What can we learn from not paying our parking fines?
Allowing for compensation for losses for non-performance in your contract is an important and frequently seen provision. However a recent hearing in the Victorian Civil and Administrative Tribunal (VCAT) has highlighted the need to give attention to the amount of compensation you include.
The VCAT have ruled that a parking infringement issued to a man who did not buy a parking ticket was invalid. VCAT found that the $88 fee applied was disproportionate to the loss sustained by Care Park Pty Ltd. By entering the parking station, John Paul Vico entered into a contract with Care Park Pty Ltd. He failed to buy a ticket but was able to successfully argue that given the parking station only lost $15 potential revenue while he was parked there, the $88 charge was a “penalty”.
Parties to a contract can include “liquidated damages clauses” in the case of non-performance to recover their losses. When these are set at a reasonable expectation of the loss that could be sustained, they are upheld by the courts. But when they are disproportionate to the loss, or “unconscionable and extravagant”, they are considered instead a “penalty clause” and are invalid.
The rationale behind this is applied differently by the Courts. Some of the current arguments are:
- Substantive fairness: Courts should not impose a penalty where it would be greater than the amount recoverable under damages. Otherwise the penalty can be used to compel performance.
- Procedural unfairness: Courts should not allow large and more knowledgeable parties to take advantage of their superior bargaining power, and the smaller party’s potential unawareness of the implications of a “penalty” clause.
There is a warning here for parties when contracting with each other that they ensure liquidated damages clauses are genuine pre-estimates of their expected loss.
Read the VCAT decision here.