After a hundred years of relative stagnation, the law of liquidated damages is changing fast. An important new case on the topic is about to be considered by the Supreme Court. The case - ParkingEye Limited v Barry Beavis - is about, of all things, parking tickets.
The recent Court of Appeal decision in the case may have expanded the approach to determining the enforceability of "liquidated damages" clauses that it applied in Makdessi v Cavendish Square Holdings (2013). Makdessi and other cases have indicated that, even if payments due for breach of contract cannot be shown to be a 'genuine pre-estimate' of the loss suffered by the innocent party, such payments can be enforced provided that they have a 'genuine commercial justification' and their predominant purpose is not to deter breach.
Giving the leading judgment in ParkingEye, Moore-Bick LJ acknowledged and built on the commercial justification approach set out in Makdessi by: (a) clarifying that such clauses may be justified "by a combination of factors, social as well as commercial"; and (b) highlighting that, underlying their consideration of any such factors, the courts' primary concern is whether such payments are 'extravagant' and 'unconscionable'.
On the facts, the court determined that a 'parking charge' of £85 for overstaying in a car park that offered motorists free parking for two hours was neither extravagant nor unconscionable and was justified on the basis of the following 'social' factors:
- there are obvious benefits to consumers and retailers of having free or cheap parking for limited periods;
- there needed to be a mechanism for ensuring that users of such facilities do not abuse them by overstaying; and
- charges for overstaying needed to be sufficient both to act as a deterrent and to justify collection.
Moore-Bick LJ also noted that 'in the commercial context a "dominant purpose of deterrence" has been equated to extravagance and unconscionability, but in another context that need not be the case'. He needed to do so because, ordinarily, payments whose predominant purpose is to deter breach are unenforceable and the predominant purpose of the £85 charge was to deter motorists from overstaying. In doing so, he at first seemed to distinguish this consumer case from more commercial contexts, including theMakdessi facts. However, he also noted that, in Makdessi, Clarke LJ: (a) had not ruled out the possibility of a clause being commercially justified even if its dominant purpose is to deter; and (b) had recognised, in any event, the more fundamental test of extravagance and unconscionability.
Commercial lawyers may therefore wonder whether, despite Clarke LJ's apparent doubts, it is possible for parties negotiating commercial contracts to agree liquidated damages clauses that are justified (commercially or otherwise) and enforceable even if their dominant purpose is to deter breach. They may not have long to wait, however, because Mr. Beavis has appealed to the Supreme Court and his hearing commences on 21 July 2015.
ParkingEye Limited v Barry Beavis  EWCA Civ 402