• In the case of Cavendish Square Holding BV v Talal El Makdessi; Parking Eye Ltd v Beavis [2015] UKSC 67, the judges established the concept of ‘legitimate interest’ when judging the fairness of a parking fine and the terms established during a non competition-stipulation.
  • This contract case concerned penalty clauses, unfair terms and parking fines.

Facts of the Case

  • In the first case, C and D contracted regarding the non-competition stipulation.
  • C contended that D breached clause 11.2 and that clauses 5.1 and 5.6 were penalty clauses.
  • In the second case, C contracted with a car park regarding a parking limit and charge.
  • D parked over the 2 hour limit and claimed that the charge was a penalty clause that could not be enforced.

Issues

  • Whether the charge was an unfair term.
  • Whether the penalty clauses could be enforced.
  • Whether the common law rule regarding the enforcement of the contractual penalty clause could be restricted or removed entirely.

Held by Supreme Court

  • Appeal allowed in the first case and appeal dismissed in the second case – £85 isn’t a penalty and therefore it isn’t an unfair term according to the Regulations.

Lord Mance

Penalty clauses

  • There was a legitimate interest in the non-competition stupulations. C and D understood the commercial context.
  • Penalty clauses are not primary obligations.
  • “What is necessary in each case is to consider, first, 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. In judging what is extravagant, exorbitant or unconscionable, I consider (despite contrary expressions of view) that the extent to which the parties were negotiating at arm’s length on the basis of legal advice and had every opportunity to appreciate what they were agreeing must at least be a relevant factor” [152]

Lord Neuberger and Lord Sumption JSC

Obligation

  • “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.” [32]

Unfair terms

  • The latter case cited Aziz v Caixa d’Estalvis de Catalunya [2013] Case C-415/11. This test was about a fair, equitable and reasonable assumption the consumer would consent to the contractual obligations. C had an interest in inducing D to enforce the 2 hour limit.
  • “The term does not exclude any right which the consumer may be said to enjoy under the general law or by statute… To that extent there was an imbalance in the parties’ rights. But it did not arise “contrary to the requirement of good faith”, because ParkingEye and the landlord to whom ParkingEye was providing the service had a legitimate interest in imposing a liability on Mr Beavis in excess of the damages that would have been recoverable at common law.” [107]

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