Director General of Fair Trading v First National Bank plc

Under the Unfair Terms in Consumer Contracts Regulations 1994, a standard default term is not exempt from fairness assessment merely because it forms part of the contractual bargain. A term preserving contractual interest after judgment does not define the main subject matter or concern the adequacy of remuneration. Good faith requires fair and open dealing, reasonable transparency, informed choice and avoidance of unfair surprise. A term is unfair where it is contrary to good faith, causes significant imbalance and operates to the consumer’s detriment. The court held that such a term was unfair to the extent that it enabled post-judgment interest after an instalment order without judicial consideration of time-order and interest-reduction powers.

The Director General of Fair Trading appealed from Evans-Lombe J’s refusal of an injunction under regulation 8(2) of the Unfair Terms in Consumer Contracts Regulations 1994. The Bank’s standard regulated consumer-credit agreement provided for contractual interest to continue after judgment, including where the judgment debt was payable by instalments.

The High Court held that the term was assessable for fairness but was not unfair. The Court of Appeal considered whether the term was excluded from assessment as defining the main subject matter or adequacy of remuneration, and, if assessable, whether it was unfair under regulation 4.

1. Fairness assessment. The relevant term did not fall within regulation 3(2) of the Unfair Terms in Consumer Contracts Regulations 1994. It did not define the main subject matter of the credit agreement and did not concern the adequacy of remuneration. It merely provided for continuation of the contractual interest rate after judgment in the event of default.
2. Unfairness test. Regulation 4 required consideration of three elements: absence of good faith, significant imbalance in the parties’ rights and obligations, and detriment to the consumer. Good faith had the special meaning used in the Directive and involved fair and open dealing. The court adopted the approach in Interfoto Library Ltd v Stiletto Ltd [1989] 1 Q.B. 433, including transparency, avoidance of unfair surprise, respect for reasonable expectations and the opportunity for informed choice.
3. Application. The term was unfair to the extent that it enabled the Bank to obtain judgment and an instalment order under section 71 of the County Courts Act 1984 without the court considering a time order under section 129 of the Consumer Credit Act 1974, or, where a time order was made, whether to reduce the contractual interest rate under section 136. The Bank’s stronger bargaining position, the absence of adequate consideration of the consumer’s interests, the unfair surprise and the resulting interest liability established all three elements of unfairness. The powers described in Southern and District Finance plc v Barnes [1995] C.C.L.R. 62 were relevant to that conclusion.
4. Relief. The term was not binding on the consumer under regulation 5(1), while the remainder of the contract continued under regulation 5(2). The appeal was allowed with costs here and below. The parties were permitted to consider a suitable amendment and undertaking, with the form to be agreed and submitted to the Registrar. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Allowed the Director General’s appeal with costs here and below and directed that the form of any undertaking be agreed and submitted to the Registrar.
• High Court, Chancery Division: Evans-Lombe J refused the injunction sought under regulation 8(2) of the Unfair Terms in Consumer Contracts Regulations 1994; the judgment was reported at [2000] 1 WLR 98.