The Case of The Office of Fair Trading vs Abbey National Plc and Others - Literature review Example

?The case of The Office of Fair Trading (Respondents) v Abbey National plc & Others (Appellants). Exercise The Court of Appeal case 2009) EWCA Civ 116) was before Lord Philips, who was the President, and four other Law Lords: Lord Walker, Lady Hale, Lord Mance, and Lord Neuberger. There were eight appellants: Abbey National Plc, Barclays Bank Plc, Nationwide Building Society, Clydesdale Bank Plc, The Royal Bank of Scotland Group Plc, HSBC Plc, Lloyds TSB Bank Plc, and HBOS Plc. The respondent in the case was The Office of Fair Trading. The appeal starts by Lord Walker. In The appeal, the Supreme court was to give a verdict as whether the OFT should go ahead and undertake investigations to find out if the charges “the Banks”, which were the appellants, made for unauthorized overdrafts by their customers were fair. At the moment, banks provided retail banking services on grounds that customers’ accounts that lend the bank money are excluded from paying charges to the bank for services offered. Customers whose accounts had authorized overdrafts only paid charges for the money they borrow “the Banks”. Customers whose accounts had unauthorized overdrafts, however, paid interest on money borrowed besides paying fixed fees for every service they received from “the banks”. The Office of Fair Trading holds investigative powers on consumer contracts’ fairness terms. The power of the Office of Fair Trading, however, has limitations bound to it. The limitations stipulated in the Unfair Contract Terms, in Consumer Regulations 1999. The Unfair Contract Terms, in Consumer Regulations 1999, implemented European Council Directive 93/13/EEC. The directives help protect customers and ensure a favorable business environment for fair trading. OFT has the mandate on undertaking this. The provisions regulation 6 (2) (b) give way for evaluate trading activities of a business enterprise or organization. OFT scrutinizes the activities so as to determine the level of fairness of the activities. The OFT scrutinizes contracts and customer satisfaction to determine their fairness. In the case the court of appeal did hold the point of exclusion in the case only to the contracts’ “core terms”. The court excluded ancillary terms as charges for unauthorized overdrafts on reasons that the charges were within the exclusion. The charges, according to the court, were part of the charges for banking services provided. At first instance ([2008] EWHC 875 (Comm), and in the Court of Appeal, OFT was successful. Under the Unfair Terms in Consumer Contracts Regulations 1999, the Office of Fair Trading wished to conduct an investigation on “the Banks’” relevant terms in their contracts with customers by imposing charges on customers whose accounts had unauthorized overdrafts. The Office of Fair Trade hold mandate to undertake the investigation, notwithstanding regulation 6 (2) (b).The decision of both the High Court and the Court of Appeal that regulation 6 (2) (b) could not deter the OFT from doing the investigation made “the banks” to file appeal. Lord Walker emphasized the lack of decision on the fairness of the system of charging current account customers with unauthorized overdrafts. The court could only decide on the investigative mandate of the OFT (para 3). Lord Mance reaffirmed the investigative roles of OFT (para 61). Determining whether charges were consisted ‘cost and revenue’ as against ‘the goods or services distributed in exchange’ within the meaning of the Regulations was the main point to decide on. First, charges were ‘in exchange’ for the transactions to which they relate should the customer have inadequate funds to do so (Para 75). Secondly, regulation 6 (2) (b) no longer had a standing to the “ancillary” charges in the binding form (Paras 38-41, 47, 78, 112)1. In his reasoning, Lord Mance stated that, if in case the contracts were to serve as the package, then the charges levied would be fair. He further states that the charges were upon customers who were able to pay for them, different from charges the customer pays for because of their occurrence. Customers bear the liability to pay for the charges. Furthermore, regulation 6 (2) (b) do not confront the proportionality of remuneration. For that, challenging the ratio of remuneration to services is futile and inadmissible. Charges made result from customers’ consent of entering into a contract, after requesting for overdrafts. The request forms a basis of a contractual relationship. The charges resulted from the customers’ prior request. Charges are part of the package contract. The remuneration, therefore, were unchallengeable. The court unanimously allowed the appeal by “the Banks”. Exercise 2 The reason for appeal was that bank charges were not subject to judgment by the Office of Fair Trading on considerations of unfairness. The court in their ruling declared fairness determined on in relation to different criteria as opposed to basis of adequacy. The court dismissed claims of relevance on the basis of the ‘essential” cost of remuneration. The Financial Services Consumer Panel alleged the verdict to be critical and a technical point. The Unfair Terms in Consumer Contracts Regulations 1999 was effective by 1st October 1999. According to the regulation, unfair terms are as explained in the paragraph below. Any term that not individually negotiated can be contractual, if it is contrary to the requirement of good faith of the party involved in the contract of the term and causes a remarkable imbalance in the rights of the parties as well as obligations that arise under contract, to the consumer’s detriment. It refer to a term that the parties did not negotiate over, individually, from the point of drafting in advance and, therefore, the substance therein does not bear the consumer’s influence. An unfair term may be one which the other parts of a term that though negotiated, bears any substantially pre-formulated standard contract. It can apply to any buyer or seller whose claim to negotiate it individually. The regulation’s second schedule contains a list of such terms regarded as unfair. As contained in The Unfair Terms in Consumer Contracts Regulations 1999, two things must be fulfilled for written contracts. First, every seller or supplier is to ensure that any term that he or she gets into is written in and expressed in plain and intelligible language. Second, should there arise any doubt over the interpretation of a term, then the version of understanding that most favors the consumer prevails in such a case. The Unfair Terms in Consumer Contracts Regulations 1999 also provide for the effect of an unfair term. First, it is not binding to the consumer and that the contract dominates to bind the consumers if it is able of doing so in existence without the unfair term. The regulation 5(1) of the 1999 Regulations, transposing Article 3(1) of the Directive provide for the Court’s interpretation of unfair in relation to contractual terms. Regulation 5(1) provides that any contract is unfair if made or agreed upon and which the term is not individually negotiated is regarded unfair. This is mainly when the contract is against the good faith and a significant disparity in rights and obligations of the contract’s parties and it works to the detriment of the consumer. Regulation 8, transposing Article 6(1) provides for the consequences of unfairness. It provides that an unfair term in a contract signed by a consumer or assented to by a seller or supplier and, therefore, is liable by it. Every contract binds the parties that get to sign it.” Regulation 3(2) of the 1994 Regulations asserts there no authority is allowed to do the assessment onto the level of fairness of any of the terms which- (a) bear the general persons in the term therein, or (b) concern the level of acceptance to the cost and revenues of the goods provided as well the services offered. As provided in Article 4(2) and only excluding paragraph 69, any formal kind of contract agreed upon is to undergo a viability search for fairness even given prior talks between the parties bound by it. Liberations should cast light on issues of the costs and revenues realized by the contract’s parties. Pursuit to Article 4(2) together with regulation 6(2), the nature and extent of the term should undergo vigorous interpretation. The price of goods provided by the parties is necessarily stipulated and elaborated. Any discounted part should have clear stipulation in the term and signed by the parties involved. The interest of all involved in the term should not at any point realize any form of demeaning. Should it receive any form of compromise, then a great part of the term is lost. It is worth noting the\\at the parties’ interests are very important in the terms and conditions of the term. No party, element, or part of the form is to exploit unclear ideas in the term. All factors are kept at bay and their harmony ensured. Conflicting ideas should receive a form of blending to come to terms together in the form. The term should by all means ensure fairness in trade, achieved the interest of all and not exploitative. Exercise 3 In interpreting the case, challenges came up on various issues concerning the case. It is worth noting that the case was in court for the second time. On the first instance, the Office of Fair Trading won the case. At some point in giving the judgement the Law Lords remained sceptical on some issues. There were issues that called for in depth consideration of the case at hand. The resolution as to whether the Court of Justice would adopt the Court of Appeal’s interpretation of the case, for example, was an issue to consider. At some moment in the process on giving their verdict on the case, Lord Phillips expressed doubt of the consent of the Court of Justice on their deliberation on the case. The adoption of the Court of Appeal’s verdict by the Court of Justice was an issue to consider2. This presented one of the problems encountered in determining the case of The OFT v Abbey National plc & Others. The Court of Appeal mainly depended on negotiations concepts in producing its verdict on the case. It significantly based the opinions on the Unfair Terms in Consumer Contracts Regulations 1999 and other related laws. Instances and paragraphs where negotiations form the basis of giving the verdict dominated the ruling read by the Law Lords. Overreliance on negotiations in giving the case could initiate and arouse doubt among the interested members in the case of verdict with no proper grounds. Negotiations could give different points of view that would affect the value of the verdict. The changing positions of the regulation as provided by regulation 6 (2) (b) and article 4(2) posed a challenge to the Law Lords. This was noticeable in paragraph 90. The issue was more conflicting than before when the court settled on “the typical consumer” as the basis the classic consumer of making the judgment. The Law Lords faced dilemma in choosing the classic consumer to use in the case to settle on the case and give their verdict. They had to consider several factors to make the decision and settle on the case. Their choice of the typical consumer came after intense negotiation. Mr. Crow’s presentation of three main criteria for settling on payment brought more confusion and the Law Lords were to extensively consult to come to terms with the most appropriate choice. Another deliberation of the Law Lords was to settle on the question as to which version to use. This was weather to consider the entire customer community or who are fittest to bear the changes brought up by the banks. The Court of Appeal had limited scope on the case. It is worth considering the little portion of the customer, who had vested interest on the case, were aware of the logistics of the case. It proved challenging to spell this out to the public. List of References Gail Pearson and Richard Batten (eds).Understanding Australian Consumer Credit Law: A Practical Guide to the National Consumer Credit Reforms (CCH Australia Limited, 2010) Read More