Private parking tickets legally dissected

Michael Green

  • 08/10/2014

I'm not convinced most (if not all) private parking tickets are lawful. Here are two (legal) reasons why:

  1. They are a common law penalty
  2. They are an unfair contractual term

So let's get started!

The common law penalty argument

The penalties doctrine is a rule of English contract law that prohibits terms that have the predominant purpose of penalising the other party for, or deterring the other party from, breaking their end of the bargain. If the other party breaks their end of the deal, you have the right to be compensated and be put in the (financial) position you would have been had that promise not been broken.

What you cannot do is require the other party to pay some extravagant amount that in no way could ever represent the amount you stand to lose from their breach. The legal phrasing is whether the sum of money stipulated upon breach represents a 'genuine pre-estimate of loss' (loss likely to be incurred from the other side's breach of contract). Determining whether something is a 'genuine pre-estimate' is not so much concerned with the honesty or genuine belief of the party who stipulated the pre-estimate: it is primarily an objective test.

Lord Dunedin in Dunlop Pneumatic Tyre Co (1915)1 put it like this:

"[A term] will be held to be a penalty if the sum stipulated is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach.

"There is a presumption (but no more) that it is a penalty when a single lump sum is made payable by way of compensation, on the occurence of one or more or several events, some of which may occasion serious and others but trifling damage."

In more recent cases, beginning from the mid-2000s onwards, the courts began emphasising something else when describing the penalty doctrine:

1. In 2005, the Court of Appeal stated the real issue was whether the innocent party's main purpose in inserting the (extravagant) payment clause was to deter the other party from breaching the contract2.

2. In 2013, the High Court, after reviewing the authorities in this area, built upon the 'deterrence test' and concluded that penal clauses could be saved where 'good commercial justification' existed for them3.

There are thus two tracks running in parallel to the penalties case law: the traditional test, which has support from several House of Lords judgments, and the newer 'deterrence' and 'commercial justification' tests, which appear to have been endorsed at the Court of Appeal only4.

Regardless of the test that is 'correct', we should finally note that the courts are more reluctant to strike down extravagant payment clauses where they have been agreed between commercial parties5. It should follow that the courts ought to be more willing to intervene in business-to-consumer contracts, which car parking comfortably falls within most of the time.

That's the law out of the way. We need a list of everyday car parking scenarios to test this rule against.

  • Free stay at a car park for 2 hours; failure to leave after 2 hours will result in a £100 penalty.
  • Sam pays £1 for permission to park for an hour; he overstays by ten minutes.
  • Sam pays £1 for permission to park for an hour; he overstays by 8 hours.
  • Supermarket customers may only park in this car park; Sam parks but goes shopping in town.

Scenario 1 – free stay for 2 hours

This is Parking Eye's primary (if not only?) business model. It costs each driver nothing to stay at these car parks, provided they do not overstay by X minutes. Parking Eye will only profit if people breach the car parking contract6, written on the sign as you drive in.

Interesting. So if people truly wanted to bankrupt Parking Eye they should park better. They only receive money when drivers overstay in the car parks they manage.

What about the legal side though? The question that ought to be asked is whether, by requiring £100 (etc) from each driver who overstays, that £100 represents a 'genuine pre-estimate of loss' that Parking Eye have suffered. On the 'newer' tests, the question is whether that clause exists to deter drivers from overstaying (and cannot be saved by being 'commercially justifiable').

On the traditional test, it is difficult to see how Parking Eye suffer any 'loss' when someone overstays, because parking in the car parks they manage Indeed, they only stand to make profit when people overstay. The breach itself (overstaying) has caused them no loss, and never will. Conversely, it generates them profit.

It almost seems that they have reverse-engineered a business model whereby their entire revenue stream derives from common law penalties, traditionally understood.

A handful of lower-tier judges (district and county court) have decided exactly this: their £100 (etc) charge, triggered upon overstaying, are common law penalties and so are not enforceable7.

In a fun twist for legal parking enthusiasts, in May this year a county court judge instead used the 'newer' penalties test and ruled that Parking Eye's charges for overstaying would not suffer the repercussions of a penalty, because they were commercially justifiable.8.

The difficulty with that is that the newer 'deterrence' and 'commercial justification' tests have been developed out of commercial cases, and not business to consumer ones. The courts are anxious to conclude that a term is a penalty in commercial contracts because the parties are more likely to be at equal bargaining power, but this reasoning cannot be transferred to business-to-consumer contracts so easily. The traditional test is more appropriate.

The Court of Appeal will decide whether this recent decision was correct, next year.

Scenario 2 – Sam overstays by ten minutes

Remember here Sam bought permission to park for an hour but overstays by ten minutes.

Paying for an extra hour would have cost Sam an extra 10 pence. By overstaying by ten minutes, the car park operator has suffered a loss of ten pence. Not £100. Surely a common law penalty, on the traditional test.

Scenario 3 – Sam overstays by 8 hours

Paying for a whole day's worth of parking would have cost Sam £10. The car park operator has suffered a loss of ten pounds, minus the £1 Sam already provided when he paid to park for an hour. The operator has not lost £100. On the traditional test, it is surely a penalty.

Scenario 4 – Sam parks in a 'supermarket shoppers only' car park

Interesting. Supermarkets do not generally run their own car parking schemes, but outsource this to private commercial operations. So what has this private entity lost through Sam wandering into town and failing to go shop in the supermarket? Nothing, it would seem. Again, the parking operator only receives income when people overstay. Parking in itself is free.

Even if the supermarket managed its own car park, it is difficult to see what loss has been suffered upon breach. The potential custom of another customer? Maybe if the car park was full, and Sam, whom occupies the last space but then wanders into town, prevented another driver from doing their weekly grocery shop. That would certainly cause one impressive causation problem for the supermarket, and would be next to impossible to prove in court. It would probably be too remote to be recoverable. The burden would be on the supermarket, in any event, to prove their loss resulted from Sam's abuse of their car park.

Unfair Term under the Unfair Terms in Consumer Contracts Regulations 1999.

There is logical space between the common law penalties doctrine and the (EU) Unfair Terms Regulations. In other words, they shouldn't automatically be bundled together, even though it is true that some Unfair Terms may also be common law penalties. The point is that something can be legally safe under the penalties doctrine and yet unfair under the 1999 Regulations9.

The test for an Unfair Contractual Term is as follows:

  • Is a car parking contract a consumer contract?

    Yes – definitely those outside of supermarkets, airports, DIY stores, restaurants, hotels – provided it is not a business trip.

  • Is assessment of the term for fairness excluded by Article 6(2) of the 1999 Regulations because it represents the adequacy of the price or remuneration, as against the goods or services supplied in exchange?

    No. That cannot be the case. Schedule 2 to the Regulations describes terms which are potentially unfair. That assumes that terms listed in the Schedule are subject to the requirement of fairness. If we look at the Schedule 2, we find...

  • (e) ...requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation.

    More could be said about this and the effects of the 2009 decision in OFT v Abbey National but that would add too much to this post. I would say we're safe from the effects of Art 6(2), so we can proceed to unfairness:

  • Is the term unfair?
  • Schedule 2 (e) of the 1999 Regulations specifically suggests terms like these are suspect. That should be clear enough in itself, given how uncommon it is for legislation to specifically nominate examples where something is unfair, unreasonable, inequitable etc. I could add more but I think the overall picture is pretty clear. In my opinion, the charges are legally dubious. But we won't know until next year's appeal.

    So there we have it. The car parking companies taken apart. Why have the regulators failed to intervene before these practices got out of hand?

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1. (1915) A.C. 79, 86-88
2. Murray v Leisureplay [2005] EWCA 963., at [42]
3. Talal el Makdessi [2013] EWCA Civ 1539., at [88]
4. I cannot find any House of Lords or Supreme Court authority that supports the newer test(s). What I can find is a House of Lords judgment from 1962, Bridge v Campbell Discount in which Lord Radcliffe disapproves of bringing ideas such as intention (and so any notion of purpose) into the penalty doctrine: see [1962] AC 600, 621-2.
5. Alfred McAlpine Capital Projects Limited v Tilebox Ltd [2005] EWHC 281 (TCC), at [48].
6. I am assuming there is a contract in this scenario. Some take issue with this point for want of consideration given by the driver.
7. eg. 3JD00517 ParkingEye v Clarke (Barrow-in-Furness, 19/12/2013); 3JD02555 ParkingEye v Pearce (Barrow-in-Furness, 19/12/2013), 3JD04791 ParkingEye Ltd v Heggie (Barnsley, 13/12/2013).
8. Beavis v Parking Eye Ltd (May 2014), Cambridge County Court (appeal pending).
9. See for example Munkenbeck and Marshall v Harold [2005] EWHC 365 (TCC). Held: clause requiring a consumer to pay 8% interest above base rate is unfair within the 1999 Regulations, despite being a valid genuine pre-estimate of loss. See Chitty on Contracts 15-109 (Vol 1, General Principles, 31st Ed).