Contract—Unfair terms—Bank charges

Queen’s Bench Division, Commercial Court
Andrew Smith J
24 April 2008

Contracts between banks and customers for current accounts, under which charges are made by the banks to customers when the customer requests or instructs a payment for which they do not hold the necessary funds, are not exempt from investigation by the Office of Fair Trading under the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (UTC 1999).

Brian Doctor QC, Jemima Stratford, Richard Coleman and Sarah Love (instructed by the Office of Fair Trading) for the Office of Fair Trading.
Ali Malek QC and Richard Brent (instructed by Ashurst LLP) for Abbey National plc.

Ian Milligan QC, Andrew Mitchell and Simon Atrill (instructed by Simmons & Simmons) for Barclays Bank plc.
Richard Salter QC, John Odgers and Adam Kramer (instructed by Addleshaw Goddard LLP) for Clydesdale Bank plc.
Robin Dicker QC, Timothy Howe QC, Jeremy Goldring and James McClelland (instructed by Allen & Overy) for HBOS plc.
Richard Snowden QC, Mark Hoskins, Daniel Toledano and Patrick Goodall (instructed by Freshfields Brukhaus Deringer) for HSBC Bank plc.
Bankim Thanki QC, Richard Handyside and James Duffy (instructed by Lovells LLP) for Lloyds TSB Bank plc.
Geoffrey Vos QC and Sonia Tolaney (instructed by Slaughter & May) for Nationwide Building Society.
Laurence Rabinowitz QC, Malcolm Waters QC, David Blayney and Benjamin Pilling (instructed by Linklaters LLP) for the Royal Bank of Scotland Group plc.

Regulation 5(1) of UCT 1999 provides that a contractual term which had not been individually negotiated would be regarded as unfair if, contrary to the requirement of good faith, it caused a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

The proceedings concerned charges made by the defendant banks to their customers who had personal current accounts with them when they were requested or instructed to make a payment for which they did not hold the necessary funds in the account and which was not covered by a facility arranged with the customer. Such requests were referred to as “relevant instructions” “and the charges as relevant charges”. The terms in the standard form contracts between bank and customer providing for the relevant charges were referred to as “relevant terms”.

The claimant began investigating under UCT 1999 the fairness of the relevant terms and charges, and cases were brought by many customers disputing the charges. The claimant, which had not completed its investigation, brought the instant proceedings seeking a declaration that the relevant terms and charges in current agreements were not excluded from an assessment for fairness under UCT 1999 by reason of reg 6(2)(a) and/or (b) thereof. The issues included whether or not the relevant terms were in plain and intelligible language for the purposes of reg 6(2)(a), and whether or not the fairness of the relevant terms was precluded from the assessment because they related “to the adequacy of the price or remuneration, as against the goods or services supplied in the exchange”, pursuant to reg 6(2)(b).

MR JUSTICE ANDREW SMITH:

The first clause of reg 6(2) was directed to the language used in contractual terms, and it followed that it was concerned with the express terms and not with whether or not the consumer was likely to understand what terms would be implied into the contract. That was unlikely to be a limitation on the application of UCT 1999 which was of any practical importance because it was difficult to suppose that any implied term would be other than reasonable, or other than fair (either generally or as defined in reg 5(1)).
Regulation 6(2) required not only that the actual wording of individual clauses or conditions be comprehensible to consumers, but that the typical consumer could understand how the term affected the rights and obligations that he and the seller or supplier had under the contract. The regulation did not exclude an assessment of fairness unless the typical consumer could understand not only the actual wording used in the contractual documentation but also its effect.

On the facts, of the terms generally used by the banks at present for personal current accounts (other than basic accounts), those of HSBC, Lloyds TSB, Nationwide and RBSG were in plain intelligible language, and those of Abbey, Barclays, Clydesdale and HBOS were largely in plain intelligible language but not so in certain specific and relatively minor respects.

Regulation 6(2) exempted assessment of the fairness of the balance of the essential bargain between a seller or supplier and a consumer. The economic balance in a contract between the banks and their current account customers was between the package of services supplied by the bank and the total benefits to the bank from operating the account, not only by way of relevant charges but also in particular by way of the use of the funds if the account was in credit and interest if it was in debit. On no view did an assessment of the relevant charges or terms impinge upon the adequacy of the totality of the benefits received by the bank in exchange for the package of services.

The claimant’s investigation might involve consideration of the fairness of the structure of the pricing regime but that was very different from an assessment of the overall “adequacy” of the benefits to a bank from operating it. It followed that the relevant terms were not exempt from assessment under reg 6(2)(b) of UTC 1999.