Queen’s Bench Division
Published April 29, 2008
Office of Fair Trading v Abbey National plc and Others
Before Mr Justice Andrew Smith
Judgment April 24, 2008
Terms in standard form contracts between bank and customer providing for
relevant charges were not exempt from assessment as to fairness.
Mr Justice Andrew Smith so held in the Queen’s Bench Division when considering
the application of the claimant, the Office of Fair Trading, for a
declaration that the relevant terms and charges in current agreements, and
to some extent in historical agreements, by the defendants: Abbey National
plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds
TSB Bank plc, Nationwide Building Society, and Royal Bank of Scotland Group
plc, were not excluded from an assessment for fairness under regulation 6(2)
of the Unfair Terms in Consumer Contracts Regulations (SI 1999 No 2083).
The banks brought counterclaims seeking declarations which were, inter alia,
directed not only to the application and effect of the 1999 Regulations but
also to whether their terms included penalties and so to that extent were
unenforceable at common law.
Mr Brian Doctor, QC, Miss Jemima Stratford, Mr Richard Coleman and Miss Sarah
Love for the Office of Fair Trading; Mr Ali Malek, QC and Mr Richard Brent
for Abbey National; Mr Iain Milligan, QC, Mr Andrew Mitchell and Mr Simon
Atrill for Barclays; Mr Richard Salter, QC, Mr John Odgers and Mr Adam
Kramer for Clydesdale; Mr Robin Dicker, QC, Mr Timothy Howe, QC, Mr Jeremy
Goldring and Mr James McClelland for HBOS; Mr Richard Snowden, QC, Mr Mark
Hoskins, Mr Daniel Toledano and Mr Patrick Goodall for HSBC; Mr Bankim
Thanki, QC, Mr Richard Handyside and Mr James Duffy for Lloyds TSB; Mr
Geoffrey Vos, QC and Ms Sonia Tolaney for Nationwide; Mr Laurence
Rabinowitz, QC, Mr Malcolm Waters, QC, Mr David Blayney and Mr Benjamin
Pilling for Royal Bank of Scotland.
MR JUSTICE ANDREW SMITH said that the terms in standard form contracts
provided for four basic categories of relevant charges about which the
claimant was concerned: unpaid item charges, paid item charges, overdraft
excess charges, and guaranteed paid item charges.
The terms generally used by the banks for personal current accounts, other
than basic accounts, were in plain intelligible, or largely in, plain
intelligible language.
The banks’ erms and charges did not amount to penalties and so were not
unenforceable at common law against the customer. The banks had argued that
the charges were not payable upon a breach of contract on the part of
customers.
None of the provisions that the claimant identified meant that the customer
was under a contractual commitment such that relevant charges could have
been a penalty for breach of the commitment, and so unenforceable at common
law.
If there was doubt about the meaning of these provisions, they would have been
given the interpretation most favourable to the consumer and so as to avoid
customers being under any contractual commitment.
On the question of whether the fairness of the terms was excluded from
assessment by the claimant, the banks submitted that the charges were the
price or remuneration, or part of the price or remuneration, for services
that they supplied and therefore regulation 6(2) applied to the terms.
The banks made two principal submissions: The whole package argument They
supplied a “bundle” or “package” of services to their current account
customers which enabled the customers to manage their day-to-day finances,
including services whereby customers could, without prior arrangements,
request an overdraft by issuing a payment instruction which, if executed,
would create or increase borrowing from the bank, and where the bank chose
to grant such a request, customers could borrow from the bank on its
standard terms.
The relevant charges, together with other revenue in particular form from
interest paid by customers on borrowing and the use of credit balances in
customers’ accounts, were the price or remuneration for the package or
services.
His Lordship held that the payments were not made in exchange for the whole
package of services supplied by the bank when it was operating a current
account.
Further, the payments were not the price or remuneration for those services in
any natural meaning of the phrase or within the meaning of regulation 6(2).
The payments would not have been so recognised by the typical customer when he
opened a current account with a bank, and they were not generally so
presented by the banks in their terms or other documentation.
Moreover, the basis of the whole package argument was that the relevant
charges were not the price or remuneration for services but part of the
price or remuneration for services.
An assessment of the fairness of the relevant charges did not involve an
assessment of the level or adequacy or appropriateness of the overall price
or remuneration for the package of services supplied by the bank, and an
assessment of the fairness of the relevant charges as against those
services, apart from being entirely beside the point, would not have
intruded upon the essential bargain between the parties that the United
Kingdom intended under Council Directive 93/113 EEC (OJ 1993 L95/29) and the
1999 Regulations should be protected from assessment. The specific services
argument If the charges were not to be regarded as part of the price or
remuneration for the package of services supplied by the banks to customers
with current accounts, then they were the price or remuneration for some
part of those services; that was, for the services or a service supplied in
connection with borrowing requests where no facility had been arranged in
advance.
His Lordship held that each of the four categories of relevant charges needed
to be considered separately but none of them was the price or remuneration
in exchange for services by way of providing an unarranged overdraft.
Therefore, the specific services argument was rejected.
Therefore the banks’ arguments failed and it followed that the relevant terms
were not exempt from assessment under the 1999 Regulations.
That was not surprising since regulation 6(2) exempted assessment of the
fairness of the balance of the essential bargain between a seller or
supplier and a consumer.
As the banks themselves explained, under a “free-if-in-credit” price
structure, the economic balance in a contract between a bank and its current
account customer was between the package of services supplied by the bank
and the total benefits to the bank from operating the current account, not
only by way of relevant charges but also in particular by way of the use of
the funds if the account was in credit and interest if it was in debit.
On no view did an assessment of the relevant charges, or relevant terms,
impinge upon the adequacy of the totality of the benefits received by the
bank in exchange for the package of services.
The claimant’s investigation might well have involved consideration of the
fairness of the structure of a “free-if-in-credit” pricing regime but that
was very different from an assessment of the overall adequacy of the
benefits to a bank from operating it.
Solicitors: Mr Omar Yaqub, Office of Fair Trading; Ashurst LLP; Simmons &
Simmons; Addleshaw Goddard LLP; Allen & Overy; Freshfields Bruckhaus
Deringer; Lovells LLP; Slaughter & May; Linklaters LLP.
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