Corporate

We have all seen the signs in privately maintained car parks threatening fines if we overstay our welcome. They’re frequently dismissed – “they can’t fine me, this is private land” being the oft-heard cry. Well, turns out they can.

The Court of Appeal in England recently ruled that charges imposed on motorists for overstaying permitted parking periods were recoverable even if they constituted a penalty (rather than a liquidated sum for financial loss), as long as they had been brought to the clear notice of the motorist and were not “extravagant or unconscionable”.

The case was ParkingEye Ltd v Beavis [2015] EWCA Civ 402. On 15 April 2013, chip shop owner Barry Beavis entered the Riverside Retail Park in Chelmsford at approximately 2.30pm. He left just before 5.30pm. By parking where he did, Mr Beavis entered into a contract with ParkingEye to abide by the rules of the car park. His car was in the car park for almost an hour longer than the permitted period of free parking. He later received a charge letter for £85 from ParkingEye, which he ignored. ParkingEye subsequently began proceedings for recovery of the charge at Cambridge County Court.

Riverside Retail Park is owned and controlled by British Airways Pension Fund. ParkingEye provide the Fund with car park management services. Approximately 20 signs are located within the car park notifying users of the ‘2 hour max stay’ and that ‘Failure to comply… will result in a Parking Charge of £85’. Mr Beavis did not dispute that the signs “are reasonably large, prominent and legible, so that any reasonable user of the car park, including [himself], would be aware of their existence and nature and would have a fair opportunity to read them if they wished.”

However, Mr Beavis argued: (1) that the charge was unenforceable at common law because it was a penalty; and (2) that the charge fell foul of the Unfair Terms in Consumer Contracts Regulations 1999 (the “Regulations”).

Common law position

Traditionally, such a clause would not be regarded as a ‘penalty’ (and therefore unenforceable) if:

  1. it contained a genuine pre-estimate of financial loss (liquidated damages), or there was good commercial justification for it; and
  2. the principal purpose was not to deter breach.

The clause would be a penalty if the sum stipulated was out of all proportion to the loss that could be attributed to the breach.

The principal purpose of ParkingEye’s charge is to deter motorists from overstaying the two-hour limit. However, the court in this case held that this did not automatically mean it was unenforceable. It held, with reference to parking charges levied by local authorities, that the charge was “neither improper in its purpose nor manifestly excessive in amount.” Although ParkingEye would suffer no direct loss if an individual motorist overstayed the limit, it may suffer a significant indirect loss – their agreement with the Pension Fund requires them to provide a service that includes limiting the availability of free parking; a failure to provide that service would likely result in the loss of the contract. Accordingly, whilst the principal purpose of the charge is deterrence, ParkingEye can justify it commercially and it is not “extravagant or unconscionable” – so it is enforceable at common law.

The Regulations

The Regulations apply to consumer contracts and provide that a contractual term not individually negotiated will be unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. The court held that ParkingEye had acted in good faith by prominently displaying the terms of the contract on their signs. It also held that no significant imbalance was caused because the charge imposed was not totally out of proportion to charges imposed by local authorities for similar transgressions.

Both Mr Beavis’ arguments were unanimously dismissed.

Contract law in Scotland largely mirrors that of England, so it is a likely (although not certain) that the Scottish courts would follow this decision. Contractual penalties should not be considered automatically unenforceable. Even if the provision is penal in nature, if it is brought to the clear notice of the other party; can be justified; and is not excessive, in some circumstances it will still be enforceable.

Car park operators will certainly welcome this decision. Watch where, and how long, you leave your car.