Pitchford J:
- This is a renewed application by the claimant, heard orally in London on 29 October 2007, for permission to appeal the Order of His Honour Judge Simpson sitting at the Mayor's and City of London Court on 30 July 2007 that (1) the claimant's application further to amend his Particulars of Claim and (2) the action be dismissed. The application was refused by Flaux J in writing on 28 September 2007.
Claim and Progress of Action
- The applicant (I shall call him 'the claimant'), issued a claim form in the County Court on 8 September 2006. It was endorsed with a claim for £1,864.41 and a court fee of £120. The claimant alleged that on or about 3 October 1998 he opened a current banking account with the defendant bank. From July 2000 the bank applied charges specified in a schedule attached to the claim form. The claimant sought to recover those charges as an unlawful penalty or as the fruit of unfair contract terms contrary to regulation 8 and schedule 2, paragraph (1)(e) Unfair Terms in Consumer Contracts Regulations 1999. The Regulations were the domestic implementation of Council Directive 93/13. Regulation 8 renders unenforceable against a consumer any unfair term. The unfairness of a term is by regulation 6 to be assessed by reference to the nature of the goods or services the subject of a consumer contract and to all the circumstances and terms of the contract. Certain terms are by regulation 5(5) and schedule 2 likely to be unfair. They include (paragraph 1(e)) a term which has the effect of "requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation".
- The bank served a defence dated 10 October 2006.
- On 12 December 2006 the claimant served an amended Particulars of Claim. It was in fact a completely re-cast Particulars of Claim. The claimant pleaded a written agreement dated about 3 October 1998 granting him current banking facilities on condition (clause 10) that, "the bank's normal student account/graduate account terms and conditions for the time being in force will apply in respect of any credit in excess of the agreed limit". The claimant averred that the bank subsequently imposed charges pursuant to those terms which (1) amounted to a penalty at common law and/or (2) required the claimant to pay a disproportionately high sum by way of compensation within the meaning of schedule 2, paragraph 1(e) and were therefore unfair under regulation 8 and not binding on the claimant.
- At the date of the amendment the claimant sought the return in total of £2,158.49 being "the sum of charges unlawfully debited from the account and interest levied on those charges".
- At paragraph 8 of the amended Particulars the claimant alleged that the unlawful withdrawal of money from the account amounted to a trespass to goods. The allegation of trespass purported to support a claim to exemplary damages "in order to reform or deter Natwest from pursuing the current policy of imposing such disproportionate and unlawful charges".
- The claimant, finally, sought aggravated damages for "damage to his credit rating", and "unnecessary aggravation and stress as a result of being unable to pay rent or purchase basic necessities".
- On 15 December 2006 the claim was allocated to the small claims track with a hearing set for 28 February 2007. The claimant was given permission to amend his claim in the terms of his draft.
- On 25 January 2007 the defendant bank issued an application to strike out and/or dismiss the claim summarily under CPR 3.4(2) and CPR 24.2. On 30 January 2007 the claimant issued a cross application (1) for permission to adduce expert evidence, (2) for permission to re-amend his Particulars of Claim, and (3) for an order that the claim should be heard by a Circuit Judge.
- On 5 February 2007 District Judge Trent ordered the claimant to serve a witness statement or skeleton argument in support of his application, and the defendant to serve further evidence or a skeleton argument. The trial date was vacated and the applications listed for hearing before HH Judge Simpson on 12 April. Although the claimant appeared in person he had qualified as a barrister in October 2006. The fields of contract and tort were relatively unfamiliar to him since his seat was in chambers specialising in public, planning and environmental law. I found his submissions lucid and measured.
- At the hearing before the judge on or shortly after 13 April the claimant sought permission to rely upon his further draft re-amended Particulars of Claim (divider 15). He now sought "a Declaratory Judgment as to the lawfulness of the charges" and £2,317.31 being the total sum unlawfully debited from his account together with interest accrued to 5 February 2007 in the sum of £248.78. He removed his claim in trespass and substituted for it a claim in tort for "Intentional Infliction of Harm by Unlawful Means".
- After a day's argument the applications were adjourned. On 15 May 2007 the claimant submitted a yet further draft re-amended Particulars of Claim (divider 18). In paragraph 7 he gave further particulars of his loss. He claimed the sum of £2,158.49 as damages for breach of contract. This sum was composed of charges levied between 31 July 2000 and 12 December 2006. He gave notice of a further claim for deductions made between 3 October 1998 and 30 July 2000 which he was as yet unable to particularise. He averred that charges had been levied on the account by the bank since the claim was issued but conceded that they had been refunded and did not form any part of the claim. A consequential loss claim was identified. The claimant pleaded that in consequence of the imposition of charges he was unable to make timely payment to store and credit cards. He was charged a total of £169 (itemised in a schedule dated 14 April 2007, divider 18) in late payment fees which he sought to recover. He maintained his claim for "consequential or aggravated" damages for diminution in his credit rating comprising "difficulty in securing credit and the imposition of higher interest rates".
- At paragraph 10 the claimant introduced a claim for an account of profit made by the bank on the sums levied on the account comprising higher interest rates charged on the bank's lending to other customers.
- At paragraphs 11 and 12 the claimant added a new cause of action. He pleaded, and I paraphrase, that the 1999 Regulations imposed upon the bank a duty to levy charges which were proportionate and fair. The charges in fact levied were disproportionate and unfair. Accordingly, the defendant bank was in breach of its statutory duty towards the claimant.
- Furthermore, at paragraph 14 the claimant averred that the bank had, against his wishes, credited a negative balance in his account in order to close it. To the extent that this action had the effect of foreclosing the claimant's right to a hearing it was unfair within the meaning of regulation 8 and schedule 2, paragraph 1(b). Regulation 5 provides that schedule 2 contains an indicative and non-exhaustive list of the terms which may be regarded as unfair. Schedule 2, paragraph 1(b) reads:
"Terms which have the effect of....(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the...supplier...in the event of total or partial non-performance or inadequate performance by the...supplier...of any of the contractual obligations, including the option of offsetting a debt owed to the...supplier against the claim which the consumer may have against him.."
- At paragraph 28 the claimant sought "damages by way of an account of profits".
- At paragraph 30 the claimant identified the declaration sought in the following terms:
"The level of the defendant's unarranged borrowing fees imposed pursuant to the September 2006 edition of 'A guide to Personal Current Account fees and interest' are disproportionate and therefore unlawful by virtue of the Unfair Terms in Consumer Contract Regulations 1999. Such fees are not therefore binding on any customer."
- The sum sought in recovery of unlawful charges and interest was £2,158 (paragraph 18) and £297.11 interest (paragraph 31). In addition the claimant sought recovery of the unspecified sums for the period 3 October 1998 to July 2000, aggravated and exemplary damages.
- It was common ground between the claimant and the bank that consumer interest in bank charges had been taken up by the Office of Fair Trading. OFT had informed credit card companies that £12 was the maximum sustainable monthly charge for unauthorised borrowing. On 25 July 2007 a litigation agreement was made between OFT, the Financial Services Authority and several banks by which OFT agreed to commence proceedings to determine preliminary issues, including whether terms as to charges for unauthorised borrowing were the subject of the fairness test or, on the contrary, were excluded under regulation 6(2). That action has commenced and the first hearing is due in the new year.
- Following the hearing of the claimant's renewed application for permission to appeal, I received a letter from the bank's solicitors objecting to an assertion made by the claimant in person to me that the OFT action was limited to deciding the conduct of banks in future and did not assist on the question of historic liability. Accordingly, the claimant submitted, he should have been permitted through his own action to advance the interests of consumers of the category of which he was a member. I have been supplied with a copy of the litigation agreement and it is pointed out to me that it is the intention of OFT, if it survives the preliminary issues covered by the agreement, to seek fairness rulings on a representative, and historical, selection of the 'Relevant Terms'.
- I have caused a copy of the bank's letter and its enclosure to be sent to the claimant for his additional comments. His response in a letter emailed to me on 19 November is that there remains a public interest in the continuation of his claim to trial. The litigation agreement between OFT and the banks covers only the preliminary issues. In its joint Reply and Defence to Counterclaims in that action OFT pleads that it will invite the Commercial Court to consider historical terms at the trial of the preliminary issues only for the purpose of demonstrating that the substance of the relevant terms has throughout remained unchanged. OFT has not decided whether or not to litigate the fairness of historical terms and will not in any event be litigating the question whether consumers can establish liability in tort and/or are entitled to damages, interest, consequential loss, and exemplary and aggravated damages.
Evidence
- I turn next to the evidence submitted in support of the applications. The claimant lodged witness statements dated 12 February and 12 April 2007 (dividers 12, 14 and 17). In support of the application to adduce expert evidence he deposed that he had watched a BBC television programme on 14 January called The Money Programme. Two academics, Professor Molyneux and Professor Struthers, with a banker, Mr Ian Jarrett, formerly a senior executive in the defendant bank considered the issue what costs were actually incurred by banks dealing with unauthorised borrowing. He obtained from Professors Molyneux and Struthers expressions of willingness to act as expert witnesses. There was before the judge, however, no expert evidence relevant to the issues arising between the claimant and the defendant bank.
- At paragraph 19 of his witness statement of 12 February the claimant explained his reasons for pursuing the action in the face of attempts by the bank to reach a compromise:
"When I originally lodged my claim form and particulars of claim I was seeking to have my money returned to me due to the defendant's refusal to settle the issue. I was also undertaking my pupillage which meant the time that I could devote to this case was necessarily limited. However, as the claim progressed and as I carried out further research, I realised that this issue affects thousands of individuals, many of whom are in a worse financial position than myself. I decided in the course of these proceedings that I would not settle my claim with the defendant in order that this ongoing dispute between consumers and their banks as to the lawfulness of default charges is resolved by the courts..."
- In support of its application to strike out the claim the bank lodged two witness statements from Lynsey Clare Burgoyne of Cobbetts solicitors, dated 25 January and 25 April 2007 (divider 10 and 16). In the first Ms Burgoyne explained the factual background which led to the claimant's expression of intention not to settle the action. On 27 November 2006 the bank sent a cheque to the claimant for the sum of £2,112.90. This represented the sum of disputed charges incurred on the account and interest at 8% per annum. The claimant responded that he would not be discontinuing but would apply to amend the Particulars of Claim (to seek return of £2,158.49 together with aggravated and exemplary damages - see paragraphs 5, 6 and 7 above). On 12 January 2007 the bank sent a further cheque to the claimant in the sum of £467.50 representing the further charges levied on the account together with interest. Those sums were not credited by the claimant to his account.
- In her second witness statement Ms Burgoyne exhibited copy statement pages for the period 2 February to 10 April 2007. It had become apparent that the claimant was determined to frustrate the bank's attempts to repay the charges the subject of the claim. Ms Burgoyne demonstrated that the account was refunded with the following sums by way of transfer:
| 21 February 2007 |
£2,580.40 |
Refund charges/interest to 11 Dec |
| 28 February 2007 |
£514.82 |
Refund charges/interest to 27 Feb |
| 9 March 2007 |
£34.54 |
Refund charges 28 Feb |
| 12 March 2007 |
£200 |
Closure of account payment |
| 10 April 2007 |
£433.50 |
Cancel negative a/c balance on closure |
- The bank's solicitors wrote to the claimant on 9 March that without admission of liability the bank was prepared to reimburse all the charges incurred on the account since 31 July 2000 (with interest). The claimant was notified of the sum of the first three transfers in the list at paragraph 25 (£3,129.76). The sum of £514.82 appears to have included a reimbursement of court fees and statutory interest. An offer was made to provide the claimant with a cash account to avoid the claimant incurring further charges. If the claimant did not agree the bank required the account to be closed by 9 April because, in the absence of agreement, the bank would regard the relationship of bank and customer as irretrievably broken down. In the event of closure £200 would be paid to compensate the claimant for the inconvenience. £200 was credited to the account on 12 March. At the date of closure on 10 April the account was £433.50 overdrawn. The bank credited the account with £433.50 by way of a CHAPS transfer. Thus, the total sum credited by the bank by way of transfer to the claimant's account was £3,763.26.
- The claimant made it clear in correspondence and in his witness statements that he had no intention of settling the claim. He objected to the attempts made by the bank to prevent his action coming to trial. He asserted that the bank's attempt peremptorily to close the account was itself a schedule 2 unfairness. However, as the claimant deposed at paragraph 3 of his third witness statement he had already made alternative banking arrangements on 16 March.
- On 27 April the claimant attempted to repay the bank £433.50 by cheque (together with an additional sum which is not material for present purposes). The cheque was not presented.
Judgment 30 July 2007
- At the hearing before Judge Simpson the defendant's position was that the claim, in so far as it was sustainable on the pleadings, had been satisfied and the defendant should be given summary judgment. As to the balance, that is the claims for damages in respect of the period 1998 to 2000, aggravated and exemplary damages, the claim for an account of profits and a declaration, the claim should be struck out.
- The judge came to the following conclusions:
Principal claim (paragraph 2 judgment)
On the claimant's own case as advanced in argument he was entitled to the return of £2,802.98, including his claim for £169 consequential loss. He conceded the bank had reimbursed him the sum of £3,012.90. There was no extant claim to pursue to trial save in respect of a declaration, an account, and aggravated and exemplary damages.
- Declaration (paragraphs 4-6)
There was no reasonable prospect of the grant of the declaration sought. There was no continuing business relationship between the claimant and the bank. Its purpose would not be to establish the legal status of the agreement between the parties to the action. Its only purpose could be to declare the legality of unauthorised borrowing charge terms and conditions in the September 2006 edition of the Guide to Personal Current Account Fees and Interest. Such a declaration would not bind other first instance judges. Each case had to be considered in its own factual context (see regulation 6 of the 1999 Regulations). The public interest would in any event be served by the decision of the OFT to bring proceedings in the Commercial Court.
- Account of Profits/Expert Evidence (paragraphs 7-11)
In his submissions the claimant linked the claim for an account with his application to adduce expert evidence. The judge found that the work done by Professors Molyneux and Struthers (assessing the actual cost of unauthorised borrowing) did not relate to National Westminster Bank as it would need to if it was to be relevant to present action. No offer of relevant further research had been made. Having regard to their views already expressed publicly about the banking industry generally it was doubtful whether the professors could be regarded as independent of the issues and impartial. He declined permission to adduce their evidence in the action. The judge found that in the absence of such evidence it would be impossible to order an account of profits. There were no facts upon which the trial judge could find that an account was an appropriate remedy.
- As to the merits of the claim for an account generally, it was, as Lord Nicholls observed in Attorney General v. Blake [2001] 1 AC 268, an exceptional course. In the normal case the remedy of damages will suffice: "A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit making activity and hence depriving him of his profit".
- The judge found that there were no exceptional circumstances in the present case.
- Additional Claim for period 1998-2000 (paragraph 36)
The judge refused permission to amend the claim. It was too late, speculative and without particulars. Furthermore the claim was statute barred after 6 years.
- Consequential and Aggravated Damages (paragraphs 37-40)
The claimant sought to introduce a new claim to damages for loss of his credit rating. It was first raised in paragraph 16 of the Amended Particulars of Claim dated 12 December 2006. No particulars of damage were given. The claim was unchanged in the draft re-amended Particulars of Claim dated 30 January 2007. No material change was made in the further draft of 13 April 2007. However, in the re-cast draft re-amendment of 15 May 2007 the claim was newly expressed (see paragraphs 9 and 20, divider 18 and paragraph 12 above). The claimant introduced a claim for aggravated damages for stress, inconvenience and injured feelings in Amended Particulars of Claim of 12 December 2006. The claim remained unchanged by the later draft re-amendments until 15 May 2007 when the claimant sought to give particulars of damage caused by breach of statutory duty, themselves couched in general terms such as "(d) having to borrow money from friends and relatives to make up the shortfall". The claimant gave particulars of his consequential damage claim in respect of charges of £169 incurred as a consequence of late payment of card debts. This claim was included in the judge's finding of satisfaction of the claim (see paragraph 30 above).
- The judge declined to consider the amendment claiming loss of credit rating as a separate head of damage. There was no attempt to quantify the loss and no adequate particulars of the claim.
- The judge found that the claim for aggravated damages was doomed because it was dependent upon an allegation of tortious liability which was itself bound to fail (see paragraphs 39-41 below).
- Infliction of Loss by Unlawful Means (paragraphs 12- 20)
After an analysis of the decision of the House of Lords in OBG Limited v. Allan [2007] 2 WLR 920, the judge decided that the claim was unsustainable. This was not a tri-partite relationship in which the defendant had caused intentional damage to the claimant's economic interest by unlawful interference with the right of a third party, nor (per Lord Nicholls) was it a case in which the defendant arguably damaged the claimant's interest by committing a crime against him, nor was it arguably the tort of intimidation.
- Breach of Statutory Duty (paragraphs 21-35)
The judge posed the question whether there was a duty imposed upon the bank not to incorporate unfair contract terms into a consumer agreement. He found no regulation which specifically created such a duty. However, regulation 8 renders any term assessed as unfair under regulation 6 as unenforceable against the consumer. The Director of the OFT is under a regulation 10 duty to consider a consumer's complaint that a contract term drawn up for general use is unfair and to decide whether to seek injunctive relief. Since the remedy for inclusion of an unfair term was specifically provided by the regulation the regulations should not be interpreted as creating a statutory duty breach of which should be actionable in damages. The claimant relied upon a decision of the European Court of Justice Verein fur Konsumenteninformation v. Karl Heinz Henkel [2002] ECR I-8111 (referred to hereafter as VKI) and of the House of Lords in Garden Cottage Foods Ltd. v. Milk Marketing Board [1984] 1 A.C. 130. The judge found that neither supported the claimant's argument.
- Exemplary and Aggravated Damages (paragraph 35)
The judge accepted the case for the defendant that exemplary (punitive) and aggravated (injury to feelings etc) damages were recoverable only if a tort was established. Since neither the tort of Intentional Loss nor breach of statutory duty could be established, these claims fell away. In any event no attempt had been made in the pleadings to demonstrate how the manner in which the tort was committed could support a claim for aggravated damages. The claim for exemplary damages depended upon the bare assertion that the bank calculated that the profit which it made from its wrongdoing would exceed any loss the claimant would be entitled to recover.
Discussion
- The claimant made it quite clear in his witness statement what was his motivation for keeping the action alive at all costs. It was to enable him to act as standard bearer for other customers and to expose the unfairness of the bank's terms and conditions. This was not an adequate reason for permitting the action to proceed if the claimant's arguable claim had been fully satisfied by the bank, since consumer interests in general are the concern of OFT which is taking action to protect them and not the claimant. I accept that OFT would not, even if minded to seek a declaration, be able to bring surrogate proceedings on behalf of individual consumers. The fact is, however, that the public interest is represented by the OFT. On the other hand, if the claimant has reasonably arguable claims to a declaration, account, aggravated damages or exemplary damages he should not be prevented from pursuing them merely because he has a 'public interest' motive for doing so.
- The claimant was keen to impress upon me the assertion that the bank, by making transfers into his account, was seeking unfairly to prevent him from pursuing his claim to judgment. I do not accept this assertion. The original claim was for the return of money with interest in consequence of an unenforceable penalty. The bank was entitled to satisfy that claim. It could just as well have done so by bringing the money into court. Furthermore, I do not accept that the bank has attempted unfairly to impose a term (contrary to schedule 2 paragraph 1(b)) limiting the legal rights of the claimant by permitting the debt to the bank to be offset against the claim. This is not, as contemplated by paragraph 1(b), a case of total non-performance or inadequate performance by the bank of its responsibility under the contract. It is not suggested that the bank failed to perform its obligations under the terms of the contract as agreed. The case is that the bank levied charges on the account under a term of the contract which was unenforceable. It was therefore obliged to return them. In my view, it could not be stigmatised as unfair to repay the charges and to write off the remaining overdraft. Furthermore, since the claim itself was for the return of money it would be unreasonable to refuse that repayment simply because the repayment was not accompanied by an admission of liability.
- The claimant could not obtain a declaration in the terms sought because regulation 6 required the court to assess the fairness of the term, amongst other things, in the circumstances attending the conclusion of the contract, that is the contract between the bank and the claimant. The trial judge could not make a declaration determinative of other contracts made with other consumers at other times.
- In my opinion the claim to an account had no prospect of success. These charges were standard fare within the banking industry. There was no evidence that the bank obtained access to funds which it was then able to use to make further profits for which it was arguably accountable to the claimant. The charges were incurred because the account was overdrawn beyond the agreed limit. The profit, such at it was, lay in the difference between the charge made and the actual cost of administering the account overdrawn beyond the agreed limit. Since all the charges were refunded to the account the relevant claim was satisfied. In my view the attempt to enlist the further researches of experts was, in these circumstances, speculative and the judge was right to refuse permission.
- Aggravated damages may be awarded where the defendant's motives, conduct or manner of inflicting damage have injured the claimant's proper feelings of dignity and pride. There was nothing inherent in the bank's conduct or manner of levying charges (under terms common in the industry and which the claimant agreed) from which improper motive could reasonably be inferred or which could be said to have caused the claimant injured feelings, dignity and pride. The claimant's own case was that such feelings were caused by his impecuniosity, that is his inability both to pay the charges and to meet his other ongoing financial responsibilities. It is unarguable that the bank's 'motive, conduct or manner of inflicting damage' had occasioned injury to the claimant's feelings of dignity and pride. In my view the claim for aggravated damages was doomed to fail.
- Exemplary damages may be awarded to a claimant when there is an element of calculation in the defendant's wrongdoing that his gain will be greater than the sum likely to be awarded to the claimant. I can see no basis whatever on the evidence for such a finding in favour of Mr Brennan.
- The anxiety of the claimant to find a route to tortious liability is entirely explained by the fact that exemplary and aggravated damages cannot in any event be awarded for breach of contract. Since I have reached the conclusion that there was no reasonable prospect of either award it is unnecessary to reach a concluded view about the judge's finding that neither route proposed was available.
- However, I have considered the cases and I agree that the allegation of inflicting loss by unlawful means was hopeless.
- The allegation of breach of statutory duty is less straightforward. VKI was seeking an injunction in Austria to prevent Herr Henkel relying upon a contract term alleged to be unfair under the Austrian transposition of Directive 93/13. Notwithstanding Herr Henkel was domiciled in Germany the European Court held that the action could proceed in Austria under the terms of Article 5(3) of the Brussels Convention. VKI was not a contracting party (it was a consumer protection group) and, the Court found, the action did not (Article 5(1)) relate to a contract. But the action did concern "matters relating to tort, delict or quasi-delict..." and could therefore be pursued by VKI in Austria, "the place where the harmful event occurred". At paragraph 36 the Court explained the effect of its case law as:
"..the concept of matters relating to tort, delict, or quasi-delict within the meaning of Article 5(3) of the Brussels Convention covers all actions which seek to establish the liability of the defendant and are not matters relating to a contract within the meaning of Article 5(1) of that convention..."
- The phrase "tort, delict and quasi-delict" was (paragraph 41) held to cover Herr Henkel's "non-contractual obligation to refrain in his dealings with consumers from certain behaviour deemed unacceptable by the legislature". The national law of Austria permitted VKI to seek an injunction against anyone who sought to rely on general contract terms and conditions which were "contrary to a statutory prohibition or are unconscionable". The equivalent power in regulation 12 of the 1999 Regulations is to apply for an injunction against the use of an 'unfair' term. The terminology of the Austrian consumer protection law was quite different.
- In any event, in my judgment the decision in VKI is not authority for the proposition that in England and Wales the consumer himself enjoys a right of action in tort against the other contracting party. It is authority only for the proposition that a third party seeking to enforce a 'statutory prohibition' against a non-domicile is bringing an action in tort, delict or quasi-delict for the purposes of Article 5(3).
- I agree with the judge that Garden Cottage Limited does not bear on the claimant's argument. The regulations themselves govern the relationship between the parties to the contract.
- I also agree that the absence of specific words creating a duty and the presence of specific statutory remedies in the 1999 Regulations renders improbable a statutory intention to permit a private action in tort.
- I am driven to the conclusion that the claimant had no reasonable prospect of success in his claims for a declaration, an account, and aggravated and exemplary damages. The judge's decision not to permit late amendment to open up an earlier period of possible charging was, in my view, unexceptional.
- The overriding objective requires the court to deal with a case proportionately, expeditiously and fairly and to allot to it an appropriate share of the court's resources. It would be disproportionate, in my view, to permit this action to proceed to trial simply for the purpose of placing the bank and the claimant under the spotlight of publicity. The judge was right to refuse permission to amend the pleadings and to strike out/dismiss the disputed claims.
- I therefore agree with Flaux J that permission should be refused.
