Lloyds Witness Statement

From Consumer Wiki

Please Note

1) This witness statement is offered without liability and is to be used solely at your own risk. Nothing in the following document(s) constitutes legal advice. If in doubt, you must seek the advice of a qualified and insured legal professional.

2) Please try to understand the arguments contained within this statement as much as possible. You should also draw up some case notes based around these main points and try to research the legal principles as much as possible.

3) The witness statement should be added to your court bundle and submitted along with all the authorities and evidence referred to in it, along with any other specific documents required by the court order.

Also, follow the advice and links in post #1 of this thread –


4) Please check the Witness statement carefully and amend to suit your own circumstances.

Text in Red:

These are terms from the TSB current account in 1996. If you did not have a TSB account in 1996 then DELETE THE TERMS IN RED!

Text in Blue:

Personal details, exhibit references, etc. Ensure they are all filled in accurately. Reference the exhibits to your court bundle index.

5) This witness statement is the copyright of Reclaim the Right limited and should not be distributed without permission. Strictly for use by registered members of the Consumer Action Group only.

Lloyds Witness Statement

1st Witness Statement of XXXXXXX

Claim Number: *******

Exhibit ***1


In the XXXXXXXXXX County Court











1. I,[Enter your name], am the Claimant in this case, I make this Witness Statement from information and facts within my own knowledge and which I believe to be true. I am a litigant in person.I make this Witness Statement in support of my claim against the Defendant for the refund of Charges levied to my bank account by the Defendant bank. Background

2. Since [Date you opened account] the Claimant and the Defendant (“the Bank”) have agreed (“the Banking Contract”) that the Bank would operate for the Claimant an account, account number [enter your account no],("the Account") at the [enter branch] branch of the Defendant bank.

3. The Account was a current account, under which, at all material times, in substance:

a. the Bank agreed to hold monies deposited by or for the Claimant, and to make payments to and on behalf of the Claimant;

b. in return, the Bank was entitled to the use of the monies so deposited, and to be paid interest on monies borrowed by the Claimant.

4. At all material times the Account was subject to the Bank's standard terms and conditions ("the Standard Terms") which were varied from time to time. These terms were set out in:

a. leaflets produced by the Bank setting out its bank Charges, and

b. terms and conditions issued by the Bank in relation to payments made using a card issued by the Bank (a debits card, cashpoint card and cheque guarantee card - a “Card Payment”) on the Account.

c. Terms implied at common law

d. The Banking code adopted through the Defendant’s membership.

5. Pursuant to the express terms of the contract, the Defendant debited numerous Charges from the account between [enter date of first Charge] and [enter date of last Charge] totalling [£XXX] in addition the Defendant Charged interest on these Charges amounting to [£XXX]. See schedule of Charges exhibit XX of document bundle.

6. The Claimant contends the contractual clauses which permit the Charges are unenforceable by virtue of the common law relating to penalty clauses and or the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) and thus seeks return of the said Charges.

7. On [date] the Claimant wrote to the Defendant, setting out the nature of the complaint and requesting that the Defendant either justify the legitimacy and legal status of its Charges or alternatively refund them. See exhibit XX of the document bundle.

8. Upon unsatisfactory response from the Defendant, [date] the Claimant again wrote to the Defendant requesting a refund of said Charges, advising a court action would be filed, in the absence of receipt of a satisfactory response. See exhibit XX of the document bundle.

9. The Claimant filed a claim at [Town] County Court for the return of the Charges levied by the Defendant, as particularised and detailed in the Particulars of Claim. See exhibit XX of the document bundle.

10. The Defendant acknowledged service of the claim on [date] and filed its defence on [date] See exhibit XX of the document bundle.


11. The Bank has debited Charges from the Account in respect of unauthorised overdrafts and unpaid items, relying on terms of the Banking Contract which were either:

(1) a penalty payable on breach of contract and unenforceable at common law or

(2) a cloaking of a penalty which by virtue of the Unfair Terms in Consumer Contract Regulations 1999 renders the terms unenforceable and or

(3) unfair terms within the Unfair Terms in Consumer Contract Regulations 1999 (The Regulations”) and unenforceable.

The Claimant is accordingly entitled to repayment of the sums wrongly debited and interest.

Penalty payable on breach of contract

Contract terms

12. The relevant terms of the contract include:

i). There was an express term of the contract that the account was subject to ‘an agreed overdraft limit of £****

ii) Clause 4.1 of the 1996 Terms and Conditions [exhibit ***] state; “We will make any payments from your account when you authorise them in a manner which is agreed between us. You must have sufficient money available in the account to meet the payment.”

iii) Term 9 a) of the 2000 Terms and Conditions [exhibit ***]state:

“You are not entitled to overdraw the account if no overdraft facility has been arranged, or to overdraw the account beyond the limit of an arranged overdraft facility. You are not entitled to use your card if this would happen, but this does not affect our right to deduct the amount of the card transaction or guaranteed cheque from the account if the card is used.”

iv). Clause 9.2 of the terms of use of debit card 2004 & 2006 [exhibit ***] states:

“If you do use your Card to create an overdraft we have not agreed or to exceed an agreed overdraft limit, you will have broken the terms of your account and you must repay the un-agreed amount immediately.”

v). Clause 6.5 of the terms of use of cheque guarantee Card [exhibit ***]

“You must not write a guaranteed cheque which exceeds the amount in your Account or the limit of any overdraft we have agreed with you.”

vi) From the Defendant’s current published Charges leaflet [exhibit ***] which forms part of the Terms of the Account;

“If you go overdrawn without agreeing this with us we Charge a higher rate of interest for unauthorised borrowing …We will also Charge you a fee for any unauthorised borrowing…. Overdraft excess fee: £30 per day (Maximum of 3 Charges in one monthly charging period. We Charge this when you go overdrawn and don’t have an overdraft facility or if you go overdrawn above an agreed overdraft limit. We will Charge you this fee again on each day we make a payment for you that increases your overdraft.”

Returned item fee £30

‘You’ll be Charged this fee whenever there is not enough money in your account to make a payment such as a Direct Debit,cheque or standing order.’

13. The Charges incurred relate to £*** for overdraft excess fees and £*** for returned items.


(i) Charges for Overdraft excess

14. A breach of contract is the failure of a party, without legal excuse, to perform an agreed obligation pursuant to any or all of the terms agreed within that contract. The Claimant has an overdraft with the defendant. This overdraft has a contractually agreed limit, which is an express term of the bank account contract between the Claimant and the Defendant. The definition of the word “limit” given by the Oxford English Dictionary is as follows;

noun 1 a point beyond which something does not or may not pass. 2 a restriction on the size or amount of something. 3 the furthest extent of one’s endurance. • verb (limited, limiting) set or serve as a limit to.

15. It is submitted the meaning of ‘limit’ for the purposes of the term of the contract is that it is the point beyond which the overdrawing of the account may not pass i.e. not permitted to pass. To support such a construction I wish to draw the courts attention to the use of the words authorised and unauthorised borrowing within the Charges leaflet and also to clause 9.2 of the terms of use of the debit card stating that if you use your Card to overdraw you have broken your agreement. Further clause 9 a) from 2000 Terms and Conditions expressly states that the Claimant is not entitled to exceed an overdraft limit.

16. When the Claimant exceeded the contractually agreed overdraft limit, therefore breaching an express term of the banking contract, the Claimant was consequentially penalised for each such breach by way of a Charge of £30 imposed by the terms set out in the Defendant’s published leaflet relating to Charges which is a standard term. The fact that the Charge specifically relates to a breach of contract is evidenced by the fact that the Charge is referred to as a fee for ‘overdraft excess’ in my statements and in the published leaflets.

(ii) Charges for returned items

18.The terms and conditions of the agreement between the bank and its consumer clearly state the limit, if any, of an agreed overdraft. It is submitted that failure to abide by that agreement, by using a cheque, card, direct debit or any other method or instruction to pay or draw funds which would if paid lead to the agreed limit to be exceeded, is clearly in itself a breach of contract. However, furthermore and by virtue of term’s quoted in paragraph 13 above, the consumer is indeed expressly prohibited from making any payment which would lead to the overdraft limit being exceeded.

17. It is a clear requirement of the terms of the account contract that sufficient funds are available to cover payments made by standing order or direct debit, or overdraft drawings. A Charge arises when these requirements are not met – I.e. when a payment or drawing is made from the account which is not supported by sufficient available funds.

Cloaking of Penalties

Cloaking of penalty

18.The Defendant contends that the Charges levied are legitimate fixed price contractual services, not related to breach of contract, and therefore not required to be a pre-estimate of loss incurred on the part of the Defendant. The Defendant’s contention is merely an attempt to 'cloak', or disguise, its penalties in order to circumvent the common law and statutory prohibition of default penalty Charges with view to a profit.

19. The Defendant bank, along with all the other UK retail banks, has come under increasing pressure in the last 18 months to justify its high level of default Charges. The Charges have increased substantially and seemingly indiscriminately over the last 4 – 8 years, at a time when the use of computer automated systems and ever advancing technology has undeniably made the actual costs of processing default events progressively cheaper. The Defendant has faced criticism from the media, the OFT and other public bodies and industry experts that its Charges are merely a highly lucrative revenue stream, as opposed to being a genuine estimate of the damages caused to it of each default event, as settled law dictates must be the case. In the face of an unprecedented level of complaints and subsequent litigation brought by angry consumers, rather than substantiating its Charges by defending claims and producing evidence that the Charges it imposes are fair and a true reflection of the loss incurred as a result of its consumers breach, the Defendant’s reaction has been to file a template defence then subsequently settle each and every claim to date where its Charges have been challenged, and furthermore, it has restructured the terms and conditions of the account contracts relating to Charges in order to attempt to present the Charges it imposes as fees for a contractual service as opposed to administration Charges payable upon a breach. As set out in the paragraphs below, the Office of Fair Trading predicted this reaction and did indeed warn the banks against attempting to disguise their Charges in such a manner.

20. If the Defendant’s interpretation of its terms were to prevail, it would be entirely conceivable that any supplier or contractual party in the future would be able to avoid the protection afforded by the law governing liquidated damages simply by describing the consequences of the relevant event as a payment for service rather than damages for breach. Such a result would seriously damage the interests of the consumer and destroy the body of common law on liquidated damages which has been built up over the last 100 years.

21.It is further submitted that the Defendant's contention that the Charges are now a service Charge as opposed to a representation of administrative costs – I.e. damages, represents a contradiction to materials published by the bank previously. I am in possession of a letter, which is attached to this Witness Statement [exhibit ***]signed by Martin Orton, a senior manager at Lloyds TSB's consumer care department, which states –

"as you are aware, I am afraid that it is the case that any items that are returned incur a fee in order that we can recoup our costs".

This was in response to a direct and plain request to justify Lloyds TSB's Charges. Throughout the letter, no mention is ever made of the Charges as being the cost of any type of 'service'.

22. Furthermore, the Charges were also referred to as being a contribution towards administration costs in a letter dated April 2006 [exhibit ***]

“Whilst I can appreciate that you feel these Charges are excessive, I am sure you can appreciate that there is a large amount of work involved in maintaining accounts that go overdrawn and those that have items returned. We have to employ large numbers of staff to deal with all aspects of this administration, therefore, we ask those who overdraw, or who do not have sufficient funds in their account as and when their payments become due, to make a contribution towards these.”

23. In the event that the court were to find the Charge was not payable on breach of contract, without prejudice to the proceeding paragraphs, it is submitted that it is still open to the court to hold that the relevant Clause of the contract amounted to a penalty. In Dunlop Pneumatic Tyre co Ltd v New Garage [1915] AC 79 [exhibit ***] Lord Dunedin stated:

"whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach”.

Thus a contractual provision aimed at securing the performance of a contract should be treated as a penalty. This is a matter of construction and thus a clause which has as its function the objective to deter a breach; this may be interpreted as a penalty notwithstanding it is expressed in terms of a fee payable happening on an event other than breach. For these purposes the Claimant seeks to distinguish the case of Adler v Moore [1961] 2 QB 57 where there was never any suggestion that the insurance company wished to deter Bobby Moore from ever playing professional football.

24. I thus invite the court to look at the substance of the clause rather than the form. For this purpose I wish to draw the courts attention to the following statement from the House of Lords in Bridge v Campbell Discount:

Lord Devlin:

"It is well settled that, when a court of law finds that the words which the parties have used in a written agreement are not genuine and are not designed to express the real nature of the transaction but for some ulterior purpose to disguise it, the court will go behind the sham front and get at the reality.”

It is submitted that the Charges were in reality a penalty since they are aimed at deterring me from breaching the contract, it was simply drafted in a way designed to obviate the penalty provisions applicable on breach of contract; a practice commonly known as ‘cloaking the penalty’.

25. The availability of a court to find that a contractual term which is expressed so as to relate to a provision of a service, or payable on the happening of an event, to be in fact a disguised as a penalty, was specifically left open by the Court of Appeal in the case of Interfoto v Stilletto Visual Programmes Ltd [1988] 2 WLR 615 [exhibit ***]The case was actually decided on the issue of notice but Dillon LJ was of the opinion the case could also have been decided on the grounds of a disguised penalty clause:

" In reaching the conclusion I have expressed I would not wish to be taken as deciding that condition 2 was not challengeable as a disguised penalty clause. This point was not argued before the judge nor raised in the notice of appeal."

26. Furthermore, I respectfully request that the court has regard to the advances in consumer protection legislation since the Court of Appeal’s decisions in Campbell Discount Co Ltd v Bridge [1961] 1QB 445 and Associated Distributors Ltd -v- Hall (1938 ) 2 KB 83. I also wish to distinguish the cases of Euro London Appointments ltd v Claessens International ltd[2006] EWCA Civ 385 and Export Credits Guarantee Department -v- Universal Oil Products Co[1983] 1 WLR 399 as commercial agreements requiring no consideration of the consumer protection provisions. In particular the Unfair Terms in Consumer Contracts Regulations 1999 [exhibit ***]which derives from EU Directive: COUNCIL DIRECTIVE 93/13/EEC of 5 April 1993 (The Directive). National courts are required to interpret national law in a way which is compatible with European Union law. In Case 14/83 Von Colson and Kamann v. Land Nordrhein-Westfalen ([1984] ECR 1891), the European Court of Justice was of the opinion courts are required to guarantee substantial protection of rights enumerated in EU directives, and are also required to provide substantial deterrents for violators. Thus I assert that it is not only open for the court to find the Charges to be a disguised penalty in the absence of a finding of breach, but it is indeed the courts duty to do so.

27. The provisions relating to Charges are within the ambit of the Regulations as they do not relate to a core term. A core term is defined by the Regulations as a term relating to:

Reg 6 (2)

(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.

28.This definition finds its origin in Art 4 of the Directive. In Director General of Fair Trading v First National Bank[2001] UKHL 52 [exhibit ***]it was held that core terms should be interpreted narrowly so as to give effect to the Directive. The House of Lords was concerned with the interpretation of Reg 3 of the 1995 Regulations which are identical in wording to Reg 6 of the 1999 Regulations. The House of Lords were determining the question of whether a clause, providing that interest at the contractually agreed price, was payable after a judgment, came within the ambit of Regulation 3 of the 1995 Regulations. It was held that this did not represent a core term under the Regulations notwithstanding the fact that it was an agreed term representing the price of remuneration. Lord Steyn:

"In any event, article 3(2) must be given a restrictive interpretation. Unless that is done article 3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision. Similarly, article 3(2)(b) dealing with "the adequacy of the price of remuneration" must be given a restrictive interpretation. After all, in a broad sense all terms of the contract are in some way related to the price or remuneration. That is not what is intended....It would be a gaping hole in the system if such clauses were not subject to the fairness requirement."

29. It is thus submitted that the clauses relating to Charges do not relate to the definition of the subject matter nor the adequacy of the price nor remuneration but is an ancillary term. If a term relating to the contractually agreed interest rate can be considered not to be a core term, it would be a non-sequitur if a term relating to a sum payable on a contingency could be regarded as a core term.

30. It is thus submitted that the clauses relating to Charges do not relate to the definition of the subject matter nor the adequacy of the price or remuneration but is an ancillary term. At the time of entering the contract the claimant gave scant regard to the provisions and they were not presented as being part of the core bargain of the contract. It is further submitted that in order to give effect to the Directive as a whole a narrow interpretation of Reg 6 is required and the contractual provisions should be allowed to be subject to the scrutiny of the Regulations so as to determine the issue of fairness.

31. Reg 5. — (1) UTCCR 1999/ Art 3 Eu Directive 93/13 of 1993 provides:

"A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer."

32. It is submitted that the clauses allowing the Defendant to levy the Charges for overdraft excess and returned items are within the ambit of the Regulation 5 as they were not individually negotiated. The requirement of good faith was described by Lord Bingham in Director General of Fair Trading v First National Bank as:

"Good faith in this context is not an artificial or technical concept... It looks to good standards of commercial morality and practice. It 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. 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"

33. It is submitted that the use of a contractual term to seek to circumvent the penalty provisions, is contrary to the requirement of good faith. Disguising a penalty by drafting the contract in a way so as to allow the penalising of consumers causes a significant imbalance to the detriment of the consumer.

34. The Defendant asserts that the Charges are within the requirement of good faith as they were in the published terms and conditions and the Claimant was aware of them. However, this is a purely procedural argument and according to Lord Steyn in Director General of Fair Trading v First National Bank:

"Any purely procedural or even predominantly procedural interpretation of the requirement of good faith must be rejected."

It is thus asserted that the substance of the clause is of paramount importance in looking at the requirement of good faith also the way it was packaged so as to deceive the consumer into believing it was a legitimate Charge to compensate loss.

35. Under Reg 6 UTCCR 1999 the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. The Defendant offered a banking service on similar terms and conditions as all other High street bankers. The choice in the range of services available is extremely limited. At no time was the Claimant offered a banking service without such terms and conditions.

36. The clauses allowing a Charge for overdraft excess or returned items give rise to three possible meanings: the first, favouring the Claimant in that the fee is levied in consequence of the Claimant’s breach of contract, the second favouring the Defendant, in that the fee is levied pursuant to a happening of an event other than breach of contract and the third favouring the Claimant, that in reality the clause is a disguised penalty for breach of contract. In this regard I wish to invoke Regulation 7(2) of the Unfair Terms in Consumer Contract Regulations 1999: which provides if there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer will prevail. Application of the contra proferentem rule would also incline to such a result.

Office of Fair Trading Analysis

37. I refer to the statement from the Office of Fair Trading (April 2006), who conducted a thorough investigation into default Charges levied by the British financial industry. While the report primarily focused on Credit card issuers, the OFT stated in its overview that the principle of their findings would also apply to Bank account Charges and indeed those of the entire financial and lending industry. They ruled that default Charges at the current level were unfair within their interpretation of the UTCCR. With regard to the 'cloaking' or disguising of penalties, the OFT said this;

"4.21.Disguised Penalties

The analysis in this statement is in terms of explicit, transparent default fees. Attempts to restructure accounts in order to present events of default spuriously as additional services for which a Charge may be made should be viewed as disguised penalties and equally open to challenge where grounds of unfairness exist. (For example, a Charge for 'agreeing' or 'allowing’ a consumer to exceed a credit limit is no different from a consumers default in exceeding a credit limit.) The UTCCR's are concerned with the intentions and effects of terms, not just their mechanism".

38.Further, in April 2007 the OFT issued a report titled “Unfair Contracts Terms Guidance – Consultation on revised guidance for the Unfair Terms in Consumer Contracts Regulations 1999” [exhibit ***]Relevant sections from this report are quoted as follows;

Section 5.8 - Disguised penalties

Objections under the Regulations to an unfair financial penalty can apply to any term which requires excessive payment in the event of early termination, or for doing anything else that the supplier has an interest in deterring the consumer from doing. The Regulations are concerned with the intention and effects of terms, not just their mechanism. If a term has the effect of an unfair penalty, it will be regarded as such, and not as a 'core term'. Thus a penalty cannot be made fair by transforming it into provision requiring payment of a fee for exercising a contractual option.

Section 18 1.3

These objections are less likely to arise if a term is specific as to what must be paid and in what circumstances. In that case, it may be considered a 'core' term and exempt from consideration for fairness provided it is in clear language and properly drawn to consumers' attention – see Part IV, paragraph 19.12. (But note that this may not hold good if it is a 'disguised penalty', that is, a term calculated to make consumers pay excessively for doing something that would normally be a breach of contract.

39. Furthermore the Scottish Law Commission has recommended that there should be judicial control of penalties irrespective of breach of contract: Scots Law Com No 171 Report on Penalty Clauses 1999 Para 4.10 [exhibit ***]

"We accordingly recommend that Judicial control over contractual penalties should not be confined to cases where the penalty is due when the promisor is in breach of contract. It should extend to cases where the penalty is due if the promisor fails to perform, or to perform in a particular way, under a contract or when there is an early termination of a contract."

40. The balance of equities tends to favour the invocation of the equitable rule against penalties in cases such as the present. Contract law is and should be concerned solely with the issue of compensating loss between the parties. The issue of penalising, or put more simply, punishing parties is the exclusive reserve of criminal law. The arguments are all the more compelling in consumer contracts where the law is expected to provide the consumer with protection. Furthermore, where the rules of common law and equity conflict, equity prevails.


41. If the court is satisfied that the Charges were levied for breach of contract, or in the alternative that the penalty provisions are applicable irrespective of a finding of a breach, it is the Claimant’s submission that the Charges do indeed amount to a penalty.

42.It is not disputed that the Defendant is entitled to recover its damages following my breaches of contract, and it is entitled to include a liquidated damages clause. I accept without reservation the banks right to recover its actual losses resulting from each breach of contract or otherwise a true and genuine pre-estimate thereof. However, it is long settled that a clause which provides for a payment of money which is excessive, unconscionable and not related to or proportionate to the loss incurred as a result of the breach is a penalty and thus unenforceable.

43. Lord Dunedin in the case of Dunlop Pneumatic Tyre Co v New Garage & Motor Co [1915] AC 79 [exhibit ***] set down a number of principles in definition of a penalty clause. Two of these principles being;

"It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greater loss that could conceivably be proved to have followed from the breach"


"The essence of a penalty is a payment of money stipulated as in-terrorem of the offending part; the essence of liquidated damages is a genuine covenanted pre-estimate of damage"

44. These principles have been upheld on numerous occasions dating throughout the 20th century to the most recent case of Murray v Leisureplay [2005] EWCA Civ 963, all of which have upheld and reinforced the principles set down by Lord Dunedin defining contractual penalty clauses and the unenforceability thereof. See the “Relevant Case Law Summary” contained within the court bundle [exhibit ***]

45.Whetherthe Defendant’s Charges amount to a penalty is therefore a question of fact – specifically how the level of Charge paid by the consumer compares with the actual loss suffered by the Defendant as a result of each breach. On numerous occasions, I have requested that the Defendant justify its Charges by providing details of the costs incurred as a result of my contractual breaches. Each time those requests were rebutted or ignored.

46. It is submitted the loss incurred by the defendant as a result of each of my contractual breaches is in the region of a minimum of £0.25 to a maximum of £1.50 per each single event of default. A more accurate figure is not available , due to the fact that the Defendant, and indeed all of the UK banks, remains highly secretive regarding the mechanisms of their systems and the costs associated in the charging process and of the events of default leading to a Charge being made. I am aware of in excess of 300 claims similar or identical in nature to the present case which have been brought against the Defendant bank in the last 18 months. In a significant number of these cases disclosure orders have been made obliging the defendant to substantiate its Charges and provide details of the costs of the charging process. I understand that each and every time that such an order has been made, or indeed any other directions order, it has been breached by the Defendant who chooses instead to settle each and every claim without liability, typically shortly in advance of the scheduled hearing.

My estimate of £0.25 - £1.50 is based upon the following;

My assessment of the costs of the charging process

47. Prior to the commencement of these proceedings I asked the Defendant to provide evidence of any manual intervention that may have occurred in relation to my account, under a Subject Access Request pursuant to s.7 of the Data Protection Act 1998. No records of any manual intervention or involvement whatsoever could be provided. [exhibit ***]

Therefore, It is submitted that the Defendant’s Charges are applied by a completely automated process. This process consists of a computer system;

a) Sending a computer generated letter if a consumer exceeds authorised overdraft limit (even if by only a few pence) to advise the consumer of the breach and resultant Charges, or

b) Returning a dishonoured cheque plus notice to the consumer, or

c) ‘Bouncing’ a direct debit or standing order. The costs of Data processing are nominal. Following some research into these processes and their costs I was able to obtain a list of prices from The Data Processing Company UK www.dataprocessing.co.uk, which confirm that such costs can be reasonably measured in pence rather than pounds. [exhibit ***]

It is therefore impossible to envisage how the Defendant can incur costs of £35 by carrying out a completely automated process. Note that the letter received notifying of a Charge is identical in every instance, and if multiple breaches occurred on the same day, a separate letter will be sent in each instance, in separate envelopes.

48. CYNthesys Disclosures

Disclosures were recently made to the BBC and subsequently to Andrew George MP and journalists at a meeting at the House Commons revealing that the Clydesdale, Yorkshire and Northern Banks operated a structured, detailed and auditable system for costing, tracking and refining their costs of conducting various operations within the bank including the processing of default events of delinquent accounts. The system, which was apparently introduced in 2002 was called CYNthesys- Clydesdale Yorkshire Northern the system.

A Yorkshire Bank informant who is a former high level employee at the bank stated on television and in an affidavit that even assuming the highest level of manual intervention any single process of default would never cost more than £2.00 and that this cost is calculated and traceable using CYNthesys.

It is submitted that it is inconceivable that such a system with the same or similar mechanisms, characteristics and costs is not also employed by Lloyds TSB Plc, the Defendant in the present case. Basic business principles and marketplace competition dictate that if such a system is in existence, available and operated by an organisation, that its competitors in the marketplace will also seek to employ a system which is equally efficient and cost effective or perhaps even more so. As the Defendant is one of the largest institutions in the UK, and far bigger that The Yorkshire Bank, economies of scale would suggest in fact that the costs to it would be far less than that of the system employed by the Yorkshire Bank.

Further, note that the current end Charge to the consumer of the CYNthesys banks (for example Yorkshire Bank) is identical to those of Lloyds TSB;

Lloyds TSB Charges tariff;

Unauthorised overdraft fee - £30

Bounced direct debit/cheque/standing order - £35

Yorkshire Bank Charges tariff;

Debit card abuse fee - £35

Bounced direct debit/cheque/standing order - £35

49. Australian Default Fees report

In a study undertaken in Australia, (Nicole Rich, “Unfair fees: a report into penalty fees Charged by Australian Banks”) [exhibit ***] it was estimated that the cost to an Australian Bank of a consumer’s direct debit refusal was estimated to be in the region of 54 cents. By reviewing the Charges to the consumer against the actual cost to the bank, the study estimated that banks could be charging between 64 to 92 times what it costs them to process a direct debit refusal.

The study’s key findings stated that the Australian Bank’s cheque and direct debit refusal fees were likely to be penalties at law.

The penalty charging regimes of the Australian banks as well as the automated systems employed to process default events are similar to those of the UK banks, and the laws relating to contractual penalty clauses are also similar to those in the UK.

50. The Competition Commission Report

Northern Ireland Competition Commission report from October 2006 [exhibit ***] revealed that figures contributed by eight banks, including the Defendant, Abbey Plc, showed that around 12% of the banks annual revenue is generated by "overdraft Charges". The report clearly demonstrates that the banks make significant profits from their penalty Charges and that they know about it, depend upon it and that they calculate for it. It is submitted that this report is clear evidence that the Defendant is aware that the income derived from its default Charges is calculated to generate material profits and is not merely a means of recouping losses incurred in relation to specific events of default.

51.BBC Commission Report

For the recent BBC2 documentary "The Money Programme", the BBC appointed a commission of former senior banking industry figures and business academics to attempt to ascertain the actual costs to the UK banks of processing a consumer's breach of contract. They concluded [exhibit ***] that the absolute maximum conceivable cost that could be incurred by a direct debit refusal or overdraft excess is £2.50, and of a returned cheque £4.50. They did state however, that the actual cost is likely to be much less than this. The commission also estimated that the UK banks collectively derive as much as £4.5billion in profit a year from their penalty charging regimes.

52. It is thus submitted that the Charge is an unconscionable penalty as it is extravagant, unrelated to and greatly exceeds any loss that the Defendant could ever have expected to have incurred as a result of the Claimant’s breach, and seeks to deter the Claimant from breaching the contract.

53. I will further rely on the statement from the Office of Fair Trading (April 2006), who conducted a thorough investigation into default Charges levied by the British financial industry. While the report primarily focused on Credit card issuers, it is important to note that the OFT stated in the overview of its report that the principle of their findings would also apply to current account Charges. They ruled that default Charges at the current level far exceeded the costs of administering each default and were therefore unfair and unlawful within their interpretation of the UTCCR’s. It is the claimants view that this report is highly relevant as the OFT were in a privileged position in that they were allowed access to the costs and mechanisms of the banks charging processes.

54.On 22nd May 2006, the House of Commons passed an early day motion [exhibit ***] which welcomed the OFT's statement that current account and credit card default Charges should be proportionate to the actual loss incurred as a result of the breach. The House described such Charges as "exorbitant" and "excessive".

55.In a BBC radio interview in 2004, Lloyds TSB's former head of personal banking, Peter McNamara, stated that revenue derived from bank Charges is used to subsidise free banking for personal all consumers as a whole. [exhibit ***] 56. For these reasons it is submitted that the terms allowing the defendant to impose Charges are unenforceable penalties payable on breach of contract, alternatively they are unenforceable as penalties in the absence of a finding of breach of contract.

Unfair Terms in Consumer Contracts Regulations 1999

57. See paras 27 –30 for applicability of the Regulations

58. At all material times the Claimant was a consumer within the Regulations. The terms relating to Charges were standard terms; they would not be individually negotiated. The terms of the Banking Contract providing for the Charges were unfair within regulation 5 of the Regulations in that contrary to the requirement of good faith they caused a significant imbalance in the parties' rights and obligations under the Banking Contract.

59. Without prejudice to the burden of proof, the Claimant refers to the following matters in support of the contention that the terms are to be assessed as unfair as at the time of the conclusion of the Banking Contact, and of each revision to the Standard Terms:

(1) The Charges are a disproportionate sum in compensation for a failure to fulfil a contractual obligation and are thus akin to the provision contained in Sch 2 (1)(e) . The Charges exceeded the costs which the Bank could have expected to incur in dealing with unauthorised borrowing and/or an unpaid item. They would cover to an extent the cost of providing banking to other consumers who did not incur the Charges. The Charges could be very much higher than the amount of the unauthorised overdraft.

(2) The Charges could be imposed repeatedly, with interest at the Higher Rate of Interest Charged on top. The cumulative effect of the above would be to increase the debt burden on the consumer who incurred Charges, and make it more likely that a further fee and interest would be Charged. The Charges would penalise the consumer who had little or no credit. The consumer who incurred Charges was likely to be the least able to afford to pay the Charge.

(3) The charging regime operated by the Defendant by charging those who can least afford it to subsidise free banking of other consumers takes advantage of the Claimant’s necessity indigence and weak bargaining power. A bank account is an essential requirement in modern society. All High street banks offer accounts containing similar terms. The choice to the claimant was thus restricted and put them in a weak bargaining position. The objectives which the Regulations are designed to promote include the protection of Consumers from commercial entities.

(4) the Charges were of subsidiary importance to the consumer in the context of the Banking Contract as a whole and would not influence the making of the Banking Contract. The consumer had no means of assessing the fairness of the Charges at the conclusion of the contract.

(5) In the premises, the effect of the Charges would be prejudicial to the consumer who incurred them, and cause an imbalance in the relations of the parties to the Banking Contract by subordinating the consumer’s interests to those of the Bank in a way which was inequitable. 60. It is thus submitted the provisions allowing the Defendant to apply Charges for unauthorised borrowing ane returned items are unfair under Reg 5 of the Regulations and therefore is not binding on the consumer under Reg 8.


61.The contractual term permitting the Defendant to apply Charges to the Claimant’s Account arise as a direct consequence of an event demonstrable as a breach of the account agreement between the parties. In arguing that they are a service Charge, the defendant also effectively admits that its Charges make profits. The Defendant seemingly contends that their Charges are not subject to any assessment of fairness whatsoever. This implies they can alter the term of contract to set the Charges at whatever level they like without limit or regulation - contrary to the intended effects of consumer legislation such as the UTCCR. Similarly, as set out above, the Charges cannot be considered to be liquidated damages. They, by The Defendant's own admission, are not a pre-estimate of loss incurred as a result of the breach of contract. The Charges are disproportionate, punitive, held "in-terrorem", and unduly and extravagantly enrich the Defendant. As such, they are contractual penalties and unenforceable at law. In addition to being unfair terms under the Unfair Terms in Consumer Contracts Regulations 1999.

62.Accordingly, the Claimant seeks judgment in respect of;

a) Charges in the sum of £**** (as particularised in the Particulars of claim).

b) Interest at the rate of 8% per annum under County Courts Act 1984 s.69 in the sum of £**** until [date], and further the daily rate of £**** thereafter (as particularised in the Particulars of Claim);

c) Court issue fee of £****

d) Allocation fee of £100 [if applicable]

e) Further costs under CPR 27.14(d) or other such costs allowed by the court.

63. Statement of Truth

I believe the facts stated within this Witness Statement to be true, and submit it as Exhibit XXX1 comprising of XX pages.




Summary Of Main Points To Argue


- Throughout 6 Months of litigation at no time has the Defendant responded to correspondence or otherwise communicated.

- Defendant has breached the directions order

- As the court is probably aware this conduct is not confined to this case but is followed without exception in hundreds of similar claims involving the same Defendant.

- With greatest respect it seems the bank don’t think the CPR or any court orders apply to them.

- Litigation strategy in general contrary to the Overriding Objectives.

- In view of the above we would ask the court to consider striking out the defence under CPR 3.4 (2) (c) on the basis that the Defendant has breached Civil Procedure rules and a court order, or under CPR 3.4 (2) (b) on the basis that the Defence is an abuse of process.


- Penalty Charges are unenforceable by virtue of over 100 years of settled common law and more recently the Unfair Terms in Consumer Contracts Regulations.

- Upon a breach of contract a party may only recover its actual or liquidated losses.

- A clause is a penalty if it provides for a payment which is extravagant and disproportionate to the loss incurred as a result of the breach and seeks to deter a party from breaching the contract (Dunlop Pneumatic Tyre v New Garage and Motor Co).

- Claimant contends that the Defendant’s Charges levied to his account are excessive, far out of proportion to the costs of processing the breach, are punitive in nature and are therefore unenforceable as penalty clauses.

- I estimate that defendant’s costs/losses are no more than £1.50 per breach at the absolute maximum. (See Witness Statement para’s**-**). Claimant is perfectly willing to pay this and will reduce claim accordingly.

- I would of course invite the Defendant to disclose a more accurate figure.


- The defendant says the Charges are not related to breach of contract.

- The Charges are imposed as a result of breaches of contract!

- Legal definition of ‘breach of contract’ = ‘failure of a party, without legal excuse, to perform an agreed obligation pursuant to one or more of the terms within that contract.’ Court and defendant agree?

- The definition of “Limit” is a point beyond which something may not pass – it is therefore an express term of the contract that the overdraft must not pass the limit of £***, and if or when it does a Charge arises. This is re-enforced by the use of the words “authorised” and “unauthorised” overdraft.

- The banks Charges clearly arise from breach of contract - specifically clause X of the consumer agreement (see exhibit***)

- Several clauses of the account agreement and terms of use for debit cards describe explicitly that to overdraw without agreement is to break the contract. This demonstrates without doubt that the Charges are damages for a breach, as opposed to a fee for a service.


- The Defendant is deliberately seeking to disguise its penalties as a fee for a service as opposed to damages for a breach.

- Even in the event that the court was to find no breach, the Charges are merely disguised penalties and can as such be equally subject to the penalty provisions. Dunlop v New Garage and Bridge v Campbell Discount - see WS para’s XX and XX.

- The office of Fair Trading accurately predicted the banks would try to do this and warned against it.

- There are 2 OFT reports contained within the court bundle as exhibits *** and ***. The relevant sections relating to disguised penalties and their view on how they should be challenged as penalty clauses is at para ** and ** of the Witness statement.

- The Scots law commission also recommended that disguised penalties should be treated as any other penalty clause. See exhibit *** or WS para **.

6. UTCCR 1999

- The clause of the contract also contravenes Regulation 5 of the UTCCR as well as schedule 2. See para XX of the Witness Statement.

- Fair Trading v First National bank means Charges are subject to assessment of fairness under UTCCR.