Paying the penalty

English law is traditionally very clear on penalty clauses – where a claimant is seeking a financial payment from the defendant that is over and above the actual loss the claimant has suffered the law will not allow recovery of the penalty charge.  However, a recent judgment in what seemed a trivial matter of a parking charge has potentially overturned this conventional view.

In the case of Beavis v ParkingEye, a motorist overstayed at a car park for over an hour on a two-hour limit.  The firm administering the site charged Mr Beavis £85 for the privilege and he challenged the charge on the basis that it did not represent the actual loss suffered by ParkingEye.  Indeed, it is far from clear whether Mr Beavis’ overstay caused any direct financial loss to ParkingEye at all.

The initial decision went in the motorist’s favour but was then appealed all the way to the Supreme Court.  It resulted in the decision that the fine should not be thrown out as a penalty charge but, instead, upheld as a reasonable charge levied by the parking firm.  The Court’s reasoning for its decision was that in the interest of the site owner and other users the parking firm had a need and a responsibility to control parking at the site.  The fine acted as a deterrent rather than being compensation for any loss suffered and was therefore reasonable in the circumstances.  Motorists should expect such fines if they fail to follow the rules set out for parking.

Whether this case will create wider waves in the law is not clear.  Certainly the circumstances that Mr Beavis found himself in are not uncommon.  Many firms like ParkingEye may have held back from chasing fines in the past because of the threat of a penalty clause defence.  Now those firms can be relatively confident of success, so long as the facts do not deviate markedly from this case.

There is also the question whether other industries may attempt to make use of this precedent.  Many companies have contracts where a default (such as payment of invoices outside a set period) triggers a penalty payment that exceeds the true loss such a late payment might cause to the creditor.  Now the Supreme Court has confirmed the position in Beavis, it may be open for firms to argue that such clauses are necessary for responsible credit control and represent a reasonable deterrent to contractual default.  Defendants in such cases may be in for a rocky ride.

Picture of Luke Patel

Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
0113 227 9316
LPatel@LawBlacks.com
@LukeLawBlacks

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