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The established jurisprudence
The law relating to penalties has been established through case law. The cases date back to the nineteenth century and the courts have been consistent in the way that they have ruled on penalty clauses.
Wilson v. Love (1896)
A tenant farmer agreed to pay an additional rent of £3 per ton by way of penalty for every ton of hay or straw that he sold off the premises during the last 12 months of the tenancy. The clause was regarded as a penalty because at the time hay was worth five shillings a ton more than straw.
Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd. (1915)
In the particular case, the judges held that the sum specified in the contract was reasonable and was classified as liquidated damages. However, in this case, Lord Dunedin laid down rules which are still applied today in these types of cases:
i) The sum is a penalty if it is greater than the greatest loss which could be suffered from the breach – in other words, if it is "extravagant and unconscionable".
ii) If it agreed that a larger sum shall be payable in default of paying a smaller sum, this is a penalty.
Ford Motor Co. v. Armstrong (1915)
In this case, the judges reached the conclusion that the sum to be paid for a breach of the contract was substantial and arbitrary and bore no relation to the potential loss of the other party. It was, therefore, a penalty.
Bridge v. Campbell Discount Co. Ltd. (1962)
In this case a customer bought a car under a hire purchase agreement. He paid the initial and first payments and then cancelled the agreement. The company tried to recover the sums specified in the contract for canceling the agreement, but the courts held that the sums payable were excessive and constituted a penalty clause. It was, therefore, unenforceable.
Murray v. Leisureplay (2004)
Mr Murray was sacked by Leisureplay and he claimed three years' salary as per his contract of employment. The courts decided that this clause was a penalty clause and he was not entitled to this level of damages.
There have been several other cases over the past century. Any good book on contract law or business law will contain references to "penalty clauses", "penalties" or "liquidated damages" cases and a discussion of the law.
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How to make a claim against your bank
It is very easy to make a claim against your bank to recover charges that they should not have applied. You can make a claim by going in person to your local County Court and obtaining the necessary forms. Alternatively, you can file your claim online. If you want to learn more about how the County Court system works, you can check out Court Service.
For claiming in person you should visit your local County Court and complete form N1 on paper. If you are not sure which is your local County Court, the helpline Telephone is 020 7189 2000.
When completing the N1 form, you state who you are (the claimant), who the defendant is (specify the correct title of the bank, e.g. XYZ Bank plc.) and their address (which you should be able to find on a letter or bank statement), brief details of the claim, how much money you are claiming, then complete the full particulars of claim together with any supporting documents. You do not need to include copies of your statements, but you should list the charges that you are claiming to be reimbursed – date, amount etc.
If you are unsure which address to put on the N1 for the defendant i.e. whether to use the bank/credit card company’s branch address or the head ("registered") office, we suggest you enter the branch local to you if there is one or the head office if it is a bank/company with no high street presence. Sign the form N1 and submit it to the court together with the correct fee (the court will provide you with a schedule of fees, which depend on the size of your claim). If you win, which we are confident will be the case, you will get back the court fee as well as the claimed amount.
The court will check the papers to see if they have been completed correctly, but they will not make any judgment as to whether or not your claim has any merit. They will then despatch the claim to the defendant. A date is specified as to when it is assumed that the papers have been “deemed to have been served on the defendant” usually 4 days after the papers are sent by first class post.
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After you have submitted your claim ...
The defendant has 14 days in which to file a defence or to file an acknowledgement of service. If they file an acknowledgement of service, they must then submit a defence within 28 days of the date of service of the claim.
The defendant does not, at this stage, need to submit any legal arguments against your claim; they can merely say, for example, "We do not accept any of the arguments put forward by the claimant. We will defend the case in court if necessary".
If the defendant does not submit a defence within the 14 or 28-day period, the claimant can apply for judgment by default. The court will then enter judgment against the defendant.
If the defendant does not pay once judgment has been entered, the claimant can take further action to recover the money such as by sending in the bailiffs.
You should be able to assume that once judgment has been entered, a bank will pay. We do not envisage having to send in bailiffs to a bank. However, it would be quite fun if it had to be done...
Do it online...
Not everyone has the time or the inclination to traipse down to a County Court, laboriously fill out forms and wait paitently in line while their lunch hour ticks away and a predatory traffic warden hovers next to their car, ticket book in hand...
For those who prefer to use the Moneyclaim Online website to lodge their claims, see: Court Service - Money Claim Online
Follow the on-screen prompts and make sure you read all the explanatory notes. The character limit for online money claims is lower (1080 characters), so we have prepared for you an abridged version...
Standard material for making your claim
Please download here for:
claims made in person for bank charges
claims made in person for credit or store card charges
claims made online for bank charges
claims made online for credit or store card charges
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