Factual and Procedural Background
This appeal concerns the scope of relief available to the Office of Fair Trading ("the OFT") in proceedings under the Unfair Terms in Consumer Contracts Regulations 1999 ("the UTCCRs"), which implement Directive 93/13/EEC on unfair terms in consumer contracts. The OFT challenged certain standard terms used by Defendant Foxtons Ltd ("Foxtons") in their contracts with consumer landlords, alleging unfairness in terms relating to renewal commissions, sales commissions, and third party renewal commissions.
The OFT sought declarations that these terms were unfair and not binding on consumers, along with an injunction restraining Foxtons from using or enforcing these terms in contracts concluded with consumers. The High Court struck out parts of the relief sought, particularly removing words that would prevent Foxtons from enforcing these terms in existing contracts, distinguishing between general challenges by bodies like the OFT and individual challenges by consumers.
Foxtons cross-appealed, challenging the court's jurisdiction to grant declarations when the parties before the court were not the parties to the contracts containing the terms. This challenge failed, and Foxtons was awarded only part of their costs. The OFT appealed the striking out of parts of the injunction, and Foxtons appealed the jurisdiction issue.
Legal Issues Presented
- Whether the court has jurisdiction and power under the UTCCRs and Directive 93/13/EEC to grant an injunction restraining the Defendant from enforcing unfair terms in existing contracts concluded with consumers in proceedings brought by the OFT as a general challenge.
- Whether declarations can be granted in proceedings where the parties before the court are not the parties to the contracts containing the challenged terms.
- How the distinction between individual challenges and general challenges affects the scope of relief available in collective proceedings under the UTCCRs.
Arguments of the Parties
Appellant's (OFT) Arguments
- The language of Article 7 of the Directive and the UTCCRs supports that general challenges cover both future and existing contracts, allowing injunctions to prevent continued use of unfair terms in contracts already concluded.
- The Directive's emphasis on consumer protection and removal of unfair terms supports wide remedial powers, including injunctions against enforcement of unfair terms in existing contracts.
- European Court of Justice authorities, including Commission of the European Communities v Italian Republic and Océano Grupo Editorial, support that collective challenges are intended to prevent the use of unfair terms and need not await actual insertion into contracts.
- The policy and purpose of the Directive require effective remedies, including injunctions against enforcement of unfair terms in existing contracts, to protect consumers from ongoing harm.
- If the court does not grant such injunctions, it would undermine the Directive’s objective by allowing suppliers to continue enforcing unfair terms against consumers.
- Even if the court accepts that individual atypical cases might exist, the burden should be on the supplier to demonstrate this, and injunctions could be tailored accordingly.
Respondent's (Foxtons) Arguments
- It is unlikely that the power to bring a general challenge was intended to interfere with existing contractual rights or to allow injunctions preventing enforcement of terms in existing contracts.
- The distinction between individual and general challenges is real and significant; general challenges are assessed by reference to a typical consumer and cannot take account of individual contract circumstances.
- Article 4’s "without prejudice to Article 7" wording and the requirement to consider "all circumstances" in individual challenges indicate that general challenges cannot bind individual cases.
- The language of the Directive and regulations is more consistent with injunctions applying to future contracts, not existing ones.
- Allowing injunctions against enforcement in existing contracts would unjustifiably infringe suppliers' rights and undermine established contractual relations.
- Declarations should not be granted where the parties before the court are not parties to the contracts, citing authority limiting declaratory relief to actual disputes between parties.
OFT's Reply Arguments
- Even if Article 7 covers both future and existing contracts, a finding of unfairness in a general challenge should preclude enforcement of unfair terms in existing contracts.
- The distinction between individual and general challenges is more theoretical than real; the Directive’s consumer protection purpose supports broad remedial powers.
- The burden should be on the supplier to prove atypical individual contracts where the term might be fair.
- European and domestic authorities support the availability of injunctions against enforcement of unfair terms in existing contracts.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Director of Fair Trading v First National Bank plc [2002] 1 AC 481 |
Assessment of unfair terms in collective challenges by reference to the typical consumer; distinction between individual and collective challenges. |
Used to explain the scope and limitations of collective challenges and the need to assess fairness by reference to typical consumers. |
| Commission of the European Communities v Italian Republic [2002] ECR I-819 |
Interpretation of Article 7 of the Directive regarding the obligation to prevent continued use of unfair terms, including against bodies recommending such terms. |
Supported the OFT’s argument that injunctions can apply to existing contracts and that collective challenges aim to prevent continued use of unfair terms. |
| Océano Grupo Editorial SA v Rocío Murciano Quintero [2000] ECR I-4941 |
Importance of collective action and the preventive nature of remedies under Article 7 of the Directive. |
Reinforced the view that collective challenges are aimed at preventing unfair terms regardless of whether terms have been used in specific contracts. |
| Gouriet v Union of Post Office Workers [1978] AC 435 |
Limits on declaratory relief where no cause of action or real dispute exists. |
Discussed in relation to whether declarations can be granted when parties before the court are not parties to the contracts. |
| Meadows Indemnity v Insurance Corporation of Ireland and International Bank plc [1989] 2 Lloyd's Rep 298 |
Declaratory relief in cases involving parties not directly before the court. |
Considered and distinguished; court noted evolving approach to declaratory relief. |
| Re S (Hospital Patient: Court's Jurisdiction) [1996] Fam 1 |
Modern approach to declaratory relief requiring a real and present dispute between parties. |
Supported a broader view allowing declarations in regulatory proceedings involving consumer protection. |
| Feetum v Levy [2006] Ch 585 |
Recognition of the evolution of declaratory relief principles. |
Supported the view that declarations can be granted in appropriate cases involving regulatory bodies. |
| Financial Services Authority v Rourke [2002] CP Rep 14 |
Granting of declarations in regulatory enforcement proceedings. |
Used to support the OFT’s entitlement to declaratory relief despite non-party consumers. |
| Bryen & Langley Ltd v Boston [2005] EWCA Civ 973 |
Assessment of unfairness in individual contracts considering all terms and circumstances. |
Referenced in relation to the distinction between individual and collective challenges. |
| Commission of the European Communities v Kingdom of Spain [2004] ECR I-7999 |
Distinction between individual and collective actions under the Directive. |
Supported the interpretation that collective challenges are primarily preventive and prospective. |
| Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v Ludger Hofstetter [2004] ECR I-3403 |
Scope of declarations regarding unfair terms. |
Referenced regarding the framing of declarations in collective proceedings. |
Court's Reasoning and Analysis
The court began by analyzing the distinction between individual and general challenges under the Directive and the UTCCRs. Individual challenges require assessment of fairness by reference to all circumstances surrounding the specific contract, including all terms. General challenges, brought by bodies like the OFT, assess fairness by reference to the typical consumer and typical circumstances, without regard to individual contract details.
The court considered the language of the Directive, particularly Article 7, which requires Member States to provide effective means to prevent the continued use of unfair terms in consumer contracts. The court concluded that Article 7 and Regulation 12 of the UTCCRs confer power to grant injunctions restraining the use of unfair terms in both future and existing contracts.
The court rejected the argument that injunctions could not extend to existing contracts on the basis that individual circumstances might render a term fair in some cases. It held that the collective challenge's finding of unfairness applies in the typical case and that injunctions preventing enforcement in existing contracts are consistent with the Directive’s consumer protection purpose.
The court recognized that findings in collective challenges are not binding in individual disputes, where different interpretations or circumstances may apply, but emphasized that without injunctions covering existing contracts, the protection afforded by collective challenges would be undermined.
The court also addressed the issue of declaratory relief, concluding that declarations can be granted in proceedings brought by the OFT even though individual consumers are not parties, provided that the dispute concerns legal rights between the OFT and the supplier and that the declaration serves a useful purpose.
While the court agreed that injunctions should be proportionate and that the trial judge has discretion to tailor relief, it found that the High Court was wrong to strike out the parts of the injunction and declarations relating to existing contracts. It emphasized that the form and scope of injunctions should be determined at trial, allowing for possible exceptions or leave of court for enforcement in particular cases.
The court disapproved of the notion that injunctions should be refused simply because some atypical cases might exist and noted that the supplier has the opportunity to seek variation or discharge of injunctions if justified by circumstances.
Holding and Implications
The court ALLOWED THE APPEAL and DISMISSED THE CROSS-APPEAL.
The ruling confirms that under the UTCCRs and Directive 93/13/EEC, courts have jurisdiction and power to grant injunctions in collective challenges brought by regulatory bodies like the OFT that restrain suppliers from enforcing unfair terms in both future and existing consumer contracts. Declarations of unfairness may also be granted even when individual consumers are not parties to the proceedings.
This decision reinforces the effectiveness of collective challenges as a consumer protection mechanism, ensuring that suppliers cannot continue to rely on terms found unfair in standard form contracts, including in contracts already concluded. However, the ruling preserves the possibility for suppliers to seek court permission to enforce terms in particular individual cases if justified, thereby balancing consumer protection with suppliers’ rights.
No new precedent was established beyond clarifying the scope of injunctions and declarations in collective challenges under the UTCCRs and the Directive.