Contract – Parking charges – Penalty – Respondent operating car park under contract with landowner – Parking free for two hours with £85 fixed charge thereafter – Appellant disputing liability to pay charge – Whether unenforceable as penalty at common law – Whether contrary to Unfair Terms in Consumer Contracts Regulations 1999 – Appeal dismissed
The respondent company operated a car park at the Riverside retail park in Chelmsford pursuant to a contract with the owner of the retail park. The respondent paid the owner a fixed weekly amount and was entitled to keep any parking charges that it received. The terms of use of the car park were advertised on prominent signs at the entrance to the car park and at frequent intervals within it. Parking was free for the first two hours but there was a parking charge of £85 for overstaying. After the appellant overstayed by nearly an hour, the respondent sought to recover the charge from him in the sum of £50 if paid within 14 days or the full £85 thereafter. The appellant did not pay and the respondent brought proceedings in the county court to recover the sum alleged to be due.
The appellant contended that the charge was unenforceable both at common law, because it was a penalty, and also under the Unfair Terms in Consumer Contracts Regulations 1999. Ruling against the appellant, the judge held that judge held that a motorist who parked his car in the car park did so on the terms displayed on the signs and, as a result, entered into a contract with the respondent to abide by the rules of the car park, including the obligation to leave within two hours or otherwise to pay the parking charge.
The judge accepted that the respondent did not suffer any specific financial loss if a motorist overstayed, because the relevant space would otherwise have been occupied by another car free of charge or remained empty, and that the parking charge therefore had the characteristics of a penalty. However, he held that the penalty was commercially justifiable as being neither improper in its purpose nor manifestly excessive in amount. He took into account section 56 of and Schedule 4 of the Protection of Freedoms Act 2012, conferring on operators of private car parks the right to recover parking charges from the registered keepers of vehicles. For similar reasons, he held that the undertaking to pay the charge was not an unfair term and was not rendered unenforceable by the 1999 Regulations. The appellant appealed. The Consumers’ Association made written submissions on the appeal as intervener.
Held: The appeal was dismissed.
(1) It was a longstanding principle that the courts of equity would refuse to enforce an unconscionable bargain. The court’s power to intervene by refusing to enforce a penalty clause arose from the agreement being unconscionable and extravagant. The modern approach was no longer to limit the enforcement of clauses for a payment on breach of contract to those cases where the clause was a genuine pre-estimate of damage, with a payment in any larger amount held to be unenforceable as a penalty. The courts now recognised that a simple dichotomy between liquidated damages and penalty was inadequate, because it failed to take into account the fact that some clauses which required payment on breach, in a sum which could not be justified as liquidated damages in accordance with established principles, should nonetheless be enforceable because they were not extravagant and unconscionable and were justifiable in other terms. The fact that a contract provided for the payment on breach of a sum which significantly exceeded the greatest loss that the law would recognise as having been suffered by the injured party was in most circumstances a strong indication that the bargain was extravagant and unconscionable, but other factors might be present which robbed the bargain of that character. Similarly, it was no longer the case that such a clause would necessarily be unenforceable if its predominant purpose was to deter breach. In the commercial context, a “dominant purpose of deterrence” had been equated to extravagance and unconscionability, but in another context that need not be the case. The modern approach therefore demonstrated a greater measure of flexibility and a willingness to recognise the underlying principles on which the doctrine of penalties as a whole rested in order to determine the outcome in any particular case: Lordsvale Finance plc v Bank of Zambia [1996] QB 752, Murray v Leisureplay plc [2005] EWCA Civ 963 and El Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539; [2013] 2 CLC 968 applied.
Viewed in purely financial terms, the respondent suffered no direct financial loss if an individual motorist overstayed, because it had no interest in the land and suffered no immediate loss in terms of income that might otherwise have been derived from another motorist using the car park. However, it might suffer a loss indirectly if it were unable to manage the car park in the manner required by its contract with the landowner, namely the provision of free parking for a limited time for the benefit of the landowner’s tenants and their customers. An inability to deliver the service required by the landowner would be likely to result in the loss of the respondent’s contract, with consequential financial loss and damage to its commercial reputation. A simple comparison between the amount of the payment and the direct loss suffered by the innocent party was inappropriate in such a case.
While the principal purpose of the parking charge made by the respondent was to deter motorists from breaching the terms of their licence by staying beyond the free period, that did not lead to the conclusion that the charge was extravagant and unconscionable and that the court should decline to enforce it as a matter of public policy. In the present case, it was possible to present the charges either as commercially justifiable or as justified by a combination of factors, social as well as commercial. There were obvious benefits to both consumers and retail businesses in having free or cheap car parking available close to the shops for limited periods. That could be achieved only if there was some mechanism for ensuring that in most cases those who made use of the facilities did not abuse them by overstaying. That would not be achieved by a scale of charges graduated by reference to the length of the overstay, unless they were sufficient to act as a deterrent. Moreover, the amount of the charge, however, calculated, would have to be large enough to justify collection. For the law to prohibit a provision such as the overstaying charge, on the basis that it bore no relationship to the loss, if any, suffered by the car park operator, would fail to take account of the nature of the contract, with its gratuitous but valuable benefit of two hours’ free parking, and of the entirely legitimate reason for limiting that facility to a two-hour period. Further, the judge had correctly considered that section 56 of and Schedule 4 to the Protection of Freedoms Act 2012 lent some support to the view that such a charge was enforceable.
(2) So far as the 1999 Regulations were concerned, the important questions were whether the respondent was acting contrary to the requirements of good faith in imposing a charge of £85 for overstaying the free period, and, if so, whether that term caused a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the motorist. The judge had been entitled to find that there was no breach of the duty of good faith in circumstances where the terms of the contract were prominently displayed, contained no concealed pitfalls or trap, and were clear to any motorist who might wish to use the car park. Moreover, the imposition of the charge in order to promote a regular turnover of vehicles for the benefit of the community as a whole did not create a significant imbalance in the relationship of a kind which rendered the term unfair, because the charge was no greater than that which a motorist could expect to pay for overstaying in a municipal car park.
Sa’ad Hossain QC (instructed by Harcus Sinclair) appeared for the appellant; Jonathan Kirk QC and David Altaras (instructed by Cubism Law) appeared for the respondent; Julia Smith (instructed by the Consumers’ Association) made written submissions for the intervener.
Sally Dobson, barrister
