ParkingEye Ltd v Beavis

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Leading cases on penalty clauses and liquidated damages, handed down in tandem with Cavendish Square Holdings v El Makdessi [2015] UKSC 67, straying from and glossing over lord Dunedin's test in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

ParkingEye Ltd v Beavis

Naughty Mr Beavis parked in a private car park “unusually attractively located for shoppers and others,” and which was free for the first two hours, but charged a £85 for motorists who overstayed their two-hour free period. Naughty Mr Beavis overstayed. He did so by almost an hour. Wicked Mr Beavis. ParkingEye levied its £85 fine.

Truculent Mr Beavis would not pay. In ParklingEye’s terms and conditions the charge would be reduced to £50 if paid within two weeks, and for those wanting to cry-off with some justification, there was an appeals procedure as well. Naughty Mr Beavis ignored all that. He ignored reminder notices, warning letters and eventually found himself before the Designated Civil Judge of East Anglia, arguing “a point of some principle, likely to affect many other similar claims”.

We surmise Mr Beavis had a law student friend with some acumen in the idioms of the common law, but none in the tenets of basic common sense.

In any case, rather than paying £50 and moving on, as even the most officious pedant would do, tendentious Mr Beavis asserted ParkingEye’s charge was an unenforceable penalty (or, pleading in the alternative, an unfair contract under the Unfair Terms in Consumer Contracts Regulations 1999) and threw himself at the mercy of the British justice system. Bad idea.

And lo, it came to pass that a piffling dispute between a veritable latter-day Albertus Haddockus and the owner of some attractively located tarmac, over less than a monkey, led fully seven law lords (Lords Neuberger, Mance, Clarke, Sumption, Carnwath, Toulson and Hodge) to create a 124 page judgment which forges a new path in English contract law.

Poor naughty Mr Beavis — though, actually not poor, as transparently he got what was coming to him — lost. “If this car park is unusually attractively located for shoppers and others, the evidence shows that the £85 charge has not been fixed at a particularly high level to reflect that fact. Further, as Mr Kirk QC pointed out on behalf of ParkingEye, it is equally true that the consumer gets the benefit of free parking in that unusually attractively located car park for two hours, and, save in unusual circumstances, it is entirely within his or her control whether the two-hour limit is exceeded. And if the consumer considers that the circumstances are unusual, he or she can invoke the appeals procedure.”

Some lessons for the players — especially for Mr Beavis:

• Unpleasant though owners of unusually attractive parking locales may be, sanctimonious shoppers who wantonly ignore clear signage and then argue the imposition of spurious wrongs to the highest court in the land are worse, and should not expect sympathetic treatment. Besides, the parking locale let you park for nothing for a couple of hours, so actually wasn’t that unpleasant. A small-minded citizen is worse.
• Beware of law student friends who lack common sense. That’s most of them.

Cavendish Square Holdings v El Makdessi

Mr Makdessi sold some shares to Cavendish. Cavendish agreed to pay Mr Makdessi further sums at various stages if he did not breach his restrictive covenants.

Naughty Mr Makdessi breached the restrictive covenants. Cavendish refused to pay. Mr Makdessi argued that this amounted to an unenforceable penalty clause.

Issues

The Supreme Court reviewed Lord Dunedin's famous dicta about a “genuine pre-estimate of loss” and thought it was a bit harsh.

They said this:

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance.

So what counts as a ‘legitimate commercial interest’? Barclays v Unicredit had some things to say on this. What it is and whether a provision is proportionate to that interest, is a matter of fact.

This concept of proportionality tied to the innocent party’s legitimate interest is the real paradigm shift in the law. Courts must now consider what, if any, legitimate business interest is served and protected by a given clause, and then consider whether the clause is proportionate to such interest.

Second, the Supreme Court confirmed the principle that only “secondary” obligations, that come about upon breach of “primary” contractual obligations, can be penalties. What counts as a primary or a secondary obligation isn’t all that obvious. Was the obligation to sell shares a primary or secondary obligation?