The Protection of Freedoms Act 2012 creates provisions relating to immobilising and obstruction of vehicles and charging registered keepers of vehicles where a contract has been entered into with landowners or their agents (Sections 54-56 and Schedule 4 of the Act)
The Act makes it a criminal offence to immobilise a motor vehicle e.g. by attaching a device such as a wheel clamp or move e.g. by towing away, or restrict its movement e.g. by using another vehicle, with the intention of obstructing or inhibiting the vehicle from being driven away.
The provisions have the effect of making it possible for private landowners and their agents to attempt to recover unpaid parking charges on private land (providing certain conditions are met)
The case of Beavis and Cavendish came before the Supreme Court in November 2015. Both cases concerned the common law of penalties. Beavis also concerned the application of the Unfair Terms in Consumer Contracts Regulations 1999 (“the Regulations”).
In the case of Beavis a consumer contract was formed when Mr Beavis entered a car park managed by Parking Eye Ltd. Displayed around the car park were signs stipulating that two hours free parking was available on terms. In the event of overstaying the two hours or failure to comply with relevant terms a charge of £85 would be levied by Parking Eye (reduced to £50 in the event of prompt payment). Mr Beavis overstayed by 56 minutes and was charged the £85 in accordance with the terms displayed in the car park. Mr Beavis alleged that £85 charge was a penalty and/or the terms imposing it were unfair under the Regulations.
Cavendish on the other hand concerned a contract for the sale of shares to Cavendish in an advertising and marketing company. The company was owned by Mr El Makdessi and a term of the contract for sale of the shares included a covenant preventing Mr El Makdessi from engaging in defined prohibited activities in specified regions of the Middle East, to protect the goodwill of the company. Where there was a breach the contract prevented Mr El Makdessi from the final staged payment and at the option of Cavendish obliged him to sell his remaining shares in the company to him. Mr El Makdessi breached the covenant and the provisions were enforced at a cost to him of around $44m. His defence was that both were penalties at common law.
Mr Beavis appealed against the Court of Appeal’s decision dismissing his appeal from the County Court ([2015] EWCA Civ 402) and Cavendish appealed against the Court of Appeal’s decision that the default provisions were penalties ([2013] EWCA Civ 1539)
The Supreme Court concluded that the terms in neither Beavis or Cavendish were penal.
The Court considered the common law position in Scotland and concluded that the dichotomy between a penalty and a genuine pre-estimate loss was incorrect, derived from misinterpreting the earlier decision in Dunlop Pneumatic Tyre Co -v- New Garage and Motor Co.(Lord Dunedin at pp 86-87) over a century ago.
The correct position agreed was whether the clause is “extravagant” and
“unconscionable” in the light of any legitimate interest to be protected
Punishing a contract breaker could never be a legitimate interest
The circumstances in which the contract was made are likely to be relevant although views were expressed on the point.
The law of penalties rule regulates only the contractual remedy available for the breach of primary contractual obligations, and not the fairness of those primary obligations
The new test is as follows:
“…whether the impugned provision is a secondary obligation which imposes a detriment on the contract breaker (i.e. the car park user) out of all proportion to any legitimate interest of the innocent party (i.e. Parking Eye) in the enforcement of the primary obligation. The innocent party can have no interest in simply punishing the defaulter”
“… whether any (and if so what) legitimate business interest is served and protected by the clause, and second, whether assuming such an interest to exist the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconscionable”
“…whether the sum or remedy stipulated as a consequence of a breach of a contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract”
The Regulations were considered, and the court concluded that the imposition of an £85 charge was not unfair.
The panel of Lords considered that the proper analysis of the Regulations was found in the CJEU decision of Aziz v Caixa d’Estalvis de Catalunya [2013] 3 CMLR 89, as follows:
- The test of ‘significant imbalance’ and ‘good faith’ leaves a significant element of judgment to the national court
- The Regulations are concerned with the provisions derogating from the legal position of the consumer under national law
- Whether such a provision is unfair depends upon whether the imbalance is contrary to the requirements of good faith; in particular, in light of the likelihood that the consumer would have agreed to the term in individual negotiations
- The national court must take account of, inter alia, the nature of the goods or services provided, including the significance and practical effect of the term, and whether it was appropriate and proportionate to the attainment of objectives pursued
Applying this analysis the court concluded that the term was not unfair because although it may be said that there was a ‘significant imbalance’ between the term and the position under national law, that is, the £85 charge as against the minimal damages for trespass, it was not contrary to the requirement of good faith.
Parking Eye had:
‘…a legitimate interest in imposing a liability on Mr Beavis in excess of the damages that would have been recoverable at common law.
Parking Eye had in interest in inducing him to observe the two-hour time limit in order to enable customers of the retail outlets and other members of the public to use the available parking space’
With regards to whether a reasonable consumer would have agreed to such a term in negotiations, the majority found support from the fact that there was clear signage notifying consumers of the term, in the light of which they continued to use the car park.
Any arguments about the harshness of the operation of the term were mitigated by the existence of an appeals process and a grace period for minor overstayers.
Only Lord Toulson disagreed and felt that an assumption that the hypothetical customer would have agreed to the term could not fairly be made. He concluded that the term was unfair and would have allowed the appeal in Beavis on that ground
