Parking charge levied on motorist was not a penalty

ParkingEye Ltd v Beavis [2015] UKSC 67

Summary

Mr Beavis overstayed his welcome in a retail car park operated by ParkingEye and received a parking charge notice requiring payment of £85.

Mr Beavis refused to pay on the ground that the charge amounted to a “penalty” in law and therefore was unenforceable.

The Supreme Court modified the test for a penalty and held that this charge was not a penalty and so Mr Beavis was liable.

Mr Beavis also relied on another ground relating to unfair contract terms. Although this ground is outside the scope of this update, Mr Beavis failed on that ground as well.

Facts

Mr Beavis parked his car in a retail car park situated in Chelmsford. Common with other such retail parks, free parking was permitted for two hours. Users were not allowed to return within one hour.

ParkingEye managed the car park for the owner under a contract. ParkingEye did not enjoy any legal interest in the land – it was not a tenant and therefore had no right to possession.

It was agreed by both parties that by virtue of the signage around the car park, there was a contractual licence between Mr Beavis and ParkingEye pursuant to which Mr Beavis agreed not to stay for more than 2 hours, that he would only park within marked bays (excluding those reserved for blue badge holders) and that he would pay £85 if he breached any of those terms.

Mr Beavis stayed for 2 hours and 56 minutes. ParkingEye duly sent Mr Beavis a “First Parking Charge Notice” requiring payment of the £85 charge but stated that the charge would be reduced to £50 if it was paid within 14 days.

Mr Beavis resisted payment on two grounds:

  1. that the charge was unenforceable at common law as it constituted a penalty;
  2. that the charge was unfair and therefore unenforceable due to the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (“the 1999 Regulations”).

The predominant interest in this case arises on the first ground relating to penalties which is relevant to all contracts and where disputes often arise. The second ground is outside the scope of this update.

The arguments on the “penalty” ground

The law on penalties has always been complicated. Indeed Lord Neuberger stated in the leading judgment of the Supreme Court:

“The penalty rule in England is an ancient, haphazardly constructed edifice which has not weathered well, and which in the opinion of some should simply be demolished, and in the opinion of others should be reconstructed and extended.”

Prior to this case, there was a distinction made between

  1. a provision which required payment of a sum which was a genuine pre-estimate of a party’s loss arising from a breach – such a provision would not be a penalty and would be enforceable; and
  2. a provision which was aimed at deterring a breach which was in fact a penalty and unenforceable.

Mr Beavis argued that ParkingEye had no interest in the car park and therefore suffered no loss as a result of him staying beyond the 2 hours limit. ParkingEye could not claim damages for trespass as they had no proprietary interest in the land. Consequently, Mr Beavis argued that the parking charge could not be a genuine pre-estimate of their loss. For that reason, the charge provision was aimed at deterring a breach and was therefore unenforceable.

ParkingEye accepted that the £85 was payable on breach of contract and that it was not a pre-estimate of damages. ParkingEye also accepted that the predominant purpose of the parking charge was to deter motorists from overstaying.

However, ParkingEye asserted that the charge had two main objectives: firstly to manage the efficient use of the parking space in the interests of the retail outlets, and secondly, to provide an income stream to enable ParkingEye to meet the costs of operating the scheme and make a profit from its services without which those services would not be available. For that reason, it was not a penalty in the sense of the previous authorities.

The Decision

The Supreme Court first had to decide whether the penalty rule was engaged. The court distinguished between:

  1. a provision which required payment in the event of breach which does engage the penalty rule; and
  2. a provision which requires payment if a party does not perform but where there is no obligation in the contract for that party to perform; this would not engage the penalty rule.

There is a delicate distinction between these two scenarios and how this will operate in practice remains to be seen. In this case, the Supreme Court held that the penalty rule was engaged and so continued to consider whether the requirement to pay the charge was a penalty.

After a thorough review of the law, the Supreme Court held in favour of ParkingEye. In doing so, the court effectively re-wrote the test of whether a provision is a penalty. It decided that the fact the provision was not a genuine estimate of loss did not make a provision a penalty. The actual test was whether the sum of money was “extravagant, exorbitant or unconscionable.”

Furthermore, deterrence was not penal if there is a legitimate interest in influencing the conduct of the contracting party which is not satisfied by the mere right to recover damages for breach of contract.

And so in this case, the Supreme Court held that the charge was not “extravagant, exorbitant or unconscionable” as it was below the £100 guideline suggested by the accredited trade association for parking enforcers, the BPA. Furthermore, ParkingEye had a legitimate interest in levying the charge as the charges remunerated ParkingEye for its services and enabled the car park to be operated efficiently. For these reasons, the charge was not a penalty.

It is worth noting, however, that the court commented that the penalty rule was “an interference with freedom of contract” and so the courts should hesitate from striking down freely negotiated terms in contracts particularly where both parties have been properly advised.

Mr Beavis also failed on his second ground relating to the 1999 Regulations.

Advice

If you wish to agree the level of payment for a breach of contract, it is more likely now that such provisions will be enforceable provided that such payments are not “extravagant, exorbitant or unconscionable” and the benefitting party has a legitimate interest in deterring the breach.