country involves a significant cross-subsidy (amounting to about 30 per cent of the banks' total revenue stream from current account customers) provided by those customers who regularly incur charges for unauthorised overdrafts (a cohort, we were told, of the order of twelve million people) to those customers (a cohort of about 42 million people) who are in the fortunate position of never (or very rarely) incurring such charges. Banks in other European countries adopt different forms of cross-subsidy; French banks for instance, concentrate their charges on processing standing orders and debit card transactions.

2

Some would regard the United Kingdom system as being, in some sense at least, obviously unfair, though Mr Sumption QC (for the banks) vigorously disputed Lord Mance's suggestion that his clients were engaged in a sort of "reverse Robin Hood exercise". That is an imponderable question which depends partly on whether one's perception of the average customer who incurs unauthorised overdraft charges is that he is spendthrift and improvident, or that she is disadvantaged and finding it hard to make ends meet. But it is not the question for the Court.

3

The question for the Court is much more limited, and more technical. It is whether as a matter of law the fairness of bank charges levied on personal current account customers in respect of unauthorised overdrafts (including unpaid item charges and other related charges as described below) can be challenged by the respondent the Office of Fair Trading (the "OFT") as excessive in relation to the services supplied to the customers.

4

That issue depends on the correct interpretation (in its European context) and application of Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 ("the 1999 Regulations"). Regulation 6(2) is as follows:

"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."

The context requires "adequacy" to be read in the sense of "appropriateness," as Lord Rodger of Earlsferry pointed out in Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481, para 64.

The Directive and the Regulations

5

The 1999 Regulations were made under section 2(2) of the European Communities Act 1972 in order to transpose into national law Council Directive 93/13/EEC on unfair terms in consumer contracts ("the Directive"). The 1999 Regulations revoked and replaced similar regulations made in 1994 (SI 1994/3159) in order (as the explanatory note to the 1999 Regulations puts it) "to reflect more closely the wording of the Directive". Regulation 6(2) of the 1999 Regulations does indeed follow closely the English text of Article 4(2) of the Directive, which is as follows:

"Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language."

The Court has had available the texts of Article 4(2) in French, German and some other languages, but they cast little light on the interpretation of the English text.

6

Both Mr Sumption (for the banks) and Mr Crow QC (for the OFT) made submissions about the background to the Directive, its travaux préparatoires, and academic commentaries on it. The Directive in its final form applies only to contractual terms which have not been individually negotiated. That is the effect of Article 3, which sets a fairly high threshold for meeting that test. The Council's original proposals had been more far-reaching but they attracted a lot of criticism, especially from commentators in France and Germany, who were concerned at such extensive inroads into freedom of contract. An article by Professor Brandner and Professor Ulmer of the University of Heidelberg ((1991) 28 CML Rev 647) was particularly influential. In September 1992 the Council brought forward new proposals which can be described as a compromise solution balancing the need for consumer protection against residual freedom of contract. Recital (19) reflects part of this compromise, though it does not contribute very much to the understanding of Article 4(2):

"Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer's liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer."

7

Another element of compromise is the so-called "greylist" set out in Schedule 2 to the 1999 Regulations, exactly reproducing the annex referred to in Article 3(3) of the Directive. This is an "indicative and non-exhaustive list of terms which may be regarded as unfair." Originally it was proposed as a blacklist of terms which would be conclusively presumed to be unfair. The list contains 17 items, four of which refer in one way or another to the monetary consideration paid by the consumer:

"(d) permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract;

(e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;

(f) authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;

(1) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;"

8

The basic test of fairness is in Regulation 5(1) of the 1999 Regulations, transposing Article 3(1) of the Directive. Regulation 5(1) provides:

"A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer."

The consequences of unfairness are set out in Regulation 8, transposing Article 6(1). Regulation 8 provides:

"(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.

(2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term."

9

The Court of Justice has not yet had occasion to rule on the scope of Article 4(2). Not all the member states have precisely transposed the Directive into their national laws, since Article 8 provides that they may adopt or retain more stringent provisions for consumer protection, so long as they are compatible with the Treaty. France and Italy, like the United Kingdom, have precisely transposed the Directive....

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3 books & journal articles

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