OFT test case

[Aequitas]

With respect, Aequitas, the Law is known - the law on penalties has been around for hundreds of years!

 

I do not doubt that the law relating to contractual penalties has been around a good while. It is there so that a party to a contract does not recover more than the loss he has suffered by reason of the other's party's breach of contract. That there must be a breach of contract before there is a penalty is an essential requirement. The problem I have is seeing where the breach of contract is in relation to bank charges, or at least some of them.

 

Most bank charges are for providing a service. So if the bank's fee for stopping a cheque is £20 and you stop a cheque you pay £20. The fact that it may cost the bank only £1 to stop the cheque is irrelevant. There is no breach of contract and therefore no penalty.

 

A charge for making a late payment on your credit card I would class as a penalty. You agree to make a payment by a specified date. If you fail to make the payment there is a breach of contract. The charge is levied. It does not represent the loss (if there is one) suffered by the credit card company and so it is a penalty.

 

A charge for going into debit on your bank account is more difficult to analyse. What if there is nothing in your agreement with the bank that says you must not go into debit but simply an agreement that if you do into debit a charge will be made? If you go into debit it is difficult to see where the breach is and in the absence of a breach there can be no penalty. It is perhaps difficult to see what service is provided - perhaps it is making a payment when your account is in debit.

 

One way of looking at bank charges is this: the bank says this is our list of fees that you have to pay, but if you remain in credit we will waive them. Then, any notion of a penalty gets turned on its head and what you have is a reward for staying in credit. Many penalties outside the banking system are dressed up this way, most notably in the construction industry. Construction contracts may be worded so that if you complete the building by such a date you will be paid a bonus; not, if you fail to complete the building by such a date you will pay a penalty. Such provisions are often referred to as "penalty clauses" but they do not provide for penalties.

 

It may be that my analysis is incorrect, but I hope it gives some idea of why the issue is not straightforward. If I, a lawyer who has not studied the relevant law in detail, can put forward these arguments, think what a top QC can do.

 

The problem is that when it comes to bank charges people quite justifiably feel that they are "being penalised", and in everyday terms they are, but that is not the same as paying a contractual penalty.

[car2403]

Quite. Lloyds TSB now charge daily - which is a huge increase for most people over their limit.

 

FSA?

 

Here here, dave - this definately needs a review;

• prior to T&C's changes - a fee per item that takes you overdrawn, paid or not, with a maximum of 3 fees per month
  • MAXIMUM of £90 per month in fees

  [*]after T&C's change - unplanned Overdraft balance is: Less than £25 - £6 a day, £25 to £100 - £15 a day, More than £100 - £20 a day, with a maximum of 10 daily fees, PLUS £20 per item that is returned, with a maximum of 3 fees per day

  • MAXIMUM of £200 in daily fees and £1860 in returned item fees. (£20 fee x 3 items per day x 31 days in a month)

So, we've gone from a maximum of £90 per month to a maximum of £2060 per month - that's a 2288% increase!

 

Where's the FSA now?

[JOSH_IOU]

Dose any one have up to date T&C's for Lloyds?

 

The last ones I got were in september.

[ohoh4312]

I do not doubt that the law relating to contractual penalties has been around a good while. It is there so that a party to a contract does not recover more than the loss he has suffered by reason of the other's party's breach of contract. That there must be a breach of contract before there is a penalty is an essential requirement. The problem I have is seeing where the breach of contract is in relation to bank charges, or at least some of them.

 

 

But isn't that the whole point? For example, prior to 10th September, Abbey T & C's specifically stated "breach of contract" - it's even on the Defence they put to the Court in my case. So therefore their charges contravene the contractual penalties law, as they are way in excess of actual loss.

[car2403]

I do not doubt that the law relating to contractual penalties has been around a good while. It is there so that a party to a contract does not recover more than the loss he has suffered by reason of the other's party's breach of contract. That there must be a breach of contract before there is a penalty is an essential requirement. The problem I have is seeing where the breach of contract is in relation to bank charges, or at least some of them.

 

Most bank charges are for providing a service. So if the bank's fee for stopping a cheque is £20 and you stop a cheque you pay £20. The fact that it may cost the bank only £1 to stop the cheque is irrelevant. There is no breach of contract and therefore no penalty.

 

A charge for making a late payment on your credit card I would class as a penalty. You agree to make a payment by a specified date. If you fail to make the payment there is a breach of contract. The charge is levied. It does not represent the loss (if there is one) suffered by the credit card company and so it is a penalty.

 

A charge for going into debit on your bank account is more difficult to analyse. What if there is nothing in your agreement with the bank that says you must not go into debit but simply an agreement that if you do into debit a charge will be made? If you go into debit it is difficult to see where the breach is and in the absence of a breach there can be no penalty. It is perhaps difficult to see what service is provided - perhaps it is making a payment when your account is in debit.

 

One way of looking at bank charges is this: the bank says this is our list of fees that you have to pay, but if you remain in credit we will waive them. Then, any notion of a penalty gets turned on its head and what you have is a reward for staying in credit. Many penalties outside the banking system are dressed up this way, most notably in the construction industry. Construction contracts may be worded so that if you complete the building by such a date you will be paid a bonus; not, if you fail to complete the building by such a date you will pay a penalty. Such provisions are often referred to as "penalty clauses" but they do not provide for penalties.

 

It may be that my analysis is incorrect, but I hope it gives some idea of why the issue is not straightforward. If I, a lawyer who has not studied the relevant law in detail, can put forward these arguments, think what a top QC can do.

 

The problem is that when it comes to bank charges people quite justifiably feel that they are "being penalised", and in everyday terms they are, but that is not the same as paying a contractual penalty.

 

Top QC or not, until the banks can show their charges are fair and justified, it leaves them open to claims based on the common law of penalties and the UTCCR.

 

Where they cloak their charges as services, they are still subject to the law of penaties until they are open and honest with their customers about how they deal with unauthorised or unplanned payments that take you in to unauthorised or unplanned overdraft.

 

Whether a charge is a penalty or not is a question of fact - not law - so your argument is circular until you get in front of a Judge who decides the facts, then applies the law to them. Doing it the other way around is nonsensical - hence my distaste for this test case in it's entirety.

 

What the banks are effectively trying to do is to turn hundreds of years worth of "good law" on its head, in that the argument is that the law of penalties doesn't apply to them. There's a reason why this law has been around for so long - because it works. The banks aren't exempt, but should have adapted their working practises to suit the law.

 

What is coming next is that the government wades in with a political stance - which we've already seen in the removal of automatic unenforceability of consumer credit agreements, which was an issue decided by the House of Lords on appeal in Wilson -v- First County Trust - and legislates for the good of the financial industry of this county. That has to be better than the day-to-day debarcle we are currently facing, isn't it?

[dave]

Has that Angela knight made any comments since the case begun??

 

Yes, but as usual, it's the flannel about how the banks have done no wrong and how they invented sliced bread and cured all diseases with one stroke of a pen.

 

Listening to her (and her predecessor), I would believe that they invented water and are systematically 'helping' every person in the country by taking money off of them.

[Justforfun]

Most bank charges are for providing a service. So if the bank's fee for stopping a cheque is £20 and you stop a cheque you pay £20. The fact that it may cost the bank only £1 to stop the cheque is irrelevant. There is no breach of contract and therefore no penalty.

 

Ms Knight also rejected consumer groups' accusations that banks were profiting from the late payment fees. "These are fees charged in return for a service," she said. "The fees reflect the work involved for the banks(so that's the £1 assumption gone) hence why the OFT classes their fee unfair

 

It may be that my analysis is incorrect, but I hope it gives some idea of why the issue is not straightforward. If I, a lawyer who has not studied the relevant law in detail, can put forward these arguments, think what a top QC can do.(and if i as a person with no qualifications can dig up old press quotes from Ms Knight then just think what the OFT can do)

 

Last night, the FOS also warned banks that they were not entitled to close the accounts of customers who complained, as some have attempted to do.(which Ms Knight failed to answer why banks do close accounts)

 

 

But Clive Briault, a senior FSA executive said: "The aim is not to disadvantage people, the purpose is to get the legal certainty and deal with the complaints on the basis of that(well if they don't know the legal certainty,why not also stay the banks from applying any further Fee's)

 

Angela Knight, chief executive of the British Bankers Association, said: " Fees are fair and transparent

 

but then changes to

Ms Knight went on to say: "The legal (opinion) that the banks have had is that what they're doing is entirely legal

 

.

 

Why not put Ms Knight infront of OFT Barrister,she seems to have the answers.

[JOSH_IOU]

Because the Judge would end up hurling a his bilo ball pointed pen at her.

[ohoh4312]

ROFPMSL!!!!

 

Well said Dave

[Aequitas]

Abbey T & C's specifically stated "breach of contract" - it's even on the Defence they put to the Court in my case. So therefore their charges contravene the contractual penalties law, as they are way in excess of actual loss.

 

I haven't read all bank's terms and conditions and am just making general observations. It is important to bear in mind that when a court looks at a contract labels may be unimportant. If you do something that the contact labels a breach of contract it is not a breach of contract unless it is a breach of contract.

[suziyh]

Don't know if it is any relation to the case, but my bank, Halifax, has just reduced it's charges from £39 to £35 with no notice (not that I'm complaining about that!) and no reason given. Just that the last charge I got was £4 less! Am I supposed to yell Yippee!?

(I have a case on hold for Halifax and Lloyds)

Suzi x

[Aequitas]

Top QC or not, until the banks can show their charges are fair and justified, it leaves them open to claims based on the common law of penalties and the UTCCR.

 

True. But just because a charge is excessive does not make it a penalty and the UTTC expressly excludes questions concerning the price paid for goods and services.

 

Where they cloak their charges as services, they are still subject to the law of penaties until they are open and honest with their customers about how they deal with unauthorised or unplanned payments that take you in to unauthorised or unplanned overdraft.

 

I have made the point that some charges may not necessarily be for a service. If a service is not provided the question arises whether a payment can be demanded when something happens if you contracted to make that payment if the thing happens.

 

How banks may manipulate accounts to engineer charges is a separate issue - it could still arise if the charge was fair and reasonable.

 

Whether a charge is a penalty or not is a question of fact - not law - so your argument is circular until you get in front of a Judge who decides the facts, then applies the law to them. Doing it the other way around is nonsensical - hence my distaste for this test case in it's entirety.

 

A man is in court for tying a dog to a post.

 

Question of fact: did the man tie the dog to the post?

 

Question of law: is tying a dog to a post a crime?

 

Does the court want to hear a lot of evidence about whether or not the dog was tied to a post and if so it was whether the person who tied it to the post was the man in court before it decides whether tying dogs to posts is a crime?

 

If there is to be a test case it can only be to decide whether tying dogs to posts is a crime, not whether particular people have tied dogs to posts.

 

So this test case is to decide whether bank charges are unlawful.

 

If your argument is right, what are the facts that need to be decided to determine whether a charge is a penalty? What facts are likely to be disputed in a case about bank charges? If the circumstances are such that a charge ought not to have been made at all, then whether or not the charge is a penalty is irrelevant. Don't you have to know what a penalty is before you can decide whether there is a penalty?

 

What the banks are effectively trying to do is to turn hundreds of years worth of "good law" on its head, in that the argument is that the law of penalties doesn't apply to them. There's a reason why this law has been around for so long - because it works. The banks aren't exempt, but should have adapted their working practises to suit the law.

 

I think that the idea that bank charges are penalties is quite a recent one. The way banks charge has been around for years. If bank charges are penalties then it is surprising it was not argued long ago. Whilst of course the fact that the point has never been argued until recently says nothing about what the law is, I cannot help feeling that it is significant.

[car2403]

True. But just because a charge is excessive does not make it a penalty and the UTTC expressly excludes questions concerning the price paid for goods and services.

 

Are you sure? Surely the fact it is an excessive (they are yet to prove they aren't!) penalty is the whole point - if we thought for one moment it cost them what they were charging, we wouldn't be having this dicussion about it.

 

I have made the point that some charges may not necessarily be for a service. If a service is not provided the question arises whether a payment can be demanded when something happens if you contracted to make that payment if the thing happens.

 

How banks may manipulate accounts to engineer charges is a separate issue - it could still arise if the charge was fair and reasonable.

 

But calling it a "service" doesn't mean its a service your paying for - that could be the attempt to override the contractual law of penalties. This is what the Judge must decide before applying the law.

 

A man is in court for tying a dog to a post.

 

Question of fact: did the man tie the dog to the post?

 

Question of law: is tying a dog to a post a crime?

 

Does the court want to hear a lot of evidence about whether or not the dog was tied to a post and if so it was whether the person who tied it to the post was the man in court before it decides whether tying dogs to posts is a crime?

 

If there is to be a test case it can only be to decide whether tying dogs to posts is a crime, not whether particular people have tied dogs to posts.

 

It depends if tying the dog to the post has been unlawful (note, not illegal) for over 200 years or not.

 

The Court doesn't "ask" to hear evidence, but it considers anything brought up in the natural course of the trial - so, if I say you are charging me an excessive contractual penalty, the Court won't ignore that because you call it a service.

 

A test case, in this meaning, sets the precedant - a Court decides how to apply it. I'm talking here about the ratio decidendi, or the legal reasoning for the decision, not the decision itself - its the reasoning that is binding, the actual decision is totally separate to that reasoning.

 

The way these claims have been stayed pending the outcome of this test case is ludicrous, as it has no bearing on the actual decision to be made in each of the stayed claims.

 

So this test case is to decide whether bank charges are unlawful.

 

This isn't accurate, as this test case is to decide if the UTCCR apply to bank charges on current account overdrafts - it won't decide if the charges are unlawful, as the OFT is likely to do a deal with the banks to say what is fair if the UTCCR apply. What is important here is that the OFT's opinion isn't binding on a Court - so what the OFT say is fair may still be unlawful, hence the reason this statement is inaccurate.

 

If your argument is right, what are the facts that need to be decided to determine whether a charge is a penalty? What facts are likely to be disputed in a case about bank charges? If the circumstances are such that a charge ought not to have been made at all, then whether or not the charge is a penalty is irrelevant. Don't you have to know what a penalty is before you can decide whether there is a penalty?

 

It's not my argument - it's the law. There are loads of cases that lay the test out - where a penalty is applied, it must be fair, not create a profit and place the parties back in the position they were before the act that created the penalty had happened insofar as money can do that.

 

The facts aren't in dispute - a payment was made, or attempted to be made, that resulted in the bank having to "do something", (usually applying some form of logic in deciding to make the decision to pay or not and notify the account holder) for which a fee is applied. The question is, will this be a contractual penalty and is it a fair price to pay given the facts of the case?

 

The "penalty" is for doing something that isn't allowed by the contract, (being in debit without agreement) that causes damage to the other party - the penalty for which is that they can recover their damage, but the amount recovered must be fair and not excessive or exorbitant and shouldn't create a profit. One party cannot profit from the breach of a contract by the other - simple, really.

 

I think that the idea that bank charges are penalties is quite a recent one. The way banks charge has been around for years. If bank charges are penalties then it is surprising it was not argued long ago. Whilst of course the fact that the point has never been argued until recently says nothing about what the law is, I cannot help feeling that it is significant.

 

I think the theory behind bank charges has only came to light recently - that doesn't mean they were penalties all along. Agreed it's surprising it's only recent. It's only significant that it's so recent in that it's always been an accepted practise that the banks will be open and honest in their dealings with us - it's a sign of the times that the consumer is revolting against the system and that system can't cope, so something has to be done about it.

[ohoh4312]

If you do something that the contact labels a breach of contract it is not a breach of contract unless it is a breach of contract.

Well, excuse me for being dumb here, but.............

 

...that just sounds like lawyer-speak and makes absolutely no sense whatsoever.

 

To me, anyway.

[Aequitas]

The question of price is specifically excluded from the UTCCR except (more or less) to the extent that the contract allows the supplier to determine the price. I think that is right because the consumer knows the price and it is up to him whether to contract for the goods or services. If you contract to buy something for a price that is well above what everyone else is paying and the contract otherwise complies with the UTCCR then you cannot go to the UTCCR. If it is a question of price fixing or cartels that is dealt with under separate laws. The real point behind the UTCCR is to protect the consumer from "small print" which the average consumer does not read.

 

The law allows a man to drive a hard bargain. I think there is confusion between excessive profits and contractual penalties. The thing about a contractual penalty is that it does not allow the party claiming compensation to make any profit. So, if bank charges that make a reasonable profit are not penalties neither are bank charges that make an excessive profit. There is no law that regulates the level of bank charges and, even if there were, if the level were exceeded the excess would be recoverable under the law that controlled bank charges and not because they were penalties.

 

I have looked at schedule 2 to the UTCCR and cannot find anything in it that relates to bank charges. Regulation 7 (1) requires that a contract shall be in plain, intelligible language. That may apply.

 

It also needs to be borne in mind that the UTCCR only apply to a contact between a supplier and "any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession" so any decision that goes against the banks is not going to help anyone with a business account.

 

You say: "There are loads of cases that lay the test out - where a penalty is applied, it must be fair, not create a profit and place the parties back in the position they were before the act that created the penalty had happened insofar as money can do that." That is fine as far as it goes (except that to be pedantic I would point out that you are talking about fair penalties which is a contradiction in terms when it comes to contractual penalties and using "penalty" when you mean "charge"). But what you are missing is that it needs to be decided if all the cirumstances are such that, if the charge exceeds the cost, there would be a penalty, since the mere fact that the charge exceeds the cost is not sufficient to make the charge a penalty. (Equally if all the circumstances are there which would make the charge a penalty if the charge exceeds the cost, there cannot be a penalty if the charge does not in fact exceed the cost.)

[Aequitas]

If you do something that the contact labels a breach of contract it is not a breach of contract unless it is a breach of contract.

 

Well, excuse me for being dumb here, but.............

 

...that just sounds like lawyer-speak and makes absolutely no sense whatsoever.

 

To me, anyway.

 

If the contract says that if you do X it is a breach of contract that does not of itself make doing X a breach of contract. Doing X actually has to be a breach of contract.

[JonCris]

We're going round in circles again here.

 

There are lots of reasons the OFT had to 'consult' the banks not least to get a written agreement for a speedy conclusion that would not allow the banks to drag the legal proccess out for decades which they undoubtedly would do otherwise. Sorry that alone was a smoke screen. The QC for the banks has already indicated that if the judgment goes against them they WILL appeal. I strongly suspect that if they lose they will drag it on as long as possible or at least until they get the judgment they want

 

The FSA's waiver, although not untypical of them, cannot be attributed to a conspiricy as their decision was made independently of the OFT and in fact the OFT were unaware of it before it was announced. Oh please do you really think they didn't discuss these matters BEFORE making their announcement

 

And to say ''the courts might just be going through the motions'' then Justice Smith should get 'best actor' at the next oscars.

He's hardly going to do anything else is he & if you don't think judges don't discuss matters beforehand & possibly form a view pre trial then not meaning to be rude but you know little of how the system works

[JonCris]

If the contract says that if you do X it is a breach of contract that does not of itself make doing X a breach of contract. Doing X actually has to be a breach of contract.

 

For there to be a 'charge' there has to be a service. With the best Will in the world simply not paying a DD does not amount to a service, unless there are procedures they have to go through before deciding which we know they don't.

 

If on the otherhand if they did pay the DD then that does amount to a service for which a lawful charge can be made.

[Castlebest]

For the second time Zoots excellent appraisal of events

 

No its not a stupid question. I'm sure many people will be asking much the same thing over the coming weeks and months

 

The test case is essentially divided into two rounds. The first looks at the legal question of whether the UTCCRs apply or whether the charges are capable in law of amounting to a penalty. The second is a question of fact whether the charges are actually unfair or penalties by looking at the costs of the banks in dealing with a customers breach.

 

The test case starting on 16th is only looking at the first issue

 

Once judgment has been handed down there will be an inevitable appeal by the losing party(ies). Leave may be granted by the High court. If leave is denied by the High Court then an application to appeal can be made to either the Court of Appeal or House of Lords if they use the leapfrog procedure. There will be a further few weeks to see if leave has been granted by the appeal court. If leave is refused that is it for the first round.

 

If leave is granted then it will be a further wait for the appeal court. The OFT has said any appeal will be fast tracked (not in the sense of fast track in the county court) but even then you're looking at a minimum of 6mths being optimistic 12 months more likely. If it goes to Court of Appeal there is then a further appeal to the House of Lords possible. If a preliminary ruling from Europe is required this will delay things also.

 

If the banks win on this first stage then end of story.

 

If the OFT is successful, then on to round two to decide whether charges are actually unfair or amount to a penalty. This is the stage where there may be a compromise agreement. If the legal issues are resolved in our favour then its almost certain that the charges are disproportionate or penalties. Its also a question of fact rather than a question of law so is not likely to be subject to an appeal. So the second stage should be shorter than the first. It may well be that stays could be lifted after the first round, but nothing is certain at this stage

[andrew1]

Yes, but as usual, it's the flannel about how the banks have done no wrong and how they invented sliced bread and cured all diseases with one stroke of a pen.

 

Listening to her (and her predecessor), I would believe that they invented water and are systematically 'helping' every person in the country by taking money off of them.

 

Well if they invented water they are having the same effect as the Fluoride they put into it PageSuite Professional :: Reader Pages 12 & 13

 

it's rotting from the inside...

[ginan]

He's hardly going to do anything else is he & if you don't think judges don't discuss matters beforehand & possibly form a view pre trial then not meaning to be rude but you know little of how the system works

 

 

You obviously have a privileged insight into the inner workings of the regulatory and judicial systems that transcends that of anyone I've come across.

 

How did you manage it? I'd genuinely be interested to know.

[car2403]

The question of price is specifically excluded from the UTCCR except (more or less) to the extent that the contract allows the supplier to determine the price. I think that is right because the consumer knows the price and it is up to him whether to contract for the goods or services. If you contract to buy something for a price that is well above what everyone else is paying and the contract otherwise complies with the UTCCR then you cannot go to the UTCCR. If it is a question of price fixing or cartels that is dealt with under separate laws. The real point behind the UTCCR is to protect the consumer from "small print" which the average consumer does not read.

 

I think you should make further research in to this subject, as you clearly only understand a little of what the UTCCR are and how they apply here - have you read the standard Court bundle, as this is covered in detail?

 

For exampe, the UTCCR say that any term unilaterally inserted in to a contract, such as the pre- and mass-produced contracts the banks use, can be unfair. Regardless if you agree to the term or not, that has nothing to do with its perceived fairness - it's also part of the "contract" of the account, but this blows your argument (and the ones used by the bank) wide apart.

 

Have you tried to negotiate a term in your current account terms and conditions?

 

The law allows a man to drive a hard bargain. I think there is confusion between excessive profits and contractual penalties. The thing about a contractual penalty is that it does not allow the party claiming compensation to make any profit. So, if bank charges that make a reasonable profit are not penalties neither are bank charges that make an excessive profit. There is no law that regulates the level of bank charges and, even if there were, if the level were exceeded the excess would be recoverable under the law that controlled bank charges and not because they were penalties.

 

I couldn't disagree more, as you've ignored the fact the common law on penalties says a party cannot benefit or profit from a breach of contract - back to my argument that the banks have never been open and honest about how their charges are made up. I really can't say this any other way, but you're wrong.

 

I have looked at schedule 2 to the UTCCR and cannot find anything in it that relates to bank charges. Regulation 7 (1) requires that a contract shall be in plain, intelligible language. That may apply.

 

What about the others?;

 

Regulation 2(1);

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

and;

Regulation "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.

 

(2) A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term.

 

(3) Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract.

 

(4) It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was."

 

and;

 

Schedule 2 also includes such clauses, to define examples of unfair clauses, as:

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

"(i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract;”

 

“(j) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract”;

 

“(m) giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract."

 

It also needs to be borne in mind that the UTCCR only apply to a contact between a supplier and "any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession" so any decision that goes against the banks is not going to help anyone with a business account.

 

So why are the banks not defending in this manner? This is clearly a consumer contract, which they are bound under the regs, but as long as people don't understand them (perhaps choosing not to, even, for their own benefit) this argument will still stand.

 

I say again - whether a contract is covered by the UTCCR is a matter of fact, not law, so can't be decided until you're in a Court room.

 

You say: "There are loads of cases that lay the test out - where a penalty is applied, it must be fair, not create a profit and place the parties back in the position they were before the act that created the penalty had happened insofar as money can do that." That is fine as far as it goes (except that to be pedantic I would point out that you are talking about fair penalties which is a contradiction in terms when it comes to contractual penalties and using "penalty" when you mean "charge"). But what you are missing is that it needs to be decided if all the cirumstances are such that, if the charge exceeds the cost, there would be a penalty, since the mere fact that the charge exceeds the cost is not sufficient to make the charge a penalty. (Equally if all the circumstances are there which would make the charge a penalty if the charge exceeds the cost, there cannot be a penalty if the charge does not in fact exceed the cost.)

 

No, I'm taking about showing how the penalty can be fair - not whether it is or not - which is what the Court will be interested in.

 

If the charge exceeds the cost it's a penalty, as they are making a profit - nothing else to say there. Read the caselaw;

 

Relevant Case Law to Penalty Charges

 

In the case of Lord Elphinstone v. Monkland Iron and Coal Co [1886], Lord Watson stated that: "There is a presumption (but no more) that a charge is a penalty when a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage".

In the case of Wilson v. Love [1896], a tenant farmer agreed to pay an additional rent of £3 per ton by way of penalty for every ton of hay or straw that he sold off the premises during the last 12 months of the tenancy. The clause was regarded as a penalty because at the time hay was worth five shillings a ton more than straw.

In the case of Castaneda and Others v. Clydebank Engineering and Shipbuilding Co., Ltd. [1904] 12 SLT 498 the House of Lords held that a contractual party can only recover damages for actual or liquidated losses incurred from a breach of contract as oppose to a charge which represents a penalty.

In the case of Commissioner of Public Works v Hills [1906] AC 368, Lord Dunedin formulated the test for Penalty clauses as follows: "The general principle to be deduced …is …that the criterion of whether a sum -- be it called penalty or damages -- is truly liquidated damages, and as such not to be interfered with by the Court, or is truly a penalty which covers the damage if proved, but does not assess it, is to be found in whether the sum stipulated for can or can not be regarded as a 'genuine pre-estimate’ of the creditor's probable or possible interest in the due performance of the principal obligation”

In the case of Campbell Discount Co Ltd v Bridge [1962] AC 600, the House of Lords struck down as a penalty a clause in a hire purchase agreement requiring the hirer to pay compensation for premature termination. The objectionable feature of this clause was that it provided a sliding scale which operated in the wrong direction. The less the depreciation of the vehicle, the greater was the compensation payable.

In Philips v The Attorney General of Hong Kong [1993] 61 BLR 41 the Privy Council upheld the decision of the Hong Kong Court of Appeal that the liquidated and ascertained damages clause in a construction contract was valid and enforceable. Lord Woolf, delivering the judgment of the judicial committee of the Privy Council, cited with approval the above passage from Lord Dunedin's speech in Dunlop and emphasised that the test was to be made against the reasonable possible range of losses and that it was not enough to show that in some circumstances the possible loss may be less than the Liquidated Damages rate:

"Except possibly in the case of situations where one of the parties to the contract is able to dominate the other as to the choice of the terms of a contract, it will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations so long as the sum payable in the event of non-compliance with the contract is not extravagant, having regard to the range of losses that it could reasonably be anticipated it would have to cover at the time that the contract was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damage provision. The use in argument of unlikely illustrations should therefore not assist a party to defeat a provision as to liquidated damages. As the Law Commission stated in Working Paper No 61 (page 30):

‘The fact that in certain circumstances a party to a contract might derive a benefit in excess of his loss does not ... outweigh the very definite practical advantages of the present rule upholding a genuine estimate, formed at the time the contract was made of the probable loss’.

A difficulty can arise where the range of possible loss is broad. Where it should be obvious that, in relation to part of the range, the liquidated damages are totally out of proportion to certain of the losses which may be incurred, the failure to make special provision for those losses may result in the 'liquidated damages' not being recoverable.

In the case of Murray v. Leisureplay (2004), Mr Murray was sacked by Leisureplay and he claimed three years' salary as per his contract of employment. The courts decided that this clause was a penalty clause and he was not entitled to this level of damages. Even though the decision was reverted on appeal, the appeal itself drew on and further reinforced the principles of penalty charges.

In the case of First Commercial Bank and Others v. the Owners of "Mandarin Container", "Kingdom Container" and "Liberty Container" (2004), the Hong Kong Admiralty court considered whether an uplift in the interest rate payable upon default under a ship mortgage agreement was unenforceable as a penalty provision or whether it was valid and enforceable as liquidated damages. In finding that the uplift was valid, the court examined the principles underlying the exercise of the court’s penalty jurisdiction and noted the modern tendency to respect the contract agreed between the parties, unless the liquidated damages provision could be characterised as unconscionable, oppressive or extravagant.

In the case of Alfred McAlpine Capital Projects Limited v Tilebox Limited [2005], Mr Justice Jackson reconciled two apparent strands to the authorities. One strand was the test that there should be no great disproportion between the damages and the Liquidated Damages rate. The other strand was that the Liquidated Damages should be reasonable.

The important point was that the Liquidated Damages rate need not be right to be reasonable, but would be unreasonable if disproportionate to the likely level of loss.

“There seem to be two strands in the authorities. In some cases judges consider whether there is an unconscionable or extravagant disproportion between the damages stipulated in the contract and the true amount of damages likely to be suffered. In other cases the courts consider whether the level of damages stipulated was reasonable. …

I accept, that these two strands can be reconciled. In my view, a pre-estimate of damages does not have to be right in order to be reasonable. There must be a substantial discrepancy between the level of damages stipulated in the contract and the level of damages which is likely to be suffered before it can be said that the agreed pre-estimate is unreasonable.

Although many authorities use or echo the phrase "genuine pre-estimate", the test does not turn upon the genuineness or honesty of the party or parties who made the pre-estimate. The test is primarily an objective one, even though the court has some regard to the thought processes of the parties at the time of contracting.”

 

I don't think I can reply to your posts any more as there's nothing else to be said, apart from pedantic, irrelevant argument that has already been used by the banks throughout the last few years without success.

 

Without understanding the whole background to this, coming in at this late stage and asking us to cover old ground is slightly rediculous! I hope we can agree on that, yes?!

[pford]

Don't know if it is any relation to the case, but my bank, Halifax, has just reduced it's charges from £39 to £35 with no notice (not that I'm complaining about that!) and no reason given. Just that the last charge I got was £4 less! Am I supposed to yell Yippee!?

(I have a case on hold for Halifax and Lloyds)

Suzi x

 

yes but have you noticed they have also put there paid item charge up from £30 to £35 in the last 2 months

[JOSH_IOU]

There is no way this penalty is fair not when banks make 12 billion a year at it.

 

Its interesting the banks say in my defence that the UTCCR's are not measured on fairness.

 

What planet are these guys working on? Or have i missed the point?

[Son of Shoestring]

I shouldn't be to sure about that Aequitas. The courts might just be going through the motions.

 

Why did the OFT 'consult' the banks BEFORE issuing proceedings. Bit like telling the opposing forces where your army is & how you intend to use them

 

Also if not a conspiracy why did the FSA give the banks a waiver without demanding a moratorium on penalty charges, after all they ARE supposed to be even handed.

 

Anyway we'll know for sure when the verdict comes in.

 

I would also add my concerns here about there having been a deal done in advance. The consultation between the OFT and the banks is a concern. Moreover, I have always been suspect that the £20 plus billion ripped-off by the banks these last ten years is ever going to be allowed to be repaid. Government (let alone the banks) can't allow it.

 

Let's also not bow the the psychologically emotive impact of the word "conspiracy" - which has been modified over the years to imply "crazy" on the part of those who advance alternative viewpoints - as if conspiracies never happen. Well, they do happen Everyday and in every strata of society and business and politics. Conspiracies are commonplace and an ingrained feature of social interaction ---- especially when money is involved.