I. Introduction
This article deals with “general clauses” and associated provisions in EU consumer law.Footnote 1 “General clause” is used here to refer to a rule that is “general” in two senses. First, its scope of application is relatively general, i.e. it applies to a broad range of legal/factual circumstances. Second, it is “general” in that the criteria to be applied are very open textured (i.e. rather vague and/or numerous); making it difficult to decide how they should be interpreted. For instance, key to this article is the general clause from the Unfair Terms in Consumer Contracts Directive (UTCCD). This covers most terms in virtually any type of consumer contract; provides that such terms should not be “unfair”; and explains this by reference to other broad, open textured concepts, i.e. “significant imbalance” and violation of “good faith”.Footnote 2 A purely domestic example is the open textured “reasonableness” test under the Unfair Contract Terms Act (UCTA) 1977; which is applicable to many types of exemption clause in both consumer and commercial contracts.Footnote 3
It is argued here that general clauses dealing with “fairness”Footnote 4 are a hugely significant element of the EU “acquis” that has “Europeanised” UK consumer law in recent years; and that they offer significant potential for improved protection compared to pre-existing domestic law.Footnote 5 However, the open textured nature of these general clauses (and some associated provisions upon which they depend)Footnote 6 means that they can often only be given real practical meaning and direction by reference to some background ethic:Footnote 7 some vision of the ideal market and civil order.Footnote 8 One possibility is an ethic based on values of trader self interest and consumer self reliance; while the other option is an ethic that aims to protect consumers against the weaknesses that they suffer relative to traders.
Trader self interest and consumer self reliance are two sides of the same coin. Fostering trader self interest is about affording traders maximum freedom to achieve their self interested goals. So there should be minimal legal interference with the substantive distribution of rights and obligations that traders provide for in their standard terms; and similarly limited interference with the substantive outcomes that result from trade practices generally. This means, first of all, that general clauses should be understood to set relatively low, undemanding standards of substantive fairness. Not only does this foster trader self interest; it also means that consumers must take self reliant action to absorb the losses caused by the low standards of substantive fairness.
Apart from actually setting low standards of substantive fairness, the ethic of self interest/reliance also takes the position that, even where there is substantive unfairness, this is routinely acceptable; so long as there has been formal transparency. Again trader self interest is fostered-traders get the substantive outcomes they want (at the relatively small price of presenting these transparently). The corollary is that the transparency is considered to enable consumers to take self reliant action to protect their interests. So, before agreeing to contract terms or taking some decision based on a trade practice, the expectation is that consumers take advantage of the transparency: by informing themselves of the risks and taking appropriate action to protect their interests, e.g. going elsewhere or insuring against the risks.
The alternative ethic is one of protection. Here the priority is to protect consumers from the financial and social impact of harsh terms and practices; and there is a strong belief that transparency does little, in practice, to achieve this. So general clauses are understood to set high standards of substantive fairness and, if these standards are not met, transparency is not routinely treated as a “defence”.
The ethic of self interest/reliance that I have described is obviously closest to traditional freedom of contract thinking; although it is a bit more protective than some versions of freedom of contract. This is because the ethic depicted here does at least insist on traders acting transparently.Footnote 9 The protective ethic is probably closest to the sociological concept of “need rationality”.Footnote 10 By this I mean that it recognises the vulnerabilities and weaknesses of consumers: vulnerability to the impact of harsh terms and practices and limited ability to make use of transparency to self protect against such terms and practices.
In terms of economic analysis, the protective ethic arguably gleans most support from the work of behavioural economics. As we have seen, the protective ethic does not trust that transparency will necessarily help consumers to protect their interests. This is broadly in congruence with the behavioural economics message that transparency is of limited use in helping consumers to make rational choices.Footnote 11
It is difficult to say for sure that particular decision makers are influenced by one or other of the above ethics; especially given the variety of factors that may influence decision making. Nevertheless, the claim here is that there is indeed significant evidence to suggest that the Supreme Court has interpreted the unfair terms general clause and a related provisionFootnote 12 by reference to an underlying ethic of self interest and self reliance. The effect has been to limit the protective potential of the general clause; notably, in cases where it might provide protection that was not available under pre-existing domestic law. It is argued that this could be a huge threat to consumer protection, especially if the Supreme Court was to apply the ethic of self interest/reliance routinely across the vast parts of UK consumer law covered by the various general clauses. However, it is suggested that there is some scope to argue that a more protective ethic may be intended at EU level; and the article concludes by considering the arguments that might persuade the Supreme Court either to agree with this or at least to refer the matter to the ECJ.Footnote 13
II. The Importance and Protective Potential of General Clauses
Europeanisation of UK consumer law has brought a great increase in the use of general clauses on “fairness”: specifically, the tests of unfairness applicable to contract terms under the UTCCDFootnote 14 and to commercial practices under the Unfair Commercial Practices Directive (UCPD).Footnote 15 These general clausesFootnote 16 are an enormously important part of the EU consumer “acquis” that has “Europeanised” UK consumer law over the past 25 years.Footnote 17 There are many other important elements of the acquis. However, these other elements deal with rather specific rights or obligations arising at particular points in particular types of relationship: e.g. that specific information must be supplied to consumers in distance selling contracts and that these contracts can be cancelled for a period after conclusion;Footnote 18 or that that certain remedies are available for non conforming goods.Footnote 19
The general clauses are of much broader application; catching an enormous range of trader-consumer issues; and, in important respects, offering greater potential for protection than pre-existing law.Footnote 20
A. The General Clause on TermsFootnote 21
First of all, we see the breadth of application in the fact that the EU general clause on unfair terms applies to all trade sectors: every conceivable type of (trader-consumer) contract for the supply of goods; the sale, lease and mortgaging of land; and (the huge myriad of) services (including insurance, education, utilities and the broad range of other financial services).Footnote 22 The coverage of insurance and land related contracts extended the scope for protection from the domestic (UCTA) regime.Footnote 23
Further, within this vast range of sectors and contracts, the EU general clause applies to most types of term.Footnote 24 So, for a start, it covers the vast array of ways in which traders might exclude or restrict their liabilities: e.g. in relation to non delivery of goods or services; poor quality services; misrepresentation. It also went beyond the domestic UCTA regime in covering not only terms exempting trader liabilities;Footnote 25 but also the huge number of ways in which potentially unfair obligations and liabilities might be imposed on consumers: e.g. high default charges; price increase, fuel surcharge etc clauses; “opportunistic” renewal of long term contracts by setting unreasonably early deadlines by which consumers must indicate that they do not wish to renew; or unfair enforcement methods, e.g. allowing entry to the consumer's home, taking possessions, property etc.Footnote 26
The huge importance of the general clause on unfair terms is further emphasised by the fact that (unlike the domestic UCTA regime) its scope of application is not restricted to private law claims. Terms that are unfair under the EU general clause are also subject to preventive control, in particular, by the Office of Fair Trading (OFT), local authority trading standards and sector specific regulators.Footnote 27
B. The General Clause on Practices
Vast swathes of the trader-consumer relationship are also now covered by the EU general clauses on unfair practices from the UCPD. There are general clauses on “misleading practices” and “aggressive practices” (the main operative provisions in practice); as well as an overriding general clause, catching practices that are “contrary to the requirements of professional diligence”.Footnote 28 It seems that this is intended to encapsulate, but possibly sometimes extend beyond, what would be caught by the general clauses on misleading practices and on aggressive practices.Footnote 29
The implementing regime provides for both preventive and criminal law sanctions for violation of the relevant general clauses.Footnote 30 In so doing, it replaces central pillars of the home grown consumer protection regime, i.e. the regimes on false trade descriptions and misleading pricing;Footnote 31 while complementing other more dedicated home grown rules, e.g. those on harassment of debtorsFootnote 32 and the regulatory rules on financial services.Footnote 33 It has also replaced the previous EU regime on misleading advertising.Footnote 34
Although the UCPD general clauses do not apply in private law as such; private law is likely to be affected by them.Footnote 35 First of all, compliance with the standards set by the general clauses inevitably affects contracting practice. Second, the courts may develop contract law incrementally in ways that reflect the general clauses. Finally, the Law Commissions have produced proposals for private law remedies for breach of the general clauses.Footnote 36
In terms of the activities covered, the range of application of the general clauses is enormous. They cover practicesFootnote 37 “before, during or after” any “commercial transaction”.Footnote 38 So, in relation to almost all conceivable goods or services, there is a “cradle to grave” regime covering practices such as advertising, persuasion and negotiation at the pre-contractual stage; post contractual alterations or variations; performance, delivery etc by the trader; performance, payment etc by the consumer; complaint handling; after sales service; and enforcement by either party.
There are numerous ways in which there is scope for greater protection than under pre-existing law.Footnote 39 For a start, the general clause on misleading practices is actually sub-divided into a provision on “misleading actions” and a provision on “misleading omissions”.Footnote 40 It is well known that there has never been such a general rule against omissions in domestic law. Then there is the “undue influence” limb of the aggressive practices general clause. This catches exploitation of a “position of power” through “pressure”, which “significantly impairs” (or is likely to so impair) the average consumer's “freedom of choice or conduct”; specifically by significantly limiting the ability of this average consumer to take an “informed decision”.Footnote 41 Previously, criminal and preventive rules focussed mainly on the specific problem of harassment of debtors.Footnote 42 The undue influence element of the aggressive practices general clause seems to have the potential to cover much more. For example, greater trader knowledge/skill could be said to create a “power relationship” and the potential for “pressure” at the sales stage. In this context, some high pressure selling might well amount to undue influence; where, for instance, consumers are put on the spot to make quick decisions (the decision may, then, not be “informed”, as it was not thought through). Post contractually, the power relationship and pressure might come, for instance, from vulnerability when struggling with commitments; allowing traders to pressure consumers into new commitments, refinancing etc.Footnote 43 Clearly, these examples go well beyond what is covered by rules on harassment of debtors. In addition, they extend beyond the traditional scope of domestic private law undue influence. Inter alia, this requires a special relationship of trust and confidence (rather than just a “relationship of power”); and has, in practice in modern times, been restricted to the “bank guarantee” scenario.Footnote 44
III. Regulators, Judges and Competing Ethics
This section considers two cases on the unfair terms general clause that have reached the (now) Supreme Court. The terms in question are not covered by the pre-existing domestic UCTA regime;Footnote 45 so the cases provide an important indication of the attitude of the Supreme Court to the extended potential for protection offered by the European general clauses. What we find is that the Supreme Court has not taken advantage of this potential: that there is evidence to suggest that it interpreted the open textured concepts by reference to an ethic of self interest and self reliance. This is in contrast to the OFT and Court of Appeal who seem to have interpreted the same concepts by reference to a more protective ethic.
A. Measuring Unfairness in Substance
1. The test
Under the general clause, a term is 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”Footnote 46
To be unfair, a term must cause a significant imbalance in rights and obligations to the detriment of the consumer; and it must violate the requirement of good faith.Footnote 47 However one interprets the other (“good faith”) element of the test;Footnote 48 it is certainly clear that “significant imbalance” etc goes to the issue of unfairness in substance.Footnote 49
The point is that “significant imbalance” is an open textured concept. What is an “imbalance” and when is it “significant”? How exactly are we to measure the impact of a term (of a certain distribution of rights and obligations) on the interests of the parties? In DGFT v First National Bank (First National Bank), the then House of Lords said that there is a significant imbalance where the term “tilts” the rights and obligations “significantly” in favour of the trader; whether by granting the trader a “beneficial option, discretion or power; or by the imposing on the consumer of a disadvantageous burden, risk or duty”.Footnote 50 But this does little more than spell out the categories of term that we already know are covered by the test. It takes us no further. When is the “tilting” carried out by any such term “significant”? In this context, how are we to measure the actual impact of the term on the parties’ respective interests? It is submitted that this will inevitably be done either by reference to a background ethic of protection; or by reference to an ethic more wired to values of self interest/reliance.
2. Possible ethics
Interpretation of provisions by reference to an ethic of protection means interpreting them such as to protect consumers against the vulnerabilities that they suffer relative to traders.Footnote 51 In measuring fairness in substance, this means focussing on the impact of the term or practice on consumers. If this is serious, there is a strong presumption of unfairness; which is only overturned if the needs of traders are demonstrated to be greater than those of consumers. So, one would ask: to what extent does the trader really need to use the term or practice in question? Has it been rigorously demonstrated that there will be a serious impact on traders if they are not able to use the term or practice? Overall: taking into account the relative socio-economic needs and resources of the parties, does not being able to use the term or practice impact the trader as much as using it impacts the consumer?
In making this assessment, it must be remembered that traders may be in a stronger position to absorb financial lossesFootnote 52 than private consumers. Also, the impact on traders (at least larger businesses) can usually be conceived of in purely financial terms: an impact on the profitability of the firm. In the case of consumers a financial lossFootnote 53 might have a real impact on the budget of the average consumer or family; but also have “knock-on” effects on family life, social inclusion, dignity etc. Another possibility is that there is an impact on what might be regarded as important “social citizenship” rights: e.g. involving withdrawal of services of general interest,Footnote 54 or restrictions on access to justice.Footnote 55
In contrast to a protective ethic, there is an ethic that emphasises trader freedom to maximise self interest; and expects that consumers will exercise self reliance. So, in measuring fairness in substance, a key priority is the right of traders to pursue self interest by maximising what is received from consumers; and minimising what must done for, or paid out to, consumers. The priority is the right of traders to do these things; even in those cases where traders could get by without doing them better than consumers will get by if these things are done to them. So there should be minimal legal interference in relation to the substance of the terms. In short, the law should not set a demanding (a high) standard of substantive fairness. The corollary is that consumers are left to their self reliant devices to absorb any losses.
3. Regulatory and judicial approaches
In First National Bank, The OFT and Court of Appeal both seem to have interpreted the “significant imbalance” concept by reference to a broadly protective ethic. Both took the view that a term allowing for contractual interest to continue to be applied to a judgment debtFootnote 56did cause a significant imbalance in rights and obligations, i.e. it was unfair in substance. This was based, largely, on the view that the impact on consumers would be unacceptably detrimental (i.e. that their debt would be added to significantly by the interest).Footnote 57 In other words, “significant imbalance” was understood strongly by reference to the economic impact on consumers: this was how to measure fairness in substance.
In contrast, the House of Lords did not believe the term caused “significant imbalance” to the detriment of consumers.Footnote 58 In coming to this conclusion, the House of Lords did acknowledge the potential financial hardship for consumers.Footnote 59 However, for the House of Lords, because courts are unable to award statutory interest in such cases,Footnote 60 it was, in effect, necessary for the banks to charge interest at the contractual rate.Footnote 61 Doing so did not cause a significant imbalance in rights and obligations to the detriment of consumers. The analysis was that banks only lent on the basis that they would always recover interest on the sum in question until it was paid off. If banks were not able to ensure this (by charging interest at the contractual rate after judgment), according to the House of Lords, there would actually be an imbalance in favour of consumers. Indeed, banks would stop lending money.Footnote 62
It is arguable, then, that “significant imbalance” was understood by reference to an essentially self interested ethic. Key was the right of traders to pursue self interest; the right to maximise what is received from consumers- to recover the full interest in all cases. Emphasising the focus on bank self interest is the fact that there was no analysis of relative need;Footnote 63 no asking whether the impact on the Bank of not using the term would be greater or less than the impact on consumers of the term being used. So, there does not appear to have been any consideration as to the amount that Banks would lose if they could not charge post judgment interest to the minority of customers that reach this stage of default; i.e. whether these losses would actually be relatively small and perhaps could be absorbed by the Bank. Neither was there any consideration as to how any losses suffered by the Bank might be weighed against any losses that would be suffered by the vulnerable (already seriously indebted) customers; i.e. whether the use of the term would hit such consumers harder than not using the term would hit banks.
The obvious corollary of this focus on bank self interest, is an expectation of consumer self reliance (those affected by the build up of interest are expected to take steps to absorb the “losses” caused by the build up of contractual interest, e.g. by reducing other outgoings).Footnote 64
Finally, to reiterate an important point, this apparent prioritisation of self interest/reliance took place in relation to a term that was not covered by the pre-existing UCTA regime. The House of Lords approach could, therefore, be read as an attempt to restrict the greater potential for protection brought by the European general clause.
B. Substantive and Procedural Fairness
1. Possible ethics
Under an ethic of self interest/reliance, even if there is found to be substantive unfairness; this is generally acceptable, so long as there is procedural fairness, i.e. the terms or practices have been presented in a formally transparent manner. This is about trader self interest in that traders get the substantive outcomes they want; so long as they fulfil the formal procedural requirement of transparent documentation. The corollary of such an approach is an expectation that consumers can (because of the transparency) act in a self reliant way to protect their interests. So, they are expected to read and understand the terms; and then to take further self reliant responsibility to protect their interests. This might be by searching out traders that offer fairer terms; negotiating a change; insuring against trader non performance;Footnote 65 or by avoiding action or inaction that triggers detrimental consequences under the terms.
By contrast, under a protective ethic, terms that are sufficiently substantively unfair are not readily legitimised by transparency. The point is that the fundamental priority of a protective ethic is to protect consumers against unduly detrimental substantive consequences. With this in mind, there is a strong focus on the limitations of transparency in helping consumers to protect themselves against such harsh substantive consequences.
The protective ethic takes seriously the evidence of behavioural science as to the perennial information difficulties faced by consumers-the host of factors that tend to prevent consumers taking rational decisions.Footnote 66 Consumers will usually not read standardised information even if it is transparent;Footnote 67 and even if they do read it, they will often find it very difficult to understand it or to assess the risks.Footnote 68 Consumers are most likely to choose between suppliers on the basis of what they perceive to be the really core aspects of the transaction-the basic nature of the goods or services and the basic price they can expect to pay in the normal performance of the contract; but, crucially, not on the basis of the ancillary exclusions, charges etc usually dealt with in the standard terms.Footnote 69 So, if consumers are unlikely even to engage with the standard terms, it is considered unrealistic to expect them to be taking the sort of self reliant (self protecting) action described above. Indeed, even those consumers who read and understand the standard terms will find it difficult to exercise self reliance in the sense of going elsewhere. This is because, as suggested, most consumers are choosing on the basis of the core issues; and this is where there is likely to be the competitive discipline that produces choices between the substantive offerings of different traders (not on the ancillary issues in the standard terms).Footnote 70 Further, self reliance in the form of negotiating for changes to terms is wholly unrealistic; given the limited importance of most individual consumers to traders.
So, under a protective ethic, transparency would not routinely be considered to legitimise substantively unfair ancillary terms (i.e. terms that are not central to how consumers perceive the transaction).Footnote 71 Self reliance is taken to be unrealistic in such cases. Indeed, the problem is all the more significant because the lack of competitive discipline is likely to increase the level of substantive unfairness.
We now turn to particular open textured provisions that could be understood either by reference to a protective ethic that focuses on protection from substantive unfairness; or an ethic of self interest/reliance that allows such substantive unfairness to be legitimised by transparency.
2. “Good Faith”
We saw above that, in order for a term to be unfair, there must be a significant imbalance in rights and obligations and there must be a violation of the “requirement of good faith”. “Good faith” is another open textured concept. In First National Bank, Lord Steyn (in the House of Lords) said that: “Any purely procedural or even predominantly procedural interpretation of the requirement of good faith must be rejected”.Footnote 72
This does not state explicitly, but does strongly suggest, that procedural fairness (including transparency) cannot routinely legitimise a term that is sufficiently unfair in substance. However, there was no positive support from the other three judges for this. So, there was no clear choice of ethic by the House of Lords in the context of the good faith concept.Footnote 73 More recently, however, we did receive a much clearer indication as to the preferred ethic of the (now) Supreme Court. This arose in the context of the provision excluding the “price” from review under the general clause.
3. The ‘Price Exclusion’ Issue
Insofar as a term is plain and intelligible, there is to be no assessment of fairness which relates to: “ … the adequacy of the price or remuneration as against the services or goods supplied in exchange.”Footnote 74
In short, if there is plain language, the law does not review the substantive fairness of the “price” under the general clause on unfairness. This is obviously intended to preserve a degree of freedom of contract; or put in the language of this article, trader self interest/consumer self reliance. The trader's self interest in charging what he chooses is promoted by the fact that the price escapes review; but this is only so long as it is transparent;Footnote 75 the transparency being viewed as enabling the consumer to exercise self reliance by informing himself as to the price and “shopping around” for the best deal, i.e. making an “informed choice”. To this extent it can certainly be said that the EU regime opts for an ethic of self interest and reliance (or informed freedom of choice); over one of protection.Footnote 76
However, the key question here is what is the intended extent of this ethic of self interest/reliance? The point is that, just like “significant imbalance” and “good faith”, the provision is very open-textured; leaving open precisely what is the “price or remuneration”. There is also very limited background textual guidance. The preamble to the UTCCD refers to the “quality/price ratio” as a way of depicting what is intended to be excluded.Footnote 77 This is really only a slightly different way of expressing what is already fairly clear from the main text; i.e. that what is excluded is an assessment of whether the price is too high, given the quality of the goods or services received. However, it does not tell us what the “price” is; and how many of the various charges potentially made under a contract it is intended to cover: any charge for any goods or services supplied, only charges for some such goods or services or only charges for the main goods or services supplied? There remains, in short, significant scope for debate as to the range of charges that should be treated as being the “price” and excluded from review under the general clause-the range of charges that (so long as they are transparent) are allowed to be substantively unfair (in that they escape review under the general clause).
The recent well known bank charges litigation involved terms that provided for large charges to be made in various circumstances. This included, for example, where consumers exceed agreed overdraft facilities.Footnote 78 Under the contractual provisions, exceeding the overdraft facilities is not treated as a default or breach. Rather, it is depicted as a choice made by the consumer. Following the same logic, the obligation to pay the charge is not characterised as compensation for a loss suffered by the bank; but, rather, as a charge for the service of the bank in allowing the payment in question to go through.Footnote 79
The approach of the OFT (and the Court of Appeal) was that the only charges that should be treated as the “price”Footnote 80 are those that the typical consumer would perceive as “essential” to the bargain; or (put in another way) what consumers would reasonably expect to pay in the normal due performance of the contract. The bank charges in the case in question were not viewed by either the OFT or the Court of Appeal as falling into this category (given that consumers do not typically expect to take an unauthorised overdraft in the due, normal course of things).Footnote 81
This seems to be an understanding of the “price” concept that is grounded in a protective ethic; although the Court of Appeal actually misunderstood the precise nature of the issue. The argument was that it was the absence of negotiation in the case of non essential terms that led to the conclusion such terms were not intended to be viewed as “price” terms and to escape review under the general clause.Footnote 82 Yet individually negotiated terms are separately excluded from review under the general clause.Footnote 83 Patently, then, some non negotiated terms are indeed intended to be treated as “price” terms and excluded from review on this basis. The real point,Footnote 84 is that the “essential to the bargain” test is (at least relatively) protective because it understands the price exclusion as only intended to cover those charges thatFootnote 85 have a realistic chance of being subject to market discipline. Following the analysis set out above,Footnote 86 a charge is only likely to be subject to the competitive discipline of the market if it is one that is central to how consumers would perceive the bargain/what one would reasonably expect to pay in the normal, due performance of the contract. If charges are subject to market discipline, there is some chance of improved choice (alternative market offerings); so that consumers might at least have some chance of acting in a self reliant way by shopping around. In addition, the competitive discipline may mean that the charges that are fairer in substance (so that application of the legal test may not matter so much). If terms are not central enough to the bargain to be subject to competitive discipline; then, under a protective ethic, they should not be understood as “price” terms that (so long as they are transparent) escape a review of their substantive fairness.
The Supreme Court, however, rejected the idea of distinguishing between charges that were (based on consumer perceptions) essential and non essential; considering such an approach to be too complex and even to compromise the European law principle of “legal certainty”.Footnote 87 For the Supreme Court, identifying the “price” (for the purposes of whether there could be a review of adequacy Footnote 88 under the general clause) was “a matter of objective interpretation by the court”.Footnote 89 It was accepted that charges arising in circumstances of default were not the “price”.Footnote 90 However, beyond this, the key point is that the “objective interpretation” favoured by the Supreme Court seemed, effectively, to be carried out by reference to the technical provisions of the contract. If these provisions (as in Abbey) defined the charge as payable for services that the consumer chose to take up, then, for the Supreme Court, they were “price” terms. For the Supreme Court, once the charge was one for services in this way, there was no principled way of drawing a distinctionFootnote 91 between charges that would be seen by consumers as being essential to the bargain and those that would, in reality be viewed as much more peripheral. For the Supreme Court, it seems, all such charges were generally “price” terms; and were therefore excluded from review under the general clause. For the Supreme Court, this reflected the notion of “consumer choice” underlying the whole existence of the “price exclusion”.Footnote 92
Of course, the point has already been made above that everyone knows that the price exclusion is to some extent about freedom of choice/self interest/reliance; the real issue being: to what extent? The reference to “price” does not, by any means, automatically lead us to the conclusion that it must cover all charges technically described as being in exchange for services provided by the trader,Footnote 93 that there is no way of distinguishing between types of charge. It is true that distinctions may be easier to draw in some systems, e.g. Germany, where it turns on whether the obligation to pay the charge derives from a statute.Footnote 94 However, in the absence of a test such as this, it is surely highly technical and formalistic to say that, as the Supreme Court appear to have said, that there is no way of looking behind what the contract technically provides for.Footnote 95 Of course, one way to do precisely this is to base the distinction on our underlying understanding as to the nature of standard contracts.Footnote 96 In other words, there is the possibility of drawing the sort of distinction drawn by the OFT/Court of Appeal; which broadly only excludes from control those charges genuinely central to how the bargain would be generally perceived; and which are therefore more likely to be subject to market discipline.Footnote 97 The Supreme Court chose not to take such an approach.
So, the underlying ethic being applied by the Supreme Court (in understanding the notion of “price”) could be said to be one of self interest/reliance. So long as the charge is transparent (in plain and intelligible language), traders are to be given maximum scope to pursue self interest. Scope to impose charges that will escape legal review is provided by allowing traders to exercise their power to draft the contract in such a way as to determine what counts as the price: label the charge as being for trader services and it qualifies as the price.Footnote 98 Implicitly, self reliance is expected from consumers in response. They must either take special care to avoid inadvertently going overdrawn and thereby triggering the charge; or seek to negotiate removal of the charge on an ad hoc, individual basis when it is imposed.
Once again, we must remember that the term in question was one that was not controlled by UCTA; so the Supreme Court approach could be viewed as an attempt to restrict the greater potential for protection brought by the European general clause.
IV. Is There Really an Underlying Ethic of Self Interest/Reliance?
So, can it really be said that there is an identifiable trend involving the Supreme Court interpreting the UTCCD general clause by reference to an ethic of self interest/reliance; in cases where a more protective interpretation would extend protection relative to pre-existing domestic law? One might argue that we cannot read a deep seated ethic of self interest/reliance into these decisions, that there were other explanations for the approach taken in both cases. In First National Bank, the House of Lords may have felt that holding the term to be unfair would have meant failing to send the important signal that there was a need for reform of certain broader elements of the legal framework. For example, for some judges, the term was made necessary by the ban on the courts awarding statutory interest on the judgment amount; i.e. this ban made it inevitable that banks would stipulate for contractual interest.Footnote 99 Perhaps the term was held not to be unfair by these judges partly in order to signal to Parliament that courts should be given the power to award statutory interest (making the term unnecessary). A further point is that, for some of the judges, the term itself was not the problem. The amount payable under the term might well be reduced if the court exercised its review powers under the ss. 136–9 of the Consumer Credit Act (CCA). The point is that defaulting consumers do not normally turn up at court, so they do not request exercise of these powers. The proper solution then, for some judges, was to make provision to ensure either that consumers were aware of the need to ask for a review;Footnote 100 or that the review was carried out automatically.Footnote 101 So, it could be said that these judges found the term not to be unfair partly to emphasise the need for such reforms.
The problem is that the policy goals just outlined could equally have been achieved by interpreting the concept of unfairness in such a way as to find the term to be unfair. For example, a finding of unfairness may well have led to the banks applying pressure on Parliament to allow courts to award statutory interest (so that they would not need to stipulate for it contractually); or applying pressure to improve the operation of the CCA powers (so that the term would be more likely to be held to be fair on the futureFootnote 102).
In short the House of Lords did not need to measure fairness in substance as they did in order to achieve the policy goals in question. This suggests that an ethic of self interest/reliance was indeed a reasonably significant motivating factor in the approach taken.
Turning to the Abbey decision, can it definitively be said to be based on an ethic of self interest/self reliance? One view might be that it cannot; because a different decision might have been arrived at if the case had been framed differently by the OFT. It will be recalled that what is excluded from review under the general clause is an assessment as to the “adequacy” of the “price”-generally taken to refer to the question as to whether the price is too high for what is received in return. What if the OFT had argued that they were not questioning this, but rather the way in which the term treated consumers unequally: requiring those consumers affected by the relevant charges to subsidise other consumers? The argument would be that the charges generate sufficient income for the Banks to enable them not to impose standing charges on consumers generally.Footnote 103 So, there is unequal treatment in that those consumers who, for example, go overdrawn without authorisation are treated very harshly; while other consumers obtain an unfair benefit in that they avoid paying standing charges. Possibly this sort of assessment would have been covered by the test of unfairness; it not being a review as to the “adequacy” of the price. Indeed, Lord Phillips hinted at one point that there might be another way of challenging the fairness of the charges; and it is generally assumed that he may have been referring to the sort of unequal treatment argument just outlined.Footnote 104
However, even if the Supreme Court would have been prepared to review the unequal treatment issue under the general clause, and even if this could have been viewed as evidence of a protective ethic, it does not change the fact that there was an ethic of self interest/reliance at play in the context of reviewing the “adequacy” issue. The “unequal treatment” analysis will not apply to all charges. When it does not apply there is, from a protective perspective, still a case for reviewing the adequacy of such charges; assuming that they are not sufficiently central to the bargain as to be subject to market discipline. Yet, the Supreme Court approach to interpretation of the provision would seem to exclude such a review; so it can still be said to be based on an ethic of self interest/reliance.Footnote 105
What of the possibility that the Abbey decision was influenced not so much by an ethic of self interest/reliance but (i) by a concern to avoid the delay/court clogging that might be caused by the large numbers of private claims that were pending and that would go ahead if the charges were held to be subject to the general clause on unfairness; and (ii) by a desire not to worsen the banking crisis by exposing the Banks to these claims and possibly depriving them of the income generated by the charges in the future.Footnote 106
This is not a very convincing line of reasoning. A considerable range of factors affect both the workload of the courts (numbers of disputes in consumer and other fields, availability of legal aid, “no win no fee” legal services etc); and the vulnerability of the banking system (national and international economic conditions, levels of quantitative easing, new revenue raising schemes etc). Therefore, it does not seem very plausible for the Supreme Court to imagine that a decision affecting the enforceability of these bank charges could necessarily, in itself, make a significant impact on either court workload or the viability of the banking system. However, the Court could certainly count on the fact that a very direct consequence of excluding these charges from review under the general clause would be to foster bank self interest and require consumer self reliance (in that banks would make/save a lot of money and consumers would lose a lot of money).
Overall, then, the strong possibility remains that the Supreme Court has been at least partly influenced by an underlying ethic of self interest/reliance in its approach to the European general clauses on fairness. It is certainly well accepted that common law judicial reasoning has often remained influenced in recent years by strong individualistic values.Footnote 107 Indeed, the fact that the cases we have examined involved preventive controlFootnote 108 may emphasise that strong elements of traditional “common law individualism” were at work. One aspect of this tradition was that cases were brought by individuals (here consumers) against other individuals (here traders), based on what happened to the particular parties to the action and affecting no-one else. There were no direct implications for how other (traders) could act or how other (consumers) could be treated. Other individual consumers would need to take the self reliant initiative to try their own luck based on their own circumstances. The move to the more European model of preventive control challenges this individualistic tradition.Footnote 109 It means that decisions can affect the whole market directly. Trader self interest is affected much more substantially-they cannot use the term against consumers generally. Consumer self reliance is compromised significantly-the consumer collective is protected from the term without even being required to choose between the two self reliant courses of action, i.e. managing their affairs better to restrict the potential impact of the term or litigating to challenge its legality. From the point of view of an ethic of self reliance, they get quite a lot for nothing! Such consequences may make the Supreme Court particularly reluctant to set high standards of fairness.
Finally, application of an ethic of self interest/reliance in such a way as to limit the reach of general clauses would also flow logically from the well known aversion to general principles that is a feature of common law reasoning;Footnote 110 and the preference for the incremental development of solutions to a problem.Footnote 111 There was a century of experience of developing incremental, common law based approaches to control of exemption clauses.Footnote 112 By the time of the UCTA general clause in 1977, there was a general acceptance of these as a “problem”, as “unfair”, in at least some forms; but as a problem that the common law solutions were, ultimately, not equipped to deal with properly.Footnote 113 This may partly explain why the judicial approach to exemption clauses under the UCTA general clause has actually been quite protective.Footnote 114 In the case of the non exemption clauses now controlled by the EU general clause, it may be that (given the lack of a common law tradition of even considering these to be generally problematicFootnote 115) it seems like quite a large leap for the Supreme Court (contrary to piecemeal, incremental instincts) to assess fairness in such a way as, routinely, to find these unfair.
V. Broader Implications of the Ethic of Self Interest/Reliance
It may be then that an underlying ethic of self interest/reliance has had an important influence on the approach of the Supreme Court, especially where preventive control is concerned. Our case study has focussed on the UTCCD general clause and involved particular types of term. Clearly, however, such an approach may threaten levels of protection much more broadly. Of course, in practice, most “decisions” on fairness are made by the OFT under the auspices of their regulatory powers; but the First National Bank and Abbey decisions show just how unstable a protective OFT policy can be when challenged; and in the face of a policy of self interest/reliance by the Supreme Court. It must also be remembered just how many types of contract and types of term are potentially covered by this general clause; and how much ground is covered by the general clause on practices, where a similar approach is possible.
First, it is clear that the Supreme Court approach to the price exclusion issue would mean that very many types of charge would escape review under the general clause on unfair terms.Footnote 116 Second, the ethic of self interest/reliance might be applied by the Supreme Court across the board under the general clause on unfair terms; especially to terms not controlled under pre-existing law, i.e. those involving imposition of obligations and liabilities on consumers. So, we could expect that such terms would very often not be viewed as unfair by the Supreme Court. An ethic of self interest/reliance might well predominate both in the way in which fairness in substance is measured under the “significant imbalance” concept; and in giving a routinely legitimising role to transparency under the “good faith” concept.Footnote 117
Third, it seems plausible to suggest that a similar ethic of self interest/reliance could be applied, when unpacking the often equally open textured (and extremely broadly applicable) general clauses on practices. So, for instance, one limb of the general clause on aggressive practices involves “coercion” or “harassment” that significantly impairs the “freedom of choice or conduct” of the “average consumer;” thereby causing, or being likely to cause him to take a transactional decision he would not take otherwise.Footnote 118 It is vital here to note the distinction from the “undue influence” limb of the general clause. There, the restriction on “freedom of choice” must be one caused by a lack of “informed” decision making.Footnote 119 In other words, the focus is on the “informed consent” element of freedom of choice. But, under the coercion/harassment limb, the concept of “freedom of choice” is not qualified by the notion of “informed” decision making. It appears, then, that the focus must be on the other aspect of restricted freedom of choice; i.e. “choice constraint” in the sense of alternatives that are in some way unreasonable or unfair in substance.Footnote 120 So, the coercion/harassment limb seems to be concerned with pressures or threats that are in some way illegitimate at least in part because they would present the average consumer with alternatives that have unfair substantive consequences.Footnote 121 But, as where the substantive fairness of terms is concerned, how exactly are we to assess what substantive consequences are unfair when it comes to the concept of “freedom of choice”; and when is any restriction on freedom of choice to be taken to have been brought about by pressures that are sufficient to amount to “coercion or harassment”?
There is reference in guidance to factors such as time, location, nature, persistence, abusive language, exploitation of misfortune, obstructing consumer enforcement of rights and threats to take unlawful action.Footnote 122 These provide some direction; but they do not indicate what degree of trader pressure is acceptable or how to measure what sort of alternatives impose unacceptably detrimental substantive consequences, such that we can say that freedom of choice has been “significantly” impaired. Of course, the issue is as to the impact on the freedom of choice of the “average consumer”; who is defined as being “reasonably well informed, reasonably observant and circumspect”.Footnote 123 However, this formula does not help here; as it goes to how well informed, careful and alert consumers may be expected to be (i.e. cognitive factors). This is not relevant to a concept that is concerned with whether consumers have been coerced or harassed through giving them alternatives that are substantively unfair.
If a protective ethic was the guiding light for such matters, the focus would be on the impact on consumers of the relevant alternatives, in the context of the relative socio-economic needs of the parties. The question would be whether these alternatives have seriously detrimental socio-economic effects on consumers. To the extent that traders plead their need to use the practice; the focus would be on the relative socio-economic needs of the parties. Does the trader lose as much by not using this practice as consumers lose through the substantively detrimental alternatives that they are faced with?
So, take the example of practices requiring consumers to go through time consuming or costly formalities to enforce their rights. This has the potential to amount to coercion/harassment; the guidance referring as it does to “any onerous or disproportionate non-contractual barrier imposed by the trader where a consumer wishes to exercise rights under the contract.”Footnote 124 A protective approach will measure whether a given practice is restrictive of freedom of choice by focussing on how inconvenient, costly, stressful etc the process is for consumers, given their average budget, family, work commitments etc; and how much consumers lose by not going through these formalities (i.e. how much is the typical claim, what impact this loss would have on the typical earner etc). If what traders stand to lose by not insisting on this processFootnote 125 is not so significant for traders as the impact of either alternative for consumers; then this might suggest that there is undue restriction of freedom of choice and, therefore, coercion/harassment.
But, if the guiding ethic is self interest/reliance, the starting point would be the right of traders to pursue self interest: to insist on this process because it is convenient and because it may reduce some risks of vexatious claims; notwithstanding that the impact on traders of not doing it is less than the impact on consumers when it is done. Then there would be the greater expectation of consumer self reliance-in terms, for example, of being prepared to expect a fair degree of hassle in enforcing rights, to take time to sort it out etc. “Coercion and harassment” and “significant impairment of freedom of choice” would be constructed and understood along these lines: the former requiring quite extreme and unconscionably bad behaviour and the latter requiring quite an extreme impact on consumers.
The “undue influence” general clauseFootnote 126 is also open textured. For instance, how are we to measure when consumers are prevented by pressure from making an “informed decision”? If understood by reference to an ethic of self interest/reliance, a routine interpretation might be that if trader pressure is followed by a formal transparent explanation of risks, consumers have now been enabled to take an “informed decision”; so that there is no undue influence. In other words, the key concepts of “pressure” and “informed decision making” are constructed by reference to the expectation that consumers take self reliant responsibility to withstand pressure and overcome the difficulties involved in reading the standardised information. This allows traders maximum (self interested) scope in terms of sales tactics, so long as they provide standardised transparent explanations of the risks. Such an approach would obviously represent a low level of protection. From a protective perspective, the information is unlikely to be read and even if it is, it is unlikely to overturn the psychological commitment to the transaction that will have been strengthened by the pressure.Footnote 127
VI. Future Prospects for an Autonomous eu Ethic of Protection
This article has highlighted the enormous importance of European general clauses to UK consumer law; the potential that these have brought for improved protection; the unavoidability of reading these by reference to an underlying substantive rationality; and, in this regard, the threat posed to protection by the ethic of self interest/reliance arguably brought to bear by the Supreme Court. But, I would suggest that something more protective may be intended at EU level.
It is true that, in certain respects, EU consumer policy can rightly be depicted as more market and business oriented than protective or socially oriented.Footnote 128 For a start, much of the acquis, including the UTCCD and UCPD, were adopted under art 95 of the Treaty; the fundamental concern of which is completion of the internal market. In addition, the very significant role played by information disclosure rules in the acquisFootnote 129 demonstrates a significant faith in formal transparency; which, as the discussion above has demonstrated, can be said to be in congruence with an ethic of self interest/self reliance. However, this is only a part of the picture. In legislating to complete the internal market, art 95 of the Treaty (under which the UTCCD and UCPD were adopted) provides that the Commission, in its proposals, will take as a base a “high level of protection”.Footnote 130 Further, this “high level of protection” is specified as a fundamental “solidarity” right in article 38 of the Charter of Fundamental Rights (CFR). It is hard to see how a “high level of protection” and “solidarity” can be achieved by an approach based solely on self interest/reliance. Arguably, then, the essential legislative EU ethic (which should inform the way that the general clauses are understood) is at least relatively more protective than that being applied by the Supreme Court.
What of the EU judicial ethic? As far as the ECJ is concerned, there is a mixed picture. Undoubtedly in the barrier to trade cases one might find greater support for the ethic of self interest/reliance. For instance, national transparency rules have been more likely to be accepted as necessary measures of protection; while more substantive protections have often been found to be barriers to trade that are not really needed for consumer protection.Footnote 131 However, the barrier to trade case law is not necessarily a good guide to ECJ philosophy for our present purposes. The starting point in this case law is the Treaty paradigm of free movement/removal of barriers to trade. It is then for national authorities to make the case that a given national rule is necessary for consumer protection in the national context; while not imposing too significant a barrier to trade. It is self evidently easier to satisfy these criteria in the case of rules requiring simple transparency by traders; than it is in the case of rules that impose more substantive restrictions on trader activities. So, in barrier to trade cases there could be said to be inbuilt bias towards limited protection.Footnote 132 But here we are concerned with general clauses contained in directives. The whole point of harmonisation through a directive is that the removal of national rules representing barriers to trade is adjudged not to be sufficient to achieve market integration. Rather, positive harmonisation through a directive is needed. In this context, instead of an inbuilt bias towards relatively limited protection, the role of the ECJ is simply to assess the level of protection intended by the directive in the light of its market integration and other goals (including, e.g. a “high level of protection”).
The ECJ approach to the UTCCD and UCPD is an intriguing one. In one batch of cases it has been quite determinedly protective. For example, it has emphasised the need for precise and clear means of national implementation; and the obligation on national courts to review fairness “ex officio”. Importantly, the Court has said clearly that these interpretations are required in order to recognise the weaker position of consumers and to provide proper protection.Footnote 133
When it comes to the UTCCD and UCPD general clauses, the ECJ has been more neutral; saying that it will tell national courts how to interpret the law; but leave it to national courts to apply this law to the facts.Footnote 134 Certainly, in the cases we have considered, part of what the House of Lords/Supreme Court was doing was indeed applying the law to the facts. So, in First National Bank, it was deciding how the test of unfairness applied to a particular term; and, in Abbey, whether particular terms were “price” terms within the meaning of the law. But, it is arguable that the Court was also “interpreting” the concepts. It was determining whether to measure “significant imbalance”/fairness in substance by reference to business self interest or by reference to the relative socio economic needs of the parties. It was deciding whether labelling a charge as the “price” generally depends on how central the charge is to the bargain (whether it is likely to be subject to market forces); or upon how it is formally depicted in the contract. These are questions about how to understand concepts in the general course of things. They are surely, therefore, issues of interpretation; and can be distinguished from the (albeit closely related and perhaps sometimes overlapping) issues as to how the concepts are then applied to particular terms. The same is surely true of how one measures questions of coercion, harassment and “freedom of choice” (by reference to business self interest or by reference to relative need?); and whether, transparency is routinely sufficient to satisfy “good faith” (in the context of contract terms) or to ensure “informed decision making” where “undue influence” is alleged. Are these not all, in part at least, questions of interpretation?
If these are issues of interpretation, then they would appear to be issues on which the ECJ should provide guidance to national courts. In fact, the ECJ has often, in giving “interpretations”, simply repeated the basic language of the test.Footnote 135 However, now there is also authority to the effect that the interpretive role of the ECJ extends to providing national courts:
“all the elements … which could be useful to decide the case before them … Among the elements which it can provide … the Court could … indicate the criteria allowing it to distinguish between the various possibilities in individual sets of facts”.Footnote 136
The suggestion here does seem to be of a broader interpretive role. Might this involve elaborating on issues such as how to measure fairness in substance and whether or not formal transparency is routinely to be viewed as a “defence” for traders where terms and practices are concerned? If the ECJ was to provide such guidance, there has to be a reasonable chance that it would provide guidance inspired by a protective ethic rather than an ethic of self interest/reliance. This would reflect the “high level of protection” and “solidarity” policies in, respectively, the Treaty and the CFR; as well as being consistent with the avowedly protective approach taken by the Court to issues such as means of implementation and “ex officio” review of fairness.Footnote 137
But, even if the ECJ was to unpack the general clauses by reference to a moderately protective, autonomous EU ethic, this would only be sure to alter the approach of the Supreme Court if the Court was prepared to make an ECJ reference. National courts are supposed to make ECJ references where there is a plausible difference of view over how a rule should be interpreted (i.e. the issue is not acte clair); and where this difference of view would affect the application of that rule to the facts of the case in question.Footnote 138 Yet, so far, the Supreme Court has refused to refer in relation to either the UTCCDD general clause or the price exclusion issue; taking the view that these criteria were not satisfied.Footnote 139
In the light of this, when the OFT next argues for a protective interpretation of one of the general clauses before the UK courts, it is important that it emphasises the support for a protective approach from the Treaty, the CFR and, potentially, the ECJ. It is especially important that the OFT also spells out very systematically the concrete interpretations that flow from such an EU ethic of protection: that fairness in substanceFootnote 140 should be measured by reference to a rigorous comparison of the relative socio-economic needs of the parties; and that “good faith”Footnote 141 and “informed decision” makingFootnote 142 should not, routinely, be equated with formal transparency. The OFT should also seek to highlight the clear difference between such interpretations and those inspired by an ethic of self interest/reliance.
This sort of approach would generally strengthen the case for protective interpretations. However, it might also improve the prospects of obtaining an ECJ reference. This is because it highlights not only that there is a real difference of view over interpretation; but that the more protective interpretations are very plausible (because they may well reflect the EU legislative and judicial ethic). Even then, of course, there will often remain scope to deny a reference by arguing that the differing interpretations would still produce the same result when applied to the facts. However, this scope is surely restricted when the alternative interpretations are rigorously unpacked and contrasted in the way described. Whether, for instance, transparency is, or is not, generally sufficient to satisfy good faith, or ensure an “informed decision”, is a matter that will surely make a real difference to whether or not many terms and practices are found to be unfair. If the Supreme Court were to accept that different underlying ethics do make a real practical difference, we might be closer to an obtaining an ECJ reference. Such a reference might reveal whether general clauses should be understood by reference to an ethic of self interest/reliance or an ethic of protection.
