100 year law changed: parking charge not a penalty
Last week the long-running issue of parking charges for overstaying in a free car park was decided by the Supreme Court. In the landmark decision of ParkingEye Ltd v Beavis it was held the imposition of a charge for overstaying the applicable car park 'free stay' period can be enforceable even though its primary function is to deter a breach of contract. This decision re-casts the well-established principles of the law on penalties.
We consider the decision may be of particular interest to NHS organisations where car parking charges are often operated in conjunction with private operators with penalty charges not different from the charge in the ParkingEye case. Consequently, in light of the Supreme Court's decision your organisation may wish to revisit its approach to parking charges.
ParkingEye Ltd agreed with the owners of a Chelmsford retail park to manage the car park at the site. ParkingEye Ltd displayed numerous notices throughout the car park, saying that a failure to comply with a two hour time limit would "result in a Parking Charge of £85." On 15 April 2013, Mr Beavis parked in the car park but overstayed the two hour time limit by almost one hour. ParkingEye Ltd demanded payment of the £85 charge. Mr Beavis argued that the £85 charge was disproportionate and excessive and therefore unenforceable at common law as a penalty and/or that it was unfair and unenforceable by virtue of the Unfair Terms in Consumer Contracts Regulations 1999.
The law on penalties is a century old and is set out in the Dunlop Pneumatic Tyre case. In summary if what a clause allows for is a genuine pre-estimate of the innocent party’s loss, it is enforceable. However if the predominant purpose of a clause is to act as a deterrent (and bears no relation to the maximum loss he could realistically have suffered), it is a penalty and unenforceable.
The Court of Appeal held that the £85 charge imposed for overstaying the free period of parking in the car park was not an unenforceable penalty despite (a) the primary purpose of the charge being to deter breach of the agreement between the car park operator and the motorist and (b) the charge not being a pre-estimate of the car park operator's loss arising from the breach.
The Court of Appeal therefore altered the century old law on penalties. In moving away from the Dunlop approach, the court considered a number of different commercial and social factors. These included:
The appeal (conjoined with another contractual penalty clauses case, Cavendish Square Holdings v El Makdessi) was heard by seven judges instead of the usual five, signifying the importance of the case. It was declared that the charge did not contravene the penalty rule, or the 1999 Regulations, thereby upholding the Court of Appeal (and Court of First Instance) decision.
The Supreme Court deemed the Dunlop principles were ancillary to the broader consideration of whether a clause was "extravagant" or "unconscionable" and that the wider interests of the innocent party should be taken into account: the innocent party may have a legitimate interest above and beyond the recovery of compensation.
In determining whether the £85 was a penalty and therefore unenforceable the Supreme Court provided a two-stage test: (a) "consider whether any (and if so what) legitimate business interest is served and protected by the clause, and if so" (b) "whether the provision made for that interest is extravagant, exorbitant or unconscionable…when regard is had to the innocent party's interest in the performance of the contract."
It was held the car park owners and ParkingEye have a legitimate interest in charging overstaying motorists, which extended beyond the recovery of any loss. The £85 charge had two main objectives: (i) to maintain efficient use of the car park in the interests of the businesses and their users by deterring long-stay/commuter traffic and (ii) generation of income to meet the running costs of the scheme plus a profit margin.
Furthermore in consideration of car parking practices nationwide, the particular use of the car park in question and the clear wording of the parking notices, the £85 charge was deemed neither "extravagant nor unconscionable."
The Court also held that the charge did not fall within the basic test for unfairness under the 1999 Regulations. Objectively the reasonable motorist would have, and often did, agree to the charge. The fact the car park was well used despite the clear warning regarding the £85 charge was evidence of its reasonableness.
In summary, parking charges whose predominant purpose is deterrence may be allowed if they are commercially justifiable (and not necessarily on financial grounds). The question to be asked is whether the stipulated charge is “extravagant” or “unconscionable” when measured against the commercial justifications. This is likely to depend on the specific facts and circumstances of a particular case and consideration should be given to the practices of other car park operators.
In light of the Supreme Court decision we suggest organisations may wish to revisit their approach to parking charges. We would be happy to provide advice on your current and/or future charging practices as well as any challenges made against you by motorists (which in light of the ParkingEye case may be defendable).