BANKING AND FINANCE
Contracts - bank charges - overdrafts - penalties - unfair contract terms

Office of Fair Trading v Abbey National Plc & seven ors: QBD (Comm) (Mr Justice Andrew Smith): 24 April 2008

The claimant Office of Fair Trading (OFT) sought a declaration that charges made by the eight defendant banks (B) to their customers when the banks were requested to make a payment for which they did not hold the necessary funds and which was not covered by a facility arrangement were not excluded from an assessment for fairness under the Unfair Terms in Consumer Contracts Regulations 1999. B counterclaimed.



The OFT was conducting a formal investigation into the fairness of bank current account charges. The objection had been raised that the relevant charges were not subject to assessment under the 1999 regulations. The OFT, by its proceedings, sought to establish that its investigation fell within the ambit of the regulations. By their counterclaims, B sought guidance about the law applicable to claims brought against them by individual customers.



The issues related to the application of regulation 6(2)(b), which provided that, in so far as it was in plain intelligible language, the assessment of fairness of a term would not relate to the adequacy of the price or remuneration as against the services supplied in exchange; the requirement of good faith under regulation 5(1); and whether the relevant terms were penalties at common law.



The OFT contended on the issue of plain and intelligible language that, in general terms, the application and effect of the relevant charges were not apparent to the typical customer, and in particular the relevant terms did not explain the criteria by which B decided whether to make an unarranged overdraft available to the customer when they received a relevant instruction, and did not indicate the order in which payment instructions would be processed.



B submitted that the relevant terms and charges were not capable of amounting to penalties at common law because they were not payable on a breach of contract by customers.



Held: (1) The fairness of the terms of a contract was to be determined when it was made, Director General of Fair Trading v First National Bank Plc [2001] UKHL 52, (2002) 1 AC 481 applied. Non-contractual material made available to the consumer when or before the contract was made could be relevant to the question of intelligibility. The questions about whether B's terms were in plain and intelligible language that were in issue did not depend on any previous banking relationship.



The 1999 regulations did not require that the consumer be given all the information that he needed to make an informed choice whether to make the contract. Regulation 6(2) was concerned with express terms and not with whether the consumer was likely to understand what terms would be implied. The contractual terms put forward had to be sufficiently clear to enable the typical consumer to have a proper understanding of them for practical purposes. It was not sufficient for a term to be expressed as clearly as reasonably possible, given the nature and complexity of the subject matter.



The OFT's complaint that B's terms were not in plain and intelligible language because of the criteria and order of processing uncertainties was rejected. The terms were in plain intelligible language, except in certain specific and relatively minor respects.



(2) None of the provisions that the OFT had identified as potentially penal meant that the customer was under a contractual commitment such that relevant charges could be a penalty for breach of the commitment and so unenforceable at common law. The argument that any breach on the part of the customer was waived once B had paid on the relevant instruction and thereby agreed to extend an unarranged overdraft was rejected. The 1999 regulations did not displace the common law of penalties.



(3) Regulations 6(2)(a) and 6(2)(b) provided for two separate exemptions from assessment of fairness, and the reference to the main subject matter in regulation 6(2)(a) did not limit the effect of regulation 6(2)(b). The question of whether a term fell within regulation 6(2)(b) was not answered simply according to whether or not it was a default provision.



If a bank declined to pay on a relevant instruction, it supplied no relevant services. B did supply services within the 1999 regulations to current account customers when they paid in accordance with a relevant instruction. Making payment on a relevant instruction and providing an unarranged overdraft was part of the essential services supplied by B when operating current accounts, and not merely incidental or ancillary. The charges in issue were not made in exchange for the whole package of services supplied by a bank when operating a current account. Nor were the relevant charges the price or remuneration in exchange for services by way of providing an unarranged overdraft. Therefore, the relevant terms were not exempt from assessment under the 1999 regulations.



An assessment of the relevant charges or relevant terms did not impinge on the adequacy of the totality of the benefits received by B in exchange for the package of services. If regulation 6(2) did cover the relevant terms, then it did not exclude any assessment of fairness but only excluded an assessment relating to the adequacy of the price.



(4) The court declined to make any declaration as to the meaning and effect of the requirement of good faith in regulation 5(1).



Judgment accordingly.



Brian Doctor QC, Jemima Stratford, Richard Coleman, Sarah Love (instructed by the in-house solicitor) for the Office of Fair Trading; Ali Malek QC, Richard Brent (instructed by Ashurst) for Abbey National Plc; Iain Milligan QC, Andrew Mitchell, Simon Atrill (instructed by Simmons & Simmons) for Barclays Bank Plc; Richard Salter QC, John Odgers, Adam Kramer (instructed by Addleshaw Goddard) for Clydesdale Bank Plc; Robin Dicker QC, Timothy Howe QC, Jeremy Goldring, James McClelland (instructed by Allen & Overy) for HBOS Plc; Richard Snowden QC, Mark Hoskins, Daniel Toledano, Patrick Goodall (instructed by Freshfields Bruckhaus Deringer) for HSBC Bank Plc; Bankim Thanki QC, Richard Handyside, James Duffy (instructed by Lovells) for Lloyds TSB Bank Plc; Geoffrey Vos QC, Sonia Tolaney (instructed by Slaughter and May) for Nationwide Building Society; Laurence Rabinowitz QC, Malcolm Waters QC, David Blayney, Benjamin Pilling (instructed by Linklaters) for The Royal Bank of Scotland Group Plc.





SCIENCE

Animal research organisations - animal welfare - guidelines - irrationality - licences

R (on the application of Campaign to End All Animal Experiments (t/a British Union for the Abolition of Vivisection)) v Secretary of State for the Home Department: CA (Civ Div) (Lords Justice May, Dyson, Moses): 23 April 2008
 The appellant secretary of state appealed against a decision ([2007] EWHC 1964 (Admin)) that a chief inspector of the Animals (Scientific Procedures) Inspectorate, appointed by him to perform an investigation, had misconstrued statutory guidance and reached a perverse conclusion. The respondent union (B) cross-appealed from the judge's dismissal of another part of its case.



The inspector had been appointed after B had raised concerns with the secretary of state that adverse effects experienced by marmosets as a result of tests forming part of research by a university into the functioning of the human brain ought to have been categorised as 'substantial' instead of 'moderate'. The inspector had analysed the Guidance on the Operation of the Animals (Scientific Procedures) Act 1986, as published pursuant to section 21, and had found the effects to have been properly categorised, and on the basis of his report the secretary of state had taken no action.



B had applied for judicial review of the decision that the procedures were properly categorised and the court had found the inspector's conclusion to be wrong in part. It had found that the criterion for classification of a procedure requiring a 'substantial' severity limit was that the procedure may result in a 'major departure' from the animal's state of health or well-being, and that the inspector had not accepted that adverse effects severe enough to require the killing of the animal were capable of amounting to major departures from its health or well-being.



The judge had found that the only conclusion open to the inspector was that the effects of the university's procedures were properly to be classified as 'substantial' and that his conclusion could not stand.



The secretary of state submitted that: (1) the judge had been wrong to decide that anticipated humane killing was an indicator of severity in the sense that it would require a severity limit of 'substantial'; (2) the judge had had no proper basis for rejecting scientific expert evidence, and had been wrong in law to find that the inspector had misconstrued the guidance and that a 'substantial' severity limit had been the only conclusion open to him on the facts.



Held: (1) There was no dispute that humane killing was not, itself, an adverse effect. Its purpose was to prevent or control adverse effects. The purpose of humane killing was to prevent or bring an end to what would otherwise be adverse effects. It was a matter of expert scientific judgment whether the state of the animal before it was humanely killed would comprise adverse effects requiring a 'substantial' severity limit, or even a 'moderate' severity limit, since the risk of exceeding a 'mild' severity limit might be avoided by humane killing.



The reference to 'humane endpoints' in paragraph 5.41 of the guidance implied no more than that humane killing should be taken into account where appropriate, and neither that wording nor the reference to 'acute toxicity procedures where... death is an endpoint' necessarily equated with or predicated humane killing or detracted from the analysis of severity limits.



(2) The court should be very slow to conclude that the inspector and the expert witness in the court below had reached a perverse scientific conclusion. The guidance and scientific judgement generally was not immune from lawyers' analysis, but the court had to be careful not to substitute its own inexpert view of the science for a tenable expert opinion.



In the present case, the inspector's review had not been shown to have proceeded on an error of law as to the meaning and application of the first sentence of the description of the 'substantial' severity limit. The judge could not have found the inspector's conclusions to be perverse without an intense analysis of expert scientific material, which he had rightly not attempted to undertake. Therefore, his decision that the inspector's decision was clearly wrong could not stand.



(3) B's assertions on the cross-appeal concerned essentially factual questions that were at the very fringe of what was appropriate for a court to consider on a judicial review application. Its submissions contained pages of dense factual material about individual marmosets, which should not be the subject of detailed inexpert analysis in court when they raised no important point of law or factual matter of enduring relevance. The main question was whether the animals had been properly cared for, and the inspector had been properly entitled to find that they had.



Appeal allowed, cross-appeal dismissed.



Nigel Giffin QC, Julian Milford (instructed by the Treasury Solicitor) for the appellant; Richard Drabble QC, Simon Cox (instructed by David Thomas) for the respondent.





REAL PROPERTY

Agency - contracts - commission - contract terms - estate agents - purchasers

Foxtons Ltd v Pelkey Bicknell & anor: CA (Civ Div) (Lord Justice Waller (vice president), Lord Justice Rix, Lord Neuberger of Abbotsbury): 23 April 2008
 The appellant (B) appealed against a decision that she was liable to pay the respondent estate agent (F) commission on the sale of her house.



B had appointed F on a sole agency basis to sell her house. F's terms of business made B liable to pay commission if, at any time, contracts were exchanged with a purchaser introduced by F during the period of the sole agency or with whom F had had negotiations during that period. That wording reflected the terms of the Estate Agents (Provision of Information) Regulations 1991.



F showed the house twice to a person (L), who was looking for a house on behalf of his former wife (K). K visited the house after F's sole agency had been terminated and F was acting under a multiple agency agreement. K did not like the house. Three months later, K visited the house again by arrangement with another estate agent. K offered to buy the house and the purchase was completed. B paid commission to the other agent. F began proceedings to recover its commission.



The judge held that the words 'at any time' negated any implication that F had to be the effective cause of the sale, and that, in any event, F was the effective cause of the sale to K. B submitted that the expression 'a purchaser' in the phrase 'a purchaser introduced by' F did not mean 'a person who at some time in the future becomes a purchaser', as the judge had held, but 'a person who becomes a purchaser as a result of' F's introduction.



Held: (1) The interpretation of the term 'a purchaser' put forward by B, which required F to have introduced the person to the purchase rather than to the property, was to be preferred. That interpretation was in accord with the main principles which could be extracted from the decided cases, John D Wood & Co v Dantata [1987] 283 EG 314 CA (Civ Div) applied. The notion that an estate agent could only recover commission if he introduced someone who became a purchaser as a result of the introduction sat well with the normal principle that an agent, whose commission was received on the basis of a successful transaction, must normally be the effective cause of the transaction if he was to receive his commission.



It was not apparent why an agent should be entitled to commission on a purchase for which he had no responsibility and which effectively originated after the sole agency had terminated. On B's interpretation, it was much less likely that a client who had instructed more than one agent would be liable for more than one commission.



The fact that there was no connection between F's efforts and an ultimate sale would be irrelevant, on F's interpretation, as would the passage of time. In order to be entitled to a commission under its standard terms for having introduced a purchaser, F had to show that it had introduced the person concerned as the eventual purchaser or, in other words, that F had introduced the purchaser to the purchase and not merely to the property. It followed that there was no question of implying into the terms a requirement that F must have been the cause, or an effective cause, of the purchase.



(2) On a proper analysis of the facts, the judge's conclusion that F was the effective cause of the sale of the house to K, which was tantamount to concluding that K was a purchaser introduced by F, was not justifiable. K was plainly not interested in purchasing the house after her first visit. That meant that L, who acted as her agent, was not interested either. There was nothing to suggest that K's interest in the house some ten weeks later was based on F's earlier activities. In the circumstances, F failed to show that it had introduced K to the purchase or as the eventual purchaser.



Appeal allowed.



Patrick Blakesley (instructed by the in-house solicitor) for the respondent; Clive H Jones (instructed by Blake Lapthorn Tarlo Lyons) for the appellant.





PENSIONS

EC law - reduction - state retirement pension - cessation of residence in the UK

Secretary of State for Work & Pensions v (1) Eric Burley (2) Joan Burley: CA (Civ Div) (Lords Justice Mummery, Toulson, Lady Justice Arden): 23 April 2008
 The appellant secretary of state appealed against a decision of the Social Security and Child Support Commissioners that the respondent pensioners (B) were entitled to receive higher rate retirement pensions following their move to France.



B, who were husband and wife, had received 100% state pensions for more than 20 years. The husband was a UK national and the wife was born in Australia and had dual nationality.



When B reached pensionable age, they were both credited with deemed contributions and received a higher rate UK retirement pension entitlement. In 2004, B moved to France to live near their son and ceased to reside permanently in the UK. B claimed that they had been told by the Pensions Service that their pensions would not be affected by their move. That same year the secretary of state made an award reducing their retirement pensions to 35% of the standard rate. B's appeal against that rate was allowed by the commissioner.



The issue on the present appeal was whether B were entitled to receive their higher rate pensions undiminished by their ceasing to be permanently resident in the UK by the application of article 10 of Regulation 1408/71.



The secretary of state submitted that the provisions of the 1971 regulations did not apply to B's case; that UK domestic law giving effect to an international social security agreement with Australia applied; and that under UK domestic law the right to the higher-rate retirement pension ceased when they ceased to live permanently in the UK.



Held: (1) The 1971 regulation remained in force pending the implementation of regulation 883/2004. The commissioner's holding that article 10 of the 1971 regulation applied to B's case was based on his conclusion that the relevant provisions of UK legislation did not fit the description of provisions of UK legislation in paragraph 7 of section Y in annex VI of the 1971 regulations. In order to fall within that paragraph, the provisions of UK legislation in question must be 'intended to bring into force' a social security agreement like that concluded between the UK and Australia. It was clear that the Social Security (Australia) Order 1992 was legislation intended to bring into force the Australian Agreement. The 1992 order ceased to be the relevant legislation when it was replaced by the Social Security (Australia) Order 2000. Although the Australian Agreement was terminated as from 2001, the 2000 order did bring certain provisions into effect for a limited purpose, namely those preserving and continuing, in accordance with the terms of the terminated Australian Agreement, the retirement pension rights of people like B. To that limited extent, the 2000 order satisfied the description of UK legislation in paragraph 7.



The retirement pension remained, however, subject to the provisions of article 3(5) of the Australian Agreement for cesser of enhanced pension rights on cesser of permanent residence in the UK.



(2) The ruling of the European Court of Justice in Grana-Novoa v Landesversicherungsanstalt Hessen (C23/92) [1993] ECR I-4505 ECJ left the present court with no option but to find that the Australian Agreement fell outside the 1971 regulations, on which B had to rely to preclude the reduction of benefits for the sole reason that a person moved to live in another member state. In order to succeed, B had to invoke the 1971 regulation. This meant that they had to show that their retirement pension rights did not derive from legislation bringing into force an international security agreement concluded between the UK and a third state, on the one hand, and that they did not derive from an international social security agreement between a single member state on the other.



The true construction of paragraph 7 and the ruling in Grana-Novoa made it impossible for them to succeed. Whichever way one looked at B's predicament, any ongoing rights that they had to an enhanced retirement pension while living permanently outside the UK derived from a social security agreement concluded between the UK and a non-member state, and any UK legislation dealing with such rights was similarly derived.



Appeal allowed.



Tim Buley (instructed by the in-house solicitor) for the appellant; in person for the first respondent.