On 24 April 2008, the English High Court released the judgment
of Mr. Justice Andrew Smith in the "bank charges" case
brought by the Office of Fair Trading ("the OFT") against
seven high street banks and a building society in the UK.
The OFT has been investigating whether charges levied by the
banks could contravene either the UK Unfair Terms in Consumer
Contracts Regulations, 1999 ("the 1999 Regulations") or
common law rules on the unenforceability of penalties. The bank
charges being investigated by the OFT included "unpaid and
paid item charges" (where the customer has insufficient funds
in the account to honour the customer's obligations) and excess
Although the immediate aim of the OFT in bringing the case was
to determine whether it was entitled to investigate bank charges,
it was also hoped (not least by the banks) that the proceedings
might clarify the law applicable to claims brought by hundreds of
thousands of bank customers in the U.K. since 2006. Thousands of
claims in the UK have been stayed pending the judgment, and the
case may well be relevant to the prospects of success for customers
in similar jurisdictions such as Jersey, whose courts, although not
subject to the 1999 Regulations, are likely to take account of the
High Court's findings on common law enforceability of
The High Court held that the charges under consideration were
not capable, under English common law, of being described as
"penalties". The Court's reasoning on this point was
that to be characterised as a penalty, the charge must become
payable as a result of a breach of contract. The Court accepted
each of the banks' submissions that the charges in question did
not arise as a result of breaches of contract by the customer, as
it was not in itself a breach of contract to exceed an overdraft
limit or for the customer to have insufficient funds in the account
to pay for their commitments.
Although Jersey law is not identical to English law as regards
penalties (under Jersey law, "penalty clauses" are
generally permissible unless they are manifestly excessive, whereas
penalties are generally unforceable under English law) and although
the High Court did not decide whether or not the banks' charges
were unconscionable (which might perhaps be another route
disgruntled customers in Jersey may choose to take), the fact that
the High Court found that the charges were not penalties under
English law is likely to make it more difficult for a customer to
succeed in a claim under Jersey law.
The remainder of the case, in which the High Court held that the
bank charges did fall within the OFT's remit to review, may
well have a profound effect on the banks' treatment of U.K.
bank charges going forward. However, there is no Jersey statutory
equivalent to the 1999 Regulations and, as such, this part of the
judgment is not immediately relevant to bank charges cases in
Jersey (where the courts would be likely to fall back on the
doctrine of "la convention fait la loi des
parties", under which parties are presumed to have
freedom to bind themselves to whatever contractual terms they
choose, absent any factors negating their consent). It is also
worth remembering that the High Court expressly did not make any
findings that the banks' charges were actually unfair. It
simply found that the OFT are entitled to take forward their
investigation on the bank charges.
As a corollary to the main judgment, the High Court determined
that a minority of each of the banks' terms and conditions did
not use sufficiently plain and intelligible language, and the banks
are expected to amend any wording which has been found to be
non-compliant as a result. This may have an effect on banking terms
and conditions utilised in Jersey, to the extent that they are
derived from an English counterpart.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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