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Unfair Terms after ParkingEye Ltd v Beavis

Most of the attention that has so far been given to the landmark decision of the Supreme Court in the conjoined appeals of ParkingEye Ltd v Beavis and Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 has focussed on the Court’s review of the doctrine of contractual penalty clauses.  However, Beavis also contains an important exposition and reinterpretation of the concepts of  ‘good faith’ and ‘significant imbalance of rights’ under the Unfair Terms in Consumer Contracts Regulations 1999 (“the Regulations”).  In this respect we expect the decision to have important and far reaching consequences for consumers.

Of the majority, only the lead judgment of Neuberger PSC and Sumption JSC (with whom Lords Clarke and Carnwath JSC agreed, and with whom Lord Hodge JSC agreed in respect of the interpretation of the Regulations) addresses the issue (at [102]-[114]). However the extent to which Beavis shifts the law in this area is made clear by comparison of these passages to the dissenting judgment of Toulson JSC.

The facts of Beavis are simple.  ParkingEye Ltd operated a car park at a retail centre in Chelmsford.  Signage in the car park stated that the relationship between ParkingEye Ltd and a customer using the car park was contractual, and set out the terms of that contract.  Of relevance in Beavis were the terms providing that the maximum permitted stay in the car park was 2 hours, and that upon breach of any of the terms of the contract a customer would be liable for a charge of £85.  Mr Beavis left his car in that car park for 2 hours and 56 minutes.  He contended that the term providing for the charge of £85 was both an unenforceable penalty clause at common law, and also an unfair term within the meaning of the Regulations. 

The Regulations implement European Union legislation, giving effect to European Council Directive 93/13/EEC of 5 April 1993.  Regulation 8(1) provides that an unfair term is not binding against a consumer.  Regulation 5(1) states that a contractual term which has not been individually negotiated

“shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.”

Further guidance is given in the Regulations and the Directive as to when a term will be unfair, but the controversy in Beavis focussed on the interpretation of Regulation 5(1).  The Court in Beavis also considered the guidance on interpretation of the Directive found in Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Case C-415/11) [2013] 3 CMLR 89 – the leading case on the issue in the Court of Justice of the European Union.

Significant imbalance

Aziz sets out a key factor in determining whether a contractual provision creates a significant imbalance in the parties’ rights and obligations:

“it must in particular be considered what rules of national law would apply in the absence of an agreement between the parties in that regard” at [68]

The judgment of Neuberger PSC and Sumption JSC refers to this consideration at [105]

“The question whether there is a ‘significant imbalance in the parties’ rights’ depends mainly on whether the consumer is being deprived of an advantage which he would enjoy under national law in the absence of the contractual provision”

There are two important points to note here.  

First, the status of this factor within the test: in Aziz, this factor must be given particular attention; in the lead judgment in Beavis, it is the point upon which the outcome of the test ‘mainly depends’.  The shift in interpretation in the leading judgment is subtle, but is thrown into sharper relief when juxtaposed with its rendering in Toulson JSC’s dissent, where the court is merely ‘required to evaluate’ this point. 

In our view, the way in which Aziz is interpreted in Beavis appears to suggest a more tightly focussed, less holistic, and ultimately less consumer-friendly approach than that originally set out by the CJEU. In simple terms, the test is watered down.

Secondly, there is a substantive change in the question posed by the Court.  Again, the difference in analysis in Toulson JSC’s dissent makes the extent of this development clear.  Lord Toulson compared ParkingEye’s ability to levy an £85 charge with the damages which would be available for breach of contract or in trespass (at [307]).  In contrast, the Neuberger/Sumption judgment in Beavis asks whether a consumer has been deprived of any right which would exist under national law.  The notion of exclusion is returned to at [107] in the leading judgment, though Lords Neuberger and Sumption did not limit their judgment to this analysis.  That said, as a starting point this novel interpretation of Aziz is self-evidently a much-restricted reading of that case, narrowing the scope of protection to consumers.  

On the majority’s analysis, it appears that a clause which expands the scope of a consumer’s obligations to a contracting counter-party is unlikely to be found unfair; instead, a finding of unfairness is more likely to be established in the opposite situation – where there is a restriction of the scope of obligations owed to a consumer by the contracting counter-party. 

Good Faith

Aziz states that when considering whether the requirement of good faith has been contravened, the test is:

“whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations.” at [69]

This is the most significant point of difference between the Neuberger/Sumption lead judgment and the Toulson dissent.

The lead judgment points to the fact that clauses such as the £85 charge are widespread (at [108]), harking back to the opinion of AG Kokott in Aziz at [AG75].  We think this is a circular argument -- a motorist would accept such a term in free negotiation, it goes, because motorists do accept such terms when presented on a take-it-or-leave-it basis. 

The weight attributed to this point is bolstered by reference to the fact that the terms were clearly identified to the drivers and with further reference to ParkingEye’s “legitimate interest” in the scheme.  The reasoning of the majority is encapsulated in the closing words of [109]:

“In our opinion, a hypothetical reasonable motorist would have agreed to objectively reasonable terms, and these terms are objectively reasonable.”

What this means is that the question of hypothetical agreement to a term (reasonable or not) has been replaced with a judgement as to the reasonableness of the term itself; the hypothetical reasonable consumer has been supplanted by the man on the Clapham omnibus.

Again, the extent of the change to the law effected by the majority in Beavis is made all the clearer by comparison to the reasoning in the dissent.  Toulson JSC viewed the question of hypothetical free agreement as one which places the burden of proof on the non-consumer party, drawing explicit contrast with the common law of penalty clauses (at [308]).  Rather than the burden resting on the consumer to justify an interference with freedom of contract, the burden rests on the non-consumer to show that it could reasonably expect the contract to have been freely entered.  Lord Toulson recognised at [315] that the lead judgment of Neuberger PSC and Sumption JSC applies a subtly different test.  He expressed doubt that it was open to the majority to interpret Aziz in that way, and that the point was, at the very least, not acte clair.

Conclusion

Quite apart from being a landmark decision on the common law of penalty clauses, ParkingEye Ltd v Beavis has significantly changed the law of consumer protection under the Regulations.  When the reasoning of the majority is compared to Toulson JSC’s dissent, the differences are striking.  The Supreme Court appears to have moved beyond what was contemplated in the leading CJEU case of Aziz.  Though the litigation in Beavis has now concluded, Lord Toulson’s comments suggest that a preliminary reference to the CJEU in future litigation on the point is not just possible, but likely. 

John de Waal QC

Ryan Hocking

Instructed by Henry Hickman of Harcus Sinclair John de Waal QC, David Lewis and Ryan Hocking of Hardwicke chambers acted for Barry Beavis on his appeal to the Supreme Court.