The Office of Fair Trading v Foxtons Ltd

A collective challenge under regulation 12 of the Unfair Terms in Consumer Contracts Regulations 1999, implementing article 7 of the Directive 93/13/EEC on Unfair Terms in Consumer Contracts, may address unfair terms in both future and existing consumer contracts. If unfairness is established, the court may restrain continued reliance on, including enforcement of, the term in existing contracts. The collective assessment uses the typical consumer and typical circumstances, but the decision is not res judicata in later proceedings between the supplier and an individual consumer. Relief remains discretionary and must be effective, proportionate and tailored to the findings. Declaratory relief may be granted despite consumers not being parties, although declarations and unqualified injunctions require care.

The Office of Fair Trading brought a Part 8 collective challenge to standard terms used by Foxtons in residential letting contracts. The challenged terms concerned renewal commissions, sales commissions and third-party renewal commissions. The OFT sought declarations of unfairness and an injunction restraining use, enforcement or reliance on the terms, including in existing contracts.

Morgan J struck out the words seeking to restrain enforcement or reliance on terms in existing contracts. He considered that a collective challenge assessed fairness by reference to a typical consumer and could not determine whether a term was fair in an individual contract. He rejected Foxtons’ jurisdictional challenge to declaratory relief. The OFT appealed, and Foxtons cross-appealed on declarations.

Disposition

The Court of Appeal allowed the OFT’s appeal and dismissed Foxtons’ cross-appeal. Waller LJ gave the leading judgment. Arden LJ agreed, subject to further reasons. Moore-Bick LJ agreed with the formal result and with the existence of the relevant power, but differed on the circumstances in which unqualified relief should be granted.

1. Existing contracts. Regulation 12 had to be construed as implementing article 7 of the Directive and was not a free-standing power detached from that obligation. Article 7 was intended to cover existing as well as future contracts. A collective challenge could therefore support an injunction preventing continued reliance on, or enforcement of, an unfair term in an existing contract. The effectiveness of collective consumer protection, recognised in Director of Fair Trading v First National Bank plc [2002] 1 AC 481, supported that conclusion.
2. Collective and individual challenges. A collective challenge assesses fairness by using the typical consumer and typical circumstances as the practical touchstone for applying the article 4 criteria. That does not mean the court decides only a hypothetical case. Nor is the result res judicata between the supplier and an individual consumer. The individual issue may be revisited by reference to the particular contract and its circumstances. The consumer-favourable interpretation required by article 5 applies in an individual challenge, but not in a collective challenge.
3. Form of relief. The scope of any injunction had to await the trial findings. Regulation 12(3) and (4) gave the court wide powers to tailor relief to the precise unfairness found, including by addressing similar or like-effect terms. Arden LJ emphasised that the remedy must be proportionate and sufficiently effective. The court could carve out defined contracts, require permission before enforcement, or permit later variation or discharge. The pre-trial strike-out of the words concerning enforcement and reliance was therefore wrong.
4. Declarations. The OFT and Foxtons were parties to a justiciable dispute concerning the fairness of Foxtons’ standard terms. The absence of individual consumers from the proceedings did not deprive the court of jurisdiction to grant a declaration. A declaration could be useful in identifying precisely which terms or aspects were unfair. Moore-Bick LJ cautioned that a simple declaration was most appropriate where a term was unfair in all circumstances; otherwise declaratory relief should be framed carefully.

The judge’s order was set aside, with the trial judge to determine the appropriate relief in light of the findings.

1. Court of Appeal (Civil Division): [2009] EWCA Civ 288. Appeal allowed and cross-appeal dismissed; the pre-trial strike-out was set aside.
2. High Court of Justice, Chancery Division: [2008] EWHC 1662 (Ch). Morgan J struck out the proposed relief insofar as it restrained enforcement, attempted enforcement or reliance on terms in existing contracts, but rejected Foxtons’ challenge to declaratory jurisdiction.