Director General of Fair Trading v First National Bank: HL 25 Oct 2001

The House was asked whether a contractual provision for interest to run after judgment as well as before in a consumer credit contract led to an unfair relationship.
Held: The term was not covered by the Act, and was not unfair under the Regulations. It was by way of a default condition, rather than a penalty. The provision excluding the award of statutory interest after judgment did not operate to exclude the contractual term, and the inconsistency would not defeat the regulations if such clauses were only allowed to operate if they fell fairly and squarely within the section. The 1999 Regulations set up a ‘a dual system of ex casu challenges and pre-emptive or collective challenges by appropriate bodies’, and ‘The system of preemptive challenges is a more effective way of preventing the continuing use of unfair terms . . than ex casu actions.’
Lord Bingham explained the regulations: ‘A term falling within the scope of the Regulations is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer in a manner or to an extent which is contrary to the requirement of good faith. The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty. The illustrative terms set out in Schedule 3 to the Regulations provide very good examples of terms which may be regarded as unfair; whether a given term is or is not to be so regarded depends on whether it causes a significant imbalance in the parties’ rights and obligations under the contract. This involves looking at the contract as a whole. But the imbalance must be to the detriment of the consumer; a significant imbalance to the detriment of the supplier, assumed to be the stronger party, is not a mischief which the Regulations seek to address. The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations. Good faith in this context is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it a concept wholly unfamiliar to British lawyers. It looks to good standards of commercial morality and practice. Regulation 4 (1) lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the objective which the Regulations are designed to promote.’

Lord Bingham of Cornhill Lord Steyn Lord Hope of Craighead Lord Millett Lord Rodger of Earlsferry
Times 01-Nov-2001, [2002] 1 AC 481, [2001] UKHL 52, [2001] 3 WLR 1297, [2002] 1 LLR 489, [2001] 2 All ER (Comm) 1000, [2002] 1 All ER 97, [2002] ECC 22, [2002] 1 Lloyd’s Rep 489
House of Lords, Bailii
Unfair Terms in Consumer Contracts Regulations 1994 (1994 No 3159), County Courts (Interest on Judgment Debts) Order 1991 (1991 No 1184), Consumer Credit Act 1974, County Courts Act 1984 71, Council Directive 93/13/EEC (OJ 1993, L95, p 29) on unfair terms in consumer contracts
England and Wales
At First InstanceDirector General of Fair Trading v First National Bank Plc ChD 30-Jul-1999
The claimants sought an injunction under the regulations to prevent the defendant bank from including in any of its agreements a clause allowing them to claim interest on judgments on regulated agreements. . .
Appeal fromDirector General of Fair Trading v First National Bank Plc CA 15-Sep-1999
A bank had a clause in its standard terms which provided that it could continue to recover interest at the contract rate after judgment for default. The clause was an unfair term. The clause allowed a bank to impose an arrangement for repayment by . .
CitedIn re Sneyd; Ex parte Fewings CA 1883
The mortgagee’s costs, whether costs of an enforcement or a redemption action or included in ‘costs, charges and expenses’, are not recoverable from the mortgagor personally, but both as against the mortgagor and other persons interested in the . .
CitedEconomic Life Assurance Society v Usborne HL 1902
If the loan agreement provides that the contract term for payment of interest survives judgment, then the contract term remains enforceable after judgment. Lord Halsbury said: ‘My Lords, it seems to me that Fry LJ in the case of Ex parte Fewings . . . .

Cited by:
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CitedChubb and Another v Dean and Another ChD 24-Apr-2013
The court considered whether it had power to award a post judgment interest at a contractual rather than the statutory interest rate.
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CitedParkingeye Ltd v Beavis CA 23-Apr-2015
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CitedGreen v Petfre (Gibraltar) Ltd (T/A Betfred) QBD 7-Apr-2021
Onerous Contract Terms Unclear – Not Incorporated
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Lists of cited by and citing cases may be incomplete.

Banking, Consumer, Litigation Practice

Leading Case

Updated: 01 November 2021; Ref: scu.166701