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Cite as: [2008] EWHC 875 (Comm)

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Neutral Citation Number: [2008] EWHC 875 (Comm)
Case No: 2007 Folio 1186

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
24/04/2008

B e f o r e :

MR JUSTICE ANDREW SMITH
____________________

Between:
The Office of Fair Trading
Claimant
- and -

Abbey National PLC and 7 others.
Defendants

____________________

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
Iain 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 Bruckhaus 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 and 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
Hearing dates: 17, 18, 21, 22, 23, 24, 28, 29, 30, 31 January and 4, 5, 6, 8, February 2008

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    MR JUSTICE ANDREW SMITH :

    Introduction

  1. This action is about charges made by banks to their customers who have personal current accounts with them when they are requested or instructed to make a payment for which they do not hold the necessary funds in the account and which is not covered by a facility arranged with the customer. I shall refer to such requests or instructions as "Relevant Instructions", and to the charges as "Relevant Charges". I shall refer to the terms in the standard form contracts between bank and customer providing for the Relevant Charges as "Relevant Terms".
  2. The Relevant Terms and Relevant Charges are being challenged on two fronts: the Office of Fair Trading (the "OFT") is investigating under the Unfair Terms in Consumer Contracts Regulations 1999 (the "1999 Regulations") the fairness of the terms under which banks make such charges, and cases have been brought by individual customers in county courts disputing charges levied by banks, many of them relying not only on the 1999 Regulations but also on common law rules about the unenforceability of penalties.
  3. The claimant in these proceedings is the OFT. It is a "general enforcer" under section 213(1) of the Enterprise Act 2002, and therefore entitled under section 215(2) of the Act to apply for an enforcement order in respect of a domestic or a Community infringement (a Community infringement being an act or omission which harms the collective interests of consumers and which inter alia contravenes a listed Directive as given effect by the laws, regulations or administrative process of a state belonging to the European Economic Area), and specifically the Office of Fair Trading has a duty under the 1999 Regulations (subject to irrelevant exceptions) to consider any complaint made to it that any contract terms drawn up for general use are unfair. In March 2007 the OFT announced that it was to conduct "a formal investigation into the fairness of bank current account charges", and is considering whether to exercise its function under the 2002 Act to seek an enforcement order. It is perhaps worth emphasising that the OFT has not reached any conclusions about the fairness of the Relevant Charges or other matters that it is investigating. Mr Cavendish Elithorn, the OFT's Senior Director of Service Sectors, explained in his evidence that among the questions that the OFT is considering and wishes to continue to consider are (i) whether the Relevant Charges are sufficiently transparent and predictable for consumers; (ii) whether the Relevant Charges are too high; and (iii) whether the Relevant Charges operate fairly in relation to the individual customer (given that, as Mr. Elithorn says, the charges are borne by a minority of customers and bear no relationship to the costs of providing corresponding overdrafts but support the profitability of the current account service generally). He emphasises that the OFT is not only looking at the amount of the Relevant Charges, but at how they apply, how they are presented to the individual customer and their impact on customers. The objection has been raised that the Relevant Charges are not subject to assessment under the 1999 Regulations.
  4. These proceedings are against seven companies who, themselves or through one or more subsidiaries, operate banks and against the Nationwide Building Society, a mutual building society. I shall refer to the eight defendants simply as "the Banks". They represent, I was told, nine of the twelve members of the Cheque and Credit Clearing Company, and all operate large numbers of personal current accounts. Clydesdale, who, I understand, has the smallest share of the market, has some 2.4 million personal customers in the United Kingdom.
  5. The proceedings were brought on 27 July 2007 after the OFT and seven of the Banks had made a Litigation Agreement dated 25 July 2007, to which the Financial Services Authority ("FSA") was also party, and The Royal Bank of Scotland Group plc ("RBSG") had made a separate but similar agreement with the OFT and the FSA on 26 July 2007. The recitals to the Litigation Agreement refer to the OFT's investigation into "certain terms contained in each Bank's personal current account arrangements providing for charges to be imposed upon customers who seek to make payments for which they do not have available funds", and the proceedings brought by customers against the Banks. They go on to record the belief of the OFT and the Banks that the legal issues that have been raised in relation to the Banks' terms need to be resolved expeditiously and in a fair and orderly way, and to express concern about the scale of the litigation brought by customers. The OFT recognises the "desirability of achieving a fair and orderly resolution of the relevant issues" and agrees not to object to any request or application for a stay of other court proceedings between the Banks and their customers about the charges made by banks. I understand that, at least for the most part, the customers' litigation has not been proceeding pending the determination of issues raised in these proceedings.
  6. The OFT identifies four basic categories of Relevant Charges about which it is concerned: Unpaid Item Charges; Paid Item Charges; Overdraft Excess Charges; and Guaranteed Paid Item Charges. An Unpaid Item Charge is, as the OFT pleads, "levied when the customer gives an instruction for payment or, in some cases at least, withdrawal, that the bank declines to honour because the customer does not have sufficient funds in his account" or, I would add here and in relation to other charges, an arranged facility which covers it. A Paid Item Charge is "levied when the customer gives an instruction for payment or, in some cases at least, withdrawal, for which he has insufficient funds in his account and which the bank honours". An Overdraft Excess Charge is "levied if, during a specified period (typically a day or a month) … an account is and/or goes overdrawn (and there is no overdraft facility), or… the debit balance is and/or goes above the limit on an existing overdraft facility, and in both cases irrespective of the reason why the excess has occurred". A Guaranteed Paid Item Charge refers to a charge distinct from a Paid Item Charge which some of the Banks levy when they honour "in accordance with the guarantee, a cheque issued in conjunction with a cheque guarantee card (or, in the case of some banks, a debit card payment made under a guaranteed debit payment system) for which the customer does not have sufficient funds".
  7. The relief that the OFT seeks in these proceedings is directed to establishing whether the investigation falls within the ambit of the 1999 Regulations. Specifically, it seeks a declaration that
  8. "the Relevant Terms and Charges in Current Agreements (and to the extent relied on by the banks, in Historical Agreements) are not excluded from an assessment for fairness under the 1999 Regulations by reason of Regulation 6(2)(a) and/or (b) thereof: …"
  9. The focus of the OFT's concern is upon the Banks' current agreements, the standard form terms that the Banks now use when a customer opens an account with them and that they have introduced into their contracts with existing customers.
  10. The Banks bring counterclaims in the proceedings which (i) are directed not only to current terms but also to standard form terms which they have used in the past, "historical terms" as they have been called; (ii) are directed not only to the application and effect of the 1999 Regulations but also to whether their (current and historical) terms include penalties and so to that extent are unenforceable at common law; and (iii) are concerned with the proper approach to the assessment contemplated by the 1999 Regulations of whether a term is to be regarded as unfair and in particular the reference in Regulation 5(1) to a term being "contrary to the requirement of good faith". The Banks hope that these proceedings might not only determine whether the OFT's investigation is proper but also provide guidance about the law applicable to the claims brought by individual customers.
  11. The 1999 Regulations

  12. The 1999 Regulations were made under section 2(2) of the European Communities Act 1972. Their purpose is to give effect in the United Kingdom to Council Directive 93/13/EEC (OJ 1993 L95, p.29) on unfair terms in consumer contracts (the "Directive"), article 10 of which required Member States to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by no later than 31 December 1994 and the provisions were to apply to all contracts concluded after 31 December 1994. The United Kingdom government first sought to give effect to the Directive in the Unfair Terms in Consumer Contracts Regulations 1994 (the "1994 Regulations"), but the 1994 Regulations were revoked and replaced by the 1999 Regulations, which make provision for a number of "qualifying bodies" to apply to the courts for injunctive relief against the use or recommendation for use of unfair terms. The 1994 Regulations were replaced because the Commission brought infringement proceedings against the United Kingdom on the basis that the 1994 Regulations had failed to implement certain provisions of the Directive, but the infringements alleged do not relate directly to matters that I have to consider.
  13. The 1999 Regulations apply "in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer" (Regulation 4(1)), and provide that 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" (Regulation 5(1)). The expression "consumer" means "any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession" (Regulation 3(1)), and so many of the Banks' customers are "consumers". The expression "seller or supplier" is also defined in Regulation 3(1), but it suffices to say that there is no dispute that the Banks fall within the definition. Regulation 5(2) is concerned with when a term is to be regarded as not having been individually negotiated: I am to proceed on the assumed basis that none of the terms with which I am concerned has been "individually negotiated" (as, no doubt, is generally the case, notwithstanding that customers sign individual mandates).
  14. Regulation 6 is headed "Assessment of unfair terms" and it reads:
  15. "(1) Without prejudice to regulation 12, 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) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate-
    (a) to the definition of the main subject matter of the contract, or
    (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange."
  16. Regulation 7 is headed "Written contracts" and it provides:
  17. "(1) A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.
    (2) If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12."
  18. Regulation 8 provides that if a term is unfair, it is not binding on the consumer but "the contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term".
  19. The duty upon the OFT to consider (with certain exceptions) any complaint made to it that any contractual term drawn up for general use is unfair is stated in Regulation 10. The 1999 Regulations go on to provide for powers and obligations of the OFT and others in dealing with complaints. Regulation 12 provides that the OFT (and other bodies) may apply for a (final or interim) injunction in respect of apparently unfair terms drawn up for general use.
  20. Thus, the 1999 Regulations establish what was described by Lord Steyn in The Director of Fair Trading v First National Bank Ltd., [2001] UKHL 52, [2002] 1 AC 481 at para 33 as "a dual system of ex casu challenges and pre-emptive or collective challenges by appropriate bodies". But whatever the form of the challenge, the assessment is of the fairness of terms in an individual contract made by a seller or supplier with a customer (in the case of ex casu challenges in an actual contract with the customer challenging it or in the case of pre-emptive or collective challenges in a notional contract with a hypothetical customer), and not the fairness of the standard terms used by a seller or supplier as against the body of consumers who enter into contracts with the seller or supplier on his standard terms.
  21. Schedule 2 to the 1999 Regulations is also of some relevance. It is, as Regulation 5(5) puts it, "an indicative and non-exhaustive list of the terms which may be regarded as unfair". It, and the similar list in the Directive, are sometimes referred to as a "greylist" because it is not a "blacklist" of terms that are necessarily to be regarded as unfair, but they are illustrations of the sort of terms that might be found to be unfair: see the seventeenth recital to the Directive, which states that the terms in the list "can be of indicative value only". The list in paragraph 1 of the Schedule includes these terms:
  22. (e) Terms which have the object or effect of "requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation";

    This is the only term in the list which is specifically concerned with the amount of a payment to be made by the consumer, and it is directed to a secondary obligation to pay when a primary obligation has been breached.

    (h) Terms which have the object or effect of "automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early";
    (l) Terms which have the object or effect of "providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded."

    This is concerned with payment as a primary obligation but it is not concerned with the amount of the price or when it is payable but with clauses that allow a late determination of the price at the time of delivery or a variation in the price with no concomitant right for the consumer to cancel the contract.

  23. Paragraph 2 of the Schedule provides that the illustrative term in paragraph 1(l) does not apply to "transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control", nor to "contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency"; and is "without hindrance to price index clauses, where lawful, provided that the method by which prices vary is explicitly described".
  24. I have not set out all the terms in the "greylist", but it was rightly pointed out that they are not terms that provide for any obligation upon the seller or supplier but (with the possible exception of that in paragraph (i), terms with the object or effect of "irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract") terms which provide for the seller or supplier to enjoy some right or immunity. The list includes limitation or exclusion clauses; termination, extension and remedial provisions; terms conferring a discretion on the seller or supplier with no corresponding right for the consumer; and terms conferring on the seller or supplier a right to assign. It includes no term that suggests that an obligation on the seller or supplier can be assessed as to whether it is insufficiently onerous upon him and unfair for this reason.
  25. The Directive

  26. The 1999 Regulations were, as I have said, introduced in order to give effect to the Directive. Accordingly, the 1999 Regulations are, so far as possible, to be interpreted so as to give effect to the terms and purpose of the Directive, and resort may properly be had to the Directive in order to interpret them. Although the Directive is intended only to set minimum requirements for the control of fairness of terms in consumer contracts, and, as article 8 makes clear, Member States may adopt or retain more stringent measures to protect consumers, in fact the 1999 Regulations largely mirror the Directive. As was said by Lord Steyn in Director General of Fair Trading v First National Bank plc, (loc cit) at para 31, "As between the Directive and the domestic implementing the Regulations, the former is the dominant text. Fortunately, the 1994 Regulations, and even more so the Unfair Terms in Consumer Contracts Regulations 1999, appear to have implemented the Directive in domestic law in a manner which ought not to cause serious difficulty".
  27. The Directive was made under what is now article 95 (then article 100a) of the EC Treaty. Article 95(3) makes particular mention of (inter alia) proposals concerning consumer protection and states that the Commission, in its proposals under this article, will "take as a base a high level of protection". The Directive's immediate focus is on protecting consumers, as the Banks, I think, acknowledge and as is clear from the recitals. The tenth recital includes among the purposes of the Directive, for example, that of providing more effective protection to the consumer "by adopting uniform rules in the matter of unfair terms". The eighth recital refers to two Community programmes "for consumer protection and information policy" which were initiated by resolutions of the Council and which "underlined the importance of safeguarding consumers in the matter of unfair terms of contract", and states that "this protection ought to be provided by laws and regulations which are either harmonised at Community level or adopted directly at that level". These programmes, adopted by Council resolutions of 1975 and 1981, granted to consumers basic rights, including the right to protection of economic interests and the right to information and education.
  28. Article 100a (now Article 95) provides that its provisions are to apply "for the purpose of the objectives set out in Article 8a", and that the Community should adopt measures with the aim of progressively establishing the internal market. The recitals to the Directive show that the aims also include the reduction of distortions in competition between sellers of goods and suppliers of services caused by differences in rules governing terms in consumer contracts and stimulation of competition. However, I accept the OFT's submission that the Directive's dominant purpose is that of consumer protection, albeit promoted in the context of the internal market: see R (Khatun) v London Borough of Newham, [2004] EWCA Civ 55 at para 57 per Laws LJ.
  29. The position was explained as follows by Lord Steyn in the First National Bank case (cit sup) at para 31:
  30. "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 guide the interpretation of the Directive as well as the implementing Regulations."
  31. The nature of the protection that the Directive gives to consumers is indicated in its sixteenth recital:
  32. "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;"
  33. Other recitals also make plain the purpose of the Directive to protect consumers from unfair terms. Thus, for example, the fourth recital reads, "Whereas it is the responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms"; and the sixth recital reads "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".
  34. However the regime for consumer protection required by the Directive and established by the 1999 Regulations stops short of intruding upon parties' freedom of contract to the extent of introducing a mechanism of quality or price control: see Treitel, Law of Contract, (2007) 12th Ed. para 7-101, the 10th edition of which was cited with approval by Lord Bingham in the First National Bank case (cit sup) at para 12. The policy adopted in the Directive, the history of which is explained by Professor Hugh Collins in "Good Faith in European Contract Law" (1994) 13 OJLS 229 as reflecting a tension between the European Commission, which favoured a policy of consumer protection, and a determination on the part of the Council of Ministers to protect a basic principle of allowing freedom of contract provided that consumers were properly informed, was expressed in the nineteenth recital of the Directive in these terms:
  35. "Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer's liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer; "
  36. This purpose finds expression in Article 4(2) of the Directive (which is given effect in Regulation 6(2) of the 1999 Regulations):
  37. "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 supplies (sic) in exchange, on the other, in so far as these terms are in plain intelligible language."
  38. Thus, as it was put by Professor Sir Roy Goode QC in Consumer Credit Law and Practice, para IJ 124.35
  39. "… the Directive is not intended to be used to assess the extent to which the contract represents value for money, or a fair price for a particular service or item. Thus, terms which define the main subject matter of the contract or concern the price or remuneration for goods or services will not be subject to assessment for fairness in so far as they are in plain intelligible language."
  40. This is a point emphasised by the Banks, who argue that the nineteenth recital contemplates two distinct categories of terms being excluded from an assessment of fairness: those that describe the "main subject matter of the contract" and those that describe "the quality/price ratio of the goods or services supplied". However, it is also important to emphasise that this does not mean that the price/quality ratio must be left out of account when assessing the fairness of other terms or that an assessment is necessarily precluded because it involves account being taken of the price/quality ratio. (Curiously the recital refers variously to the "quality/price ratio" and the "price/quality ratio" but it is not suggested that this difference is of any significance.)
  41. The reference to plain intelligible language in Article 4(2) reflects the twentieth recital: "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".
  42. In the 1994 Regulations, the wording that was directed to giving effect to Article 4(2) was different from that in the 1999 Regulations. The 1994 Regulations provided (at Regulation 3), "In so far as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which – (a) defines the main subject matter of the contract, or (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied". The wording in the 1999 Regulations tracks more closely the wording of the Directive, although the wording of Regulation 3 of the 1994 Regulations had not been the subject of the Commission's complaint that led to the introduction of the new Regulations.
  43. It will be necessary to return to the application of Regulation 6(2) to the Relevant Terms, but it is convenient at this point to say something of the proper approach to giving effect to it. The OFT points out that Regulation 6(2) is a limitation on or derogation from secondary Community law and submits that as such it must be interpreted narrowly (Commission v Spain, [2001] ECR I-455 at para 19), the more so because it is legislation for the protection of consumers (Heininger, [2001] ECR I-9945 at para 31). Undoubtedly the Regulation must be given an interpretation that does not allow the purpose of consumer protection to be frustrated by allowing it to apply to cases that do not fall squarely within it (see Lord Bingham in the First National Bank case (cit sup) at para 12), and its interpretation must be restricted accordingly (see Lord Steyn's speech at para 31 and also Bairstow Eves London Central Ltd v Smith, [2004] EWHC 263 at para 25). However, the point cannot be taken so far that due respect is not paid to the language of the Regulation. The Banks cited easyCar (UK) Ltd v OFT, [2005] ECR I-1947 to support their submission that, even in a case where Community legislation includes an exception to a provision for consumer protection, it does not follow that the legislation will always be given the narrowest interpretation or that most favourable to consumers. The court will not impose upon legislation an interpretation that its wording cannot properly bear where there is another interpretation which does not defy common sense. To my mind, the easyCar case illustrates no more than that.
  44. The issues

  45. The issues that I am to decide fall into three categories. First there are questions about whether Regulation 6(2) applies to the Relevant Terms, and if so with what consequences. More specifically, questions arise as to -
  46. i) Whether assessment of fairness of the Relevant Terms is prohibited because it would "relate … to the adequacy of the price or remuneration, as against the goods or services supplied in exchange".

    ii) Whether the Relevant Terms are "in plain intelligible language", and if not, what are the consequences of that.

    iii) Whether, if and in so far as Regulation 6(2) applies, the protection afforded to the Banks is that the particular term is not to be assessed for fairness (referred to as the "excluded term" construction) or whether the Banks are protected against a particular type of assessment (the "excluded assessment" construction).

  47. The second category of issues is about the meaning and effect of Regulation 5(1), and specifically the meaning of the provision about "the requirement of good faith" and its relationship to judging fairness by reference to a term causing "a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer". I am not, however, to determine whether the Relevant Terms or the Relevant Charges are fair under the 1999 Regulations. Nor am I to decide what the consequences upon contracts between the Banks and their customers are or what the rights of the Banks are under the contracts or otherwise if any of the Relevant Terms are unfair.
  48. The third category of issues concerns the common law relating to penalties.
  49. Although the Litigation Agreement was concerned with Relevant Terms and Relevant Charges in the Banks' historical terms as well as their current terms, I made it clear during the hearing that, for case management reasons, generally this judgment would consider only current terms. However, in order for my judgment to cover a more representative sample of terms as far as the issues about penalties are concerned, I deal with some terms which were used by Clydesdale Bank plc ("Clydesdale") and RBSG but have recently been superseded. My conclusions might well be readily applicable to other historical terms, and when I have delivered this judgment I shall hear submissions about the nature and extent of the relief that I should grant on the basis of this judgment.
  50. For similar reasons I have not considered in this judgment the terms of all the personal current accounts offered by the Banks. Generally I have not considered so-called "basic" accounts, which offer a more limited range of services than conventional current accounts and upon which Banks do not allow customers to arrange an overdraft facility. (These accounts reflect the proposals in the Cruickshank report to the Chancellor of the Exchequer on Competition in UK Banking of March 2000 and other Government initiatives designed to encourage wider access to banking services, particularly money transmission services, and to have them available to less affluent customers. The Banks offer or have offered these accounts which I have regarded as "basic": Abbey's Instant Plus account and now its Basic account; Barclays' Cash Card account; Clydesdale's ReadyCash account; HBOS's Easycash account; Lloyds TSB's Cash account; and RBSG's Key account and its Step account. HSBC has a "Basic Bank account" but it levies no Relevant Charges on it.) The only qualification to this approach is that Nationwide Building Society ("Nationwide") provides what is essentially a basic account as a category of its FlexAccount and since October 2007 as its Cash Card account. All categories of FlexAccount and its Cash Card account are governed by the same terms. (When I refer in this judgment to the FlexAccount, I should be understood also to be referring to the Cash Card account.)
  51. Further I have not considered in this judgment two accounts of HBOS plc ("HBOS"): (i) the Cardcash account, which has not been offered to new customers since March 2005 – in November 2007 HBOS announced that customers with a Cardcash account were being transferred to a mainstream current account or an Easycash account; and (ii) the Intelligent Finance account, which has few customers and is essentially a mortgage offset account.
  52. Barclays Bank plc ("Barclays") floated a further argument based upon the requirement in Regulation 5(1) that in order to be regarded as unfair, a term must cause "a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer". Barclays says, citing Lord Bingham's speech in the First National Bank case, that the question whether such an imbalance is caused is one of law and depends upon the effect of all the terms in the contract at the time when it is made. It is unarguable, it is said, that an imbalance is caused by the very existence of a right to charge in circumstances where the Relevant Charges are levied: the only matter that could give rise to a significant imbalance might be that the charges were excessive, but that assessment is what is precluded by Regulation 6(2)(b).
  53. Whatever the merits of this argument, Barclays acknowledges that it was not included in the issues which it was directed be heard at this hearing. It applied for a determination of this question: "Even if the Relevant Terms may be assessed for fairness, do they cause a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer?" (and possibly, depending upon the answer to the issues about good faith, the determination of a further question, "If and in so far as there is any significant imbalance, is it such as to constitute a want of good faith, without more?")
  54. As I have said, this was not a question that had been directed for determination at this hearing, and no party had applied before the hearing for this question to be included. Understandably, the OFT had not prepared submissions to answer Barclays' contentions, and I made it clear that in these circumstances I would not add it to the questions for determination in this judgment. The point does, however, impinge upon the issue as to whether an "excluded term" construction or an "excluded assessment" construction of Regulation 6(2) is to be adopted, and I refer to it in this context at paragraphs 433-434 below.
  55. The nature of current accounts

  56. It is convenient before going further to say something about the general nature of current accounts such as those that are the subject matter of these proceedings, although each of the Banks has (as is common ground between the parties before me and I am to assume) standard terms which govern its contractual arrangements with its personal current account customers and those terms define the parties' rights and obligations.
  57. It is a basic characteristic of a customer's current account with a bank that the bank is under an obligation to receive money, cheques and payments by other methods into the customer's account and to effect repayment to the customer and payments to third parties to the customer's order and as the customer's agent. This observation reflects the classic description of the relationship between a bank and a customer with a current account given by Atkin LJ in N Joachimson v Swiss Bank Corp., [1921] 3 KB 110 at p.127 and the description by Lord Atkinson in Westminster Bank Ltd. v Hilton, (1926) 43 TLR 124. It applies to all of the accounts with which I am concerned.
  58. It is inherent in the nature of such an arrangement that the account between the bank and the customer will show at any time either a credit for the bank and debit for the customer or a debit for the bank and a credit for the customer (or, I suppose, perchance, a nil balance). Thus, in Rolls Razor Ltd. v Cox, [1967] 1 QB 552 at p.574E-F, Winn LJ said:
  59. "… the relationship of banker and customer upon a current account implies from its very nature an intention on the part of both parties that debits and credits arising between them shall be brought into a running account on which by reason of the customary method of keeping such account, there will at any given moment be an outstanding debit or credit balance."
  60. The customer is not obliged, in the absence of contrary agreement, to maintain or increase a credit balance in the account – that is to say, to lend to the bank. Nor is the bank under an obligation to lend to a current account customer or to allow him overdraft facilities unless it has agreed to do so: Bank of New South Wales v Laing, [1954] AC 135 at p.154.
  61. Banks provide a variety of facilities by which money can be paid into current accounts and payments or withdrawals made from them. Thus, customers or third parties can deposit or pay money (by way of cash or by way of cheques or other payment instructions) into accounts at a branch, by post or by electronic means. Cash can be withdrawn at a branch, through automatic teller machines ("ATMs") or through "cash-back" arrangements between banks and retailers. Payments to third parties can be made in a variety of ways, by standing order and direct debit, by cheque, by bank draft, through CHAPS (the Clearing House Automated Payment System), by use of a debit card and through arrangements made by telephone or internet banking. Cheques are generally cleared by the Banks through the clearing house system, a rule of which, I understand, is that, if a cheque is not returned through the system, it is to be paid.
  62. Banks receive two kinds of instructions from customers for withdrawals or payments from current accounts. There are "live" transactions, which are received by banks when they are given by the customer, and include withdrawals at a branch or an ATM, some payment instructions given by telephone or by internet, and CHAPS payments. There are also "off-line" transactions, where banks receive the customer's payment instructions in batches, often through a clearing house in the case of cheques or through BACS (Bankers Automated Clearing Services) in the case of standing orders or payments by direct debit.
  63. Banks generally provide further facilities to current account customers, including arrangements whereby customers can readily monitor their accounts in various ways (by sending bank statements, by providing information at ATMs, and by telephone and by internet arrangements).
  64. Often banks provide their customers with cheque guarantee cards and debit cards. Many retailers will not accept cheques unless they are guaranteed by a card. Cheque guarantee cards have a limit upon the amount of the cheque which can be supported by them. In the case of debit cards, sometimes a retailer must have a transaction specifically authorised by the bank that has issued the card if its value exceeds the retailer's "floor limit", and payments by debit card may be either "live" or "off-line", depending upon whether or not the payment is authorised by the bank when the customer uses his debit card.
  65. I have not set out an exhaustive list of the facilities that banks provide to current account customers, but this general description applies to all the defendant Banks and is sufficient for present purposes. The precise facilities provided by different banks vary, albeit in relatively minor respects, and also vary depending upon the type of current account that the customer has or, for example, the customer's age or status: for example, there are accounts directed to students or graduates, and some banks refuse to allow overdraft facilities to customers who are not aged 18 years.
  66. The systems required to provide these facilities are complex and sophisticated, and are expensive to operate. It is not necessary to describe them in detail. Although they have been in large degree automated, there is still significant direct involvement by members of the Banks' staff.
  67. In so far as I cannot properly take judicial notice of these matters, they are proved by evidence served by the Banks, which I accept. I should explain that evidence by way of witness statements was served on behalf of the OFT and all of the Banks. No party required cross examination of any witness, and the statements were presented at the hearing before me without any witness being called to give oral evidence. While the evidence is not formally admitted, there is no specific challenge to the truth or accuracy of any part of the statements, but, as I made clear during the hearing, it seems to me that they include passages that are inadmissible either because they are irrelevant or for other reasons.
  68. The charging structure adopted by the Banks in relation to current accounts is commonly known as "free-if-in-credit banking". There is evidence that this has evolved since the 1970's and more markedly the 1980's, and has done so in response to the preferences of customers. However that may be, under this structure customers do not pay bank charges for the day-to-day operation of the account while it is in credit (although there are often charges for additional services such as, for some banks, stopping cheques written by the customer or supplying additional bank statements). The Banks do, however, have the benefit of customers' credit balances (referred to by at least RBSG as "credit net interest income" or "credit NII") and also interest will be incurred and fees may be incurred if the customer's account goes into debit or in other circumstances. These fees include the Relevant Charges.
  69. In his submissions on behalf of RBSG (which were adopted by the other Banks), Mr Laurence Rabinowitz QC described this charging structure as "both composite and integrated", because it comprises a number of components which are interdependent. Some facilities are provided free, and none of the facilities has its own source of revenue exclusively associated with it. The Banks' evidence shows that the Relevant Charges are not set by reference to the cost of activities which give rise to them but at a level designed to support the personal current accounts service as a whole.
  70. Overdrawing on current accounts

  71. Although, unless the bank and customer have otherwise agreed, customers are not entitled to overdraw upon a current account or to have the bank lend them money, in practice customers do overdraw on their current accounts, in some cases having arranged an overdraft in advance and in some cases without having done so. At times, the expression "arranged overdraft" has been used to refer to borrowing under a facility arranged in advance between the bank and the customer, and "unarranged overdraft" has been used to refer to the borrowing created when a customer gives an instruction for a payment which the bank honours although the customer does not have funds in his account to cover it and has not arranged in advance a sufficient facility to cover it. Although this terminology can properly be criticised as imprecise in that by paying in accordance with the instruction the bank does permit (or arrange for) the customer to overdraw on the account, I adopt these expressions as convenient and readily understandable labels.
  72. It is clear from the evidence that a substantial number of customers with current accounts have an arranged overdraft facility and use it. Specifically, just under half of the eligible customers of Abbey National plc ("Abbey") have a facility and about half of those with a facility use it in any year. In the case of Barclays, in 2006 about 56% of their personal current account customers had arranged overdraft facilities. About half of Clydesdale's current account customers have an overdraft facility, and at any one time about 16% of their current account customers are using an arranged overdraft facility. In 2006 over two thirds of HBOS's current account customers (other than those with basic accounts) had an overdraft facility and almost two thirds of those with an arranged facility used it. As for HSBC Bank plc ("HSBC"), leaving aside customers with a basic account or other account that does not allow overdrafts, about 60% of its current account customers and about 96% of First Direct customers have an agreed overdraft facility. The evidence does not distinguish between the HSBC customers who overdraw under an arranged facility and those who do so without arrangements in advance, but in 2006 more than half of customers with a current account under HSBC's own name and more than three quarters of those with First Direct accounts overdrew on their accounts. The majority of Nationwide's FlexAccount customers have an overdraft facility. Two thirds of RBSG's eligible current account customers have arranged overdraft facilities, and in 2006 more than a quarter of those facilities were used.
  73. The evidence also shows that it is not unusual for current account customers to overdraw without an arranged facility. Again, I refer to the evidence about individual Banks (which I accept). Abbey's evidence is simply that the number of customers who do so and incur fees is
    "significant", and that a large proportion of those customers so overdraw a number of times a year. About 20% of Barclays' customers overdrew on their account without prior arrangement over a 12 months period. At any one time some 7% of Clydesdale's customers have an unarranged overdraft and about 17% of their customers overdraw without prior arrangement at some time. About 10% of HBOS's current account customers had unarranged overdrafts at some time in 2006. In September 2007, 13% of HSBC's customers and 7% with First Direct personal current accounts had unarranged overdrafts. About 22% of the current account customers of Lloyds TSB plc ("Lloyds TSB") had unarranged overdrafts at some time in 2006. In the case of RBSG in 2006 almost one in four current accounts was at some time overdrawn without or beyond any arranged overdraft facility.
  74. Mr George Graham, the Head of Strategy Development at RBSG, stated (and I accept) that often customers expect to have payment instructions honoured even when this means that their accounts go into unarranged overdraft, and that RBSG receives complaints from some who consider that a Relevant Instruction should not have been rejected. I infer that the experience of other Banks is similar.
  75. The OFT asks me to infer that the number of payment and withdrawal instructions given by customers without having funds and facilities to cover them is a very small proportion of all payment and withdrawal instructions given by personal current account customers. There is little evidence about this, but the RBSG has indicated that for both its National Westminster Bank customers and its Royal Bank of Scotland customers with "active" personal current accounts, there was perhaps an average per customer of more than three such instructions in 2006, and the Bank explained that this figure is likely to be a considerable underestimate because it does not include instructions (such as attempts to withdraw money from ATMs) for which no central records are kept. Nevertheless, although the evidence is exiguous, I see no reason that this does not present in general terms a representative picture of how frequently such instructions are received by the Banks, and it justifies, in my view, the OFT's submission that they are a very small proportion of all payment instructions.
  76. The OFT also contends that "the circumstances that may legitimately give rise to an unauthorised overdraft are narrow", and expresses the belief that in many instances Relevant Charges are incurred as a result of error or inadvertence on the part of the customer, rather than conscious choice. Indeed, it pleads that where (as will typically be the case) the payee under a Relevant Instruction is a creditor or supplier of the customer, no payment instruction giving rise to a Relevant Charge could lawfully arise except where the customer has made an error. I cannot accept that this is a fair description of the position, and there is no evidence that provides proper support for it. Of course it is the case that Relevant Instructions can be given without the customer knowing that the payment would bring about an overdraft, and can be given in circumstances giving rise to a criminal offence of dishonesty, but, for example, if a long-standing customer knew that over the years his bank had always paid upon his instructions although from time to time his account went into an unarranged overdraft on a modest scale (perhaps towards the end of the month), the suggestion that typically such a customer would be being dishonest when giving a Relevant Instruction seems to me far-fetched.
  77. That said, I do accept that unarranged overdrafts are an expensive way of borrowing from the Banks: that is well established by the evidence of Mr Lopez Jimenez, a Financial Analyst in the Chief Economist's Office of the OFT. Indeed, some of the Banks advise customers in their documentation that it is cheaper to arrange an overdraft in advance. Two examples suffice (and in them the expressions "informal overdraft" and "unplanned overdraft" refer to unarranged overdrafts): HSBC states in its terms and conditions, "If you do require an overdraft or an increase to an existing overdraft, it would be in your interests to contact us to discuss your borrowing requirements as it would probably be cheaper for you to have a formal overdraft than several informal overdrafts". Lloyds TSB tells its customers, "Unplanned overdrafts are intended to be used for short-term borrowing. You will find it cheaper to ask for a new or increased Planned Overdraft that meets your needs, rather than requesting and using Unplanned Overdrafts".
  78. Moreover, until recently all of the Banks included in their documentation statements indicating that unarranged overdrafts on current accounts are not permitted (and indeed Nationwide still does so). It does not necessarily follow that if a customer gave a payment instruction that would cause his account to be overdrawn, he would be in breach of his contract with the bank, but the OFT argues that this indicates the true nature of a current account, how the Banks regard overdrawing in this way and how they encourage customers to look upon unarranged overdrafts. I again confine myself to two examples of such statements (although not all the Banks included such assertive language in their documents). Barclays said in its standard terms and conditions of May 2002 (which were used until replaced by the current terms in February 2007), "You must keep your account(s) in credit unless we agree an overdraft with you". In its standard terms and conditions of January 2007 Abbey included this clause:
  79. "An unauthorised overdraft occurs if without our agreement you overdraw your Account or exceed the limit of an overdraft which we have agreed. If you overdraw your Account when we have not given you an overdraft you are in breach of these Conditions and must immediately pay sufficient money into your Account to put it into credit, taking account of any interest and charges you will have incurred. Similarly, if you exceed the limit of an overdraft which we have given you, you must immediately pay sufficient money into your Account to bring yourself within your overdraft limit."
  80. The OFT also submits that the Banks make no active attempts to publicise unarranged overdrafts or to deploy them in marketing activities as a facility available to customers with current accounts. I accept that this is generally the position, but it is not invariably so: for example (although admittedly this statement is rather more emphatic than some others), Abbey has a leaflet available in its branches called, "The Abbey Bank Account – the facts", which includes this under the heading "The account that's fair":
  81. "If you find yourself spending a bit more than you thought and accidentally go over your Advance Overdraft limit, we guarantee to give you an Instant Overdraft of up to £50 (Service Fees will be payable). This also applies if you don't have an Advance Overdraft."

    Unarranged overdrafts

  82. Prima facie a customer is not in breach of his contract with his bank if he gives instructions to make a payment without having the necessary funds or facility to cover the payment (whether at the time when the instructions are given by the customer or when they are received by the bank or both). He is taken to be requesting overdraft facilities: Lloyds Bank plc v Independent Insurance Co Ltd, [2000] 1 QB 110 at p.118G per Waller LJ. The nature of the contractual rights and obligations that arise in these circumstances was authoritatively explained by Goff J in Barclays Bank v W.J. Simms & Cooke (Southern) Ltd, [1980] 1 QB 677 at p.699 C-H as follows:
  83. "It is a basic obligation owed by a bank to its customer that it will honour on presentation cheques drawn by the customer on the bank, provided that there are sufficient funds in the customer's account to meet the cheque, or the bank has agreed to provide the customer with overdraft facilities sufficient to meet the cheque. Where the bank honours such a cheque, it acts within its mandate, with the result that the bank is entitled to debit the customer's account with the amount of the cheque, and further that the bank's payment is effective to discharge the obligation of the customer to the payee on the cheque, because the bank has paid the cheque with the authority of the customer.
    In other circumstances, the bank is under no obligation to honour its customer's cheques. If however a customer draws a cheque on the bank without funds in his account or agreed overdraft facilities sufficient to meet it, the cheque on presentation constitutes a request to the bank to provide overdraft facilities sufficient to meet the cheque. The bank has an option whether or not to comply with that request. If it declines to do so, it acts entirely within its rights and no legal consequences follow as between the bank and its customer. If however the bank pays the cheque, it accepts the request and the payment has the same legal consequences as if the payment had been made pursuant to previously agreed overdraft facilities; the payment is made within the bank's mandate, and in particular the bank is entitled to debit the customer's account, and the bank's payment discharges the customer's obligation to the payee on the cheque.
    In other cases, however, a bank which pays a cheque drawn or purported to be drawn by its customer pays without mandate. A bank does so if, for example, it overlooks or ignores notice of its customer's death, or if it pays a cheque bearing the forged signature of its customer as drawer, but, more important for present purposes, a bank will pay without mandate if it overlooks or ignores notice of countermand to the customer who has drawn the cheque. In such cases the bank, if it pays the cheque, pays without mandate from its customer; and unless the customer is able to and does ratify the payment, the bank cannot debit the customer's account, nor will its payment be effective to discharge the obligation (if any) of the customer on the cheque, because the bank had no authority to discharge such obligation."
  84. If a bank does pay in accordance with the customer's instructions in these circumstances, the customer is taken to have agreed to accept the bank's relevant standard terms, unless the parties have otherwise agreed and unless the terms are unreasonable or, as it was put by Pill LJ in Emerald Meats (London) Ltd v AIB Group (UK) Plc, [2002] EWCA Civ 460 at para 14, "extortionate or contrary to all approved banking practice".
  85. The contractual position between bank and customer is not affected by the customer using a cheque guarantee card provided by the bank to support a payment made to a third party. The effect of its use is simply that the bank, through the agency of the customer, undertakes to the third party (not strictly by way of guarantee) that it will not dishonour the cheque on presentation for want of funds in the account; effectively, that, if need be, it will advance the customer the funds necessary to pay it: see Re Charge Card Services Ltd, [1987] Ch 150, 166C-F.
  86. This analysis is, of course, subject to the terms of the contract between the bank and the individual customer. Nationwide accepts that nothing in its standard form terms affects the position, and I agree that this is so. The other Banks' terms are expressed in terms of the customer making a request of his Bank for an unarranged overdraft, to which the Bank responds either by granting the request or by refusing it when it does not make the payment.
  87. Thus, Abbey's terms say that the customer may "request an overdraft" by giving a Relevant Instruction, and refer to such a request as an "Instant Overdraft Request"; and they say that the customer will be "treated" by Abbey as making an Instant Overdraft Request in such circumstances: if, for example, without the necessary funds in his account he tries to use a debit card or cheque to buy goods or services, or to withdraw cash. The terms say that Abbey may give the customer an Instant Overdraft or may refuse the request, but otherwise they say nothing about how Abbey will consider or otherwise deal with the request (or deemed request). The fee called an Instant Overdraft Request Fee is said to be for "using" the Instant Overdraft Service.
  88. Barclays' terms refer to the customer requesting overdraft facilities by giving a Relevant Instruction. They say that it is entirely within Barclays' discretion whether to process it, but refer to the Bank "considering" whether to process it.
  89. Clydesdale's terms similarly refer to the customer making a request for "Unplanned Borrowing". They say that the Bank does not "have to agree" to such a request and that if it does not do so, a Returned Item Fee is charged for "dealing with your request and returning the Payment Item unpaid".
  90. HBOS's terms refer to the customer "making an informal request for an overdraft" and say that when such a request is made, the Bank will "consider it and decide whether or not to comply with it", making it clear that there is no obligation to comply with it unless payment has been "guaranteed" to a third party.
  91. HSBC similarly refers in its terms to the customer making an informal request for an overdraft or an increase in an overdraft, and says that it will "consider" the request.
  92. Lloyds TSB says that it will "treat" an attempt to make a payment for which there are not available funds as a request for an Unplanned Overdraft (or an increase in an Unplanned Overdraft) and that it will "consider" whether it agrees to the request "taking into account your personal circumstances".
  93. RBSG's terms say that the Bank will "treat" Relevant Instructions as an "informal request for an unarranged overdraft", and that, unless obliged to accept the request because a commitment has been given to a third party, it will "decide, at our discretion, whether to accept it or not".
  94. Thus, apart from Nationwide, the Banks' terms and conditions are couched in terms of the customer making a request of the Bank and the Bank responding to it, and in some cases they refer to the Bank considering the request. The OFT criticises this terminology as an artificial device recently introduced which disguises the true nature of the parties' dealings when a customer gives his bank an instruction which would, if paid, take the account into debit. Similarly, the OFT suggests that the use of the term "overdraft" to describe the debit balance created in these circumstances has misleading connotations, and emphasises the differences between the debit balance resulting from such a payment and an overdraft facility that a bank and a customer might agree should be available on an account.
  95. Certainly, this terminology has been introduced by the Banks into their documentation relatively recently. However, I am unable to accept that the references to the customer making a request for an overdraft when he gives a Relevant Instruction are inappropriate or create a fiction. On the contrary, they spell out what is, as a matter of legal analysis, implicitly done when a customer gives a Relevant Instruction. Of course, there are differences between any resulting overdraft and a facility arranged by a specific agreement between a customer and his bank. A facility for an overdraft typically, and as provided by the Banks under their current terms (to which I refer below), commits the bank to allow the customer to overdraw on his account for as long as the facility is in place and within its limits, and, while of course it is possible for a facility to be confined to use for a stipulated purpose, it does not typically cover only a specific payment by the customer. If a fee is charged, it is generally for the facility itself, regardless of whether it is in fact used by the customer to borrow or how much it is so used. (None of the Banks charges a customer for requesting a facility in advance if the request is refused.) However, none of this means that it is misleading to use the expression "overdraft" to refer either to a facility or to borrowing under a facility or to unarranged borrowing. To my mind the expression is flexible enough naturally to encompass all these usages.
  96. However, the request which customers are taken to have made to their banks in the absence of any relevant agreement and also that which is made, or taken to be made, by customers under the standard terms of the Banks other than Nationwide, is for an overdraft to cover the particular payment. If the bank responds by considering the request and declining it, it has not provided what the customer was requesting. It is true that the customer might have realised that his request would necessarily have involved the bank considering it in order to decide whether to agree to it and that the bank might refuse payment, but that is very different.
  97. It was submitted by some of the Banks that whether or not the terms governing the relationship between the Bank and the customer include express provision that the Bank will consider the request, the Banks are under an obligation to consider it, and that they are not to consider it on an arbitrary or capricious basis. I am not convinced that, in the absence of express contractual provision, banks are obliged to "consider" a request for an overdraft when they receive a request of this kind. If a bank simply paid in accordance with the customer's mandate without considering it as a request to borrow (as it might if, for example, it programmed its automated procedures to allow any account to have a debit balance of a modest amount or if it simply overlooked that the payment would result in the customer being overdrawn), the bank would not be in breach of any duty to the customer. I do not think that this position is altered by the references in some of the terms before me to the Bank considering the request. It is natural to read the references to the Bank considering the request as subject to this implied qualification, and something more specific than anything in these terms would, in my judgment, be required to put a Bank in breach of contract if it simply makes a payment as instructed by the customer. (In taking this view, I do not overlook that all the Banks, as I understand it, subscribe to the Banking Code, under which the Banks expressly state, "Before we lend you any money or increase your overdraft, or other borrowing, we will assess whether we feel you will be able to pay it". There is not a contractual commitment to protect the customer with such an assessment.)
  98. This does not mean that the Banks are under no contractual obligation to customers when they receive a Relevant Instruction. The terms of the seven Banks which make reference to a customer making a request in these circumstances, also refer to the Bank's response to it, and it seems to me that the implication of their terms is that they are obliged to deal with Relevant Instructions in accordance with proper banking procedures. They have a discretion whether or not they should pay in accordance with a Relevant Instruction, but they would be in breach of contract if they rejected it arbitrarily or capriciously or in bad faith. This is because, as it was put by Leggatt LJ in Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd, [1993] 1 Lloyd's Rep 397 at p. 404:
  99. "Where A and B contract with each other to confer a discretion on A, that does not render B subject to A's uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provision of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably."

    (The limits of this principle have been discussed in subsequent authorities: see Paragon v Nash Finance, [2001] EWCA Civ 1466, [2002] 1 WLR 685 at para 38 per Dyson LJ, Lymington v MacNamara, [2007] EWCA Civ 151, [2007] 2 All ER (Comm) 825 at paras 44-45 per Arden LJ, Socimer International Bank Ltd v Standard Bank London Ltd, [2008] EWCA Civ 116 at para 66 per Rix LJ. The precise ambit of any obligation of this kind is not important, nor is it necessary to explore in this judgment what is required in order for a bank to deal with a Relevant Instruction in accordance with proper banking procedures.)

  100. Although the terms applicable to Nationwide's FlexAccount do not refer to the customer making a request for an unarranged overdraft, its position when it receives a Relevant Instruction is not, to my mind, materially different from that of the other Banks. Nationwide submits that its terms, and its contract with its current account customers, do not oblige it even to consider extending an overdraft before declining to pay upon a Relevant Instruction given by the customer. Its obligation is simply to process payment instructions, and the Unpaid Item Charge that is incurred when payment is refused is, it is submitted, a fee for processing the Relevant Instruction, not for considering it. It disputes that it is under any obligation such as was described in the Abu Dhabi National Tanker Co case (cit sup). In my judgment, however, Nationwide is obliged to deal with Relevant Instructions in accordance with proper banking procedures, and to my mind that amounts to the limitation upon the exercise of a discretion that Leggatt LJ described.
  101. When a Relevant Instruction is received, some of the processes whereby the Banks deal with it are the same as for handling an instruction for which there are funds or an arranged facility. However, in the case of a Relevant Instruction some additional processes are involved. In the case of Abbey, for example, Relevant Instructions are handled by its Reject Referrals database, and both manual and automated processes are involved. The decision whether to pay or to reject the instruction involves an assessment by Abbey's "risk personnel" using information from its "risk databases". The other Banks have comparable arrangements.
  102. If the Banks decline to pay a Relevant Instruction, they notify the counterparty – BACS in the case of a direct debit and the presenting bank in the case of cheques. It is also their usual practice to inform customer in these circumstances, generally in writing, but in the case of HSBC (and possibly some other Banks) this is sometimes done by telephone.
  103. Plain intelligible language - introduction

  104. All the Banks include in their standard terms and conditions provisions about the parties' rights and obligations in respect of both arranged and unarranged overdrafts, and also about the position when a customer gives a Relevant Instruction which the Bank declines to pay. The OFT argues that parts of these provisions are not in plain intelligible language. I must examine separately for each of the Banks its current terms, but before doing so I consider the meaning of "plain intelligible language", which itself, ironically, gave rise to a great deal of debate.
  105. Regulation 6(2) provides that, in the case of a term that has not been individually negotiated, the term is exempt from assessment of fairness only in so far as it is in plain intelligible language. This does not mean that a term which is not in plain intelligible language is necessarily unfair. Its clarity might be relevant to the assessment of its fairness, but that is a different matter.
  106. The 1999 Regulations also require that a seller or supplier shall ensure that any written term of a contract is in plain intelligible language: Regulation 7(1). It is to be observed that Regulation 6(2) and Regulation 7 apply in different circumstances. Regulation 6(2) applies only where a term has not been individually negotiated but it does not have to be a written term. On the other hand, Regulation 7 applies to written terms, whether or not they have been individually negotiated.
  107. Regulation 7(1) is expressed in mandatory language. The OFT, as I was told by Mr Brian Doctor QC who represented it, takes the view that it is entitled to bring proceedings against sellers and suppliers to require them to put their written terms into plain intelligible language. If this is so, the power to do so is not in Regulation 12 (which is concerned only with when it appears that unfair terms are used or recommended for use), but it was suggested that the OFT might have such power under section 215 of the Enterprise Act. This question was not fully argued before me and I was urged not to express any view upon it. It is not necessary to do so, and therefore I say no more about it.
  108. I should, however, say something about the relationship between Regulation 7(1) and Regulation 7(2). If the language of a term is not plain and intelligible, this might give rise to doubt about its true meaning, and in these circumstances the interpretation most favourable to the consumer is to be adopted. However, it does not follow that a written term is necessarily in plain intelligible language unless there is doubt about its true meaning. A term might be obscure and difficult to understand at all, but bear only one meaning for anyone who manages to fathom what it is saying. It was not suggested, as I understand the parties' submissions, that the meaning or application of the expression "plain, intelligible language" is restricted to where Regulation 7(2) applies, and in my judgment no such restricted meaning is required by Regulation 7 or by the 1999 Regulations as a whole.
  109. The OFT says that in order for terms to be in plain intelligible language, their meaning, effect and application must be apparent to the typical consumer, and that the terms should not be liable to mislead the typical consumer. It argues that the purpose of the qualification to Regulation 6(2) about plain intelligible language reflects the intention that assessment as to fairness is to be excluded only if the consumer is in a position to make a fully informed choice about whether to enter into a contract on the standard terms of the seller or supplier.
  110. There is no real dispute between the parties that the question whether terms are in plain intelligible language is to be considered from the point of view of the typical consumer or the average consumer. The concept of an "average consumer … who is reasonably well informed and reasonably observant and circumspect" is a familiar concept used by the European Court of Justice in applying and interpreting European consumer law (see Lidl Belgium GmbH & Co KG v Etablissementen Franz Colruyt NV, Case C-356/04, [2007] 1 CMLR 9 p.269 at para 78), and it provides an appropriate yardstick guide to whether a term is in plain intelligible language.
  111. Plain intelligible language – non-contractual documents

  112. Banks often provide customers or prospective customers with leaflets and other documentation which introduce customers to the accounts that are available, and provide explanations and advice which, upon proper analysis, are not of contractual effect. Sometimes the same brochures or leaflets that contain the contractual provisions also include non-contractual material and often contractual terms and statements of a non-contractual nature are intermingled. It is not always easy even for a lawyer to distinguish them and sometimes there is room for dispute as to whether a statement is contractual or not.
  113. This, it seems to me, leads to two questions:
  114. i) When deciding whether a term is in plain intelligible language, is it relevant that the customer has been provided with non-contractual information?

    ii) What is the position if it is unclear whether or not a statement is or is not of contractual effect?

  115. If information, advice or explanations of a non-contractual nature are provided to customers, the typical customer might well (depending on the facts) be supposed to have read them and be seeking to understand the contractual terms having done so. The non-contractual material might assist him to understand the contractual terms, so that their language might the more readily be taken to be plain and intelligible to the typical consumer. Contrariwise, if the typical customer is taken to have read non-contractual material that is confusing, the terms might well have to be the clearer for their language to be sufficiently plain and intelligible.
  116. The Banks submit that the provision in Regulation 6(2) about plain intelligible language is concerned only with the clarity of contractual terms. If it is unclear whether or not a statement is a contractual term, that is a question of law and is to be decided without reference to the typical consumer. I accept this submission as far as it goes. However, if as a matter of law a statement is a contractual term but it might not clearly be so to the typical consumer, the term is, to that extent at least, not in plain and intelligible language. Equally, if as a matter of law a statement is non-contractual but its status is unclear, the typical customer might well find it obscure whether or not the contractual terms are to be applied subject to, and qualified by, the statement and so contractual terms might be the less intelligible. In reality, it will not be easy for a seller or supplier to answer a complaint that statements in his documentation are unclear by arguing that, obscure though they might be to the typical customer, as a matter of law those statements are not of contractual effect.
  117. I add this: since the fairness of the terms of a contract is to be determined when it is made (see the First National Bank case (cit sup) at paras 13 and 20 per Lord Bingham), it follows, I think, that it is only non-contractual material made available to the consumer when or before the contract is made that can bear upon any question whether the language of a term is plain and intelligible.
  118. Plain intelligible language – previous dealings between bank and customer

  119. It seems to me in principle, just as it is potentially relevant that the typical consumer is to be taken to read and seek to understand the contractual terms in light of information, advice or explanations in non-contractual material, so too it might be that, when considering a contract made by a consumer who has a history of dealings with the seller or supplier, the typical consumer is to be taken to read and seek to interpret the contractual terms against the background of such a previous contractual relationship and history of dealings. If the terms differ from previous terms or an established pattern of dealing, they might have to be the clearer if in those circumstances they are to be held to be in plain intelligible language. The question whether terms are plain and intelligible is still to be considered from the position of the typical customer, and it was not suggested that the particular relationship between an individual customer and his Bank is relevant to this. (I leave aside any question about whether it might otherwise be relevant, for example because it gives rise to an estoppel by convention.) It does not follow, however, that the typical bank customer is to be taken to have no history of dealings with his bank.
  120. The Relevant Terms have recently been introduced by the Banks into their contracts with established customers, many of whom will have had a current account with their Bank for some considerable time. The terms of all eight Banks now provide that the Banks may introduce changes, generally by giving notice to their customers. Apart from Lloyds TSB, the evidence is that the Banks had comparable provisions in their previous terms, and it seems likely that they introduced the present terms into their contracts with existing customers by exercising that contractual power. However, the evidence about that is not entirely satisfactory, my decision does not depend upon this question and I make no finding about it. As far as Lloyds TSB is concerned, there is (perhaps understandably in view of the issues raised in the pleadings) no evidence before me whether it had any contractual power to introduce changes to its contracts with its existing customers.
  121. However this might be, I have concluded that the questions about whether the Banks' terms are in plain intelligible language that are in issue between the parties do not depend upon whether any previous banking relationship might be relevant. In these circumstances, I do not decide whether it would be proper to bring this into account in deciding whether the Banks' terms are in plain intelligible language.
  122. Plain intelligible language and "informed choice"

  123. The OFT says that the Directive and so the 1999 Regulations are about informed choice: that they were intended, as it was put by Advocate General Tizzano in Commission of the European Communities v Netherlands, Case C-144/99, [2001] ECR I-3541, "to require the seller or supplier to make sure at the outset that the contractual terms are plain and intelligible, thus ensuring that, before entering into the contract, the consumer has access to all the information needed to arrive at his decision in full knowledge of the facts" (at para 31). The eighth recital to the Directive, as I have said, refers to programmes for a "consumer protection and information policy" and these programmes in turn said that consumers should be "capable of making an informed choice of goods and services and conscious of their rights and responsibilities". (The OFT also refers in this context to the twentieth recital, but that is about the language of the terms presented to the consumer and the consumer having an opportunity to examine them rather than about the consumer being given further or full information.) I am not persuaded that either the opinion of Advocate General Tizzano or the eighth recital supports the OFT's submission. To my mind, the eighth recital cannot bear the weight that the OFT would put upon it. As I read his Opinion, the point being made by Mr Tizzano is simply that if the terms are plain and intelligible to the consumer, he will have the information that he needs to make his contractual choice.
  124. The Banks take issue with the OFT's contention that the provision in Regulation 6(2) that the exemption applies only in so far as a term is in plain intelligible language is directed to the consumer being in a position to make a fully informed choice about whether to enter into a contract on the standard terms of the seller or supplier. They emphasise that Regulation 6(2) is concerned only with contractual terms and only with the language in which they are expressed, and say that what is left unsaid by the contractual terms is relevant only if the omission renders unclear or unintelligible what is expressed in them. The 1999 Regulations do not require that the consumer be given all the information that he needs to make an informed choice whether to make the contract or information about how the contract will work out in practice.
  125. I agree with this submission. There is nothing in the travaux preparatoires for the Directive that suggests that the intention was that a seller or supplier should give the consumer advice about the contract that he is offered. This would represent a significant change in the conventional approach of English contract law, and it appears that no such radical change was envisaged. I note that the Economic and Social Committee in its Opinion on the proposal for a Council Directive on unfair terms in consumer contracts (91/C 159/13) said at paragraph 2.2.3:
  126. "… the Committee considers that the Directive, rather than introducing new legal principles into the national legal systems, constitutes, at least partially, an approximation of existing national legislation and practice and harmonizes technical approaches to the problem of unfair contract terms."
  127. Moreover, the suggestion that a term is not in plain intelligible language for the purpose of the 1999 Regulations unless the consumer is advised about its effect is not consistent with what was said in the House of Lords in the First National Bank case. For example, Lord Rodger said (cit sup at para 66), "…condition 8 cannot be regarded as unfair simply because the bank do not draw the borrower's attention to the remedies that may be available under the [Consumer Credit Act 1974]": see too at para 23 per Lord Bingham.
  128. Plain intelligible language: implied terms and language

  129. I therefore accept that the first clause of Regulation 6(2) is directed to the language used in contractual terms, and it follows that it is concerned with the express terms and not with whether the consumer is likely to understand what terms will be implied into the contract: see Chitty on Contract, 4th Supp. (2007) to 29th Ed. (2004), para 15-32B, which provides cogent reasons for this view, and Baybut v Eccle Riggs Country Park Ltd, [2006] All ER (D) 161 (Nov) per HHJ Pelling QC, sitting as a judge of the High Court. This is unlikely to be a limitation on the application of the 1999 Regulations which is of any practical importance because it is difficult to suppose that any implied term would be other than reasonable, or, I would add, other than fair (either generally or as defined in Regulation 5(1)). (The Banks also cited in support of the contention that the 1999 Regulations are not concerned with implied terms the decision of the Court of Appeal in The County Homesearch Company (Thames & Chilterns) Ltd v Cowham, [2008] EWCA Civ 26 in which Longmore LJ said, at para 21, "The fact that it may be arguable whether a term should be implied … does not mean that there is a doubt about the meaning of a written term". However, that observation was about Regulation 7, and therefore concerned only with written terms. I do not consider that it really assists about the meaning and application of Regulation 6.)
  130. Regulation 6(2), as the OFT submits and as I accept, requires not only that the actual wording of individual clauses or conditions be comprehensible to consumers, but that the typical consumer can understand how the term affects the rights and obligations that he and the seller or supplier have under the contract. It might be said that in Regulation 6(2) the expression "term" does not refer to a particular clause or condition in the seller's or supplier's documentation, but is directed to how the contract sets out a particular obligation or right, whether that obligation or right is contained in a single clause or condition or whether it is to be found by drawing together elements of it found in different places in the contractual documentation; and so that if the Regulation is to exclude an assessment of the fairness of that right or obligation, it is that which must be set out in the contract in plain, intelligible language. Or it might be said that in Regulation 6(2) the expression "term" connotes the wording of a particular clause or condition, and that the wording cannot be said to be "intelligible" unless the consumer can understand from the contract both what the clause and condition actually says and how it affects the parties' rights and obligations. Whichever approach to construing the first clause of Regulation 6(2) be preferred, in my judgment the Regulation does not exclude an assessment of fairness unless not only can the typical consumer understand the actual wording used in the contractual documentation but also its effect. To that extent, I reject the submission of at least some of the Banks that the question whether a term is in "plain intelligible language" is concerned only with whether the wording is clear. This would deprive "intelligible" of any effect and does not properly recognise that the purpose of the first clause of Regulation 6(2) is that the consumer should understand the contract that he is making if he is not to be protected by its terms being subject to assessment as to their fairness.
  131. There was some discussion whether the expression "plain intelligible language" was to be interpreted widely enough to include the clarity of the presentation of the terms. For my part, I would consider it proper when assessing whether terms are in plain intelligible language to take into account clear and accessible presentation with, for example, useful headings and appropriate use of bold print, which can contribute to the intelligibility to the typical consumer of the language. However, none of the conclusions that I reach about the OFT's complaints depend upon this.
  132. Plain intelligible language – the OFT's complaints

  133. I therefore come to the OFT's criticisms of the clarity of the Banks' terms and their language. It originally put forward three general contentions, although it directed only the first of these to Nationwide's terms: the second and third contentions were associated with the criticism that the terms of the other Banks present a Relevant Instruction as a request from customers for an overdraft.
  134. i) First, the OFT complains that it is not made sufficiently clear how the Banks' terms apply.

    ii) Secondly, it is said that the Relevant Terms falsely "give the customer the impression that there is nothing wrong with paying for goods and services, or with obtaining property, services or pecuniary advantages by making payments for which he has insufficient funds". The thrust of this point is that criminal offences can be so committed and civil liabilities so incurred by the customer and that, by presenting Relevant Instructions as requests, the Relevant Terms appear "to treat such conduct as acceptable or proper".

    iii) The Relevant Terms are also said to be misleading in that they use similar terminology (such as "overdraft", "overdraft facility" and "overdraft service") both when referring to pre-arranged borrowing and when referring to overdrawing resulting from a Relevant Instruction.

  135. The OFT made clear in its written opening submissions that the second and third objections are not pursued in these proceedings as separate complaints. It acknowledges the force of an argument made by HBOS that these proceedings concern only those terms whereby the Banks claim to be entitled to charge for dealing with Relevant Instructions (that is to say, those terms imposing the Relevant Charges), and not terms which are concerned with the customer giving Relevant Instructions. I need refer to these two criticisms only in so far as they bear upon other issues between the parties.
  136. However, the OFT still contends that, in the case of the seven Banks other than Nationwide, the position about when Relevant Charges are incurred is obscured by the so-called "request machinery": that is to say, because a Relevant Instruction is presented in the terms as a request for an overdraft. The thrust of the OFT's point, as I understand it, is that the relevant time for the purpose of determining whether there are funds available to cover a payment is the time when the payment instruction is processed. The OFT suggests that the focus on the customer's request might give the impression that what matters is whether there are funds either at the time when he issues the payment instruction or when it is received by the Bank.
  137. I am not persuaded by this criticism. It must be obvious to a customer that it cannot matter whether he has available funds in his account before his Bank receives his payment instruction and that the instruction will not necessarily be read and dealt with at the instant moment that his Bank receives it. I do not consider that references in the Banks' terms to, for example, a customer seeking to make a payment by writing a cheque or to the Bank "receiving" a payment instruction would confuse the typical customer and I do not consider that on this account the terms of any of the Banks are not in plain intelligible language.
  138. In general terms, the OFT's contention is that the application and effect of the Relevant Charges is unascertainable to the typical consumer. This submission was supported by the evidence of Mr Jimenez which illustrates by examples the difficulties that, the OFT says, face customers in practice if they seek to predict what charges apply to the operation of their account. The evidence was helpful in crystallising the OFT's complaints but it is not necessary to extend this judgment by going through his examples.
  139. The OFT gathered into seven categories its complaints that it is uncertain how the Relevant Terms will apply. The categories are not precisely defined and there is sometimes scope for debate about the appropriate category for a complaint, but I adopt the categories as a useful structure for considering the issues between the parties.
  140. The first category includes complaints that the terms leave the customer uncertain about what funds his Bank will treat as being available in his account to cover a payment instruction that he has given ("available funds uncertainties"). The availability of funds can be affected by what debits and credits are taken into consideration at the time when an instruction is processed, by the complexities of the banking system, including clearing cycles, and sometimes by a Bank's internal policies. The OFT says that these matters are not explained to customers.
  141. Secondly, the OFT complains of uncertainty "as to the time as at which available funds are taken" ("timing uncertainties"). (The first and second categories are closely related.) It is said that the funds available to meet a payment are not necessarily the funds calculated at the time when the particular instruction is processed. They might, for example, be calculated at the close of business the previous day.
  142. Thirdly, there is said to be uncertainty about the order in which transactions are processed ("order of processing uncertainties"). As I have said, the Banks process some instructions in batches, and the order in which they are processed may affect whether there are funds available to meet a particular instruction, and may therefore in turn affect what Relevant Charges are incurred. The Banks do not specify for customers the order in which they will process instructions, and so if on a particular day there are funds available to meet some but not all of a customer's instructions, the customer cannot tell in advance which, and perhaps how many, of his instructions will be treated as "Relevant Instructions".
  143. Fourthly, there is sometimes uncertainty, it is said, about what constitutes a Relevant Instruction: more specifically, uncertainty as to whether Relevant Charges are incurred only when the customer gives a payment or withdrawal instruction or whether they are also incurred when fees or interest are debited to the account; and uncertainty as to the position when a previous credit to the account is reversed ("Relevant Instruction uncertainties"). In particular, the OFT says that in some cases, because the Banks' terms and conditions are couched by reference to the customer being treated as having made a request for an unarranged overdraft, it is not clear whether a Relevant Instruction requires some communication between the Bank and the customer.
  144. Next it is said that there is uncertainty as to the criteria by which the Banks decide whether to honour or refuse a Relevant Instruction ("criteria uncertainties"), and that as a result, the customer has no means (apart, possibly, from his experience in operating his account) of knowing which Relevant Instructions are likely to be accepted and which refused, and so what charges he is likely to incur.
  145. Sixthly, the OFT says that in some cases the "scope" of a Relevant Charge is uncertain ("scope uncertainties"). This really amounts to various miscellaneous uncertainties in wording relating to the levying of Relevant Charges.
  146. Finally, the OFT complains of uncertainties about the Relevant Charges because of the policies or practices adopted by Banks of waiving or refunding them, and not fully enforcing their contractual rights ("enforcement uncertainties"). The Banks do not always levy the Relevant Charges for which their contractual terms provide. For example, Abbey places a cap on the number of Relevant Charges payable on any one day and a monetary cap on the amount of Relevant Charges levied in any statement period, and also exercises discretion in relation to Relevant Charges in cases of financial hardship. Clydesdale's practice is to waive some Unpaid Item Charges. HBOS and Nationwide have what are described as "internal buffers", of which customers are not made specifically aware and which prevent customers being charged unless their unauthorised borrowing exceeds particular levels. HSBC's unpublished waiver policies include a cap on Arrangement Fees of £150 in any charging period and of £60 on Unpaid Item Charges on any day. RBSG does not charge a Paid Item Charge if the amount of the unarranged overdraft is less than £26 and waives other charges in some circumstances.
  147. Mr Doctor, while not going quite so far as to concede that this complaint cannot be sustained, did not press it, and in my judgment he was right not to do so. I accept the Banks' submission that the question of plain intelligible language is directed to the contractual provisions, not to how the parties do or are likely to conduct themselves under the contract, to how and whether the parties do or are likely to exercise their rights or fulfil their obligations or to how precisely the contract will operate. This does not mean that the contract between the bank and the customer is not in plain intelligible language.
  148. Plain intelligible language – the standard to be achieved

  149. The question of plain intelligible language is, as it seems to me, directed to whether the contractual terms put forward by the seller or supplier are sufficiently clear to enable the typical consumer to have a proper understanding of them for sensible and practical purposes. The procedures required to operate a current account are undoubtedly complex, and it would require a long explanation to cover them fully. The Banks submit with some justification that many customers would not welcome so detailed an explanation, and if this were attempted it would probably detract from explaining clearly what the customer does need to know. The application of the 1999 Regulations, it seems to me, calls for a more practical and moderate approach to what affords appropriate protection for the consumer. The current account customer of the Banks is entitled to understand essentially the types of charges which his Bank is entitled to levy, the circumstances in which it is entitled to levy them and for how much he will be liable. He does not need an education in the full complexities of banking systems, and the 1999 Regulations do not, in my judgment, require a supplier such as the Banks to provide it.
  150. Moreover, even if a customer had a detailed understanding of how banking systems operate, it would not mean that he could be certain of what funds he would have in his account at any particular time in as much as this depends upon when payees present instructions for payment. The payee of a cheque may present it at any time within six months of its date: see Byles on Bills of Exchange and Cheques, 28th Ed. (2007) para 21-040. The payee of a direct debit has a window of three working days during which to collect a payment under the instruction: see Brindle & Cox, The Law of Bank Payments 3rd Ed (2004) para 3-031. Similarly, it is in the hands of the payee of an "off-line" debit card payment instruction (that is to say, a payee who has not specifically had the bank authorise the payment when the card-holder used it) when he presents the payment instruction (subject to any time limits for the relevant system).
  151. The Banks seek to take this point further. They say that a term is in plain intelligible language for the purpose of Regulation 6(2) if, given the nature and complexity of the subject matter, it is expressed as clearly as is reasonably possible. I am unable to accept this. A term is exempt from assessment as to its fairness only if it is in plain intelligible language. A seller or supplier does not earn exemption from assessment of his terms by making a commendable effort to make them plain and intelligible. This would, it seems to me, leave a gap in the protection for consumers that the 1999 Regulations are intended to provide: that any contractual term can be assessed unless the typical consumer is able to understand it.
  152. I recognise that in theory this might mean that terms relating to the adequacy of the price are not exempt from assessment although the seller or supplier has made them as clear as is possible, and the seller or supplier cannot prevent assessment under the 1999 Regulations of the "price/quality ratio". However, this consideration must give way to the primary purpose of consumer protection. In saying this, I do not overlook the Banks' argument that the duty upon sellers and suppliers in Regulation 7(1) to ensure that any written term of a contract is expressed in plain, intelligible language is stated in mandatory terms. As I have said, it is not clear how this would be enforced, but, assuming that there is jurisdiction to enforce it by injunctive relief (see paragraph 86 above), an injunction would not be made if a seller and supplier had already ensured that his terms are as plain and intelligible as possible.
  153. "Criteria uncertainties"

  154. The OFT criticised the terms of all eight Banks on the grounds of what I have called the criteria uncertainties (see paragraph 115 above). In each case, the criticism was simply that the terms do not explain, and do not seek to explain, the criteria by which the Bank decides whether to make an unarranged overdraft available to the customer when it receives a Relevant Instruction. In the case of the Banks other than Nationwide the criticism is put on the basis that the terms do not explain how the Bank considers the request which, as the Banks' terms are drafted, the customer is taken to have made by way of a Relevant Instruction.
  155. The Banks respond by arguing that generally they are not obliged under their contracts with current account customers to adopt any particular criteria when deciding whether to pay upon Relevant Instruction. They are free to adopt what criteria they choose, and are not contractually obliged to use the same criteria for any customer whenever he gives a Relevant Instruction. The OFT does not, I think, suggest otherwise. However, it follows from this, as the Banks argue and I accept, that to this extent there are no contractual criteria to be explained to the customer. The OFT's argument that the criteria should be explained amounts to a contention either that the Banks should make contracts in which they commit themselves to using specific criteria or that extra-contractual criteria should be explained. The complaint is not, in reality, that contractual terms are not plain and intelligible. It might be said that the contractual terms are not plain and intelligible unless they make clear the Banks' discretion whether or not to pay upon a Relevant Instruction, but all the terms that I am considering do make this clear, and, again, I do not understand the OFT to argue otherwise.
  156. I therefore reject the complaint about criteria uncertainties. (Barclays' documentation refers to the customer's "financial circumstances" being appraised when deciding whether to pay, and Lloyds TSB refers to assessment of the customer's "personal circumstances". I deal with this when considering the terms of the individual Banks at paragraphs 169 and 254 respectively.)
  157. "Order of processing uncertainties"

  158. A complaint of "order of processing" uncertainty is also made about the terms of all eight Banks. It would appear from the evidence that there is no established banking practice whereby it is determined which "off-line" payment instructions within a batch are given priority for processing and payment. At Clydesdale, for example, a member of staff has discretion about this, and, as that Bank's evidence explains, will often give priority to such payments as mortgage or loan repayments.
  159. The OFT does not allege that the Banks are contractually obliged to process the transactions upon a customer's account in a particular order if instructions are received simultaneously, provided the account is conducted in accordance with established banking practices. It is not necessary in this judgment to decide what obligations a bank has in these circumstances: see Paget's Law of Banking 13th Ed. (2007) p.472. Nor is it necessary to examine the provisional view expressed by Griffin J in Dublin Port & Docks Board v Bank of Ireland, [1976] IR 118 at p.138 that "a banker should pay his customers' cheques in the order in which they are presented, subject to the interest of the customer being taken into account". It is sufficient to observe that if and to the extent that a bank is under any obligation to his customer about the order of processing instructions or which are to be paid in priority to others, the obligation arises from an implied contractual term.
  160. As I have said, the order in which payment instructions are processed might affect whether a particular instruction is a Relevant Instruction and incur Relevant Charges, or indeed how many of a customer's payment instructions might make him liable for Relevant Charges. As a result of uncertainty about the order in which the Banks might process payment instructions, the customer might not know in advance what Relevant Charges will be levied upon his account. It would be possible for the Banks to reduce this uncertainty by committing themselves to process instructions in a particular order. However, either the OFT's complaint is that the Banks' terms do not set out an implied provision of the Bank's terms or, as with the complaint of criteria uncertainties, it is not about the clarity of the Banks' contractual terms at all but about uncertainty as to how accounts will be operated by the Banks in practice. Whichever it be, I reject the OFT's case that the Banks' terms are not in plain intelligible language because of order of processing uncertainties.
  161. It is therefore necessary to consider further the OFT's complaints about uncertainties relating to "available funds", "timing", "Relevant Instructions and "scope". None of these is directed against all eight Banks, and the terms of each Bank need separate consideration. I must therefore explain the accounts offered by the Banks and the standard form documentation that they use.
  162. Abbey's terms

  163. Abbey National plc was converted to a public company in 1989 and acquired in 2004 by Banco Santander, SA, Spain's largest financial services group. It offers a range of different accounts to customers, and now has two main types of personal current account for new customers, the Abbey Current Account and the Basic Account. This judgment, as I explained at paragraph 37 above, is concerned only with the former, the account used by about 80% of Abbey's personal current account customers. Accounts of this kind are opened by customers over the telephone, online or – most commonly – by completing an application form at a branch. However the account is opened, it is Abbey's practice to provide the customer with three documents: a booklet called "Abbey Bank Account Terms and Conditions", a leaflet called "The Abbey Personal Current Account Key Features and Price List", and a User Guide. The current contractual documentation was introduced by Abbey last year, being sent to customers in late July and early August 2007 and coming into effect on 10 September 2007. (There have since been some immaterial revisions by way of up-dating, but I need not be concerned about them.)
  164. It is stated at the start of the Terms and Conditions booklet that those conditions and "the written details explaining the key features of your current account … and the Price List… form the terms of your contract with us with regard to your current account". This is confirmed by an entire agreement provision in condition 13.12 of the Terms and Conditions. Thus the User Guide is not a contractual document.
  165. The Terms and Conditions booklet states that a customer, by opening an Abbey Personal Current Account, "can take advantage of the following main services", which are identified as the "Deposits services", allowing payments into the account, the "Overdraft services" and the "Payments services", allowing customers to make withdrawals and payments to others. The "Overdraft services" is described in these terms: "you can request an overdraft and, if we agree to your request, you can borrow that money from us". The customer is referred to condition 3 for his rights and obligations relating to the Overdraft service.
  166. The OFT argues that the statement of the "main services" is not contractual, but just "some promotional introduction", and characterises as "self-serving" the use of the expression "service" here and elsewhere. I accept that it is not always easy in this document, or indeed in many of the documents produced by Abbey and other Banks, to distinguish what is and what is not contractual, but (if it matter) I would regard this part of the booklet as being of contractual effect. I also find the use of the term "service" in this context natural and do not regard it as strained or contrived.
  167. Condition 3 of the Terms and Conditions explains that there "are two different overdraft services available" on an Abbey Personal Current Account: the "Advance Overdraft service", where the customer arranges an overdraft facility (or an increased overdraft facility) before seeking to overdraw, and the "Instant Overdraft service". In the case of the former, an Advance Overdraft Fee is payable for the facility whether or not it is used. No charges are incurred for actual use of a facility, although interest is payable upon borrowings.
  168. The focus of the OFT's criticism of Abbey's Relevant Terms is condition 3.3, which reads as follows:
  169. "3.3 Instant Overdrafts
    3.3.1 Without contracting us at all, you may also request an overdraft by trying to make a payment from your current account, where that payment would:
    (i) cause your current account to go overdrawn without an Advance Overdraft in place; or
    (ii) cause your current account to go over any Advance Overdraft limit we have previously agreed with you.
    In either case this is referred to as an Instant Overdraft request.
    3.3.2 You will be treated as making an Instant Overdraft request to us automatically if you do not have enough money in your current account, or enough unused Advance Overdraft with us and you do any of the following:
    (i) you try to purchase goods or services using your debit card or by cheque;
    (ii) you try to withdraw money from your current account;
    (iii) you try to make a payment from your current account against a cheque which is later returned unpaid or against any other deposit in your current account which has not been processed; or
    (iv) an automated payment you have set up, such as a Direct Debit or a standing order, is requested to be paid.
    3.3.3 An Instant Overdraft Request Fee will be payable by you each time that you use the Instant Overdraft service. The Instant Overdraft Request Fee is payable regardless of whether we agree to give you the Instant Overdraft requested.
    ( Important: Payment of the Instant Overdraft Request Fee may result in you becoming overdrawn (or, if you already have an overdraft, further overdrawn) even if we do not agree to give you the Instant Overdraft.

    3.3.4 We may give you an Instant Overdraft or we may refuse to do so. If we agree, we will give you an Instant Overdraft to cover the amount of the withdrawal or the payment involved. An Instant Overdraft Monthly Fee will by (sic) payable by you monthly for every calendar month in which you have used our Instant Overdraft service (including where you continue to use an existing Instant Overdraft facility). Interest will also be payable by you at the Instant Overdraft Interest Rate on any money you borrow by way of an Instant Overdraft. If we refuse your Instant Overdraft request but your account is in credit or, if you have an Advance Overdraft and your account still has some unused Advance Overdraft on it, then you will not have to pay the Instant Overdraft Monthly Fee."
  170. Thus, by clause 3.3.1 a customer is said to make a request for an Instant Overdraft when he seeks to make a payment which would cause his account to become overdrawn without, or in excess of, an Advance Overdraft facility. An Instant Overdraft Request Fee is incurred whether or not Abbey agrees to the request. An Instant Overdraft Monthly Fee is contractually payable once in a statement period (a period equivalent to a calendar month) in which Abbey agrees to an Instant Overdraft request.
  171. It is a feature of Abbey's Terms and Conditions booklet that it includes a number of boxes interspersed among the conditions, these boxes containing notes marked by a picture of a finger pointing to the note and introduced by the word "Important", such as that under condition 3.3.3 that is set out above. Another such note, which is the object of some criticism from the OFT as a "fanciful" extension of the concept of the customer requesting an instant overdraft, appears in condition 5, which is headed "Interest Rates and Service Fees" and explains that Abbey will take from the customer's account the amount of Service Fees and Interest owed on the account. It is placed after condition 5.1.2 and reads:
  172. "... Important: If you do not have enough money in your current account, or enough unused Advance Overdraft with us to cover any Service Fees or Interest when we take from your current account the money to pay those Service Fees or Interest, you will be treated as having made an Instant Overdraft request and we will be entitled to charge you an Instant Overdraft Request Fee. An Instant Overdraft Monthly Fee and Interest at the Instant Overdraft rate will be payable."
  173. It is Abbey's contention that these notes are not contractual, but are explanatory or advisory. Certainly this is true of some of them: for example, one states, "We consider cases of financial difficulties sympathetically and positively, and we have a specialist team that can help". However, there are also statements in the conditions themselves which similarly are advisory: for example condition 5.1.3 states:
  174. "You can discuss at any time any Service Fees or Interest you have incurred on your current account, or why your have paid them, by speaking to us in any of our branches or by calling us on …".

    There is not a demarcation between contractual conditions and non-contractual boxed notes. For example, in condition 6, which deals with joint accounts, there is a boxed note under condition 6.1.2 which reads:

    "... Important: if you open a Joint Account, you will both be liable to us for all money owed to us in relation to your Joint Account including any overdraft balance (whether an Advance Overdraft or Instant Overdraft), Service Fees and/or Interest, regardless of whether it is incurred by you or by your Joint Account holder."

    It is true that this duplicates what is found in the conditions themselves, but I cannot accept that it is not of contractual effect. I consider that the note under condition 5.1.2 is also contractual.

  175. I refer to condition 4.2 of the Terms and Conditions, which appears under the heading "Clearance of payments from your current account". As far as material it reads as follows:
  176. "4.2.1. When you give us an instruction to make a payment by internet or by phone, or if you instruct us to make a payment by cheque, the money will normally be taken from your current account on the same working day we receive your instruction. However, it will normally take 3 working days for the payment to reach the account of the person you want to pay and it may take longer than 3 working days for payments to be paid into accounts held with some financial institutions.
    4.2.2 Automatic payment instructions, such as Direct Debits and standing orders, will usually be taken from your current account at the beginning of the working day that they are due.
    4.2.3 There may be a delay between you using your card to make payment from your current account and the time on which that payment is taken from your current account. It is your responsibility to check that there are no payments pending against the balance on your current account before you request a withdrawal or payment from