- The current Bank Terms and Conditions (November 2006) state in relation to these charges:

Operations on the account

If at any time we receive instructions to withdraw funds from the account where
- there are insufficient funds available to cover the withdrawal, or
- the requested withdrawal would cause an agreed overdraft limit to be exceeded
we may exercise our sole discretion and, without contacting you, either (1) refuse to pay some or all of the item and/or (2) allow an overdraft to be created or allow the borrowing limit to be exceeded (in which case, the new or excess overdraft is an unarranged overdraft).
For the purposes of assessing whether you have sufficient funds available to cover the withdrawal, or whether the withdrawal would cause an agreed overdraft limit to be exceeded, we will look at the cleared balance (plus, where applicable, any unused agreed overdraft facility) on your account at 3.30 pm on the working weekday before we receive the instruction to withdraw funds.

AND

Fees, Interest and Other Charges

Fees for operating the account and interest rates and charges payable are charged as detailed in the leaflet 'A guide to Personal Current Account Fees' relating to the account and are subject to review from time to time. If any changes are made, details of the revised charges will be sent to you at least 30 days before the implementation date for the charges.

- The leaflet referenced must be considered to form an integral part of the Terms and Conditions. In relation to these charges, it says

Unarranged borrowing - interest and fees
Interest

We would encourage you to agree an overdraft limit with us so you can avoid any unnecessary charges. If there is not enough money in your account and you have not contacted us to arrange an overdraft limit in advance, we may not allow you to withdraw money. Also we may not be able to pay your cheques, Standing Orders or Direct Debits... We will charge a fixed fee for each item we do not pay.

Fees
Unarranged Borrowing
If you exceed your arranged overdraft facility, or if you go overdrawn without prior arrangement: This is in addition to interest payable.
Unarranged transactions - unpaid
Payable when a cheque, standing order or Direct Debit is not paid due to there being insufficient funds available in your account.
Guaranteed card payment fee
Payable when you informally request an overdraft by making a payment supported by cheque guarantee or Maestro where there are insufficient funds or insufficient unused agreed overdraft facility to meet the payment.
Paid Referral
Payable when you informally request an overdraft by issuing a payment instruction on your account where there are either insufficient funds or insufficient unused agreed overdraft facility to meet the payment and we in our discretion make payment which results in or increases an unarranged overdraft.

- The Claimant contends that these Terms require that, in the proper running of the Account, sufficient funds (including any agreed overdraft facility) must be maintained in the account to cover withdrawals or the result will be a charge. (It should be noted that this applies even in cases over which the customer has no control ,eg the paying of a Direct Debit where the payment date and/or amount are controlled by the payee or indeed the bank itself)

- Further, the Claimant contends that, although these charges are referred to as “Fees for operating the account”, the Term is a clear statement that a charge will be imposed if the customer breaks the requirement that sufficient funds be in the account at the time of any withdrawal. The Term itself sets out that the charge arises purely on the occurrence of the event and, as such, is a penalty or default charge rather than a fee for operating the account.

- Further, the Claimant contends that there is a very strong argument that these charges constitute “disguised penalties” – the OFT report “Calculating fair default charges in credit card contracts - A statement of the OFT's position”, April 2006, says, “4.21 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 to' or 'allowing' a customer to exceed his credit limit is no different from a charge for the customer's 'default' in exceeding his credit limit.) The UTCCRs are concerned with the intention and effects of terms, not just their mechanism. “

- On overdrafts the current Terms and Conditions say:

Overdrafts

Overdrafts are available on request ..... We may refuse to pay a cheque (or allow any other payment or withdrawal) which could have the effect of exceeding the overdraft limit. If we do pay a cheque (or allow any other payment or withdrawal) which results in the overdraft limit being exceeded, it will not mean that the overdraft limit has changed, or that we will pay any other cheque (or allow any other payment or withdrawal) which would have the same effect. You agree that if you or any appropriately authorised signatory on the account:
a) formally requests an overdraft limit or an increased overdraft limit and we agree to the request; or
b) informally requests an overdraft by issuing a payment instruction in any form (eg issuing a cheque or making a card transaction on the account) which either through exercise of our discretion to pay the item on presentation for payment or through payment being guaranteed to a third party, results in the account becoming overdrawn when no agreed overdraft limit is in place or which results in the overdraft limit being exceeded;
in either case, this will be treated as a variation to the contract (ie not revoking and replacing any earlier agreement) under which overdraft facilities are provided by us. If they arise through exercise of our discretion to pay items presented for payment or through payment being guaranteed to third parties, they will be an unarranged overdraft.

- The Claimant contends that the word ‘variation’ is another example of the Defendant attempting to disguise penalties and that charges arising because of these contract ‘variations’ are just another form of ‘disguised penalty’.

- The Claimant refers to the fact that, normally, contract variations arise because some event or circumstance has arisen during the course of the operation of the contract that was not envisaged at the time the contract was executed. In the present case, the Claimant contends that the event leading to the 'variation', namely the ‘informal request for an overdraft’, has been forseen at the time the contract was drawn up and the Defendant has written it into the contract as a contract Term. The Claimant further contends that the 'variation' is in reality a breach of the implied contract Term that the customer must maintain sufficient funds (inluding any agreed overdraft facility) in the account to cover all withdrawals.