It can pay to overstay your welcome.
The Court of Appeal has made clear the law as to whether a contract will be automatically unenforceable due to illegality In 2005, Somerfield entered into a contact with ParkingEye for the provision of an automated monitoring and control system for some of their supermarket car parks. ParkingEye provided all the camera equipment and was responsible for recording the use of the car parks and identifying those customers who parked beyond the time allowed for free parking.
A customer who stayed too long was liable to pay a fine of £75 which was reduced to £37.50 if it was paid within 14 days. If payment was not made within a specified time, the fine increased to £135. ParkingEye received no payment from Somerfield and therefore depended on recovery of the fines for its income.
The contract commenced on 1 September 2005 for an initial term of 15 months and applied to 17 supermarkets but Somerfield terminated the contract prematurely after only 6 months, partly because of the way ParkingEye were seeking to collect fines from their customers who did not pay immediately. When ParkingEye sued it for damages for breach of contract, Somerfield claimed the contract was void for illegality because of the unlawful means ParkingEye used to collect some of the fines but the Judge disagreed and awarded ParkingEye damages of £350,000. Somerfield appealed.
It was Somerfield’s case that ParkingEye sent some of its customers deceitful and intimidating letters to make them pay their fines and had always intended to do so when the contract was made. In particular, ParkingEye misrepresented that the letters were being sent upon behalf of Somerfield and that proceedings would be taken by Somerfield against the customer if payment was not made. It was not Somerfield’s policy to pursue proceedings against customers and no proceedings were ever taken. The Court held the letters sent to customers who did not pay immediately were deceitful and intended to wrongfully induce payment by them.
Interestingly, the tactics deployed did not work that well as about 50% of the customers written to initially paid the reduced sum of £37.50 within 14 days anyway and, despite letters from ParkingEye or their debt collectors thereafter becoming more threatening, only 4% of customers (127 out of 5,928 who overstayed) then paid fines of £75 or £135.
Somerfield’s case was that the law seeks to prevent wrong doing and therefore automatically treats any contract where there was an intention to perform it unlawfully as unenforceable. Accordingly,it could have no liability to ParkingEye for wrongfully terminating the contract after only 6 months. However, the Court of Appeal made it clear that it is necessary to consider the question of proportionality before deciding whether any unlawful act renders a contract void.
In this case, the Court took note of the fact that the unlawful act only related to a small part of the contract and there was never any intention to carry out the whole contract illegally. The first letters sent to customers were lawful and they resulted in most payments being made. Moreover, if Somerfield had so required it, the Court held that ParkingEye would have amended the form of its later letters so as to eliminate any misrepresentations or untruthful statements. In fact, the actual form of the letters had been agreed with Somerfield initially.
The Court therefore held it would be totally disproportionate to hold the contract as being unenforceable, especially when both parties were at fault but did not appreciate they were acting unlawfully. Whilst there is public interest in preventing any unlawful conduct, a contract of this sort which involves providing various services over a period of time should only be nullified on serious grounds and where the illegality is central to the performance of the contract and not merely incidental to it.
In this case, the deceit in the later objectionable letters sent to extract payment out of recalcitrant customers was neither essential nor central to the overall performance of the contract and could have easily been corrected if Somerfield had so required. It was not sufficient to either entitle Somerfield to lawfully terminate the contract or avoid liability for having wrongfully done so.