Would you rather always pay to park at a supermarket or would you prefer parking that was free unless you overstayed your allotted time?

Suppose that you want to go shopping at a supermarket in the centre of town. It has no car park. You park in the local car park and pay to do so. If you parked on the street you might have to use a parking meter. You would know that you would have to pay in advance and that if you overstayed you would end up paying a hefty charge.

But what about ‘free parking’ in supermarkets? Customers want to be able to park for free when they do their shopping. The supermarket wants customers to be able to park for free but not so long that they prevent other customers from parking. The supermarket is often the tenant of a company which owns the land on which the supermarket is built. The landlord wants the supermarket to have lots of customers and for the parking to be adequately managed – thus justifying the rent that the supermarket pays. The landlord wants to have its car parking provision managed at the lowest possible cost to it, so it contracts with another company to manage the parking. The car park manager wants to be paid for managing the onsite parking. Someone is going to have to pay for all of this. That someone might be you.

The ParkingEye case.

Mr Beavis parked in a supermarket car park. The terms of the stay were clear. He could stay for up to 2 hours but after that he had to leave or pay a large amount. He didn’t leave so he was charged the princely sum of £85.  Mr Beavis did not want to pay, he thought the amount unfair, so he took his case all the way to the UK Supreme Court arguing that the amount he was being required to pay was a ‘penalty’. The car park manager (ParkingEye) said that there was no penalty. Its whole business model was based upon charging overstayers a large sum. In return most people got to stay in the car park for free, the landowner had a managed car park and the supermarket got an efficient flow of customers. Everyone was a winner- apart from those who ended up overstaying.

ParkingEye is interesting because if you approached the argument from the point of view of the customer you would be likely to a very different picture to that seen by the parking manager.

The purpose of the rule

The courts have a difficult task in both:

(a)       ensuring that damages bear a proper relationship to the amount of the loss (so that people are not ripped-off); and

(b)       respecting the right of the parties to enter into contracts that suit their needs (particularly in a commercial context).

The tension inherent in this position was made clear in Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 WLR 399 (HL) where it was said  that the purpose of the rule against penalties was to stop a person who had suffered from a breach of contract being awarded a sum “which bears little or no relationship to the loss actually suffered.” The judge went on to say: “it is not and never has been for the courts to relieve a party from the consequences of what may in the event prove to be an onerous or possibly even a commercially imprudent bargain.”

Parking eye said that their terms and conditions helped customers by telling them in advance what they would have to pay if they overstayed. Mr Beavis said the clause did bear any proper relationship to any loss that ParkingEye might suffer and that the clause was a ‘penalty’ and was thus unlawful.

Penalty clauses

ParkingEye reminds us that a penalty clause is one which is thought to be ‘by its nature contrary to the policy of the law’. One consequence of this is that the relief from the penalty clause is ‘mechanical in effect and involves no exercise of discretion at all’.

Application: If Mr Beavis could show that the clause was a penalty then the court would intervene to help him.

Further the penalty clause is treated as being wholly unenforceable and so the innocent party is left to his remedy in damages under the general law (if any).

Application: This would have mattered to ParkingEye because what real damage would it have suffered if Mr Beavis overstayed for only a short while? 

So how do we tell when a clause is a penalty (and so unenforceable) or a common or garden liquidated damages clause? It helps to go back to the year 1907 and the case of Dunlop Pneumatic Tyre Co Ltd v Dunlop Motor Co Ltd [1907] A.C. 430.

This is precisely what we shall do in our next blog entry.