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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> The Office of Fair Trading v Foxtons Ltd [2009] EWCA Civ 288 (02 April 2009) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2009/288.html Cite as: [2009] 3 All ER 697, [2010] WLR 663, [2010] 1 WLR 663, [2009] EWCA Civ 288, [2009] 14 EG 87, [2010] Bus LR 228, [2009] 3 CMLR 6 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Morgan
Strand, London, WC2A 2LL |
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B e f o r e :
Vice-President of the Court of Appeal, Civil Division
LADY JUSTICE ARDEN
and
LORD JUSTICE MOORE-BICK
____________________
The Office of Fair Trading |
Appellant |
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- and - |
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Foxtons Limited |
Respondent |
____________________
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Michael Kent QC and Andrew Davis (instructed by Mishcon de Reya) for the Respondents
Hearing dates : 9th, 10th February 2009
____________________
Crown Copyright ©
Lord Justice Waller :
Foxtons' terms
i) Terms which purport to entitle Foxtons to charge a renewal commission if a tenant introduced by Foxtons renews or extends his tenancy, even where Foxtons have not negotiated the renewal or extension ("the renewal commission");
ii) A term which purports to entitle Foxtons to charge a sales commission where a landlord sells to a tenant introduced by Foxtons, even though Foxtons neither negotiates nor assists in any way with the sale ("the sales commission");
iii) A term which purports to entitle Foxtons to recover a commission from a landlord where that landlord has transferred the property to another and it is the other landlord that has renewed again, without any intervention from Foxtons ("third party renewal commission") .
OFT's Claim
"13. All of these clauses are not individually negotiated and are unfair in that, contrary to the requirement of good faith, they cause a significant imbalance in the parties' rights and obligations, to the detriment of Foxtons' consumer landlord customers.
14. The Claimant has raised the unfairness of these clauses with Foxtons in correspondence. However, to the date hereof, Foxtons has not removed these clauses from its standard residential letting terms.
Relief sought
15. In the premises, and in order to prevent harm to the interests of consumers, the Claimant seeks:
(a) A declaration that the renewal commission clause, the sales commission clause and/or the third party renewal commission clause of Foxtons standard residential lettings terms, or any similar terms or terms having like effect, are unfair terms in contracts concluded with consumers and, accordingly, that these clauses are contrary to Regulation 5(1) of the UTCCRs and are not binding on consumers pursuant to Regulation 8(1) of the UTCCRs; and/or
(b) a declaration that contrary to the requirements of Regulation 7(1) of the UTCCRs the renewal commission clause, the sales commission clause and/or the third party renewal commission clause are not expressed in plain or intelligible language; and/or
(c) an injunction pursuant to Regulation 12 of the UTCCRs, restraining Foxtons (whether by itself, its agents or howsoever) from infringing the UTCCRs in the respects identified in paragraph 10 and/or 14 above or any of them and/or from using, recommending for use, enforcing, attempting to enforce or otherwise relying on any such terms and/or similar terms and/or terms having like effect in contracts concluded with consumers.
(d) costs.
(e) such further or other relief as the court may direct."
The application
The Directive
"4. Whereas it is the responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms;
6. Whereas, in order to facilitate the establishment of the internal market and to safeguard the citizen in his role as consumer when acquiring goods and services under contracts which are governed by the laws of Member States other than his own, it is essential to remove unfair terms from those contracts;
8. Whereas the two Community programmes for a consumer protection and information policy (4) underlined the importance of safeguarding consumers in the matter of unfair terms of contract; whereas this protection ought to be provided by laws and regulations which are either harmonized at Community level or adopted directly at that level;
14. Whereas Member States must however ensure that unfair terms are not included, particularly because this Directive also applies to trades, business or professions of a public nature;
15. Whereas it is necessary to fix in a general way the criteria for assessing the unfair character of contract terms;
16. Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith; whereas, in making an assessment of good faith, particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account;
20. Whereas contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms and, if in doubt, the interpretation most favourable to the consumer should prevail;
23. Whereas persons or organizations, if regarded under the law of a Member State as having a legitimate interest in the matter, must have facilities for initiating proceedings concerning terms of contract drawn up for general use in contracts concluded with consumers, and in particular unfair terms, either before a court or before an administrative authority competent to decide upon complaints or to initiate appropriate legal proceedings; whereas this possibility does not, however, entail prior verification of the general conditions obtaining in individual economic sectors;
24. Whereas the courts or administrative authorities of the Member States must have at their disposal adequate and effective means of preventing the continued application of unfair terms in consumer contracts, . . ."
Article 3
1. A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
2. A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract.
The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract.
Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him.
3. The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair.
Article 4
1. Without prejudice to Article 7, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.
2. Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language.
Article 5
In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain, intelligible language. Where there is doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail. This rule on interpretation shall not apply in the context of the procedures laid down in Article 7 (2).
Article 6
1. Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.
2. Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-Member country as the law applicable to the contract if the latter has a close connection with the territory of the Member States.
Article 7
1. Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers.
2. The means referred to in paragraph 1 shall include provisions whereby persons or organizations, having a legitimate interest under national law in protecting consumers, may take action according to the national law concerned before the courts or before competent administrative bodies for a decision as to whether contractual terms drawn up for general use are unfair, so that they can apply appropriate and effective means to prevent the continued use of such terms.
3. With due regard for national laws, the legal remedies referred to in paragraph 2 may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations which use or recommend the use of the same general contractual terms or similar terms.
The regulations
"Complaints - consideration by Director
10. - (1) It shall be the duty of the Director to consider any complaint made to him that any contract term drawn up for general use is unfair, unless-
(a) the complaint appears to the Director to be frivolous or vexatious; or
(b) a qualifying body has notified the Director that it agrees to consider the complaint.
(2) The Director shall give reasons for his decision to apply or not to apply, as the case may be, for an injunction under regulation 12 in relation to any complaint which these Regulations require him to consider.
(3) In deciding whether or not to apply for an injunction in respect of a term which the Director considers to be unfair, he may, if he considers it appropriate to do so, have regard to any undertakings given to him by or on behalf of any person as to the continued use of such a term in contracts concluded with consumers.
…
Injunctions to prevent continued use of unfair terms
12. - (1) The Director or, subject to paragraph (2), any qualifying body may apply for an injunction (including an interim injunction) against any person appearing to the Director or that body to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers.
(2) A qualifying body may apply for an injunction only where-
(a) it has notified the Director of its intention to apply at least fourteen days before the date on which the application is made, beginning with the date on which the notification was given; or
(b) the Director consents to the application being made within a shorter period.
(3) The court on an application under this regulation may grant an injunction on such terms as it thinks fit.
(4) An injunction may relate not only to use of a particular contract term drawn up for general use but to any similar term, or a term having like effect, used or recommended for use by any person.
Powers of the Director and qualifying bodies to obtain documents and information
13. - (1) The Director may exercise the power conferred by this regulation for the purpose of-
(a) facilitating his consideration of a complaint that a contract term drawn up for general use is unfair; or
(b) ascertaining whether a person has complied with an undertaking or court order as to the continued use, or recommendation for use, of a term in contracts concluded with consumers.
…
Publication, information and advice
15. - (1) The Director shall arrange for the publication in such form and manner as he considers appropriate, of-
(a) details of any undertaking or order notified to him under regulation 14;
(b) details of any undertaking given to him by or on behalf of any person as to the continued use of a term which the Director considers to be unfair in contracts concluded with consumers;
(c) details of any application made by him under regulation 12, and of the terms of any undertaking given to, or order made by, the court;
(d) details of any application made by the Director to enforce a previous order of the court.
(2) The Director shall inform any person on request whether a particular term to which these Regulations apply has been-
(a) the subject of an undertaking given to the Director or notified to him by a qualifying body; or
(b) the subject of an order of the court made upon application by him or notified to him by a qualifying body;
and shall give that person details of the undertaking or a copy of the order, as the case may be, together with a copy of any amendments which the person giving the undertaking has agreed to make to the term in question.
(3) The Director may arrange for the dissemination in such form and manner as he considers appropriate of such information and advice concerning the operation of these Regulations as may appear to him to be expedient to give to the public and to all persons likely to be affected by these Regulations. "
The judge's judgment
"46. In my judgment, what the court should do in the case of a collective challenge is to assess the fairness of the term having regard to a typical consumer and typical circumstances. The court cannot be expected to assess whether, on the facts of cases not disclosed to the court, there is or is not a possibility that there might be a case where the term would not be considered to be unfair. The court may well feel that an exceptional case was unlikely but the court would be reluctant in the extreme to say that such a case could never arise. Even if there were a remote possibility of one such exceptional case, that would disentitle the OFT from the injunction it seeks, which makes no exceptions.
47. Mr Green then submitted that if the court were able to conclude that Foxtons would fail in the vast majority of cases where, in the past, they had used the relevant term, then that would justify the grant of the injunction sought. I disagree. In those circumstances, the injunction would unjustifiably override Foxtons' rights in the minority of individual cases which were different from the vast majority.
48. Mr Green then submitted that the injunction sought was justified by the word "use" in Regulation 12. He submitted that Foxtons were "using" the relevant term if they sought to rely upon it in relation to a contract previously entered into. He submitted that "use" was not confined to putting forward the term in a draft contract in the future. It does not seem to me to be necessary to consider what precisely is involved in the word "use" in this context. Even if Mr Green were right, he still cannot overcome the difficulty that the exercise which will be conducted by the court in these proceedings will involve assessing the fairness of the relevant term on the basis of a typical consumer in typical circumstances, whereas the injunction sought purports to cover all individual contracts entered into in the past, where the characteristics of the consumers and the circumstances, in one or more cases, might have been different.
49. I now turn to consider what the court should do at this early stage in these proceedings in relation to the claim to an injunction. At one time, I could see the force of a submission that I should do nothing. The court could allow the claim to go forward and be determined. The court would have to decide on the basis of a collective challenge whether the relevant terms were unfair. At that stage the court could decide what relief to grant. If the OFT succeeded in its collective challenge and persisted in seeking the injunction as claimed, and if the trial judge took the same view as I take of the scope of Regulation 12, then the trial judge could refuse to grant the full width of the injunction claimed. I have however decided not to take the approach of doing nothing, for two reasons.
50. The first reason is that I have heard the OFT's submissions as to the basis of their claim to the wider injunction and I am able to come to the clear conclusion that it is wrong in a number of its submissions. There is therefore some utility in deciding those points at this stage.
51. My second reason relates to the arguments presented by the OFT on this application. When Mr Green presented the OFT's case, he suggested that there was some sort of evidential burden on Foxtons to show that there was no individual case (or possibly, not many such cases) in existence where the position would be different on an individual challenge from this collective challenge. He referred to Foxtons not having produced evidence of any such circumstances. He also was prepared to contemplate disclosure by the OFT of documents in their possession, relating to individual complaints where the complainant had wanted the complaint to remain confidential. He seemed to contemplate that the court would be asked to address the specific facts of individual cases so that, perhaps, the court would take the view that there could not be an individual case which was different from the typical case or that such individual cases would be few and far between and could be ignored.
52. In my judgment, it is desirable for both parties to know the scope of the investigation which will be undertaken in this collective challenge. In accordance with authority, this collective challenge will proceed on the basis of a typical consumer and typical circumstances. This collective challenge will not determine all the issues which might arise in individual cases. The injunction sought is too wide and could not be granted in these proceedings. To give effect to this ruling, I will strike out the words " … enforcing, attempting to enforce or otherwise relying on …" in paragraph 15(c) of the endorsement on the Claim Form. I have considered whether to make other amendments to the injunction sought in paragraph 15(c). I have decided not to do so. First of all, the OFT did not put forward any alternative draft of an injunction. Further, if I had been asked to cut down the injunction sought so that it referred only to "typical consumers" or "typical circumstances", I would not have regarded an injunction expressed in those terms as having the necessary clarity for the purposes of an injunction."
Submissions on behalf of the OFT
"12. The Commission submits that Article 7 of the Directive regulates one of the fundamental aspects of protection introduced by that act, that is to say the procedure intended to 'prevent' the use of unfair terms in contracts concluded between sellers and suppliers and consumers. It is a requirement of that objective that it should be possible to initiate that procedure not only against sellers or suppliers using such clauses, but also against professional bodies or other traders who recommend the use of such clauses. It is not necessary to wait until clauses drawn up with a view to general use are actually inserted in a particular contract.
13. The Italian Government disputes this interpretation. It maintains that the procedure provided for in Article 7 of the Directive is designed to prevent the 'use' of unfair terms. Actual, and not merely potential, use is therefore an essential condition.
14. It should be noted that in its judgment in Joined Cases C-240/98 to C-244/98 Océano Grupo Editorial et Salvat Editores [2000] ECR I-4941, paragraph 27) the Court held that the system of protection laid down by the Directive is based on the notion that the imbalance between the consumer and the seller or supplier may only be corrected by positive action unconnected with the actual parties to the contract. That is why Article 7 of the Directive, paragraph 1 of which requires Member States to implement adequate and effective means to prevent the continued use of unfair terms, specifies in paragraph 2 that those means are to include allowing authorised consumer associations to take action in order to obtain a decision as to whether contract terms drawn up for general use are unfair and, where appropriate, to have them prohibited.
15. The deterrent nature and dissuasive purpose of the measures to be adopted, together with their independence from any particular dispute mean, as the Court held, that such actions may be brought even though the terms which it is sought to have prohibited have not been used in specific contracts, but have only been recommended by suppliers and sellers or their associations (Océano Grupo Editorial, cited above, paragraph 27)."
"Furthermore, it is of undoubted importance that, in order to remedy a situation of significant imbalance between the two parties to the contract, the Directive requires Member States to introduce a system of protection which involves – and actively so – persons unconnected with the individual contractual relationship. On the basis of the obvious premiss that the reaction of consumers to terms that are harmful to their interests is not an effective remedy because of the cost of bringing an individual action and the disinclination of consumers to venture into complex proceedings against sellers or suppliers who are more powerful and better organised, the Directive requires that 'Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers' (Article 7). Assessment of whether the means of protection which the Directive requires Member States to provide are 'adequate and 'effective' is linked to a specific assessment of the question whether the means are appropriate to the objective pursued, which, I repeat, is to ensure that unfair terms are not binding upon the consumer."
"27. Moreover, as the Advocate General pointed out in paragraph 24 of his Opinion, the system of protection laid down by the Directive is based on the notion that the imbalance between the consumer and the seller or supplier may only be corrected by positive action unconnected with the actual parties to the contract. That is why Article 7 of the Directive, paragraph 1 of which requires Member States to implement adequate and effective means to prevent the continued use of unfair terms, specifies in paragraph 2 that those means are to include allowing authorised consumer associations to take action in order to obtain a decision as to whether contractual terms drawn up for general use are unfair and, if need be, to have them prohibited, even if they have not been used in specific contracts.
28. As the French Government has pointed out, it is hardly conceivable that, in a system requiring the implementation of specific group actions of a preventive nature intended to put a stop to unfair terms detrimental to consumers' interests, a court hearing a dispute on a specific contract containing an unfair term should not be able to set aside application of the relevant term solely because the consumer has not raised the fact that it is unfair. On the contrary, the court's power to determine of its own motion whether a term is unfair must be regarded as constituting a proper means both of achieving the result sought by Article 6 of the Directive, namely, preventing an individual consumer from being bound by an unfair term, and of contributing to achieving the aim of Article 7, since if the court undertakes such an examination, that may act as a deterrent and contribute to preventing unfair terms in contracts concluded between consumers and sellers or suppliers."
"With reference to contracts existing at the time of the ruling, the injunction on the use of unfair terms does not conflict with the preventive function of such a protection tool. The prevention requirement not only concerns the insertion of clauses in forms or paperwork used for concluding contracts after adoption of the injunctive measures but also, the post-injunction effects brought about by these clauses or the effects which are likely to come about over time, through the exercise of powers deriving from those terms."
"The purpose of the Directive is twofold, viz the promotion of fair standard contract forms to improve the functioning of the European market place and protection of consumers throughout the European Community. The Directive is aimed at contracts of adhesion, viz "take it or leave it" contracts. It treats consumers as presumptively weaker parties and therefore fit for protection from abuses by the stronger contracting parties. This is an objective which must throughout guide the interpretation of the Directive as well as the implementing Regulations."
Submissions on behalf of Foxtons
OFT's response
Submissions on Abbey National PLC v The Office of Fair Trading [2009] EWCA Civ 116 ("the Bank Charges case")
Discussion and conclusion
Declarations
"51. In my judgment, the passage which I have cited from Lord Diplock's speech in the Gouriet case [1978] AC 435, 501, can no longer be taken to be an exhaustive description of the circumstances in which declaratory relief can be granted today. It is to be regarded rather as a reminder that the jurisdiction is limited to the resolution of justiciable issues; that the only kind of rights with which the court is concerned are legal rights; and that accordingly there must be a real and present dispute between the parties as to the existence or extent of a legal right. Provided that the legal right in question is contested by the parties, however, and that each of them would be affected by the determination of the issue, I do not consider that the court should be astute to impose the further requirement that the legal right in question should be claimed by either of the parties to be a right which is vested in itself." (emphasis added)
Lady Justice Arden:
An injunction granted in a collective challenge can extend to the use of unfair terms in existing contracts
" apply for an injunction (including an interim injunction) against any person appearing to the Director ... to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers."
"grant an injunction on such terms as it thinks fit. "
"in the interests of consumers and competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers."
Effect of an injunction against use of an unfair term in an existing contract
Discretion to grant an injunction in a collective challenge against use of an unfair term in an existing contract
Article 5 point
Lord Justice Moore-Bick :
" [16] The distinction made in Article 5 of the directive concerning the applicable rule of interpretation, as between actions involving an individual consumer and actions for cessation which involve persons or organisations representative of the collective interest of consumers may be accounted for by the different aims pursued by those actions. In the former case, the courts or competent bodies are required to make an assessment in concreto of the unfair character of a term contained in a contract which has already been concluded, while in the latter case it is their task to assess in abstracto the unfair character of a term which may be incorporated into contracts which have not yet been concluded. . . . ." (Emphasis added.)
"In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain, intelligible language. Where there is doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail. This rule on interpretation shall not apply in the context of the procedures laid down in Article 7(2)."