Bank T&Cs - you must keep your account in credit

[steven4064]

In another thread (http://www.consumeractiongroup.co.uk/forum/halifax-bank-bank-scotland/97691-contractual-interest-precedent-lost.html) GaryH wrote:

courts are apparently well known to be very reluctant to imply terms into contracts and there are strict criteria upon which they will do so (business efficacy, etc).

In the 'olden days' banks had T&Cs which said things like "you must keep your account in credit", so it was quite obvoius that going overdrawn (or exceeding your overdraft limit) was a breach of contract.

 

Now (and I'm using NatWest as an example because that is what I know) they don't say anything like that in so many words. They say

Operations on the account

 

If at any time we receive instructions to withdraw funds from the account where

- there are insufficient funds available to cover the withdrawal, or

- the requested withdrawal would cause an agreed overdraft limit to be exceeded

we may exercise our sole discretion and, without contacting you, either (1) refuse to pay some or all of the item and/or (2) allow an overdraft to be created or allow the borrowing limit to be exceeded (in which case, the new or excess overdraft is an unarranged overdraft).

and a bit later:

Fees for operating the account and interest rates and charges payable are charged as detailed in the leaflet 'A guide to Personal Current Account Fees'

Then, in the referrenced booklet (which is entirely seperate):

... We will charge a fixed fee for each item we do not pay

I am arguing that this lot, taken together, implies a contract Term...

requiring that, in the proper running of the Account, sufficient funds (including any agreed overdraft facility) must be maintained in the account to cover withdrawals or the result will be a charge.

... that is, requiring that you must not ge overdrawn.

 

Firstly, is this a valid argument?

 

Secondly, might it get shot down in court for the reasons Gary sais, or is a judge likely to agree that it tends to imply such a Term (51% certain)?

Steven

 

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[Josie8]

Just subscribing .................

[GaryH]

Firstly, is this a valid argument?

Certainly is valid IMHO....

or is a judge likely to agree that it tends to imply such a Term (51% certain)?

...but unfortunately the Birmingham judge in the Berwick v Lloyds case didn't seem to think so. Although, he seemed to be implimenting harsh business principles whereas many judges in consumer v giant financial institution cases may perhaps not?

 

Para 17 of the judgement;

17. I find it therefore on the evidence before me that there is no express term of contract between Mr Berwick and the bank of the type referred to above. Is there any term to be implied that a customer must not exceed his overdraft limit? It is trite law that a term will only be implied into a contract if it is necessary to do so to make the contract make business sense. The word "necessary" must be emphasised; it is not enough that a contract would make better sense if an additional term were written in, the court must be satisfied that the parties must be taken to have agreed the additional term becouse without it the contract would make no business sense at all.

[steven4064]

Gary

 

But I understood from rbrears' thread and discussion that the reason the judge couldn't find any express term of contract was because he had no T&Cs at all in front of him. In fact he says he went on the internet to try and find some.

 

Steven

 

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[GaryH]

Also, one big reason that term's are rarely implied is for purposes of freedom of contract - I.e. the courts won't interfere with a contract freely entered into by implying additional terms into it.

 

However, I think its arguable that as the contract is pre and mass produced, and you have no opportunity to negotiate it, that the consumer has no freedom of contract anyway - you don't get to choose or influance your bargain. All bank account contracts are pretty much the same so you don't have much scope for choice within the marketplace either. Perhaps this is where the UTCCR could come in?

[GaryH]

Gary

 

But I understood from rbrears' thread and discussion that the reason the judge couldn't find any express term of contract was because he had no T&Cs at all in front of him. In fact he says he went on the internet to try and find some.

Correct. But IMHO going on para 17 and the criteria he stated its highly unlikely that he'd have found an implied term in the absence of an express one anyway - no matter what T&C's were in front of him. This bit in particular;

The word "necessary" must be emphasised; it is not enough that a contract would make better sense if an additional term were written in, the court must be satisfied that the parties must be taken to have agreed the additional term becouse without it the contract would make no business sense at all.

[steven4064]

the courts won't interfere with a contract freely entered into by implying additional terms into it.

This may be my confusion. I am thinking that the implied term is not additional to what is explicitly written but hidden within what is explicitly written.

 

To me, the most recent NatWest T&Cs seem to be written in such a way as to disguise the fact that what they really mean is "you must keep your account in credit"

 

So, should I say there is an express Term "you must keep your account in credit" but the T&Cs are written in sucha away as to disguise the fact?

 

 

Steven

 

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[steven4064]

Looking at this again, I realise that I don't need to use either 'implied' or 'disguised': all it needs is

The Claimant contends that these Terms require that, in the proper running of the Account, sufficient funds (including any agreed overdraft facility) must be maintained in the account to cover withdrawals or the result will be a charge. (It should be noted that this Condition applies even in cases over which the customer has no control ,eg the paying of a Direct Debit where the payment date and amount are controlled by the payee.)

In other words, it's actually an express Term in the contract (and had the DJ in the Berwick v Lloyds case had these T&Cs in front of him, he would have found the required express term).

Steven

 

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[TANZARELLI]

Looking at this again, I realise that I don't need to use either 'implied' or 'disguised': all it needs isIn other words, it's actually an express Term in the contract (and had the DJ in the Berwick v Lloyds case had these T&Cs in front of him, he would have found the required express term).

 

Steven

 

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Thats why its important to have T&Cs as near as to when the account was opened, so if you are going for equity arguement and don't readily admit to breach of contract if they use the service arguement then you can go for Liquidated Damages under UTCCR but you need to show which term has been breached and show they have made disproportionate profit from charges which are penalties.

 

I think I have got this right. lol

[steven4064]

My post #8 was referring back to Gary's post #3. I had misunderstood the technical meaning of 'implied' - which has a connotation of 'in addition to' whereas I was taking it to mean 'contained in (but hidden)'. By wording it this way, I show that it is actually an express term, which is what the DJ in the Berwick v LLoyds case couldn't find (because hadn't got any T&Cs in front of him)

 

If I go for an equity argument I won't need to use these T&Cs at all. I would intend to show they have made an unauthorised profit by virute of their fiduciary position (that's actually common law) and ask for CI as an equitable remedy.

 

Steven

 

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[mnrbig]

So can banks change the T&C in such a way so as to make there charges lawful?

[GaryH]

The can try (and are trying!) - but whether it would hold up in court or not is very doubtful.

 

The object of the clause is still to deter the consumer from breaching the contract, it'd just be deliberately drafted to attempt to circumvent the penalty provisions. Therefore as its merely a disguised penalty it would still be open to the court to apply the penalty provisions regardless of the drafting of the clause.

 

Dunlop Pneumatic Tyre co Ltd v New Garage [1915] AC 79, Lord Dunedin;

 

 

whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was todeter a party from breaking the contract or to compensate the innocent party for breach.

 

 

Bridge v Campbell Discount [1962] A.C. 600, Lord Devlin;

 

It is well settled that, when a court of law finds that the words which the parties have used in a written agreement are not genuine and are not designed to express the real nature of the transaction but for some ulterior purpose to disguise it, the court will go behind the sham front and get at the reality

[TANZARELLI]

So can banks change the T&C in such a way so as to make there charges lawful?

 

Also:

 

The Office of Fair Trading in its Statement of April 2006 stated:

 

 

“4.21The analysis in this statement is in terms of explicit, transparent default fees. Attempts to restructure accounts in order to present events of default spuriously as additional services for which a charge may be made should be viewed as disguised penalties and equally open to challenge where grounds of unfairness exist. (For example, a charge for ‘agreeing’ or ‘allowing’ a customer to exceed a credit limit is no different from a customers default in exceeding a credit limit.) The UTCCRs are concerned with the intentions and effects of terms, not just their mechanism”.

[jclancy]

I know I keep banging on about this, but DJ Cooke, perhaps obiter (but nevertheless usefully) makes it clear that if Kevin Berwick had been before him with a credit card, not a bank account, he would have held as a matter of law against Lloyds TSB and in favour of Kevin:

 

'26. In this respect, it is worth observing, the position is potentially materially different between a case such as this which concerns charges applied to a current account and other cases, such as those dealt with in the OFT's position statement, which involve credit cards. In the operation of credit card accounts, the customer is typically under an obligation to make a minimum payment to his account each month and may also be under an express obligation to ensure that the total amount he charges to his account does not cause a limit to be exceeded. If he is in breach of either of these obligations, any charge provided for by the terms of the contract is potentially susceptible to the argument that it is a penalty. I express no views on the merits of that argument in such a case, or upon the OFT's stated position in relation to such charges.(emphasis mine)'

 

It appears that DJ Cookie-brain believes that there has to be an action (as opposed to inaction?) required of the bank customer which is identifiably a breach of contract (late or missed payment - definitely - or going over credit limit) for the penalty charges argument to come into play.

 

DJ Cookie-brain also believes that going over a credit limit on a credit card is a breach of contract, but going over an overdraft limit is not. He believes that a credit card customer is under an 'express obligation to ensure that the total amount he charges to his account does not cause a limit to be exceeded'.

 

Obviously, conceptually speaking there is no difference. DJ Cookie-breath strains and strains to make it clear that there are no express or necessarily implied terms in a bank account to ensure that 'the total amount charged to his account does not cause a limit to be exceeded.'

 

An overdraft is payable on demand. If you fail to pay that sum on said demand you have an immediate debt called in on you, you are apparently not in breach of contract, though!

 

I think we should start to argue that what DJ Cookie-mind says for Credit Cards is 100% correct, the rest isn't; that an overdraft is credit and should be subject to the same reasoning as that of a credit card. It could be said that it is better able to be argued as such when you breach an agreed overdraft limit, as opposed to going into an overdraft from credit.

 

http://www.consumeractiongroup.co.uk/forum/general/98370-berwick-lloyds-upside-see.html

[Josie8]

Halliday v HBoS plc

QUEEN'S BENCH DIVISION

[2007] All ER (D) 66 (Jun)

HEARING-DATES: 8 JUNE 2007

8 JUNE 2007

CATCHWORDS:

Bank - Banker/client relationship - Implied term - Bank making unauthorised charges on client's account - Bank realising error and making full repayments with simple and statutory interest - Client contending his entitlement to compound interest on repayments - Whether term to be implied for compound interest.

 

HEADNOTE:

This case digest has been summarised by LexisNexis UK editors.

 

The claimant opened a current account with the defendant bank. From time to time, the bank debited the claimant with various charges. The claimant contended that those charges were made unlawfully. He issued proceedings in the county court. The bank repaid the claimant the full amount which had been deducted, together with a number of other amounts which comprised simple and statutory interest, but not compound interest. Thereafter, the bank applied to strike out the claimant's claim, on the ground that there was no sum between it and the claimant outstanding. A single judge acceded to that application. The claimant appealed.

 

He submitted that the judge had erred in law, having not awarded him compound interest on the repayments which had been made by the bank. He argued, inter alia, that a term should be implied as a matter of law, to entitle him to the receipt of compound interest, as such a course was fair in the circumstances, particularly in light of the fact that the bank enjoyed a contractual right to charge compound interest to a customer for any unauthorised overdrafts.

 

COUNSEL:

The claimant appeared in person; Laura John (instructed by DLA, Leeds) for the bank.

 

PANEL: UNDERHILL J

 

DISPOSITION:

The appeal would be dismissed.

 

Having regard to settled law, a term could not be implied simply for reasons of fairness, but could only be implied in circumstances where it was necessary to give business efficacy to a contract. In the instant set of circumstances, it was not necessary for such a term to be implied. The claimant had his rights protected by virtue of the fact that the bank had repaid him the full amount which it had unlawfully charged, together with the simple and statutory interest which would have accrued during the period that those charges remained with the bank.

 

Accordingly, compound interest would not be awarded on the repayments which had been made by the bank.

 

Scally v Southern Health and Social Services Board (British Medical Association, third party) and other appeals [1991] 4 All ER 563 applied.

 

 

 

[2007] All ER (D) 66 (Jun)

[jclancy]

Quick Work, Josie8, really useful!

[steven4064]

Thanks Josie

 

THis is a very useful summary. Does anyone know if the full judgement is available on-line?

 

Steven

 

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[Josie8]

Doesn't appear to be

[Guest ConsumersRevenge]

I believe the whole argument is that, although the contract says this, you cannot sign away your statutory rights (big word of the day there)

 

i used to work for a debt collection company (i've left, i didn't agree with what they did!) and they used to know and bring to our attention some pitfalls. i liked martin lewis' example about being punched in the head, but we used to look at it slightly less graphic. a DCA needs to pay particular attention, because they use the tactic of scaring people. in reality, they have no more rights than the original creditor (in many cases, less i might add) so we had to pay close attention. the T&C's are needed to prove the use of unfair terms, which it is also worth noting, you can request to me amended through a court.

[GaryH]

Thanks Josie

 

THis is a very useful summary. Does anyone know if the full judgement is available on-line?

 

Steven

 

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That is the full judgement so it would seem.

[steven4064]

It says it's a summary

This case digest has been summarised by LexisNexis UK editors

 

Steven

 

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