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Dated 1st December and sure its on here somewhere I just couldnt find it.
Legal Beagle’s Notes – 5(1) and Burden of Proof
Our Understanding of the potential of Section 5 (1) UTCCR
In simple terms the judgment is very limited in its scope and only prevents the OFT from pursuing a specific area of fairness - that the individual charges themselves simply don’t represent value for money for the services provided in return.
But the judgment was clear that it does not preclude the OFT from being able to make a fairness assessment under section 5 and the appeal hearing transcripts below indicate that the court actively encouraged it.
To use an extreme example, although the charges themselves could be £1000 a time without actually being unfair in themselves, the charges are capable of causing an unfair contractual balance overall, simply because they’re so high.
In other words because of 6(2) the OFT cannot assess the fairness of the charges in isolation but because of 5(1) they may be able to assess the fairness of the whole contract, due to the charges.
We believe that the scope of 5 (1) can potentially apply to a variety of scenarios detrimental to the consumer, for example: frequency of charging, charges necessarily leading to other charges and the impact that even just one £35 charge can have on an individual’s basic living requirements versus the minimal effect on the bank on the event that led to the charge.
We do not believe that the scope of section 5 (1) extends to any imbalance caused to consumers as a whole by virtue of the cross-subsidy model the industry uses by way of the charges facilitating the ‘free if in credit’ model. We believe that section 5 (1) of the regulations and the directive that gave rise to it was only designed to apply to the balance of the contract between the single bank and the single consumer, for the reasons set out below:
Section 5 (1) states:
’contrary to the requirement of good faith, the charges cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.’
The application of the word ‘parties’’ is indicative of the 2 signees to the contract and the use of the word ‘consumer’ also infers an individual rather than consumers as a whole.
We are not confident that there are grounds for a challenge based on the absence of any notification that the charges are wholly or partly used to subsidise the ‘free if in credit’ banking model under UTCCR or any other consumer protection legislation.
Notwithstanding, the issue of whether 5 (1) is applicable to the cross subsidy business model was dealt with during the final day of the House of Lords appeal hearing below, in 3 separate exchanges:
BARONESS HALE: Forgive me, Mr Crow, before you move on, yesterday you were asked: supposing, horror of horrors, that this appeal were to succeed, either in whole or in part, what sort of enquiry might be left to the OFT, and I wanted to ask you whether, in your view -- and indeed I would put the same question to Mr Sumption -- an assessment of the fairness in article 3 terms of the overall pricing structure of personal current accounts would remain, because one was not then looking at the price service -- you know, is the price too high, or whatever, for the service; one was looking at whether the overall pricing structure resulted in a significant imbalance between bank and customer for the purpose of article 3. I have a fairly -- obviously you might want to think about that and come back on it. The reason for asking is that seems to be, in a sense, what this is all about, in one sense.
MR CROW: It is what the banks' defence is all about, in one sense.
BARONESS HALE: The banks might equally have less objection to that than to what the Independent seems to think this case is all about from yesterday's editorial.
MR CROW: That I missed.
BARONESS HALE: I will hand it over. There is a sentence in it that particularly concerns me. I just wanted to raise the question and park it.
MR CROW: The immediate response is simply this: that what article 3 allows is that a contractual term, which has not been individually negotiated, shall be regarded as unfair, and the understanding certainly of the judge and the Court of Appeal -- I think it is paragraph 16 of the judge's judgment; I can't immediately recall the Court of Appeal judgment, but they approve and agree -- is that what the directive contemplates is the assessment of the fairness of the term, not the fairness of the supplier delivering the overall contracts to the general body of consumers.
LORD NEUBERGER: The business model.
MR CROW: Yes.
BARONESS HALE: I was thinking more of the cross-subsidy, a range of different charges operating in different ways, which is not uncommon. It is a feature that bank accounts do share with some other contracts.
MR CROW: Yes.
BARONESS HALE: That, in a sense -- what is being said is partly that the charges for the unpaid -- insufficient funds charges are too high in themselves, but also they are too high, even if they are looked at as part of a general package. At least that might be what is being said.
MR CROW: What is being said provisionally by the OFT, it not yet having reached a final view, is that the way -- there are two elements in the charges that need to be kept in mind. One is their amount, but the other is the triggering event that causes them. It is the interaction between those two that gives rise to concern, which is why it is not just a question of price control, which is what we keep having chucked at us; it is the way in which these clauses operate that causes concern, which is exactly what issue 2 is all about. It is not a sort of structural objection to the "free-if-in-credit" model. What it is is a concern over the manner in which this aspect of the regime is currently operating, given the various elements that we will go through in paragraph 81 of our case. So it is not just a matter of price, but, equally, it is not so expansive as a sort of a structural challenge to the whole of the "free-if-in-credit" model as a matter of principle. That is not what is under review. It is the unauthorised overdraft charges by reference to, as I say, the triggering, the way they work and the amount.
BARONESS HALE: No doubt you are going to come on to that in more detail. Obviously, although, of course, the focus is on terms, it is the effect of the various terms, the combination of terms -- you could be looking at more than one term in order to look at something, which is why I put the question to you.
MR CROW: Yes.
**************************************************
MR CROW: Thank you, my Lord. Could I pick up a couple of loose ends from this morning? First, my Lady Hale's question, if the OFT wanted to undertake, in a sense a structural challenge. Having taken instructions, we have nothing to add to the response I gave, which is that the remit which is given to the OFT under the directive is a term-by-term targeted challenge, not an opportunity for a structural challenge.
BARONESS HALE: You couldn't take a group of terms and say, "Taken together, do these pass the fairness test?"
MR CROW: One would have to consider each term in the context of the contract as a whole. I guess one could have a several challenge, but I think one wouldn't end up -- it is getting too abstract -- with a collective challenge to the contract as a whole. It would have to be a challenge to the terms severally.
BARONESS HALE: There are several terms that say you pay this for this, and this for this, and this for this, and put together that tots up to something that produces a significant imbalance. That would seem to me to be an extremely sensible sort of enquiry to be made and one which would not lead to some of the deleterious results that others might.
MR CROW: We will certainly give some thought to that. I am grateful.
*********************************************
MR SUMPTION: As I understand it, this is now substantially common ground, my learned friend having confirmed shortly before the short adjournment that the directive is concerned with imbalance within a contract as between the parties to that contract, and not with, so to speak, the structure of an industry or a bank's clientele en bloc.
Courts must assess fairness - Pannon GSM Zrt. v Erzs!bet Sustikn! Győrfi,
Directive 93/13/EEC – Unfair terms in consumer contracts – Legal effects of an unfair term – Power of and obligation on the national court to examine of its own motion the unfairness of a term conferring jurisdiction – Criteria for assessment
http://curia.europa.eu/jurisp/cgi-bi...umaff=C-243/08
Covered below :-
Burden of Proof in Consumer cases that raise the issue of fairness under the UTCCR
In any claim in which the unfairness of contractual terms in a consumer contract are raised as an issue, the evidential burden rests with the seller or supplier to prove that the relevant terms are not unfair.
This point has been firmly established by the European Court of Justice in a number of cases, starting with the joined cases of Oc!ano Grupo Editorial SA v Roci! Murciano Quintero (C-240/98), Salvat Editores SA v Jos! M. S!nchez Alc!n Prades (C-241/98), Jos! Luis Copano Badillo (C-242/98), Mohammed Berroane (C-243/98) and Emilio Viñas Feli! (C-244/98) (hereafter referred to as “Oc!ano”), where it was ruled that there is a duty on the Court to raise of its own motion the question of “unfairness” in respect of such terms:
“26 The aim of Article 6 of the Directive, which requires Member States to lay down that unfair terms are not binding on the consumer, would not be achieved if the consumer were himself obliged to raise the unfair nature of such terms. In disputes where the amounts involved are often limited, the lawyers' fees may be higher than the amount at stake, which may deter the consumer from contesting the application of an unfair term. While it is the case that, in a number of Member States, procedural rules enable individuals to defend themselves in such proceedings, there is a real risk that the consumer, particularly because of ignorance of the law, will not challenge the term pleaded against him on the grounds that it is unfair. It follows that effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion.
28…the court's power to determine of its own motion whether a term is unfair must be regarded as constituting a proper means both of achieving the result sought by Article 6 of the Directive, namely, preventing an individual consumer from being bound by an unfair term, and of contributing to achieving the aim of Article 7, since if the court undertakes such an examination, that may act as a deterrent and contribute to preventing unfair terms in contracts concluded between consumers and sellers or suppliers.
29 It follows from the above that the protection provided for consumers by the Directive entails the national court being able to determine of its own motion whether a term of a contract before it is unfair when making its preliminary assessment as to whether a claim should be allowed to proceed before the national courts.”
This judgment of the full court was followed in Cofidis SA v Jean-Louis Fredout (C-473/00), Elisa Mar!a Mostaza Claro v Centro M!vil Milenium SL (C-168/05), and more recently Pannon GSM Zrt. v Erzs!bet Sustikn! Győrfi (C-243/08).
In Pannon the ECJ reiterated the point thus:
“23…the aim of Article 6 of the Directive would not be achieved if the consumer were himself obliged to raise the unfairness of contractual terms, and that effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion.
24. It must be pointed out, in that regard, that, if that power is to be granted to the national court, Article 6(1) of the Directive cannot be interpreted as meaning that it is only in the event that the consumer has brought a specific application in relation to it, that an unfair contract term is not binding on that consumer. Such an interpretation would rule out the possibility of the national court assessing, of its own motion, in the context of examining the admissibility of the action which is before it, and without a specific application from the consumer to that effect, the unfairness of a contractual term.
…
28…Article 6(1) of the Directive must be interpreted as meaning that an unfair contract term is not binding on the consumer, and it is not necessary, in that regard, for that consumer to have successfully contested the validity of such a term beforehand...
…
32. The court seised of the action is therefore required to ensure the effectiveness of the protection intended to be given by the provisions of the Directive. Consequently, the role thus attributed to the national court by Community law in this area is not limited to a mere power to rule on the possible unfairness of a contractual term, but also consists of the obligation to examine that issue of its own motion.”
All the above cases must be considered in the context of the jurisdictions from which they arise, namely legal systems that use an inquisitorial (i.e. judicial-lead) investigation of the facts and issues. In the UK we have an adversarial legal system, but the principles set out by the ECJ still apply. Indeed, as a result of section 3 of the European Communities Act 1972
“any question as to the meaning or effect of any…Community instrument, shall be treated as a question of law (and, if not referred to the European Court, be for determination as such in accordance with the principles laid down by and any relevant decision of the European Court).”
The above judgments of the ECJ establish a core legal principle, namely that a consumer does not have to successfully contest the validity of a contract term before it can be struck down by the court for “unfairness”. Indeed, the Court has a duty to raise of its own motion the issue of whether a term is “unfair”. It inevitably follows from these judgments that in the context of legal proceedings within the UK, the burden for establishing that a term is “unfair” cannot rest with the consumer, for the explicit reasons set out by the ECJ in those judgments. The duty for proving that such a term is not “unfair” therefore rests on the seller or supplier whenever the issue is raised, either by the Court of its own motion or by the consumer themselves
Legal Beagle’s Notes – 5(1) and Burden of Proof
Our Understanding of the potential of Section 5 (1) UTCCR
In simple terms the judgment is very limited in its scope and only prevents the OFT from pursuing a specific area of fairness - that the individual charges themselves simply don’t represent value for money for the services provided in return.
But the judgment was clear that it does not preclude the OFT from being able to make a fairness assessment under section 5 and the appeal hearing transcripts below indicate that the court actively encouraged it.
To use an extreme example, although the charges themselves could be £1000 a time without actually being unfair in themselves, the charges are capable of causing an unfair contractual balance overall, simply because they’re so high.
In other words because of 6(2) the OFT cannot assess the fairness of the charges in isolation but because of 5(1) they may be able to assess the fairness of the whole contract, due to the charges.
We believe that the scope of 5 (1) can potentially apply to a variety of scenarios detrimental to the consumer, for example: frequency of charging, charges necessarily leading to other charges and the impact that even just one £35 charge can have on an individual’s basic living requirements versus the minimal effect on the bank on the event that led to the charge.
We do not believe that the scope of section 5 (1) extends to any imbalance caused to consumers as a whole by virtue of the cross-subsidy model the industry uses by way of the charges facilitating the ‘free if in credit’ model. We believe that section 5 (1) of the regulations and the directive that gave rise to it was only designed to apply to the balance of the contract between the single bank and the single consumer, for the reasons set out below:
Section 5 (1) states:
’contrary to the requirement of good faith, the charges cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.’
The application of the word ‘parties’’ is indicative of the 2 signees to the contract and the use of the word ‘consumer’ also infers an individual rather than consumers as a whole.
We are not confident that there are grounds for a challenge based on the absence of any notification that the charges are wholly or partly used to subsidise the ‘free if in credit’ banking model under UTCCR or any other consumer protection legislation.
Notwithstanding, the issue of whether 5 (1) is applicable to the cross subsidy business model was dealt with during the final day of the House of Lords appeal hearing below, in 3 separate exchanges:
BARONESS HALE: Forgive me, Mr Crow, before you move on, yesterday you were asked: supposing, horror of horrors, that this appeal were to succeed, either in whole or in part, what sort of enquiry might be left to the OFT, and I wanted to ask you whether, in your view -- and indeed I would put the same question to Mr Sumption -- an assessment of the fairness in article 3 terms of the overall pricing structure of personal current accounts would remain, because one was not then looking at the price service -- you know, is the price too high, or whatever, for the service; one was looking at whether the overall pricing structure resulted in a significant imbalance between bank and customer for the purpose of article 3. I have a fairly -- obviously you might want to think about that and come back on it. The reason for asking is that seems to be, in a sense, what this is all about, in one sense.
MR CROW: It is what the banks' defence is all about, in one sense.
BARONESS HALE: The banks might equally have less objection to that than to what the Independent seems to think this case is all about from yesterday's editorial.
MR CROW: That I missed.
BARONESS HALE: I will hand it over. There is a sentence in it that particularly concerns me. I just wanted to raise the question and park it.
MR CROW: The immediate response is simply this: that what article 3 allows is that a contractual term, which has not been individually negotiated, shall be regarded as unfair, and the understanding certainly of the judge and the Court of Appeal -- I think it is paragraph 16 of the judge's judgment; I can't immediately recall the Court of Appeal judgment, but they approve and agree -- is that what the directive contemplates is the assessment of the fairness of the term, not the fairness of the supplier delivering the overall contracts to the general body of consumers.
LORD NEUBERGER: The business model.
MR CROW: Yes.
BARONESS HALE: I was thinking more of the cross-subsidy, a range of different charges operating in different ways, which is not uncommon. It is a feature that bank accounts do share with some other contracts.
MR CROW: Yes.
BARONESS HALE: That, in a sense -- what is being said is partly that the charges for the unpaid -- insufficient funds charges are too high in themselves, but also they are too high, even if they are looked at as part of a general package. At least that might be what is being said.
MR CROW: What is being said provisionally by the OFT, it not yet having reached a final view, is that the way -- there are two elements in the charges that need to be kept in mind. One is their amount, but the other is the triggering event that causes them. It is the interaction between those two that gives rise to concern, which is why it is not just a question of price control, which is what we keep having chucked at us; it is the way in which these clauses operate that causes concern, which is exactly what issue 2 is all about. It is not a sort of structural objection to the "free-if-in-credit" model. What it is is a concern over the manner in which this aspect of the regime is currently operating, given the various elements that we will go through in paragraph 81 of our case. So it is not just a matter of price, but, equally, it is not so expansive as a sort of a structural challenge to the whole of the "free-if-in-credit" model as a matter of principle. That is not what is under review. It is the unauthorised overdraft charges by reference to, as I say, the triggering, the way they work and the amount.
BARONESS HALE: No doubt you are going to come on to that in more detail. Obviously, although, of course, the focus is on terms, it is the effect of the various terms, the combination of terms -- you could be looking at more than one term in order to look at something, which is why I put the question to you.
MR CROW: Yes.
**************************************************
MR CROW: Thank you, my Lord. Could I pick up a couple of loose ends from this morning? First, my Lady Hale's question, if the OFT wanted to undertake, in a sense a structural challenge. Having taken instructions, we have nothing to add to the response I gave, which is that the remit which is given to the OFT under the directive is a term-by-term targeted challenge, not an opportunity for a structural challenge.
BARONESS HALE: You couldn't take a group of terms and say, "Taken together, do these pass the fairness test?"
MR CROW: One would have to consider each term in the context of the contract as a whole. I guess one could have a several challenge, but I think one wouldn't end up -- it is getting too abstract -- with a collective challenge to the contract as a whole. It would have to be a challenge to the terms severally.
BARONESS HALE: There are several terms that say you pay this for this, and this for this, and this for this, and put together that tots up to something that produces a significant imbalance. That would seem to me to be an extremely sensible sort of enquiry to be made and one which would not lead to some of the deleterious results that others might.
MR CROW: We will certainly give some thought to that. I am grateful.
*********************************************
MR SUMPTION: As I understand it, this is now substantially common ground, my learned friend having confirmed shortly before the short adjournment that the directive is concerned with imbalance within a contract as between the parties to that contract, and not with, so to speak, the structure of an industry or a bank's clientele en bloc.
Courts must assess fairness - Pannon GSM Zrt. v Erzs!bet Sustikn! Győrfi,
Directive 93/13/EEC – Unfair terms in consumer contracts – Legal effects of an unfair term – Power of and obligation on the national court to examine of its own motion the unfairness of a term conferring jurisdiction – Criteria for assessment
http://curia.europa.eu/jurisp/cgi-bi...umaff=C-243/08
Covered below :-
Burden of Proof in Consumer cases that raise the issue of fairness under the UTCCR
In any claim in which the unfairness of contractual terms in a consumer contract are raised as an issue, the evidential burden rests with the seller or supplier to prove that the relevant terms are not unfair.
This point has been firmly established by the European Court of Justice in a number of cases, starting with the joined cases of Oc!ano Grupo Editorial SA v Roci! Murciano Quintero (C-240/98), Salvat Editores SA v Jos! M. S!nchez Alc!n Prades (C-241/98), Jos! Luis Copano Badillo (C-242/98), Mohammed Berroane (C-243/98) and Emilio Viñas Feli! (C-244/98) (hereafter referred to as “Oc!ano”), where it was ruled that there is a duty on the Court to raise of its own motion the question of “unfairness” in respect of such terms:
“26 The aim of Article 6 of the Directive, which requires Member States to lay down that unfair terms are not binding on the consumer, would not be achieved if the consumer were himself obliged to raise the unfair nature of such terms. In disputes where the amounts involved are often limited, the lawyers' fees may be higher than the amount at stake, which may deter the consumer from contesting the application of an unfair term. While it is the case that, in a number of Member States, procedural rules enable individuals to defend themselves in such proceedings, there is a real risk that the consumer, particularly because of ignorance of the law, will not challenge the term pleaded against him on the grounds that it is unfair. It follows that effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion.
28…the court's power to determine of its own motion whether a term is unfair must be regarded as constituting a proper means both of achieving the result sought by Article 6 of the Directive, namely, preventing an individual consumer from being bound by an unfair term, and of contributing to achieving the aim of Article 7, since if the court undertakes such an examination, that may act as a deterrent and contribute to preventing unfair terms in contracts concluded between consumers and sellers or suppliers.
29 It follows from the above that the protection provided for consumers by the Directive entails the national court being able to determine of its own motion whether a term of a contract before it is unfair when making its preliminary assessment as to whether a claim should be allowed to proceed before the national courts.”
This judgment of the full court was followed in Cofidis SA v Jean-Louis Fredout (C-473/00), Elisa Mar!a Mostaza Claro v Centro M!vil Milenium SL (C-168/05), and more recently Pannon GSM Zrt. v Erzs!bet Sustikn! Győrfi (C-243/08).
In Pannon the ECJ reiterated the point thus:
“23…the aim of Article 6 of the Directive would not be achieved if the consumer were himself obliged to raise the unfairness of contractual terms, and that effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion.
24. It must be pointed out, in that regard, that, if that power is to be granted to the national court, Article 6(1) of the Directive cannot be interpreted as meaning that it is only in the event that the consumer has brought a specific application in relation to it, that an unfair contract term is not binding on that consumer. Such an interpretation would rule out the possibility of the national court assessing, of its own motion, in the context of examining the admissibility of the action which is before it, and without a specific application from the consumer to that effect, the unfairness of a contractual term.
…
28…Article 6(1) of the Directive must be interpreted as meaning that an unfair contract term is not binding on the consumer, and it is not necessary, in that regard, for that consumer to have successfully contested the validity of such a term beforehand...
…
32. The court seised of the action is therefore required to ensure the effectiveness of the protection intended to be given by the provisions of the Directive. Consequently, the role thus attributed to the national court by Community law in this area is not limited to a mere power to rule on the possible unfairness of a contractual term, but also consists of the obligation to examine that issue of its own motion.”
All the above cases must be considered in the context of the jurisdictions from which they arise, namely legal systems that use an inquisitorial (i.e. judicial-lead) investigation of the facts and issues. In the UK we have an adversarial legal system, but the principles set out by the ECJ still apply. Indeed, as a result of section 3 of the European Communities Act 1972
“any question as to the meaning or effect of any…Community instrument, shall be treated as a question of law (and, if not referred to the European Court, be for determination as such in accordance with the principles laid down by and any relevant decision of the European Court).”
The above judgments of the ECJ establish a core legal principle, namely that a consumer does not have to successfully contest the validity of a contract term before it can be struck down by the court for “unfairness”. Indeed, the Court has a duty to raise of its own motion the issue of whether a term is “unfair”. It inevitably follows from these judgments that in the context of legal proceedings within the UK, the burden for establishing that a term is “unfair” cannot rest with the consumer, for the explicit reasons set out by the ECJ in those judgments. The duty for proving that such a term is not “unfair” therefore rests on the seller or supplier whenever the issue is raised, either by the Court of its own motion or by the consumer themselves
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