Liquidated damages and the true cost of overstaying your welcome at a free car park

Last month the Court of Appeal in England decided a case that may be of interest to us motorists – do we have to pay a charge imposed for overstaying a specified period in a free car park? The motorist in this case argued not, his argument being twofold:  the charge was unenforceable at common law, as a penalty; or it was unfair and, therefore, unenforceable under the Unfair Terms in Consumer Contracts Regulations 1999.

In arriving at its decision the court considered how the case law relating to penalty clauses applied in these circumstances, as well as considering if the Unfair Terms in Consumer Contracts Regulations 1999 came into play.

26th May 2015

Last month the Court of Appeal in England decided a case that may be of interest to us motorists – do we have to pay a charge imposed for overstaying a specified period in a free car park? The motorist in this case argued not, his argument being twofold:

  • the charge was unenforceable at common law, as a penalty; or
  • it was unfair and, therefore, unenforceable under the Unfair Terms in Consumer Contracts Regulations 1999.

In arriving at its decision the court considered how the case law relating to penalty clauses applied in these circumstances, as well as considering if the Unfair Terms in Consumer Contracts Regulations 1999 came into play.

Background: ParkingEye Ltd v Beavis [2015] EWCA Civ 402
ParkingEye Ltd (“P”) is a private parking operator who provides car parking management services at a site in East Anglia. Around 20 signs were displayed in the car park, stating that it was a private property, that there was a two hour maximum stay, and that failure to comply would result in a parking charge of £85. The motorist, Beavis (“B”), does not dispute that he overstayed the two hour limit by nearly one hour. P therefore sought to recover the £85 charge. B ignored the request for payment and P commenced court proceedings.

Court at first instance
The claim was heard by Judge Moloney QC, the designated civil judge for East Anglia (as although the amount claimed was small it was decided the case could have wider implications). The court held, that there was a contract between the parties, that the charge had the quality of a penalty, but that the charge was commercially justifiable because it was neither "improper in purpose" nor "manifestly excessive" in its amount. Further, the court held that the charge itself was not an unfair term, so the 1999 Regulations did not apply.

Court of Appeal
B appealed Judge Moloney QC’s Decision. The Court of Appeal addressed two main questions:

  1. Was the £85 charge a penalty and therefore unenforceable at common law?
  2. Was the £85 charge unfair and therefore unenforceable under the 1999 Regulations?

1. Liquidated damages, or a penalty clause?
As discussed in our previous article on liquidated damages the law on this topic has evolved from the traditional approach in the case of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 to also look at commercial justifications for such clauses (El Makdessi v Cavendish Square Holdings BV and another [2013] EWCA Civ 1539).

Therefore, in considering how to apply these authorities, the court in this case had to balance on the one hand the traditional test of whether the charge is “a genuine pre-estimate of loss” or an “extravagant and unconscionable in amount” which has deterrence rather than compensation as its focus, with on the other hand any potential commercial justifications. Of course, here there was no economic or financial relationship between the parties, and therefore other non-financial considerations might be relevant

Here, the Court of Appeal suggested that the key question was whether the payment in question was extravagant or unconscionable. The Court noted that the charge here was clearly intended as a deterrent to motorists from parking for more than two hours. However it considered that if there were good reasons for the charge then it could be justified.  The court found that such reasons could include social as well as commercial factors.

The court had regard to the following justifications behind the charge:

  • Sections 56 and Schedule 4 of the Protection of Freedoms Act 2012 suggest it is in the public interest to permit parking charges of this nature, provided they were brought clearly to the attention of those using the car park; and
  • The practicalities of providing this type of free parking facility, which benefited consumers and retail premises. Some sort of mechanism was required to ensure that the free short stay parking was not abused.

Against these considerations, the court agreed that the parking charge was not extravagant or unconscionable, and was therefore enforceable at common law.

2. Unenforceable under the 1999 Regulations?
B also referred the court to Regulation 5 (Unfair Terms), 6 (Assessment of unfair terms) and 8 (Effect of unfair term) of the 1999 Regulations. The two main questions considered here were:

  • Whether P acted contrary to the requirements of "good faith" by imposing the £85 charge; and
  • If so, whether that caused a "significant imbalance" in the parties' rights and obligations under the contract, to B’s detriment.

The court found that P had acted in good faith, as the signs noting the 2 hour stay and £85 charge were clearly displayed throughout the car park. Further, the court held there was no significant imbalance as charges such as this one are frequently used by local councils and private parking operators to manage resources, and the charge was neither "excessively high” nor “grossly disproportionate”.

Lessons
The following points are important to note in this developing area of law:

  1. Factors other than commercial considerations (e.g. social factors) may form part of the court’s consideration as to whether a liquidated damages clause is a penalty;
  2. The "deterrent" nature of the payment may be of less importance than whether the payment in question is "extravagant" or "unconscionable", depending on the circumstances; and
  3. The El Makdessi judgment is currently under appeal, so it is likely that this area of law will be clarified later this year, at least for commercial transactions.

Case reference:

ParkingEye Ltd v Beavis [2015] EWCA Civ 402