The Supreme Court has recently heard a case concerning the applicability of penalty clauses, under both the common law and the Unfair Terms in Consumer Contracts Regulations 1999, in the context of charges levied on users of private car parks.

Factual Background

At 14:29 on 15 April 2013, Mr Barry Beavis drove into a car park in Chelmsford which was owned by the British Airways Pension Fund and managed by ParkingEye Ltd.

Displayed throughout the car park were numerous signs which included the following (extracted) wording:

Parking Eye car park management

2 hour max stay

Failure to comply…will result in Parking Charge of £85

It is not disputed that the signs were reasonably large, numerous and prominent so that reasonable users of the car park would be aware of their existence and be able to read them. Mr Beavis did not leave the car park until 17:26, overstaying the two hour limit on free parking by nearly an hour. Accordingly, ParkingEye issued a fine which Mr Beavis ignored. Having chased the fine on several occasions and sent a letter before action (all of which were ignored), ParkingEye ultimately brought county court proceedings against Mr Beavis for recovery of the money it alleged was due.

Appellate history

The case would ordinarily have been heard at first instance by a district judge under the small claims procedure but, owing to various points of principle it raised, it was joined with another similar case and heard before Judge Moloney Q.C., the Designated Civil Judge for East Anglia.  The judge held that a contract is formed between a motorist and the car park operator upon entry to the car park, and that this contract is made on the terms displayed on any notices. In the present case, this included the obligation to leave within two hours and the understanding that, should the motorist overstay, he will be liable to pay the parking charge of £85.

Judge Moloney Q.C. accepted that ParkingEye did not suffer any identifiable loss whenever a motorist overstayed; had the space been properly vacated it would have either (a) sat empty; or (b) been filled by another car for the two hour period of free parking, neither of which would have generated income for ParkingEye. Nevertheless, giving judgment for ParkingEye, he held that “although there is a sense in which this contractual parking charge has the characteristics of a deterrent penalty, it is neither improper in its purpose nor manifestly excessive its amount. It is commercially justifiable, not only from the viewpoints of the landowner and Parking Eye, but also from that of the great majority of motorists who enjoy the benefit of free parking at the site, effectively paid for by the minority of defaulters, who have been given clear notice of the consequences of over-staying.”

Judge Moloney QC also relied on section 56 and schedule 4 of the Protection of Freedoms Act 2012, which provide private car park operators with the authority to recover parking charges from the registered keepers of infringing vehicles.

In the Court of Appeal, the court considered the development of the case law, especially the recent cases of Murray v Leisureplay Plc [2005] EWCA Civ 963 and El Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539, stating (per Lord Justice Moore-Bick at paragraph 21):

“[T]he modern cases thus appear to accept that a clause providing for payment on a breach of a sum of money that exceeds the amount that a court would award as compensation…may not be regarded as penal if it can be justified commercially and if its predominant purpose is not to deter breach. However, they also demonstrate a greater measure of flexibility and a willingness to recognise the underlying principles on which the doctrine of penalties as a whole rests in order to determine the outcome in any particular case.”

The court held that Judge Moloney QC was correct to consider factors such as proportionality to actual loss, deterrence and commercial justification when examining whether a clause is unenforceable as a penalty.

The court agreed that the principal purpose of the £85 parking charge was indeed to deter motorists from staying for longer than two hour free period. However, the court nonetheless held that this does not necessarily lead to the conclusion that the charge is extravagant and unconscionable. It was not appropriate, according to the court, to carry out a simple comparison between the amount of the payment and the direct loss suffered by ParkingEye. Instead, the court should return to the public policy principles which underpin the penalties framework “namely, that the court will not enforce an agreement for the payment in the event of breach of an amount which is extravagant and unconscionable, despite the importance which it would normally attach to enforcing contracts freely entered into” (paragraph 27). The court was also keen to stress the fact that there was a commercial rationale for the charge owing to the clear benefits (to both consumers and retail businesses) of ensuring a relatively high turnover of visitors to the facilities which therefore justified deterring parkers from overstaying.

Turning to consider the UTCCR, the court reviewed whether or not (i) ParkingEye had breached the requirement of good faith; and (ii) if so, whether it had caused a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumers. In finding in the negative for both of these issues, the court highlighted that the conditions of parking were prominently displayed in the car park, there were “no concealed pitfalls or traps” and that ParkingEye had not taken advantage of any weaknesses on the part of those using the car park. On both issues the Court of Appeal therefore found for ParkingEye and dismissed Mr Beavis’ appeal.

The Supreme Court appeal

The appeal was heard on 21 to 23 July 2015 by a panel of seven Supreme Court Justices comprising Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption, Lord Carnwath, Lord Toulson and Lord Hodge.

The two issues which the Supreme Court have been asked to assess are:

  1. Whether a charge of £85 for exceeding a maximum car parking period is an unenforceable penalty?
  2. Whether a charge of £85 for exceeding a maximum car parking period is unfair under the UTCCR?

A full case comment on the decision will be made available on this blog once judgment is handed down.