The Office of Fair Trading (Respondents) v Abbey National plc ..., Exercises of Law

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Michaelmas Term [2009] UKSC 6 On appeal from: [2009] EWCA Civ 116 JUDGMENT The Office of Fair Trading (Respondents) v Abbey National plc & Others (Appellants) before Lord Phillips, President Lord Walker Lady Hale Lord Mance Lord Neuberger JUDGMENT GIVEN ON 25 November 2009 Heard on 23, 24 and 25 June 2009 Appellant (Abbey National plc) Respondent (The Office of Fair Trading) Ali Malek QC Richard Brent Jonathan Crow QC (Instructed by Ashurst LLP) Richard Coleman Jemima Stratford Sarah Love (Instructed by the General Counsel, Office of Fair Trading) Appellant (Barclays Bank Plc) Appellant (Nationwide Building Society) Jonathan Sumption QC Geoffrey Vos QC Andrew Mitchell Sonia Tolaney (Instructed by Simmons & Simmons) (Instructed by Slaughter and May) Appellant (Clydesdale Bank Plc) Appellant (The Royal Bank of Scotland Group Plc) Richard Salter QC Laurence Rabinowitz QC John Odgers David Blayney (Instructed by Addleshaw Goddard LLP) (Instructed by Linklaters LLP) Appellant (HBOS Plc) Robin Dicker QC (Instructed by Allen & Overy LLP) Appellant (HSBC Bank Plc) Mark Hoskins QC Daniel Toledano QC Patrick Goodall (Instructed by Freshfields Bruckhaus Deringer LLP) Appellant (Lloyds TSB Bank Plc) Bankim Thanki QC James Duffy (Instructed by Lovells LLP) Page 4 been more far-reaching but they attracted a lot of criticism, especially from commentators in France and Germany, who were concerned at such extensive inroads into freedom of contract. An article by Professor Brandner and Professor Ulmer of the University of Heidelberg ((1991) 28 CML Rev 647) was particularly influential. In September 1992 the Council brought forward new proposals which can be described as a compromise solution balancing the need for consumer protection against residual freedom of contract. Recital (19) reflects part of this compromise, though it does not contribute very much to the understanding of Article 4(2): “Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer.” 7. Another element of compromise is the so-called “greylist” set out in Schedule 2 to the 1999 Regulations, exactly reproducing the annex referred to in Article 3(3) of the Directive. This is an “indicative and non-exhaustive list of terms which may be regarded as unfair.” Originally it was proposed as a blacklist of terms which would be conclusively presumed to be unfair. The list contains 17 items, four of which refer in one way or another to the monetary consideration paid by the consumer: “(d) permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; (e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; (f) authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract; Page 5 . . . (l) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;” 8. The basic test of fairness is in Regulation 5(1) of the 1999 Regulations, transposing Article 3(1) of the Directive. Regulation 5(1) provides: “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.” The consequences of unfairness are set out in Regulation 8, transposing Article 6(1). Regulation 8 provides: “(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. (2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.” 9. The Court of Justice has not yet had occasion to rule on the scope of Article 4(2). Not all the member states have precisely transposed the Directive into their national laws, since Article 8 provides that they may adopt or retain more stringent provisions for consumer protection, so long as they are compatible with the Treaty. France and Italy, like the United Kingdom, have precisely transposed the Directive. The Netherlands and Spain have enacted more far-reaching legislation affording greater protection to consumers. Germany considered it unnecessary to transpose the Directive in any form, as its national law already offered a greater degree of consumer protection. The First National Bank case Page 6 10. The Law Lords have already considered Article 4(2) in Director General of Fair Trading v First National Bank Plc [2001] UKHL 52, [2002] 1 AC 481. They considered it in the slightly different form in which it was transposed by Regulation 3(2) of the 1994 Regulations: “In so far as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which— (a) defines the main subject matter of the contract, or (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied.” So in the old provision the words “in exchange” did not appear, and the nature of the assessment was expressed a little differently. Before your Lordships neither side attached much importance to these points of difference, since the dominant text (as Lord Steyn put it in First National Bank at para 31) is that of the Directive itself. 11. In First National Bank the Director General of Fair Trading (the predecessor of the OFT, which was established by Part 1 of the Enterprise Act 2002) sought an injunction to restrain the bank, which was active in the consumer credit market, from using a standard term under which (on enforcement of an overdue debt) interest was to continue to accrue at the contractual rate until payment “after as well as before any judgment (such obligation to be independent of and not to merge with the judgment)”. At first instance Evans-Lombe J held ([2000] 1 WLR 98) that the term was a default term and not (as the bank’s counsel had submitted) a “core term” within Regulation 3(2) of the 1994 Regulations, but that it was not unfair in the statutory sense. The Court of Appeal ([2000] QB 672) allowed the Director General’s appeal, agreeing with the judge as to Regulation 3(2) but differing as to the fairness of the term. Peter Gibson LJ (giving the judgment of the Court) deprecated the expression “core term” (at p686): “The test in respect of the relevant term is not whether it can be called a ‘core term’ but whether it falls within one or both of paragraphs (a) and (b) of Regulation 3(2).” 12. On a further appeal by the bank the House of Lords allowed the appeal, unanimously agreeing with the Court of Appeal as to the Court’s power to review the term, but unanimously reversing the Court of Appeal as to the term’s fairness. The key passages on the scope of Regulation 3(2) of the 1994 Regulations (now Regulation 6(2) Page 9 19. In order to resolve the issue, and in accordance with written agreements reached between the OFT and the banks, the OFT on 27 July 2007 issued proceedings in the Commercial Court seeking a declaration that Regulation 6(2) did not apply to the banks’ Relevant Terms then current. The banks, in order to obtain a more comprehensive answer covering related issues raised in individual claims, counterclaimed not only for declarations to the opposite effect to those sought by the OFT (including an express declaration as to plain and intelligible language) but also for further declarations that their Relevant Terms were not capable of amounting to a penalty at common law, and declarations relating to “good faith” under regulation 5(1). These issues were raised both in relation to the banks’ then current sets of terms and in relation to terms which were no longer current. The judge heard argument only on the then current terms, for case management reasons. But our decision is likely to cover almost all the “historic” terms as well. We were told that the OFT and the banks have so far been able to agree that the lower courts’ decisions on the current terms should be treated as applicable to the historic terms as well. 20. In these circumstances Andrew Smith J had three groups of issues to decide: issues as to Regulation 6(2) (including particular issues as to “plain intelligible language”); issues as to Regulation 5(1); and issues as to common law penalties. He gave judgment on 24 April 2008 after 14 days of hearings during January and February 2008. His judgment ([2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625) runs to 450 paragraphs and the Court of Appeal rightly paid tribute to its quality and clarity. In brief, the judge decided the issues as follows (the paragraph numbers specified below being the conclusions at the end of the relevant discussion): (1) on the first group of issues, that the Relevant Terms were in plain intelligible language except (in the case of four banks) “in certain specific and relatively minor respects” (para 293); that they were not exempt under Regulation 6(2) from assessment in point of fairness (para 421); and that the “excluded assessment” construction was correct (para 436); (2) that none of the terms amounted to the imposition of a common law penalty (para 323); and (3) that it was inappropriate to give any declaratory relief as regards Regulation 5(1) (para 447). 21. The banks appealed, with the permission of the judge, against the decision that Regulation 6(2) did not apply to the Relevant Charges. The judge refused permission to the four relevant banks on the “plain intelligible language” issue. The OFT did not seek to appeal but put in a respondent’s notice with further grounds for supporting the judge’s decision on Regulation 6(2). The argument in the Court of Appeal was therefore mainly focused on the scope of Regulation 6(2). The Court of Appeal (Sir Anthony Clarke MR, Lord Justice Waller V-P and Lloyd LJ), in a judgment of the Court delivered on 26 February 2009 by the Master of the Rolls ([2009] EWCA Civ 116), dismissed the banks’ Page 10 appeal for reasons which the Court described (para 112) as “somewhat broader” than those of the judge. The Court refused to extend the permission to appeal to the “plain intelligible language” issue. The banks’ further appeal to the House of Lords (with leave granted on 31 March 2009) was heard in June 2009 but our judgment is (under transitional provisions in the Constitutional Reform Act 2005 and the Supreme Court Rules) a judgment of the Supreme Court of the United Kingdom. The Relevant Terms and Charges 22. It will be necessary to come back to a detailed consideration of the Court of Appeal’s reasoning, which Mr Sumption has subjected to robust criticism. But I must first say more about the Relevant Terms and the Relevant Charges of the banks. They are the material to which Regulation 6(2), properly construed, has to be applied. 23. The Relevant Terms and the Relevant Charges were covered in detail in the pleadings, and annexes to the pleadings. There is a clear summary in annexes B-E to the OFT’s joint reply and defence to the counterclaims. The judge gave a general description of the operation of current accounts and authorised and unauthorised overdrafts (paras 42- 82). He then (in order to deal with a range of questions as to plain intelligible language) covered a mass of detail in a masterly fashion. His summaries of the eight banks’ terms and charges starts with Abbey National (paras 130-154) and ends with Royal Bank of Scotland (paras 274-292). This part of his judgment has not been challenged in any way, and the Court of Appeal adopted it. 24. For present purposes it is sufficient to set out the summary in paras 7 and 8 of the Statement of Facts and Issue agreed by the parties: “There are four basic categories of Relevant Charges, as defined in the Judgments below, not all of which are charged by all Banks: Unpaid Item Charges; Paid Item Charges; Overdraft Excess Charges; and Guaranteed Paid Item Charges. a. An ‘Unpaid Item Charge’ is levied when the customer gives an instruction for payment or, in some cases at least withdrawal, that the bank declines to honour because the customer does not have sufficient funds in his account or an arranged facility which covers it. Page 11 b. A ‘Paid Item Charge’ is levied when the customer gives an instruction for payment or, in some cases at least withdrawal, for which he does not have sufficient funds in his account, or an arranged facility which covers it, and which the bank honours. c. A ‘Guaranteed Paid Item Charge’ refers to a charge distinct from a Paid Item Charge which some of the banks levy when they honour, in accordance with the guarantee, a cheque issued in conjunction with a cheque guarantee card (or, in the case of some banks, a debit card payment made under a guaranteed debit payment system) for which the customer does not have sufficient funds or a sufficient arranged facility. d. An ‘Overdraft Excess Charge’ is levied if, during a specified period (typically a day or a month) an account is and/or goes overdrawn (and there is no overdraft facility), or the debit balance is and/or goes above the limit on an existing overdraft facility. Annexed hereto are summaries (one for each bank) that identify the relevant contractual documents, the Relevant Terms and the Relevant Charges. In all cases, there is a ‘terms and conditions’ document, and an accompanying leaflet or tariff, which it is the Banks’ practice to make available to the customer as part of the process of opening the account. This litigation assumes the incorporation of the Relevant Terms into the contract between the Banks and their respective customers. The Banks’ standard rates of interest and charges are usually set out in the tariff/leaflet. Prior notice of any material changes in the tariff (or terms generally) has to be given to the customer under the terms of the Banking Code to which the Banks voluntarily subscribe.” The opposing arguments in summary 25. The appeal has been argued with conspicuous clarity and skill by Mr Sumption and Mr Vos QC (the latter instructed on behalf of Nationwide) for the banks and Mr Page 14 given their natural meaning, and read in that way they set out tests which are separate but not unconnected. They reflect (but in slightly different ways) the two sides (or quid pro quo) of any consumer contract, that is (a) what it is that the trader is to sell or supply and (b) what it is that the consumer is to pay for what he gets. The definition of the former is not to be reviewed in point of fairness, nor is the “adequacy” (appropriateness) of the latter. 32. The Court of Appeal then discussed First National Bank at some length, focusing (entirely correctly, in my opinion) on Lord Bingham’s and Lord Steyn’s description of the relevant clause as a default provision. The Court also focused on Lord Bingham’s description of it as “ancillary” and Lord Steyn’s description of it as “subsidiary.” That led to what I regard as a more questionable conclusion (para 49): “As we see it, it follows from the reasoning of the House of Lords that what article 4(2) of the Directive was seeking to exclude from the assessment required by the national authorities (here the OFT) was the core bargain or the core price but not ancillary or incidental provisions. In our judgment, Regulation 6(2) of the 1999 Regulations should be construed with that underlying purpose in mind.” The Court went on similarly (para 52): “In our view these considerations support the conclusion that the purpose of Regulation 6(2)(b) was to limit the exclusion to the essence of the price, just as the purpose of Regulation 6(2)(a) was to limit it to the main subject matter of the contract. As appears below, the reason for the limitation was to reflect the fact that the parties would be likely to (or might well) negotiate the main subject matter of the contract and the essential price but not the detail.” The considerations referred to were that Regulation 6(2)(b) referred to “the price or remuneration” and not to part of the price or remuneration. This impressed both the judge and the Court of Appeal. I do not see much force in it, as the Directive is expressed in terse, simple language, and the 1999 Regulations follow the same style. Page 15 33. This part of the Court of Appeal’s reasoning ends with a firm conclusion. After approving the judge’s reliance on passages in successive editions of Treitel (11th ed. (2003) p273 and 12th ed. (2007) para 7-101) the Court went on (para 55): “This last point is of some importance because the Banks submit that, once the conjunctive construction has been rejected, there is no room to apply the principle of essential bargain to price clauses, if only because of the difficulty in deciding to which it applies and to which it does not. We are not able to accept that submission. We accept the OFT’s submission that it all depends upon the circumstances of the particular case and that it is a question of fact whether a clause which might otherwise fall to be assessed is outside the essential bargain between the parties.” 34. The Court found support for this not only in First National Bank but also in the travaux and in some academic writings. It identified the purpose of the Article 4(2) exception as being (para 69) that standard form contracts should be subjected to a test of fairness except so far as their terms have been negotiated (the implication being that it was essential terms, both as to specification and as to price, that a consumer would actually negotiate). Therefore (para 69 (iii)): “Ancillary or incidental price, remuneration or payment terms will not fall within the exception in article 4(2) because they do not fulfil the purpose or essential rationale of the exception.” The Court noted that a similar view had been taken in a Joint Consultation Paper issued in 2001 by the Law Commission and the Scottish Law Commission (though paragraph 3.32 of the Paper, set out in para 79 of the judgment, is expressed in terms of understanding rather than consent). 35. The next section of the judgment contains a discussion of the relevant principles of construction followed by a restatement of the conclusion that the Court had already reached (para 86): “The question is whether to import the notion of essential bargain into the construction of article 4(2) and into both paragraphs (a) and (b) of Regulation 6(2). Our answer to Page 16 that question is yes, essentially for the reasons we have already given when discussing the First National Bank case and the travaux préparatoires. We would summarise them in much the same way as Mr Crow did in the course of the oral argument: (i) The concept of the essential bargain flows naturally from the structure of the Directive, from the purpose of the Directive, from the purpose of the exemption and from the decision in the First National Bank case.” These points are then elaborated in (ii), (iii) and (iv). 36. The Court of Appeal then went on to consider whether the Relevant Terms and the Relevant Charges were or formed part of the essential or core bargain between the parties. The Court recorded (para 99) fifteen points made by Mr Crow, the general thrust of which was that an unauthorised overdraft was something to which a customer was not entitled; it was exceptional and unnecessary; in consequence Relevant Charges were contingent, uneconomic, unadvertised and imperfectly understood. Against this Mr Vos (leading the banks’ submissions in response to the fifteen points made by Mr Crow) pointed (para 101) to the banks having earned £2.56bn from Relevant Charges in 2006 (against £4.1bn in net interest earned on accounts in credit) and to over 12 million customers who had incurred Relevant Charges in that year. The majority of these incurred more than one Relevant Charge. In the circumstances it was wrong, Mr Vos submitted, to say that they were isolated incidents. It was a misuse of language to describe unarranged borrowing as an exception to an exception. The Court concluded (para 104): “We say at once that there is undoubted force in these submissions but we have nevertheless reached the conclusion that, when all the circumstances are taken into account, the Relevant Charges are not part of the core or essential bargain in the sense that that concept has been used in the sources to which we have referred.” The appeal was therefore dismissed. 37. The decision of the Court of Appeal was followed by Mann J. in Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 (Ch), 10 July 2009. We received written submissions on this decision. The submissions vary markedly in their perceptions of how easily and satisfactorily the judge applied the Court of Appeal’s test (which was of course Page 19 44. That conclusion is not to my mind at variance with the message to be derived from the travaux. It is a fairly complex message, reflecting not only a compromise between the opposing aims of consumer protection and freedom of contract, but also the contrast between consumer protection and consumer choice (the latter being more central, perhaps, to basic Community principles). This point was explored and explained in an article (not mentioned by the Court of Appeal) to which Mr Sumption referred, that is Good Faith in European Contract Law by Professor Hugh Collins, (1994) 14 OJLS 229. Mr Sumption placed particular emphasis on the following passage: “The history of the EC Directive on Unfair Terms in Consumer Contracts reveals the struggle between these two interpretations of the economic interests of consumers. Even at a late stage in the negotiations, the draft Directive proposed by the Commission envisaged the introduction of a general principle against substantive unfairness in consumer contracts. It invalidated terms in standard form consumer contracts which caused ‘the performance of the contract to be significantly different from what the consumer could legitimately expect’, or which caused ‘the performance of the contract to be unduly detrimental to the consumer’. But in the battle between the advocates of consumer rights and the supporters of free competition, eventually the latter emerged victorious in the Council of Ministers. The fairness of the transaction in the sense of the price paid for the goods or services should not be subjected to review or control. This is the meaning of the obscure Article 4(2) [which is then set out]. The final reservation in this provision [‘plain intelligible language’] is significant. The Directive does not require consumer contracts to be substantively fair, but it does require them to be clear. Clarity is essential for effective market competition between terms. What matters primarily for EC contract law is consumer choice, not consumer rights.” 45. The Court of Appeal took account of the travaux and of some academic writing. It recognised as an underlying value the notion that freedom of contract should prevail where there has been meaningful negotiation between supplier and consumer, so that the latter does consent to the terms of the contract. But I respectfully think the Court went too far in interpreting the language of the Directive and the 1999 Regulations in order to meet that perceived aim. The Directive and the 1999 Regulations apply only to terms which have not been individually negotiated, and the Court departed from the natural meaning of the text in order to achieve an unnecessary duplication of the exception for individually negotiated terms. Page 20 46. I would add a postscript to this part of the discussion. A variety of expressions has been used, in the courts below and in argument (and to some extent by this House in First National Bank), to describe those contractual terms which are subject to review in point of fairness: ancillary, subordinate, incidental, non-core, collateral. These may all be of some assistance but it is important, in considering provisions which apply across an extraordinarily wide range of consumer contracts, to treat them with caution. I venture to repeat a paragraph from an opinion of mine (in which the other members of the Appellate Committee concurred) in College of Estate Management v Customs & Excise Commissioners [2005] STC 1957, para 30, an appeal raising questions of Community law about whether there is a single or multiple supply, and whether it is of goods or services, for the purposes of value added tax: “‘Ancillary’ means (as Ward LJ rightly observed ([2004] STC 1471 at [39]) subservient, subordinate and ministering to something else. It was an entirely apposite term in the discussion in British Telecommunications (where the delivery of the car was subordinate to its sale) and in Card Protection Plan itself (where some peripheral parts of a package of services, and some goods of trivial value such as labels, key tabs and a medical card, were subordinate to the main package of insurance services). But there are other cases (including Faaborg, Beynon and the present case) in which it is inappropriate to analyse the transaction in terms of what is ‘principal’ and ‘ancillary’, and it is unhelpful to strain the natural meaning of ‘ancillary’ in an attempt to do so. Food is not ancillary to restaurant services; it is of central and indispensable importance to them; nevertheless there is a single supply of services (Faaborg). Pharmaceuticals are not ancillary to medical care which requires the use of medication; again, they are of central and indispensable importance; nevertheless there is a single supply of services (Beynon).” Conversely, delivery of goods or peripheral extras may be disregarded as ancillary for the purposes of para (a) of Regulation 6(2), but the charges for them, if payable under the same contract, are part of the price for the purposes of para (b). The application of Regulation 6(2) 47. I can state my opinion much more briefly on the second main issue in the appeal, that is the application of Regulation 6(2), properly construed, to the facts. Charges for unauthorised overdrafts are monetary consideration for the package of banking services supplied to personal current account customers. They are an important part of the banks’ Page 21 charging structure, amounting to over 30 per cent of their revenue stream from all personal current account customers. The facts that the charges are contingent, and that the majority of customers do not incur them, are irrelevant. On the view that I take of the construction of Regulation 6(2), the fairness of the charges would be exempt from review in point of appropriateness under Regulation 6(2)(b) even if fewer customers paid them, and they formed a smaller part of the banks’ revenue stream. Even if the Court of Appeal’s interpretation had been correct, I do not see how it could have come to the conclusion that charges amounting to over 30 per cent of the revenue stream were (para 111) “not part of the core or essential bargain.” Should there be a reference under Article 234? 48. This Court, as the national court of last resort, is under an obligation to make a reference to the Court of Justice under Article 234 of the Treaty if a decision on the correct interpretation of the Directive is necessary to enable the Court to give judgment, and the point is not acte clair. Neither side showed any enthusiasm for a reference, because of the further delay that would be occasioned in a very large number of claims at present stayed. The Court is entitled to take the likely delay into account, although not as an overriding consideration, in deciding whether to make a reference. 49. If (as I understand to be the case) the Court is unanimous that the appeal should be allowed, then in my opinion we should treat the point as acte clair, and decide against making a reference. It may seem paradoxical for a court of last resort to conclude that a point is clear when it is differing from the carefully-considered judgments of the very experienced judges who have ruled on it in lower courts. But sometimes a court of last resort does conclude, without any disrespect, that the lower courts were clearly wrong, and in my respectful opinion this is such a case. 50. Even if some or all of the Court feel that the point is not acte clair, I would still propose that we ought not to incur the delay involved in a reference under Article 234, since a decision on the correct construction of Article 4(2) of the Directive is not essential for the determination of this appeal. The correct construction of Article 4(2) is a question of Community law, but the application of the Article, properly construed, to the facts is a question for national law. Even if the Court of Appeal was not clearly wrong on the issue of construction, it was in my respectful opinion clearly wrong in applying its construction to the facts. In other circumstances it might be regarded as rather unprincipled to take that means of avoiding an important issue of Community law, but in the special circumstances of this case I would regard it as the lesser of two evils. There is a strong public interest in resolving the matter without further delay. Conclusion Page 24 “Whether an assessment of the fairness of the Relevant Terms (pursuant to which the Relevant Charges are levied) would relate to the adequacy of the price and remuneration, as against the services supplied in exchange, within the meaning of regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999.” This does not accurately describe the issue raised by this appeal, which is very much more narrow. That issue is whether the Relevant Charges constitute “the price or remuneration, as against the services supplied in exchange” within the meaning of the Regulation. If they do not, the attack on the fairness of the terms that is open to the OFT will not be circumscribed by Regulation 6(2)(b). If they do, they will still be open to attack by the OFT on the ground that they are “unfair” as defined by Regulation 5(1), but that attack cannot be founded on an allegation that the Relevant Charges are excessive by comparison with the services which they purchase, for that is forbidden by Regulation 6(2)(b). 58. That this was indeed the issue was made clear by counsel on either side in their oral submissions. Towards the close of his reply, Mr Sumption QC said this: “All that I can ask the courts to declare, and all that my clients have ever asked the courts to declare, is that the insufficient fund charges are included in the price within the meaning of the word “price” in [Regulation] 6 and that no assessment of the fairness of the terms imposing the IFCs may relate to their adequacy as against the service supplied.” 59. Mr Crow QC for his part submitted on behalf of the OFT that even if Article 4(2) of the Directive did apply, the Relevant Terms were still subject to assessment for fairness. In that event, while it would not be open to the OFT to assess the fairness of the price by reference to the adequacy of the goods or services supplied in exchange, it would be open to the OFT to assess the fairness of the price according to other criteria. 60. This agreement between the parties reflects acceptance by the Banks in the Court of Appeal of a finding by Andrew Smith J that was contrary to one of their submissions. The Banks had submitted that a term of a contract that provided the “price or remuneration” for “goods or services supplied” was absolutely exempt from assessment for fairness by reason of Regulation 6(2). This was described as the “excluded term” construction of the Regulation. Andrew Smith J held that this was not correct. Regulation 6(2) precluded assessing a price term for fairness by reference to its adequacy as payment Page 25 for the goods or services provided in exchange. It did not, however, preclude assessing a price term for fairness according to other criteria. This has been described as the “excluded assessment” construction of the Regulation. 61. Mr Sumption submitted that the difference between the “excluded term” and the “excluded assessment” constructions was “a distraction from the real issues”. It is certainly a distraction from the narrow issue that the parties are now agreed is before the court. But it is only because the “excluded assessment” construction has prevailed that the issue has been narrowed from that in the Agreed Statement of Facts and Issue. Had the “excluded term” construction prevailed, a finding in favour of the Banks that the Relevant Terms were included within the meaning of the word “price” in Regulation 6(2) would have precluded any challenge to those terms on the ground of fairness. As it is, if the Banks succeed on the narrow issue, this will not close the door on the OFT’s investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged Relevant Charges. 62. There is a further general point to be made. It seems likely that many of the customers who have challenged Relevant Charges have done so on the basis that they are excessive for the individual services to which they relate. They have treated the Relevant Charges as being levied in exchange for those services. Equally, one of the provisional grounds of attack advanced by the OFT has been that the Relevant Charges are out of all proportion to the cost of providing the services to which they relate. The Banks’ primary case is that these attacks are founded on a misconception that the Relevant Charges are payment for the services that trigger them. According to the Banks the reality is that the Relevant Charges are simply part of the payment in exchange for a global package of services. If that is correct, it would seem to follow that the attack based on the disparity between the cost of providing the services that trigger the Relevant Charges and the amount of the Relevant Charges is based on a false premise and does not in fact involve an assessment of fairness that relates “to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”. 63. This was a point that was appreciated by Andrew Smith J. At paragraph 400 of his judgment he says: “Moreover, the basis of the whole package argument is that the Relevant Charges are not the price or remuneration for services but part of the price or remuneration for services. An assessment of the fairness of the Relevant Charges does not involve an assessment of the level or adequacy or appropriateness of the overall price or remuneration for the package of services supplied by the Bank, and an assessment of the fairness of the Relevant Charges as against those services, apart from being entirely beside the Page 26 point, would not intrude upon the essential bargain between the parties that the Directive and the 1999 Regulations intend should be protected from assessment. The whole package argument does not engage the policy of the Directive and the 1999 Regulations for exempting the fairness of the Relevant Terms from assessment. Indeed, I am far from convinced that an assessment of part of the price or remuneration (or at least for less than what is manifestly the predominant part of the price or remuneration) for goods or services would ever be covered by Regulation 6(2)(b), but since this is not an argument advanced by the OFT, I say no more about that.” 64. Mr Crow did not submit before us that if the Relevant Charges formed part of the price paid in exchange for the package of services, they could not be included within the meaning of the word “price” in Regulation 6(2). I consider that Regulation 6(2) could apply to a complaint that the Banks’ charges overall, of which the Relevant Charges are an important element, are unfair because those who pay them pay an excessive amount in exchange for the package of services in respect of which they constitute part of the payment. Thus the issue of whether or not the Relevant Charges form part of the “price or remuneration, as against the goods or services supplied in exchange” within Regulation 6(2) is not necessarily academic. No attack has yet been made, however, on the level of the Banks’ charges overall. The reasoning of the Courts below 65. Both Andrew Smith J and the Court of Appeal concluded that the Relevant Terms did not qualify as price or remuneration within the meaning of those words in Regulation 6(2). 66. At the heart of the reasoning of Andrew Smith J was the conclusion that the Relevant Charges were not covered by Regulation 6(2) because they were not the “price or remuneration” for “services supplied in exchange”. They were not charged “in exchange” for anything. While most of the charges were triggered by the provision of an individual service they were not imposed by way of payment for those services. They were charges levied because the services in question were supplied by the Banks “in particular circumstances”. One of the four types of Relevant Charges was not triggered by the provision of a service. Unpaid Item Charges were levied when a request to honour a cheque on an overdrawn account was refused. Refusing a request could not properly be described as a service at all. Page 29 Conclusions 74. I wish to express my admiration for the detailed and perceptive analysis of Andrew Smith J, although I do not share all the conclusions that he reached. He examined each of the Relevant Charges and the circumstances in which they fell to be paid. He concluded that it was impossible to say that each charge was given in exchange for the event that triggered it. I agree with that conclusion. It accords, of course, with the primary way in which the Banks put their case. The same conclusion would, I think, have been reached by a reasonably informed customer who applied his mind to the question. In each instance the Judge identified aspects of the provisions for payment of the Relevant Charges that would be anomalous if they were intended to be paid in exchange for the service to which they related. I will take one of the charges made by Barclays to illustrate such anomalies. A ‘Paid Referral Fee’ is charged when the Bank honours a cheque, standing order or direct debit in circumstances where the account is overdrawn without prior arrangement. The fee is not charged per transaction but at £30 per day. But the fee is only charged on a maximum of three days per month. A customer would not conclude that the fee was charged in exchange for the transaction or transactions concluded on the days when the charges were made but that any other similar transactions in the course of the month were provided free. 75. I agree with Andrew Smith J that a careful analysis of the transactions giving rise to the obligation to pay the Relevant Charges leads to the conclusion that they are not the prices paid in exchange for the transactions in question. 76. I shall revert to the Judge’s rejection of the Banks’ case that the Relevant Charges were part of the remuneration paid for the package of services provided to holders of current accounts. First I wish to address the reason why the Court of Appeal rejected that case. 77. The Court of Appeal accepted that the contract between the Bank and its customer had to be treated as a package. They did not exclude from the package services that were supplied at a time when the current account was overdrawn. They accepted that the Relevant Terms were terms that provided for payment of price or remuneration. They held, however, that they were not “core” payment terms but “ancillary or incidental price, remuneration or payment terms” (paragraph 69(iii)) which did not constitute price or remuneration that fell within Regulation 6(2). 78. I can see no justification for excluding from the application of Regulation 6(2) price or remuneration on the ground that it is “ancillary or incidental price or remuneration”. If it is possible to identify such price or remuneration as being paid in exchange for services, even if the services are fringe or optional extras, Regulation 6(2) Page 30 will preclude an attack on the price or remuneration in question if it is based on the contention that it was excessive by comparison with the services for which it was exchanged. If, on analysis, the charges are not given in exchange for individual services but are part of a package of different ways of charging for a package of varied services, this does not mean that they are not price or remuneration for the purpose of Regulation 6(2). As I observed earlier, an assessment of the fairness of the charges will be precluded if the basis of the attack is that, by reason of their inclusion in the pricing package, those who pay them are being charged an excessive amount in exchange for the overall package. 79. The Court of Appeal accepted the following argument advanced by the OFT. The object of Regulation 6(2) is to exclude from assessment for fairness that part of the bargain that will be the focus of a customer’s attention when entering into a contract, that is to say the goods or services that he wishes to acquire and the price he will have to pay for doing so. Market forces could and should be relied upon to control the fairness of this part of the bargain. Contingencies that the customer does not expect to involve him will not be of concern to him. He will not focus on these when entering into the bargain. The Relevant Charges fall into this category. Free-if-in-credit current accounts are opened by customers who expect to be in credit. Customers who go into debit without making a prior agreement for an overdraft normally do so because of an unforeseen contingency. Customers do not have regard to the consequences of such a contingency when opening a current account. Accordingly, the Relevant Charges that are then levied do not fall within Regulation 6(2). 80. It seems to me that this reasoning is relevant not to the question of whether the Relevant Charges form part of the price or remuneration for the package of services provided but to whether the method of pricing is fair. It may be open to question whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering into their contracts. If it is not it may then be open to question whether the Relevant Terms fall within Regulation 5(1). These questions do not, however, bear on the question of whether the Relevant Charges form part of the price or remuneration that is paid in exchange for the services provided to the holder of a current account. In agreement with Lord Walker, and for the additional reasons that he gives, I am not persuaded by the Court of Appeal’s reasons for excluding the Relevant Charges from the “price or remuneration” in Regulation 6(2). 81. I now turn to the reasons given by Andrew Smith J for rejecting the Banks’ case that the Relevant Charges are part of a package of prices or remuneration paid for a package of services – see paragraph 67 above. First he says that it is not a natural use of language to say that the Relevant Charges are levied or paid in exchange for those services supplied when an account is in credit. It does not seem to me that this does full credit to the package approach. I do not imagine that there are many customers who run a current account that is permanently overdrawn in circumstances where they have not specifically agreed an overdraft facility. Most customers who incur Relevant Charges run current accounts that are in credit most of the time. I do not think that it is an unnatural Page 31 use of language to say that the Relevant Charges that they pay are paid as part of the price or remuneration provided in exchange for the package of services that they receive. 82. If the Relevant Charges are not part of the price or remuneration for the services provided, the question arises of how the charges should be classified. The answer suggested on behalf of the OFT is that they are in the nature of default payments, imposed not as a hefty element in the price that the Banks hope that customers will pay for their services but by way of sanctions to discourage them from overdrawing on their current accounts. At paragraph 107 the Court of Appeal held: “[The Relevant Charges] are…akin to default charges which are triggered by a breach of contract. Although they are not in fact triggered by a breach of contract because of the manner in which the contractual relationship has been expressly framed, this does not mean that they are not contingent charges…” 83. Andrew Smith J considered at paragraphs 295 to 324 whether the Relevant Charges were penalties at common law so as to be unenforceable for that reason. He held that they were not because a penalty at common law is a payment that becomes payable upon a breach of contract. Liability to pay Relevant Charges is not contingent upon breaches by the customers of their contracts. It is not a breach of any of the standard form contracts under consideration to overdraw, or attempt to overdraw, on a current account. Mr Sumption rightly conceded, however, that the Banks could not convert what were in effect penalties into “price” simply by wording their contracts so as to ensure that the contingencies that triggered liability to pay the charges did not constitute breaches of contract. 84. Mr Crow argued that the Court of Appeal was correct to describe the Relevant Charges as akin to default charges. They were only payable in what he described as “aberrant circumstances”. He pointed out that many of the terms that give the impression that the charges are the cost of exercising contractual options are of recent origin. Contracts that preceded them had terms which indicated that customers were not to go into overdraft without prior arrangement, even if doing so was not technically a breach of contract. He pointed out that this is still true of the following current term of the Nationwide Building Society’s terms: “Your FlexAccount is a share of Nationwide Building Society. It will give membership rights to the account holder(s)….Your membership may be withdrawn if you Page 34 to the fairness of the Relevant Terms has been made on the basis that they cause the overall package of remuneration paid by those in debit to be excessive having regard to the package of services received in exchange. In these circumstances the basis on which I have answered the narrow issue would seem to render that issue academic. It may be that, if and when the OFT challenges the fairness of the Relevant Terms, issues will be raised that ought to be referred to Luxembourg. That stage has not yet been reached. LADY HALE 92. For the reasons given by Lord Walker and Lord Mance, I too would allow this appeal and make the declaration proposed by Lord Walker. 93. I would only add that, should this or any other Parliament be minded to take up the invitation given in the last paragraph of Lord Walker’s judgment, it may not be easy to find a satisfactory solution. The banks may not be the most popular institutions in the country at present, but that does not mean that their methods of charging for retail banking services are necessarily unfair when viewed as a whole. As a very general proposition, consumer law in this country aims to give the consumer an informed choice rather than to protect the consumer from making an unwise choice. We buy all sorts of products which a sensible person might not buy and some of which are not good value for the money. We do so with our eyes open because we want the product in question more than we want the money. Should financial services be treated differently from other goods and services? Or is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here. But it is not clear to me whether the proper solution is to find some way of forcing the suppliers to compete with one another in the terms they offer or whether the solution is to condemn one particular model of charging for those services. Fortunately, however, that is for Parliament and not for this Court. LORD MANCE 94. Council Directive 93/13/EEC of 5 April 1993 and The Unfair Terms in Consumer Contracts Regulations 1999 (S.I. No. 2083), which implement the Directive domestically, both relate to “unfair terms in contracts concluded between a seller or [a] supplier and a consumer”. They make the validity of “a contractual term which has not been individually negotiated” subject generally to the criterion of fairness (defined by reference to whether “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ Page 35 rights and obligations arising under the contract, to the detriment of the consumer”). This appeal concerns the exception to this rule, provided in Article 4(2) of the Directive and Regulation 6(2). It is not suggested that there is any material difference between these two provisions. As Regulation 6(2) puts it: “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 exchange.” “Adequacy” (the word also used in the Directive) means appropriateness or reasonableness (in amount). 95. This appeal is concerned with Relevant Charges in the form of unpaid item charges, paid item charges, overdraft excess charges and guaranteed paid item charges levied when a customer gives instructions or undertakes a transaction without having sufficient funds to back it. The Office of Fair Trading (OFT) has written to various banks expressing concerns about the fairness of the terms agreed by the banks with their customers so far as they provide for payment of Relevant Charges. The question for decision is whether the OFT would be entitled to challenge the fairness of such terms under regulation 12. It is now accepted that such terms are not individually negotiated within regulation 5(1). But it is also common ground (except in the case of four banks in certain specific and minor respects) that they are in “plain intelligible language” within regulation 6(2). The issue is whether the Relevant Charges or the agreement to pay them constitute “price or remuneration” in exchange for the supply of services within regulation 6(2). If they do, then any challenge to their fairness based on their appropriateness in relation to such services is excluded under regulation 6(2). Any assessment based on matters not relating to the appropriateness in amount of the price or remuneration is not excluded by regulation 6(2)(b). This regulation is clearer than its predecessor (regulation 3(2) of the 1994 Regulations) which suggested grammatically that it was only a “term which . . . concerns the appropriateness of the price or remuneration” that was immune from challenge (language reflected in some of the reasoning in Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481, below). 96. The parties have in their written cases and oral submissions identified two broad issues for determination. The first concerns the proper interpretation of regulation 6(2)(b), the second whether the Relevant Charges fall within the scope of that regulation, properly interpreted. The first issue is one of European law. As to the second, however, no question of European law is involved in the determination of the relevant circumstances. Page 36 The parties also agree that no such question is in this case involved in applying the regulation, properly interpreted, to the circumstances – including identifying the price or remuneration in exchange for which goods or services are to be supplied. European Court of Justice authority for this differentiation appears to be limited to the assessment of unfairness under articles 3 and 4(1) of the Directive (regulations 5 and 6(1) of the Regulations): Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v Ludger Hofstetter and Ulrike Hofstetter (Case C-237/02); but I accept its correctness in principle. 97. Since the Directive and Regulations are concerned with terms in contracts, it is first of all necessary to identify the relevant contracts. This is a matter about which the judge, Andrew Smith J, and the Court of Appeal took different views, although again it is not suggested that it raises on the facts of this case any particular issue of European law. The banks’ primary case is that the relevant contracts are the contracts for an overall package of banking facilities made by the banks with their customers. Andrew Smith J rejected this analysis as unnatural: payments by way of Relevant Charges could not be said to be paid in exchange for services supplied when an account is in credit; and the description “free-if-in-credit” connoted that there was no price to be paid when an account was in credit (paras. 398-9). Furthermore, if the relevant contract was taken to be the overall package, the Relevant Charges would represent no more than part of the price or remuneration, and an assessment of the fairness of such charges as against the package of services would be “beside the point” and “would not intrude upon the essential bargain” intended to be protected from assessment (para. 400). 98. There is in my opinion a flaw in this reasoning. It is not comparing like with like. Viewing the matter at the level of the banking contracts, the comparison is between, on the one hand, the package of services offered by the banks (some or all of which may or may not be used by any particular customer) and, on the other, the customer’s commitment to pay such charges as may arise from whatever facilities he does use. At this level, the banks’ case is that price or remuneration is or includes the customer’s potential liability for charges, rather than the payments which he or she has actually to make if and when such charges are incurred. In my opinion the Court of Appeal was right in para. 97 of its judgment to identify the relevant contract as being in the first instance the banking contract for an overall package of facilities. That is the contract in which the Relevant Charges appear and were agreed. 99. Further, any challenge to the fairness of a term must be to its fairness in the context of the relevant contract in which it appears. It is “beside the point” if it is not. If, on a proper analysis, the customer’s potential liability for the Relevant Charges is the or part of the “price or remuneration” in exchange for which the overall package of banking services is supplied, and it is challenged on the ground that it makes such price or remuneration disproportionate overall, then regulation 6(2)(b) excludes the challenge. If there is no challenge to the overall proportionality of the overall price or remuneration of the package, then I fail to see how a challenge to the proportionality of the Relevant Charges in relation to the cost of providing particular services in isolation can be Page 39 banking contract, it is more easily found in the customer’s agreement to pay overdraft interest. 104. In accordance with general European legal principle, article 4(2) and regulation 6(2) are as exceptions to be construed narrowly. Nevertheless, the concepts of “price or remuneration” must, I think, be capable in principle of covering, under a banking contract, an agreement to make a payment in a particular event. The language of regulation 6(2)(b) is on its face therefore capable of covering a customer’s commitment, under the package contracts put before the House, to pay the Relevant Charges in the specified events. There is no reason why a customer should not be given free services in some circumstances, but, as a quid pro quo, be expected to pay for them in others. 105. At various points the submissions before the House addressed the policy underlying the free-if-in-credit system of charging. It is clear from the description free-if- in-credit itself that the system is likely to involve significant elements of cross-subsidy. Some customers (those remaining always or largely in credit) pay no or few charges, while others pay charges more regularly. Overall, around 30% of the banks’ income from their customers is derived from the Relevant Charges. According to the OFT’s own Market Study of July 2008, 77% of customers surveyed who had incurred a Relevant Charge in the past 12 months had heard of such charges before they incurred one. The Relevant Charges levied on any particular customer greatly exceed the actual net cost to the bank of complying with the request(s) impliedly made by the customer leading to the incurring of such charges. But it is obvious on reading the charging structure that charges cannot be directly related to the actual costs of providing any particular service triggering them. There are of course other obvious elements of cross-subsidy, even between customers who remain in credit. Customers who maintain large current accounts and receive no or limited interest on them subsidise in a sense customers who manage consistently to keep just in credit. Mr Jonathan Crow QC for the OFT made clear that the OFT does not contend that the element of cross-subsidy provided by the Relevant Charges affects the question whether regulation 6(2)(b) applies. Regulation 6(2)(b) would apply if the banks simply decided to charge more for particular services in order to pay their directors more or to earn more for their shareholders. It cannot make any difference to its application if the banks decide to adopt a business model which charges more for one type of transaction in order to subsidise another. 106. The OFT’s case, essentially accepted by the Court of Appeal, is that the agreement to pay the Relevant Charges is not price or remuneration, because regulation 6(2)(b) is confined in scope to payments in exchange for sales or supplies on which payments the consumer can be taken to have focused and to which he can be taken truly to have consented. The Court of Appeal encapsulated this conclusion as “import[ing] the notion of essential bargain into the construction of article 4(2) and into both paragraphs (a) and (b) of regulation 6(2)” (para. 86). It added that “the concept of the essential bargain flows naturally” from the structure and purpose of the Directive because not every payment that a consumer makes falls within regulation 6(2)(b), and such a construction “prevents regulation 6(2)(b) being construed too widely”. It considered that Page 40 its conclusion reflected “the reasoning both in the travaux préparatoires and in the First National Bank case”, which it interpreted as indicating that ancillary or incidental payment terms were not intended to be exempt from assessment for their “adequacy” under regulation 6(2) (paras. 64, 69 and 86). 107. The considerations which the Court of Appeal saw as relevant to the broad test which it thus identified were as follows (para. 90): “90. The above analysis suggests that the following considerations are relevant to this broad question, together no doubt with many others, depending upon the facts of the particular case: i) The nature of the services provided as a whole and the manner and terms in which the standard term documentation is provided to consumers. ii) The quantum of the particular payment, the goods or services to which it is said to relate and the other payments required under the contract. iii) In order to be 'price or remuneration' within the meaning of article 4(2) the payment provision must not be ancillary to the central bargain between the consumer and supplier. Along this sliding scale: a) if the payment obligations are directly negotiated between the consumer and supplier they will not be subject to assessment for fairness under the Directive; b) the more closely related the payment term is to the essential bargain between the parties, the more likely it is to fall within the exception in article 4(2); but c) the more ancillary the payment term is and the less likely it is to come to the direct attention of the consumer at the time the contract is entered into, the less likely it is to be within the concept of 'price or remuneration' within the meaning of the Directive.” Page 41 108. One difficulty about the Court of Appeal’s reasoning lies in its reliance on the concept of negotiation or indeed bargain, as in para. 90(iii)(a) and (b) above – and elsewhere, repeatedly, in its judgment: see paras. 64, 87, 107 and 109 (negotiation) and 86, 90, 94-95 and 106 (bargain). The Court of Appeal suggested that the absence of any negotiation or bargain or of any ability to negotiate or bargain militated strongly against a conclusion that a particular charge constituted (part of) the price or remuneration. However, the Directive and Regulations are only concerned with contractual terms which have not been individually negotiated. Another difficulty is that the Court of Appeal’s broad test, and the sliding scale of relevant considerations introduced by para. 90, convert the apparently simple language of regulation 6(2)(b) (or article 4(2)) into a complex and uncertain value judgment. This is rendered even more complex by the Court of Appeal’s further conclusion that the judgment should be made by the court through the eyes of “the typical consumer” (para. 91). This led to considerable argument before the House as to who might be regarded as the typical consumer. Was it relevant to look at the whole body of customers, or at those who would or might be likely to incur Relevant Charges? Before the House Mr Crow for the OFT summarised three main considerations on which the OFT relied to determine whether a payment was part of the essential bargain, namely whether the payment was (a) ancillary, (b) readily recognisable or visible by a typical customer and (c) one arising in the normal performance of the contract. 109. The Directive was the result of an iterative process between the Commission, European Parliament and Council of Ministers. The outcome was, as not uncommonly happens, significantly different from that originally proposed. The Commission’s original proposal of 24 July 1990 (COM(90) 322 fin) and its Explanatory Memorandum of 3 September 1990 were drafted with a view to regulating by reference to the test of fairness “every contract between a consumer and a party acting in the course of his trade, business or profession, whether the contract is a “take or leave it” contract, or is in standard form or is negotiated individually”. The proposal was the subject of a critique by Hans Erich Brandner and Peter Ulmer (The Community Directive on Unfair Terms in Consumer Contracts: some critical remarks on the proposal submitted by the EC Commission, (1991) 28 CMLR 647); these authors argued that any control by the courts or administrative authorities of the reasonableness or equivalence of the relationship between the price and the goods or services provided was “anathema to the fundamental tenets of a free market economy”, and that the focus should be on improving transparency in this area, the requirement of transparency being “directed against terms which may conceal the principal obligations or the price and thus make it difficult for the consumer to obtain an overview of the market and to make what would (relatively speaking) be the best choice in a given situation” (p.656). 110. The Committee on Legal Affairs and Citizens’ Rights of the European Parliament issued a report on 9 April 1991 (A3-0091/91), which suggested the amendment of the proposal to exclude individually negotiated contract terms. The Economic and Social Committee (consulted by the Council of Ministers) issued its opinion on 24 April 1991, suggesting both that individually negotiated contractual terms required different treatment and that an additional criterion of unfairness should be introduced, namely “the non- transparency of a contract term” (OJ No C 159, 17.6.1991). The European Parliament Page 44 scope for different readings of different language texts seems very limited. The complex and unpredictable value judgment involved in the Court of Appeal’s approach was based in large measure upon a clear error, in treating the existence or absence of negotiation as significant in a context dealing by definition only with non-negotiated terms. The suggested test of what is “not . . . ancillary to the main bargain” involves a restatement of the language of the Directive and Regulations; that language treats the “price or remuneration” as axiomatically part of the core bargain and so immune from scrutiny for reasonableness. Bearing in mind the general Community aim of legal certainty, the likelihood of the Court of Justice (or any other Member State’s courts) accepting the Court of Appeal’s approach to the interpretation of article 4(2) seems to me remote indeed. I would regard the position as acte clair and not as requiring a reference. 116. However, if one takes a different view on whether the position is acte clair, there remains the question of relevance. Eliminating the Court of Appeal’s clear error in introducing as part of the test whether the relevant term had been “directly negotiated”, and assuming that the Court of Appeal was generally right in adopting as a test whether the term was “not . . . ancillary to the main bargain”, the question would be whether the Court was right to treat the terms of the package contracts relating to the Relevant Charges as ancillary terms, rather than as part of the agreed price or remuneration in exchange for which the banks undertook to provide their whole package of services. That question would involve the application of the Directive and Regulations, which is, as I have said, a matter for domestic, not European, law. The starting point would be that the banks’ customers committed themselves, under plain, intelligible language, to pay the Relevant Charges in respect of instructions given or transactions entered into without sufficient funds and in return for the package of services offered by the banks. The Court of Appeal identified a series of considerations, relating to the nature of personal current accounts, the contingent circumstances in which such instructions or transactions could come about, the uneconomic nature (from the customers’ viewpoint) of the Relevant Charges and the absence of any marketing of the banks’ services by reference to such Charges (para. 99). It summarised the incurring of Relevant Charges as being “simply outside (or outwith) the ordinary conduct of the contractual relationship” (para. 99(xv)). 117. Mr Crow repeated and expanded on these points in his case (para. 81) and in his oral submissions before the House; he suggested that, if any price or remuneration could be identified at all, then the bank interest charged on any unauthorised overdraft was “more readily recognisable as the payment made in exchange for the overdraft” (case, para. 81(r)). But there is no reason why the price or remuneration payable for a package of services should not consist of a contingent liability. The uneconomic nature of the Relevant Charges from the customers’ viewpoint constitutes the importance of the charges from the banks’ viewpoint, and the plain intelligible language of the banking contracts made evident that there must be a considerable element of cross-subsidy in respect of customers while they remained in credit. Like Lord Walker, I would therefore disagree with the Court of Appeal’s application of its test, even had I considered that test to be correct so far as it focused on what was or was not “ancillary” to the main bargain. In these circumstances, it would be unnecessary to make a reference, even if the view Page 45 were to be taken that the meaning of price and remuneration in article 4(2) of the Directive is not acte clair. 118. I would therefore allow the appeal and grant the relief proposed by Lord Walker in paragraph 51. I would also endorse Lord Walker’s final paragraph. LORD NEUBERGER 119. I also would allow this appeal for the reasons given by Lord Walker and Lord Mance, and would grant the relief proposed by Lord Walker in paragraph 51. 120. I also agree with Lord Phillips, whose reasons are, I think essentially the same as those of Lord Walker and Lord Mance. On the one issue on which there may be some disagreement, namely whether the resolution of the dispute as to the interpretation of article 4(2) is acte clair, I share Lord Mance’s scepticism as to whether the Court of Justice would adopt the meaning accepted by the Court of Appeal. However, like Lord Phillips, I consider that it is possible that the Court of Justice would adopt such an interpretation, and therefore, if the resolution of that issue were essential to the determination of this appeal, I would, very reluctantly, have concluded that a reference was required. However, as he says, it is unnecessary for the issue to be resolved for the purpose of this appeal – as explained by Lord Walker in para 50, and by Lord Mance in paras 116 and 117.