Tweet
An update on our position on bank charges claims...
The full Opinion of Anthony Scrivener QC (2-3 Gray's Inn Square - Barristers - AnthonyProfile) is attached to this posting, along with some guidance notes on unfairness which supplements that Opinion. The Opinion was very kindly undertaken on a pro bono basis for Legal Beagles by Anthony Scrivener QC for general use and publication. We hope this will assist those complainants, consumer campaigners and solicitors who do wish to continue in the fight, although unfortunately Legal Beagles are disappointed to announce our withdrawal from the legal fight for redress to consumers historically affected by the banks unfair and destructive bank overdraft charging regime.
The decision has not been taken lightly.
Although Anthony Scrivener QC's opinion is positive, unfortunately it brings nothing new to the table and the prospects - the chances of success for individual litigants in person - are very slim and the costs risk is far too great to justify continuance. Our opinion, and that of Anthony Scrivener QC and lawyers at Hausfelds LLP, is essentially that the Supreme Court decision was flawed, and that a referral to the ECJ should have been made.
We recommend that consumers with specific complaints against their banks charging structure particularly those in financial difficulty take up their complaint with the Financial Ombudsman Service.
We do not recommend general historical bank charges complaints are taken into the court system.
We continue to fight for a fairer future in the personal current account market and are involved in numerous projects with the Office of Fair Trading and the Lending Standards Boards to this end. Please see threads in the OFT Forum - OFT Test Case updates and Information - Legal Beagles Consumer Forum for more details of this work and to get involved.
Obviously we will keep a close eye on proceedings where consumers are pushing forwards with their claims on various legal aspects .
We are proud of our strong involvement in the campaign and the changes that have been, and will continue to be made, to the personal current account market, and thank everyone for their continued input and support.
We'd like to thank Ingrid Gubbay and Anthony Maton of Hausfelds LLP, Tom Brennan and Anthony Scrivener QC for all the hard work they have put into this on our members, and general consumers, behalf.
Please feel free to ask any questions and if you quote or post the Opinion elsewhere please credit LegalBeagles, Hausfelds LLP and Anthony Scrivener QC. A heck of a lot of work has gone in to this behind the scenes.
You do not need to be registered to access these files.
http://www.legalbeagles.info/Bankchargesopinion.pdf
http://www.legalbeagles.info/Bankcha...supplement.pdf
(We have edited site users names out of the Opinion)
1. In Office of Fair Trading v Abbey National and Others [2009] EWCA Civ 216 Andrew Smith J and the Court of Appeal held that bank charges levied on personal account holders could be assessed as unfair under regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 SI 1999/2083(the 1999 Regulations) as they did not relate to the adequacy of the process or remuneration as against the goods and services supplied in exchange within the meaning of regulation 6(2)(b) of the Regulations.
2. The decision of the Court of Appeal was subsequently reversed by the Supreme Court.
3. This action is brought by a group of individual Bank customers against their Bank and makes similar points as in the Abbey National case save that additional arguments are raised and some of the arguments are different. Further in this case an application for a Reference to the European Court should be made under Article 234 at an early stage of the proceedings.
Regulation 5(1)
4. Regulation 5(1) of the 1999 Regulations allows for the assessment of all standard form terms and conditions in contracts between consumers and sellers/suppliers. The assessment is one of “unfairness”, which is defined by Regulation 5(1): "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.”
5. Schedule 2 to the 1999 Regulations gives an indicative and non-exhaustive list of terms which may be considered unfair.
Regulation 6(2)
6. The issue depends on the correct interpretation of the regulations (in its European context) and the application of Regulation 6(2) of 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 Issue
7. The issue in the Abbey National case was:
"That issue is whether the Relevant Charges constitute ‘the price or remuneration, as against the services supplied in exchange’ within the meaning of the Regulation. If they do not, the attack on the fairness of the terms that is open in the OFT will not be circumscribed by Regulation 6(2)(b). If they do they will still be open to attack by the OFT on the ground that they are ‘unfair’ as defined by Regulation 5(1), but that attack cannot be founded on an allegation that the Relevant Charges are excessive by comparison with the services which they purchase, for that is forbidden by Regulation 6(2)(b).
(see para 57 of Lord Phillips judgment)
8. Lord Walker defined the issue as:
"Whether as a matter of law the fairness of Bank charges levied on personal current account customers in respect of unauthorised overdrafts (including unfair item charges and other relevant 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.”
(para 3 of his judgment)
9. The Supreme Court decided that the charges set out under the Relevant Terms constituted monetary consideration for the package of banking services supplied to personal current account customers. The fact that the charges were contingent and the majority of customers did not incur them was irrelevant.
Interpretation
10. The 1999 Regulations implement Council Directive 93/13/EEC of 5 April 1993. The Directive should be used as an aid to interpretation of the Regulations.
11. Article 1 is the approximation provision. It is submitted that the way the Directive has been implemented in Member States can be of relevance to the interpretation of the Directive and Regulations.
12. Article 5 provides inter alia that “the interpretation most favourable to the consumer shall prevail”. Articles 4 and 6 are also of relevance to interpretation.
13. Some of the Recitals in the Directive also have relevance. By Regulation 7(2) of the 1999 Regulations:
“If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail …”
14. The general effect of these aids to interpretation is that the purpose of the Regulations is to protect the consumer from the unfairness of the supplier/seller. Their purpose is not to ensure “a level playing field” but to protect consumers.
15. It is a fact that the Supreme Court refused to make a reference under Article 234 and largely ignored the European aspect to the legislation.(see later).
16. The burden of proving that the Bank is entitled to the protection of regulation 6(2)(b) rests upon the Banks. Further and in any event since the Directive and Regulations were enacted to protect consumers, priority should be given to the course of action which most favours the interests of consumers.
17. The Regulations and Directive should not be “broadly interpreted” and should cover only terms “falling squarely within it”. Further a provision prescribing the consequences of default “plainly does not fall within it”.
18. The full citation from Lord Bingham in the House of Lords decision in Director General of Fair Trading v First National Bank PLC [2001] 1 AC 481 is as follows:
"The object of the Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard form contracts into which they enter, and that object would plainly be frustrated if Regulation 3(2)(b) were so broadly interpreted as to cover any terms other than those falling squarely within it. In my opinion the term, as part of a provision prescribing the consequences of default, plainly does not fall within it.”
19. Later in that paragraph Lord Bingham referred to the term as an “ancillary provision”.
20. In the First National Bank plc case (above) Lord Steyn said that “In any event, regulation 3(2) must be given a restrictive interpretation”. The full citation is as follows:
"Clause 8 of the contract, the only provision in dispute, is a default provision. It prescribes remedies which only become available to the lender upon the default of the consumer. For this reason the escape route of Regulation 3(2) is not available to the bank. So far as the description of terms covered by Regulation 3(2) as core terms is helpful at all, I would say that clause 8 of the contact is a subsidiary term. In any event, Regulation 3(2) must be given a restrictive interpretation. Unless that is done Regulation 3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision. Similarly, Regulation 3(2)(b) dealing with ‘the adequacy of the price or remuneration’ must be given a restrictive interpretation. After all, in a broad sense all terms of the contract are in some way related to the price or remuneration. That is not what is intended.”
21. My Instructing Solicitors have drawn attention to the line of ECJ decisions which establish that when dealing with Directive 93/13EC there is a duty on the Court of any Member State to investigate the fairness of any contractual term affecting a consumer. In other words, it is not for the consumer to raise the issue of unfairness; it is for the court to do so. This interpretation gives full weight to the protection of the consumer emphasised by the recitals.
22. These authorities also establish that the burden of proving the unfairness rests on the seller or supplier and not on the consumer. These principles were accepted in a number of authorities including “The Oceano” (C-240/98), Confidis SA (C-473/00), Pannon GSM ZRT (C0243/08).
23. Of particular importance is to adduce evidence as to the practice in other Member States when implementing Directive 93/13EC. This would possibly open up a new area of attack. Lord Walker said:
“But this decision is not the end of the matter, as Lord Phillips explains in his judgment. Moreover Ministers and Parliament may wish to consider the matter further. They decided, in an era of so called ‘light touch’ regulation, to transpose the Directive as it stood rather than to confer the higher degree of consumer protection afforded by the national laws of some other Member States. Parliament may wish to consider whether it revisit that decision”.
24. Lord Phillips envisaged the customers taking a different and alternative approach:
"91. I have not found this an easy case and I do not find the resolution of the narrow issue before the Court to be acte claire. I agree, however, that it would not be appropriate to refer the issue to the European Court under Article 234. I do not believe any challenge to the fairness of the Relevant Terms has been made on the basis that they cause the overall package of remuneration paid by those in debit to be excessive having regard to the package of services received in exchange. In these circumstances the basis on which I have answered the narrow issue would seem to render that issue academic. It may be that, if and when the OFT challenges the fairness of the Relevant Terms, issues will be raised that ought to be referred to Luxembourg. That stage has not yet been reached”.
25. The new case for customers should include a challenge to the overall package as contemplated by this extract and fairness should be assessed on this basis. This would import the issue not then relied upon and to which Lord Phillips drew attention. He seems to believe that the inclusion of this point would have made regulation 6(2) more likely the subject matter of a reference.
26. The recitals in the Directive clearly envisage the importance of seeking to ensure consistency between Member States. The position in Europe between Member States regarding the fairness or otherwise of their relevant terms is hardly mentioned by the Supreme Court.
27. The result is that the most relevant and important indications as to the correct interpretation of the Banks’ relevant terms are given scant regard by the Supreme Court. The Supreme Court not only ignored the European aspect but by refusing to make a reference under Article 234 relevant material to which the recitals and other legal rules had drawn attention was ignored.
Construction of regulation 6(2)(b)
28. At least two members of the Supreme Court criticised the judgment of the Court of appeal as being too elaborate. In fact regulation 6(2)(b) can be interpreted quite simply.
29. The material words to be construed are:
“the adequacy of the price or remuneration as against the goods or services supplied in exchange”.
30. The clear intention of these words is to prevent an “unfairness assessment” where the complaint relates to the price of the goods or services supplied.
31. The word “adequacy” refers to the “price or remuneration” being sufficient or satisfactory.
32. The words “as against the goods or services supplied in exchange” are important.
33. The adequacy of the price or remuneration relates to the actual goods or services supplied in exchange.
34. It is the adequacy of the price or remuneration with respect to the goods or services actually supplied by the seller to the consumer which matter.
35. These words are capable of a simple and straightforward interpretation. The subject matter is specific goods or services supplied by a supplier in exchange for a purchaser paying a price and/or remuneration. Two individuals are concerned: a purchaser and a supplier.
36. Construed in this way it is possible to apply the “fairness” test in Regulation 5. It is possible to form a view whether the contractual term “causes a significant imbalance in the parties rights and obligations.
37. The matter only becomes complicated when an attempt is made to try and make the words fit the identifiable banking transactions.
38. In order to accommodate the Bank’s contention the price or remuneration and the relevant goods or services can only be ascertained as part of the Free-if-in-credit banking system. This is a long way from a complaint by a consumer about specific goods he has purchased.
Construction of regulation 6(2)(b) where Bank has taken steps in consequence of default
39. This is where an overdraft facility has been given but the customer is in breach of the same.
40. On these facts there is only one transaction: the grant of the overdraft facility. Terms subsequently introduced as a consequence of the default are not part and parcel of the overdraft facility (see Lord Bingham above and also Lord Steyn). Terms such as those introduced as a consequence of the default do not constitute a new and separate transaction.
41. The Court of Appeal in the instant case focussed on Lord Bingham’s and Lord Steyn’s description of the relevant clause as “a default provision”. The Court also focussed on Lord Bingham’s description of it as “ancillary” and Lord Steyn’s description of it as “subsidiary”.
42. The Court of Appeal held that: “Ancillary or incidental price, remuneration or payment terms will not fall within the exception in Article 4(2) because they do not fulfil the purpose or essential rationale of the exception”.
43. The Court of Appeal then went on to consider whether the Relevant Terms and the Relevant Charges were or formed part of the “essential or core bargain between the parties...” The Court held that “when all the circumstances are taken into account the Relevant Charges are not part of the core or essential bargain”. It is submitted that this is correct.
44. It is submitted that the approach of the Court of Appeal is correct. Lord Walker sought to reject this approach by holding that:
"there is no possible basis on which the Court can decide that some items are more essential to the contract than others”
(see para 39 of his judgment)
45. This statement is misconceived and does not express the principle accurately. Items which are essential to the contract do not have to be identified by comparison with other items. Whether the item is essential or not depends on the nature of the item in its own right and context and not by comparison with other items.
46. All of the items may be described as essential or as not essential. It is not necessary to distinguish between say clothing, blinds or kitchen utensils to see if they are essential. The same applies to services.
47. Further Lord Walker pointed out (para 41 of his judgment) that Regulation 6(2)(b) “contains no indication that only an ‘essential’ price or remuneration is relevant”. However this conclusion is a deduction from reading the provisions in context and is supported by the statements made by Lord Bingham and Lord Steyn in the First National Bank case. Lord Bingham’s response to “falling squarely within it” and his and Lord Steyn’s reference to construing the provision “restrictively” are merely other ways of identifying terms which are essential.
48. None of the members of the Supreme Court were able to deny that this was a “default provision” .
49. In para 44 of his judgment Lord Walker referred to an Article entitled “Good Faith in European Contract Law” by Professor Hugh Collins. The passage quoted:
(a) Is not in accordance with the legislation and Directive (“the Directive does not require consumer contracts to be substantially fair but it does require them to be clear”).
(b) Whatever may have been the position before the enactment of the Directive – the “conflict” which exists post the enactment is between the protection of consumer rights against the rights of the supplier/seller of goods or services. (see the Articles and Recitals of the Directive).
50. The only point left concerning a conflict between market competition and consumer rights which eventually found its way into the legislation was the reference to the “terms which have been individually negotiated”.
Construction of Regulation 6(2)(b) – Overdraft Charges
51. The banking system in this country operates on the basis of free banking while in credit (so no charges for standing orders, direct debits etc) but it is contended that this is only possible because of the charges imposed on those who are overdrawn. Those who are in credit also forego earning interest.
52. It is argued that this makes overdraft charges part and parcel of the service provided by the bank to its customers. This interpretation looks at the situation from the banks’ point of view – how banks run free banking etc which is within their power and discretion.
53. From the customers’ point of view, the majority of whom are never overdrawn, overdraft charges are a contingency. The customers are not concerned about the charges or how banks are able to provide free banking. To them, overdraft charges are subsidiary to core bank services. The majority are unaffected by overdraft charges directly and benefit indirectly. Customers also fund free banking by losing out on interest when keeping their current accounts in credit.
54. From the customers’ point of view, overdraft charges are not part of the core service provided by the bank. Customers do not have to be concerned about how banks fund the service and run the banks. Overdraft charges are imposed under a separate regime if and when the customer overdraws without prior arrangement.
55. This fits in with what Lord Bingham said in the First National Bank plc case (above).
56. This also fits in with what Lord Steyn said in the same case, namely that the Regulations must be given a “restrictive interpretation”.
57. It fits in with the intention and purpose of the Directive and Regulations – the protection of consumers.
Scope of Regulation 5(1) and the test of fairness
58. The question remains as to the scope of Regulation 5(1), i.e. what is left to challenge? As summarised by Lord Mance in paragraph 95:
"Any assessment based on matters not relating to the appropriateness in amount of the price of remuneration is not excluded by regulation 6(2)(b).”
59. It would follow that a challenge on the basis of the consequences to consumers of the terms, some of which are set out in the instructions, would be assessable for fairness, and could be held to be unfair, namely:
(a) Terms which were not available to the consumer in advance, which results in the consumer becoming irrevocably bound to terms with which they had no real opportunity of becoming acquainted before the conclusion of the contract;
(b) Terms which require the consumer to subsidise the running and/or operation costs of accounts other than that of the consumer;
(c) Terms which gave the banks priority over the consumer’s other debtors with regards to the application and payment of the Relevant Charges to the account;
(d) Terms which gave the banks control over the use of the consumer’s salary or benefits, and allowed for the automatic application of the Relevant Charges, with little or no notice to the consumer;
(e) Terms which forced consumers into an unavoidable cycle of debt, where the Relevant Charges directly or indirectly gave rise to the application of additional charges to the account, without any restriction or limitation.
60. The final point is probably the most compelling, as many individuals have faced serious financial hardship as a result of the charges imposed on them. Indeed, the FSA set up a waiver in respect of bank charges complaints for the banks, but which specifically provided for the handling of cases involving financial hardship (i.e. more than £500 of charges in any given year, amongst other factors). If a regulatory regime was instituted as a result of financial hardship, this supports the contention that the terms caused financial hardship, and are therefore unfair under the Regulations.
61. Although that final point (cycle of debt) is probably the most compelling, it would be considered in conjunction with the other factors already mentioned above and in the instructions.
The full Opinion of Anthony Scrivener QC (2-3 Gray's Inn Square - Barristers - AnthonyProfile) is attached to this posting, along with some guidance notes on unfairness which supplements that Opinion. The Opinion was very kindly undertaken on a pro bono basis for Legal Beagles by Anthony Scrivener QC for general use and publication. We hope this will assist those complainants, consumer campaigners and solicitors who do wish to continue in the fight, although unfortunately Legal Beagles are disappointed to announce our withdrawal from the legal fight for redress to consumers historically affected by the banks unfair and destructive bank overdraft charging regime.
The decision has not been taken lightly.
Although Anthony Scrivener QC's opinion is positive, unfortunately it brings nothing new to the table and the prospects - the chances of success for individual litigants in person - are very slim and the costs risk is far too great to justify continuance. Our opinion, and that of Anthony Scrivener QC and lawyers at Hausfelds LLP, is essentially that the Supreme Court decision was flawed, and that a referral to the ECJ should have been made.
We recommend that consumers with specific complaints against their banks charging structure particularly those in financial difficulty take up their complaint with the Financial Ombudsman Service.
We do not recommend general historical bank charges complaints are taken into the court system.
We continue to fight for a fairer future in the personal current account market and are involved in numerous projects with the Office of Fair Trading and the Lending Standards Boards to this end. Please see threads in the OFT Forum - OFT Test Case updates and Information - Legal Beagles Consumer Forum for more details of this work and to get involved.
Obviously we will keep a close eye on proceedings where consumers are pushing forwards with their claims on various legal aspects .
We are proud of our strong involvement in the campaign and the changes that have been, and will continue to be made, to the personal current account market, and thank everyone for their continued input and support.
We'd like to thank Ingrid Gubbay and Anthony Maton of Hausfelds LLP, Tom Brennan and Anthony Scrivener QC for all the hard work they have put into this on our members, and general consumers, behalf.
Please feel free to ask any questions and if you quote or post the Opinion elsewhere please credit LegalBeagles, Hausfelds LLP and Anthony Scrivener QC. A heck of a lot of work has gone in to this behind the scenes.
You do not need to be registered to access these files.
http://www.legalbeagles.info/Bankchargesopinion.pdf
http://www.legalbeagles.info/Bankcha...supplement.pdf
(We have edited site users names out of the Opinion)
X, Y and Z v THE BANK
_____________________________
O P I N I O N
_____________________________
_____________________________
O P I N I O N
_____________________________
1. In Office of Fair Trading v Abbey National and Others [2009] EWCA Civ 216 Andrew Smith J and the Court of Appeal held that bank charges levied on personal account holders could be assessed as unfair under regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 SI 1999/2083(the 1999 Regulations) as they did not relate to the adequacy of the process or remuneration as against the goods and services supplied in exchange within the meaning of regulation 6(2)(b) of the Regulations.
2. The decision of the Court of Appeal was subsequently reversed by the Supreme Court.
3. This action is brought by a group of individual Bank customers against their Bank and makes similar points as in the Abbey National case save that additional arguments are raised and some of the arguments are different. Further in this case an application for a Reference to the European Court should be made under Article 234 at an early stage of the proceedings.
Regulation 5(1)
4. Regulation 5(1) of the 1999 Regulations allows for the assessment of all standard form terms and conditions in contracts between consumers and sellers/suppliers. The assessment is one of “unfairness”, which is defined by Regulation 5(1): "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.”
5. Schedule 2 to the 1999 Regulations gives an indicative and non-exhaustive list of terms which may be considered unfair.
Regulation 6(2)
6. The issue depends on the correct interpretation of the regulations (in its European context) and the application of Regulation 6(2) of 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 Issue
7. The issue in the Abbey National case was:
"That issue is whether the Relevant Charges constitute ‘the price or remuneration, as against the services supplied in exchange’ within the meaning of the Regulation. If they do not, the attack on the fairness of the terms that is open in the OFT will not be circumscribed by Regulation 6(2)(b). If they do they will still be open to attack by the OFT on the ground that they are ‘unfair’ as defined by Regulation 5(1), but that attack cannot be founded on an allegation that the Relevant Charges are excessive by comparison with the services which they purchase, for that is forbidden by Regulation 6(2)(b).
(see para 57 of Lord Phillips judgment)
8. Lord Walker defined the issue as:
"Whether as a matter of law the fairness of Bank charges levied on personal current account customers in respect of unauthorised overdrafts (including unfair item charges and other relevant 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.”
(para 3 of his judgment)
9. The Supreme Court decided that the charges set out under the Relevant Terms constituted monetary consideration for the package of banking services supplied to personal current account customers. The fact that the charges were contingent and the majority of customers did not incur them was irrelevant.
Interpretation
10. The 1999 Regulations implement Council Directive 93/13/EEC of 5 April 1993. The Directive should be used as an aid to interpretation of the Regulations.
11. Article 1 is the approximation provision. It is submitted that the way the Directive has been implemented in Member States can be of relevance to the interpretation of the Directive and Regulations.
12. Article 5 provides inter alia that “the interpretation most favourable to the consumer shall prevail”. Articles 4 and 6 are also of relevance to interpretation.
13. Some of the Recitals in the Directive also have relevance. By Regulation 7(2) of the 1999 Regulations:
“If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail …”
14. The general effect of these aids to interpretation is that the purpose of the Regulations is to protect the consumer from the unfairness of the supplier/seller. Their purpose is not to ensure “a level playing field” but to protect consumers.
15. It is a fact that the Supreme Court refused to make a reference under Article 234 and largely ignored the European aspect to the legislation.(see later).
16. The burden of proving that the Bank is entitled to the protection of regulation 6(2)(b) rests upon the Banks. Further and in any event since the Directive and Regulations were enacted to protect consumers, priority should be given to the course of action which most favours the interests of consumers.
17. The Regulations and Directive should not be “broadly interpreted” and should cover only terms “falling squarely within it”. Further a provision prescribing the consequences of default “plainly does not fall within it”.
18. The full citation from Lord Bingham in the House of Lords decision in Director General of Fair Trading v First National Bank PLC [2001] 1 AC 481 is as follows:
"The object of the Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard form contracts into which they enter, and that object would plainly be frustrated if Regulation 3(2)(b) were so broadly interpreted as to cover any terms other than those falling squarely within it. In my opinion the term, as part of a provision prescribing the consequences of default, plainly does not fall within it.”
19. Later in that paragraph Lord Bingham referred to the term as an “ancillary provision”.
20. In the First National Bank plc case (above) Lord Steyn said that “In any event, regulation 3(2) must be given a restrictive interpretation”. The full citation is as follows:
"Clause 8 of the contract, the only provision in dispute, is a default provision. It prescribes remedies which only become available to the lender upon the default of the consumer. For this reason the escape route of Regulation 3(2) is not available to the bank. So far as the description of terms covered by Regulation 3(2) as core terms is helpful at all, I would say that clause 8 of the contact is a subsidiary term. In any event, Regulation 3(2) must be given a restrictive interpretation. Unless that is done Regulation 3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision. Similarly, Regulation 3(2)(b) dealing with ‘the adequacy of the price or remuneration’ must be given a restrictive interpretation. After all, in a broad sense all terms of the contract are in some way related to the price or remuneration. That is not what is intended.”
21. My Instructing Solicitors have drawn attention to the line of ECJ decisions which establish that when dealing with Directive 93/13EC there is a duty on the Court of any Member State to investigate the fairness of any contractual term affecting a consumer. In other words, it is not for the consumer to raise the issue of unfairness; it is for the court to do so. This interpretation gives full weight to the protection of the consumer emphasised by the recitals.
22. These authorities also establish that the burden of proving the unfairness rests on the seller or supplier and not on the consumer. These principles were accepted in a number of authorities including “The Oceano” (C-240/98), Confidis SA (C-473/00), Pannon GSM ZRT (C0243/08).
23. Of particular importance is to adduce evidence as to the practice in other Member States when implementing Directive 93/13EC. This would possibly open up a new area of attack. Lord Walker said:
“But this decision is not the end of the matter, as Lord Phillips explains in his judgment. Moreover Ministers and Parliament may wish to consider the matter further. They decided, in an era of so called ‘light touch’ regulation, to transpose the Directive as it stood rather than to confer the higher degree of consumer protection afforded by the national laws of some other Member States. Parliament may wish to consider whether it revisit that decision”.
24. Lord Phillips envisaged the customers taking a different and alternative approach:
"91. I have not found this an easy case and I do not find the resolution of the narrow issue before the Court to be acte claire. I agree, however, that it would not be appropriate to refer the issue to the European Court under Article 234. I do not believe any challenge to the fairness of the Relevant Terms has been made on the basis that they cause the overall package of remuneration paid by those in debit to be excessive having regard to the package of services received in exchange. In these circumstances the basis on which I have answered the narrow issue would seem to render that issue academic. It may be that, if and when the OFT challenges the fairness of the Relevant Terms, issues will be raised that ought to be referred to Luxembourg. That stage has not yet been reached”.
25. The new case for customers should include a challenge to the overall package as contemplated by this extract and fairness should be assessed on this basis. This would import the issue not then relied upon and to which Lord Phillips drew attention. He seems to believe that the inclusion of this point would have made regulation 6(2) more likely the subject matter of a reference.
26. The recitals in the Directive clearly envisage the importance of seeking to ensure consistency between Member States. The position in Europe between Member States regarding the fairness or otherwise of their relevant terms is hardly mentioned by the Supreme Court.
27. The result is that the most relevant and important indications as to the correct interpretation of the Banks’ relevant terms are given scant regard by the Supreme Court. The Supreme Court not only ignored the European aspect but by refusing to make a reference under Article 234 relevant material to which the recitals and other legal rules had drawn attention was ignored.
Construction of regulation 6(2)(b)
28. At least two members of the Supreme Court criticised the judgment of the Court of appeal as being too elaborate. In fact regulation 6(2)(b) can be interpreted quite simply.
29. The material words to be construed are:
“the adequacy of the price or remuneration as against the goods or services supplied in exchange”.
30. The clear intention of these words is to prevent an “unfairness assessment” where the complaint relates to the price of the goods or services supplied.
31. The word “adequacy” refers to the “price or remuneration” being sufficient or satisfactory.
32. The words “as against the goods or services supplied in exchange” are important.
33. The adequacy of the price or remuneration relates to the actual goods or services supplied in exchange.
34. It is the adequacy of the price or remuneration with respect to the goods or services actually supplied by the seller to the consumer which matter.
35. These words are capable of a simple and straightforward interpretation. The subject matter is specific goods or services supplied by a supplier in exchange for a purchaser paying a price and/or remuneration. Two individuals are concerned: a purchaser and a supplier.
36. Construed in this way it is possible to apply the “fairness” test in Regulation 5. It is possible to form a view whether the contractual term “causes a significant imbalance in the parties rights and obligations.
37. The matter only becomes complicated when an attempt is made to try and make the words fit the identifiable banking transactions.
38. In order to accommodate the Bank’s contention the price or remuneration and the relevant goods or services can only be ascertained as part of the Free-if-in-credit banking system. This is a long way from a complaint by a consumer about specific goods he has purchased.
Construction of regulation 6(2)(b) where Bank has taken steps in consequence of default
39. This is where an overdraft facility has been given but the customer is in breach of the same.
40. On these facts there is only one transaction: the grant of the overdraft facility. Terms subsequently introduced as a consequence of the default are not part and parcel of the overdraft facility (see Lord Bingham above and also Lord Steyn). Terms such as those introduced as a consequence of the default do not constitute a new and separate transaction.
41. The Court of Appeal in the instant case focussed on Lord Bingham’s and Lord Steyn’s description of the relevant clause as “a default provision”. The Court also focussed on Lord Bingham’s description of it as “ancillary” and Lord Steyn’s description of it as “subsidiary”.
42. The Court of Appeal held that: “Ancillary or incidental price, remuneration or payment terms will not fall within the exception in Article 4(2) because they do not fulfil the purpose or essential rationale of the exception”.
43. The Court of Appeal then went on to consider whether the Relevant Terms and the Relevant Charges were or formed part of the “essential or core bargain between the parties...” The Court held that “when all the circumstances are taken into account the Relevant Charges are not part of the core or essential bargain”. It is submitted that this is correct.
44. It is submitted that the approach of the Court of Appeal is correct. Lord Walker sought to reject this approach by holding that:
"there is no possible basis on which the Court can decide that some items are more essential to the contract than others”
(see para 39 of his judgment)
45. This statement is misconceived and does not express the principle accurately. Items which are essential to the contract do not have to be identified by comparison with other items. Whether the item is essential or not depends on the nature of the item in its own right and context and not by comparison with other items.
46. All of the items may be described as essential or as not essential. It is not necessary to distinguish between say clothing, blinds or kitchen utensils to see if they are essential. The same applies to services.
47. Further Lord Walker pointed out (para 41 of his judgment) that Regulation 6(2)(b) “contains no indication that only an ‘essential’ price or remuneration is relevant”. However this conclusion is a deduction from reading the provisions in context and is supported by the statements made by Lord Bingham and Lord Steyn in the First National Bank case. Lord Bingham’s response to “falling squarely within it” and his and Lord Steyn’s reference to construing the provision “restrictively” are merely other ways of identifying terms which are essential.
48. None of the members of the Supreme Court were able to deny that this was a “default provision” .
49. In para 44 of his judgment Lord Walker referred to an Article entitled “Good Faith in European Contract Law” by Professor Hugh Collins. The passage quoted:
(a) Is not in accordance with the legislation and Directive (“the Directive does not require consumer contracts to be substantially fair but it does require them to be clear”).
(b) Whatever may have been the position before the enactment of the Directive – the “conflict” which exists post the enactment is between the protection of consumer rights against the rights of the supplier/seller of goods or services. (see the Articles and Recitals of the Directive).
50. The only point left concerning a conflict between market competition and consumer rights which eventually found its way into the legislation was the reference to the “terms which have been individually negotiated”.
Construction of Regulation 6(2)(b) – Overdraft Charges
51. The banking system in this country operates on the basis of free banking while in credit (so no charges for standing orders, direct debits etc) but it is contended that this is only possible because of the charges imposed on those who are overdrawn. Those who are in credit also forego earning interest.
52. It is argued that this makes overdraft charges part and parcel of the service provided by the bank to its customers. This interpretation looks at the situation from the banks’ point of view – how banks run free banking etc which is within their power and discretion.
53. From the customers’ point of view, the majority of whom are never overdrawn, overdraft charges are a contingency. The customers are not concerned about the charges or how banks are able to provide free banking. To them, overdraft charges are subsidiary to core bank services. The majority are unaffected by overdraft charges directly and benefit indirectly. Customers also fund free banking by losing out on interest when keeping their current accounts in credit.
54. From the customers’ point of view, overdraft charges are not part of the core service provided by the bank. Customers do not have to be concerned about how banks fund the service and run the banks. Overdraft charges are imposed under a separate regime if and when the customer overdraws without prior arrangement.
55. This fits in with what Lord Bingham said in the First National Bank plc case (above).
56. This also fits in with what Lord Steyn said in the same case, namely that the Regulations must be given a “restrictive interpretation”.
57. It fits in with the intention and purpose of the Directive and Regulations – the protection of consumers.
Scope of Regulation 5(1) and the test of fairness
58. The question remains as to the scope of Regulation 5(1), i.e. what is left to challenge? As summarised by Lord Mance in paragraph 95:
"Any assessment based on matters not relating to the appropriateness in amount of the price of remuneration is not excluded by regulation 6(2)(b).”
59. It would follow that a challenge on the basis of the consequences to consumers of the terms, some of which are set out in the instructions, would be assessable for fairness, and could be held to be unfair, namely:
(a) Terms which were not available to the consumer in advance, which results in the consumer becoming irrevocably bound to terms with which they had no real opportunity of becoming acquainted before the conclusion of the contract;
(b) Terms which require the consumer to subsidise the running and/or operation costs of accounts other than that of the consumer;
(c) Terms which gave the banks priority over the consumer’s other debtors with regards to the application and payment of the Relevant Charges to the account;
(d) Terms which gave the banks control over the use of the consumer’s salary or benefits, and allowed for the automatic application of the Relevant Charges, with little or no notice to the consumer;
(e) Terms which forced consumers into an unavoidable cycle of debt, where the Relevant Charges directly or indirectly gave rise to the application of additional charges to the account, without any restriction or limitation.
60. The final point is probably the most compelling, as many individuals have faced serious financial hardship as a result of the charges imposed on them. Indeed, the FSA set up a waiver in respect of bank charges complaints for the banks, but which specifically provided for the handling of cases involving financial hardship (i.e. more than £500 of charges in any given year, amongst other factors). If a regulatory regime was instituted as a result of financial hardship, this supports the contention that the terms caused financial hardship, and are therefore unfair under the Regulations.
61. Although that final point (cycle of debt) is probably the most compelling, it would be considered in conjunction with the other factors already mentioned above and in the instructions.
Comment