Office of Fair Trading v Abbey National Plc & Ors

Declaratory relief should be framed with care where the contractual status of terms, or their incorporation into individual contracts, remains fact-sensitive. That uncertainty does not automatically prevent a declaration, particularly where the declaration gives useful guidance while preserving customers’ rights to raise individual contractual issues.

Whether a banking term is capable of being a penalty depends on whether it creates a contractual obligation or prohibition and on the language and context of the document as a whole. Similar wording may produce different results where the surrounding contractual context differs. Informative, advisory or hortatory wording will not ordinarily create a contractual prohibition merely because the document also describes charges.

The proceedings concerned declarations sought by banks in relation to account terms and charges which the Office of Fair Trading alleged might be penalties at common law. Earlier judgments had considered the relevant penalty principles and had determined the position concerning other banking terms.

The remaining issues concerned Abbey’s May 2005 conditions, the Lloyds TSB 2007 card conditions, and terms contained in NatWest and RBS documents. The court had to decide both whether declarations should be made and whether particular wording created contractual prohibitions capable of being penal.

1. Declaratory relief. The court declined to make a declaration concerning Abbey’s May 2005 conditions because no relevant charge appeared capable of being levied for breach of the specified provisions on the facts contemplated. The references to those conditions were ordered to be struck out of the OFT’s pleading.
2. A fact-sensitive and customer-specific inquiry into incorporation of contractual terms is not, by itself, a reason to refuse declaratory relief. Following the approach discussed in The Office of Fair Trading v Foxtons Limited, [2008] EWHC 1662 (Ch), the court could give guidance while making clear that individual customers remained entitled to raise additional questions about the terms incorporated into their contracts.
3. Contractual character. Whether wording creates a contractual prohibition depends on the document’s language, structure and context. The NatWest 2001 conditions had a sufficiently contractual character, including immediate references to the contract and to unauthorised borrowing. The relevant term was therefore contractual and remained capable of being penal.
4. The NatWest 2004 and RBS 2005 provisions were materially different in context. Read as a whole, they were informative and advisory rather than contractual, so the relevant terms were not capable of being penal. The same conclusion applied to the NatWest July 2003 leaflet: its heading and surrounding language explained charges for unarranged overdrafts and did not impose a contractual prohibition.
5. Declarations were granted for Lloyds TSB, the NatWest 2004 conditions, the RBS 2005 conditions and the NatWest July 2003 leaflet. No declaration was granted for the NatWest 2001 conditions.

The judgment followed earlier decisions in the same proceedings, including the judgment dated 24 April 2008, [2008] EWHC 875 (Comm), and the judgment dated 8 October 2008, [2008] EWHC 2325 (Comm). This was a further first-instance determination of the outstanding terms and declarations.