Penalty Charges in Breach of Contract

It used to be considered good English Contract Law that a penalty charge levied by a party for breach of contract by the other party had to be a “genuine pre-estimate” of the loss suffered for it to be enforceable. If there was no apparent loss, then there couldn’t be a need for a penalty to be charged. An example would be an overstay in a private car park where it could be said that there was no real financial loss suffered as a consequence of the overstay.

However, the decision in ParkingEye Ltd v Beavis [2015] UKSC 67 clarified this area of the law, by suggesting that the penalty charge would only be unenforceable if it was “out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”. In other words, the mere fact that the parking company had a legitimate interest in making sure people didn’t overstay meant that an £85 charge was valid in this particular case.