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The recent case of Beavis v ParkingEye Essex chip-shop owner, Barry Beavis, challenged an £85 ticket he was issued with for overstaying a 2 hour parking limit by just under an hour.

The highest court in the land was asked to find that such a charge was unenforceable as a “penalty” as the amount did not amount to a genuine assessment of the loss that the defendant would have suffered by the claimant’s overstay. Indeed, the parking company would suffer no loss by Mr Beavis not returning to his car on time. ParkingEye argued that the charge was for commercial reasons: to make sure that the car park was not clogged up so that customers would be able to go to the nearby retail park and buy goods.

In the event, the Supreme Court decided that the appropriate test as to whether a charge was a penalty was not whether it reflected the actual direct loss to the party claiming it; the appropriate test now is whether there is a commercial justification. The court will intervene if the charge is unconscionable and excessive, but only once commercial (and social) factors are taken into account.

It had long been recognised that the termination charges imposed by factoring companies at the end of a facility would often amount to a penalty. For example, charging 10% of the value of the outstanding invoices would rarely be justified as a “genuine pre-estimate” of the likely cost to the factoring company of undertaking the collect-out. The “new” test of commercial necessity may prove more problematic to directors or insolvency practitioners in challenging the termination fee. That said, the onus will be on the factor to establish sound commercial reasons over and above a “finger in the air” approach. Watch this space.

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