Penalty – No, its fair

Supreme Court confirms that private parking charges can be enforceable

On 4 November 2015, the Supreme Court's keenly awaited Judgment in the case of ParkingEye Limited v Barry Beavis was published. By a 6:1 majority, the Supreme Court Justices held that a parking charge of £85 imposed on Mr Beavis was not an unenforceable penalty nor a breach of consumer regulations on unfair contractual terms and that, as such, the charge was valid and payable.

Whilst the case has been of interest to consumers - particularly those who have received parking charge notices - the Supreme Court's judgment will be relevant in all instances where a contractual clause makes provision for the innocent party to receive a pre-stated remedy where another party is in breach of contract. It is a feature of English law's precedent based approach that a case on £85 parking charges is likely to have far reaching consequences on commercial contracts which may be worth several million pounds.

It is long established principle of English law that a term of a contract which imposes a penalty, usually financial in nature, upon a party for breaching a contract amounts to a penalty clause and is unenforceable. The approach taken to determine whether a contractual term amounts to a penalty has previously been to consider whether the term provides for the innocent party to received a monetary sum which is a genuine pre-estimate of loss (in which case it will be a liquidated damages clause which is enforceable) or whether the sum payable has no correlation to the loss suffered by the innocent party and as such is an unenforceable penalty.

The Supreme Court's decision, however, means that, the issue to be determined is not whether a clause provides for a financial remedy that is a genuine pre-estimate of loss, but whether the remedy can be justified and if so, given the circumstances of each individual case, whether the remedy is excessive and disproportionate. A genuine pre-estimate of loss remains a factor but the test is a broader one that this.

By way of reminder of the background to the Beavis case, at 14:29 on 15 April 2013, Barry Beavis drove into the car park of Riverside Retail Park in Chelmsford ("the Car Park"). The Car Park was owned by the British Airways Pension Fund and managed by ParkingEye Limited on the Pension Fund's behalf.

As is common at retail parks, there was no pay and display or similar arrangement in place. Instead, customers of the retail park instead enjoyed 2 hours free parking. There were, however, large, prominent and legible signs at the entrance to the Car Park and at multiple locations within the Car Park which stated that the maximum parking period was 2 hours and that a parking charge of £85 would be applied if the 2 hour period was exceeded.

Mr Beavis overstayed by 56 minutes. He subsequently received a First Parking Charge Notice from ParkingEye demanding that he pay the £85 charge within 28 days, but stating that if he paid within 14 days, the charge would be reduced to £50. Mr Beavis ignored chasing letters, including a letter giving notice that Court proceedings would be issued if the charge was not paid. ParkingEye subsequently issued a claim in the County Court for the outstanding charge.

Mr Beavis argued that the charge was an unfair penalty and not a genuine pre-estimate of any alleged loss suffered by ParkingEye, whilst also asserting that the charge was inconsistent with the UK legislation on unfair contractual terms.

Whilst acknowledging that ParkingEye did not suffer any clear identifiable loss when Mr Beavis and/or any other motorist overstayed given that the car park was free, The County Court judge held that the charge was "neither improper in its purpose nor manifestly excessive in its amount". It is worthwhile pointing out that Judge Moloney Q.C, in determining the claim in ParkingEye's favour, noted that the free parking enjoyed by those who adhered to the 2 hour parking period was effectively paid for by defaulters.

After judgment was granted to ParkingEye, Mr Beavis appealed to the Court of Appeal. As reported in our previous article on this case, the Court of Appeal upheld the County Court decision, determining that in certain circumstances such parking "penalties" may be enforceable.

Mr Beavis was granted permission to appeal to the Supreme Court. His appeal, together with the appeal in the case of Cavendish Square Holding BV v El Makdessi which also concerned an alleged penalty clause, was heard on 21 - 23 July 2015 by 7 Supreme Court Justices.

The Supreme Court held that the test to be applied when considering whether a clause is a penalty clause and therefore unenforceable was whether the clause was a secondary obligation which imposed a detriment on the offending party out of all proportion to any legitimate interest of the innocent party in the enforcement of the parties primary contractual obligations.

In a joint lead judgment, Lord Neuberger and Lord Sumption (possibly the brightest judicial minds of their generation) held that the £85 charge applied by Parking Eye was not a penalty. ParkingEye had a legitimate interest in charging any "overstayers", with the charge having 2 main objectives. Firstly, the charge assisted in the management of the efficient use of parking spaces by deterring commuters or other long-stay users from occupying spaces for long periods thereby reducing the number of available spaces to others, in particular customers of the retail park. Secondly, the charge provided an income stream to ParkingEye which enabled it to both meet the costs of operating and managing the car park and make a profit from its services, without which the provision of those services would not be possible. These were regarded as entirely reasonable objectives and the imposition of a charge to deter overstayers a reasonable mode of achieving them.

The fact that motorists regularly used the car park with knowledge of the parking charge was evidence of the reasonableness of the charge. Users of the Car Park, the Court considered, must have regarded the risk of paying £85 for overstaying beyond the free 2 hour period as a reasonable price for the convenience of parking in the Car Park. This, together with the fact that similar practices and charges are common throughout the UK, were held to support the proposition that the £85 charge was not a penalty.

The Supreme Court also dismissed Mr Beavis' argument that the charge was unfair under UTCCR. The terms of use of the car park and the circumstances in which the £85 charge would be applied were clearly visible. It was his decision, in full knowledge of the clearly stated terms of parking in the Car Park, as to whether he parked for 2 hours or exceeded the free parking period. As Lord Neuberger and Lord Sumption noted at paragraph 109 of the judgment, "the risk of having to pay [the charge], was entirely under [Mr Beavis'] control. All that he needed was a watch".

No longer will contractual clauses which do not appear to reflect the likely losses to be suffered by an innocent party be able to be automatically dismissed as an unenforceable penalty clause. Instead, a full consideration of the reasoning behind the imposition of the clause and in particular the remedy provided by the clause will need to be undertaken, not only when a breach of contract occurs but at the outset when the contract is being formulated and entered into.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.