Dowling & Rutter And Others V. Abacus Frozen Foods Limited
| Jurisdiction | Scotland |
| Judge | Lord Wheatley |
| Docket Number | 01426/5 |
| Date | 15 March 2000 |
| Court | Court of Session |
| Published date | 15 March 2000 |
| OUTER HOUSE, COURT OF SESSION | |
| 01426/5/1998
| OPINION OF LORD WHEATLEY in the cause DOWLING & RUTTER AND OTHERS Pursuers; against ABACUS FROZEN FOODS LIMITED Defenders: ________________ |
Pursuers: Summers; Drummond Miller, W.S.
Defenders: Sandison; Alex Morison & Co, W.S.
15 March 2000
The pursuers trade as agricultural contractors and in 1997 supplied workers for the defenders' fish processing factory at Mintlaw near Peterhead. Between 8 January and 4 October 1997 the pursuers submitted invoices for the labour provided to the defenders, and these were paid. On 31 October 1997 immigration authorities visited the defenders' premises and advised that the workers supplied by the pursuers to the defenders were foreign nationals who did not have the appropriate work permits which would allow them to work in this country. The immigration authorities detained the workers and eventually returned them to their country of origin. As a result the workers did not go back to work for the defenders after 31 October 1997. Contrary to what is said on record, it appears to be agreed that no charges were laid against the immigrant workers; they were simply repatriated. No further workers were supplied by the pursuers to the defenders thereafter. The pursuers have submitted two invoices in respect of the supply of the workers for the periods from 6-12 October, and 13-18 October 1997 respectively to the defenders. There appears to be no doubt that the pursuers did in fact supply workers to the defenders on those dates and that the invoices correctly represent the value of the services provided. The total of the two invoices represent the sum sued for. The defenders have declined to pay these invoices on the ground that the pursuers performed their part of the contract between the parties unlawfully, by supplying workers who did not have the right to work in the United Kingdom. Further, the defenders maintain that as the pursuers failed to replace the immigrant workers after 31 October 1997 they have suffered pecuniary loss, which is the subject of the counterclaim. The case came out for debate on the pursuers' preliminary pleas, which are to the effect that the defences and the counter-claim are irrelevant.
From the careful and detailed submissions presented by both counsel it was clear that the parties were divided on several fundamental issues. During the debate discussion focused on various matters including an examination of the consequences of a statutory illegality affecting a contract as opposed to an illegality at common law, and the question of whether the defenders' averments were sufficiently specific and relevant to justify their claim that they had reason to decline to pay for the services provided by the pursuers. However, it became clear that the first question which had to be decided was whether Scots law recognises any distinction in principle between a contract which is illegal in its formation and a contract which is illegal because of the way in which it is performed.
Pursuers' counsel submitted that in essence there was such a difference between an illegality in the formation of contract and an illegality in its execution. His further submission was that it was necessary to determine the degree of seriousness of the illegality in every case, and in particular to decide whether the illegality was sufficiently serious to deprive the pursuers of their right to be paid for services illegally rendered. It was accepted that if the contract is held to be illegal the courts will not in normal circumstances directly enforce it; the illegality may be of such a fundamental nature that no redress is available. However, depending on the degree of seriousness of the illegality, the courts may be prepared to give effect to the incidental rights of parties arising out of the contract. Reference was made to Gloag on Contract (2nd ed.) pp.549-550. Reference was also made to McKendrick on Contract Law pp. 286-7 where it is suggested that while the courts in general terms will not enforce a contract which is illegal, the question in practice is more complex because of competing policies, such as that parties should be as free as possible to regulate their own affairs, and that there is a need to prevent unjust enrichment.
Counsel for the pursuers then made a further distinction in the circumstances under which a contract could be affected by an illegality. When a contract is not subject to any common law prohibition, but there is a statutory penalty, or a statutory declaration that the contract is void, the court may again still recognise rights incidentally arising out of the agreement (Gloag on Contract p.551; Cuthbertson v Lowes (1870) 8 M. 1073). If on the other hand statute prevents something but does not go on to say that the contract is void, what has to be examined is what the statute intended, and in particular whether the penalties envisaged by the statute were restricted to the fines provided within the statute itself or whether the statute appeared to leave open the possibility of further and perhaps more severe consequences. Pursuers' counsel accepted that if the illegality was so serious that it tainted the whole contract, then any subsequent loss would lie where it fell, irrespective of the size of that loss. However, in the present case, in respect of the two statutory offences described by the defenders on record, he submitted that it was clear from an examination of the statutes themselves that what Parliament intended was that a fine should be paid when such offences were committed, but that no further consequences for the offences were envisaged. The alleged illegality in the present case does not taint or criminalise the contract for the supply of labour, either at common law or in terms of the statute. The statutes referred to on record are not concerned with agreements to supply labour, but rather are directed at the conduct of the employers and of the workers themselves. In support of all of these various propositions reference was made to St John Shipping Corporation v Joseph Rank Ltd 1957 1 Q.B. 268.
Defenders' counsel submitted that under Scots law there is no difference between illegality in the formation of contract and illegality in its performance (McBryde on Contract (2nd ed.) paras. 26-17 and 26-19; Jamieson v Watt's Trustees 1950 S.C. 265; Stewart v Gibson (1840) 1 Rob. App. 260). No court will lend its aid to a litigant who founds his cause on an immoral or illegal act (Bell's Principles section 35). Illegality in the formation of contract and illegality in the performance of contract are both associated with the maxim ex turpis causa non oritur actio. Accordingly, the court has to consider whether the contract is unlawful at common law, or whether it is expressly or implicitly prohibited by statute. If the answer is in the affirmative in either case, then the contract is unenforceable irrespective of whether the illegality occurs in the formation of the contract or its implementation. Defenders' counsel concluded that a contract may be illegal at common law on various grounds including immorality, criminality or because it was contrary to public policy. In the present case it was the defenders' submission that the contract was illegal at common law because it was criminal and separatim contrary to public policy. Defenders' counsel also submitted that the degree of illegality was not of importance and that the court should be very careful about enforcing any contracts which have the taint of illegality. A doctrine involving a test of public conscience had been developed in England, which in effect allowed courts to take a subjective view as to whether a contract affected by illegality might be enforced. However, in Tinsley v Milligan 1994 [1 A.C.] 340 this policy was emphatically brought to a halt. It was said in terms that such a doctrine could have no place in English law, however harsh the consequences (Lord Goff of Chieveley at p.362). In other words the court should not enforce legal contracts because the degree of illegality is not particularly serious. Finally, defenders' counsel maintained that a contract may be illegal at common law because it seeks to contravene a statute.
Turning to the question of statutory prohibition, defenders' counsel submitted that this could be express or implied, but the matter was not properly covered by Scottish authority. However, the case of St John Shipping Corporation v Joseph Rank Ltd was authority for the principle that a person who performs a legal contract in an illegal manner cannot sue on it. At p.283 of the report Devlin J. (as he then was) says:
"the ... principle is that the court will not enforce a contract which is expressly or impliedly prohibited by statute. In a contract of this class it does not matter what the intent of the parties is, if the statute prohibits the contract, it is unenforceable whether the parties meant to break the law or not."
Further, it is clear that the court should not hold that any contract or class of contract is prohibited by statute unless there is a clear implication and necessary inference that the statute so intended. Counsel maintained that although the St John Shipping Corporation case was developing principles of English law, this was precisely the position here. The illegal action of employing people not qualified to work lay at the centre of the contract. Scots law may have to develop what counsel described as paenumbral case jurisprudence where the criminal behaviour is very collateral or ancillary, but this had not been done so far and was not necessary here. In the present case the illegality averred by the defenders lay at the heart of the pursuers' claim.
I have concluded that although there appears to be no comprehensive binding authority in Scotland on this subject, what authority there is tends to favour the idea that a different approach should be taken to...
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