Bank Charges case upheld

Vagabond_UK

All this legal jargon is doing my head in...

If you go overdrawn and continue to draw on the account, then the bank can levy 'charges' as a 'service fee' and the claim against LTSB has been thrown out on this?

But, if your account remains in credit but holds insufficient funds to cover a DD, the bank doesn't pay then charges a penalty? Is this then recoverable as a penalty charge?

When I opened my account with my bank, charges were £18 - a rip off even then!! Since then its went to £26, then £30 then £32 and now they're £39!!

So, what could possibly happen to have made the charge increase by 100%?

Scrudge

Russjo wrote: »

Okay, I've read every post on this thread and feel more confused than I was before. Can anybody please explain in simple terms/language the T&C issue. Am I right in thinking that the judge considered Mr Berwick's unlawful charges to be service charges?

Basically if you break a contract then you have to compensate the other party. But you are only liabe to compensate for the actual loss unless you have pre-agreed compensation levels for different ways contract might be breached - caled liquidated damages. But to be enforceable liquidated damages have to be genuine preestimate of losses - otherwise they are penaties and are not enforceable.

So if it cost the bank 1 pound to send letters notifying of overdraft on monday and 58 pounds to do in on tuesday then if you agreed that should you go overdrawn you pay them 30 - it is a liquidated damage and you can't claim even if they sent YOUR letter on Monday.

But ofcause we know those letters cost them about 1 pound to send regardess of the day of the week - so provisions in the contract that you pay them 30 in case of breach is a penalty.


But cunning banks have reworded the contract so that if interpreted literally you are not in breach of the contract if you go overdrawn - you are exercising your contractual right to try to get overdrawn further for which charges (rather then compensation for breach) are prescribed in the terms and conditions.


On this particular case, in the perverse judgment, the judge indeed held that they were charges for a service rather then penalties for breach.


Now unenforcability of penalties is a REALLY LONG established English law rule. Many times cunning businesses tried to bypass it by various means (i.e. instead of calling them penalties saying that penalties are liquidated damages etc) but courts mainly look at substance of the contract rather then at words used to describe various contractual terms.


For example if bans imposed a penalty of 1 and called in a penalty it would be enforceable because it is a reasonable pre-estimate of their loss and therefore is "liquidated damage" and in fact is not a penalty.

On the other hand if liquidated damage of 1000 would be prescribed in the contract - courts should and will identify it as a penalty and disallow.


The same should apply to penalties disguised as charges - but the judge chose to interpret everything literally - ignoring the substance of the contract - and it is for this reason that his decision is perverse.

MarkyMarkD

deary65 wrote: »

I did not say i derived my conclusion from the press article.

OK. But by posting your own view followed by a link to a frankly boring article which provided no new information at all, it looked like you were referencing your views to an external source.

Do you recall the case of wither a license was really a tenancy.In that case their lordships found a tenancy i.e they looked at the substance and not the form of the contract.In other words equity looks to the substance and not the form. What ever name they chose to call it in my opinion its a fine. i.e punishment.

You sounded all convincing and lawyerish until the last bit. I'm sure you realise that your own opinion (and mine, for that matter) counts for nothing. It certainly isn't a fine or a punishment. Some may argue (as you do) that it's a penalty. Others may argue (as LTSB do) that it's an agreed fee for a service.

So far the only judgement in a defended case agrees with the "others" and LTSB. And the judgement considers all of the well-rehearsed legal arguments for the unlawfulness of bank charges, and dismisses them each in turn.

As I've said before, I think that this IS an important judgement.

Scrudge

I attach as an example a fine judgement made by a reasonable High Court Judge.

It is not exacty a "penalties" case as the action was taken by the consumer under Unfair Terms in Consumer Contract Regulations.

The regulation prohibit the courts from considering fairness of price - fairness of almost all other terms is up for evaluation.

Cunning estate agents wanted 1.5% comission but wanted to charge double if the seller dose not pay within 10 days.

To avoid this provision being called a penalty and to avoid it to be subject to consideration under the Unfair Terms in Consumer Contract Regulations they said in the contract that the comission is in fact 3% - but the seller has the option to pay 1.5% if pay within 10 days.

The judge did look at the substance and rued that comission (i.e. price agreed that the court can not change) is in fact 1.5%. 3% is default provision that could be chalenged in court.





[2004] EWHC 263 QB

High Court of Justice Queen's Bench Division



Gross J



Introduction



1. This is an appeal by the claimant, an estate agent ("Bairstow") from a judgment of HHJ Richardson… In the judgment, HHJ Richardson held, inter alia, that a term of a Confirmation of Marketing Agency Agreement… providing for the payment of 3 per cent commission was unfair and therefore not binding on the consumer defendants… ("the vendors"), pursuant to the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083...



2. The sole ground of appeal is that the judge erred in law in that, by virtue of regulation 6(2), the regulations did not apply to the term in question. I should underline that if, contrary to Bairstow's case, the regulations do apply to the relevant term, there is no challenge to the judge's conclusion that it was unfair.



The Regulations



15. Turning to the regulations themselves, these are, so far as here relevant, in the following terms:



"4 Terms to which these regulations apply



(1) These regulations apply in relation to unfair terms in contracts concluded between a seller and a consumer.



5 Unfair Terms



(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.



(5) Schedule 2 to these regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.



6 Assessment of unfair terms



(1) ... 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 ...



(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 the exchange.



7 Written contracts



(1) A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.



8 Effect of unfair term



(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.



Schedule 2



Indicative and non-exhaustive list of terms which may be regarded as unfair



(e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;"



Decision



25. Particular gratitude is due to the judge for having himself located the authority of First National Bank. Guided by this authority, the landscape becomes clear. The object of the regulations is not price control nor are the regulations intended to interfere with the parties' freedom of contract as to the essential features of their bargain. But, that said, regulation 6(2) must be given a restrictive interpretation; otherwise a coach and horses could be driven through the regulations. So, while it is not for the court to re-write the parties' bargain as to the fairness or adequacy of the price itself, regulation 6(2) may be unlikely to shield terms as to price escalation or default provisions from scrutiny under the fairness requirement contained in regulation 5(1). I say "may be unlikely" because, of course, much depends on the individual contract under consideration. When, however, regulation 6(2) is inapplicable so that regulation 5(1) is engaged, it does not follow that a term will be adjudged unfair; whether or not a term is unfair involves a separate inquiry but one which cannot be undertaken at all insofar as regulation 6(2) is applicable and bars the way.



26. To my mind, in the present case the applicability of regulation 6(2) turns on the following question: (1) did the agreement provide for a 3 per cent commission rate (or price) with the vendors having an option but no obligation to pay 1.5 per cent? Or: (2) did the agreement place the vendors under an obligation to pay a price of 1.5 per cent, with a "default" provision exercisable at Bairstow's option to insist on payment of 3 per cent? If the former, then regulation 6(2) would be applicable and the appeal must be allowed. If the latter, then regulation 6(2) would be inapplicable and the appeal must be dismissed.



27. On the available material, it seems plain to me that both parties contemplated an agreed operative price of 1.5 per cent with a default provision of 3 per cent. First, the market. On a fair reading of the transcript of his evidence, Mr Farquharson, the branch manager of Bairstow, recognised that it would have been unlikely to obtain such business at a commission rate of 3 per cent in the then prevailing market. Secondly, it was not or not seriously in dispute that the negotiation focused exclusively on the 1.5 per cent. While by itself this factor is not decisive, I do not think it is to be brushed aside as Mr Haycroft submitted. Thirdly, both parties proceeded on the assumption that the 1.5 per cent commission would be paid within 10 days of completion; they had indeed no reason to assume otherwise; the completion moneys would necessarily be available from day one of the period. Unless something went wrong, the 3 per cent rate would never become relevant. On the part of the vendors, there is the evidence of Mr Smith, the vendor who took the lead in this matter; he accepted that he had not read the agreement but went on to say that, had he read it, the provision as to 3 per cent would not have troubled him as he would have assumed that the commission would be paid within 10 days of completion. It is an irresistible inference that Bairstow's expectation was to the same effect.



28. In the light of these conclusions, does the language of the agreement preclude giving effect to that which both parties contemplated? HHJ Richardson did not think so and nor do I. With respect to Mr Haycroft's argument to the contrary, this is not to ignore the agreement; this is, instead, to give effect to it. The task of the court is to ascertain the objective intentions of the contracting parties and, to this end, the language used by them is of the first importance. But contracts are not made in a vacuum; it is settled law that it is legitimate for the court to have regard to the surrounding circumstances or contractual matrix: Chitty on Contracts (28th ed.), Vol. 1, at paras 12-116 to 12-118. To do otherwise may well be to risk missing the true meaning of the bargain concluded by the parties. In my judgment, this is what the judge had in mind when, in paragraph 42 of the judgment, he referred to "the reality" of the 1.5 per cent rate constituting the agreed price under the agreement. His was an exercise in the true construction of the agreement -- but in, rather than divorced from, its setting.



29. In any event, I am not persuaded that the language of the agreement -- even considered in isolation -- compels the conclusion that the price was a 3 per cent commission with a vendors' option to pay 1.5 per cent within the defined period. At first blush, I see the force of Mr Haycroft's arguments by reference to the style of the language ("Standard Commission Rate" and "Early Payment Discounted Rate") and the linkage between clauses 6 and 9 of the terms. However, none of this is determinative of the question as to whether payment of the 1.5 per cent commission was a vendors' option or a vendors' obligation. Moreover, closer examination of the terms serves to undermine Mr Haycroft's thesis. To begin with the concluding words of clause 9 -- "(at the option of the agent)" -- make little sense if Mr Haycroft is right; if his argument is well-founded, then the 3 per cent rate would throughout stand as the operative price and no question of Bairstow's "option" would arise. Next and importantly, clause 10 is both relevant and revealing. On any natural reading, clause10 assumes an obligation to pay the 1.5 per cent commission in full within the relevant 10--day period; it sits most uneasily with the suggestion that payment of the 1.5 per cent commission was no more than an option open to the vendors. It is striking that Mr Haycroft was driven to proffer the concession already referred to in this regard.



30. In summary, I am satisfied that the agreement contemplated a 1.5 per cent rate as the price, with a default provision of 3 per cent, in the event that the vendors' obligation to pay 1.5 per cent within 10 days of completion was not fulfilled. The 3 per cent rate was a fallback option, conferred on Bairstow. The notion of a 3 per cent price with the vendors enjoying an option but no obligation to pay a 1.5 per cent commission is, to my mind, simply fanciful; neither party had any reason to suppose that the 3 per cent figure would have any role, except as a fallback or default provision. It follows that the judge was correct to treat regulation 6(2) as inapplicable. It follows further, there being no appeal as to the judge's decision on regulation 5(1), that the appeal must be dismissed. In the circumstances, the question of the vendors' appeal as against Darlingtons does not arise.

pinkfish_2

i am a bit worried about the fact that the TSB have just defended their case in court and won. everyone has been saying that a) the banks won't go to court and b) if they do, they will not win, as "the charges are unlawful".
does this now mean we have no power to try and reclaim our penalty charges.

attheraces

There must be some irregularity in this instance. Make sure that you know which charges you can claim and which ones you can't before proceeding. Check, check and double check all correspondance and details which you include on them. Perhaps an error was the cause of this...??

I could not answer this 100%, as I have not read about this, however, do not let this deter you from following any personal action through. Stay confident.

Perhaps someone will post a reply if they know anything about this???

Happy claiming!!! :think:

Jackswan_2

I mentioned PPI reclaims on credit cards on this forum some weeks ago, I have contacted a number of credit card companies who as usual are hiding behind T's & C's. However I struck lucky with M&S who refunded over £800
of my reclaim. Having succeeded with bank/credit card reclaim charges I am now actively dealing with this contentious matter.

My mature student son has just had an increased overdraft facility with
Halifax, I noted that they were offering Overdraft Repayments Cover. It crossed my mind that perhaps the Banks/CCC were getting around the hoo-ha of PPI claims by this new description. Maybe I am being paranoid about
the Banking world !!!!!

deary65

MarkyMarkD wrote: »

OK. But by posting your own view followed by a link to a frankly boring article which provided no new information at all, it looked like you were referencing your views to an external source.

You sounded all convincing and lawyerish until the last bit. I'm sure you realise that your own opinion (and mine, for that matter) counts for nothing. It certainly isn't a fine or a punishment. Some may argue (as you do) that it's a penalty. Others may argue (as LTSB do) that it's an agreed fee for a service.

So far the only judgement in a defended case agrees with the "others" and LTSB. And the judgement considers all of the well-rehearsed legal arguments for the unlawfulness of bank charges, and dismisses them each in turn.

As I've said before, I think that this IS an important judgement.

I agree the matters need to be clarified by a higher court. But I believe the wisdom (conscience) of the courts will decide this matter, the banks cannot possible believe that their charges reflect their true costs.

I think most people will agree that the banks are an essential social service and as such should be as transparent as possible

If the matter were to go to a higher court it would not just be the contract that would be taken apart, it would be the whole banking system,and that is something they do not want.

I would be quit happy to argue that the banks are a cartel and a monopoly by an other name. The consumer in reality dose not have a chose, almost everyone needs a bank account, indeed the government are encouraging people to have one so their benefits and pensions can be payed into it. Most if not all utility companies ask people to pay by direct debit,which can reduce their bills. The banks themselves are encouraging people to take on debt,they want a plastic currency whereby they get a bounce of every transaction i could go on and I'm sure others could add to the list.

In my opinion the charges are designed to financially punish people, indeed that seems to be what is happening if you read the threads on this subject. As to the judgment this means nothing and binds know one.

Time2Go_25

Hopefully at the end the banks will realise the error of their ways and therefore prevent anyone incurring these charges in the future. Afterall it's quite easy to do all the need to do is refuse any payment that would take people overdrawn or over their overdraft limits. Problem solved.

Chalk_Outline

Does anyone know of anyone who has succesfully received refunds since this case was won by LTSB?

I have my 2nd letter ready to go to LTSB for a £795 claim. I know everyone is saying battle on but the wife will kill me if I go to court and lose another £120 in court costs!!!