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When is a penalty not a penalty?

Car parking penalty reaches the Court of Appeal

A case involving an £85 car parking penalty charge has allowed the Court of Appeal to lay down guidance upon penalties in contracts.

In this case the Claimant sought to recover a charge of £85 from a motorist who had overstayed the two hour maximum free parking period by just short of an hour.  The car park had the usual sign which confirmed that the motorist agreed to comply with the carpark regulations and that, “should a motorist fail to comply with the carpark regulations, the motorist accepts that they are liable to pay a Parking Charge and that their name and address will be requested from the DVLA.”  In the County Court when he was sued for the £85, the Judge found that the motorist had entered into a contract with the carpark operator that was subject to the express terms which included an obligation to leave within two hours or pay the £85 fee.

Whilst the Judge found that the charge was in the nature of a penalty it was commercially justifiable because it was not for an improper purpose or for an excessive amount.  The Judge took notice of the provisions of the Protection of Freedoms Act 2012 which gives private carpark operators the ability to recover parking charges from the registered keepers of vehicles.  In addition the Judge felt the charge was not unfair under the Unfair Terms in Consumer Contracts Regulations 1999.

The Court of Appeal felt that it was too simplistic to look at the difference between liquidated damages and penalty charges because that failed, “to take into account the fact that some clauses require payment on breach of a sum which cannot be justified as liquidated damages in accordance with established principles should nonetheless be enforceable because they are not extravagant and unconscionable and are justifiable in other terms.”  The Court of Appeal accepted that the Claimant suffered no direct loss from an individual overstay but it did accept that if a sufficient number of motorists stayed longer than two hours that might lead to the Claimant losing its contract with the owner of the land.  It thus had a commercial interest in encouraging motorists to stick to the contractual term of a two hour stay.  The Court of Appeal agreed that the Unfair Contract Regulations were not offended because the terms were prominently displayed and had no hidden pitfalls.

Whilst only a small amount of money was at stake, a broad principle was being considered by the Court.  The decision gives encouragement to parties seeking to levy a charge to argue that even though it is not a genuine pre-estimate of loss, it is justifiable for other reasons including, but not limited to, a commercial justification.

The fact that the Court of Appeal said that a charge may be allowed even where the sum, “significantly exceeds the greatest loss that the law would recognise as having been suffered by the injured party” some doubt remains over what would be sufficient to constitute an “extravagant” or “unconscionable” bargain.

James Staton regularly advises on similar matters, contact him on 01274 377651 for further details. 

About the Author

James Staton

Partner

James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

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