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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