132 Unfair Contract Terms in EC Law

One interesting case on this matter is the High Court’s decision in Bairstow Eves v Smith.61 A contract used by an estate agent provided that they were entitled to a standard rate of commission of 3 per cent, but also provided for an ‘early payment discounted commission rate’ of 1.5 per cent. The latter was available if payment was made within ten days after the sale of the property had been completed; after this, the standard rate would apply. As litigation arose, the estate agents argued that the term concerning the commission rate came within the ‘core terms’ exception. The High Court held that only the term providing for the 1.5 per cent rate was a core term, whereas the term specifying the standard commission rate was not. They came to this conclusion by noting that 1.5 per cent was the prevailing rate in the market and negotiation between the parties had focused mainly on that rate; in addition both parties seemed to have proceeded on the assumption that the payment was going to be made within the ten days period.

This decision confirms that the question of whether a particular term is a ‘core term’ turns

on the construction of the particular contract. In this regard, it has long been the practice of the English courts to be guided not only by the wording of a contract itself, but also on the circumstances surrounding the conclusion of the contract.62 If a particular term will not come into play during the ordinary performance of the contract, then it cannot be a core term, irrespective of how the term may be described in the contract.63

In this case, what mattered was not the way that the contract was physically presented to the consumer, but the way it was negotiated, as well as the common practice in that business: the reasoning takes into account both ‘abstract expectations’ and the way the contract had been negotiated.

The OFT has also taken the view that clauses related to the price agreed, such as price variations clauses, do not fall within the exclusion; in the case of a term providing for the rate of interest to be paid by a debtor to be increased on default, OFT considered that this could not be a core term

regardless of how the term is drafted and whether the higher rate of interest is expressed to be the ordinary rate. The term providing for the higher rate of interest is in substance a term making provision for payment of compensation upon a breach of an obligation and not, therefore, a core term.64

CONTRACTS RELATING TO LAND

The fact that ‘land’ in English law is considered as neither goods nor services has raised the question of whether the new Regulations should also apply to contracts

61[2004] EWHC 263.

62‘Seminally, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896’.

63Twigg-Flesner, above n 20.

64See OFT, Non Status Lending: Guidelines for lenders and Brokers (London: OFT, 1997) 192. Further discussion on this issue can be found in the Law Commission Report no 292, Cm 6464, above n 18, paras 3.27–3.34.

Objective Scope of Application 133

relating to land. At the level of the Directive, the question was not clarified after the only reference to immovable property—a term concerning purchase of timeshare interests in land in the annex to the 1990 proposal—disappeared in the subsequent texts; failure of the Department of Trade and Industry (DTI) to clearly address the issue65 has perpetuated the problem. Accordingly, the answer to the question can be given only having regard to a wider range of considerations.

First, the corresponding Italian term beni, the French biens, and their Spanish and Portuguese cognates all include immovable property. Second, the Directive should not be interpreted as applying to goods and services as an English lawyer would understand those terms: the interpretation of Community law

involves a comparison of the different language versions. . . . Furthermore, it must be emphasised that legal concepts do not necessarily have the same meaning in Community law and in the law of various Member States. Finally, every provisions of Community law must be interpreted in the light of the provisions of Community law as a whole, regard being had to the objectives therefore an to its state of evolution at the date on which the provisions in question is to be applied.66

Under EC law, the issue is not clear: ‘goods’ are not defined in the Treaty, but clarification can occasionally be found in the case law67 and in a number of Directives that use that word:68 the Sixth VAT Directive,69 for example, defines the ‘supply of goods’ as meaning ‘the transfer of the right to dispose of tangible property as owner, including, inter alia, ‘(a) certain interests in immoveable property,

(b) rights in rem giving the holder thereof a right of user over immoveable property’, thus making it clear that ‘goods’ is capable of a meaning going beyond the normal English language and usage; elsewhere, when the scope of a Directive applying to contracts for the supply of goods or services is meant not to extend to land-related contracts, a specific exclusion is normally set out.

In Freiburger Kommunalbauten70 a reference was made in relation to the possible unfairness of a term contained in a contract for the sale of a parking space located in a multi-storey car park. Neither of the parties, nor the ECJ, raised the issue of the applicability of the Directive to that contract, thus implicitly confirming that the Directive applies to immovable property.

65These are complex matters which reflect the host State’s underlying heritage and system of property ownership. The DTI doubted that transactions concerning land could be properly considered to be within the scope of the Directive, but following various consultations they were eventually persuaded by the views of a number of consultees that it would be prudent to assume that the Directive could extend to transactions in land (DTI, The Unfair Term in Consumer Contracts Regulations 1994

Guidance Notes (London, DTI, 1995) 7).

UCTA expressly excluded such contracts from its application.

66Case 283/81 CILFIT Srl and Lanificio di Gavardo SpA v Ministry of Health [1982] ECR 3430.

67See, eg, case 7/68 Commission v Italy [1968] ECR 423 where goods are defined as ‘products which can be valued in money and which are capable, as such, of forming the subject of commercial transactions’.

68See the analysis carried out by S Bright and C Bright, ‘Unfair Terms in Land Contracts: Copy In or Copy Out?’ (1995) LQR 655.

69Dir 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes OJ L145/1.

70C–237/02 [2004] 2 CMLR 13 ECJ.