A case note examining the approach to illegality in the performance of a contract.
Introduction
The doctrine of illegality, often expressed by the maxim ex turpi causa non oritur actio (no action arises from a disgraceful cause), prevents a party from enforcing a contract that is connected with illegal or immoral conduct. However, the scope and application of this doctrine have long been a source of uncertainty in English contract law. The Court of Appeal’s decision in ParkingEye Ltd v Somerfield Stores Ltd [2012] EWCA Civ 1338 is a significant case in the development of a more flexible approach to this defence. The case considered whether unlawful conduct by one party during the performance of an otherwise lawful contract would automatically prevent that party from claiming damages for a breach. The court held that where the illegality was merely incidental to the performance of the contract, and not central to it, the claim would not be barred. This case note will set out the facts and judgment in ParkingEye before analysing its significance in moving the law towards the more structured, policy-based approach that would later be established by the Supreme Court.
Facts
The claimant, ParkingEye Ltd, was a company specialising in the management of car parks. It entered into a contract with the defendant, Somerfield Stores Ltd, to install and operate an automated monitoring system in the car parks of its supermarkets. The contract’s purpose was to deter long-stay parking by non-customers. The system worked by using cameras to capture vehicle number plates upon entry and exit. If a vehicle overstayed the permitted free parking period, ParkingEye would obtain the registered keeper’s details from the DVLA and issue a demand for payment.
Under the terms of the agreement, ParkingEye’s service was provided at no cost to Somerfield. Instead, ParkingEye’s entire revenue was derived from the charges it collected from motorists who exceeded the time limit. The contract was for an initial period of 15 months. However, Somerfield terminated the contract before this period had expired. ParkingEye consequently brought a claim for damages against Somerfield for repudiatory breach of contract, seeking the profits it would have made for the remainder of the contract’s term.
Somerfield’s defence was based on the doctrine of illegality. It was discovered that ParkingEye, in its process of collecting charges, had engaged in unlawful conduct. The first two letters sent to motorists were legitimate. However, the third letter in the sequence sent to non-paying motorists contained a fraudulent misrepresentation. The letter was deliberately drafted to appear as if it were a formal legal claim, falsely suggesting that ParkingEye had already commenced or was about to commence legal proceedings. This act constituted the tort of deceit. Somerfield argued that because ParkingEye had performed part of its contractual service illegally, it was barred from enforcing the contract and claiming damages.
The Judgment of the Court of Appeal
The issue for the Court of Appeal was whether the illegality committed by ParkingEye was sufficient to render the contract unenforceable and thus provide Somerfield with a complete defence to the claim for damages. At first instance, the judge had found in favour of ParkingEye, holding that the illegality was not central to the contract and that denying the claim would be a disproportionate response. Somerfield appealed this decision.
The Court of Appeal dismissed the appeal, upholding the first instance decision. The leading judgments were given by Sir Robin Jacob and Toulson LJ, both of whom agreed that the claim should succeed.
Sir Robin Jacob drew a distinction between a contract that is illegal in its formation or main purpose, and a contract that is performed illegally. He found that the contract itself was for a lawful purpose: the management of a car park. The illegality arose from the manner in which ParkingEye performed an ancillary part of its obligations, namely the collection of charges. He stated that the deceit was a "mischief" in the performance but was not part of the contract's core purpose. To deny the claim would have given Somerfield a significant windfall, as it would escape liability for its own breach of contract because of a wrong committed by ParkingEye that did not affect Somerfield itself. He concluded that the illegality was collateral to the main performance of the contract and was not sufficient to engage the ex turpi causa doctrine.
Toulson LJ provided a more detailed analysis of the principles governing the illegality defence. He reviewed the existing case law, acknowledging that the area was "notoriously difficult" (para 39). He identified a need for the law to avoid both condoning illegal activity and producing outcomes that were disproportionate. He agreed with Sir Robin Jacob that the nature of the illegality was important. The contract did not require ParkingEye to act unlawfully; the deceit was a wrongful and unnecessary method chosen by ParkingEye to collect the charges it was owed.
Crucially, Toulson LJ considered whether denying the claim would be a proportionate response to the illegality (para 53). He considered several factors, including the seriousness of the illegal conduct, its centrality to the contract, and whether the parties were equally at fault. He concluded that the tort of deceit was serious, but it was not at the heart of the contract. The main object of the contract was the provision of a car park management system. The illegal letters were only a small part of the overall activity, and the wrong was not directed at Somerfield. Therefore, to allow Somerfield to use this illegality to avoid paying damages for its own breach of contract would be an unjust and disproportionate outcome.
Commentary
The decision in ParkingEye is important for its contribution to a more nuanced and flexible application of the illegality defence. For many years, the courts had struggled with the rigid application of the rule in cases such as Holman v Johnson (1775) 1 Cowp 341, which suggested that the court would not assist a claimant who had to rely on their own illegal act. This created the potential for harsh outcomes where a minor illegality could defeat a substantial and otherwise valid claim.
The court in ParkingEye moved away from a strict, rule-based approach towards one that considers the specific context of the illegality. The distinction between illegality that is central to a contract and that which is merely incidental or 'collateral' to its performance is a key aspect of this reasoning. In cases like Ashmore, Benson, Pease & Co Ltd v A V Dawson Ltd [1973] 1 WLR 828, where a contract was performed by knowingly overloading a lorry in breach of road traffic regulations, the illegality was seen as fundamental to the performance. By contrast, the contract in ParkingEye could have been performed perfectly lawfully, and the illegality arose from a poor choice made by ParkingEye in a subsidiary aspect of its operations.
Toulson LJ’s judgment, in particular, was forward-looking. His focus on proportionality signalled a clear shift towards a more policy-based evaluation, asking whether public policy truly required the denial of a claim in the circumstances. This approach seeks to balance the public interest in condemning illegal acts against the public interest in preventing a defendant from being unjustly enriched by their own contractual breach (Enonchong, 2012). This balancing act is more likely to lead to a just result than a rule that operates automatically.
The reasoning in ParkingEye was a significant precursor to the landmark Supreme Court decision in Patel v Mirza [2016] UKSC 42. In Patel, the Supreme Court formally replaced the old, complex rules on illegality with a new "trio of considerations". Lord Toulson (by then in the Supreme Court) gave the lead judgment, holding that a court should consider: (a) the underlying purpose of the prohibition which has been transgressed, (b) any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and (c) a due sense of proportionality. This framework directly reflects the proportionality analysis that Toulson LJ had advanced in ParkingEye. The 2012 decision can therefore be seen as a critical step in the judicial journey towards the modern, more coherent test for illegality in contract law.
Conclusion
ParkingEye Ltd v Somerfield Stores Ltd represents a clear and pragmatic approach to the defence of illegality. The Court of Appeal rightly concluded that not every instance of unlawful conduct in the performance of a contract should be fatal to a claim for its breach. By distinguishing between central and incidental illegality and by considering the proportionality of denying the claim, the court avoided an unjust outcome and contributed to the modernisation of this difficult area of law. The judgment provided a clear indication of the direction of travel for the illegality doctrine, which was ultimately confirmed and structured by the Supreme Court in Patel v Mirza. The case therefore stands as an important authority on the principle that the defence of illegality should not be used as an instrument of injustice.
References
Enonchong, N. (2012) Illegality in the performance of contracts: a victory for flexibility. Cambridge Law Journal, 71(3), pp. 497-500.
Ashmore, Benson, Pease & Co Ltd v A V Dawson Ltd [1973] 1 WLR 828.
Holman v Johnson (1775) 1 Cowp 341.
ParkingEye Ltd v Somerfield Stores Ltd [2012] EWCA Civ 1338.
Patel v Mirza [2016] UKSC 42.
