Whatcott, R. v

Where the material terms and commercial purpose of a contractual charge are undisputed, its enforceability as a penalty is a question of law for the judge. The jury must still decide the factual elements of fraud, including dishonesty and whether the defendant knew that a representation was or might be untrue.

A question of contractual construction carries no civil or criminal burden of proof. A late-payment charge is penal where it is disproportionate, extravagant and unconscionable, and is unsupported by a legitimate interest in enforcing the primary obligation. A business’s wish to maintain cashflow does not, without more, justify a deterrent charge far exceeding the underlying fee.

The appellant operated an online business referring customers seeking Energy Performance Certificates to independent energy assessors. Customers paid a referral fee of £9.95, rising to £14.95 if unpaid within 24 hours and then to £85 after a further five days.

Following a trial in the Crown Court at St Albans, the appellant was convicted of fraud and of an unfair commercial practice. On his renewed application, the Court of Appeal granted leave to appeal against the fraud conviction on count 4. The appeal challenged the trial judge’s ruling that the late-payment charges were unenforceable penalties, that this was a legal issue for the judge, and that no criminal standard of proof applied to that ruling.

1. Appeal dismissed. The court granted leave but held that the conviction for fraud was safe.

2. The enforceability of the contractual late-payment provision was a matter of construction and therefore a question of law. The contractual amounts, their timing and the asserted commercial purpose were undisputed. The trial judge was accordingly entitled to apply the law to those facts and determine whether the provision was penal.

3. That ruling determined whether the appellant’s demands represented that fees were legally due, and thus whether the representations were untrue. It did not usurp the jury’s function. The jury still had to decide whether the appellant knew that the representations were or might be untrue, and whether he acted dishonestly.

4. No standard of proof attached to the issue of construction. Scott v Martin [1987] 2 All ER 813 confirmed that neither party bears a burden on a question of construction. In any event, the judge had said that he was sure the provision was unenforceable, an approach favourable to the appellant.

5. Applying the penalty test in ParkingEye Ltd v Beavis [2015] UKSC 67, the £85 charge was disproportionate, extravagant and unconscionable. It followed a £9.95 referral fee and a £14.95 late-payment fee. The asserted interest in improving the business’s cashflow was not comparable to the legitimate parking-management interest in ParkingEye Ltd v Beavis, and could not justify a deterrent charge greatly exceeding the actual cost of late payment.

6. The provision was therefore an unenforceable penalty. It was unnecessary to determine whether it was also unfair under Consumer Rights Act 2015 section 62(1).

• Court of Appeal (Criminal Division): In [2019] EWCA Crim 1889, the court granted leave to appeal against the conviction on count 4 but dismissed the appeal.

• Crown Court at St Albans: On 26 October 2018, the appellant was convicted of fraud and of engaging in an unfair commercial practice. He was sentenced on 22 November 2018.