Foxtons cancel appeal of UTCCR ruling off back of Bank Charges Judgment

[EXC]

Re: OFT v Foxtons

The Times report on the first day of the hearing:

http://business.timesonline.co.uk/to...cle6194619.ece

Landlords letting properties through Foxtons, the estate agent, are given confusing and unfair contracts, the High Court was told yesterday at the start of a test case that could shake up the residential lettings industry.

The Office of Fair Trading (OFT), which is bringing the case, asked the High Court to force Foxtons, one of Britain’s largest lettings agents, to alter its terms and conditions because they are detrimental to clients.

Foxtons, founded by Jon Hunt with a single branch in Notting Hill in 1981, has frequently been the focus of criticism of its practices in the estate agency industry. In a 2007 television documentary, the BBC alleged that Foxtons’ agents lied to buyers to inflate prices and faked signatures on landlords’ contracts. The company denied the allegations and has since implemented a new training regime.
Mr Hunt received more than £300 million when he sold Foxtons to BC Partners, a private equity firm, for £360 million before the credit crunch took hold. BC Partners has since conceded that the acquisition was a mistake and Foxtons has breached its banking covenants.

In court, Nicholas Green, QC, for the OFT, said the regulator objects to Foxtons’ contracts because “they are not written in plain and legible English” and some of the conditions they impose on landlords are “plainly unfair”.

He said a typical consumer would be “profoundly confused” by Foxtons’ terms and conditions because “nothing tells you what you are letting yourself in for”.

Explaining that the contracts were also unfair, Mr Green highlighted a clause that requires landlords whose initial tenants are introduced by Foxtons to continue paying commission to the agency for as long as the tenants remain in the property.

Foxtons’ right to continued commission remained, regardless of whether the agency still managed the property on behalf of the landlord or had any role in persuading the tenants to stay beyond the initial rental period, Mr Green said.

“There is not necessarily any connection between an original introduction and a tenant’s decision to renew their lease,” Mr Green said. “Where there is a link and the agent plays a part, we say it is fair for them to earn further commission. But what we object to is an automatic right to commission for forever and a day.”

The OFT is relying on the same set of consumer protection laws that it is using to fight with the high street banks over unauthorised overdraft fees.

The Unfair Terms and Conditions Consumer Contract Regulations (1999) state that contracts must be clear and that some commercial agreements are fundamentally unfair and illegal, even if the consumer knows what they are getting in to upfront and does so willingly.

The OFT, which brought its case after receiving numerous complaints against Foxtons, believes the practices are “widespread” in the industry and plans to pursue other agents if successful.

Foxtons, which has previously said the OFT’s claims are “fundamentally misconceived” declined to comment.

The case continues.

[Annoyedlandlord]

Re: OFT v Foxtons

Hope you folks can help with this.

I am unclear which of the two cases apply to our situation.

We could be in dispute with our letting agenst as they claim 1% finders fee if we sell to our tennants. I assume this is the case yet to be resolved about unfair contracts.

However we introduced the tennants to the idea of buying the house - so they didn't 'introduce them to the purchase' .....is this covered by the ruling already made in the first case? Or does that only apply if you enter into agreement with them only as selling agents?

Thanks in advance to anyone who could answer this for me - I appreciate your help and time.

(This is our only home ( we rent elsewhere at the moment) and we and we need to sell it as i am relocating for work.)

[Amethyst]

Re: OFT v Foxtons

Press releases 2009


OFT welcomes high court ruling on Foxtons' use of unfair terms

83/09 10 July 2009

The OFT has today welcomed a landmark High Court ruling that certain terms and conditions used by Foxtons Ltd in its lettings agreements with landlords are unfair.

As a result of this ruling, made in proceedings brought by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), the OFT will now ask the High Court to go on to grant injunctions preventing the continued use of the terms by Foxtons.

In his judgment given today, Mr Justice Mann accepted that all the terms the OFT brought before the court were unfair, including Foxtons' use of terms:

• requiring a landlord to pay substantial sums in commission, where a tenant continues to occupy the property after the initial fixed period of the tenancy has expired – even if Foxtons plays no part in persuading the tenant to stay, and does not collect the rent or manage the property
• requiring a landlord to pay commission to Foxtons even after it had sold the property
• allowing Foxtons to receive a full estate agents' commission for sale of the property to a tenant.

The ruling, following a three-day hearing in April 2009, found that the charging of repeat renewal commission by Foxtons represented a 'trap' or a 'timebomb' for consumers. The judge held that such important terms must be flagged prominently not just in the contract, but also in any sales literature and processes. He said a typical consumer would be unlikely to read standard terms with a great degree of attention and would not expect important obligations to be tucked away in the small print and not specifically brought to their attention. He also found that Foxtons had used language in its contracts which is not 'plain and intelligible'.

On the use of a term providing for sales commission to be payable on the sale of a property to a tenant, the judge said consumers would not merely be surprised but 'astonished' by the potentially large financial liability to Foxtons in relation to a transaction in which Foxtons played no material part.

The OFT expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.

OFT Chief Executive, John Fingleton, said:

'This ruling sends out a clear and unambiguous message that businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people's attention.

'The OFT prefers to work with businesses to agree solutions where concerns are raised but we will not hesitate to take court action where this is not possible and especially where there is serious harm to consumers.'

NOTES

1. The OFT commenced High Court proceedings against Foxtons in February 2008. The judgment considered certain old terms used by Foxtons and recently applied new terms which were both found to be unfair.
2. The court looked at letting contracts which typically applied an 11 per cent renewal commission where a tenant remains in occupation of the property beyond the initial (usually 1 year) period, and a 2.5 per cent commission payment in the event that a tenant, occupant or licensee of the property enters into an agreement with the owner to buy the property.
3. The hearing took place between 29 April and 1 May 2009 before Mr Justice Mann at the Royal Courts of Justice.
4. During the proceedings the Court of Appeal confirmed the OFT's long-held view that it can take enforcement action under the UTCCRs to protect consumers in relation to both existing and future contracts. See press release 38/09.
5. The UTCCRs apply to standard contract terms with consumers. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders. The OFT, and certain other qualifying bodies (such as local authority Trading Standards, national regulatory bodies, and Which?) can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers. The regulations say that a consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.

6. It is estimated that there are at least 15,000 letting agency businesses in the UK, including a number of national and multi-national companies in addition to many smaller businesses.

[Tools]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Excellent news for the consumer with far reaching consequences in the Banks test case. Well done OFT:okay:

[Amethyst]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

http://www.bailii.org/ew/cases/EWHC/Ch/2009/1681.html

Judgment

[Amethyst]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

From Judgment Foxtons - http://www.bailii.org/ew/cases/EWHC/Ch/2009/1681.html

Other important pointers emerge from the judgments in Bank Charges. The assessment to be carried out is a broad one. In Bank Charges 2 the Court of Appeal observed at paragraph 89:

"The next question is how to decide whether a particular term forms part of the essential bargain. It seems to us that this is a broad question which depends upon the circumstances of the particular case. The judge said this at [358]:

'The question whether a term falls within regulation 6(2)(b) is not answered simply according to whether or not it is a default provision. It requires broader consideration of the substance of the provision and the part that the term plays in the contract, and of whether it is directly to do with a payment that is properly within the expression, 'the price or remuneration'. Thus it is necessary to consider both the nature of the payment and how directly the term is directed to defining the payment obligation. We agree."



The answer to the question in the Bank Charges case turned, of course, on the facts of that case, but some of the factors which were important in that case have a resonance with factors in the present case and are useful pointers. Paragraph 109 points out that whether or not the obligation on the customer is contingent is a "strong indication" that the provisions are incidental or ancillary rather than core. So is the fact that the relevant provision is not specifically negotiated. The position of the provision in any advertising material is also apparently relevant; it follows from that that the fact that it is not referred to at all also has relevance. I shall consider these, and other points, separately. I shall consider first the old terms, and then the new ones.

also

Some of the qualities to be attributed to typical consumers for the purposes of the legislation have been elaborated on in the authorities:

1. i) The consumer "must be regarded as the 'weak party', who needs special protection" (Oceano Grupo Editorial SA v Quintero (conjoined cases C/240/98 to C-244/98), per A-G Saggio). See also Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 per Lord Steyn at para 31.
   ii) Abbey National plc v Office of Fair Trading [2009] EWCA Civ 116 was a decision of the Court of Appeal on appeal from Andrew Smith J [2008] EWHC 875 (Comm). I shall call the first instance decision Bank Charges 1, and the appeal decision Bank Charges 2. The case involved terms in standard bank dealing terms and at both levels there was an extensive consideration of the principles embodied in the Regulations and the Directive. In Bank Charges 2 it is recorded that it was common ground:
   "not only that the typical customer is reasonably well-informed and reasonably observant and circumspect, but also that he or she is taken to read the relevant documents and to seek to understand the contractual terms from that reading" (para 117)
   I shall adopt that same view.

[Tools]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

I have noted several points in the Foxtons Judgment and feel that much of this can be applied to business claims.

This case has primarily been for the protection of landlords ( both "professional/commercial" and "typical consumer"). For the purposes of this case it has not excluded bonafide businesses from being protected by the UTCCR's. Therefore I believe that this ruling could be used to read across to business banking claims. This includes sole trader, trading as and also LTD Companies who fall within the scope of SME's (Small to Medium Enterprises) £1Million turnover or under 9 employees as classified by the EU and law commision report.

In particular, as quoted below, the bargaining power of the parties remains significantly imbalanced as the "typical consumer" is presumptively the "weaker party". It also mentions

The directive is aimed at contracts of adhesion, viz "take it or leave it" contracts.

This includes the banks standard terms for bank accounts which in the main do not differ between a personal current account and a business account.

The more I read deeper into this (and the First National Bank case) the more I can see how this ruling will help the OFT in the current test case.

I think an email to clarify this to the OFT may be in order.

Hopefully we can use this to counter the recent Barclays business cases that have been getting costs or threats of costs.

http://www.bailii.org/uk/cases/UKHL/2001/52.html

LORD STEYN
My Lords,
30. This is the first occasion on which the House has had the opportunity to examine an important branch of consumer law. It is therefore appropriate to consider the framework in which the questions before the House must be considered.
31. As between the directive and the domestic implementing regulations, the former is the dominant text. Fortunately, the 1994 Regulations, and even more so the 1999 Regulations, appear to have implemented the directive in domestic law in a manner which ought not to cause serious difficulty. The purpose of the directive is twofold, viz the promotion of fair standard contract forms to improve the functioning of the European market place and the protection of consumers throughout the European Community. The directive is aimed at contracts of adhesion, viz "take it or leave it" contracts. It treats consumers as presumptively weaker parties and therefore fit for protection from abuses by stronger contracting parties. This is an objective which must throughout guide the interpretation of the directive as well as the implementing regulations. If contracting parties were able to avoid the application of the directive and regulations by exclusionary stipulations the regulatory scheme would be ineffective. The conclusion that the directive and regulations are mandatory is inescapable.

http://www.bailii.org/ew/cases/EWHC/Ch/2009/1681.html

The consumers
<li value="28">The UTCCR operate in favour of consumers. As I have indicated, it is accepted in this case that some of the people with whom Foxtons deal on the impugned terms are consumers, though many are not, being "professional" or "commercial" landlords. (Those are my terms and not terms in the legislation). Foxtons accepts that the nature, qualities and general identities of the typical consumer for these purposes are as set out in two paragraphs of the supporting witness statement of Mr Nicholas Allen, a section head within the OFT's consumer protection group. He says:

"18. However, there are numerous individuals who find themselves in a position of requiring the services of an individual letting agent who cannot be classified as doing so for the purposes of a trade, business or profession within the meaning of the UTCCRs…They include individuals who decide to let out their only property whilst travelling temporarily abroad, as a result of relocation by their employer or for other reasons connected to 'lifestyle' choice, individuals who let out part of their property in order to fund their mortgage on the remainder, and individuals for whom their property investment represents part of their pension plan or other long term saving….

19. Indeed, it appears that significant numbers of landlords are acquiring one or two properties as a more secure way of providing future pensions and savings…More than four out of 10 [asked] respondents to [a described survey] had only one or two properties in their portfolios…This underlines the significance of the issues raised by these proceedings for the consumer landlord."

<li value="29">Some of the qualities to be attributed to typical consumers for the purposes of the legislation have been elaborated on in the authorities:
i) The consumer "must be regarded as the 'weak party', who needs special protection" (Oceano Grupo Editorial SA v Quintero (conjoined cases C/240/98 to C-244/98), per A-G Saggio). See also Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 per Lord Steyn at para 31.
ii) Abbey National plc v Office of Fair Trading [2009] EWCA Civ 116 was a decision of the Court of Appeal on appeal from Andrew Smith J [2008] EWHC 875 (Comm). I shall call the first instance decision Bank Charges 1, and the appeal decision Bank Charges 2. The case involved terms in standard bank dealing terms and at both levels there was an extensive consideration of the principles embodied in the Regulations and the Directive. In Bank Charges 2 it is recorded that it was common ground:

"not only that the typical customer is reasonably well-informed and reasonably observant and circumspect, but also that he or she is taken to read the relevant documents and to seek to understand the contractual terms from that reading" (para 117)

I shall adopt that same view.
<li value="30">The typical consumer is relevant at various levels of the present dispute, but principally in considering whether the terms are expressed in plain and intelligible language, and in assessing what the core bargain should be taken to be for the purposes of regulation 6(2). The OFT put in documents from half a dozen or so complainants who had complained about the operation of Foxtons' terms in various respects, and in some cases demonstrating their understanding or perception of things relevant to the two factors that I have mentioned. The OFT did not put forward any of the complainants as embodying the typical consumer, but did rely on what they said as being within the sort of things that typical consumers would think.
<li value="31">Other than that there was no evidence or other material to assist me in determining the mindset, thinking or attributes of a typical consumer. Where it is necessary for me to form views on such things, I shall do so on an analogous footing to that on which the court approaches the attributes of the reasonable man in other realms, such as the realms of tort.

[Amethyst]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Who needs mammal tranquillisers now then?

[Amethyst]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Reminder note:

Quote - Tools
The reason for stating this caselaw was that it was referred to in the Test Case (The Office of Fair Trading- and -Abbey National PLC and others) in which Justice Andrew Smith stated:-


Quote:
119. This leads to the question whether, if the customer contravened condition 6.5 by writing a guaranteed cheque that was honoured or condition 9.2 by use of his card and the account went into unauthorised overdraft because the Bank made the mandated
payment or allowed a withdrawal, any Overdraft Excess Fee payable upon the resulting overdraft became payable upon the breach so as potentially to engage the legal principles applicable to penalties. In support of his submission that no Relevant Charge is payable on a breach of Lloyds TSB’s 2007 card conditions, Mr Bankim Thanki QC, who represents the Bank, submits that the same charge would be incurred if Lloyds TSB chose to pay a Relevant Instruction when no card had been used. That is indeed contemplated by the leaflets setting out the charges imposed by Lloyds TSB, and was not questioned by the OFT. If the contract between Lloyds TSB and its customers is assumed to incorporate a right for the Bank to levy charges as set out in the leaflets, then I would accept the submission that Relevant Charges were not imposed upon breach of the Lloyds TSB 2007 card conditions: the position would be like that discussed in paras 308 to 312 of the April judgment in relation to condition 12.1 of Barclays’ Card conditions. However, because at the relevant time the contracts between Lloyds TSB and its customers were not incorporated in written form, I am not at present persuaded that I should make a declaration in general terms on the assumption that the contracts between the Bank and its current account customers provided that the Bank was entitled to levy all the charges set out in the Bank’s leaflets. Moreover, before making a declaration in these circumstances I should wish to hear submissions about the decision of Mr Justice Morgan in The Office of Fair Trading v Foxtons Limited, [2008] EWHC 1662 (Ch), which was decided after the hearing before me. I shall therefore invite further submissions from the OFT and Lloyds TSB

[natweststaffmember]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Who needs mammal tranquillisers now then?

How much and how good are they?
It is a Friday and my brain is fried already in batter.

[Amethyst]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Okay reading this The Landlord Law Blog: OFT victory in Foxtons unfair contract terms case


Tessa Shepperson has read this from it which seems to be right in my opinion

Returning to the case, the Judge confirmed that although the Regulations only apply to consumers (i.e. not to professional landlords whose main income is from landlording), as this agency agreement is used for both business and consumer landlords, it is subject to them. Examples of consumer landlords are those who are letting their home where they are posted abroad for their job, or who have invested in a couple of properties in lieu of a pension. A substantial proportion of landlords only have one or two properties and therefore will normally come within the ‘consumer’ category.

Now the banks argue no material differences in terms to get out of the penalty argument so does that also scan across like this between business and personal accounts ? how does that work legally and practically ?

[EXC]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Excellent news for the consumer with far reaching consequences in the Banks test case. Well done OFT:okay:

Well said.

The OFT should be congratulated on the speed in which they wrapped this case up as Legal action only started last year and this included a challenge by Foxtons that an injunction should not apply to existing contracts which Foxtons initialy won but was overturned in the Court of Appeal.

In the test case it is the banks who are to blame for stringing out the preliminary issues (whether the regulations apply) and not the OFT and the Foxtons case just goes to show that once things move onto the substantive issues (whether the terms are actually unfair) things move quicker.

The Foxtons judgment also puts a nail into the coffin of the banks' claim that the OFT are using UTCCR as a form of 'price control'.

[righty]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

I agree the OFT rather than set a price/costs (which is not their function say the banks) they only have to declare the charge unfair to win the argument

[Tools]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

Okay reading this The Landlord Law Blog: OFT victory in Foxtons unfair contract terms case


Tessa Shepperson has read this from it which seems to be right in my opinionNow the banks argue no material differences in terms to get out of the penalty argument so does that also scan across like this between business and personal accounts ? how does that work legally and practically ?

My comment on her blog has now been approved , thank you if you are reading this Tessa

1 comments:

Julian Siddle said... Thank you very much for this clear and concise appraisal of the case. We on Legal Beagles - Guarding your Consumer Rights (you also follow us on twitter) have been awaiting the Judgment on this case as it is highly relevant to our own cause, the UTCCR's arguement in the OFT V Banks case currently under appeal at the House of Lords.

Again, many thanks for the write up, we will continue to watch your blogs with interest

Julian Siddle - Administrator - Legal Beagles - Guarding your Consumer Rights
7:58 PM Post a Comment

[Tools]

Re: OFT v Foxtons - Landmark Judgment 10 July 2009

I agree the OFT rather than set a price/costs (which is not their function say the banks) they only have to declare the charge unfair to win the argument

81. Foxtons submits that there is nothing unfair about the renewal commission provisions in either form of contract. It makes the following points: .........

iv)................There is a suggestion in correspondence from Foxtons that initial letting fees would have to be increased by 4.4% to make up for lost renewal commission and Mr Kent submitted that the typical consumer would realise the principles underlying this (though he did not submit that the actual figure would be apparent).

This deals with the "free banking will end" argument and is countered by

1. The first is the argument of Foxtons that the renewal commission is justified because it is part of the payment for an income stream that has been introduced to the landlord (and allied points). It is not plain that that is the correct way of looking at the matter because it is not at all apparent that the landlord views the matter in that way, and the evidence of Foxtons' subjective view of the point is neither strong nor plain. There is no evidence that landlords generally (let alone consumer landlords) would view the commission in that way, and nothing in the way in which the matter is presented to them in publicity or otherwise which would bring the point home to the landlord. The landlords in question are not sophisticated economists, or even sophisticated businessmen, and would be unlikely independently to think in those sort of terms. They are likely to see themselves as paying 11% for getting a tenant into the property for the agreed first term. I doubt if many of them will think beyond that on that occasion, and unless they do then they will not be thinking in terms of an income stream coming from that initial introduction. I think it more likely that they do not think into the renewal phase. Certainly Foxtons do not really do much to encourage them to do so. These factors are obviously closely related to those relevant to the "core bargain" point above.
2. Nor is it apparent how far Foxtons take that view. I would be prepared to accept that it is likely that Foxtons have business plans which show their hopes for renewal commission in terms of projection of future income, but there is no real evidence that they have costed their activities in such a way as to suggest that they have assessed the cost to them of providing the functions and then worked out an income which covered those costs and gave a reasonable profit or return, and then divided up that income between commission on projected first-term lettings and renewal commission. In the absence of some decent evidence along those lines, it is just as likely that Foxtons rely on renewal commissions as an adventitious benefit. If and insofar as that is the case (and I do not need to make a finding about it) then the "payment for an income stream" analysis fails on their side of the line as well. The correspondence that took place over the two years before the hearing in front of me contained a suggestion from Foxtons that it had a business model which demonstrated that it could not make a profit from the initial letting commission alone. The OFT invited Foxtons to disclose its business model or charging methodology which demonstrated that to be the case. Foxtons responded on a couple of occasions to the effect that it was looking into the possibility of providing such information but there were difficulties in disentangling this element from the rest of its business. It never did provide that evidence. In the absence of such evidence this point cannot be maintained as one of economics from Foxtons' side.
3. Furthermore, Foxtons' ultimate position suggested something of a retreat from the position taken in correspondence. As referred to above, a letter from Foxtons suggested that if renewal commission was not chargeable, then at a rough calculation the initial commission might have to rise by over 4% to make up for lost income. However, when Mr Budden (Foxtons' chief operations officer) came to put in a witness statement on behalf of Foxtons in October 2008 he said:
   "Although no-one can say for sure at this stage, I suspect that were renewal commission to be ruled unfair in the manner sought by the OFT, there would either be significant upward pressure on the level of commission fee in the market (and hence also on rents) and/or increased pressure on prospective tenants to enter into longer initial tenancies or not to renew shorter tenancies."
   That is a highly qualified expression of view, which does not support an economic analysis of a spread of commission over initial and renewal commissions in a calculated way.
4. For those reasons, therefore, the submissions of Foxtons which rely on the "income stream" argument carry no real weight.

It also deals with the recent arguments in the HoL where the banks argued that the fee was a price for the overall package, an income stream and not just the fee itself.