I. INTRODUCTION
The implementation of Directive 93/13 in the Unfair Terms in Consumer Contract Regulations (‘UTCCR’)Footnote 1 has had a marked impact on consumer contracts in many industries in the United Kingdom.Footnote 2 Both the Directive and UTCCR provide for a dual enforcement regime. Individual consumers may challenge, by way of private litigation, particular terms in their contracts with their sellers or suppliers. These terms will not be binding on the consumer if found to be unfair. In addition, certain public or private organisations may take action in the interests of the public at large to prevent the continued use of unfair contract terms.Footnote 3 In the United Kingdom, it is primarily the Office of Fair Trading (‘OFT’)Footnote 4 that investigates complaints alleging that contract terms drawn up for general use are unfair.Footnote 5 Where the OFT considers such a complaint to be justified it may apply for a court injunction against the persons who use or recommend these and similar terms.Footnote 6 Over the years, thousands of terms have been investigated. The availability of recourse to the courts tends to induce compliance by traders without the need for that formal step to be taken.Footnote 7
This dual enforcement regime applies to any term in a contract concluded between a seller or supplier and a consumer,Footnote 8 unless the term has been individually negotiated, or reflects rules of national law or international instruments.Footnote 9 The most significant limitation on the protective ambit of the regime is contained in article 4(2) of Directive 93/13: ‘Assessment of the unfair nature of the term 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 supplies [sic] in exchange, on the other, in so far as these terms are in plain intelligible language.’ The efficacy of the fairness test at the heart of the protective regime hinges, to a large extent, on the delimitation of the scope of article 4(2).Footnote 10 The difficulties associated with this task were recognised early on, albeit with a focus on the seller or supplier side of the bargain.Footnote 11 However, it has been the ‘price or remuneration’ side that has repeatedly occupied the courts in the United Kingdom, and elsewhere.Footnote 12
The most recent episode in the United Kingdom was the highly publicised litigation initiated by the OFT against seven high street banks and one building society,Footnote 13 regarding terms which impose certain fees for unarranged overdrafts on bank customers. Under current accounts on a ‘free-if-in-credit’ basis,Footnote 14 a bank will be able to use the customer's credit balance, and pay an interest rate substantially lower than what it earns with the money. Where a bank and customer arrange an overdraft facility in advance, the bank may charge a fee for making the facility available and will charge interest on the amount overdrawn. An ‘unarranged overdraft’ occurs where the bank honours a payment instruction or request (by way of payment order, drawing a cheque, direct debit, withdrawing cash at a cash machine, or in any other way) and the customer does not have either sufficient funds in the account, or a sufficient arranged overdraft facility to cover it.Footnote 15 In addition to charging interest on the overdraft, the bank may charge certain feesFootnote 16 in relation to the unarranged overdraft. It was agreedFootnote 17 that the OFT would bring a test case on whether the terms imposing unarranged overdraft charges were exempt from an assessment of fairness under regulation 6(2).Footnote 18 Both the High CourtFootnote 19 and Court of AppealFootnote 20 came to the conclusion that they were not. The Supreme Court,Footnote 21 however, reversed the decision, and ruled that the relevant terms were exempt. This is very problematic in the European context, when German Federal Supreme Court (‘BGH’) decisions on banking related charges are taken into account, as the basis of the BGH reasoning, as well as the outcome for similar charges, is radically different from the solution adopted by the Supreme Court. The disparity in analysis and outcome among national courts, and across borders, contrary to the harmonization objective of the Directive, merits a closer look at article 4(2), and an attempt to provide a more coherent approach to its interpretation in respect of price terms.
Given the opaque language of the provision, any attempt must rest on the underlying rationale of Directive 93/13 and the reason for subjecting contract terms to fairness assessment. Directive 93/13 emerged as a compromise between two conflicting regulatory ideologies that obtained at the time in the Commission and the Council, respectively; the consumer rights approach trying to ensure a ‘good’ bargain for consumers, and the free markets and competition approach relying on the corrective forces of the market. No provision reflects the tension between both ideologies more clearly than article 4(2). This inherent conflict renders a coherent and consistent interpretation very difficult. From the point of view of the consumer rights approach, article 4(2) is an alien provision and should have no room in the Directive at all. The free market and competition approach carries the seed for a solution, but remains underdeveloped in respect of price terms. Neither approach can explain the European Court of Justice (‘ECJ’) case law on Directive 93/13. However, help is at hand in the form of a third rationale, essentially a refinement of free market and competition, which rests on the idea that consumers often accept standard contract terms unread because reading, searching for and negotiating better terms is just not worth the effort. In this situation, rational sellers and supplier may, with impunity, decrease the quality of their contract terms by imposing (additional) risks on consumers. What ensues is a ‘race to the bottom’ where, in the long run, the most detrimental contract terms for consumers are likely to prevail. Comparing this to the market for second hand cars, Akerlof has described this phenomenon of adverse selection as the ‘market for lemons’ (bad cars are called ‘lemons’ in the US).Footnote 22 It applies equally to contract terms when viewed as a product (or as part of the product purchased).Footnote 23 The ‘market for lemons’ rationale provides a neat justification for the existence of Directive 93/13 in its internal market context, and can more easily explain the ECJ case law to date. It should, therefore, also form the basis for the delineation of price terms.
Such delineation must be embedded within the regulatory structure of article 4(2). It is not clear, however, where within that structure price terms reside. Are they part of the ‘main subject matter of the contract’ or do they find their homestead under the ‘price or remuneration’ prong of the provision. The answer is obvious only at first sight, and will be relevant for a further question, raised in Abbey National, relating to the effect of article 4(2); does the provision exempt price terms from fairness assessment in their entirety (‘excluded term construction’) or merely in respect of certain fairness criteria (‘excluded assessment construction’)?
When it comes to the definition and delineation of exempt price terms, a review of the case law in the United Kingdom and Germany reveals three basic approaches with differences in reasoning and outcome: the ‘exchange approach’, the ‘essence of the price approach’ and the ‘monetary consideration approach’. The former two reflect the consumer rights tradition to a greater or lesser extent; while the latter is a radical application of the free market and competition rationale. These approaches are unsuitable as the basis for a coherent interpretation of article 4(2). By contrast, the ‘market for lemons’ rationale allows for a clear delineation of exempt price terms in relation to other, non-exempt terms and enables national courts and the ECJ to ask the right questions.
The decisions of the highest courts of two important Member States show significant incongruence on banking related price terms. Thus, it would be desirable in the interest of cross-border legal certainty if the ECJ were to speak a clarifying word on this issue. However, despite ample opportunity, the highest courts of Member States have so far not complied with their duty to refer to Luxembourg. When the time comes, the Court should have the courage to provide clear guidance on the basis of the ‘market for lemons’ rationale that best accords with the substance of its case law on Directive 93/13.
II. THE RATIONALE OF DIRECTIVE 93/13
The wording of article 4(2) and recital 19 provides very limited guidance on the definition and delineation of the terms that are exempt from fairness assessment. A satisfactory interpretation of article 4(2), in respect of price terms, can only be achieved on the basis of a persuasive rationale for subjecting contract terms to judicial or administrative fairness control. This rationale must fit the existing legal landscape, consisting of the Directive and its Treaty basis, as well as the case law of the ECJ. The contract terms that should be exempt from fairness control may then be identified on the basis of this rationale. The two conflicting philosophies that informed the Directive when it was drafted and issued can be easily identified on the basis of legislative history. However, neither approach can sufficiently explain the Court's case law on Directive 93/13, nor why only certain price related terms should be subjected to fairness control.
A. Consumer Rights Versus Free Market and Competition
When issued more than fifteen years ago, Directive 93/13 encapsulated a compromise between, on the one hand, a consumer rights approach advocated by the Commission and, on the other hand, an approach committed to a belief in the correcting effect of free markets and competition that prevailed in the Council.Footnote 24 The first two proposals issued by the Commission were drafted with a view to subjecting every term in a consumer contract to a standard of fairness irrespective of whether it was individually negotiated or not. The Commission felt that it should be possible to assess the fairness of any contract, or contract term, and to invalidate it if it did not comply with the substantive standard of fairness protecting the economic interests of consumers provided for by the Directive.Footnote 25 Thus, consumers should be entitled to rights protecting their economic interests against businesses abusing their economic, social, psychological and intellectual superiority. They should receive good value for money and their legitimate expectations should be fulfilled.Footnote 26
This has generated substantial criticism, in particular from Germany. According to Ulmer and Brandner,Footnote 27 subjecting any type of consumer contract to fairness control would be a considerable dilution of the principle of a free market economy, and would replace contractual negotiations to a large extent with pre-established statutory or judicial provisions. This lacked justification as functioning markets, in principle, ensured that consumers were generally not disadvantaged when entering into a contract. Moreover, in a free market economy, parties to a contract were free to shape the principal obligations as they see fit. Thus, subjecting the reasonableness or equivalence of the relationship between the price and the goods or services to any control by the courts or administrative authorities would be ‘anathema to the fundamental tenets of a free market economy’. In their view, the inappropriate assessment of fairness should be replaced with improving transparency in respect of the principal obligations under the contract. This would help the market mechanism to prevent any imbalance between the parties’ rights and obligations.Footnote 28
The Council of Ministers’ Common Position of 22 September 1992 restricted the scope of the Directive to terms that have not been individually negotiated. As a compromise at the heart of the Directive, it also introduced article 4(2) and Recital 19 in their final form in order to ‘clarify the procedures for assessing the unfairness of terms and to specify their scope while excluding anything resulting directly from contractual freedom of the parties (eg quality/price relationship)’.Footnote 29 Thus, in accordance with Ulmer and Brandner,Footnote 30 whether, and in what form, a product or service may be offered would be a free business decision for the seller or supplier. The prices that they will be able to charge for their products or services are to be determined by the laws of supply and demand.
The European Union (‘EU’) (or EC as it then was) has a competence for the harmonization of contract law only in order to facilitate the establishment of the internal market.Footnote 31 Thus, a market based approach was always bound to prevail in order to justify the Directive in light of its legal basis; disparities in the laws of the Member States in respect of contract terms may result in distortions of competition,Footnote 32 and consumers may be deterred from direct cross-border transactions due to a lack of awareness regarding the applicable contract law.Footnote 33 However, the consumer rights approach is still present and forcefully stated in recital 9: ‘acquirers of goods and services should be protected against the abuse of power by the seller or supplier, in particular against one-sided standard contracts and the unfair exclusion of essential rights in contracts.’Footnote 34 It has been submitted early on that the tension between these two conflicting rationales would make it difficult to coherently interpret and apply the Directive.Footnote 35 This is particularly true for article 4(2) at the heart of the compromise embodied in the Directive.
The difficulties stem from the fact that no clear hierarchy is discernable between the consumer rights approach and the free market approach. Moreover, on the basis of the consumer rights approach, article 4(2) is an alien provision within the Directive's regulatory landscape.Footnote 36 Consequently, its ambit is to be restricted in one way or another, so as to protect consumers to the greatest possible extent. No persuasive criteria can be advanced in order to prevent paternalistic interference with the bargain struck between the parties by exercising their private autonomy. By contrast, under the free market and competition approach, article 4(2) is a central component of the protective regime. The assumption is that as long as the principal obligations and the price are transparent the market mechanism will prevent any imbalances between parties’ rights and obligations.Footnote 37 Other ancillary terms may be subject to fairness control because consumers cannot appreciate the consequences of these terms, sellers and suppliers can dictate them arbitrarily, and competition in respect of these terms will not ensue.Footnote 38 However, in respect of price terms the concept remains underdeveloped. Terms, which directly determine the price, will be exempt as long as they are ‘market conform and not irregular’ in respect of their presence within the contract, not necessarily their content. By contrast, terms with only an indirect influence on the price are subject to fairness control.Footnote 39 No concrete criteria are being advanced for distinguishing direct price terms from terms with only an indirect impact on the price. Given that from an economic point of view all terms of a contract have a more or less direct impact on the price, the diffuse concept of ‘directness’ is not particularly helpful. Neither are the criteria of market conformity and regularity; many terms traditionally subject to control are also often market conform and not irregular.Footnote 40 Moreover, the assumption that direct price terms if transparent are always subject to the correcting forces of market and competition leave no room for situations where this might not be the case.
Neither approach, as it stands, can fully explain the case law of the ECJ on Directive 93/13 as it has developed over the last decade in the context of the internal market. However, help is at hand in the form of a third alternative that is emerging ever more clearly from the Court's case law.
B. The ‘Market for Lemons’ Rationale
To date Directive 93/13 has been interpreted by the ECJ in fourteen decisions—four infringement proceedingsFootnote 41 and eleven preliminary rulings.Footnote 42 Although superficially the Court appears to favour the consumer rights approach on the basis of the notion of an ‘inequality of bargaining power’,Footnote 43 the substance of the Court's case law on Directive 93/13 is more subtle and can best be explained on the basis of the ‘market for lemons’ rationale.Footnote 44
According to this approach, the customer accepts the standard contract terms of his seller or supplier, not because of his weakness in terms of knowledge and wealth, but because it is not worth the effort to go through the small print and to fight for an alteration or to examine the offers of competitors in order to find more favourable terms. People make decisions under conditions of bounded rationality.Footnote 45 They choose decision strategies that are a compromise between their desire for complete accuracy and their desire to achieve other goals such as minimization of cognitive effort. When making decisions, people tend to expend only as much effort as is necessary to reach a satisfactory, rather than an optimal decision.Footnote 46 Thus, a consumer will engage in searching and bargaining only up to the point at which the expected marginal benefits equal the marginal (opportunity) costs.Footnote 47 Where the probability of the materialization of a risk and/or the expected costs in that case are relatively low, the transaction costs resulting from negotiations and the search for better offers will often exceed the benefits. Moreover, because of unrealistic optimism and overconfidence, people tend to think that bad things are far less likely to happen to them than others.Footnote 48 This further reduces the subjective net worth of a search effort. As a result, consumers will be unaware of many aspects of a standard form contract. Many of its features will not be factored into, and will not be relevant for, the decision of the consumer to enter into the contract. In this respect, the standard form contract is similar to, and can be seen as part of, the product or service the consumer purchases.Footnote 49 Whilst some attributes will be salient, of many others, be they physical, experiential or legal, the consumer will not be fully aware or only vaguely aware if at all.Footnote 50 As such, this state of affairs is no reason for concern. Consumers assign value to a product and contract features in accordance with their preferences. Not reading or negotiating standard contract terms allows them to make the best use of their time in order to attain alternative goals for the benefit of the individual consumer and society as a whole. Moreover, the transaction cost savings generated by using standard form contracts could hardly be achieved if terms were subject to endless re-negotiation.
However, sellers and suppliers have an incentive in this situation to use standard contract terms to shift certain risks they do not want to bear to their customers.Footnote 51 They do not have to be concerned about the loss of customers because these will be unaware of competing offers that would provide them with more favourable contract terms and a better price/quality ratio.Footnote 52 What ensues is Akerlof's ‘market for lemons’Footnote 53 in respect of contract terms. Those sellers and suppliers who use low quality contract terms will gain an advantage in the market as they can offer their products and services for lower cost; others have no choice but to follow suit.Footnote 54 Adverse selection is likely to result in a ‘race to the bottom’ towards, in the long run, contract terms that are the most disadvantageous for customers.Footnote 55 It could be that, where customers are insensitive towards certain contract (or product) attributes, the process of adverse selection in fact results in market equilibrium, in the sense that sellers and suppliers offer precisely what consumers want. However, the danger is that consumers who are averse to a certain risk may not value the overall product highly enough in order to expend the time and money to search for, or negotiate, better terms in respect of that risk. Rather, they may refrain from purchasing the product or service at all; whereas they would have entered into the contract, even for a higher price, if the risk allocation had been more favourable. If that is the case, welfare enhancing transactions may not be carried out, an otherwise viable market may not come into existence, or customers may desert an existing market and the market may disappear.Footnote 56
In order to prevent this form of market failure it is necessary to provide for an effective control mechanism.Footnote 57 This requires an effective procedure guaranteeing that suspect terms will be subjected to review by an independent third party, and will be disapplied or prohibited if found to be objectionable. In order to prevent the market from failing, it is sufficient to guarantee that the outcome of the review procedure is completely unpredictable to either of the contracting parties. Sellers and suppliers will be aware of the risk that their terms will be disapplied or prohibited if judged to be objectionable. Customers/consumers, and the organisations representing their interests, will equally be aware of the situation and will challenge only those terms that from their point of view are likely to be unjustifiable. Sellers and suppliers will realise that they will lose out if they go too far. Their rational strategy will therefore be to provide unobjectionable terms. The formulation of a mandatory substantive standard of any specificity is unnecessary; rather, unpredictability is essential to tackle the market failure effectively.Footnote 58 Moreover, in areas where the conduct to be regulated varies greatly, as is the case with standard contract terms, it is more efficient not to attempt to provide precise guidelines ex ante and to deal with every situation as it occurs.Footnote 59
This is indeed the pattern that the substance of case law on Directive 93/13 accords with. In a string of decisions the ECJ has significantly strengthened the procedural and remedial aspects of the Directive. The power of a court to review a term of its own motion,Footnote 60 and in disregard of national procedural restrictions,Footnote 61 as well as the extension of the collective procedure to merely recommended terms,Footnote 62 enhances the effectiveness of the review procedure, thereby strengthening the incentive for sellers and suppliers to use unobjectionable terms.
By contrast, the Court has refused to provide any guidelines for even a minimum standard of substantive consumer protection. In Océano, the Court judged a term, conferring exclusive jurisdiction on the court where the seller or supplier had its principal place of business, to be unfair.Footnote 63 However, since Freiburger Kommunalbauten, the Court has repeatedly held that it may not rule on the application of the general criteria used by article 3(1) to define the concept of ‘unfair term’ in respect of a particular term, which must be considered in the light of the particular circumstances of the case in question; rather, it is for the national court to decide whether a contractual term is to be regarded as unfair under the Directive.Footnote 64 If it was the purpose of the Directive to restore an effective balance between the rights and obligations of the parties distorted by an inequality of bargaining power, the Court's case law would have to provide at least an indication as to what an effective balance should look like. Pursuant to the rule in Freiburger Kommunalbauten, this is something the Court will not, and cannot, do.Footnote 65 Despite paying lip service to the consumer rights approach, and the notion of ‘inequality of bargaining power’, this case law can neither be explained nor justified in the light of this rationale. By contrast, under the ‘market for lemons’ approach the formulation of a mandatory substantive minimum standard of any specificity is unnecessary in order to tackle market failure effectively and efficiently.Footnote 66 This is consistent with, and neatly explains, the Court's cautious approach in respect of the standard of fairness under article 3 and the merely informative nature attributed to the provisions in the Annex.Footnote 67 Moreover, since Akerlof's ‘market for lemons’ is a specific form of market failure, any EU instrument which tackles this market failure can be justified much more easily on the basis of the internal market competence, at least when invoking the aim of enhancing cross-border economic activity.Footnote 68
Thus, the ‘market for lemons’ rationale can seamlessly explain the ECJ's case law on Directive 93/13Footnote 69 to date, and fits well with the internal market competence. Moreover, it is able to provide coherent and workable criteria for the definition and delineation of price terms. However, before the potential of the ‘market for lemons’ rationale in this respect can be explored, a closer look at the structure and effect of article 4(2) is in order.
III. STRUCTURE AND EFFECT OF ARTICLE 4(2)
The concept of ‘price terms’ is embedded within the regulatory structure of article 4(2) and national implementing legislation. Since the language and structure of article 4(2) and Recital 19 are inherently obscure,Footnote 70 it is far from clear where within that structure price terms are to be allocated and, consequently, what the actual effect of article 4(2) is in respect of price terms. National implementing legislation does not contribute much to the clarification of these issues. In the United Kingdom, Directive 93/13 was transposed using the ‘copy out’ method with only minor changes to the text of the Directive. The obscurity was maintained in UTCCR 1999 regulation 6(2):
In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate –
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.Footnote 71
By contrast, Germany retained its AGBG of 1976Footnote 72 with minor adaptations. These provisions were subsequentlyFootnote 73 incorporated into the Civil Code (‘BGB’).Footnote 74 BGB section 307(3) provides that the provisions which render an unfair contract term void apply only to ‘terms in standard contracts by which the parties agree to deviate from, or supplement, statutory default provisions’.Footnote 75 The general assumption is that this provision is in line with the objective of article 4(2) or at least can be interpreted in that way.Footnote 76 This is because the nature and content of a product or service and its price are in principle not regulated by law. Therefore, the agreement as regards the mutual main obligations of the parties—delivery of a product/supply of a service and payment of the price—cannot deviate from legal provisions since no such provisions exist.
In any case, article 4(2) is the leading text and determines structure and effect in respect of price terms in relation to these national implementation measures.
A. Structure of Article 4(2)
The first issue concerns the location of price terms within the structure of article 4(2). Are they part of the ‘main subject matter of the contract’, or do they fall under the ‘adequacy of price and remuneration’ prong of the provision?Footnote 77
In Abbey National, Smith J at first instance was certain that price terms fell under the second limb of regulation 6(2) (‘adequacy of price or remuneration’) only.Footnote 78 This was not challenged on appeal. The Court of Appeal did, however, express the view that regulation 6(2)(b) was to be construed in the context of the whole regulation including paragraph (a).Footnote 79 According to Lord Walker in the Supreme Court, the two paragraphs of regulation 6(2) set out tests which are separate, but not unconnected, reflecting (in slightly different ways) the two sides (or quid pro quo) of any consumer contract.Footnote 80
The weakness of this view stems from the fact that terms which ‘define’ or ‘describe’ the price/quality ratio or even the ‘adequacy of the price/quality ratio’ do not seem to exist in practice.Footnote 81 Of course, there will be terms regarding price and remuneration which may allocate certain costs among the parties, may refer to a certain tariff or index, or may provide one party with the right to determine the price. However these terms do not have the ‘adequacy of the price/quality ratio’ as their subject matter; they merely have a bearing on the price/quality ratio as most or even all other contract terms do. Therefore, the second limb of article 4(2) cannot be understood as referring to particular terms of the contract. It can only be understood as exempting the contract and all its clauses from control in respect of the price/quality ratio.Footnote 82 This means that the price/quality ratio is never subject to control as there is no legal standard that could provide any guidelines for such a control.Footnote 83 This is (part of) the essence of Ulmer and Brandner's criticism of the first proposal.Footnote 84
This leaves the first limb of article 4(2), the ‘definition of the main subject matter of the contract’. Under German law, this phrase is indeed treated as including both sides of the bargain: the terms which define the seller's or supplier's main obligation under the contract, as well as the consumer's main obligation.Footnote 85 The latter will usually consist of the payment of the price for the goods delivered or the services supplied. But this need not be so.Footnote 86 The consumer may undertake to deliver, as part of the purchase price, goods in exchange. A typical example would be the trading in of an old car when buying a new car. Moreover, the consumer may actually be the ‘seller’ (in the traditional sense of the term); he may, for instance, sell the ‘family silver’ to a professional buyer on the latter's contract terms. Directive 93/13 would still apply. Given these constellations, it seems to be clear that the ‘definition of the main subject matter of the contract’ encompasses both the goods or services supplied and the consumer's consideration, irrespective of what this consideration may comprise.Footnote 87
B. Effect of Article 4(2)
This resolves a second issue addressed, obiter, by Smith J in Abbey National; if a term falls within the ambit of article 4(2) does this mean that any assessment of its fairness would be excluded (‘excluded term construction’), or merely that an assessment in respect of certain types of issues, in particular the adequacy of the price, is excluded (‘excluded assessment construction’)?Footnote 88
In First National Bank Footnote 89 the excluded term/excluded assessment issue was not discussed. However, certain language used by their Lordships seemed to suggest that they were in favour of an excluded term construction.Footnote 90 By contrast, in Abbey National, Smith J adopted the ‘excluded assessment construction’.Footnote 91 This conclusion was based primarily on the wording of regulation 6(2), article 4(2) and Recital 19, making it clear that assessment shall not relate to the exempted issues. The judge's conclusion was accepted by both parties and therefore was no longer an issue for the Court of Appeal,Footnote 92 or Supreme Court. It was however pointed out by Lord Walker and Lord Phillips in the Supreme Court that the issue might become one of great practical significance in the future.Footnote 93
By contrast, under German law the ‘excluded term construction’ seems to be universally accepted.Footnote 94 In many cases regarding the fairness of price relevant terms the BGH held that terms that regulate the main subject matter of the contract and directly the price to be paid for it ‘are not subject to assessment of fairness’.Footnote 95 This result finds its justification in the implementing legislation of BGB section 307(3), which clearly excludes certain terms from assessment, rather than limiting the issues that may be taken into account in assessing a certain term.
The ‘excluded assessment construction’ is more consumer friendly as it restricts assessment of a term only in respect of certain criteria and not completely. Under this construction, a term may still be found to be unfair on the basis of the non-excluded parameters. Thus, German law would be in accordance with Directive 93/13 only if the ‘excluded term construction’ was the minimum standard provided for by article 4(2). By contrast, the stricter ‘excluded assessment construction’ under United Kingdom law may still be compatible with Directive 93/13, even if article 4(2) requires an ‘excluded term construction’.Footnote 96 In the course of her reasoning in Ausbanc Footnote 97, AG Trstenjak discussed the question whether article 4(2) restricts the ambit of the Directive or merely provides that the consequences of article 6 do not apply to terms covered by article 4(2).Footnote 98 Given the universal application of the principles of transparency, AG Trstenjak rightly came to the conclusion that article 4(2) does not restrict the ambit of the Directive, but its fairness test. The Court followed the reasoning of its Advocate General in this respect.Footnote 99 However, on the ‘excluded term/excluded assessment’ dichotomy, neither the Advocate General nor the Court expressed a clear view.Footnote 100
Article 4(2) must be interpreted in the context of articles 3 and 4(1). These provisions define the standard of fairness and the criteria to be taken into account. This, and recital 19 in the English language version, seems to support the ‘excluded assessment construction’.Footnote 101 However, in the German language version, recital 19 supports the ‘excluded term construction’, as it states that ‘for the purposes of this Directive, terms which describe the main subject matter of the contract or the price/quality ratio must not be judged to be unfair’. As stated above, the second limb of article 4(2) exempts the contract and all its clauses from control in respect of the price/quality ratio.Footnote 102 If assessment of the fairness of a term may not relate to the definition of the main subject matter of the contract (including the definition of the price, in distinction form the price/quality ratio) and a term is a definitional term, with no other content, there seems to be no room for an assessment of this term on the basis of any other criteria. Thus, in respect of these definitional clauses there seems to be no difference between the ‘excluded term construction’ and the ‘excluded assessment construction’.Footnote 103
In short, price terms as part of the ‘main subject matter of the contract’ are not subject to fairness assessment.
IV. Price terms
The essential question is, therefore, how precisely to identify price terms that fall within the ambit of article 4(2). Since they are part of the ‘main subject matter of the contract’, a definition of this concept would seem to provide a natural starting point.
The BGH has adopted a restrictive approach. According to well settled case law, terms are exempt from assessment only if they define the narrow area of mutual obligations in such a way that without these terms there cannot be a valid contract due to a lack of specification and determinability of its main content.Footnote 104 Conversely, terms that regulate the mutual obligations in deviation from statutory provisions or from the demands of good faith and good commercial practice, and could thus be substituted by default provisions, will be subject to assessment. This restricts the ambit of article 4(2) to the essentialia negotii. These are those terms of a contract that are necessary in order to complete the agreement. Where agreement has not been reached in respect of the essentialia negotii no contract will come into existence for lack of clarity of the mutual rights and obligations.Footnote 105 The weakness of the BGH's approach stems from its reference to codified default provisions and the demands of good faith. This renders a uniform interpretation across the EU almost impossible. What is codified, and what is not, differs from Member State to Member State; the same goes for the demands of good faith and good commercial practice.
The House of Lords have also adopted a restrictive interpretation, on the basis of a distinction between the ‘substance of the bargain’ and its ‘incidental terms’. Under UTCCR 1994 regulation 3(2), the House of Lords discussed the definition of price terms in First National Bank Footnote 106 in respect of a ‘default term’ which provided that interest would continue to accrue on the outstanding balance ‘after as well as before’ a consumer's payment obligation was reduced to judgment. In order to protect the parties’ freedom of contract with respect to the essential features of their bargain, Lord Bingham distinguished between terms which express the ‘substance of the bargain’, and ‘incidental terms’ which surround them. In order not to frustrate the objective of consumer protection, regulation 3(2) was to be interpreted narrowly so as to cover only those terms ‘falling squarely within it’.Footnote 107 Similarly, Lord Steyn argued for a ‘restrictive interpretation’ also in respect of the ‘adequacy of price and remuneration’. As an ancillary or subsidiary ‘default provision’ dealing with secondary liability, the term in First National Bank was not exempt from assessment.Footnote 108 Under this approach the delineation of ‘substance of the bargain’ and ‘incidental terms’ seems to be based on mere intuition. This is not very helpful in a commercial context.
Moreover, as regards price terms, the essentialia negotii notion can only provide a first approximation. Since, as Lord Steyn has put it, in a broad sense all terms of the contract are related in some way to the price or remunerationFootnote 109 and because a multitude of different constellations are possible, further criteria are necessary in order to provide workable guidelines. The approaches adopted by national courts in this respect vary widely and are conflicting. To a greater or lesser extent, these approaches reflect either the consumer rights philosophy or the free market paradigm. They all have deficiencies that render them unsuitable as a basis for a coherent interpretation of article 4(2). By contrast, the ‘market for lemons’ rationale can provide workable guidelines for the identification of price terms that allow national courts and the ECJ to ask the right questions.
A. Exchange for Goods or Services
The BGH distinguishes between price terms that directly regulate the price or remuneration as ‘the consumer's essential obligation’ and ‘ancillary (price) terms’.Footnote 110 Although the latter may have an indirect impact on the price, in the absence of a valid agreement, they may be substituted by statutory default provisions. Statutory default provisions in that sense are not just provisions that are codified, but also generally accepted legal principles and the essential rights and obligations of the parties as they follow from the nature of the respective contractual relationship. A seller or supplier may, according to general principles, claim a price or remuneration only for goods or services actually delivered or supplied on the basis of a contractual arrangement. A term which imposes a payment obligation that is not related to such an actual delivery or supply, but merely seeks to indemnify the seller or supplier for expenses that he incurred in discharging his own statutory obligations, is a term that deviates from statutory provisions and is therefore an ancillary term subject to assessment. Thus, the BGH assesses whether terms with an impact on price or remuneration relate to an actual delivery or supply in exchange.Footnote 111 A term in a current account contract that imposed an annual fee on the customer where, on the customer's request, the bank did not collect tax payable on the interest earned by the customer was, on this basis, held by the BGH to be an ancillary term not exempt from assessment.Footnote 112 Not to collect tax in accordance with such a request was not a service that the bank supplied to its customer. Similarly, a term in a discount brokerage contract imposing a fee on the customer for transferring securities from one account to another was held to be an ancillary term subject to assessment as the transfer occurred in discharge of the customer's statutory claim to repossess securities which was to be effected by book entry.Footnote 113
This may be contrasted with one of the leading cases where the BGH held that a term in a credit card contract providing for an additional fee where the card was used abroad was an exempt price term.Footnote 114 Qualifying the principles stated above, the court held that a term which imposes fees for additional services which are not part of the supplier's main obligations can be price terms if there are no statutory provisions dealing with the additional service. There was no statutory model of a credit card contract. Hence, the structure of the services as well as the price charged for these services were to be determined by the supplier. The normal services of the credit card provider were paid for with an annual basic charge. The additional fee for credit card use abroad was justified as consideration for an additional service for which no statutory default provisions existed. Similarly, terms imposing a charge for ATM transactions were held to be exempt price terms as the provision of ATMs amounted to a specific service provided by the bank for which no statutory default provisions existed.Footnote 115
Reflecting the consumer rights notion (‘value for money’), this approach subjects to control all those price related terms that impose a charge on the consumer merely incidentally and not in exchange for a (further) benefit bestowed on the consumer not already paid for by the actual price as part of the ‘main subject matter of the contract’. The BGH's approach is an objective one that rests and depends on the applicable default provisions provided by statutes, general legal principles or the nature of the contract. The reference to the nature of the contract, in the absence of codified law, is obviously circular. Moreover, in a market economy committed to the principle of contractual freedom it is for the parties to decide which events may trigger payments and what are the composite elements of monetary consideration which may consist of separate payments to be paid for an overall package of services.Footnote 116 Also, in principle there is nothing wrong with passing on to the consumer costs generated by discharging the supplier's own statutory obligations.Footnote 117 As such, the fact of passing on these costs does not justify, without more, subjecting contract terms to judicial control. The consumer may still receive good value for money and the market may still work properly.
These latter considerations also apply to the approach adopted by Smith J in Abbey National at first instance. This approach also rests on the notion of exchange. It is, however, essentially subjective in nature, protecting the legitimate expectations of consumers. On the basis of First National Bank, Smith J concluded that a payment was part of the ‘essential bargain between the parties’ only where, from the point of view of the average consumer, the payment is clearly recognisable as payable by way of exchange.Footnote 118 Even where the bank provides a specific service,Footnote 119 as when making a payment upon a relevant instruction and providing an unarranged overdraft,Footnote 120 the relevant charges were not, or could not, be recognised by the typical consumer as the price or remuneration in exchange for these services when he opens an account.Footnote 121 Consequently, the judge held that the relevant terms were not price terms and, therefore, not exempt from assessment under UTCCR.Footnote 122
By contrast, under the BGH's objective approach, whether the charges are recognisable by the typical consumer as the price in exchange for a service would be irrelevant.
B. The Essence of the Price
The ‘exchange approach’ allows for treating as exempt price terms all terms that impose a payment obligation in exchange for actual delivery or supply, even where the goods delivered or services supplied are not at the centre of the bargain. Consumer protection may be taken further by accepting as price terms only those terms that stipulate the price for the essential obligation of the seller or supplier, which motivated the consumer to enter into the contract in the first place.
This approach seems to have been adopted by the Court of Appeal, per Sir Anthony Clark MR, in Abbey National.Footnote 123 On the basis of the reasoning in First National Bank, the purpose of regulation 6(2)(b) was to limit the exclusion to the ‘essence of the price’ for the reason that ‘the parties would be likely to (or might well) negotiate the main subject matter of the contract and the essential price but not the detail.’Footnote 124 Consequently, the notion of ‘essential bargain’ was to be imported into the construction of article 4(2), and into both paragraphs of regulation 6(2).Footnote 125 The Court of Appeal came to the conclusion that the relevant terms were not part of the essential bargain.Footnote 126 They were not the subject of bargaining between the customer and the bank. Customers did not choose one bank in preference to another on the basis of the difference between relevant terms. The relevant terms were not at the forefront of the banks’ advertising and the relevant charges were contingent.Footnote 127 These were strong indicators that the relevant terms were incidental or ancillary provisions, and not core terms.Footnote 128
This was severely criticised by the Supreme Court. The broad test converted the simple language of regulation 6(2)(b) and article 4(2) into a complex and uncertain value judgment.Footnote 129 The Court of Appeal's reliance on the notion of an actual negotiation, in order to determine exempt price terms, was an unnecessary duplication since Directive and Regulations are in any case only concerned with contractual terms that were not individually negotiated.Footnote 130
However, the general idea of price terms relating to the essence of the bargain may derive some support from certain decisions of the BGH. In BGH, 30/11/1993—XI ZR 80/93Footnote 131 it was held that terms in a current account contract that imposed charges for cash withdrawals and cash deposits at the bank's counter were ancillary terms subject to assessment. In particular, the provision of cash withdrawals and the acceptance of cash deposits were not part of the essence of the service that the bank provided to its customer; rather the ‘main subject matter’ of the contract was the provision of on-line transfers.Footnote 132 The respective terms were ancillary terms which could be substituted by statutory default provisions.Footnote 133 Under these default provisions, the respective services were free of charge.Footnote 134
C. ‘Monetary Consideration’
The approach adopted by the majorityFootnote 135 of the Supreme Court in Abbey National is situated at the opposite end of the spectrum. The purpose of the Regulations was not consumer protection but consumer choice.Footnote 136 Based on the language of the Directive and Regulation, the main subject matter of the contract may be goods or services. Where the goods consist of a multiplicity of items or the services are composite, there was no principled basis on which the court could decide that some services are more essential to the contract than others.Footnote 137 The services that banks offer to their current account customers were such a package of services. Deciding which prices are essential was equally difficult and regulation 6(2)(b) did not contain any indication that only an ‘essential price or remuneration’ was relevant. Any monetary price or remuneration payable under the contract would naturally fall within the language of regulation 6(2)(b).Footnote 138 Banking services to current account customers constituted a package, as did the consideration that moves from the customer to the bank.Footnote 139 Accepting the reasoning of Lord Steyn and Lord Bingham in First National Bank, Lord Walker reached the conclusion that the relevant terms did fall ‘squarely’ within regulation 6(2)(b). Whereas delivery of goods or peripheral extras may be regarded as ancillary for the purposes of regulation 6(2)(a), the charges for them, if payable under the same contract, are part of the price for the purposes of paragraph (b).Footnote 140 According to Lord Mance, article 4(2) and regulation 6(2) could loosely be described as being concerned with the assessment of ‘core terms’, but this was on the basis that price and remuneration always fell within them.Footnote 141 The requirement of transparency being met, the consumer is assumed to be capable of reading the relevant terms and identifying whatever is objectively the price or remuneration under the contract.Footnote 142
Applying these considerations to the relevant terms, Lord Walker held that the relevant charges were monetary consideration for the package of banking services. They were an important part of the banks’ charging structure, amounting to over thirty percent of their revenue stream from their personal current account customers. Their contingent character for many customers was irrelevant, as was, in principle, the number of customers who incurred them and the part they formed of the banks’ revenue stream.Footnote 143 While the incurring of relevant charges may well be something that customers would like to avoid, it was a clearly explained and a very important feature of the overall package. Even if the ‘essential bargain’ approach was correct, the Court of Appeal should have held that charges amounting to thirty percent of the revenue stream were part of the core or essential bargain.Footnote 144
This approach appears to be in line with the free market and competition rationale. As an eminent German writer observes, in respect of the functioning of competition, it is irrelevant whether the price is contained in one term or dispersed across terms, as long as the consumer has at his disposal the necessary information to compare the terms of different suppliers and to decide on the basis of that comparison.Footnote 145 However, their Lordships fail to provide any criteria as to how to identify and differentiate the terms providing for ‘monetary consideration’ from other terms.Footnote 146 Lord Walker's main point seems to be that the relevant charges are an important part of the bank's revenue structure. This argument is irrelevant from the point of view of the consumer rights approach, but it also has no bearing on the free market and competition rationale. Despite the banks’ charging structure, market and competition may not function properly. There may be a monopoly with no choice for consumers at all. By contrast, Lord Mance's argument rests on the notion that a consumer, entering into a free-if-in-credit account, accepts the relevant charges, so long as they are transparent, as part of the bargain. But this is true for all transparent contractual terms, including clauses that exclude liability or ‘default terms’ of the First National Bank variety. There is no justification why the former should be exempt from assessment and the latter should not. Overall, the Supreme Court's approach seems to be overly formalistic.Footnote 147 It neither considers nor reflects the reasons why standard contract terms are subjected to fairness review in the first place.Footnote 148 No persuasive criteria for the delineation of price terms are provided.
The Supreme Court's decision may be directly contrasted with BGH, 21/10/1997—XI ZR 5/97. The issue there was the fairness of terms in a current account contract that imposed charges where the bank refused to carry out a payment instruction—by standing order, direct debit, cheque or bank transfer—due to an insufficiency of funds in the respective account. These terms were held to be non-exempt ancillary terms. A service provider may charge only for services he actually provides to the customer on a contractual basis. Any price-related term that does not relate to an actual service provided to the customer, but seeks to indemnify the supplier for expenses incurred for discharging his statutory obligations or in pursuance of his own interests, are terms deviating from statutory default provisions, and are, thus, ancillary terms subject to assessment. Where the bank rejects a payment instruction due to insufficient assets it does not provide a service to the customer but acts exclusively in its own interest.Footnote 149 In a later decisionFootnote 150 the BGH held, in respect of cases where a direct debit instruction is returned due to insufficient funds, that the customer has no obligation vis-à-vis his bank to maintain sufficient funds in order to carry out direct debits. In the case of direct debits, the payor's bank does not act upon an instruction coming from the payor; rather it receives an instruction from the payee's bank. Thus, only in its own interest and in the interest of the payee's bank does the payor's bank verify and decide whether to debit its customer's account or not.
Thus, in respect of ‘unpaid item charges’,Footnote 151 the outcome of the BGH's line of reasoning is clearly in conflict with the Supreme Court's decision. However, if faced with ‘guaranteed paid item charges’Footnote 152 the BGH's conclusion should be the same as the Supreme Court's. In that case the bank, objectively, provides an additional service to its customer in exchange for an additional fee. The situation is comparable to fees for the use of a credit card abroadFootnote 153 or for ATM transactions.Footnote 154 The situation in respect of ‘paid item charges’Footnote 155 and ‘overdraft excess charges’Footnote 156 is more complex under the BGH's case law. Whether the bank provides a service in exchange for the charges depends on the reason for the overdraft. If it is due to a payment instruction coming from the consumer the bank provides an additional service in exchange for a price. By contrast, if the overdraft is due to a direct debit, that is, the payment request comes from a third party, then the principles of BGH, 08/10/2005—XI ZR 154/04, require differentiation between the situation where the consumer owed the third party an amount equal to the payment carried out by the bank, and the situation where this is not the case. Only in the former situation does the bank provide an additional service to its customer. Consequently, where the respective terms do not distinguish between these situations they should be subject to fairness control in their entirety.Footnote 157 Thus, the Supreme Court and BGH are on the same page only in respect of ‘guaranteed paid item charges’. In all other cases their case law cannot be reconciled; a very unsatisfactory situation.
D. Asking the Right Questions under the ‘Market for Lemons’ Rationale
The terms that regulate the ‘main subject matter of the contract’, including price terms, should be determined on the basis of the ‘market for lemons’ rationale. This means that all terms in respect of which it can be established that the market fails in the manner described above are not (part of) the ‘main subject matter of the contract’ and should be subjected to fairness control. The decisive question therefore is whether the contract term at issue is exposed to market forces and free competition, in such a way, that consumers will take this term into account, and factor it into their decision to enter into the contract. Only in that case may it be assumed that the market will ensure an adequate balance of the interests of the contracting parties rendering judicial intervention unnecessary.Footnote 158 Consumers will be interested, first and foremost, only in those consequences of a contract that they can foresee will have an impact on their future dispositions. Consequences that are not of direct concern to the consumer, but may affect him only under certain—contingent—circumstances will usually not be worth the time and effort necessary for acquiring the requisite information, negotiating and searching for better offers. In respect of such terms, market and competition cannot unfold their correcting effect. This may be true, in particular, for terms that impose payment obligations in exchange for services that, at the time of the contract, the consumer believes he will not call on.Footnote 159
Here it must be emphasised, that the question is not whether a concrete consumer has factored the term into his decision to enter into a specific contract, nor does it depend on whether an idealised consumer would have taken the term into account. Rather, the appropriate inquiry should be whether the market has produced non-competitive prices and contract terms; the focus should be on the competitive behaviour of markets, not on the decision-making patterns of individuals.Footnote 160 This is because the presence of at least some consumers in a market,Footnote 161 who are informed and actively search for better prices and contract terms, may create an external benefit for uninformed consumers.Footnote 162 If enough searchers exist and if it is too expensive for firms to discriminate against non-searchers,Footnote 163 firms have incentives to compete for the business of searchers and to offer the same terms to non-searchers.Footnote 164 As long as there is no reason to believe that consumers who search differ widely in their preferences from consumers who do not search, competition among firms for the business of searchers will generate prices and contract terms that are utility-maximising for non-searchers as well.Footnote 165 If the market behaves competitively in this manner, intervention cannot be justified.
This resolves the problem of the standard of ‘plain and intelligible language’. Pursuant to article 4(2), a term will be exempt from assessment only to the extent that it is in ‘plain intelligible language’. According to Smith J, whether a term is intelligible is to be considered from the point of view of the ‘typical’ or ‘average consumer’ who is reasonably well informed and reasonably observant and circumspect,Footnote 166 a concept developed by the ECJ in the context of free movement of goods.Footnote 167 Based on this standard and a detailed analysis of the banks’ terms and conditions he came to the conclusion that, by and large, the relevant terms were in plain intelligible language.Footnote 168 The standard of the ‘average consumer’ was not in issue on appealFootnote 169 and was accepted by the Court of Appeal.Footnote 170 Obviously, market and competition can only work in respect of terms that are intelligible. Terms that cannot be understood properly and that are not clear cannot be factored into a consumer's decision to enter into a contract. However, the question is not what is intelligible for some idealized, fictional consumer such as the average consumer who is reasonably well informed and reasonably circumspect. What matters is, for the reasons stated above, the competitive behaviour of the market in respect of the contract term in question. Thus, the criterion of ‘plain and intelligible language’ in article 4(2) is redundant and fully absorbed in the definition of ‘main subject matter of the contract’ on the basis of the ‘market for lemons’ rationale.
On the basis of this approach the right questions may be asked in order to determine whether the relevant terms imposing charges for unarranged overdrafts are, as price terms, part of the ‘main subject matter of the contract’ and, thus, exempt from assessment under Directive 93/13. The crucial question is whether customers in general are sensitive to these terms and factor them into their decision to contract when they enter into an account agreement with their bank. It is not a question of whether a particular consumer, or the average consumer, took these charges into account when contracting with their bank; nor whether they were specifically negotiated, as the Court of Appeal seems to assume.Footnote 171 Rather, the question is whether the market overall behaves competitively in respect of the relevant terms. This is an empirical question. The fact that relevant terms impose charges in contingent circumstances and that the relevant terms are not at the forefront of the banks’ advertising may be an indicator that market and competition do not work well in this respect. The OFT's market study on personal current accounts in the United Kingdom found evidence of a lack of importance of unarranged overdraft charges to many consumers when they enter into a current account agreement. Only five percent of the people surveyed felt that these charges were an important factor when they opened their main account. There was no significant difference between those who had incurred these charges in the last twelve months and those who had not. Moreover, internal bank documents suggested that banks knew that demand was not sensitive to relevant charges, and that a bank could thus increase the charges without risking losing market share. Users of a price comparison site hardly ever looked at how much the relevant charges varied across banks. A study of banking in Northern Ireland also found that consumers did not consider relevant charges when choosing an account because they did not think they would apply to them.Footnote 172
This is precisely the form of market failure that Directive 93/13 seeks to prevent; because if consumers are insensitive to these charges, banks can increase them with impunity. There is no competition between banks in respect of these terms; banks with, from the consumers’ point of view, low quality terms are not being punished, which may result in a race to the bottom where the most disadvantageous terms are likely to prevail. It is irrelevant that about twenty percent of customers incur these charges as it has no sensitising effect.Footnote 173 It is also irrelevant that the charges account for over thirty percent of the revenue generated by the banks from current account customers, as long as this does not set an incentive for banks to actively compete on the basis of the relevant charges.
Against this approach it could be argued, along the lines of the Supreme Court, that it requires of the courts a complex and uncertain empirical analysis that they are not equipped to carry out. However, in almost any accident that comes before the courts, judges will refer to technical experts on the amount and causation of damages; in cases involving liability for medical malpractice courts will rely in very complex matters on the expertise of doctors and other medical personal. Why then should courts not have recourse to the findings of economic experts called by litigants when complex economic situations are at issue and empirical assessment is required?Footnote 174
Consequently, the relevant charges are not price terms and, therefore, are not part of the ‘main subject matter of the contract’. They should have been subjected to assessment on the basis of fairness. In the words of Lord Phillips, ‘it may be open to question whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering into their contracts’.Footnote 175 However, the appropriate standard of fairness is not a question within the scope of the Directive. It is for the area of contract law in question, its underlying principles and values, to decide whether the relevant terms are unfair or not. In this respect, it may be taken into account whether the transactions that trigger the relevant fees result in additional costs for the banks. Additional factors which may be taken into account are the amount of the particular payment, the costs of the transaction it relates to and the services and other payments required under the contract;Footnote 176 the fact that the cause for the charge stems from the sphere of the consumer; and the possibility that consumers who have to pay these charges may also benefit from a free-if-in-credit account.Footnote 177
V. CONCLUSION: MISSED OPPORTUNITIES
The logic of the minimum harmonization concept requires that a national court of last instanceFootnote 178 must refer a question to the ECJ for a preliminary ruling,Footnote 179 whenever the national court would resolve the question in a way that is detrimental to the social group the Directive aims to protect.Footnote 180 In the context of article 4(2), this means that whenever a national court comes to the conclusion that the respective term is exempt from assessment under Directive 93/13 (and its implementing legislation), the national court must refer, subject only to the exceptions laid down by the ECJ in C.I.L.F.I.T. Footnote 181 Since article 4(2) has, to date, not been subject to a preliminary ruling,Footnote 182 nor is there other case law on this provision, a national court may refrain from a reference only where the correct interpretation is so obvious as to leave no reasonable doubt as to the manner in which the question is to be resolved (acte clair).Footnote 183 However, this latter restriction requires that the national court must be convinced that the matter is equally obvious to the courts of the other Member States and to the ECJ.Footnote 184
When the BGH decided that a term in a credit card contract imposing extra charges for using the card abroad was a price term exempt from assessment under the Directive, it did not even mention the possibility of a reference for a preliminary ruling, never mind give reasons for not referring. In Abbey National their Lordships refrained from a reference on the basis of two arguments.Footnote 185 Lord Walker and Lord Mance (and also Lady Hale) considered the matter to be acte clair,Footnote 186 while Lord Phillips and Lord Neuberger did not.Footnote 187 Given the BGH's case law on a similar term it could hardly be assumed that the courts in other Member States would equally find the matter to be acte clair as C.I.L.F.I.T. requires. The further justification for not referring the question to the ECJ supported by all their Lordships is also somewhat surprising; even if the Court of Appeal's ‘essential bargain approach’ was correct, an application of this test to the relevant terms must result in their classification as part of the essential bargain and, therefore, as not being subject to assessment. The application as such is a question of national law and does not fall within the jurisdiction of the ECJ.Footnote 188 A reference was, thus, unnecessary to render judgment.Footnote 189 This line of reasoning seems to be based on the erroneous assumption that the ECJ could have confirmed only either the Court of Appeal's approach or the Supreme Court's. Their Lordships do not seem to have taken into account at all the possibility that the ECJ may have developed an alternative and autonomous European solution, whose application may perhaps have generated a different result. In the end, these somewhat shaky legal arguments only appear as an attempt to legitimise the Supreme Court's true reason for not making a reference: to avoid further delay in resolving the matter.Footnote 190
Ultimately, only the ECJ can guarantee the EU-wide uniform interpretation and application of the Directive by clarifying the meaning of the price term exemption under article 4(2). However, the preliminary ruling mechanism requires the cooperation of national courts. Unfortunately, to date the highest courts of Member States have not enlisted the Court's interpretative authority in respect of article 4(2), despite ample opportunity to do so. Hopefully, when the time comes the ECJ will not shirk its responsibilities by relying on the outdated interpretation/application divide,Footnote 191 and will ask the right questions on the basis of the ‘market for lemons’ approach.
