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DIRECTIVE 93/13 AND THE ‘PRICE TERM EXEMPTION’: A COMPARATIVE ANALYSIS IN THE LIGHT OF THE ‘MARKET FOR LEMONS’ RATIONALE

Published online by Cambridge University Press:  28 November 2011

Michael Schillig
Michael Schillig
Affiliation:
School of Law, King's College London.
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Abstract

In the light of the Supreme Court decision in OFT v Abbey National on unarranged overdraft fees in current account contracts, this article analyses the price term exemption at the heart of Directive 93/13 in its European context, and on a comparative basis. It argues for an interpretation in line with the ‘market for lemons’ rationale, which best fits the regulatory outline of Directive 93/13, and the European Court of Justice's case law. Under this approach, only those contract terms that are subject to the correcting forces of markets and competition are part of the ‘main subject matter of the contract’ and should be exempt from assessment of fairness under Directive 93/13.

Type
Article
Information
International & Comparative Law Quarterly , Volume 60 , Issue 4 , October 2011 , pp. 933 - 963
Copyright
Copyright © British Institute of International and Comparative Law 2011

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References

1 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L 095, 29–34; Unfair Terms in Consumer Contracts Regulations 1999 Statutory Instrument 1999 No 2083.

2 Bright, S, ‘Winning the battle against unfair contract terms’ (2000) 20 L Studies 331, 332Google Scholar.

3 Directive 93/13, art 7(2).

4 Under plans of the current coalition government, announced on 14 October 2010, the OFT is likely to be abolished in the course of a comprehensive shake up of the so-called ‘quangos’ (quasi-autonomous non-governmental organisations) in order to reduce the budget deficit. The OFT's competition law functions are to be merged with the Competition Commission. Its consumer law and enforcement responsibilities will be transferred to local trading standards offices. See http://www.direct.gov.uk/en/Nl1/Newsroom/DG_191548. It is questionable whether these changes will enhance the efficacy of consumer protection.

5 UTCCR 1999 reg 10; Enterprise Act 2002, ss 2(3), 212(1)(a).

6 UTCCR 1999 reg 12.

7 Howells, G and Weatherill, S, Consumer Protection Law (2nd edn, Ashgate 2005) 293Google Scholar.

8 For definition of these terms: Directive 93/13, art 2(b)(c); UTCCR 1999 reg 3(1). Joined Cases C-541/99, 542/99 Cape Snc v Idelaservice Srl, Idealservice MN RE Sas v OMAI Srl [2001] ECR I-9049.

9 Directive 93/13, arts 1(2), 3(1)(2); UTCCR 1999 regs 4(2), 5(1)(2).

10 Macdonald, E, ‘Mapping the Unfair Contract Terms Act 1977 and the Directive on unfair terms in consumer contracts’ (1994) Journal of Business Law 441, 462Google Scholar.

11 ibid 460; Howells, G and Brownsword, R, ‘The implementation of the EC Directive unfair terms in consumer contracts—some unresolved questions’ (1995) J of Business L 243, 247–252Google Scholar. Only limited assistance can be gained from Recital 19 in its English version: ‘[A]ssessment 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.’

12 cf Case C-484/08, Caja de Ahorros de Piedad de Madrid v Asociación de Usuarios de Servicios Bancarios (Ausbanc) nyr, concerning a term in a credit agreement providing for the calculation of the interest payable.

13 Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HSBC Bank plc, Lloyds Banking Group plc (including HBOS), Royal Bank of Scotland Group plc and Nationwide Building Society .

14 These arrangements are described by Mr Justice Andrew Smith in OFT v Abbey National plc and others [2008] EWHC 875 (Comm) para 42–54.

15 OFT v Abbey National (n 14) para 55.

16 The OFT identified, and the courts adopted, four basic categories of relevant charges: ‘unpaid item charges’, ‘paid item charges’, ‘overdraft excess charges’ and ‘guaranteed paid item charges’, OFT v Abbey National (n 14) para 6; [2009] 2 WLR 1286, para 1293A-F; [2009] UKSC 6 para 24. According to an OFT market Study of July 2008, banks earn over 30% of their overall revenue from relevant charges. 23% of active accounts incurred at least one relevant charge in 2006, OFT, Personal current accounts in the UK: An OFT market study (July 2008) at p 5, <http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf>).

17 The relevant litigation agreements can be downloaded at <http://www.oft.gov.uk/advice_and_resources/resource_base/market-studies/completed/personal/personal-test-case/personal-documents>.

18 The terms in question have been challenged also in a large number of individual actions brought by individual customers. Those actions were for the most part stayed pending the outcome of the test case, see OFT v Abbey National (n 14) para 2.

19 OFT v Abbey National plc (n 14).

20 Abbey National plc and others v OFT [2009] EWCA Civ 116; [2009] 2 WLR 1286.

21 OFT v Abbey National plc and others [2009] UKSC 6; [2009] 3 WLR 1215.

22 Akerlof, G, ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’ (1970) 84 QJ of Economics 488CrossRefGoogle Scholar.

23 Radin, MJ, ‘Humans, Computers, and Binding Commitment’ (2000) 75 Indiana LJ 1125, 1126Google Scholar.

24 For a detailed account of the legislative history of Directive 93/13 cf E Kapnopoulou, Das Recht der mißbräuchlichen Klauseln in der Europäischen Union (Mohr Siebeck 1997) 52–75; Reich, N, ‘Protection of Consumers’ Economic Interests by the EC’ (1992) 14 Sydney LRev 23Google Scholar; H Schulte-Nölke, C Twigg-Flesner and M Ebers (eds), EC Consumer Law Compendium—Comparative Analysis—April 2007, 337–338.

25 Commission of the European Communities, Amended Proposal for a Council Directive on Unfair Terms in Consumer Contracts, Explanatory Memorandum (1992) 15 J of Consumer Policy 97, 98CrossRefGoogle Scholar. In the amended Proposal of 1992 the standard of fairness for the assessment of individually negotiated terms was modified in order to better account for the principles of freedom of contract and pacta sunt servanda (amended Proposal, art 4).

26 Collins, H, ‘Good Faith in European Contract Law’ (1994) 14 Oxford J of L Studies 229, 236Google Scholar.

27 Brandner, H and Ulmer, P, ‘The Community Directive on Unfair Terms in Consumer Contracts: Some Critical Remarks on the Proposal Submitted by the EC Commission’ (1991) 28 CMLRev 647, 652–657Google Scholar.

28 See further Canaris, C-W, ‘Wandlungen des Schuldvertragsrechts—Tendenzen zu seiner Materialisierung’ (2000) 200 Archiv für die civilistische Praxis 273, 320–324Google Scholar.

29 Council Directive 92/EEC of 22 September 1992 on Unfair Terms in Consumer Contracts (Common Position) (1992) 15 J of Consumer Policy 473, 485CrossRefGoogle Scholar. The Council provides no further explanation for the amendment.

30 Brandner and Ulmer (n 27).

31 It is only in order to overcome actual hindrances to free movement and appreciable distortions of competition that the Community has the competence to harmonise national laws based on art 114 Treaty on the Functioning of the European Union (TFEU) (ex-art 95 EC), see Case C-376/98 Germany v European Parliament and Council [2000] ECR I-2247 para 95 et seq. In its second judgment on tobacco advertising, the ECJ disregards the nexus between market freedoms and the internal market competence and, thus, the principle of conferral of powers; see Case C-380/03 Germany v European Parliament and Council [2006] ECR I-11573.

32 Recital 2.

33 Recital 5.

34 This is a reference to the Commission's two Community programmes for a consumer protection and information policy; see recital 8.

35 Kapnopoulou (n 24) 75; Director of Fair Trading v First National Bank [2002] 1 AC 481 para 498E (Lord Steyn): ‘The Directive is not an altogether harmonious text. It reflects the pragmatic compromises which were necessary to arrive at practical solutions between member states with divergent legal systems.’

36 In its Report on the implementation of the Directive the Commission feels that the provision is superfluous; Commission of the European Communities, Report from the Commission on the Implementation of Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts, COM(2000)248 final, 15.

37 Brandner and Ulmer (n 27) 656.

38 Drexl, J, Die wirtschaftliche Selbstbestimmung des Verbrauchers (Mohr Siebeck 1998) 339–340Google Scholar.

39 Canaris, C-W, ‘Zinsberechnungs- und Tilgungsverrechnungsklauseln bei Annuitätendarlehen’ (1987) Neue Juristische Wochenschrift 609, 613; Canaris (n 28) 330Google Scholar.

40 cf Fastrich, L, Richterliche Inhaltskontrolle im Privatrecht (CH Beck 1992) 264–265Google Scholar.

41 Case C-144/99 Commission v The Netherlands [2001] ECR I-3541; Case C-372/99 Commission v Italy [2002] ECR I-819; Case C-478/99 Commission v Sweden [2002] ECR I-4147; Case C-70/30 Commission v Spain [2004] ECR I-7999.

42 Joined Cases C-240 to C-244/98 Océano Grupo Editorial SA v Murciano Quintero and Salvat Editores SA v Sánchez Alcón Prades et al [2000] ECR I-4963; Cape and Idealservice (n 8); Case C-473/00 Cofidis SA v Fredout [2002] ECR I-10875; Case C-372/02 Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v Hofstetter [2004] ECR I-3403; Case C-302/04 Ynos kft v Varga [2006] ECR I-371; Case C-168/05 Mostaza Claro v Centro Móvil Milenium SL [2006] ECR I-10421; Case C-243/08 Pannon GSM Zrt v Erzsébet Sustikné Györfi [2009] ECR I-4713; Case C-40/08 Asturcom Telecomunicaciones SL v Cristina Rodriguez Nogueira [2009] ECR I-9579; Caja de Ahorros (n 12); Case C-76/10 Pohotovost’ s.r.o. v Korčkovská nyr; Case C-137/08 VB Pénzügyi Lizing Zrt v Ferenc Schneider nyr.

43 In Océano, the Court held ‘that the system of protection introduced by the Directive is based on the idea, that the consumer is in a weak position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge. This leads the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of the terms.’; Océano (n 42) para 25; Pannon GSM (n 42) para 22; Asturcom Telecomunicaciones (n 42) para 29–30; VB Pénzügyi Lizing Zrt (n 42) para 46. Similarly, in Claro the Court pointed out that art 6 (1) was a mandatory provision ‘which, taking into account the weaker position of one of the parties to the contract, aims to replace the formal balance which the latter establishes between the rights and obligations of the parties with an effective balance which re-establishes equality between them.’; Mostaza Claro (n 42) para 36–38; Pannon GSM (n 42) para 25–26; Asturcom Telecomunicaciones (n 42) 51; Caja de Ahorros (n 12) para 27; Pohotovost’ (n 42) para 37, 38; VB Pénzügyi Lizing Zrt (n 42) para 47.

44 Schillig, M, ‘Inequality of Bargaining Power versus Market for Lemons—Legal Paradigm Change and the Court of Justice's Jurisprudence on Directive 93/13 on Unfair Contract Terms –' (2008) 33 ELRev 336Google Scholar.

45 Nehf, J, ‘Shopping for Privacy Online: Consumer Decision-Making Strategies and the Emerging Market for Information Privacy’ (2005) J of L, Technology and Policy 1, 21Google Scholar.

46 ibid 24; Garbarino, E and Edell, J, ‘Cognitive Effort, Affect, and Choice’ (1997) 24 J of Consumer Research 147, 148CrossRefGoogle Scholar.

47 Goldberg, V, ‘Institutional Change and the Quasi-Invisible Hand’ (1974) 17 J of L and Economics 461, 484CrossRefGoogle Scholar.

48 Jolls, C, Sunstein, C and Thaler, R, ‘A Behavioural Approach to Law and Economics’ (1998) 50 Stanford LRev 1471, 1524Google Scholar.

49 Radin (n 23) 1126.

50 Nehf (n 45) 8.

51 Goldberg (n 47) 484; Kötz, H and Flessner, A, European Contract Law (Clarendon Press 1997) 138Google Scholar.

52 See Schäfer, H-B and Ott, C, Lehrbuch der ökonomischen Analyse des Zivilrechts (4th edn, Springer 2005) 515Google Scholar; Goldberg (n 47) 485.

53 Akerlof (n 22) 495: ‘The purchaser's problem, of course, is to identify quality. The presence of people in the market who are willing to offer inferior goods tends to drive the market out of existence … There may be potential buyers of good quality products and there may be potential sellers of such products in the appropriate price range; however the presence of people who wish to pawn bad wares as good wares tends to drive out the legitimate business.’

54 Goldberg (n 47) 486.

55 Schäfer and Ott (n 52) 515.

56 M Trebilcock and D Dewees, ‘Judicial control of standard form contracts’ in P Burrows and C Veljanowski (eds), The Economic Approach to Law (Butterworths 1982) 108 et seq.

57 See Kötz and Flessner (n 51) 139.

58 For a detailed analysis see Schillig (n 44).

59 See Kaplow, L, ‘Rules versus Standards: An Economic Analysis’ (1992) 42 Duke LJ 557CrossRefGoogle Scholar.

60 In Océano and Pannon the Court held that effective protection of the consumer may be attained only if the national court has power to evaluate of its own motion the fairness of a contract term and that an unfair term is not binding on the consumer irrespective of whether the consumer has successfully contested the validity of such a term; Océano (n 42) para 26; Pannon GSM (n 42) para 28, 32. In Claro, the Court opined that the result sought by art 6 could not be achieved if the court seized of an action for annulment of an arbitration award was unable to determine whether the award was void solely because the consumer did not plead the invalidity of the arbitration agreement in the course of the arbitration proceedings; Mostaza (n 42) para 30. In Asturcom the Court required a national court seized with an action for enforcement of an arbitration award which has become final to assess of its own motion whether an arbitration clause is unfair to the extent that such an assessment is possible under national rules of procedure; Asturcom Telecomunicaciones (n 42) para 59; Pohotovost' (n 42) para 51, 53; VB Pénzügyi Lizing Zrt (n 42) para 56.

61 In Cofidis the Court ruled that a national provision setting a time-limit on the court's power to set aside unfair terms, of its own motion or following a plea raised by the consumer, would be liable to render application of the protection intended to be conferred on consumers by the Directive excessively difficult and was consequently precluded by the Directive; Cofidis (n 42) para 35.

62 In Commission v Italy (n 41) para 15 the Court held that the deterrent nature and dissuasive purpose of the measures to be adopted to implement art 7 and their independence from any particular dispute meant ‘that such actions may be brought even though the terms it is sought to prohibit have not been used in specific contracts, but have only been recommended by suppliers and sellers or their associations’.

63 Océano (n 42) para 22–24. The term would fall within the category referred to in subparagraph (q) of paragraph 1 of the Annex: terms which have the object or effect of excluding or hindering the consumer's right to take legal action.

64 Freiburger Kommunalbauten (n 42) para 22–25; Mostaza Claro (n 42) para 22; Pannon GSM (n 42) para 42–43; Pohotovost’ (n 42) para 60, 63. Advocate General Tizzano later stated that Océano represented ‘a precedent that is most exceptional and is therefore not generally applicable’; AG Tizzano, Opinion in Mostaza Claro (n 42) para 30. Thus, in Pannon the Court merely held that a similar term may be considered to be unfair; para 44. In VB Pénzügyi Lizing Zrt (n 42) para 54 the Court reverted to its approach in Océano (n 42) and held a jurisdiction clause to be unfair.

65 In VB Pénzügyi Lizing Zrt (n 42) para 44 the Court seems to adopt a more activist approach when stating that its jurisdiction extends to the interpretation of the concept of ‘unfair term’ and to the ‘criteria which the national court may or must apply when examining a contractual term’ in the light of the Directive. However, given the reliance in the judgment on previous case law, it seems unlikely that a radical change in approach was intended or will be applied in future cases.

66 Advocate General Trstenjak's call for the Court to gradually ‘give specific expression to the abstract criteria for reviewing whether a term may be classified as unfair’ and for establishing ‘with increasing experience’ ‘a profile for reviewing the unfairness of terms at the level of Community law’ should therefore be resisted. cf AG Trstenjak, Opinion in VB Pénzügyi Lizing Zrt (n 42) para 99.

67 Commission v Sweden (n 41) para 20–22.

68 As is done in Recital 5.

69 No contrary argument can be derived form the Court's decision in Caja de Ahorros (n 12). The ECJ held that Member States were not prevented from subjecting any contract term including those falling within the ambit of art 4(2) to an assessment of fairness. This seems to support the consumer rights approach. However, experience shows that minimum harmonization tends to create new obstacles to free movement of goods and services, thus rendering the harmonization effort futile from the outset. As a consequence minimum harmonization on the basis of the internal market competence must be deemed to be unlawful. Provisions such as art 8 of the Directive must be interpreted in the sense that a stricter national standard can bind domestic sellers and suppliers only and cannot be imposed on foreign sellers and suppliers as long as they comply with the Directive's minimum standard; for details cf Schillig, M, Konkretisierungskompetenz und Konkretisierungsmethoden im Europäischen Privatrecht (DeGruyter 2009) 58–62CrossRefGoogle Scholar. Spain's decision to extend fairness control to the main subject matter of the contract and the price must, therefore, be regarded as a purely internal matter with no consequences for the internal market and Directive 93/13.

70 Howells and Weatherill (n 7) 271.

71 UTCCR 1994 reg 3(2) provided: ‘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.’ This provision tried to clarify the notion underlying art 4(2). However, in order to avoid a divergence between UK and EC law the text of UTCCR 1999 adheres more closely to art 4(2), Howells and Weatherill (n 7) 271.

72 Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen (AGBG) vom 9.12.1976, BGBl. I 1976, 3317.

73 Gesetz zur Modernisierung des Schuldrechts (Schuldrechtsmodernisierungsgesetz) vom 26.11.01, BGBl. I 2001, 3137.

74 BGB sections 305–310.

75 This provision replicates AGBG section 8, with minor changes.

76 EM Kieninger, ‘Section 307’ in W Krüger (red), Münchner Kommentar zum Bürgerlichen Gesetzbuch, Band 2 Schuldrecht Allgemeiner Teil Sections 241–432 (5th edn CH Beck 2007) para 4.

77 AG Trstenjak, Opinion of 29/10/2009, Caja de Ahorros (n 12) para 70, leaves this question open.

78 OFT v Abbey National (n 14) para 344. The judge rejected a conjunctive interpretation, in the sense that reg 6(2)(b) would apply only to ‘price or remuneration’ in exchange for goods or services falling under reg 6(2)(a). This did, however, not mean that any term relating to price or remuneration was exempt from assessment.

79 Abbey National v OFT (n 20) para 1295D.

80 OFT v Abbey National (n 21) para 39–40 (Lord Walker).

81 OFT v Abbey National (n 14) para 435: ‘[C]ontracts are unlikely to contain terms that directly deal with “the adequacy of the price or remuneration as against the goods or services supplied in exchange” ’.

82 K Riesenhuber, Europäisches Vertragsrecht (2nd edn, DeGruyter 2006) 254.

83 The second part of Recital 19 also cannot be understood as sanctioning the assessment of the price/quality ratio in respect of ‘other terms’; it sanctions the taking into consideration of the fact that a certain term has been included with regard to a certain price; ibid 255.

84 Brandner and Ulmer (n 27) 655–657.

85 H Schmidt, ‘Section 307’ in HG Bamberger and H Roth (eds), Kommentar zum Bürgerlichen Gesetzbuch, Band 1 Sections 1–610, CISG (2nd edn, CH Beck 2007) para 68; Kieninger, ‘Section 307’ in W Krüger (red), Münchner Kommentar zum Bürgerlichen Gesetzbuch, Band 2 Schuldrecht Allgemeiner Teil Sections 241–432 (5th edn, CH Beck 2007) para 5.

86 This is merely hinted at by Lord Walker in OFT v Abbey National plc (n 21) para 42: ‘every obligation which a consumer undertakes by a consumer contract could be seen as part of the price or remuneration received by the supplier. But non-monetary obligations undertaken by a consumer contract (…) are not part of the “price or remuneration” within the Regulation.’ Presumably, these obligations could be part of the ‘main subject matter of the contract’.

87 This view derives some support from the Commission's Report on the Implementation of the Directive (n 36) 15: ‘Terms concerning the price do indeed fall within the remit of the Directive, since the exclusion concerns the adequacy of the price and remuneration as against the services or goods supplied in exchange and nothing else.’ Overall, however, this statement seems to be rather imprecise.

88 OFT v Abbey National (n 14) para 422; Whittaker, S, ‘Unfair Terms, Unfair Prices and Bank Charges’ (2011) 74 Modern LRev 106, 108Google Scholar.

89 Director of Fair Trading v First National Bank [2001] UKHL 52; [2002] 1 AC 481.

90 Notably ibid para 499B (Lord Steyn): ‘certain provisions, sometimes called core terms, have been excepted from the regulatory regime’.

91 OFT v Abbey National (n 14) para 422–436.

92 Abbey National v OFT (n 20) para 1295B.

93 OFT v Abbey National (n 21) para 29 (Lord Walker); para 61 (Lord Phillips).

94 C Grüneberg, ‘Section 307’ in P Bassenge and others, Palandt, Bürgerliches Gesetzbuch mit Nebengesetzen (68th edn, CH beck 2009) para 57; H Schmidt, ‘Section 307’ in HG Bamberger and H Roth (eds), Kommentar zum Bürgerlichen Gesetzbuch, Band 1 §§1-610, CISG (2nd edn, CH Beckm 2007) para 68; EM Kieninger, ‘Section 307’ in W Krüger (ed), Münchner Kommentar zum Bürgerlichen Gesetzbuch, Band 2 Schuldrecht Allgemeiner Teil Sections 241–432 (5th edn, CH Beck 2007) para 5, 12.

95 BGH, 07/05/1991—XI ZR 244/90, [1991] Neue Juristische Wochenschrift 1953; BGH 30/11/1993—XI ZR 80/93, [1994] Neue Juristische Wochenschrift 318; BGH, 15/07/1997—XI ZR 269/96 [1997] Neue Juristische Wochenschrift 2752; BGH, 21/10/1997—XI ZR 5/97 [1998] Neue Juristische Wochenschrift 309, 310; BGH, 14/07/1997—XI ZR 167/96, [1998] Neue Juristische Wochenschrift 383; BGH, 30/11/2004—XI ZR 200/03, [2005] Neue Juristische Wochenschrift 1275.

96 Art 8 allows Member States to impose more stringent provisions to ensure a maximum degree of protection for the consumers, as long as these provisions are compatible with the Treaty. But cf (n 69).

97 Caja de Ahorros (n 12).

98 AG Trstenjak, Opinion of 29/10/2009, Caja de Ahorros (n 12) para 72.

99 Caja de Ahorros (n 12) para 32.

100 The Court states, on the one hand, that ‘the terms referred to in article 4(2) … escape assessment as to whether they are unfair’ only if the national court has found them to be in plain intelligible language (para 32). On the other hand, the Court points out that art 4(2) was concerned ‘solely with establishing the detailed rules and the scope of the substantive assessment of contract terms’ (para 34). In a similar vein Pohotovost’ (n 42) 72: a clause determining the costs of credit without stating the annual percentage rate ‘may’ fall within the ambit of art 4(2) if in plain and intelligible language. With a different take on this Whittaker (n 88) 111.

101 At least if the last half sentence of art 4(2) (‘these terms’) is not taken into account. As for the second part of Recital 19, see (n 87).

102 Riesenhuber (n 80) 254.

103 See also Chen-Wishart, M, ‘Case Comment: Transparency and fairness in bank charges’ (2010) 126 LQR 157, 159Google Scholar.

104 BGHZ 100, 158, 174.

105 EM Kieninger, ‘Section 307’ in W Krüger (red), Münchner Kommentar zum Bürgerlichen Gesetzbuch, Band 2 Schuldrecht Allgemeiner Teil Sections 241–432 (5th edn, CH Beck 2007) para 5.

106 First National Bank (n 87).

107 ibid 491C-F (Lord Bingham).

108 ibid 499C-D (Lord Steyn).

109 ibid.

110 BGH, 15/07/1997—XI ZR 269/96, [1997] Neue Juristiche Wochenschrift 2752.

111 ibid 2753.

112 Under tax law, banks were obliged to collect, on behalf of the tax authorities and in the public interest, the tax on interest earned. Where the customer could make use of personal allowances he could ‘request’ the bank not to collect the tax on his earnings and the bank is obliged to comply with this request.

113 BGH, 30/11/2004—XI ZR 200/03, [2005] Neue Juristische Wochenschrift 1275.

114 BGH, 14/10/1997—XI ZR 167/96, [1998] Neue Juristische Wochenschrift 383.

115 BGH, 07/05/1996—XI ZR 217/95, [1996] Neue Juristische Wochenschrift 2032.

116 Canaris (n 28) 335–336.

117 Schillig, M, ‘The Contribution of Law and Economics as a Method of Interpretation in European Private Law’ (2009) 17 EurRev of Private L 853, 861Google Scholar.

118 OFT v Abbey National (n 14) para 385. In para 386 the judge adds: ‘This does not mean that the payment must be in exchange for the benefit for which the consumer hoped or which was his reason for making the contract.’

119 Where his bank considers a relevant instruction but refuses to pay, according to the judge, the customer receives no actual benefit; OFT v Abbey National (n 14) para 370.

120 ibid para 383.

121 ibid para 406–413. This was because the banks frequently charged the same fees regardless of whether they honoured an instruction or not and overdraft excess charges were levied neither in accordance with the amount borrowed nor the time for which the account remained overdrawn.

122 ibid para 421.

123 Abbey National v OFT (n 20) paras 1292E-G.

124 ibid 1308G.

125 ibid para 1319F.

126 As the main reason for that conclusion the Court referred to the Law Commissions’ Joint Consultation Paper, Unfair Terms in Contracts: A Joint Consultation Paper (Consultation Paper No 166, 2002) para 3.32: ‘Consumers are much less likely to take into account terms which will only apply in certain circumstances (whether or not those circumstances involve a default) and accordingly these terms should be subject to review.’

127 Abbey National v OFT (n 20) para 1326H.

128 ibid para 1326A-H.

129 OFT v Abbey National plc (n 21) para 108, 112 (Lord Mance).

130 ibid para 45 (Lord Walker).

131 [1994] Neue Juristische Wochenschrift 318.

132 BGH, 30/11/1993—XI ZR 80/93 [1994] Neue Juristische Wochenschrift 318, 319.

133 If the account was in debit the bank was granting a loan and paid out the principal when permitting the customer to withdraw cash; conversely, if the customer deposited cash in that situation he was discharging his debt vis-à-vis the bank and the bank had to accept the payment. If the account was in credit the bank merely discharged its obligation to repay the deposited funds when a cash withdrawal was made; and for a cash deposit the law did not provide for any remuneration.

134 Also BGH, 07/05/1996—XI ZR 217/95 [1996] Neue Juristische Wochenschrift 2032.

135 Lady Hale and Lord Neuberger concurred with Lord Walker and Lord Mance, Abbey National (n 21) para 92 (Lady Hale); para 119 (Lord Neuberger). By contrast, Lord Phillips adopted an ‘exchange approach.’ There was no justification for excluding from the application of reg 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, reg 6(2) would apply. By accepting that the banks provided a ‘package of services’ in exchange Lord Phillips came to the same result as the majority; para 78–89 (Lord Phillips).

136 ibid para 44 (Lord Walker); see also Davies, P, ‘Case Comment: Bank charges in the Supreme Court’ (2010) 69 CLJ 21, 23CrossRefGoogle Scholar.

137 OFT v Abbey National (n 21) para 39, 40 (Lord Walker).

138 ibid para 41 (Lord Walker); but not non-monetary obligations undertaken by the consumer.

139 ibid para 42 (Lord Walker).

140 ibid para 46 (Lord Walker).

141 ibid para 112 (Lord Mance).

142 ibid para 113 (Lord Mance).

143 ibid para 47 (Lord Walker).

144 ibid para 47 (Lord Walker); para 88 (Lord Phillips).

145 Canaris (n 28) 330.

146 Whittaker (n 88) 113–114.

147 Davies (n 136) 22: ‘more literal approach … than is perhaps desirable.’

148 Chen-Wishart (n 103) 160–161.

149 BGH, 21/10/1997—XI ZR 5/97 [1998] Neue Juristische Wochenschrift 309, 310.

150 BGH, 08/10/2005—XI ZR 154/04 [2005] Neue Juristische Wochenschrift 1645.

151 An ‘unpaid item charge’ may be imposed where the customer gives an instruction or makes a request for payment that the bank declines to honour because the customer does not have sufficient funds in his account or a sufficient overdraft facility.

152 ‘Guaranteed paid item charges’ may be levied when a bank honours a payment instruction for which the customers does not have sufficient funds in accordance with a guarantee the bank has given to third parties by way of a cheque guarantee card or under a guaranteed debit payment system.

153 BGH, 14/10/1997—XI ZR 167/96, [1998] Neue Juristische Wochenschrift 383.

154 BGH, 07/05/1996—XI ZR 217/95 [1996] Neue Juristische Wochenschrift 2032.

155 A ‘paid item charge’ may be incurred if the bank honours a relevant instruction and as a consequence the customers account goes into debit or the debit balance exceeds the limit of an arranged overdraft.

156 An ‘overdraft excess charge’ may be levied where during a specified period, typically a day or a month, the account is/or goes into debit (or the debit balance exceeds the limit of an arranged overdraft).

157 Art 5, 2nd sentence of Directive 93/13 prevents an interpretation of the term to the effect that it only applies where an additional service is rendered.

158 Fastrich (n 40) 265; Stoffels, M, ‘Schranken der Inhaltskontrolle’ (2001) Juristen Zeitung 843, 847Google Scholar.

159 Stoffels (n 158) 848.

160 Schwartz, A and Wilde, L, ‘Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis’ (1979) 127 U of Pennsylvania LRev 630, 631, 637CrossRefGoogle Scholar.

161 ibid 653, 655. According to Schwartz and Wilde a ratio of searchers to non-searchers of one third or more would be sufficient.

162 Beales, H, Craswell, R and Salop, S ‘The Efficient Regulation of Consumer Information’ (1981) 24 J of L and Economics 491, 503CrossRefGoogle Scholar.

163 Firm discrimination among consumers will only occur in respect of individualised transactions where the firm representative spends a relatively large amount of time with the customer to get to know them; it will be too expensive as far as mass transactions are concerned, see Schwartz and Wilde (n 160) 662–665.

164 ibid 638.

165 ibid 639.

166 OFT v Abbey National (n 14) para 89.

167 Case 362/88 GB-INNO [1990] ECR I-667; Case C-126/91 Yves Rocher [1993] ECR I-236; Case C-470/93 Mars [1995] ECR I-1923. In OFT v Abbey National (n 14) para 119 Smith J said that ‘intelligibility’ in this context merely required that the actual wording of individual clauses or conditions is comprehensible to consumers and that the typical consumer can understand, for ‘sensible and practical purposes’, how the term affects the rights and obligations that he and the seller or supplier have under the contract.

168 OFT v Abbey National (n 14) para 293.

169 What was in issue was the application of this standard to those relevant terms that the judge had found not to be in plain intelligible language. In this respect the Court of Appeal refused permission to appeal.

170 Abbey National v OFT (n 20) para 1329H. In the Supreme Court, Lord Mance rejected the idea that ‘price or remuneration’ should be identified from the point of view of the ‘typical consumer’. Rather, the court should interpret the contract objectively, having regard to the view of the hypothetical reasonable person. However, these remarks do not seem to relate directly to the issue of plain intelligble language, OFT v Abbey National (n 21) para 113 (Lord Mance).

171 Abbey National v OFT (n 20) para 1314B.

172 OFT, Personal current accounts in the UK, An OFT market study (2008) para 4.7–4.9Google Scholar.

173 It is unlikely that this situation could be completely remedied by consumer education and greater transparency (annual statements of charges incurred). Because of the very nature of the market failure at issue here and its contributing factors (bounded rationality, minimization of cognitive effort, unrealistic optimism, and overconfidence) transparency improvements and consumer education may have only limited effect.

174 H Schellhaass, ‘Das Europäische Arbeitsrecht aus ökonomischer Perspektive’ in S Grundmann (ed), Systembildung und Systemlücken in Kerngebieten Europäischen Privatrechts, Gesellschafts-, Arbeits- und Schuldvertragsrecht (Mohr Siebeck 2000) 416.

175 OFT v Abbey National (n 21) para 80 (Lord Phillips).

176 Abbey National v OFT (n 20) paras 1320H–1321C. This does not amount to a prohibited assessment on the basis of the price/quality ratio. Rather, it is the consideration of the fact that a certain term has been included with regard to a certain overall price, as permitted by the second part of Recital 19, see (n 87).

177 See also Chen-Wishart (n 101) 158–160.

178 In this respect, the ECJ seems to adhere to a concrete approach, Case C-99/00 Lyckeskog [2002] ECR I-4839 para 15; Case C-210/06 Cartesio [2008] ECR I-9641 para 75–79.

179 Art 267(3) TFEU (ex-art 234(3) EC).

180 cf Schillig (n 69) 236–239.

181 Case 283/81 C.I.L.F.I.T. [1982] ECR 3415.

182 In Caja de Ahorros (n 12), the Court did little to elucidate art 4(2).

183 C.I.L.F.I.T. (n 181) para 13–15.

184 ibid para 16.

185 See also Davies (n 134), 23: ‘a dubious conclusion’.

186 A point of law may be acte clair even if the court of last resort's conclusion differs from carefully-considered judgments of very experienced judges in the courts below. Sometimes a court of last resort does conclude that the lower courts were clearly wrong; OFT v Abbey National (n 21) para 49 (Lord Walker).

187 ibid para 91 (Lord Phillips); para 120 (Lord Neuberger).

188 ibid para 50 (Lord Walker); para 116 (Lord Mance). The interpretation/application dichotomy is outdated and should be overcome. It is based on the notion of a clear divide between ‘is’ and ‘ought’. However, modern hermeneutics has shown that norms and facts are mutually dependent. The meaning of a norm can only be determined in view of the facts, and facts only become a ‘case’ in view of the applicable norm. Moreover, the Court itself does not adhere to this dichotomy with any consistency; see Schillig (n 69) 156, 215–225.

189 OFT v Abbey National (n 21) para 50 (Lord Walker); para 116f (Lord Mance); para 120 (Lord Neuberger).

190 Very clear: ibid para 50 (Lord Walker).

191 AG Trstenjak, Opinion of 29/10/2009, Caja de Ahorros (n 12) 68–70.