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Case Details

Case Details
National ID CC/2003/APP/0912, CC/2003/APP/0917
Member State United Kingdom
Common Name Bairstow Eves London Central Ltd v Adrian Smith, Stacy Hill, Darlingtons
Decision type Other
Decision date 20/02/2004
Court High Court Queen’s Bench Division

Unfair Contract Terms Directive, Article 2 Unfair Contract Terms Directive, Article 3, 1. Unfair Contract Terms Directive, Article 4, 1. Unfair Contract Terms Directive, Article 4, 2.

1. Regulation 6(2) of the Unfair Terms Regulations 1999 (“the assessment of fairness of a term shall not relate to the definition of the main subject matter of the contract or to the adequacy of price or remuneration”) is to be given a restrictive interpretation.
2. An inquiry into the fairness of a contract term in the terms of Regulation 5(1) is unlikely to be undertaken at all if Regulation 6(2) applies to that term but 6(2) is unlikely to prevent provisions relating to e.g. price escalation or default from scrutiny under 5(1).
This case was an appeal from a County Court judgment which held that a contract term providing for a 3% rate of commission on sale was unfair in the terms of the Unfair Terms in Consumer Contracts Regulations 1999.

The claimants entered into an agreement with Mr Smith and Ms Hill (vendors) for the sale of a small property. The agreement provided that commission on sale was payable at the rate of 1.5% if paid in full within 10 working days of completion or any agreed alternative payment date. If it was not so paid, then a 3% rate would be applied plus interest on all outstanding sums.

After completion on 25 July 2002, the vendors’ solicitors, Darlingtons, failed to pay claimants the full 1.5% commission due within ten days, despite having been given the authority and funds to do so. There was a small shortfall (£387) which remained unpaid despite a statement from Bairstow solicitors in November 2002 that if it was not paid, the full 3% rate would be applied. The sum remained unpaid and proceedings were commenced by Bairstow.

At County Court, HHJ Richardson held that the provision of the agreement requiring a 3% commission was unfair and was therefore not binding on the defendant pursuant to the Unfair Terms in Consumer Contracts Regulations 1999. This was upheld in the present appeal.
Regulation 5(1) of the 1999 Unfair Terms in Consumer Contracts Regulations provides that a contractual term will be unfair if it causes a “significant imbalance in the parties’ rights and obligations” to the detriment of the consumer. Certain terms are excluded from the ambit of the unfair terms assessment. Regulation 6(2) (regulation 3(2)(b) in the 1994 Regulations) provides that in so far as a contractual term is in plain, intelligible language, the assessment of fairness of a term shall not relate to the adequacy of the price or remuneration of the goods or services supplied.

The House of Lords in First National Bank plc ([2001] UKHL 52) considered, Regulation 6(2) must be given a restrictive interpretation. While the object of the regulations is not price control and nor are the regulations intended to interfere with the parties’ freedom of contract as to the essential features of their bargain, regulation 6(2) should not be permitted to shield terms from scrutiny; “otherwise a coach and horses could be driven through the regulations” [at 25]. It does not follow that merely because 6(2) does not apply that the term in question will be judged unfair; whether a term is unfair involves a separate inquiry but one which cannot be undertaken at all if 6(2) bars the way.

In the present case the applicability of 6(2) turned on the question of what the parties had contemplated when they made the agreement: was it (a) a 3% commission rate with the option to make an early payment at 1.5% or (b) an obligation to pay a 1.5% commission rate with a default provision of 3%? The task of the court is to determine the objective intentions of the contracting parties. Although the language of the agreement referred to a 3% ‘standard commission rate’, this is not determinative and it is legitimate for the court to have regard to the surrounding circumstances in which a contract is made. The prevailing market conditions, negotiations and the apparent expectation of the parties in this case indicate that the parties envisaged a 1.5% rate as the true price. As a result, regulation 6(2) was inapplicable in this case and a legitimate assessment of the fairness of the price term made in the terms of regulation 5(1).
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