STUART ISAACS QC (SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
Stuart Isaacs QC:
Introduction
- The claimant is a company which builds consumer group actions online. It does this by entering into claim purchase agreements whereby it takes an assignment of consumers' claims to recover monies alleged to have been unlawfully charged by third parties. It then aggregates the claims into a single portfolio of claims and, once the value of the portfolio reaches a certain threshold, brings a claim in its own name against the third party in question. The claimant is represented in these proceedings with the court's permission by its director, Mr Michael Green.
- The defendant operates a so-called software-as-a-service business which it launched in August 2016. The service allows users flexible storage solutions in the cloud, that is, over the internet instead of on the hard drive of a user's computer. The defendant sells server space to businesses and individuals on the terms of its Terms and Conditions. It charges its customers a £20 monthly subscription fee for a minimum fixed term of 12 months. If a customer terminates its agreement with the defendant within the minimum term, a cancellation fee is payable calculated as a lump sum equivalent to the total of the monthly charges remaining during the minimum term, less a discount of 10% which is said to reflect the fact that the customer is paying early. The defendant is represented in these proceedings with the court's permission by its director, Mr Joseph Ros.
- Due to system problems, a number of the defendant's customers who signed up in August 2016 did not receive their log-in information to enable them to access the service and, in consequence, they terminated their agreement within the first month and were charged a cancellation fee of £196 calculated in accordance with the Terms and Conditions.
- In September 2016, the claimant took assignments from three customers of their claims against the defendant to be refunded the cancellation fees paid by them in a total sum of £588 on the ground that the cancellation fee provisions in the Terms and Conditions are unlawful. The claimant then brought a claim against the defendant to recover that amount. The defendant disputes the claimant's ability to bring such a claim and disputes that it has in any way acted unlawfully.
- Against that background, the claimant issued the present Part 8 proceedings on 29 November 2016 in which it seeks the determination of the various issues referred to below. The defendant wishes to have a determination on all of these matters because it is concerned that, without such a determination, the claimant and in the future other entities may continue to pursue such claims. The defendant states in its acknowledgment of service that it intends to seek declarations that the assignments in the claimant's claim purchase agreements are void and that the claimant is unable to sue in a representative capacity under CPR Part 19.6.
- The first issue which arises for determination is whether the assignments contained in the claim purchase agreements are void on the ground that they fall foul of the rules against champerty and maintenance.
- The second issue raised by the parties is whether the representative action provisions in CPR Part 19.6 are available to the claimant in circumstances where the class members have entered into separate but identical contracts and may have lost different but ascertainable amounts. If they are available, the further question arises whether pecuniary relief may be granted to the claimant thereunder.
- The third issue is whether the cancellation fee provisions in the Terms and Conditions are excluded from being assessed for fairness under Part II of the Consumer Rights Act 2015.
- The parties served skeleton arguments which, I was told, had been prepared with the assistance of counsel and which contained extensive reference to legal authorities. The oral submissions did not advance the written submissions in the skeleton arguments. Since only a small selection of those authorities was contained in the bundle of authorities which the parties were required to lodge with the court pursuant to paragraph 4(6) of Master Clark's order made on 6 February 2017, I directed at the start of the hearing that the parties should lodge a complete bundle of the authorities on which they relied by 4pm on 11 February 2017. That direction was duly complied with.
Validity of the assignments
- There are two forms of the claim purchase agreements. Each form defines the relevant third party as the Debtor, the Debtor's customer as the Vendor and the claimant as the Purchaser. Under each form, the Vendor, "agrees to irrevocably sell and assign (as legal and or beneficial owner to the [claimant] … subject to and with notice of the Terms and Conditions hereof (overleaf) such debts due and owing to me from the Debtor, and consisting of expenditure by me (directly or indirectly) of charges levied by the Debtor as specified herein ("the Debt") and all my rights, title, interest, and benefit in the Debt including all rights to recover same from the Debtor". Clause 1 of the terms and conditions in the claim purchase agreements provides that "[t]he Vendor sells and assigns all its rights, title, interest, and benefit in the Debt to the Purchaser with effect from the date of this agreement". Clause 2 contains various warranties and covenants by the Vendor. Clause 3 gives the claimant the sole right and discretion of collecting and enforcing payment of the Debt.
- The two forms differ, however, in one respect. Under clause 6 of the terms and conditions which pertain to one form of claim purchase agreement, in the event that the claimant recovers the Debt or such part of it that is due and owing to the Vendor from the Debtor, the claimant will pay to the Vendor such sum recovered less a fixed percentage, in this case, 40% of the total sum recovered, representing third party fees, legal costs, disbursements, taxes, and liabilities profit and contribution to overheads. Under clause 7, except in so far as the Vendor otherwise determines in its absolute discretion, payment to the Vendor of any sum is contingent on receipt of all sums due from the Debtor. Hence in the event of a recovery by the claimant against the third party, the customer is able to recover the balance of the total sum recovered. The consideration for the assignment under this form of the claim purchase agreement is stated to be one penny.
- Under the second form of the claim purchase agreement, the terms and conditions which apply do not include similar provisions. That is because, under that form, the customer's debt is assigned to the claimant in return for a payment of a fixed amount, in this case £40, and in the event of a recovery by the claimant against the third party, the sum recovered is retained in full by the claimant.
- In support of its contention that the assignments contained in the claim purchase agreements are void, the defendant submitted that (1) the assignment is of a bare cause of action and, as such, is champertous; (2) the assignment is not conducive to the administration of justice; (3) the claimant has taken too much in damages; (4) the assignment of a claim which does not exist and which may never exist is not possible; and (5) the claimant has not taken an assignment of the whole of the claim.
- The claimant submitted that (1) the assignment is not champertous and does not fall foul of the rule against maintenance; (2) the scope of the rules against champerty and maintenance is not to be extended; (3) public policy is in favour of upholding the assignment; (4) EU law requires that national rules do not interfere with the exercise of EU rights; (5) the rules against champerty and maintenance are inconsistent with both the assignor's and the claimant's right to property and thus inconsistent with Article1 of Protocol 1 of the European Convention on Human Rights ("ECHR"); and (6) it is not open to the defendant to invoke the law on champerty and maintenance.
- Maintenance is the support by a person of litigation in which he has no legitimate concern without just cause of excuse. Champerty is an aggravated form of maintenance. It occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit or other contentious proceedings where property is in dispute. The origins of maintenance and champerty are to be found in medieval times when intermeddling with litigation was rife. Although criminal and civil liability for maintenance and champerty was abolished by the Criminal Law Act 1967, section 14(2) of the Act provided that "the abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal." Hence maintenance and champerty survive as rules of public policy capable of rendering a contract unenforceable. As observed in Giles v Thomson [1994] 1 AC 142, 153F-G by Lord Mustill, they have maintained a living presence in only two respects, of which one - the ground for denying recognition to the assignment of a bare right of action - is best treated as having achieved an independent life of its own.
- In Giles v Thomson at 164B-D, Lord Mustill expressed his belief that:
"the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose, the issue should not be broken down into steps. Rather, all the aspects of the transaction should be taken together for the purpose of considering the single question whether, in the terms expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v Lamson Store Services Co. Ltd. [1908] 1 KB 1006, 1014, there is wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."
- Because the question whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes. In Camdex International Ltd v Bank of Zambia [1998] QB 22, 29F, Hobhouse LJ stated that the modern approach is not to extend the types of involvement in litigation which are considered objectionable. In Sibthorpe v London Borough of Southwark [2011] EWCA Civ 25, Lord Neuberger MR said, at [51], that it would be inappropriate in the 21st century to extend the law of champerty.
- The leading case on maintenance and champerty insofar as they apply to the assignment of a right to litigate remains Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (House of Lords) [1980] QB 629 (Court of Appeal). The background to the case is extremely complex but in essence the plaintiff assigned to the defendant its cause of action for damages against the Central Bank of Nigeria ("CBN") for failure to honour a letter of credit issued for the purchase price and demurrage in connection with a contract for the sale of cement by the plaintiff to the buyer. The assignment was governed by Swiss law. The defendant, which had provided financial assistance to the plaintiff in relation to the sale contract and the litigation against CBN, was a substantial creditor of the plaintiff. The defendant subsequently itself assigned the cause of action to a third party who, following a settlement of the plaintiff's claim against CBN, made a substantial profit on the price paid by the third party for the assignment. The plaintiff sought to set aside the assignment to the defendant on the ground that it was an assignment of a bare right to litigate which offended against the law of maintenance and champerty. Robert Goff J granted a stay of the proceedings in favour of the courts of Geneva pursuant to an exclusive jurisdiction clause.
- The Court of Appeal dismissed the plaintiff's appeal against the grant of a stay. In considering whether, as a matter of the applicable English law, the plaintiff's right of action against CBN was assignable at all, Lord Denning MR stated at 655A:
"it is sufficient if the maintainer has a legitimate and genuine interest in the subject matter, and the circumstances are such as reasonably to warrant his support of the action or defence: so in an assignment of a chose in action, it is valid if the assignee has a legitimate and genuine interest in the subject matter and the circumstances are such as reasonably to warrant the assignment of it to him."
Lord Denning then proceeded to give some instances when the assignment of a chose in action should be held to be valid, including when it is incidental to an assignment of other property or when an undisputed debt is assigned (at 655C-D); and when a claim for damages is assigned but provided inter alia that it is made for good and sufficient consideration such as to reasonably warrant the assignment to it. "If the assignee takes three-quarters of the damages, the circumstances may not be such as to warrant the assignment: see Laurent v Sale & Co. [1963] 1 WLR 829" (at 656G-657B, in particular at 657B).
- Oliver LJ, with whom Bridge LJ agreed, questioned (at 663F-G) whether there was still room for distinctions between choses in action and "bare" rights of action or between strictly proprietary and purely commercial or financial interests. He said at 674F-g:
"For my part, I would be prepared to hold that where a cause of action arises out of a right which was itself assignable, the cause of action equally remains assignable or, if one must use the language of the older cases, that it is not a "bare" right to litigate but itself a right of property. So to hold does not, I think, violate current notions of public policy."
- The House of Lords affirmed the Court of Appeal's decision and broadly supported the Court of Appeal's reasoning, save in respect of one statement by Lord Denning MR. Lord Roskill stated at 702C-703G stated:
"My Lords, it is clear, when one looks at the cases upon maintenance in this century and indeed towards the end of the last, that the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case. …
…
My Lords, just as the law became more liberal in its approach to what was lawful maintenance, so it became more liberal in its approach to the circumstances in which it would recognise the validity of an assignment of a cause of action and not strike down such an assignment as one only of a bare cause of action. Where the assignee has by the assignment acquired a property right and the cause of action was incidental to that right, the assignment was held effective. Ellis v Torrington [1920] 1 KB 399 is an example of such a case. Scrutton LJ stated, at pp. 412-413, that the assignee was not guilty of maintenance or champerty by reason of the assignment he took because he was buying not in order to obtain a cause of action but in order to protect the property which he had brought. But, my Lords, as I read the cases it was not necessary for the assignee always to show a property right to support his assignment. He could take an assignment to support and enlarge that which he had already acquired as, for example, an underwriter by subrogation: see Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. My Lords, I am afraid I cannot agree with the learned Master of the Rolls [1980] QB 629, 657 when he said in the instant case that "The old saying that you cannot assign a 'bare right to litigate' is gone". I venture to think that that still remains a fundamental principle of our law. But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of a claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty which, as has often been said, is a branch of our law of maintenance. …
…
… The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.
In disagreement with Oliver LJ, Lord Roskill (at 703G-704H) also considered that the assignment was objectionable as being champertous at least insofar as it was designed not to enable the defendant to recoup its own losses by enforcing the plaintiff's claim against the CBN to the maximum amount recoverable but to enable that claim to be sold on in order for the third party to obtain a profit since the "spoils" were in effect being divided between the defendant and the third party who had no genuine commercial interest in the claim in return for a division of the spoils. However, in agreement with Oliver LJ, it did not follow that the agreement as a whole was void under Swiss law.
- In JEB Recoveries LLP v Binstock [2015] EWHC 1063 (Ch), the defendant applied to strike out the claimant's claim to recover an alleged debt due from the defendant under a contract between the defendant and a Mr Peter Wilson. Mr Wilson assigned his claim to the claimant, a limited liability partnership recently established by him and two others. The basis for the defendant's application was that the assignment was champertous. His Honour Judge Simon Barker QC (sitting as a judge of the High Court) dismissed the application. In the course of his judgment, the judge drew attention to a lecture entitled From Barretry, Maintenance and Champerty to Litigation Funding given by Lord Neuberger on 8 May 2013, of which a transcript was contained in the bundle of authorities provided by the parties here, in which the broad policy rationale for the prohibition on maintenance was identified to be the protection of the integrity of the legal process. The protection of the integrity of the legal process involves equality before the law which is recognised in CPR Part 1.1(2)(a) as an element of the overriding objective.
- The court held that although the assignment of a bare cause of action had long been recognised as champertous and that, without more, an assignment of the claim for a nominal sum would be likely to offend the public policy against maintenance and champerty, in the case in point there was more: the rights assigned under the assignment were not confined to a cause of action: they included debts; and the effect or substance of the arrangement was that Mr Wilson would be entitled to one third of the net fruits of the claim if successful. Having regard to the circumstances of the case, the claim, based as it was on the assignment, did not offend the public policy aimed at protecting the integrity of the legal process, including the principle of equality before the law.
- I accept that, consistently with Camdex International Ltd v Bank of Zambia and and Sibthorpe, the scope of the rules against maintenance and champerty is not to be extended. The question is whether, under the law as it stands, the assignments contained in the claim purchase agreements fall foul of those rules.
- The references in the claim purchase agreements to the defendant as the Debtor and to the charges in question as the Debt are inaccurate: the charges paid to the defendant by the customers which are the subject of the claim purchase agreements are not a debt owed by the defendant to the customer. However, they do consist of a liquidated sum which is the subject of a claim in restitution. In my judgment, under the claim purchase agreements the claimant acquired the right to the sum in question and the assignment of the right to bring a restitutionary claim to recover the sum is incidental and subsidiary to that right properly and is not a bare cause of action. The fact that liability to repay the sum is disputed does not affect its assignability.
- There appears to be no English authority directly on point. However, support for the above position is to be found in the High Court of Australia's decision in Equuscorp Pty Ltd v Haxton [2012] HCA 7 at [53] where French CJ and Crennan and Kiefel JJ said:
"A restitutionary claim for money had and received under an unenforceable loan agreement is inescapably linked to the performance of that agreement. If assigned along with contractual rights, albeit their existence is contestable, it is not assigned as a bare cause of action. Neither policy nor logic stands against its assignability in such a case. The assignment of the purported contractual rights for value indicates a legitimate commercial interest on the part of the assignee in acquiring the restitutionary rights should the contract be found to be unenforceable."
- The question which then arises is whether, taking all aspects of the claim purchase agreements together, there is wanton and officious meddling by the claimant with the dispute between the defendant and its customers in which the claimant has no interest whatsoever and where the assistance the claimant renders to the customers is without justification or excuse. The assignment by the customer to the claimant will be valid if the claimant has a legitimate and genuine interest in the subject matter and the circumstances are such as reasonably to warrant the assignment of it to him. It is in particular necessary to consider whether the integrity of the legal process is in some way impugned by the assignment.
- Taking all these considerations into account, I am not satisfied that there are any or any sufficient public policy grounds which would lead to the conclusion that the assignment is invalid. On the contrary, there are in my judgment strong public policy grounds in favour of upholding the assignment. The following factors are germane:
(1) the individual customers' claims are too small for it to be cost or time-effective for them to bring claims directly against the defendant; while there certainly are means for such claims to be pursued at relatively low cost, for example online, it may be questioned how many customers would in fact go down that path and the customers should be offered the choice of proceeding along that path, at their risk and expense, or else entering into a claim purchase agreement with the claimant;
(2) it is fallacious of the defendant to suggest that there are adequate alternative means of enabling customers to pursue their claims, for example by third party financing or with "no win no fee" arrangements: assuming in the defendant's favour that those means are available for the relatively small sums at stake in the present case, it does not follow that other alternative arrangements should be prevented;
(3) there is no evidence to support the defendant's assertion that the operational and financial burdens on it have been stretched to the limit by having to defend the present Part 8 proceedings which seek to obtain clarification of the issues of principle which arise;
(4) even if the present proceedings have imposed a heavy burden on the defendant, common sense would suggest that its resources to resist claims by the customers' claims are greater than the individual customers' resources to pursue very small claims; to that extent, the assignment redresses the inequality of arms which would otherwise exist as between the defendant and the individual customers;
(5) access for customers to justice is therefore enhanced; the courts recognise the need for innovative but responsible ways of increasing access to justice for the impecunious: see the comments of Danckwerts J in Martell v Consett Iron Co Ltd [1955] Ch 363, 386-387;
(6) since the sums in dispute are quantified, there is no risk of damages being inflated or the litigation process being abused in other ways; neither the "purity of justice" nor the "interests of vulnerable litigants" is threatened in the present case; there is no adverse impact on the administration of justice;
(7) the customer has the option under one form of the claim purchase agreement of receiving 60% of the total sum recovered or else under the other form being paid a fixed amount upfront and then not receiving any part of the sum recovered; in both cases, the risk of not effecting a recovery is removed from the customer and rests on the claimant;
(8) I reject the defendant's submission that the assignment is an attempt to circumvent the regulatory provisions governing the provision of legal services contained in section 13 of the Legal Services Act 2007: the claimant is not seeking to carry on any reserved legal activity but is acting in its capacity as a litigant seeking to enforce its assigned right to recover the charges in question;
(9) I also reject the defendant's submission that the assignment enables the claimant to "circumvent the rules on costs": the claimant may be made the subject of adverse costs orders and may be liable to provide security for the defendant's costs in circumstances where an individual customer would not be;
(10) I further reject the defendant's submission that the claimant is encouraging frivolous litigation: apart from adverse costs orders, the claimant has little motive for acquiring and then pursuing claims which are frivolous and any such claims would be liable to be struck out in the ordinary way;
(11) the claimant has a legitimate and genuine commercial interest in being able to pursue the claims assigned to it in order to protect the liquidated sums it acquired under the claim purchase agreements.
- I reject the defendant's submission that, in respect of the form of claim purchase agreement under which the claimant agrees to pay the customer the sum recovered from the defendant less 40%, the assignment is not an absolute assignment of the whole of the claim and therefore fails. Under that form of the claim purchase agreement, the full amount of the charges is assigned to the claimant. The effect of clause 6 of that form of the claim purchase agreement is not, as submitted by the defendant, that the customer retains part of the proceeds of the action but that the proceeds of the action are recovered in full by the claimant, which then is liable to pay back the agreed proportion thereof to the customer. This is akin to the position in Binstock, where all the fruits of any litigation or other recovery were assigned to the claimant, in consequence of which Mr Wilson was entitled to a one-third share of any profits.
- The defendant placed great reliance on Simpson v Norfolk and Norwich University Hospital NHS Trust [2011] EWCA Civ 1149. In that case, the Court of Appeal held that assignment of a bare right to litigate unsupported by an interest of a kind sufficient to justify the assignee's pursuit of proceedings for his own benefit savoured of champerty and was void. The proposition just stated is uncontroversial but Simpson is a very different case on the facts from the present case. The cause of action assigned in that case to the claimant was a bare cause of action in tort for personal injury. The assignor had issued proceedings against the defendant for damages alleging that he had developed a serious infection while an in-patient in hospital. The claimant was the widow of another patient who had previously developed the same infection at the same hospital and whose own claim had been settled without admission of liability by the defendant. Moore-Bick LJ, with whom the other members of the court agreed, stated at [24] that it was not in the public interest "to encourage litigation whose principal object is not to obtain a remedy for a legal wrong, but to pursue an object of a different kind altogether", namely to enable the claimant to pursue a campaign against the hospital. In my judgment, Simpson provides the defendant with no support in the present case.
- In the result, I determine that the assignments contained in the claim purchase agreements are not void on the ground that they fall foul of the rules against champerty and maintenance.
- It is therefore unnecessary to consider the claimant's further submissions with regard to EU law and Article 1 of Protocol 1 of the ECHR. In relation to the latter, I add only that in Simpson, Moore-Bick LJ expressed the view at [26] that a rule of law which renders void a disposition by the assignor of his property is not incompatible with that provision.
- It is also unnecessary to consider the claimant's submission that it is not open to the defendant, which is not a party to the assignments, to seek to rely on the rules against maintenance and champerty. Simpson is a case where the defendant was not a party to the assignment between the claimant and the assignor and yet succeeded in having the claim against it struck out as an abuse of process on the ground that the assignment was void for champerty. Had it been necessary to decide the point, I would have rejected the claimant's submission.
The applicability and scope of CPR Part 19.6
- The defendant submitted that the representative action provisions in CPR Part 19.6 are not available to the claimant in circumstances where the class members have entered into separate but identical contracts and may have lost different but ascertainable amounts. The defendant submitted that, if they are available, pecuniary relief may not be granted to the claimant thereunder.
- The claimant submitted that the modern approach to CPR Part 19.6 requires consideration to be given to the overriding objective and that the provisions should be interpreted in a flexible way which makes representative proceedings available where they save expense and enable a matter to be dealt with expeditiously.
- CPR Part 19.6 provides inter alia:
"Representative parties with same interest
19.6 (1) Where more than one person has the same interest in a claim –
(a) the claim may be begun; or
(b) the court may order that the claim be continued,
by or against one or more of the persons who have the same interest as representatives of any other persons who have that interest.
…"
- In Sun Life Assurance Company of Canada v Jervis [1944] AC 111, 113-114, Viscount Simon LC stated that the House of Lords would not determine an academic question, the answer to which could not affect the respondent in any way:
"If the House undertook to do so, it would not be deciding an existing lis between the parties who are before it, but would merely be expressing its view on a legal conundrum which the appellants hope to get decided in their favour without in any way affecting the position between the parties."
- In Ainsbury v Millington [1987] 1 WLR 379, the House of Lords applied that statement and declined to hear an appeal which had become academic. The principle is not confined to the appellate courts. Lord Bridge at 381B-C stated that "[i]t has always been a fundamental feature of our judicial system that the courts decide disputes between the parties before them; they do not pronounce on abstract questions of law when there is no dispute to be resolved" although he recognised that different considerations might arise in relation to so-called friendly actions and conceivably in relation to proceedings instituted specifically as a test case.
- In the present case, it is wholly unclear to me how the representative action provisions in CPR Part 19.6 are engaged. The origin of the parties' submissions on this issue appears to be the statement in the defendant's acknowledgment of service that it intends to seek a declaration that the claimant is unable to sue in a representative capacity under CPR Part 19.6. However, in my judgment, that issue does not arise because the claimant is bringing the claims against the defendant in the claimant's own name pursuant to the assignments in the claim purchase agreements which I have determined are not void for maintenance or champerty. If my conclusion with regard to the validity of the assignments were wrong, the question might then arise whether one or more of the defendant's customers might begin a claim as a representative party for other customers against the defendant. However, that is not the present case. It would only be in any such proceedings that the questions raised by the defendant in this context would arise and indeed be capable of being properly answered.
- Accordingly, even though the parties might consider it desirable that this issue be determined in these proceedings, it would not in my judgment be appropriate for the court to do so and I decline the parties' invitation to do so.
Are the cancellation provisions excluded from being assessed for unfairness?
- The defendant submitted that the cancellation fee provisions in its Terms and Conditions are excluded from being assessed for fairness under Part II of the Consumer Rights Act 2015.
- Clause 10 of the Terms and Conditions provides:
"10. Ending this agreement and Disconnection of Wolf Cola Services
10.1 You may end this agreement:
(a) You can end the agreement during your Minimum Term by giving notice to Wolf Cola. However, you must pay us all the Charges you owe, plus any Cancellation Fee for your Package.
(b) On 30 days' notice, outside the Minimum Term.
(c) Within one month of a materially detrimental variation to your agreement. You can end the agreement within one month of us telling you about a variation to your agreement which is likely (in our reasonable opinion) to be of material detriment to you. You must give notice to Wolf Cola within that month and your agreement will finish at the end of that month once we receive your notice. Subject to section 10.1(e) below a Cancellation Fee will not be charged.
(d) You will not be able to end the agreement during your Minimum Term without paying a Cancellation Fee if the variation to your agreement is due to any of the following circumstances:
(i) the variation is due to changes to the law, government regulation or licence which affect us – this includes any increase or change in the rate of VAT or other applicable taxes or any new taxes that are introduced;
(ii) the variation is not (in our reasonable opinion) likely to be of material detriment to you; …"
- The expression "Cancellation Fee" is defined in the Terms and Conditions to mean "a fee charged if we end the agreement due to your conduct or if you end your agreement within the Minimum Term." The fee is expressed to be calculated "as a lump sum equivalent to the total of the Monthly Charges remaining during the Minimum Term of your agreement less a discount of 10%". The expression "Minimum Term" is defined as "the minimum fixed term for the supply of Wolf Cola Services". The expression "Monthly Charge" is defined as "the monthly fixed charge payable by you". In the specimen Terms and Conditions before the court, for the customer in question's tariff the Minimum Term is stated to be 12 months and the Monthly Charge £20.
- Section 62 of the Consumer Rights Act 2015 provides inter alia:
"62 Requirement for contract terms and notices to be fair
(1) An unfair term of a consumer contract is not binding on the consumer.
…
(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.
(5) Whether a term is fair is to be determined—
(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends."
- Section 64 provides inter alia:
"64 Exclusion from assessment of fairness
(1) A term of a consumer contract may not be assessed for fairness under section 62 to the extent that—
(a) it specifies the main subject matter of the contract, or
(b) the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it.
(2) Subsection (1) excludes a term from an assessment under section 62 only if it is transparent and prominent.
(3) A term is transparent for the purposes of this Part if it is expressed in plain and intelligible language and (in the case of a written term) is legible.
(4) A term is prominent for the purposes of this section if it is brought to the consumer's attention in such a way that an average consumer would be aware of the term.
(5) In subsection (4) "average consumer" means a consumer who is reasonably well-informed, observant and circumspect.
(6) This section does not apply to a term of a contract listed in Part 1 of Schedule 2."
- The defendant submitted that in the light of the Supreme Court's decision in Office of Fair Trading v Abbey National plc and others [2009] UKSC 6 the cancellation fee provisions are excluded from any assessment of fairness pursuant to section 64(1)(b) of the Act. It submitted that the claimant's position is that the effect of the cancellation fee provisions is that the customer has been overcharged and that an assessment of their fairness would involve "the assessment … of the appropriateness of the price payable under the contract" which assessment is excluded under section 64(1)(b). As appears from paragraph 55 of the Court of Justice of the European Communities' ruling in Case C-26/13 Kásler v OTP Jelzálogbank Zrt on the corresponding provisions in Article 4(2) of Directive 93/13, the exclusion of a review of contractual terms as to the quality/price ratio of a supply of goods or services is explained by the fact that no legal scale or criterion exists that can provide a framework for, and guide, such a review.
- OFT v Abbey National concerned the fairness of certain personal current account charges made by banks on transactions for which the customers did not have sufficient funds in their accounts to meet the requested payments. The OFT issued proceedings against seven banks and one mutual building society in which it sought a declaration that the standard terms and charges in question were not excluded from an assessment for fairness under the regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999 which gave effect in the United Kingdom to Council Regulation 93/13/EEC on unfair terms in consumer contracts.
- The 1999 Regulations were revoked by paragraph 34 of Schedule 4 to the Consumer Rights Act 2015 in consequence of Part II of that Act. Regulation 6(2) Regulation 6(2) provided that "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." Regulation 6(2)(b) was hence in different language to the language of section 64(1) of the Act, which refers to "the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it". However, it was agreed by the parties that the differences in wording are not material in the present context.
- In OFT v Abbey National, the Supreme Court held that an assessment of the relevant terms did relate to the adequacy of the price or remuneration as against the goods or services supplied in exchange within the meaning of regulation 6(2)(b) and therefore were excluded from assessment. The Supreme Court therefore allowed the banks' appeal against the Court of Appeal's decision (upholding the trial judge) to the effect that regulation 6(2)(b) excluded the essence of the price from an assessment as to fairness but not ancillary terms and that the relevant terms were ancillary rather than essential terms.
- The question in the present case comes down to whether the cancellation fee provisions constitute "the price payable under the contract by comparison with the … services supplied under it". If so, they may still be open to challenge on the ground that they are unfair but not on the basis that they are excessive by comparison with the services in return for which they are paid. The identification of the price or remuneration is a matter of objective interpretation, see OFT v Abbey National at [113] per Lord Mance.
- In OFT v Abbey National Lord Phillips said at [78] that:
"I can see no justification for excluding from the application of regulation 6(2) price or remuneration on the ground that it is "ancillary or incidental price or remuneration". If it is possible to identify such price or remuneration as being paid in exchange for services, even if the services are fringe or optional extras, regulation 6(2) will preclude an attack on the price or remuneration in question if it is based on the contention that it was excessive by comparison with the services for which it was exchanged. If, on analysis, the charges are not given in exchange for individual services but are part of a package of different ways of charging for a package of varied services, this does not mean that they are not price or remuneration for the purpose of regulation 6(2). As I observed earlier, an assessment of the fairness of the charges will be precluded if the basis of the attack is that, by reason of their inclusion in the pricing package, those who pay them are being charged an excessive amount in exchange for the overall package."
- Lord Walker, at [42] said that:
"it is clear that just as banking services to current account customers can aptly be described as a package, so can the consideration that moves from the customer to the bank. … Lawyers are very used to speaking of a package (or bundle) of rights and obligations, and in that sense every obligation which a consumer undertakes by a consumer contract could be seen as part of the price or remuneration received by the supplier. But non-monetary obligations undertaken by a consumer contract (for instance, to take proper care of goods on hire-purchase, or to treat material supplied for a distance-learning course as available only to the customer personally) are not part of the "price or remuneration" within that regulation."
- The cancellation fee payable under the contract clearly does not comprise the price payable under the contract but it is a monetary obligation on the customer which forms part of it. The claimant's submissions appear to accept that the effect of the Supreme Court's decision in OFT v Abbey National is to exclude it from being assessed for fairness because section 64(1)(b) applies. Nevertheless, the claimant submitted that the Supreme Court's decision is not the end of the matter because of later pronouncements of the Court of Justice of the European Communities in three cases, namely Case C-484/08 Caja de Ahorros y Monte de Piedad de Madrid v Asociación de Servicios Bancarios, Kásler and Case C-143/13 Bogdan Matei and Ioana Ofelia Matei v SC Volksbank România SA. It submitted that OFT v Abbey National is wrongly decided in the light of those later CJEU decisions. Although the claimant did not say so in terms, it is in effect therefore inviting me not to follow the Supreme Court's decision.
- I reject that invitation. In the first place, I am bound by the Supreme Court's decision in OFT v Abbey National. In the second place, it is far from clear that the CJEU cases relied on by the claimant have the effect for which it contends. However, since I am bound to follow OFT v Abbey National, it is unnecessary to consider that aspect further.
- There is a further aspect that requires comment. In OFT v Abbey National, Lord Mance observed at [99] that:
"any challenge to the fairness of a term must be to its fairness in the context of the relevant contract in which it appears. It is "beside the point" if it is not. If, on a proper analysis, the customer's potential liability for the relevant charges is the or part of the "price or remuneration" in exchange for which the overall package of banking services is supplied, and it is challenged on the ground that it makes such price or remuneration disproportionate overall, then regulation 6(2)(b) excludes the challenge. If there is no challenge to the overall proportionality of the overall price or remuneration of the package, then I fail to see how a challenge to the proportionality of the relevant charges in relation to the cost of providing particular services in isolation can be admissible or relevant. A term which is proportionate in context cannot become disproportionate viewed out of context."
- In my judgment, the cancellation fee provisions form part of the price payable under the contract. Any challenge on the ground of unfairness to the overall price payable under the contract by comparison with the services supplied under it is excluded by virtue of section 64(1)(b) of the Act. The cancellation fee provisions may, however, still be open to challenge on the basis that they are otherwise unfair.
Conclusion
- In the light of my conclusions, I propose to grant declarations that the assignments contained in the claim purchase agreements are not void on the ground that they fall foul of the rules against champerty and maintenance; and that the cancellation fee provisions in the defendant's Terms and Conditions form part of the price payable by the customer for the services provided by the defendant under the contract for the purposes of section 64(1)(b) of the Consumer Rights Act 2015.
