Law Commission looking again at UTCCR

**Amethyst** · 25th July 2012, 12:01:PM

Re: Law Commission looking again at UTCCR

From the papers

The bank charges litigation
1.10 In 2009, the issue came before the Supreme Court in Office of Fair Trading v
Abbey National plc.13
1.11 This was a test case brought by the OFT in 2007 with the agreement of seven
banks and one building society. The issue was whether charges for unauthorised
overdrafts fell within the Regulation 6(2) exemption or whether they could be
assessed for fairness. Thousands of consumers across the UK had taken cases
to local county and sheriff courts, claiming that terms allowing these charges
were unfair. The OFT started an investigation and subsequently entered into a
litigation agreement with the banks to bring the test case. Most county and sheriff
court proceedings were stayed (sisted in Scotland) pending the outcome of the
test case.14
1.12 The High Court and the Court of Appeal found in favour of the OFT. They held
that the relevant charges did not fall within Regulation 6(2) of the UTCCR
because they were not part of the essential bargain between the parties, and a
typical consumer would not recognise the charges as part of the price.15 The
banks appealed to the Supreme Court, which found for the banks.16 The
Supreme Court stated that the UTD did not distinguish between main price and
incidental price, and no such distinction should be read into it. The price should
be determined objectively, rather than from the point of view of a typical
consumer. Therefore the overdraft charges fell within the exemption and could
not be assessed for fairness.
Reactions to the bank charges litigation
1.13 The case has generated considerable debate. Many businesses supported the
Supreme Court decision,17 but other stakeholders have been critical. These
reactions are discussed in detail in Part 6.
13 [2009] UKSC 6, [2010] 1 AC 696.
14 There is a detailed discussion of the bank charges litigation at paras 5.22 to 5.67 of this
Issues Paper.
15 [2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625; [2009] EWCA Civ 116, [2009] 2
WLR 1286.
16 [2009] UKSC 6, [2010] 1 AC 696. See paras 5.44 to 5.67 of this Issues Paper for a more
detailed discussion of the Supreme Court’s decision.
17 Clydesdale Bank Press Release, OFT Court Case Ruling, available at
http://www.cbonline.co.uk/media/news...rt-case-ruling.
4
1.14 Our main concern is the uncertainty surrounding the law in the wake of the
decision. In OFT v Ashbourne Management Services,18 the High Court held that
a term requiring customers to remain as members of a gym for a minimum period
was assessable for fairness under the UTCCR. We think this was the right
decision, but that the reasoning is confused.
1.15 The judge ruled that the relevant term was in plain, intelligible language and was
the main subject matter of the contract. This did not, however, prevent an
assessment of the term so long as the assessment did not relate to its definition.
The judge then proceeded to consider the fairness of the term on the basis that
the assessment did not relate to the definition of the main subject matter. Rather
the assessment related to the consequences for consumers who wished to
terminate gym membership contracts early.19
1.16 As we explain below, this is not an easy judgment to follow. The current state of
the law makes it difficult for traders, consumer advisers and enforcement bodies
to identify which terms are exempt and which are not.
1.17 In initial consultations, consumer groups were particularly concerned about the
complexity of the law. They told us that litigation has rendered the law so unclear
that it is difficult to advise consumers. Furthermore, it was suggested that some
enforcement bodies have also become wary of using the UTCCR, which may
undermine consumer protection.
1.18 We think that traders may also suffer from the current uncertainty. The UTCCR
implement an EU Directive, which means that the final decision on the meaning
of Regulation 6(2) rests with the Court of Justice of the European Union (CJEU).
Academics have expressed concern that the Supreme Court decision in Abbey
National20 may be overturned by the CJEU. If this were to happen, traders who
have built their business model on a wide interpretation of exempt terms may be
faced with expensive litigation.
Calls for legislative reform
1.19 The Supreme Court, aware of the significance and controversy of the decision,
explicitly invited Parliament to legislate on the issue. Lord Walker stated:
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 to
revisit that decision.21
18 [2011] EWHC 1237 (Ch), [2011] ECC 31. This case is discussed in more detail at paras
5.74 to 5.83 of this Issues Paper.
19 Above at [175].
20 [2009] UKSC 6, [2010] 1 AC 696.
21 Above at [52] by Lord Walker.
5
1.20 In 2010, BIS published a Call for Evidence on the issue.22 At the time, it appeared
likely that the European Commission would revisit this issue as part of the new
Consumer Rights Directive, and the Call for Evidence was designed to inform the
Government’s negotiating position in relation to the Directive.
1.21 BIS noted that the Supreme Court had held that the exemption applied to all price
terms in plain, intelligible language, including contingent and ancillary charges.
BIS asked whether ancillary, contingent and non-transparent charges should be
reviewed for fairness. They suggested that if such charges did not form part of
the “the essential bargain”, competition may not work to drive down their level.23
1.22 Responses were split. Respondents from business were opposed to any change
and supported the Supreme Court view. Conversely, consumer groups and
regulators/enforcement bodies argued that charges outside of the “essential
bargain” should be assessable for fairness. They argued that contingent charges
were largely unanticipated by consumers and poorly understood, and therefore
not subject to competitive pressure.24
1.23 The Government concluded that the arguments were finely balanced. The
immediate pressure for reform was reduced when changes to unfair terms
provisions were omitted from the Consumer Rights Directive, and BIS decided to
take no further action at the time. BIS added, hhowever, that they would revisit the
question in the future.25

**Amethyst** · 25th July 2012, 12:08:PM

Re: Law Commission looking again at UTCCR

Part 5 (and a lot more besides) deals with the bank charges issues - plus the Foxtons (property management) and Ashbourne (Gym membership) cases - this Law Commission consultation, alongside the OFT reopening the PCA Market Study and the FSA speech about ending free banking - and other things in the pipeline currently - is all looking quite positive in my opinion.

**Amethyst** · 25th July 2012, 12:17:PM

Re: Law Commission looking again at UTCCR

and to complete the bombardment - these are the questions being asked;

THE EXEMPTION FOR THE MAIN SUBJECT MATTER AND PRICE
The case for reform
10.2 Do consultees agree that:
(1) The current law on which terms should be exempt from the assessment
of fairness under the Unfair Terms Directive is unduly uncertain; and
(2) The UTCCR should be reformed? (8.14)
10.3 We welcome evidence on the effect of the Supreme Court decision in Office of
Fair Trading v Abbey National plc on your organisation, business or consumer
experience. (8.15)
Price terms
10.4 Do consultees agree that:
(1) A price term should be excluded from review, but only if it is transparent
and prominent?
(2) A price term should be defined as follows: where the consumer buys
goods or services, it means an obligation on the consumer to pay
money; where the consumer sells or supplies goods or services, it
means an obligation on the trader to pay money?
(3) Transparent should be defined as:
(a) in plain, intelligible language;
(b) legible;
(c) readily available to the consumer?
(4) The exclusion from review should not apply to terms on the grey list,
which should include the following:
(a) price escalation clauses;
(b) early termination charges; and
(c) default charges? (8.67)
10.5 Would it be helpful to explain that:
(1) a term is prominent if it was presented in a way that the average
consumer would be aware of the term?
12 3
(2) in deciding whether a term is transparent and prominent, the court should
have regard to statutory guidance?
(3) the exemption does not apply to any term which purports to give the
trader discretion to decide the amount of the price after the consumer
has become bound by the contract? (8.68)
10.6 In order to implement the Unfair Terms Directive fully, is it necessary to specify
that even transparent, prominent price terms may be assessed for matters other
than “the adequacy of the price as against the goods or services supplied in
exchange”? (8.69)
Questions on the main subject matter
10.7 Do consultees agree that a term relating to the main subject matter of the contract
should be exempt from review, but only if it is transparent and prominent? (8.81)
10.8 Do consultees agree that a term does not relate to the main subject matter of the
contract if it is included in the grey list? (8.82)
10.9 Would it be helpful to state that the exemption does not apply to any term which
purports to give the trader discretion to decide the subject matter after the
consumer has become bound by the contract? (8.83)
OTHER ISSUES
Copy out or rewrite?
10.10 Do consultees agree that the Unfair Terms Directive should not be “copied out”
into the law of the UK, but should be rewritten in a clearer, more accessible way?
(9.11)
The definition of a “consumer”
10.11 Do consultees agree that the new legislation should define a consumer by
reference to whether an individual’s actions are “wholly or mainly unrelated to
their business, trade or profession”? (9.17)
10.12 Should it also be made clear that the definition of “consumer” in the new
legislation excludes employees, or is the wording “wholly or mainly unrelated to
their business, trade or profession” adequate? (9.19)
Terms of no effect
10.13 Do consultees agree that terms which purport to exclude or restrict a business’s
liability to a consumer for death or personal injury should continue to be
ineffective? (9.22)
The burden of showing that a term is fair
10.14 Do consultees agree that:
12 4
(1) In proceedings brought by individual consumers, where an issue is raised
about the fairness of a term, the business should be required to show
that the term is fair?
(2) In proceedings brought by an authorised body under its preventive
powers, the authorised body should be required to show that a term is
unfair? (9.30)
Negotiated terms
10.15 Do consultees agree that the new legislation should cover terms in consumer
contracts, whether or not they are individually negotiated? (9.36)
The fairness test
10.16 Do consultees agree that the court should consider whether a term is “fair and
reasonable”, looking at: the extent to which it was transparent; the substance and
effect of the term; and all the circumstances existing at the time it was agreed?
(9.50)
Re-writing the grey list
10.17 Do consultees agree that the indicative list should be reformulated in the way set
out in Appendix B? Alternatively would it be preferable to reproduce the list
annexed to the Unfair Terms Directive in its original form? (9.53)
Notices
10.18 Do consultees agree that enforcement bodies should be able to bring
enforcement action against unfair notices which purport to exclude the business’s
liability? (9.57)
Terms which reflect the existing law
10.19 Do consultees agree that the exclusion of “mandatory statutory or regulatory
provisions” in Regulation 4(2) should be rewritten to include terms which reflect
the existing law? (9.62)
End user licence agreements
10.20 Do consultees agree that the Unfair Terms Directive applies to end user licence
agreements in a satisfactory way, and that it does not require any special
adaptation? (9.65)
The remaining role of UCTA
10.21 Do consultees think that the removal of controls in relation to non-standard form
employment contracts, resulting from our proposals, would be problematic in
practice? If so, please provide evidence. (9.71)
12 5
IMPACT ASSESSMENT
10.22 The Impact Assessment is at Appendix E to the Issues Paper, available on our
websites at:
http://lawcommission.justice.gov.uk/...r_contracts_ht
m and http://www.scotlawcom.gov.uk (See News column). It is summarised in
Part 4 of the Summary.
10.23 We invite comments on the costs involved in the following:
(1) Legal risks. Is it reasonable to estimate that a major court case may cost
a business over £1 million in legal fees?
(2) Prudential risks. Please provide examples of the types of prudential risk
and the likely costs a business would face if its charging structure was
held to be unfair.
(3) Operational risks. How much management time is involved in responding
to complaints concerning the fairness of terms?
(4) Reputational risks. What effect does an unfair term challenge have on
the reputation of the business?
10.24 We ask whether consultees agree that these risks would be reduced by the
proposed clarification of the exemption.
10.25 We welcome views from consultees on whether our proposals will reduce the
administrative burden on businesses.
10.26 We welcome evidence about the likely transitional costs of the proposed reforms.
We invite comments on the tentative estimate that the costs to businesses of
familiarising themselves with the changes may be in the region of £1 to £2
million.
10.27 We ask whether consultees agree that the reforms would not increase the
number of complaints about unfair terms. We ask consultees to give reasons if
they do not agree.
10.28 We invite comments on the following tentative estimates:
(1) That enforcing unfair terms legislation costs the public purse around £4
million per year; and
(2) That the reforms may reduce these costs by around £1 million

**EXC** · 25th July 2012, 13:19:PM

Re: Law Commission looking again at UTCCR

Originally posted by Amethyst View Post

1.15 The judge ruled that the relevant term was in plain, intelligible language and was
the main subject matter of the contract. This did not, however, prevent an
assessment of the term so long as the assessment did not relate to its definition.
The judge then proceeded to consider the fairness of the term on the basis that
the assessment did not relate to the definition of the main subject matter. Rather
the assessment related to the consequences for consumers who wished to
terminate gym membership contracts early.19
1.16 As we explain below, this is not an easy judgment to follow. The current state of
the law makes it difficult for traders, consumer advisers and enforcement bodies
to identify which terms are exempt and which are not.

Nice one Ame. The above is so true.

**EXC** · 25th July 2012, 13:23:PM

Re: Law Commission looking again at UTCCR

Originally posted by Amethyst View Post

Part 5 (and a lot more besides) deals with the bank charges issues - plus the Foxtons (property management) and Ashbourne (Gym membership) cases - this Law Commission consultation, alongside the OFT reopening the PCA Market Study and the FSA speech about ending free banking - and other things in the pipeline currently - is all looking quite positive in my opinion.

I agree.

I've started to draft our response to the PCA consultation which I'll post up in due course. I might ask Tom to respond to the Law Commision - he owes me a favour or two.

**Amethyst** · 25th July 2012, 13:29:PM

Re: Law Commission looking again at UTCCR

lol, maybe give Tom a few days off first

I'm so pleased they have picked this back up again, it really bugged me that it was dropped just before the test case. It isn't a quick process any of it but it does seem to me to be heading in the right direction.

**EXC** · 25th July 2012, 13:43:PM

Re: Law Commission looking again at UTCCR

Originally posted by Amethyst View Post

10.4 Do consultees agree that:
(1) A price term should be excluded from review, but only if it is transparent
and prominent?

There's nothing to agree or disagree about here. The Supreme Court judgment upheld J Smith's interpretation that it shouldn't. This was the whole 'excluded term/excluded assessment' argument that took up most of the first test case hearing. It was the excluded assessment that won out.

**EXC** · 25th July 2012, 13:53:PM

Re: Law Commission looking again at UTCCR

Originally posted by EXC View Post

There's nothing to agree or disagree about here. The Supreme Court judgment upheld J Smith's interpretation that it shouldn't. This was the whole 'excluded term/excluded assessment' argument that took up most of the first test case hearing. It was the excluded assessment that won out.

In other it's the type of assessment of the terms and not the type of the terms themselves that are captured by the exclusions at 6.2 (a&b) http://www.legislation.gov.uk/uksi/1...ulation/6/made

Law Commission looking again at UTCCR

Law Commission looking again at UTCCR

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