Are private school fees in lieu of notice an unfair penalty?

Legal case update – are private school fees in lieu of notice an unfair penalty?

Scott Runciman, Associate in our Debt Recovery department recently had the pleasure of conducting an Ordinary Cause Proof (Evidential Hearing) at Edinburgh Sheriff Court which we are delighted to say was a great success for our clients. The case concerned the provision of a contractual notice period set out in a fee-paying school’s agreement with parents who withdrew their children from the school without giving required notice.  The provision provided that where a child was withdrawn from the school without the required notice the parents would liable to pay the school a term’s fees in lieu of that notice. The parents refused to pay the school’s fees in lieu of notice contending that the provision was an unenforceable penalty clause and an unfair contract term.

The Sheriff’s decision in this case means that the parents of fee paying schools cannot argue that such clauses are unenforceable penalty clauses or unfair terms.

In this blog Scott sets out the background to this case, the parties’ respective positions, and the Sheriff’s findings on the matter. Here’s what he has to share…

THE PARTIES

In this action, the Pursuers were a fee-paying school. The Defenders were the parents of two former pupils at the Pursuers’ school.

THE CONTRACTUAL PROVISION

The arrangements for their children’s education was governed by a contract. In each contract there contained a provision to the effect that if the parents withdrew their child from the school, they would need to give the school not less than one full term’s notice in writing specifying the date or the end of the term when the withdrawal was to take place, or they would be liable to pay the school a term’s fees in lieu of notice.

NOTICE OF WITHDRAWAL

In or around May 2023 the parents emailed the school advising that both children would be withdrawn from the school as they would be attending another school for the following year. Shortly after the parents withdrew their notice to the Pursuers’ school as they discovered their new school was unexpectedly set to close. The new school was then rescued through a financial aid package and it was able to remain open. In or around August 2023 the parents again contacted the Pursuers’ school to advise that their children would not, in fact, be returning to the Pursuers’ school after all, and would now attend their new school for the upcoming term.

The parents were advised of their liabilities in terms of payment of a term’s fees in lieu of notice. The parents refused to make payment. Consequently, the Pursuers raised a court action against the parents for payment of the children’s school fees in lieu of notice.

THE DEFENDERS’ POSITION

The parents argued that the clause requiring payment in lieu of notice was a penalty clause and as a matter of law, they were unenforceable. They argued that the contract was drawn up by the school. There was no opportunity for a parent to negotiate any clause. Thus there was an imbalance in the respective negotiating positions.  There had been no evidence from the Pursuers of any loss incurred by the school as a result of the withdrawal of the children and thus the sum sued for was an exorbitant charge, and unreasonable. Further, the parents argued the clause was unclear and unfair.

THE PURSUERS’ POSITION

It was the Pursuers’ submission that the school, like many other fee paying schools places an emphasis on knowing which pupils would be attending for the next academic year, and who would be leaving. That was important from the point of view of them being able to plan for the future, financially, and to maintain a budget. The requirement for a terms notice of withdrawal of a child from the school was a very common provision, both in Scotland and elsewhere in the United Kingdom. The school, like all fee paying schools, required to be managed as a business, and the ability to plan financially in advance, and work out a budget, was essential. It was the Pursuers’ position that it was entirely understandable that a school required to be able to plan in advance. Schools simply could not operate if parents could withdraw children at very short notice. Not only would income be lost, but the opportunity to fill that place with another pupil might well be lost also. This was a reasonable notice period, and it was a reasonable charge. It was not “disproportionate” or “unconscionable”. As a result, the operative clause protected the school’s legitimate business interests. It was a clear and fair term.

THE DECISION

After evidence, the Sheriff found that the operative clause was not a penalty clause. It was entirely foreseeable that if a child was withdrawn from a school without the stipulated notice, there will be a loss incurred by the school. It cannot be said that there is an “extravagant disproportion” between the sum sued for and the damages that could result from such a breach of the term or that the penalty is “unconscionable”. The Sheriff highlighted that in this case there are other interests that the clause seeks to protect, for example, the need to discourage parents from withdrawing children from a school without proper notice, leaving it impossible in the time left for the school to fill that place, and the need for the school, like any other business, to be able to carry out proper financial planning for the year ahead. On that basis, the Sheriff found that there was no need for the school to show any evidence of actual loss. The Sheriff’s view was that it could be said that the whole point of a clause such as this was to avoid putting the wrong party to that cost and difficulty, and that too is a matter of business efficiency.

The Sheriff found that the clause was clearly and straightforwardly drafted, and is in such terms that a layman reading them can readily understand the legal obligations opposed upon them.

Finally, the Sheriff was satisfied that the clauses cannot be considered to be unfair. The parents were not by reason of any economic or other pressure under the necessity of entering into the contract with the school. They could have looked for a fee-paying education provision elsewhere.  The imbalance was not significant. The requirement to give one term’s notice, or pay the fees for that term, in lieu, cannot be said to be unreasonable. It was such that the clause simply required a parent to plan a child’s future a little in advance, and that is something that one might expect of a reasonable parent in any event. The Sheriff’s view was that a school must have some certainty as to which pupils will be attending next term, in order to be able to plan financially.

For all those reasons, none of the arguments advanced by the parents succeeded. A decree for Payment was granted in favor of the School against the parents.

CONCLUSION

The Sheriff’s decision in this case serves as a reminder to parents who intend to withdraw their children from a fee paying school that they must plan ahead if they wish to avoid a liability to pay a term’s fee in lieu of notice. Whilst they may not like the sound of paying fees in lieu of notice, these provisions, in the eyes of the law, are perfectly reasonable terms with the legitimate purpose of protecting the school’s business interests. They are therefore enforceable clauses.

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