The ongoing test case seeks to clarify whether the the fairness rules of the Unfair Terms in Consumer Contracts Regulations apply to unarranged overdraft charges and whether such charges amount to penalties at common law. Today's ruling concerned the terms relating to overdraft facilities of certain historic current accounts of Lloyds TSB, RBS and Abbey National PLC. It stated that the historic terms applying to accounts at Lloyds TSB and three out of four at RBS Group were not capable of amounting to penalties at common law.

Mr Justice Andrew Smith also ordered that the statement, relied on by the OFT in its defence to counterclaim, that certain conditions in Abbey National PLC's historic terms are capable of amounting to penalties at common law be struck out of that pleading. His decision in relation to each set of historic terms turned on the particular language used and context in which the terms appear in documentation.

Today's ruling is broadly in line with Mr Justice Andrew Smith's decision in October 2008 where he granted declarations that the historic terms of the accounts of Barclays, Clydesdale, HSBC and HBOS were also not capable of amounting to penalties at common law.

Peter Clough, head of disputes at Osborne Clarke commented:

"Today's ruling will offer some comfort for the retail banks. Given the turmoil in the banking sector had not kicked in when this litigation started, it will be interesting to see whether the OFT now pushes forward with an appeal."

The Office of Fair Trading (OFT) started its test case against seven retail banks in July 2007. The case is a key part of the OFT's own investigation into the fairness and level of application of unarranged overdraft charges launched in March 2007.