Court of Appeal considers proportionality in application to contract claim

In ParkingEye v Somerfield Stores Limited1, the Court of Appeal considered the doctrine of illegality in the law of contract. The Court dismissed an appeal by the defendant that it be granted a complete defence on that basis, finding that it would be disproportionate to deny the claimant a remedy.  


At common law, where a contract is tainted with illegality this can operate as a complete defence against its enforcement. As identified in the Law Commission’s Consultative Report2 (cited by the Court of Appeal) illegality in contracts tends to fall into one of the following:

  • When the terms of the contract require the commission of a legal wrong
  • When the purpose of the contract is to facilitate the commission of a legal wrong
  • When the contract is performed in an unlawful manner  

Going through those categories the Law Commission noted that “the law becomes progressively less certain and less transparent”. This sentiment was echoed by Toulson LJ in his judgment, finding the law of illegality to be “one of the least satisfactory parts of the law of contract”.  

The Law Commission noted that the “illegality doctrine is not aimed at achieving a just result between the parties. Where the defence is successfully raised, the defendant may well end up with a windfall gain, won at the expense of the claimant”. To deny the claimant all of the rights which it would otherwise enjoy is something that should not be done lightly.  

Facts and first instance decision

ParkingEye and Somerfield entered into a contract from September 2005 for ParkingEye to provide an automated monitoring and control system in Somerfield’s supermarket car parks.  

The system logged the registration numbers, time of entry, and time of departure of vehicles using the car parks. A charge was imposed on motorists staying longer than an initial free period. At first instance the judge found that sufficient notice of the charges was given to create a contract between the motorist and Somerfield.  

ParkingEye received no remuneration from Somerfield for providing the system, but instead retained the “fines” collected, and so had an incentive to (and did in fact) operate the system aggressively. Using information obtained from the DVLA, it would send a letter of demand to the owner of the vehicle. In the absence of response or payment, further letters would be sent, up to four in total, in stronger and stronger terms.  

The initial charge was £75, or £37.50 if paid within 14 days of the first letter. The trial judge held this not to be a penalty and so enforceable against the motorist. Failure to pay within a specified time saw the charge increase to £135. This was held to be a penalty, and therefore unenforceable.  

On the edge of being misleading, the first two letters were nevertheless held not to contain falsehoods. The same could not be said of the third and fourth letters, which were sent on ParkingEye’s behalf by Commercial Collection Services Ltd. Sir Robin Jacob noted that the “semi-literate” third letter was “false in a number of respects”, including referring to the debt being owed to ParkingEye when it was in fact due to Somerfield. It also stated that ParkingEye would issue proceedings, when in reality it had no authority to do so. The fourth letter signed off with the sinister “This is your last chance”.

These falsehoods were made deliberately by ParkingEye, but not dishonestly. ParkingEye had therefore committed a tort of deceit on those occasions where a third letter was sent on its behalf. ParkingEye had not committed any criminal offence.  

Importantly, the contract did not prescribe the form of the letters, only setting out that a maximum of four should be generated, and providing for timings and the amounts to be paid. On the balance of probabilities it was found that Somerfield had approved the letters in draft prior to the entry into the contract.  

The contract was terminated by Somerfield just under nine months after commencement, in what was held to be a repudiatory breach “accepted by ParkingEye subject to its right to damages for lost revenue during the unexpired term of the contract”. The trial judge awarded ParkingEye damages of £350,000.  

The issue on appeal was whether Somerfield had a complete illegality defence. This had been rejected by the trial judge on the basis that any pre-contractual agreement as to the form of the misleading third letter was collateral and distinct from the main contract, itself free from any illegality.  


Intention when entering into the contract

Somerfield’s defence was based on the “manner in which it was intended that part of the contract should be performed”, because the contract “was not unlawful in itself … and it was not entered into as a way of achieving an unlawful objective”. It therefore fell into the third category identified by the Law Commission.  

Somerfield argued that ParkingEye’s intent to send the letters when entering into the contract rendered it illegal, citing in support St John Shipping Corporation v Joseph Rank Ltd3. However, there was consensus in the Court of Appeal that so rigid a rule, turning entirely on the timing of intention, could not be drawn from the earlier authorities. Instead, the first instance judge had been correct in holding that ParkingEye did not have a “fixed intention” to use the third letter such that it would form a part of the contract and render it unenforceable.

Centrality of the illegality

Sir Robin Jacob said that the contract here was not “all or nothing, legal or illegal”. He noted that it was “largely carried out lawfully because most motorists paid on the first or second letters and never received the third, offending, letter”. Further, “no part of the damages which were claimed would be in compensation for loss of income obtained by any unlawful means” – this was on the basis that, absent repudiation, the letters would have been amended and so rendered innocuous.  

It was also “not necessary for ParkingEye to plead or rely upon any illegality” nor was illegal performance “an object of the contract nor by any means necessary for its performance”. Indeed, the trial judge had acquitted ParkingEye of any deliberate intention to break the law, doubting that either party had “fully appreciated the potential legal implications of the draft letters”.  

Although he ultimately dismissed the appeal on the basis of disproportionality, Sir Robin Jacob said that in the alternative he would have dismissed it for the reasons given by the trial judge, namely that the form of the letters was sufficiently far removed from the contract’s operation to taint it with illegality.  

Rejection of Somerfield’s defence as disproportionate

Somerfield’s position was effectively that ParkingEye’s intention at the outset of the contract was “so imbued with moral turpitude that the law will not assist it to enforce the contract”. Sir Robin Jacob held that this conclusion would be “unduly sanctimonious” meaning that “Somerfield’s wrongful repudiation of the contract [would leave] ParkingEye with no remedy for a lost income which would have been wholly lawful”.  

Sir Robin Jacob emphasised that in applying a test of proportionality he was not exercising a judicial discretion. Proportionality instead required the “assessment of how far refusal of the remedy furthers one or more of the specific policies underlying the defence of illegality”.  

The Court expressly endorsed Everton LJ’s statement in Les Laboratoires Servier v Apotex Inc4 that:  

“…what is required in each case is an intensive analysis of the particular facts and of the proper application of the various policy considerations underlying the illegality principle so as to produce a just and proportionate response to the illegality. This is not the same as an unbridled discretion…”  

The appeal was therefore dismissed, Sir Robin Jacob concluding that:

“…I do not think the facts of this case, considered with a sense of proportionality, involve such an invasion of any of the policy rationales as to deprive ParkingEye of its remedy. There is not a firm enough justification for that course of action.”  


By the time of the publication of its final report, The Illegality Defence5 in March 2010, the Law Commission observed that “the law is developing in the way we hoped”, as judgments were beginning to set out explicitly the weighing of policy rationales. However, this case is the first in which the concept of proportionality has been expressly applied when considering the defence.  

ParkingEye therefore provides welcome clarity. The concept of proportionality is an appropriate restraint on the operation of a defence which would otherwise produce injustices, and its transparent application will provide greater certainty to parties involved in a dispute where the defence may be raised.