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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Jones & Anor v Roundlistic Ltd  EWCA Civ 2284 (19 October 2018)
Cite as:  EWCA Civ 2284,  HLR 17,  WLR 4461,  WLR(D) 681,  1 WLR 4461
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ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
His Honour Judge Huskinson
 UKUT 325 (LC)
Strand, London, WC2A 2LL
B e f o r e :
(President of the Family Division)
LORD JUSTICE UNDERHILL
(Vice President of the Court of Appeal (Civil Division))
LORD JUSTICE SINGH
| NATHAN R JONES
AIDEEN M SEYMOUR
|- and –
Mr Henry Webb (instructed by Colman Coyle Ltd) for the Respondent
Hearing dates : 26th June 2018
Crown Copyright ©
Sir Andrew McFarlane P:
"4. Not to use the premises hereby demised or permit the same to be used for any purpose whatsoever other than a single private dwelling house in the occupation of the Lessee and his family."
On 7 April 2015 the Appellants let their premises to a tenant for a period of 12 months and the tenant went into occupation. In consequence the lessor, Roundlistic Limited, made an application to the First-tier Tribunal ("FtT") for a determination under the Commonhold and Leasehold Reform Act 2002, s168(4) that the Appellants had breached the terms of their lease.
"11. The property of which the lower maisonette forms part is a building known as 22-22A St Ann's Road, London SW13 and comprises two maisonettes known as 22 and 22A.
12. By a lease dated 8 September 1978 Invincible Properties Limited as lessor demised to Michael Benjamin Yahuda as lessee the lower maisonette for a term of 125 years at the rents and upon the terms and
conditions therein contained. The first recital to the lease made clear the nature of the building and how it contained the two maisonettes. The second recital was in the following terms:
"(2) The Lessor has previously granted a lease of or intends hereafter to grant a lease similar in length and term to this lease of the premises in the Mansion other than the…"
Premises hereby demised and has in such lease imposed or intends in such lease to impose the restrictions set forth in the First Schedule hereto and covenants and stipulations similar to those contained in Clauses 2 3 4 and 5 hereof to the intent that the Lessee for the time being of any parts of the Mansion may be able to enforce the observance of the said covenants and stipulations by the lessee of the reminder thereof."
13. Clause 2 of the lease provided as follows: "2. The Lessee hereby covenants with the Lessor and with and for the benefit of the owner and lessee from time to time during the currency of the term hereby granted of the upper maisonette that the Lessee and persons deriving title under him will at all times hereafter duly perform and observe all and singular the restrictive and other covenants and stipulations mentioned in the First Schedule hereto." Accordingly the lessee thereby gave the covenant in paragraph 4 of the First Schedule being the covenant referred to in paragraph 3 above.
14. By clause 6(b) the lessor covenanted with the lessee as follows: "6(b) that the Lessor will require the persons to whom it shall hereafter transfer or grant a lease of the other premises comprised in the Mansion to covenant to observe the restrictions set forth in the First Schedule hereto and to enter into covenants and stipulations similar to those contained in Clauses 3 4 and 5 hereof and until the Lessor so transfers or grants such a lease as aforesaid the Lessor will nevertheless contribute the requisite amounts over and above those contributed by the Lessee hereunder towards the costs and expenses involved under Clause  hereof."
15. The second schedule made provision for the rights and privileges granted to the lessee and these included in paragraph 5 "the benefit of the restrictions contained in the lease of the remainder of the Mansion granted or to be granted."
16. It appears clear that by 26 August 1980 no long lease had yet been granted of the upper maisonette. By a deed dated 26 August 1980 between the same parties as the parties to the 1978 lease it was recited that the deed was supplemental to the lease and that the parties were desirous of adding to the terms of the lease in the manner there appearing. Clause 1 of the deed provided as follows: "The Lessor covenants with the Lessee and his successors in title (a) that any future lease of the Upper Maisonette granted for a term certain exceeding twenty one years will be in similar form as the Lease and contain inter alia covenants on the part of the Lessee to perform and observe covenants and stipulations similar to those contained in Clauses 2, 3 4 & 5 of the Lease and (b) that until the Upper Maisonette is let on a lease as aforesaid the Lessor will repair maintain uphold and keep the Upper Maisonette so as to afford all necessary support shelter protection and access to the Lower Maisonette and that (if so required by the Lessee) the Lessor will so far as is possible enforce against the occupier of the Upper Maisonette the restrictions and stipulations similar to those contained in the First Schedule to the Lease entered into by the occupier of the Upper [sic] Maisonette on 6 the Lessee indemnifying the Lessor against all costs and expenses in respect of such enforcement (including in the case of any litigious proceedings the costs and expenses incurred as between a Solicitor and his client) and first providing such security in respect of costs and expenses as the Lessor may reasonably require".
17. There appears to be little or no evidence as to what was the state of occupation of the upper maisonette from August 1980 until the grant of the extension lease in June 2012. However the FtT proceeded on a basis, which was not suggested by either party to be inaccurate (and which I adopt) that no long lease was granted of the upper maisonette at any stage and that the occupation of the upper maisonette was either by way of an officer of the lessor for the time being occupying for his/her own benefit or by the lessor granting tenancies including assured shorthold tenancies to occupational tenants.
18. In due course in 2012 the then lessee, namely Ms Scott, served the relevant notice under section 42 of the 1993 Act requiring the grant of a lease extension. The appellant was by this date the owner of the freehold of the building and accepted that Ms Scott was entitled to the grant of an extension. In the result the new lease was granted on 27 June 2012 for a term from 8 September 1978 expiring on 8 September 2188 (in lieu of the term set out in the existing 1978 lease) and at a rent of a peppercorn. The new lease did not make reference to the 1980 deed. The new lease was expressed to be made upon the same terms and subject to the same covenants conditions and stipulations in all respects as those contained in the existing lease save as to the rent and the term of years granted and save as modified therein. The new lease stated that it was to take effect as if such terms covenants etc were repeated in the new lease in full but with such modifications as were made in the new lease. The new lease in clause 6 provided: "No long lease created immediately or derivatively by way of sub-demise under the term hereby granted shall confer on the sub-tenant as against the Landlord any right under Chapter II of Part 1 of the Act to acquire a new lease."
19. The new lease was registered at the Land Registry. In due course the respondents took an assignment of the new lease and became the registered proprietors thereof. It may be noted that the official copy of the register of title of the new lease included in paragraph 3 of Part A: Property Register the following text: "(20.07.2012) The Lease prohibits or restricts alienation."
20. The respondents became registered with title to the lease on 2 October 2013. They purchased from Ms Scott. During their negotiations for the purchase the following matters occurred: (1) The respondents, by their solicitors, made inquiries of the vendor (Ms Scott) upon various topics. The respondents were informed that the first floor flat (i.e. the upper maisonette) was freehold and was let shorthold. The vendor was asked whether any of the occupiers of the lower maisonette were tenants or lodgers, with a supplementary request, if the answer was yes, to give details and supply a copy 7 of any tenancy agreement. The answer given was "no". The name of the occupier was given as Mr Gregory Allder and he was stated to be a "friend". (2) The respondents, through their solicitors, asked questions of the appellant which included at paragraph 5.2 a question as to whether all of the flats were let on leases similar to that specified. The answer given was that the first floor flat was freehold and was let on a shorthold tenancy. A further question asked of the appellant was for confirmation whether or not there had been any variation of the leases (either formal or informal). The only answer given was that there had been granted a licence to carry out works.
21. The circumstances in which the respondents bought the lease of the lower maisonette were in evidence before the F-tT and were recorded by the F-tT in paragraph 19 of its decision as follows: "The respondents are a former British Army Officer and a teacher, respectively. For a number of years they lived abroad but, about 5 years ago, they moved to the Barnes area of south west London. They began renting close to the subject premises, with the intention of putting down some roots after an extremely transient period of deployments abroad. In mid-2013 they began negotiations to purchase the Premises from the then owners, Emma Scott and Mark Fooks. Copies of the original and extended leases were provided to the respondents and, by leasehold information form dated 13 April 2013, the sellers confirmed that they had not complained or had cause to complain to or about the landlord, the management company or any neighbour. The sellers confirmed that they did not live in the premises themselves, but that it was occupied by a Mr Gregory Allder, who was described as a "friend" on the form, and expressly not a tenant or lodger". The sale went through on 30 August 2013 and the change of proprietor was registered at HM Land Registry on 2 October 2013. As Mr Jones' grandparents and several generations before them had been residents and local business owners within the Barnes area, the respondents felt confident that they would continue to be long-term residents of the local area themselves and full participants in that community.
22. The respondents moved into the lower maisonette and occupied it as their residence. Mr Jones took up employment at a major global and European bank. In February 2015 his employer posted him to Milan for a two year temporary assignment beginning around 1 April 2015.
23. As soon as the respondents learned of their posting to Italy they tried to contact the appellant to confirm the appellant's attitude regarding subletting the lower maisonette. The respondents found it difficult to obtain a response by numerous telephone calls. When Mr Jones eventually got through to the appellant's managing agents he was informed aggressively that he would "lose my flat" if permission to sublet was not granted and that this would only be given on the basis of a "substantial cash payment" as there was an alleged "absolute prohibition" in the lease. The F-tT recorded what happened next in paragraphs 27 and 28 of its decision in the following terms: 8 "27. The respondents offered the applicant lessor a premium for a lease variation, which the applicant refused. After "several flat refusals" the respondents then made a final offer of £15,000 to vary the lease "which was refused out of hand with no justification given." Mr Jones made somewhere in the region of 67 telephone calls to the managing agents, leaving numerous messages, none of which were returned. Then, with only a few weeks to go before their departure, the managing agents told the respondents that the applicant would accept "something around double this amount for a temporary permission to sublet during the time I was overseas." "28. The respondents' evidence on these verbal negotiations was contained in the written statement signed by Mr Jones in the respondents' bundle and in Mr Jones' oral evidence to the tribunal. Although Ms Dixon on behalf of the applicant sought to deny that the applicant had made a demand for £30,000 for temporary consent to sub-let, the matter was not addressed by the applicant in the Reply to the respondents' statement and the applicant's director, Mr Barry Marsh, did not attend the hearing to be asked about this, despite having filed a witness statement in support of the application. The tribunal therefore accepts Mr Jones' evidence as to these negotiations."
24. By a letter dated March 2015 the respondents wrote to the appellant formally notifying the appellant of their intention to sublet the lower maisonette after 1 April 2015. The letter stated that upon advice the respondents had established there were no clauses in the current lease which preclude subletting of the property and that the wording of paragraph 4 contains the same wording as in an earlier Tribunal case LON/00AM/LBC/20070025. The respondents also drew attention to the longstanding common law right to sublet the demised premises or part thereof.
25. The appellant's managing agents replied by email on 20 March 2015 stating: "The freeholder has advised that should you proceed with letting the property they would go for an order of possession and will notify your mortgage providers of the same." The appellant's managing agents sent a further email dated 31 March 2015 noting that the lower maisonette was being marketed for rent and stating that the appellant had had the opportunity of legal advice following the respondents' correspondence. The letter stated: "We cannot stress enough that we feel you have been misadvised with regards to the caselaw on the clause in your lease. We would strongly advise that you consult with your solicitors before embarking on any letting of the property other than as described under the terms of your lease."
26. On 2 April 2015 the respondents replied stating they had taken legal advice; that there was no clause in the current lease specifically precluding subletting; that at common law a tenant has a right to sublet; and that there was an explicit precedent of the tribunal finding in favour of the lessee in a case where the lessee was subject to a covenant similar to paragraph 4. The respondents stated that based upon these considerations they had decided to sublet the property as was their right without any specific consent from the appellant and without any variation of the lease. 9.
27. On 7 April 2015 the respondents granted an assured shorthold tenancy to Mr Robert Jackson for 12 months at a rent of £2,200 per month.
28. By a letter dated 8 April 2015 (which arrived on the day following the subletting) the appellant wrote further drawing attention to the decision of the Upper Tribunal in Aaron William M Burchell v Raj Properties Limited  UKUT 0443 (LC) which came to the opposite conclusion upon the effect of paragraph 4 as compared with the decision of the F-tT upon which the respondents were relying.
29. The position accordingly had been reached where the appellant was contending that paragraph 4 prohibited the respondents from subletting the lower maisonette to a third party who would occupy it, whereas the respondents were contending that they were entitled, consistently with the terms of their lease, to grant such a subletting. The respondents had, despite the appellant's opposition, granted such a subletting. In consequence the appellant made an application to the F-tT for a determination under section 168(4) that the respondents had breached the terms of their lease."
The Legal Context
"(1) Where a qualifying tenant of a flat has under this Chapter a right to acquire a new lease of the flat and gives notice of his claim in accordance with section 42, then except as provided by this Chapter the landlord shall be bound to grant to the tenant, and the tenant shall be bound to accept —
(a) in substitution for the existing lease, and
(b) on payment of the premium payable under Schedule 13 in respect of the grant,
a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease."
"(1) Subject to the provisions of this Chapter (and in particular to the provisions as to rent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date, but with such modifications as may be required or appropriate to take account —
(a) of the omission from the new lease of property included in the existing lease but not comprised in the flat;
(b) of alterations made to the property demised since the grant of the existing lease; or
(c) in a case where the existing lease derives (in accordance with section 7(6) as it applies in accordance with section 39(3)) from more than one separate leases, of their combined effect and of the differences (if any) in their terms."
"(6) Subsections (1) to (5) shall have effect subject to any agreement between the landlord and tenant as to the terms of the new lease or any agreement collateral thereto; and either of them may require that for the purposes of the new lease any term of the existing lease shall be excluded or modified in so far as —
(a) it is necessary to do so in order to remedy a defect in the existing lease; or
(b) it would be unreasonable in the circumstances to include, or include without modification, the term in question in view of changes occurring since the date of commencement of the existing lease which affect the suitability on the relevant date of the provisions of that lease."
"Whereas the statutory or regulatory provisions of the Member States which directly or indirectly determine the terms of consumer contracts are presumed not to contain unfair terms; whereas, therefore, it does not appear to be necessary to subject the terms which reflect mandatory statutory or regulatory provisions and the principles or provisions of international conventions to which the Member States or the Community are party; whereas in that respect the wording "mandatory statutory or regulatory provisions" in Article 1 (2) also covers rules which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established."
"the contractual terms which reflect mandatory statutory or regulatory provisions and the provisions or principles of international conventions to which the Member States or the Community are party, particularly in the transport area, shall not be subject to the provisions of this Directive."
"4. (1) These Regulations apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer.
(2) These Regulations do not apply to contractual terms which reflect –
(a) mandatory statutory or regulatory provisions (including such provisions under the law of any Member State or in Community legislation having effect in the United Kingdom without further enactment);
(b) the provisions or principles of international conventions to which the Member States or the Community are party."
"5. (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer."
The Upper Tribunal Decision
a) UTCCR, reg 4(2) relating to mandatory or statutory provisions;
b) a finding that lease did not "cause" any imbalance;
c) the inclusion of paragraph 4 was not contrary to the requirement of good faith.
"101. However regulation 4(2) provides that the regulations do not apply to contractual terms which reflect mandatory statutory provisions. The appellant was statutorily obliged to grant the new lease. The terms upon which the appellant was obliged to grant this new lease were provided for in sections 56 and 57. There was scope for some alteration in the terms of the new lease as compared to the existing lease, but the starting point was that the new lease was to be on the same terms as those in the existing lease subject to certain limited modifications. In these circumstances I conclude that regulation 4(2) is applicable and that the UTCCR do not apply to the contractual terms of the new lease."
"103. In the present case the lessee chose to require the grant of a new lease in circumstances where the existing lease, containing paragraph 4, was a lease which would continue to regulate the rights between the appellant on the lessee until 2098. This lease being granted in 1978 was not a lease to which the UTCCR applied. Accordingly the position immediately after the grant of the new lease was (supposing that paragraph 4 operated to bind the lessee) exactly the same position as the lessee was in prior to such grant and would have continued to be in for a further period exceeding 80 years. In such circumstances I do not consider that the relevant contractual term (i.e. paragraph 4 as repeated in the new lease of 2012) can be said to be a clause which "causes" a significant imbalance etc. If there was a significant imbalance it already existed."
"104. Further, bearing in mind the circumstances in which the new lease was granted, namely pursuant to an obligation under the 1993 Act, I do not consider that it can be said that paragraph 4 (as repeated in the new lease in 2012) was a term which was 'contrary to the requirement of good faith'."
"105. Accordingly, even if paragraph 4 does produce a result in which there is a significant imbalance in the parties' rights and obligations under the lease to the detriment of the consumer (as to which I make no finding), I conclude that paragraph 4 remains valid and is not rendered invalid by the UTCCR because in summary:
(1) The UTCCR do not apply having regard to regulation 4(2)(a);
(2) the lessee was already subject to paragraph 4 prior to the 2012 new lease and therefore the term in the new lease did not "cause" any significant imbalance; and
(3) in any event the inclusion of paragraph 4, in the context of a renewal under the 1993 Act, was not contrary to the requirement of good faith. Upon this point I note that both appellant and lessee would have been professionally represented during the procedures for the grant of the new lease and that the lessee would have had solicitor's advice upon the terms of the new lease and upon the consequences of entering upon the renewal procedures under the 1993 Act."
The arguments on appeal
"It is submitted, however, that this decision extends the scope of application of reg 4(2) beyond the likely interpretation of the Court of Justice of the EU of Art 1(2) of the 1993 Directive which reg 4(2) implements: Art 1(2) is to be strictly construed and there is a difference between contract terms required by legislation itself (where "it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts") and contract terms which reflect an earlier contract between the parties whose content has not been the object of any legislative consideration or imposition."
a) whether there was a significant imbalance in the parties' rights and obligations;
b) if so, whether this was contrary to the requirement of good faith; and
c) whether such imbalance was caused by the 2012 lease.
The Appellants' case is that, so far as (a) is concerned, the FtT found that paragraph 4 imposed more onerous terms on the lessee than those applied to the lessor, the imbalance went so far as to be a derogation from grant by the lessor from paragraph 5, and that there was no reciprocal mechanism for the lessee of the lower maisonette to enforce paragraph 4 or its equivalent against the lessor directly. These factors contributed to a finding that there was a significant imbalance in the parties' rights and obligations. This finding was not seriously appealed before the UT and the finding must therefore stand.
i) the lessor was statutorily obliged to grant the new lease;
ii) the terms upon which the lessor was obliged to grant the new lease were provided for in sections 56 and 57 of the 2002 Act;
iii) although there was scope for some alteration, the starting point was that the new lease was to be on the same terms as those in the existing lease.
a) in terms of unfairness to the consumer, it is of note that the entire process under the 2002 Act is driven by the lessee (as consumer) who, in this case, chose to ask for an extension of the lease without seeking a variation of paragraph 4 notwithstanding knowledge of the manner in which the accommodation of the upstairs maisonette had been managed and notwithstanding the lessor's failure to implement the scheme of mutual enforcement described in the original leases;
b) although, the primary focus of reg 4(2) may be upon specific terms in consumer contracts for which the source of the text is directly drawn from legislation, as the final clause in recital 13 demonstrates, the EC Directive, and therefore the domestic legislation, are to be construed more widely as including rules which, according to the law, must apply between contracting parties provided no other arrangements have been established. The circumstances of the present case would seem to fall within that which is envisaged by that sub-clause;
c) the structure and mechanism of the 2002 Act impose a mandatory requirement on the lessor to extend the lease on the same terms as the existing lease if the tenant has complied with the detailed notice procedure.
Lord Justice Underhill:
(1) Does Regulation 4 (2) (e) Apply ?
(a) I take the point that the Appellants' predecessor in title, Ms Scott, chose to invoke the terms of the 1993 Act, which involved reproducing the terms of the original lease in circumstances where (as it is now said) they had become unfair, without seeking to deploy section 57 (6) to get them changed. But, while that might go to the question of fairness, I do not see how it can affect the question of construction.
(b) I agree with the President that if, contrary to my view, paragraph 4 of the First Schedule to the lease should be regarded as "reflecting" the mandatory provisions of section 57 (1), and accordingly falls within article 1 (2) of the Directive, the fact that section 57 (6) allowed the parties to agree something different would not make any difference, because of the effect of the final words of recital 13. But those words do not have any bearing on the primary question of whether a provision which does not prescribe the content of the term in question is caught by the Directive in the first place.
"93. The unfairness of the term is to be assessed at the time of conclusion of the contract, that is to say, in the present case, at the time of the 2012 grant of an extended lease. At that stage, nearly 35 years had gone by since the lessor expressed its intention to grant a lease of the upper maisonette, and the lessor had taken no steps to set up the scheme of owner-occupation intended by the original parties, as evidenced by the drafting of the lease of the lower maisonette. Furthermore, the upper maisonette had been used for the short-term rental tenants during some or all of this period, including immediately before the respondent became successors in title to the lessee named in the 2012 lease extension.
94. The lease therefore contained a provision in Paragraph 4, which imposed more onerous terms on the lessee (as consumer) than applied to the lessor (as supplier). In the tribunal's view, the imbalance went so far as a derogation of grant by the lessor from paragraph 5 of the Second Schedule of the lease, by which the lessee was granted 'the benefit of the restrictions contained in the Lease of the remainder of the Mansion granted or to be granted'. Furthermore, there was no reciprocal mechanism for the lessee of the lower maisonette to enforce Paragraph 4 or its equivalent against the lessor directly, for so long as there was no long lease of the upper maisonette. The most that the lessor covenanted to do was to enforce the like restrictions against the 'occupier' of the upper maisonette, which was a right devoid of any practical meaning for so long as the upper maisonette remained part of the freehold, owned by a limited company, and was let out to short-term rental tenants.
95. The conclusion is that Paragraph 4 causes a significant imbalance in the parties' rights and obligations, to the detriment of the consumer (the lessee). This is contrary to the requirement of good faith, because the lessor: had failed for nearly 35 years (now nearly 40 years) to complete its side of the bargain to set up the scheme of owner-occupation in the building; had derogated from the grant of the lease of the lower maisonette; and had flagrantly disregarded its own need to comply with Paragraph 4 or its equivalent, for the better use and management of the building, as a whole, and for the benefit of the lessees of the lower maisonette, in particular.
96. By refusing to comply with Paragraph 4 itself, but insisting that the lessee of the lower maisonette do so, the lessor was not merely seeking 'to have its cake and eat it', but was seeking to perpetuate, in bad faith, an unequal and unfair arrangement."
"Given that section 57 of the 1993 Act sets out detailed provisions as to when it is possible for a party to insist on alternative terms being included in the new lease, it is submitted that it cannot be contrary to the requirement of good faith for the landlord to enter into a new lease which complies with its obligations under section 57."
That seems to me to be essentially the argument which the UT accepted. In my view it goes beyond a merely factual challenge to the FTT's evaluation. The contention is that the requirements of the 1993 Act procedure are such that terms resulting from it cannot be regarded as "contrary to the requirement of bad faith". That could be characterised as a contention that the FTT's approach was wrong in principle or that its decision was perverse. Either way, if the contention is good, the FTT's conclusion would be wrong in law.
"105. … The Regulations give effect to Council Directive 93/13/EEC on unfair terms in consumer contracts, and these rather opaque provisions are lifted word for word from articles 3 and 4 of the Directive. The effect of the Regulations was considered by the House of Lords in Director General of Fair Trading v First National Bank plc [ UKHL 52]  1 AC 481. But it is sufficient now to refer to Aziz v Caixa d'Estalvis de Catalunya, Tarragona i Manresa (Case C-415/11)  3 CMLR 89, which is the leading case on the topic in the Court of Justice of the European Union. Aziz was a reference from a Spanish court seeking guidance on the criteria for determining the fairness of three provisions in a loan agreement. They provided for (i) the acceleration of the repayment schedule in the event of the borrower's default, (ii) the charging of default interest, and (iii) the unilateral certification by the lender of the amount due for the purpose of legal proceedings. The judgment of the Court of Justice is authority for the following propositions:
(1) The test of 'significant imbalance' and 'good faith' in article 3 of the Directive (regulation 5(1) of the 1999 Regulations) 'merely defines in a general way the factors that render unfair a contractual term that has not been individually negotiated' (para 67). A significant element of judgment is left to the national court, to exercise in the light of the circumstances of each case.
(2) The question whether there is a 'significant imbalance in the parties' rights' depends mainly on whether the consumer is being deprived of an advantage which he would enjoy under national law in the absence of the contractual provision (paras 68, 75). In other words, this element of the test is concerned with provisions derogating from the legal position of the consumer under national law.
(3) However, a provision derogating from the legal position of the consumer under national law will not necessarily be treated as unfair. The imbalance must arise 'contrary to the requirements of good faith'. That will depend on 'whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations' (para 69).
I should also quote from para. 17 of the speech of Lord Bingham in the First National Bank case, where he said (p. 494):
"The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations. Good faith in this context is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it a concept wholly unfamiliar to British lawyers. It looks to good standards of commercial morality and practice. Regulation 4(1) lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the objective which the Regulations are designed to promote."
Lord Justice Singh: