Illegality

• Pages: 178-208

CHAPTER 10

ILLEGALITY

Introduction

A contract which, on its face, has all the necessary characteristics of a valid, enforce-

able agreement, may be struck down on the ground that some statutory provision

renders it illegal, or that it is tainted with a degree of moral turpitude that, on public

policy grounds, renders it void and unenforceable at common law. Apart from the

element of deterrence, perhaps the main reason for the courts’ refusal to entertain

claims founded on illegal or immoral behaviour is that the dignity of the court would

be undermined if it were seen to be encouraging or condoning reprehensible acts.

The twin pillars of the law relating to illegal contracts are the Latin maxims, ‘ ex turpi

causa non oritur actio’ (‘no action can be founded on an illegal act’) and ‘ in pari delicto,

potior est conditio defendentis’ (‘where the parties are equally at fault, the defendant’s

position is the stronger’). The combined effect of these maxims, subject to certain

exceptions, is that (i) an illegal contract cannot be enforced in a court of law, and

(ii) where the parties are equally at fault, any property which has been handed over

to a party to an illegal contract cannot be recovered by order of a court of law.

The law relating to illegal contracts is complex, for several reasons: fi rst, there

are two recognisable species of illegality – ‘statutory illegality’ and ‘common law

illegality’ – which require differing approaches; secondly, some contracts are held to be

expressly prohibited by a statute (contracts ‘illegal as formed’), while others are held not

to be expressly prohibited by the statute, but may have been performed in a way which

is illegal (contracts ‘illegal as performed’), a distinction that is often diffi cult to draw, and

which may give rise to tricky points of statutory interpretation; thirdly, there are often

diffi culties concerning the effects of illegality, the determination of which may depend

on the application of a large number of technical rules and principles; and fourthly, the

‘unruly horse’ of public policy rides chaotically over the whole area of illegal contracts,

which may make the outcome of a given case diffi cult to predict. The inherent diffi culty

of this area of the law has been expressed by the authors of Chitty on Contracts 1 thus:

The diversity of the fi elds with which policy is concerned, and of the circumstances in

which a contractual claim may be affected by it, combine to make this branch of the law

of contract inevitably complex – a complexity which has been aggravated by lack of

systematisation and by the confusing terminology which has often been adopted.

STATUTORY ILLEGALITY

Contracts expressly prohibited by statute

Where a contract is expressly forbidden by a statute, there is no doubt that the inten-

tion of the legislature is that it shall not be enforced, for ‘what is done

1 25th edn, Vol 1, para 1031, p 546, cited with approval by Meerabux J in Acuzena v de Molina (1991)

50 WIR 85, at 88. See pp 192, 193, below.

Chapter 10: Illegality 179

in contravention of the provisions of an Act of Parliament cannot be made the

subject- matter of an action’.

2 Such a contract is often described as a contract ‘illegal

as formed’. A well- known example is Re Mahmoud and Ispahani . 3 Here, a wartime

statutory order prohibited the sale of certain goods, including linseed oil, without a

licence from the Food Controller. The claimant contracted to sell a quantity of linseed

oil to the defendant. The claimant had a licence, while the defendant did not, but the

latter deceived the claimant into believing that he was licensed. Ultimately, the

defendant refused to take delivery of the oil, and the claimant sued him for damages

for non- acceptance. It was held that, once it had been shown that the parties were

prohibited by statute from entering into the contract, the court could not entertain an

action on the agreement by either party, and the fact that the defendant was alone

at fault, and was relying on his own illegal conduct, was immaterial. In the words

of Bankes LJ, ‘the statutory order is a clear and unequivocal declaration by the

legislature, in the public interest, that this particular kind of contract shall not be

entered into.’

4

A clear example of statutory illegality in the Caribbean is to be found in Off

Course Betting (1955) Ltd v Chen , 5 which concerned the application of the Betting,

Gaming and Lotteries Act, 1965 (Laws of Jamaica). Section 4(1)(b) provided that, ‘no

person shall use, or cause or knowingly permit any other person to use, any premises

for the purpose of the effecting of any . . . betting transactions by that person . . . and

every person who contravenes any of the provisions of this subsection shall be guilty

of an offence’. Section 9(1) provided that, ‘where in the case of any premises there is

for the time being in force a licence authorising the holder of the licence to use those

premises as a betting offi ce . . . section 4(1)(b) shall not apply to the use of those

premises for the effecting of betting transactions with or through the holder of the

licence or any servant of his.’

In this case, C sued the defendants to recover the sum of £4,225, which he claimed

he had won on bets placed with the defendants on English horse races. C had been

in the habit of placing bets with the defendants through his wife, the manager of the

betting offi ce, not in the offi ce itself but in an adjacent shop where he carried on his

grocery business, and this is what happened on the day in question, the bets being

evidenced by a voucher written up by the wife. The trial judge, Hercules J, found in

favour of C, on the basis that, even if there had been breaches of the Act, they did not

render the betting contract unenforceable.

The Jamaican Court of Appeal, by a majority, found for the defendants. In the

view of Graham-Perkins JA, there was no ambiguity in the language of sections 4(1)

(b) and 9(1). Their combined effect was to prohibit the making of betting transactions

in unlicensed premises, and any such contract was illegal and void. He explained:

It is to be noted that Hercules J does not appear to have made any fi ndings on the two

critical questions involved in the submissions before him, namely (1) whether the

2 Langton v Hughes (1813) 1 M & S 593, at 596, per Lord Ellenborough CJ.

3 [1921] 2 KB 716. See also Chai Sau Yin v Liew Kwee Sam [1962] AC 304 (contract to purchase rubber,

where one of the parties did not have a licence as required by statute, held illegal and unenforce-

able); Esi v Moroku (1940) 15 NLR 116 (sublease of Crown land without the Governor’s consent, as

required by statute, held illegal: sub- lessor unable to sue for rent).

4 [1921] 2 KB 716, at 724.

5 (1972) Court of Appeal, Jamaica, Civ App No 27 of 1969, unreported [Carilaw JM 1972 CA 27].