Mediation is a flexible process and the mediator will guide the parties through the process in a way to enable the parties the best possible opportunity of resolving their dispute.

Whilst there is no set structure or order, there are some keys stages which can be expected in order to progress through the issues in dispute to a settlement.

Overview of the stages in a typical mediation

The key stages in a typical mediation are:

Opening phase

The mediator will usually hold a joint session where each of the parties has the opportunity to put forward their view of the dispute. If issues make it particularly difficult for the parties to be in the same room together, this may be avoided and the mediation progress with the mediator meeting the parties in private. There are benefits to having an opening meeting and whilst it is unlikely to be a comfortable time for either party, keeping an open mind and enabling the mediator to facilitate the process can make a difference and bring an earlier resolution. A joint session will start with a statement by the mediator covering the ground rules for the day and more about the role of the mediator.

Parties’ opening statements

After the introduction, the mediator will usually invite each person present to make a short statement in turn. After each party’s opening statement, the mediator may ask questions to clarify any points but this isn’t a out of court cross examination process. The mediator may also try to identify any common ground and agree with the parties a list of issues and an agenda prior to the mediation. The mediator will end the joint session when no further progress can be made until the parties have had the opportunity to speak in a private session.

Exploration phase

Following the opening phase, the mediator will have private meetings with each party. These meetings are confidential and allow the parties to explore the issues and discuss settlement with the mediator without the other side being present. The mediator will find out more about the background to the dispute and to gain a better understanding of the parties’ needs and motivations in order to help the parties find their own solution to the dispute

At this stage, there can be a lot of waiting time for parties whilst the mediator is in a private session with the other side so it is important to be prepared for this.

Considering settlement options

In order to help the parties start to move towards settlement, the mediator may encourage them to think about the future, rather than focusing on the rights and wrongs of the past and also explore non-monetary issues and concerns. Being prepared with key information and ensuring that all those with decision making responsibilities for a party are present is vital to the success of the process.

The mediator is present to facilitate the mediation and not to make any decision or assessment of the merits or otherwise of a case. A mediator will help reality test each case and ask questions to help each party consider their position.

Negotiation phase

The negotiation phase of a mediation marks the point of transition from general exploration and discussion of the past, to solving the problem and dealing with the future. There are different ways in which offers of settlement can be presented and the mediator will discuss with each party how this can be best presented.

Settlement phase

Once the parties have agreed terms of settlement, it is important to document what has been agreed as all discussions, negotiations and agreements reached in mediation are non-binding until written down and signed by the parties.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

What do you know about mediation? Did you kTop 10now that it is becoming much more prevalent when looking at alternative dispute resolution options and it is even being set as the first option by the Courts to come to an agreement prior to heading to Court to litigate?

The following top 10 things to know about business mediation may help you to decide upon this as your first route in your dispute resolution strategy.

  1. It’s confidential
    Everything that takes place at the mediation is confidential or, in legal terms, “without prejudice”. If the case doesn’t settle, and most do, then none of the negotiations and discussions can be referred to during the course of the litigation.
  2. It’s confidential
    Just to emphasise the above point, it’s all confidential. The mediator may choose to meet with the parties in separate rooms during the course of the mediation to understand the dispute from their individual perspectives. Everything that is said to the mediator during these meetings remains private unless the mediator obtains permission to disclose information discussed.
  3. It can and often does take all day
    Mediations can take half a day, a full day and even run to 12 hours or more if structured over several days. It is therefore important to be prepared to commit to this time. It is an investment and one worthwhile when upon successful conclusion you will be able to work away focusing on the future and not on a dispute in the past. Parking in a long term and not short term car park is important and whilst refreshments are usually provided, it will be important to check and come prepared if not.
  4. The mediator is neutral
    The mediator is there to facilitate the negotiations and not to act as a judge or arbitrator. He or she will show no bias and will support both parties through the mediation process to secure their best possible outcome.
  5. The mediator is not a decision maker
    It is for the parties of the dispute to make the decisions not the mediator. Any offers therefore come from the parties themselves and whilst a mediator may assist the parties to consider how to frame an offer, it will always be the party’s decision to reach an agreement.
  6. You will have an opportunity to speak to the other party should you wish
    Usually a mediation incorporates an initial session during which each party has the opportunity to present their case. This is not like a court hearing. It is an opportunity to for those attending to highlight their key issues and concerns. The mediator manages the session and decides as and when the parties separate into their individual rooms for the mediation to progress. This isn’t compulsory, but it can be very helpful and should be used to highlight the key issues in the case.
  7. Individuals can attend by themselves or accompanied by a friend and/or legal representatives
    There are parts of the day when each party is on their own for long periods. It is therefore often helpful to attend mediation with someone else. It is helpful to have legal representation or access to a legal representative although not essential. The mediator cannot however advise and it is therefore important that a party has access to suitable advice on the day if not in person. Some financial and commercial transactions carry tax implications and it is therefore important to have advisors on call should it become necessary to reach them during the mediation.
  8. The mediator is not an advisor
    A mediator is able to support the parties but not to advise them. This is left to those instructed by each party and the mediator will not step into this role.
  9. The mediator is likely to ask challenging questions
    A mediator will want to understand each side’s position in terms of the past, present and the future impact. This can seem challenging but it is helpful to fully appreciate whether a settlement proposed should be accepted when weighed up against the prospects of a court case.
  10. There is no agreement until it is in writing and signed
    For an agreement to be reached, it must be in writing and signed by both parties. Nothing is binding until that point is reached and it can sometimes take as long to agree the formal written document finalising the dispute as it did to reach the agreement.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

The choice is yours. Decide how to settle a dispute on your terms or pass the decision to someone who doesn’t know anything about your business. What do you do?

The majority of us would want to take control of our future and make a decision based upon our knowledge and the implications for us both in the short- and long-term. Mediation offers those in the business the opportunity to do just that and to make the most of their business creativity and entrepreneurial flair in finding a solution that no Judge could order.Three model figures

The flexibility of mediation provides an excellent opportunity to resolve a dispute. In comparison to the rigidity of litigation, mediation enables the parties to consider in a without prejudice environment what their best possible settlement could be without risk of the negotiations being used against them.

This exploration process has brought together companies that have reached a stalemate during litigation to a point of working together on future projects for the commercial benefit of both entities. The impossible, achieved through careful, thoughtful co-operation in which the interests of both are considered and aligned.

If mediation offers so much it is perhaps surprising as to why more cases have still not moved from the traditional court process to this faster cost-effective option. It could be that mediation is still seen as a forum for only family disputes and yet with a 75% success rate  of commercial mediations settling either on the day or shortly afterwards, is it really a risk and even if it was, surely it is a risk worth taking when compared to the risks associated with litigation?

If you are considering mediation, remember:-

  1. It is confidential.

If your case goes to Court, it will be in the public domain. Unless it is a family case, it will be open for the media to be present. This will limit your ability to control any reports, if at all. Mediation is a confidential process and you have the potential of agreeing a confidentiality clause within any settlement agreement.

  1. You make the decision

The mediator is a facilitator and not there to judge. If an agreement is reached, it will be because you have chosen to settle upon terms that you agree with and find acceptable having factored in everything that is important to you and your business.

  1. Your preparation will be key

It is important to have analysed your position from a number of different angles and considered:-

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Many landlords are finding themselves caught out by serving invalid Notices on their Tenants when wanting to regain possession of their property. As a result, they are experiencing severe delays in recovering possession of their property.

Great care should be taken when drafting and serving a Notice upon the Tenant to ensure that it will be deemed as valid in the eyes of the Court. A failure to take such care, could result in the Notice being considered invalid and a further, valid Notice having to be served upon the Tenant, providing them with the full Notice period to vacate. In most cases this provides the Tenant with a further two months to vacate the property.

Landlords are unable to issue possession proceedings in the County Court until the full Notice period has expired, hence such significant delays being experienced.  The implications of this are particularly troublesome when the Tenants are failing to keep up with their rent payments or the property is in the process of being sold. Unfortunately, many prospective purchasers are reluctant to hang on for such an extended period of time and it has been known for sales to fall through as a result of such delays.

The following are common errors found in Notices and should be avoided:

The implications of serving an invalid Notice can be severe and it is therefore worth seeking professional assistance prior to any Notices being served.

For further guidance please contact the Dispute Resolution team here at Franklins which will be able to advise you appropriately, serve an appropriate Notice on your behalf and assist with any subsequent County Court proceedings.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Have you ever asked yourself whether or not the dispute could have been avoided?  If so, the answer may have been that with the benefit of hindsight you would have done something differently. The following top 10 tips are to help reduce those times and protect your business.

1.    Risk Assess your business

Rather than being a tick box exercise for compliance purposes, a risk assessment can protect a business.

Spending time understanding what risks your business faces provides a greater understanding of not only the commercial risks but also how these could lead to opportunities.

For example, if 70% of your business is provided by one customer what would happen if that customer went out of business?  Could you survive and, if not, what would your action plan be if you had a dispute with them? Do you have one individual employee responsible for a key client account and has that individual built up loyalty and a relationship that could be transferred to another business were your employee to leave?  What are your credit terms and do you undertake credit checking when taking on a new customer?  Do you rely upon a production line where machines are ageing and difficult to replace?  Every business is different and it is possible to identify where the weak links may be and have steps in place to protect your investment.

2.    Know who you are dealing with

Whether it is your trade partners, customers or suppliers, it is important to know who you are dealing with and have as much information as possible, depending upon the relationship, to protect your business.

If you therefore have sales staff going to meet customers in their own premises, it may be helpful at this stage to have a section on your customer information sheet collected by your sales staff to identify whether or not the customer owns their own premises, is renting and any other detail that could assist you enforce a debt should the need arise. It is much easier to obtain this information during a casual rapport building exercise when expressing an interest in a customer at the outset than it is after a problem has arisen and hostilities kick in.

3.    Keep records

Whilst it is possible to have a verbal contract, this is not advisable.

Ensure that all your contracts are in writing and on terms of business that you have had reviewed and approved by a qualified Solicitor. We have dealt with some amazing contracts over the years that have been cut and pasted together from a variety of sources which “looked good” but actually created more of a problem. Any variation to a contract must also be put in writing so ensure you have a system in place that all staff keep records.

4.    Know your Standard Terms of Business

As well as actually having a contract, it is important to know what it says.

Making sure that it covers all eventualities, which you have identified from your risk assessment as well will also help. It is important to understand how you exit the contract should you need to and always try to ensure that you enter into contracts upon your own terms. Knowing your contracts can enable you to quote your rights quickly and head off any potential problem.

5.    Include a dispute resolution clause in your contract

Including a dispute resolution clause within your terms of business should mean that the first port of call is not the issue of Court proceedings should an issue arise. The courts are now in any event keen to encourage parties to seek alternative dispute resolution rather than litigate.

6.    Be alert to any legislative change

There are often updates and changes to regulations and legislation in an industry or business that are overlooked but that impact upon the way we trade.

Being aware of those changes provides an opportunity to update your own terms of business and also react proactively to any alterations ensuring you do not fall behind your competitors nor find yourself falling on the wrong side of a regulator.

7.    Train your employees

Having systems in place and risk assessing your business will not help unless your staff are also trained.

Encourage the free flow of information between people and/or departments so that your employees work together.  Quite often we come across the sales team and the finance team working on very different protocols with then the operations teams often finding themselves caught in the middle.  Consistent treatment is important.

8.    Respond promptly

Mistakes happen and the emu approach of burying a head in the sand is never going to assist.

Encouraging employees to come forward with a problem as soon as it arises will head off longer term issues and entrenched party positions in dispute.  Encouraging communication with customers and suppliers when an unfortunate event takes place is also important to finding a solution.  Talking to the right people within an organisation so it may be necessary to escalate the matter to someone of more seniority who can make decisions.

9.    Know what you want to achieve

Pursuing a problem on a point of principle never makes good commercial business sense.  It is however important to understand quickly what the problem is worth to you which may be in terms of reputation or finance.

Sometimes in order to preserve a relationship with the customer, it may be preferable to waive an issue in order to secure an ongoing opportunity.  However, this has to be balanced with caution as it is never healthy to have a reputation of a company that does not stand firm in its rights and can be open to abuse if your customer realises that they can push the boundaries of their contract.

In addition it is also important to consider what you are prepared to invest in time and money to resolve the dispute. Being aware of this at the outset can assist your strategy to reach a solution quickly.

10.    Finally, seek professional legal advice early.

This is often a step that is missed and deemed only to be relevant after a dispute has arisen.

If you have become aware of a potential dispute, it can be beneficial to talk it through with your solicitor to understand the options and consequences of pursuing the matter or being pursued.

This discussion can inform your decision and response which will hopefully negate a need for any later legal intervention. It can also put the company on a strong footing at an early stage.  We have found that some companies have attempted to try and resolve a situation themselves but not preserved the company’s legal position and as a result the company’s position has been compromised.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Are you compliant?

For the first time, estate agents as a regulated business have to consider establishing an independent audit function to ensure that their compliance is adequate and effective.

So, does this apply to you?

Regulation 21 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR) states that:-

“Where appropriate with regard to the size and nature of its business, a relevant person must –
Establish an independent audit function with the responsibility –

  1. To examine and evaluate the adequacy and effectiveness of the policies, controls and procedures adopted by the relevant person to comply with the requirements of these Regulations;
  2. To make recommendations in relation to those policies, controls and procedures; and
  3. To monitor the relevant person’s compliance with those recommendations.”

The relevant person refers to the estate agency itself and more specifically the decision and assessment must be taken by an individual appointed by the Board to be responsible for the compliance with the MLR. Traditionally, the individual has been known as the Money Laundering Reporting Officer (MLRO) and we have therefore retained that terminology for the purposes of this update.

A risk based approach

With the move now to requiring a risk based approach to assessing a business, whether or not an independent audit is required will depend upon the MLRO’s assessment of the business and interpretation of its size and nature.
A risk based approach balances the costs to your business and customers with a realistic assessment of the risk of the business being exploited for the purposes of money laundering a terrorist financing. Estate Agents have been at the front of queue in terms of property purchases by criminals seeking to launder funds. The risk therefore is well established and widely recognised.

Who is your MLRO? Should they act as your ‘Compliance Officer’?

Having in place controls to address the risk will differ between a business with a number of different branches and managers to a sole practitioner who deals directly with the customer. Location, type of client and typical method of financing a transaction could all add to the risk assessment.

Based upon the assessment, the relevant person will determine and demonstrate in writing whether or not an independent person separate from the MLRO should act as a “Compliance Officer” and whether it is feasible to have an appointment independent of the MLRO internally to cover the task or external support is required to secure independence.
Further, the MLRO must now carry out screening of “relevant employees” that are engaged by the agency both before their appointment and during the course of their employment. Do you have processes in place to demonstrate this and have your policies been updated to include this requirement?

The time to comply is now!

If you have no yet complied with the MLR, now is the time to bring your processes up to date before the Regulators begin their enquiries as to how you are managing your compliance and how you risk assess your business.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

In 2013, Jackson Grundy Ltd, an estate agency across Northamptonshire, was fined £200,000.00 for breaches of Customer Due Diligence under the Money Laundering Regulations 2007 (as amended).  There was never any suggestion of money laundering.  However, certain administrative tasks and procedures were not consistently in place across some of the branch offices.  It was therefore accepted that there was evidence of a degree of non-compliance, the fine that followed however, was disputed as being grossly disproportionate.

The fine was imposed by the Office of Fair Trading (“OFT”). The decision was made a handful of days prior to the OFT ceasing to exist with the responsibility of overseeing the application of the regulations transferring to HMRC.  When Jackson Grundy requested a review of the OFT’s decision, HMRC assumed the role.

At the time there was a standard policy to calculate penalties of this type.  The OFT policy was termed the Interim Payment Policy (“IPP”).  The IPP set out a step by step process for calculating penalties relative to a number of factors which included turnover from property sales.  Jackson Grundy’s appeal against the OFT’s decision for the first time challenged the lawfulness of this process.

The basis of the challenge was that the OFT’s fine was decided by an individual employed in the position of adjudicator.  The individual was due to give a degree of independence from the case team handling the investigation and when the adjudicator’s decision followed the same approach to that of the OFT, questions were raised as to whether or not such a role complied with the definition of “independence” for the purposes of Article 6(1) of The European Convention of Human Rights which required an “independent and impartial tribunal”.

HMRC formA penalty was required to be ‘effective, proportionate and dissuasive’.  The final step of the IPP raised the question as to whether or not the proposed penalty reached by this stage was “appropriate”.  The failure to consider this final step of the process, it was alleged, was wholly unreasonable and when HMRC had the opportunity of revisiting the OFT’s initial findings, they failed to do so without justifying the significant difference between the OFT’s imposed penalty and that which HMRC would have reached in applying its own methodology.  It was submitted that had HMRC calculated the penalty based upon their own guidelines, it would have reduced the penalty to £15,000.00 which was significantly less.

Without explanation or clarification from HMRC, Jackson Grundy were forced to pursue their appeal on the following grounds:-

  1. The OFT’s IPP was unlawful and inconsistent with being ‘effective, proportionate and dissuasive’.
  2. The IPP had been applied without consideration of the individual case and whether the amount was proportionate and did not go beyond what was reasonably required to ensure an effective and dissuasive penalty.
  3. The penalty was not consistent in any event with the IPP given that when considering a selection of starting points for the fine based upon the percentage of turnover, its figures were unjustified and insufficient attention was given to mitigating factors.
  4. As a result, the penalty exaggerated the extent of Jackson Grundy’s failings and its impact.

When the matter came before Judge Howard M.  Nolan and Carol Debell on the 24th to 26 February 2016, the case explored the IPP and relevant law in detail as well as hearing evidence from the OFT/HMRC’s adjudicator and from Mr Jackson.  In describing Mr Jackson as an “honest and impressive witness”, the Tribunal identified failings in HMRC’s approach.  The Tribunal noted that HMRC had persisted in defending the OFT’s level of penalty stating that Jackson Grundy had suffered “a very considerable injustice in this case”. As a result, the penalty was reduced to £5,000.00.  The Tribunal also made comments with regards to costs which led to Jackson Grundy making an application for HMRC to meet its costs of the appeal.

The appeal came before the Upper Tribunal Tax and Chancery Chamber on 1 February 2017.  It was heard by Judge Colin Bishopp and Judge Timothy Herrington.

Wooden gavel and legal booksThe Upper Tribunal confirmed the well-established principle that whilst a penalty must be proportionate to the offence, it must also be proportionate to the offender.  It noted that Jackson Grundy was a ‘modest rural estate agency, whose staff knew most of its customers.’  It identified therefore that the risk that any of the customers might engage in money laundering, though it was not discounted altogether, was slight and in fact there was no evidence of any money laundering.  Consequently, the failure of HMRC to give due consideration to the impact upon Jackson Grundy was considered to be ‘a bizarre approach.’  No examination had taken place of profitability or ability to pay and further, whilst arguments based upon the fact that the penalty was 17 times higher than any other penalty imposed upon estate agents in the past, no comparative exercise had taken place to consider whether there were any distinctive features which would justify a much larger penalty.

The Tribunal concluded that:-

‘…we are satisfied that it should have been apparent to HMRC, reviewing the matter dispassionately, and by reference to the information available to them when the notice of appeal was served on them, that the review decision was so flawed that it could not properly be defended.  It follows that HMRC acted unreasonably in “defending or conducting the proceedings”.’

Based upon this finding, HMRC were ordered to pay Jackson Grundy’s costs of and incidental to its Appeal.

Sarah Canning commented:-

 

“From the outset of this case, the fine was disproportionate to the administrative failings. Frustratingly the Appeal process took nearly 3 years to establish that both OFT and HMRC had reached a flawed decision and consequently had to pay the price of that failure.”

Whilst the IPP is a process of the past, it is interesting to reflect upon the fact that independent reviews of decisions must be exactly that.  Further, when a penalty is to be ‘effective, proportionate and dissuasive’ it must not only be proportionate to the offence but also to the offender.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Recapping the implications of GDPR

In February, I undertook a review of the implications that the GDPR would have and how you should start preparing now. With a year until their enforcement, I now consider, in further detail, why it is crucial that you review your terms and conditions prior to the GDPR taking effect.

Ensuring your terms and conditions are in line with GDPR

The GDPR brings with it an increased level of compliance, which will mean that there are greater risks of establishing non-compliance. In reviewing your terms and conditions now, you can prevent being caught out by the new obligations due to be imposed in May 2018.

It is prudent to review your current terms so as to identify any amendments and/or areas which may be cause for concern in the future.

In particular, ensuring that you have received adequate consent is of the highest importance. Under the GDPR, consent must be unambiguous and obtained through a clear and affirmative action.

It looks as though the approach to consent will have to be on an opt-in basis, rather than on an opt-out basis. As such, pre-ticked boxes agreeing to have read and understood terms and conditions will no longer be accepted as consent, as there is not an element of opting-in, only opting-out.

Any complaints in relation to receiving marketing without the requisite consent and made by customers after 25 May 2018 could be escalated to the Regulator and you will be found to be in breach. By acting now, you can ensure your terms and conditions are adequate for the coming enforcement of the GDPR.

Clarification on consent

Some clarification is being sought as whether general consent is sufficient, or as to whether it is required for each and every single processing operation. Further details surrounding how consent can be obtained and also whether old consents need updating are also awaited. Updates are anticipated from the Article 29 Working Party later this year.

For advice on the General Data Protection Regulation (GDPR), and compliance, get in touch with the Franklins team or click the link to discover more.

With potentially three months to go before the Criminal Finances Act 2017 comes into force, entities offering advisory services must now tackle the new list of measures put in place to tackle financial crime.

Whilst the new powers include the sharing of knowledge and information as well as recovering criminal property, of key relevance is the new power to prosecute corporate bodies whose agents or employees fail to prevent the facilitation of tax evasion carried out by another person, including customers and suppliers.

The Act creates two linked offences.  These offences can only be committed by “relevant persons”, which includes corporates and partnerships but not individuals. This in itself could prove to be a challenge, particularly when it comes to prosecutions for reasons set out below. The offences can be categorised as follows:-

Tax evasion in the UK

This offence covers the failure of an “associated person” from criminally facilitating a UK tax evasion offence.  The relevant body and the associated person can either be in the UK or overseas, although the requirement is that UK taxes are criminally evaded.

Tax evasion abroad

This particular offence is one in which there is a failure to prevent an “associated person” from criminally facilitating the foreign tax evasion and the “relevant body” must be sufficiently connected to the UK.  This could be that it is incorporated in the UK or carries out business from a trading base in the UK.  The activity must also give rise to a criminal offence in the overseas jurisdiction as well as in the UK even though the conduct occurred in the UK.

The application of the offences is wide:-

The Act requires 3 stages to be satisfied in order for the offence to be committed.  These stages are set out:-

Penalties

The UK offence will be investigated and enforced by HMRC and the foreign offence will be investigated by the Serious Fraud Office.

With unlimited fines, putting in place preventative measures now is vital.

Defences available

The only defence available arises with the ability to show that the entity has “reasonable prevention procedures” in place to prevent tax evasion being facilitated.

HMRC have published draft guidance based upon 6 principles; namely,

What should you do now?

In preparation, it is important to begin the above steps and put in place your policy document as well as undertake training session with all relevant individuals.

This should immediately form part of your regular compliance audits.

The occasions when seeking to recommend a course of action which could assist avoiding tax will now need very careful management as indeed will clients or suppliers with the businesses that often deal with payments in cash or moving money off shore.

September will be quickly upon us – are you ready?

Woman with car fine

Penalty clauses have been a source of much litigation over the years. The recent case of ParkingEye Ltd v Beavis [2015] UKSC 67 is a case in point. It has been a significant decision maker for contract lawyers and litigators when they’re advising their clients in this regard.

The case

The background to the case relates to the management of a retail car park. ParkingEye Ltd agreed with the owners of Riverside Retail Park to manage the car parking on their site. ParkingEye displayed notices throughout the car park, advising that a failure to comply with the two-hour time limit would result in a parking charge of £85.

Mr Beavis parked in the car park and unfortunately overstayed the two-hour limit by almost an hour. He received a demand for payment of £85 and argued unsuccessfully before the Supreme Court that the £85 charge was unenforceable at common law as a penalty – under the unfair terms in Consumer Contracts Regulations 1999.

The outcome

The Supreme Court held that the charge was enforceable. Their assessment of the clause began with the premise that it didn’t matter that £85 was not a genuine pre estimate of financial loss, which is traditionally the test for penalty clauses. The court held that:

  1. Generally, the law does not uphold a contractual remedy where the adverse impact of that remedy significantly exceeds the innocent party’s legitimate interest.
  2. An innocent party may have a legitimate interest in performance, which extends beyond the recovery of pecuniary compensation. In this particular matter, it wasn’t necessary therefore to prove direct financial loss, but rather consider the general commercial interest. This was to stop people abusing the car park and limiting its use for customers of the retail park solely.
  3. The court found that the concept of a genuine pre estimate of loss, and that of a deterrent, were unhelpful generally, despite them being the traditional tests for penalties.

The true test for a penalty is whether the provision is a secondary obligation. This imposes a detriment on the individual breaking the contract that is out of all proportion to any legitimate interest of the innocent party when enforcing the primary obligation.

It will be interesting to see how the new approach to penalty clauses, set out in this case, continue to be interpreted by the courts.

If you’d like help or advice on penalty clauses, please do get in touch on 01908 660966 or email me on sarah.canning@franklins-sols.co.uk.

Image courtesy of 123rf.com.