The Office of Fair Trading v Abbey National plc and others

Where a consumer contract uses plain, intelligible language, every monetary payment forming part of the price or remuneration for the contractual package falls within regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999. The provision is not confined to an essential or prominent price.

Regulation 6(2)(b) excludes only an assessment based on whether that price is appropriate in relation to the goods or services supplied. It does not exempt the term from every form of fairness review. A contingent charge may form part of the price for a package even though only some consumers incur it and cross-subsidise others.

The Office of Fair Trading investigated whether standard terms imposing charges for unauthorised overdrafts on personal current accounts were unfair. Eight banks and building societies maintained that regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 prevented the charges from being assessed as excessive relative to the services supplied.

Andrew Smith J held in [2008] EWHC 875 (Comm) that the terms were not exempt from such assessment. The Court of Appeal dismissed the banks’ appeal in [2009] EWCA Civ 116, reasoning that the charges were outside the core or essential bargain.

The issue before the Supreme Court was whether the charges constituted price or remuneration for the package of banking services within regulation 6(2)(b). The Court was not deciding whether the charges were fair.

1. The appeal was allowed unanimously. Lord Walker delivered the principal judgment. Lord Phillips, Lady Hale, Lord Mance and Lord Neuberger agreed in the result. The Court declared that charges for unauthorised overdrafts, including unpaid-item and related charges, formed part of the price or remuneration for personal current-account services.

2. Per Lord Walker and Lord Mance, regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 does not distinguish between an essential price and an ancillary or incidental price. Paragraphs (a) and (b) address the two sides of a consumer contract: what the supplier provides and what the consumer pays. Although the exception must be construed narrowly, its natural language covers monetary price or remuneration falling squarely within it. The Court of Appeal had erred by importing an autonomous test based on the core or essential bargain, negotiation, consumer attention and the viewpoint of a typical consumer.

3. Per Lord Walker, Lord Phillips and Lord Mance, the contracts supplied a package of current-account services in return for a package of consideration. The relevant charges were an important part of that consideration. Their contingent character, the fact that most customers did not incur them and the cross-subsidy inherent in the charging model did not prevent them from being price or remuneration. Objectively assessed, they were not disguised default payments or common-law penalties.

4. Regulation 6(2)(b) adopts an excluded-assessment construction, not an excluded-term construction. It prevents a fairness assessment based on the contention that the price is excessive or inappropriate relative to the goods or services supplied. It does not prevent a challenge under regulation 5(1) founded on other aspects of unfairness. The judgment therefore did not determine whether the charges were fair or foreclose every further investigation by the Office of Fair Trading.

5. No reference to the Court of Justice was made under article 234. Lord Walker and Lord Mance regarded the interpretative position as clear. Lord Phillips and Lord Neuberger expressed greater doubt, but agreed that a reference was unnecessary because the appeal could be resolved by applying the provision to the facts.

1. United Kingdom Supreme Court: Allowed the banks’ appeal unanimously and displaced the Court of Appeal’s construction and application of regulation 6(2)(b).

2. Court of Appeal: In [2009] EWCA Civ 116, dismissed the banks’ appeal. It held that the charges were outside the core or essential bargain and therefore open to assessment for adequacy.

3. High Court, Commercial Court: Andrew Smith J held in [2008] EWHC 875 (Comm) that the relevant terms were not exempt under regulation 6(2). He also held that they did not impose common-law penalties and adopted the excluded-assessment construction.