Office of Fair Trading v Abbey National Plc & 7 Ors

The court considered whether standard terms and charges levied by banks when customers give payment instructions without sufficient funds ("Relevant Instructions") are excluded from assessment under the Unfair Terms in Consumer Contracts Regulations 1999 by reason of Regulation 6(2). The judge analysed the meaning of Regulation 6(2)(b) (the exclusion for the adequacy of price/remuneration) and concluded it does not shield the Relevant Terms and Charges from an assessment of fairness under the 1999 Regulations. The court also examined whether the disputed terms were expressed in "plain, intelligible language" (Regulation 6(2) qualification and Regulation 7), finding that the standard terms of four banks were in plain intelligible language and four banks’ terms were largely plain but contained specific, limited uncertainties.

Separately the judge held that, on the pleaded material, the Relevant Charges and Relevant Terms were not unenforceable as penalties at common law because the charges are not sums recoverable merely as a punishment for breach; and he refused to grant the declarations about the legal effect of the requirement of "good faith" sought by the banks. The court declined to determine the fairness of the terms under Regulation 5(1) as that is for later stages.

Background and parties: The Office of Fair Trading (OFT) brought proceedings challenging standard terms used by eight banking groups and the Nationwide Building Society that allow banks to levy charges when customers issue payment instructions without sufficient funds and the bank either pays or refuses the instruction. The OFT sought a declaration that the Relevant Terms and Charges are not excluded from assessment for fairness by Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999. The eight defendants (the Banks) counterclaimed on a number of points, including that the terms were not assessable under Regulation 6(2), that they were not penalties at common law and that Regulation 5(1) requires a preliminary showing of a breach of a requirement of good faith.

Nature of the application/relief sought:

• The OFT sought a declaration that Relevant Terms and Charges in current (and where relied upon, historical) agreements are not excluded from assessment for fairness by Regulation 6(2)(a) and/or (b) of the 1999 Regulations.
• The Banks sought declarations that the Relevant Terms were outside the scope of Regulation 6(2), that the terms could not amount to legal penalties and further declarations concerning the meaning and role of the "good faith" requirement in Regulation 5(1).

Issues framed by the court:

• Whether assessment of the Relevant Terms is prohibited by Regulation 6(2)(b) as relating to the adequacy of price/remuneration compared with goods/services supplied.
• Whether the Relevant Terms are in "plain, intelligible language" (Regulation 6(2) qualification and Regulation 7) and, if not, the consequences.
• Whether the appropriate interpretation of Regulation 6(2) is that it excludes assessment of the term altogether (excluded-term construction) or excludes only a particular type of assessment (excluded-assessment construction).
• The meaning and role of the phrase "contrary to the requirement of good faith" in Regulation 5(1) and whether a showing of lack of good faith is a necessary precondition to a finding of unfairness.
• Whether the Relevant Charges and terms are unenforceable as penalties under common law.

Concise account of the court's reasoning and rulings:

• The judge undertook a detailed analysis of the 1999 Regulations, the Directive (93/13/EEC) and authorities (notably Director of Fair Trading v First National Bank Plc). He emphasised the Directive’s consumer-protection purpose but rejected an interpretation of Regulation 6(2)(b) that would exclude from scrutiny all terms touching on payments made by consumers.
• He considered what amounts to a "service" in the context of current accounts and concluded that banks do provide relevant services when they advance funds (i.e. where payment in accordance with a Relevant Instruction is made), but they do not supply a service to a customer by mere consideration and refusal to pay a Relevant Instruction. The judge held that Relevant Charges are not the "price or remuneration" paid in exchange for the Banks' main services in the sense required by Regulation 6(2)(b), so Regulation 6(2) does not exclude assessment of the Relevant Terms.
• On "plain, intelligible language" the court held four banks' current terms (HSBC, Lloyds TSB, Nationwide, RBSG) were in plain intelligible language, and the remaining four (Abbey, Barclays, Clydesdale, HBOS) were in plain intelligible language except in limited specified respects, which the judgment sets out.
• On penalties, the court found that none of the Relevant Charges were sums payable solely as contractual penalties for breach: the charges were not recoverable merely as the consequence of a customer’s contractual breach and so were not unenforceable on that ground.
• The court refused to make the broad declarations concerning the legal scope of the "good faith" requirement sought by the Banks, in particular because the parties had not addressed a number of contingent and important questions (for example, the correct time as at which the fairness assessment is to be made) in the detail necessary for such abstract declarations.

Practical effect: The OFT’s investigation and its ability to assess the fairness of the Relevant Terms under the 1999 Regulations was confirmed; the judgment did not decide whether the Relevant Terms are in fact unfair or what remedies should follow.

The court concluded that the OFT’s investigation into bank current‑account charges falls within the scope of the 1999 Regulations: Regulation 6(2) does not prevent an assessment of the Relevant Terms and Charges for fairness. The judge found that none of the Relevant Charges were unenforceable penalties at common law on the pleaded material. He also held (i) that four banks’ current terms were in plain intelligible language and four banks’ terms were largely in plain intelligible language but contained specific limited uncertainties, and (ii) refused to grant the general declarations about the content and role of the requirement of good faith sought by the banks, concluding that those abstract declarations would be inappropriate without fuller factual and legal argument.