8 October 2008
Test case judgment on historical terms - common law penalties
On the same day as the massive bailout for the banks was announced, Mr Justice Andrew Smith handed down his judgment in the next part of the test case. This relates to the historical terms and conditions used by banks and covered the issue of common law penalties.
To a certain extent, this issue is irrelevant. The question of "fairness" under the Unfair Terms in Consumer Contracts Regulations 1999 trumps the common law penalties for personal account holders. Even if the terms are not deemed to be common law penalties, once the OFT finally settles on a level of fair charge and gets this figure imposed on the banks, then this will provide the avenue of redress for personal account customers. This, however, is probably still many months away because of the banks' appeal.
However, where the common law rules are important is with business account customers. This group has sadly been deprived of a voice in the test case. The OFT has no duty to protect them and the UTCCRs do not apply to business customers. Therefore, business account customers have to rely on the common law penalties rules. Until the test case was started, and even beyond that time for several months, I was still getting full settlements on business account claims. However, when the banks started to think that they might win the common law penalties issue, they stopped settling business account claims.
The judge had previously (July) ruled that the new terms introduced by the banks in the last year did not contain any terms that could be construed as common law penalties. In the latest judgment, he ruled predominantly the same way on historical terms. Specifically, he said:
Barclays, Clydesdale and HSBC: he has given the banks what they wanted which was a declaration that their terms could not be penalties.
Abbey: ditto, subject to some minor point about one set of terms.
HBOS: ditto, but not for its subsidiary Intelligent Finance
Lloyds: asked for further submissions from Lloyds and the OFT on this one. Lloyds problem was that they never published full written terms in the past.
RBS/Natwest: not given them a ruling because he was not satisfied with their evidence, but invited them to have another go!
Although the test case hearing has not looked at any business account terms and conditions, the banks are almost certainly going to try to persuade judges to read across from the ruling on personal accounts where it is to their advantage to do so. This means that most of the business account claims still in the court system on stay could be lost if the banks put forward the right arguments. The exceptions are Lloyds and RBS/NatWest; but even they are being given a potential second bite of the cherry on their terms. Somehow, I think that the judge is determined to give the banks what they want on this issue.
Overall, this judgment is hard on business account holders who, I feel, have been treated appallingly throughout this process by the banks, by the OFT and by the government in general.
A copy of the judgment can be downloaded from October judgment
A copy of the latest OFT Questions and Answers on the test case can be downloaded from OFT Q&A
Published and promoted by Bob Egerton, TR2 4RS