The Court was not ruling on the fairness of bank charges themselves but on whether the OFT could investigate them at all. The banks were contending that their charges were part of the, so-called, “core bargain” between them and their customers and were therefore exempt from investigation for unfairness under the terms of Regulation 6(2)(b) of the Unfair Terms in Consumer Contract Regulations 1999. This regulations states that so long as a term is in plain and intelligible language terms are exempt from an assessment of their fairness if they relate “to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”. This, “core bargain” term, was claimed by the banks to exempt their charges for unauthorised overdrafts and other similar charges from consideration. This argument was rejected both by the High Court and the Court of Appeal who in effect carried out a process of dividing charges into “core terms” which were exempt from consideration and “ancillary terms” which were not.
However, the Supreme Court has overruled both of these decisions stating that the banks system of charges must be seen as an overall package for the provision of a banking service which is ‘free while in credit’ and this falls within the exemption provided by Regulation 6(2)(b). They were critical of the exercise of dividing charges up into core and ancillary charges and questioned whether such an exercise could realistically be accomplished.
The Supreme Court made brief reference to the OFT v Foxtons decision but pointed out that the core bargain issue was, while relevant in that case, not vital as Foxtons’ terms of business were ruled not to be in ‘plain and intelligible language’.
The Supreme Court has not made any ruling, or any substantial comment on whether a ruling on unfairness of terms should be pursued retroactively.
Turning to the case against Foxtons. It was ruled that the average landlord would not view a renewal commission as part of the “core bargain”:
That [Foxtons’ publicity material] is hardly likely to engender a realisation or acceptance that the renewal commission is part of the core bargain. As far as the landlord is concerned the core bargain will be getting the tenant in, in exchange for commission which would seem naturally to be associated with that activity, that is to say the commission payable on the first period’s rent.
However, this part of the ruling is now in doubt as a result of the Supreme Court decision. The Supreme Court were not prepared to accept the argument advanced by the OFT in the Bank Charges case that charges levied by the banks would not be acceptable from the consumers viewpoint. The Supreme Court felt that the matter should be viewed from the point of view of both sides and a balanced view adopted. It is not possible to simply state that one party would not have contemplated the charge and leave it at that. Allied to this is the view adopted by the Supreme Court that it is artificial to separate one charge levied as a part of a contract from other charges and deem some of those charges as “core” and some as “ancillary”. This would suggest that this exercise, as conducted in the Foxtons case, is inappropriate and that all the charges should be considered together as a part of an overall package.
It is quite likely that Foxtons will now seek to appeal the decision of Mr Justice Mann. Given that the banks’ charges must now be construed as a package they will no doubt seek to argue that their charging regime must be seen in a similar manner. They will still have the difficulty of their terms being held not to be in “plain and intelligible language” and this is an issue they will need to deal with. No doubt we will find out shortly if Foxtons are to renew their request for permission to appeal or withdraw it altogether.
For other agents, this decision provides substantial comfort. Provided that their terms of business and charges are expressed in “plain and intelligible language” it will be much easier for them to make the case that their charges are a part of an overall package and should be exempt from a consideration of unfairness. The importance of clear and well-constructed terms of business is magnified by this decision and the pressure is removed from many agent’s charging models.
PainSmith Solicitors has always maintained that the terms of business it supplies to agents do (and always have) express charges in a “plain and intelligible” manner. However, they have amended their terms of business as a result of the OFT v Foxtons case to make the charging structure even clearer.