Parkingeye Ltd v Somerfield Stores Ltd

An intention at formation to perform part of a contract unlawfully does not automatically make the contract unenforceable. The court must examine the particular facts, the object and fixed intention of the claimant, the gravity and centrality of the illegality, its connection with the claim, and the policies underlying the illegality defence.

Refusal of contractual relief must be a just and proportionate response which advances those policies. This is a structured application of legal rules, not a general discretion based on public conscience. Incidental unlawful performance which is unnecessary to the contract, can be removed, and need not be relied upon to establish the claim may be insufficient to defeat recovery.

ParkingEye agreed to install and operate automated parking-control systems at Somerfield supermarkets. Its remuneration consisted of charges collected from motorists who overstayed. Although the contract did not prescribe the collection letters, ParkingEye intended initially to use a third letter containing deliberate falsehoods. The judge found that sending the letter could amount to deceit, but that neither party appreciated its legal implications and that it would have been changed if challenged.

Somerfield repudiated the 15-month contract after approximately six months. HHJ Hegarty QC, sitting as a High Court judge in the Manchester Mercantile Court, awarded ParkingEye £350,000 for lost revenue. He rejected Somerfield's contention that the intended use of the deceptive letter made the entire contract unenforceable.

The sole issue on Somerfield's appeal was whether illegality provided a complete defence to ParkingEye's damages claim.

1. Appeal dismissed unanimously. The intended use of the deceptive third letter did not make the whole agreement unenforceable. The contract was lawful in itself, could be performed lawfully and did not have an unlawful objective. The offending collection method was peripheral to its basic operation and was neither essential nor central to performance.

2. Per Sir Robin Jacob, an intention at formation to use an unlawful method of performance does not invariably defeat contractual remedies, irrespective of how partial or incidental the illegality is. Relevant matters included that performance was predominantly lawful, the unlawful method was unnecessary, ParkingEye did not need to plead or rely upon it, and the letters would have been made innocuous had the contract continued.

3. Refusal of relief must be justified by the policies underlying the illegality defence. These include furthering the purpose of the infringed rule, consistency, preventing profit from wrongdoing, deterrence and maintaining the integrity of the legal system. Proportionality is not a judicial discretion based on public conscience. It assesses whether denying the particular remedy sufficiently advances those policies. Denying all recovery for lawful lost income would have been disproportionate.

4. Lord Justice Toulson agreed and emphasised that the rules governing illegality should be developed and applied flexibly through an intensive analysis of the facts and relevant policies. Relevant considerations included the claimant's object and fixed intention, the centrality and gravity of the illegality, and its nature. ParkingEye lacked a fixed intention to act unlawfully in the relevant sense because the parties did not appreciate the legal objection and would have changed the letter if the problem had been identified.

5. The only established illegality was the civil tort of deceit. Allegations of criminal wrongdoing had either been abandoned or rejected. The deceit was incidental to only part of a continuing contractual relationship, while the substantial installation work and most collection activity were lawful. Allowing Somerfield to rely on conduct which it had previously approved would also have conferred an unjustified windfall following its own repudiation.

• Court of Appeal (Civil Division): Somerfield's appeal was dismissed unanimously. The award of £350,000 and the rejection of the complete illegality defence were upheld.
• High Court, Queen's Bench Division, Manchester Mercantile Court: HHJ Hegarty QC held that Somerfield had repudiated the contract, rejected illegality as a complete defence and awarded ParkingEye £350,000 in damages. No neutral or report citation is stated.