Avoiding Late Payment Penalties?

Are late payment penalties illegal?

Commercial contracts will often specify how much money needs to be paid to the injured party if there is a breach. Over the years, the courts have consistently held that any such sum of money must be a genuine pre-estimate of the injured party's loss and not an extravagant or unconscionable amount. If the amount is extravagant or unconscionable then the sum of money is a 'penalty' and therefore unenforceable.

Such cases are usually between parties where there is a commercial relationship. However, can a parking fine amount to a 'penalty' and therefore be unenforceable?

The Court of Appeal has held that an £85 fine for overstaying a two hour free parking period was neither extravagant or unconscionable on the facts. However, larger sums which bear no relation to the administrative costs of parking enforcement could, in theory, fall into the category of a 'penalty' and therefore be unenforceable.

For more information on 'penalties' in commercial contracts contact partner and head of the commercial department, Gillian Jones (who may also be able to help if you get a parking fine!).


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