Breach or agreed sum

fmc,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,Question: What is the difference between “breach of contract” and a “contractually agreed sum”.

Definition of the two terms

1.     Breach

Breach refers to “breach on contract”.   Let’s say, or example, that the terms and conditions at the car park specified that:

i) Parking is $5.00 per hour and is limited strictly to 2 hours maximum.

ii) For any breach of this contract you are required to pay £75

Then if  you exceeded 2 hours parking, you are in “breach of contract” i.e. you have broken the contract with the car park company.  You will then receive a notice from the car park company claiming £75 in damages for “breach of contract”.  The company might also say in their letter to  you:  “on parking at the car park, by virtual of the signs on display at the entrance, you agreed to pay £75 in damages for any breach of contract.  As your stay was 2 hours and 15 minutes, you are in breach of the contract and we now require you to pay damages of £75″.

2.     Contractually agreed sum

A contractually agreed some is a fee specified within the terms of a contract.   Using the same example, on a contract utilising a contractually agreed sum, the terms and conditions of the car park could say something like:

i) Parking is £5.00 for the first two hours.

ii) Parking is £75 for periods exceeding two hours.

Then if you exceeded 2 hours parking, you incur a “contractually agreed sum” of £75.   i.e. you have not broken the contract, but the result is the same as the first example.  The company might say in their letter to  you in this example:  “on parking at the car park, by virtual of the signs on display at the entrance, you agreed to pay £75 for parking periods of more than 2 hours.  As your stay was 2 hours and 15 minutes, we now require you to pay the sum £75 that you agreed to pay in your contract with us”.

How to appeal against each type of contract

1.     Breach

For a breach of contract claim, contract law states that the amount charged for the breach must be a genuine pre-estimate of the loss suffered by the party to the contract.  In other words, the party to the contract can only claim the amount they lost because of your breach, and no more.  So, in the above example, if parking was £5 per hour, and you stayed for a third hour, then the maximum amount the company could charge would be another £5 on top of the £10 you paid already when you parked your car.  Where the car park companies go wrong, is they typically charge something like £75 for any type of breach of contract.  In our example, if they did charge you £75, then it is considered by the courts and appeal bodies (such as POPLA and IAS) to be an unenforceable penalty and is void.

Therefore, to appeal against a breach model of contract, you simply claim that “the amount claimed is not a genuine pre-estimate of the loss suffered by the parking company, and is therefore an unenforceable penalty”.

2.   Contractually agreed sum

Contractually agreed sums are a little more tricky to appeal against.  In the above example, if parking was £5 per hour, and you stayed for a third hour, then you would think this would make £15 which would be quite reasonable and, if faced with this scenario would happily pay the other £5 if  you had only paid £10 originally.  However, what happens in reality is that the parking companies will send you an notice to pay  £75 (or some other outrageous amount that was written into their contract), saying that you contractually agree to pay this amount of £75.   Because there has been no breach of contract per se, you cannot simply use the genuine pre-estimate of the loss defence.   The way to defend an unreasonable “Contractually agreed sum” is by:

a) Stating that the offer to park over two spaces for a third hour for £75 (versus £5 for one hour) is not a genuine offer to park.  Rather it is fee for damages dressed up as a contractually agreed amount.  I mean, who in their right mind would agree to pay £75 for a third hour, when it is £5 per hour?  This argument is strengthened if there is no provision at the car park to pay the £75 when you park there (almost always there is no provision to pay the £75 and you can only pay it after you receive the ticket on your windscreen ticket or a demand in the mail).  If there is no provision to pay the higher amount on site at the car park, then you claim in our appeal that it cannot be a genuine offer to pay that amount, and is really a claim for breach of contract dressed up as a contractually agreed sum, and therefore not recoverable by the car park company.

b) The second way to defend against a contractually agreed sum, is by finding holes in the wording on the ticket (either the ticket left on your windscreen, or the letter of demand posted to the registered keeper).  Most of the time you will see words such as “breach” on the ticket.  This is a give away that the claim is actually a breach of contract claim, and not a contractually agreed amount.

c) The third way to defend against a contractually agreed sum, is by finding holes in the wording in the sign in the car park.  Again, you will often find words such as “breach” on the wording on the signs, which is again a give away that the claim is actually a breach of contract claim, and not a contractually agreed amount.  See our page on UKCPS for an example of a sign that claims to be a contractual agreement, but is in fact a breach dressed up.  And also our page on Athena ANPR Ltd for another example.

d) Fourth, car park companies that claim a contractually agreed sum almost never provide a VAT invoice.  If the company is claiming this is an agreed amount to be paid for parking, then VAT must be paid for it.  (conversely, VAT does not need to be paid for breach of contract claims).  So if they are claiming a contractual amount, but do not provide a VAT invoice, you can appeal on this ground, and state that because they are not charging VAT, then it is a charge for damages rather than a contractually agreed some and is not a genuine pre-estimate of loss.

e) Fifth, you will often find that signs in the car park will say something like:

- Parking is £5 per hour and is limited to hours.

- Parking longer than 2 hours prohibited.

- If you park long than 2 hours you contractually agree to pay a charge of £75 .

In this case, the parking company are trying to have their cake and eat it too.  They claim that parking over 2 hours is prohibited, but if you do, then you contractually agree to pay £75.  However, it is impossible to contractually oblige someone to pay a fee for something that the contract says is prohibited.  In this example, you would put in your appeal that “the sign says parking for more than 2 hours is prohibited”, therefore any parking over 2 hours is a matter of breach of contract.  The amount charged just therefore be a genuine pre-estimmate of loss and it is not.

f) By quoting CEL v McCafferty:  Any appeal to POPLA or IAS involving an alleged contractually agreed sum should include the following quote:

“In a recent ruling at Luton Crown Court 2014 (Civil Enforcement Ltd v McCafferty) the judge ruled that sum quoted on the sign was not a genuine offer to park at that price, but its main purpose was to deter. It was, therefore, a penalty dressed up as a contractual term, and not recoverable.”  The full judgement is here.

Office of Fair Trading

Laws on unfair contact terms also limit the damages or other financial burdens that may be imposed in consumer contracts:

Refer to the “Unfair contract terms guidance” – “Guidance for the Unfair Terms in Consumer Contracts Regulations 1999″.

Under the heading “Group 5 : Financial penalties – paragraph 1(e) of Schedule 2″ on page 40, it states:

5.1 “It is unfair to impose disproportionate sanctions for a breach of contract. A requirement to pay more in compensation for a breach than a reasonable pre-estimate of the loss caused to the supplier is one kind of excessive penalty. Such a requirement will, in any case, normally be void to the extent that it amounts to a penalty under English common law.”

Under the heading “Group 18(a): Allowing the supplier to impose unfair financial burdens” on page 70, it states:

’18.1.3 These objections are less likely to arise if a term is specific and transparent as to what must be paid and in what circumstances. However, as already noted, transparency is not necessarily enough on its own to make a term fair. Fairness requires that the substance of contract terms, not just their form and the way they are used, shows due regard for the legitimate interests of consumers. Therefore a term may be clear as to what the consumer has to pay, but yet be unfair if it amounts to a ‘disguised penalty’, that is, a term calculated to make consumers pay excessively for doing something that would normally be a breach of contract.

Uner the heading “Group 19: Regulation 7 – plain and intelligible language” on page 88, it states:

19.14 The concern of the Regulations is with the ‘object or effect’ of terms, not their form. A term that has the mechanism of a price term…will not be treated as exempt if it is clearly calculated to produce the same effect as an unfair exclusion clause, penalty, variation clause or other objectionable term.’