The Office of Fair Trading v Foxtons Ltd

This appeal raises an important point relating to the scope of the relief that the court can grant in proceedings brought by the Office of Fair Trading (“the OFT”), under the Unfair Terms in Consumers Contracts Regulations 1999 (“the UTCCRs”). The UTCCRs implemented Directive 93/13/EEC on Unfair Terms in Consumer Contracts.

Morgan J in a judgment handed down on 17^th July 2008 has struck out from the prayer for relief sought by the OFT (claimed on the basis that it establishes the unfairness of certain standard terms) words which would otherwise injunct the respondents Foxtons Ltd (“Foxtons”) from enforcing those terms in current contracts. The judge distinguished between the general challenge, which a body such as the OFT can make, and the challenge that an individual can make if sued. He has held that Foxtons should not be prevented from enforcing individual contracts already entered into, since the circumstances of those individual contracts might establish that in that individual contract the term was fair, even if, on the general challenge, the term has been held unfair. This is the OFT’s appeal from that decision.

There is also a cross-appeal by Foxtons, whereby they wish to challenge the jurisdiction of the court to grant declarations in a case where the parties before the court are not the parties to the contracts in which the terms appear. This challenge failed before the judge and in the result he awarded Foxtons only 40% of their costs.

The judge sets out the statutory provisions by which the functions of the Director of Fair Trading were transferred to the OFT. There is no need to repeat that paragraph but it is necessary to note that where in the UTCCRs Director of Fair Trading is used, it must be understood to refer to the OFT.

Foxtons are a large and well known estate agent. They have a set of standard terms which record the terms on which they act for landlords. Many of those landlords are consumers. The judge sets out in some detail the terms handed to the OFT in 2007 as Foxtons’ standard terms in paragraph 6, but for the purposes of this appeal it is sufficient to say that amongst those terms were the following:-

As will be apparent from the Directive and the UTCCRs, which I will have to set out in some detail below, there are two processes whereby a challenge can be made to the fairness of standard terms in a consumer contract. A consumer may assert unfairness when sued (“an individual challenge”); alternatively a challenge can be brought by a body such as the OFT (“a general challenge”). It was under the procedure set out in the regulations for a general challenge that the OFT commenced proceedings against Foxtons challenging the fairness of the above terms in their standard form of contract.

They brought the proceedings under Part 8. The claim form appended the standard conditions. In the body of the claim form the pleader set out the regulations providing the jurisdiction for a general challenge. The pleading then set out in some detail Foxtons’ standard terms. It then asserted that the OFT had received complaints from consumers and itself took the view that (i) the renewal commission terms (ii) the sales commission clause and (iii) the third party renewal commission clause, were unfair.

It also asserted that the clauses were not in plain and intelligible language.

The final paragraphs and relief I should quote in full:-

“13.

All of these clauses are not individually negotiated and are unfair in that, contrary to the requirement of good faith, they cause a significant imbalance in the parties’ rights and obligations, to the detriment of Foxtons’ consumer landlord customers.

14.

The Claimant has raised the unfairness of these clauses with Foxtons in correspondence. However, to the date hereof, Foxtons has not removed these clauses from its standard residential letting terms.

Relief sought

15.

In the premises, and in order to prevent harm to the interests of consumers, the Claimant seeks:

(a)

A declaration that the renewal commission clause, the sales commission clause and/or the third party renewal commission clause of Foxtons standard residential lettings terms, or any similar terms or terms having like effect, are unfair terms in contracts concluded with consumers and, accordingly, that these clauses are contrary to Regulation 5(1) of the UTCCRs and are not binding on consumers pursuant to Regulation 8(1) of the UTCCRs; and/or

(b)

a declaration that contrary to the requirements of Regulation 7(1) of the UTCCRs the renewal commission clause, the sales commission clause and/or the third party renewal commission clause are not expressed in plain or intelligible language; and/or

(c)

an injunction pursuant to Regulation 12 of the UTCCRs, restraining Foxtons (whether by itself, its agents or howsoever) from infringing the UTCCRs in the respects identified in paragraph 10 and/or 14 above or any of them and/or from using, recommending for use, enforcing, attempting to enforce or otherwise relying on any such terms and/or similar terms and/or terms having like effect in contracts concluded with consumers.

(d)

costs.

(e)

such further or other relief as the court may direct.”

The claim form is supported by a statement from Mr Allen of the OFT. All it is necessary to say in relation to that statement is that although he gives examples of complaints by reference to individual contracts he recognises that the court will not be dealing with any specific contract.

On 17^th March 2008, Foxtons applied to strike out parts of the relief as claimed. The application originally related to paragraphs 15(a) and (b) and (e) (i.e. as to whether it was permissible for the court to make declarations) and to preventing relief being given in relation to “previous equivalent terms and/or superseded contractual terms”. But during the hearing the application was amended to seek to strike out “15(c) (insofar as it seeks to restrain enforcement of terms in existing contracts)”. It is on this amendment that the judge concentrated the main part of his judgment, ultimately ruling in favour of Foxtons and striking out certain words. It is this issue on which the main arguments in the court of appeal were concentrated.

It is common ground that since the United Kingdom intended by the UTCCRs to implement the Directive, the starting point for any consideration of the scope of the UTCCRs is the Directive itself. It is for that reason I will almost invariably refer to the Directive rather than the terms of the UTCCRs.

The recitals are important as the judge recognised. They include the following:-

“4.

Whereas it is the responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms;

6.

Whereas, in order to facilitate the establishment of the internal market and to safeguard the citizen in his role as consumer when acquiring goods and services under contracts which are governed by the laws of Member States other than his own, it is essential to remove unfair terms from those contracts;

8.

Whereas the two Community programmes for a consumer protection and information policy (4) underlined the importance of safeguarding consumers in the matter of unfair terms of contract; whereas this protection ought to be provided by laws and regulations which are either harmonized at Community level or adopted directly at that level;

14.

Whereas Member States must however ensure that unfair terms are not included, particularly because this Directive also applies to trades, business or professions of a public nature;

15.

Whereas it is necessary to fix in a general way the criteria for assessing the unfair character of contract terms;

16.

Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith; whereas, in making an assessment of good faith, particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account;

20.

Whereas contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms and, if in doubt, the interpretation most favourable to the consumer should prevail;

23.

Whereas persons or organizations, if regarded under the law of a Member State as having a legitimate interest in the matter, must have facilities for initiating proceedings concerning terms of contract drawn up for general use in contracts concluded with consumers, and in particular unfair terms, either before a court or before an administrative authority competent to decide upon complaints or to initiate appropriate legal proceedings; whereas this possibility does not, however, entail prior verification of the general conditions obtaining in individual economic sectors;

24.

Whereas the courts or administrative authorities of the Member States must have at their disposal adequate and effective means of preventing the continued application of unfair terms in consumer contracts, . . .”

The relevant Articles of the Directive are the following:-

Article 3

1.

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.
2. A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract.
The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract.
Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him.
3. The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair.

Article 4

1.

Without prejudice to Article 7, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.
2. Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language.

Article 5

In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain, intelligible language. Where there is doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail. This rule on interpretation shall not apply in the context of the procedures laid down in Article 7 (2).

Article 6

1.

Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.
2. Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-Member country as the law applicable to the contract if the latter has a close connection with the territory of the Member States.

Article 7

1.

Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers.
2. The means referred to in paragraph 1 shall include provisions whereby persons or organizations, having a legitimate interest under national law in protecting consumers, may take action according to the national law concerned before the courts or before competent administrative bodies for a decision as to whether contractual terms drawn up for general use are unfair, so that they can apply appropriate and effective means to prevent the continued use of such terms.
3. With due regard for national laws, the legal remedies referred to in paragraph 2 may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations which use or recommend the use of the same general contractual terms or similar terms.

The relevant Regulations are set out in the judge’s judgment at [20]. Since they reflect in almost all respects the Directive and since it is by reference to the Directive one can address the arguments I will only quote those regulations relating to enforcement:-

“Complaints - consideration by Director

10.

-   (1)  It shall be the duty of the Director to consider any complaint made to him that any contract term drawn up for general use is unfair, unless-

(a)

the complaint appears to the Director to be frivolous or vexatious; or

(b)

a qualifying body has notified the Director that it agrees to consider the complaint.

(2)

The Director shall give reasons for his decision to apply or not to apply, as the case may be, for an injunction under regulation 12 in relation to any complaint which these Regulations require him to consider.

(3)  In deciding whether or not to apply for an injunction in respect of a term which the Director considers to be unfair, he may, if he considers it appropriate to do so, have regard to any undertakings given to him by or on behalf of any person as to the continued use of such a term in contracts concluded with consumers.

…

Injunctions to prevent continued use of unfair terms

12.

-   (1)  The Director or, subject to paragraph (2), any qualifying body may apply for an injunction (including an interim injunction) against any person appearing to the Director or that body to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers.

(2)  A qualifying body may apply for an injunction only where-

(a)

it has notified the Director of its intention to apply at least fourteen days before the date on which the application is made, beginning with the date on which the notification was given; or

(b)

the Director consents to the application being made within a shorter period.

(3)

The court on an application under this regulation may grant an injunction on such terms as it thinks fit.

(4)  An injunction may relate not only to use of a particular contract term drawn up for general use but to any similar term, or a term having like effect, used or recommended for use by any person.

Powers of the Director and qualifying bodies to obtain documents and information

13.

- (1)  The Director may exercise the power conferred by this regulation for the purpose of-

(a)

facilitating his consideration of a complaint that a contract term drawn up for general use is unfair; or

(b)

ascertaining whether a person has complied with an undertaking or court order as to the continued use, or recommendation for use, of a term in contracts concluded with consumers.

…

Publication, information and advice

15.

- (1)  The Director shall arrange for the publication in such form and manner as he considers appropriate, of-

(a)

details of any undertaking or order notified to him under regulation 14;

(b)

details of any undertaking given to him by or on behalf of any person as to the continued use of a term which the Director considers to be unfair in contracts concluded with consumers;

(c)

details of any application made by him under regulation 12, and of the terms of any undertaking given to, or order made by, the court;

(d)

details of any application made by the Director to enforce a previous order of the court.

(2)

The Director shall inform any person on request whether a particular term to which these Regulations apply has been-

(a)

the subject of an undertaking given to the Director or notified to him by a qualifying body; or

(b)

the subject of an order of the court made upon application by him or notified to him by a qualifying body;

and shall give that person details of the undertaking or a copy of the order, as the case may be, together with a copy of any amendments which the person giving the undertaking has agreed to make to the term in question.

(3)

The Director may arrange for the dissemination in such form and manner as he considers appropriate of such information and advice concerning the operation of these Regulations as may appear to him to be expedient to give to the public and to all persons likely to be affected by these Regulations. ”

The judge reasoned in the following way. The Directive and the Regulations envisaged two different types of challenge – the individual and the general. There is a distinction between an individual challenge and a general challenge. Under an individual challenge the court assesses the unfairness of the term by referring, “at the time of the conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all other terms of the contract or of another contract on which it is dependent” [see Article 4 first paragraph of the Directive reflected in Regulation 6(1) of UTCCRs]. In the general challenge it is not possible to have regard to all circumstances attending the conclusion of any particular contract nor to have regard to other terms of a particular contract and all the court can do in order “to make the regulations work” as per Lord Steyn in Director of Fair Trading v First National Bank plc [2002] 1 AC 481 at [33] is to assess the position by reference to the typical consumer.

The judge rejected Mr Green QC’s argument that in the individual consumer case the test of unfairness was still by reference to the “typical” consumer. He pointed out that that would mean that if a general challenge failed an individual consumer who might have a better individual case could not succeed.

Thus he reasoned if it were right that an individual consumer should be entitled to challenge the fairness of a term on an individual challenge when a general challenge had failed, the converse should also be true. It is in this context that he postulated “a fairly shrewd and sophisticated landlord (albeit still a consumer)” who “discussed the term in detail” and obtained a reduction in the amount of the commission.

He appreciated that if the OFT succeeded there would be some impact on existing contracts because a court who had to deal with the claim against the individual would have the precedent of the general challenge decision and thus Foxtons in such a case would have to show that the particular case was non-typical [41]. But he reasoned that the scheme of the Directive and the Regulations intended that if a general challenge succeeded there might still be room for an individual challenge to fail and that thus an injunction should not be granted which in any way prevented Foxtons pursuing existing customers because otherwise Foxtons would be in contempt even if they intended to submit to the court that in the particular circumstances the term was fair in relation to a particular individual [42].

The judge concluded in this way:-

“46.

In my judgment, what the court should do in the case of a collective challenge is to assess the fairness of the term having regard to a typical consumer and typical circumstances. The court cannot be expected to assess whether, on the facts of cases not disclosed to the court, there is or is not a possibility that there might be a case where the term would not be considered to be unfair. The court may well feel that an exceptional case was unlikely but the court would be reluctant in the extreme to say that such a case could never arise. Even if there were a remote possibility of one such exceptional case, that would disentitle the OFT from the injunction it seeks, which makes no exceptions.

47.

Mr Green then submitted that if the court were able to conclude that Foxtons would fail in the vast majority of cases where, in the past, they had used the relevant term, then that would justify the grant of the injunction sought. I disagree. In those circumstances, the injunction would unjustifiably override Foxtons' rights in the minority of individual cases which were different from the vast majority.

48.

Mr Green then submitted that the injunction sought was justified by the word "use" in Regulation 12. He submitted that Foxtons were "using" the relevant term if they sought to rely upon it in relation to a contract previously entered into. He submitted that "use" was not confined to putting forward the term in a draft contract in the future. It does not seem to me to be necessary to consider what precisely is involved in the word "use" in this context. Even if Mr Green were right, he still cannot overcome the difficulty that the exercise which will be conducted by the court in these proceedings will involve assessing the fairness of the relevant term on the basis of a typical consumer in typical circumstances, whereas the injunction sought purports to cover all individual contracts entered into in the past, where the characteristics of the consumers and the circumstances, in one or more cases, might have been different.

49.

I now turn to consider what the court should do at this early stage in these proceedings in relation to the claim to an injunction. At one time, I could see the force of a submission that I should do nothing. The court could allow the claim to go forward and be determined. The court would have to decide on the basis of a collective challenge whether the relevant terms were unfair. At that stage the court could decide what relief to grant. If the OFT succeeded in its collective challenge and persisted in seeking the injunction as claimed, and if the trial judge took the same view as I take of the scope of Regulation 12, then the trial judge could refuse to grant the full width of the injunction claimed. I have however decided not to take the approach of doing nothing, for two reasons.

50.

The first reason is that I have heard the OFT's submissions as to the basis of their claim to the wider injunction and I am able to come to the clear conclusion that it is wrong in a number of its submissions. There is therefore some utility in deciding those points at this stage.

51.

My second reason relates to the arguments presented by the OFT on this application. When Mr Green presented the OFT's case, he suggested that there was some sort of evidential burden on Foxtons to show that there was no individual case (or possibly, not many such cases) in existence where the position would be different on an individual challenge from this collective challenge. He referred to Foxtons not having produced evidence of any such circumstances. He also was prepared to contemplate disclosure by the OFT of documents in their possession, relating to individual complaints where the complainant had wanted the complaint to remain confidential. He seemed to contemplate that the court would be asked to address the specific facts of individual cases so that, perhaps, the court would take the view that there could not be an individual case which was different from the typical case or that such individual cases would be few and far between and could be ignored.

52.

In my judgment, it is desirable for both parties to know the scope of the investigation which will be undertaken in this collective challenge. In accordance with authority, this collective challenge will proceed on the basis of a typical consumer and typical circumstances. This collective challenge will not determine all the issues which might arise in individual cases. The injunction sought is too wide and could not be granted in these proceedings. To give effect to this ruling, I will strike out the words " … enforcing, attempting to enforce or otherwise relying on …" in paragraph 15(c) of the endorsement on the Claim Form. I have considered whether to make other amendments to the injunction sought in paragraph 15(c). I have decided not to do so. First of all, the OFT did not put forward any alternative draft of an injunction. Further, if I had been asked to cut down the injunction sought so that it referred only to "typical consumers" or "typical circumstances", I would not have regarded an injunction expressed in those terms as having the necessary clarity for the purposes of an injunction.”

Mr Green QC appeared with Miss Helen Davies QC for the OFT. Mr Green submitted that it was clear that the language of the Directive supported the view that general challenges were directed not only to future contracts but to existing contracts. He pointed to the language of Article 7(1) obliging Member States to “ensure . . . that effective means exist to prevent continued use of unfair contract terms in contracts concluded with consumers. . .”. Article 7(2) identifies one of the means by which a Member State should fulfil that obligation i.e. by enabling bodies such as the OFT to take action in the courts “so that they can apply appropriate and effective means to prevent the continued use of such terms”. He submitted the language of “concluded”, “used” and “continued use” were apposite to refer to contracts in existence or “concluded”; he submitted that “continued use” encompassed both inserting into contracts in the future and enforcing contracts already entered into. He submitted the recitals supported the construction he placed on the Directive in particular because of their emphasis on the obligation “to ensure that contracts concluded with consumers do not contain unfair terms”; it being “essential to remove unfair contract terms from [consumer] contracts”; and “the importance of safeguarding consumers in the matter of unfair terms”.

He took us to various authorities from the European Court of Justice which he submitted supported the submission that a general challenge was intended to cover and provide a remedy in relation to current contracts and supported the submission that consumer protection was a key objective. For example Commission of the European Communities v Italian Republic [2002] ECR I-819. The issue in that case related to the extent of the obligation of a Member State under Article 7(3). The Italian Government was arguing by reference to Article 7(1) that the Directive was targeted at terms in actual use rather than terms which had been merely recommended (almost the converse of Foxtons’ argument in this case). The opinion of the Advocate General rejected the Republic of Italy’s argument [see paragraphs 21 to 23] but the trenchant terms of the court’s judgment was something on which Mr Green particularly relied:-

“12.

The Commission submits that Article 7 of the Directive regulates one of the fundamental aspects of protection introduced by that act, that is to say the procedure intended to ‘prevent’ the use of unfair terms in contracts concluded between sellers and suppliers and consumers. It is a requirement of that objective that it should be possible to initiate that procedure not only against sellers or suppliers using such clauses, but also against professional bodies or other traders who recommend the use of such clauses. It is not necessary to wait until clauses drawn up with a view to general use are actually inserted in a particular contract.

13.

The Italian Government disputes this interpretation. It maintains that the procedure provided for in Article 7 of the Directive is designed to prevent the ‘use’ of unfair terms. Actual, and not merely potential, use is therefore an essential condition.

14.

It should be noted that in its judgment in Joined Cases C-240/98 to C-244/98 Océano Grupo Editorial et Salvat Editores [2000] ECR I-4941, paragraph 27) the Court held that the system of protection laid down by the Directive is based on the notion that the imbalance between the consumer and the seller or supplier may only be corrected by positive action unconnected with the actual parties to the contract. That is why Article 7 of the Directive, paragraph 1 of which requires Member States to implement adequate and effective means to prevent the continued use of unfair terms, specifies in paragraph 2 that those means are to include allowing authorised consumer associations to take action in order to obtain a decision as to whether contract terms drawn up for general use are unfair and, where appropriate, to have them prohibited.

15.

The deterrent nature and dissuasive purpose of the measures to be adopted, together with their independence from any particular dispute mean, as the Court held, that such actions may be brought even though the terms which it is sought to have prohibited have not been used in specific contracts, but have only been recommended by suppliers and sellers or their associations (Océano Grupo Editorial, cited above, paragraph 27).”

He took us to the Opinion of the Advocate General in Océano Grupo Editorial SA v Rocio Murciano Quintero [2000] ECR I-4941 where the A-G made some general observations as to the importance of the general procedure under Article 7. He said at paragraph 24:-

“Furthermore, it is of undoubted importance that, in order to remedy a situation of significant imbalance between the two parties to the contract, the Directive requires Member States to introduce a system of protection which involves – and actively so – persons unconnected with the individual contractual relationship. On the basis of the obvious premiss that the reaction of consumers to terms that are harmful to their interests is not an effective remedy because of the cost of bringing an individual action and the disinclination of consumers to venture into complex proceedings against sellers or suppliers who are more powerful and better organised, the Directive requires that ‘Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers’ (Article 7). Assessment of whether the means of protection which the Directive requires Member States to provide are ‘adequate and ‘effective’ is linked to a specific assessment of the question whether the means are appropriate to the objective pursued, which, I repeat, is to ensure that unfair terms are not binding upon the consumer.”

It is that paragraph that the court in its judgment approved in passages again on which Mr Green particularly relied:-

“27.

Moreover, as the Advocate General pointed out in paragraph 24 of his Opinion, the system of protection laid down by the Directive is based on the notion that the imbalance between the consumer and the seller or supplier may only be corrected by positive action unconnected with the actual parties to the contract. That is why Article 7 of the Directive, paragraph 1 of which requires Member States to implement adequate and effective means to prevent the continued use of unfair terms, specifies in paragraph 2 that those means are to include allowing authorised consumer associations to take action in order to obtain a decision as to whether contractual terms drawn up for general use are unfair and, if need be, to have them prohibited, even if they have not been used in specific contracts.

28.

As the French Government has pointed out, it is hardly conceivable that, in a system requiring the implementation of specific group actions of a preventive nature intended to put a stop to unfair terms detrimental to consumers’ interests, a court hearing a dispute on a specific contract containing an unfair term should not be able to set aside application of the relevant term solely because the consumer has not raised the fact that it is unfair. On the contrary, the court’s power to determine of its own motion whether a term is unfair must be regarded as constituting a proper means both of achieving the result sought by Article 6 of the Directive, namely, preventing an individual consumer from being bound by an unfair term, and of contributing to achieving the aim of Article 7, since if the court undertakes such an examination, that may act as a deterrent and contribute to preventing unfair terms in contracts concluded between consumers and sellers or suppliers.”

Mr Green placed particular emphasis on the language used in paragraph 28 of “putting a stop to unfair terms”.

He also referred us to a decision of what we understood to be the Italian Supreme Court di Cassazione of 21^st March 2008. We only had one chapter of the judgment. The translation of paragraph 5.2.2 of that judgment Mr Green suggested was absolutely in point. It said:-

“With reference to contracts existing at the time of the ruling, the injunction on the use of unfair terms does not conflict with the preventive function of such a protection tool. The prevention requirement not only concerns the insertion of clauses in forms or paperwork used for concluding contracts after adoption of the injunctive measures but also, the post-injunction effects brought about by these clauses or the effects which are likely to come about over time, through the exercise of powers deriving from those terms.”

He also referred us to certain domestic authorities, the most important of which was The First National Bank case. There he relied in particular on the statement of Lord Steyn where he said at [33] :

“The purpose of the Directive is twofold, viz the promotion of fair standard contract forms to improve the functioning of the European market place and protection of consumers throughout the European Community. The Directive is aimed at contracts of adhesion, viz “take it or leave it” contracts. It treats consumers as presumptively weaker parties and therefore fit for protection from abuses by the stronger contracting parties. This is an objective which must throughout guide the interpretation of the Directive as well as the implementing Regulations.”

Mr Green at the conclusion of his opening summarised his submissions in this way. (1) The obligation on a Member State under the Directive is to “put a stop” to the use of unfair terms in consumer contracts; (2) The only conclusion as to the proper interpretation of the Directive and the regulations consistent with the protection of consumers involves being able to injunct the continued reliance on unfair terms in existing contracts; (3) There is simply no support for the view that the general action by the OFT should be subject to leaving a supplier free to contend in individual actions that the term in the particular circumstances of that case was fair; (4) The emphasis in the authorities on individual actions being ineffective to protect consumers and the general action being the “only” effective protection supports the view that it is the individual action which will be subject to the general action rather than the other way round; (5) There is nothing in any of the legislation or the authorities that supports the concept of a “shrewd consumer” or the right of a supplier in the consumer context being entitled to litigate with a “shrewd consumer” once a term has been declared unfair in an action by the OFT; (6) The judge’s result fails to take account of the consequences severely detrimental to the consumer e.g. that it encourages foot dragging so that more current contracts can be entered into before any declaration that a term is unfair has been obtained; it allows a supplier to continue to enforce unfair terms by threatening letters or obtaining judgments in default, because the practical benefit of a judgment being binding on a court in relation to current contracts is only there if the matter gets to court but consumers are very likely to give in before that happens.

Mr Kent QC and Mr Andrew Davis appeared for Foxtons. Mr Kent’s submissions started from the position first that it was unlikely that, in giving the power to pursue a general challenge to the fairness of standard terms, it was intended to interfere with existing contractual rights. This was the foundation of the argument that there was no power to grant a declaration but it informed the debate as to the extent of the powers to interfere by injunction with existing rights. He accepted that in typical cases, by reference to which a general challenge would be judged, the effect of a finding by the court that the term was unfair would be binding as a precedent on any court that then had to consider the individual challenge. But he did not accept that there was any power to prevent Foxtons seeking to enforce a term found unfair in a typical contract by writing letters or obtaining judgment in default. It was up to the consumer to take the point. He furthermore submitted it was important to recognise that not all cases would be typical and it was thus he submitted not surprising that the Directive distinguished between individual challenges and the general challenge.

The language of the Directive he submitted supported the view that the distinction was a real one and supported the view that a finding in proceedings brought by a body such as the OFT would not bind generally, and in particular would not bind in non-typical cases. He pointed out first that Article 4 is “without prejudice to Article 7” and provides for “all the circumstances attending the conclusion of the contract and all the other terms of the contract or of another contract on which it is dependent”. He submitted that the reason for the without prejudice provision is because the “all circumstances” and “all other terms” provisions cannot apply in the Article 7 general challenge.

He also pointed out that in an individual challenge Article 5 applies which provides for a term being construed in the way most favourable to a consumer, and that Article 5 expressly disapplies that rule of construction to Article 7 challenges. Thus, Mr Kent submitted, by applying the most favourable construction in an individual challenge the term may be found to be fair, whereas not applying that rule of construction in the Article 7 general challenge may lead to a ruling that it is unfair. Mr Kent did not quite go so far as to suggest that it followed that where there had been a general challenge and the term had been found unfair, it must follow that such a decision is in no way binding on a court considering the same term in an individual context because a different rule of construction applied.

Mr Kent placed particular reliance on the fact that in the individual context “other terms” might be important. Other terms if agreed orally might render a standard term fair in the individual context and would be something that could not be taken into account on an Article 7 challenge.

Mr Kent argued that, if one looked at the Directive including its recitals as a whole, albeit two methods of challenge were provided for, it was the individual challenge that came first and was the dominant form of challenge. It was that challenge which was tested by reference to the factors in Article 4. Article 7 was grafted on and secondary, and intentionally secondary because it could not take into account those factors relevant to a particular contract. Since Article 7 could not relate to a particular contract, it was, he submitted, concerned only with future contracts. The language “concluded” and “continued use” relied on by Mr Green was actually apposite to describe insertion of terms in future contracts and did not point inevitably to contracts already in existence.

Mr Kent submitted that none of the authorities to which Mr Green had referred were concerned with the point he was arguing and that although consumer protection was important, so was the right of a supplier to establish in an individual context concerned with existing contractual rights that a term was in fact fair.

Mr Kent’s secondary argument was that, even if Article 7 was dealing with both future and existing contracts, a court when it considered what remedy to grant should not condemn all existing contracts containing the term as held to be unfair on the Article 7 challenge. It should allow for the possibility that in atypical cases Foxtons might be able to establish that the term was in fact fair either because of other terms agreed or for whatever reason. This secondary argument led him to submit thus that no injunction should be granted. In the alternative, his submission was that if an injunction was granted there should be a provision allowing for enforcement of a term in an existing contract with the leave of the court.

Mr Green in his reply appreciated that even if the OFT was right in saying that Article 7 was concerned with both future and existing contracts, that did not necessarily deal with the question whether once a court had found a term unfair under a general challenge, Foxtons should be free to argue that in an individual atypical case the term was fair; and if so, how that should be dealt with. Mr Green’s preferred position on behalf of the OFT was that a finding of unfairness in a general challenge was a finding of unfairness in all consumer contracts and that thus an injunction would be granted to prevent both use in future contracts and enforcement in all current contracts. Indeed he submitted that the cases to which he had referred in his opening supported that position. He submitted that in fact in a general challenge (per Lord Steyn) the court did its best in order to make the Directive and the Regulations work to apply the Article 4 criteria. He submitted that the bright line, as sought to be drawn by Mr Kent, between a procedure under Article 4 and a procedure under Article 7, was not justified or at least more theoretical than real. Furthermore he submitted that the European cases showed that it was most unlikely that it was intended to expose any consumers to the possibility of litigation following a successful Article 7 challenge.

But he submitted that, if that preferred position was not acceptable to the court, then at the very least the onus ought to be on Foxtons to demonstrate the existence of the atypical individual contracts and, if they did so, then the right form of injunction would be to restrain the use or enforcement of terms found to be unfair save with leave of the court.

Following the hearing in this appeal the judgment in the Bank Charges case was handed down and the parties were given the opportunity of making written submissions. The primary submission made on behalf of Foxtons suggested that the judgment supported the view that Reg 6(2) might apply to preclude an assessment of fairness in an individual case, notwithstanding a conclusion in a generic challenge that it is not so excluded in the typical consumer context. In their submissions in response the OFT suggest that the above is a misreading of the court of appeal judgment.

Foxtons also seek to gain some support from the travaux preparatoires quoted in paragraph 66 of the Bank Charges case as supporting their construction of Article 7 as only applying to the insertion of unfair terms in future contracts. The response from the OFT is that the quotation could equally support the view that the Article is concerned with the enforcement of terms in existing contracts.

Dealing first with the written submissions on the Bank Charges case. The short answer to the primary point taken by Foxtons is that the point being argued by Foxtons in this appeal was never a point considered at any stage during the Bank Charges case and it would thus in any event be unsafe to rely on the language of certain extracts to provide support for Foxtons’ submissions. In any event as Mr Green points out in the response on behalf of the OFT, Foxtons’ suggested interpretation of the language is hardly consistent with the court’s approval of Andrew Smith J’s conclusions approved at [91] to[92]. Furthermore having regard to the fact that the Banks were making a peremptory challenge in order to seek to have decided a point which would be relevant in the many hundreds of cases relating to current contracts pending in the County Courts and stayed while that challenge took place, it would have come as some surprise for anyone to be suggesting that what the court was being asked to decide did not relate to current contracts.

As to the second point I do not accept that the quotation from the travaux preparatoires relied on by Foxtons helps one way or another in deciding the point at issue on this appeal.

I thus return to the competing submissions made at the hearing before us. It will be noted that in summarising their submissions I used the Directive rather than the regulations as indeed did counsel where possible. The regulations implement the Directive and it is thus the proper construction of the Directive with which the court is primarily concerned [see the First National case and Bank Charges case]. Regulation 12 is, of course, not a provision taken directly from the Directive but it must be construed as a provision by which the United Kingdom is seeking to fulfil its obligations under the Directive. That does not mean it can provide a “free standing” right to grant an injunction. It could only be construed as providing the power to grant an injunction in respect of current contracts if the fairness of a term in current contracts can be an issue for decision as between the OFT and Foxtons on a general challenge.