6.3.1 Challenges to the core exemption
Despite the rationale behind the core exemption, its application proved to be controversial in practice, particularly in relation to bank changes.
Activity 7 Bank charges and the core exemption
- a.Watch this video clip from February 2008 and answer the following questions about the case being discussed.
Note: although this case was decided pre-CRA 2015 it is still good law in relation to the indicative list in the Act.
Transcript: Clip 1 on Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696
- i.Who was the case being brought by?
a.
The European Union
b.
The UK Government
c.
The Office of Fair Trading
The correct answer is c.
Comment
The Office of Fair Trading (OFT) brought a test case against Abbey National plc, six other banks and one building society. Under UTCCR 1999, the Director General of Fair Trading was given powers to try to prevent the continued use of unfair terms.
- ii.What type of charges does it relate to?
a.
Loan charges
b.
Overdraft charges
c.
Deposit account charges
The correct answer is b.
Comment
The case related to charges made when bank customers exceeded their agreed overdraft limit.
- iii.Based on your knowledge of CRA 2015, what issue does the case involve?
a.
What is a trader?
b.
Transparency
c.
Illegible terms?
The correct answer is b.
Comment
The issue was whether the OFT could investigate the fairness of the bank charges, or whether they fell under the core exemption as being an assessment of ‘the adequacy of the price or remuneration’.
In the earlier case of Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 the House of Lords had held that a term in the defendant’s standard conditions for consumer loans did not fall within the core exemption, but was fair in any event. The suggestion was that the scope of the core exemption should be construed narrowly (Furmston, 2017, Chapter 6).
- b.The case being discussed was heard by the Supreme Court in June 2009 as Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696. Now watch this video clip of a statement given by Lord Phillips, which explains the Supreme Court’s judgment. In no more than 100 words, summarise the decision.
Transcript: Clip 2 on Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696
Comment
In this case, the court of first instance and the Court of Appeal had both held that reg 6(2) only applied to core terms. The charges were not viewed as part of the main subject matter of the contract and were, therefore, subject to review. However, the Supreme Court held that the charges formed part of the price or remuneration for the package of services the banks provided for their current account customers and, therefore, did fall under the core exemption.
There is one key limitation to the Supreme Court’s decision in Abbey National:
Regulation 6(2) (b) did not state that a court cannot review the price, but that it cannot review ‘the adequacy of the price as against the goods or services in exchange’.
At first instance, the question arose as to whether Regulation 6(2) (b) excluded a price term from any assessment of fairness (the ‘excluded terms’ construction) or whether it excludes only an assessment relating to the adequacy of the price (the ‘excluded assessment’ construction). Mr Justice Andrew Smith decided in favour of the excluded assessment construction. This finding was not challenged on appeal. The question therefore became not whether the OFT was entitled to assess the fairness of the relevant charges but whether, in doing so, it was entitled to take into account ‘the adequacy of the price or remuneration, as against the goods or services supplied in exchange’.
This view is reflected directly in s.64 (1) (b) of the CRA 2015 which excludes from the assessment of the term ‘the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied’ under the contract.
Despite the Abbey National decision, there has been continued uncertainty over the scope of the core exemption. In Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 (Ch), [2011] ECC 31, the High Court considered terms requiring gym users to remain as members for a minimum period. Justice Kitchin concluded the terms were part of the main subject matter of the contract, but could still be assessed for fairness, providing that assessment related to the consequences for early termination and not to the definition of the subject matter.
The Court of Justice of the European Union (ECJ) ruled in Nemzeti Fogyasztóvédelmi Hatóság v Invitel Távközlési Zrt (Case C-472/10) [2012] 3 CMLR 1, where the ECJ had stated (at para. 23) that:
… the assessment of the unfair nature of terms was to relate neither to the definition of the main subject-matter of the contract nor to the adequacy of the price and remuneration … However, this exclusion could not apply to a term relating to a mechanism for amending the prices of the services provided to the consumer.
In Foster-Burnell, the County Court held that the fact the defendant had increased the overdraft charges meant that Hatóság applied and the core exemption under reg 6(2) was not applicable. The increased charges were held to be unfair under reg 5(1). This case does not set a binding precedent and has been appealed.