Illegality

• Author: John D. McCamus
• Pages: 453-523

453

CHAP TER 12

ILLEGALIT Y

A. INTRODUCTION

The rules determining whether a particular agreement is unenforce-

able by reason of illegality

1 are normally div ided into two categories,

those determined to be contr ary to public policy as a matter of com-

mon law and those determined to b e unlawful by st atute. For the most

part, this d ivision of the topic is a satisfactory one. Agreements con-

trary to public policy at common law rest on a judicial determin ation

that the type of agreement in question is suff‌iciently inconsistent with

public policy t hat it should be treated a s unenforceable. In the context

of statutory illegality, however, the discretion of the courts to deter-

mine public policy is, in theory at least, constrained by the fact that the

policy determination with which the agreement is in conf‌lict has been

made by the legislature. For example, t he determination t hat contract s

restraining one’s ability to trade2 should be considered unenforceable

rest on a deter minatio n of public pol icy made by the cou rts them selves

as a matter of common law. On the other hand, in the exten sive net-

work of regulatory schemes under which t he sale and distr ibution of

goods and service s of various kinds are commonly regulated, the legis-

lature has art icul ated public policies of various kinds that may include

1 See generally R. A. Buckley, Illegality and Public Policy (London: Sweet & Maxwell,

2002); N. Enonchong, Illegal Transact ions (London: Lloyd’s of London Press, 1998).

2 See Section B(4), below in this chapter.

THE LAW OF CONTR ACTS454

an express or implied prohibition of certain t ypes of agreements. Such

agreements are held to be unenforceable on the basis of so-called statu-

tory illegality.

The distinction between common law and st atutory illegality be-

comes more diff‌icult to apply in the context of agreements th at involve

the commission of acts that constitute statutory offences. At common

law, it was determined that a contract to commit a criminal offence,

such as an agreement to commit an assault on a th ird party, is un-

enforceable.3 The agreement is unenforceable as a matter of common

law, even though the offence may be def‌ined by statute, because the de-

termination that the agreement is unenforceable is a decision made by

the court that is not preordained by the legislation def‌ining the offence

of assault. The category of statutory illegal ity is reserved, i n theory at

least, for situations in which it is the statute, rather than the judiciary,

that determines that the contract is illegal and unenforceable. In fact,

however, it is a rare event that a statutory scheme explicitly stipulate s

that particular types of agreement s are void or unenforceable. The ap-

plication of the doctrine of statutor y illegality therefore typically rests

on a judicial determination as to whether a particul ar statute implicitly

prov ides t hat a pa rticu lar ty pe of ag reement is unen forcea ble by re ason

of the illegality. The question, it is often said, is whether the statute

impliedly “prohibits” the contract in question. Plainly, where the statu-

tory illegality in quest ion is one that occurs during the per formance

of the contract, but is not required by the terms of t he agreement, the

issue is clas sif‌ied as a matter of statutory illegality. It is widely accepted

that the correct analysis of the issue under current law requires a care-

ful analysi s of the structure and underly ing purposes of the statute in

question, with a view to determining whether or not the statute, in

addition to stipulating the offence, is properly const rued as requiring

that the agreement in question is an unen forceable one.4

The more diff‌icult case to classif y, however, is one in which the

agreement requires, in effect, the commission of a statutory offence.

Some courts and writers treat this as a c ase of common law illegality

as the contract is one that ha s been entered for the purpose of com-

mitting an offence. Similarly, where the regulatory offence prescribe s

an act that is contractu al in nature, such as a prohibition of the sale of

certain goods in specif‌ied circumst ances, there is a possibility that the

agreement in question will be cla ssif‌ied as an agreement to commit an

offence and, accordingly, embraced by the common law category. At

3Allen v. Rescous (1676), 2 Lev. 174, 83 E.R. 505 (K.B.).

4 See Section C, below i n this chapter.

Illegality 455

the same time, however, in both of these situations, it appears relevant

to ask whether the legislature i ntended not only to create an offence

of sale but al so implicit ly determined that the contract of sale should

itself be unenforceable. In other words, such case s appear to be appro-

priate candidate s for the category of statutory illegalit y. Indeed, where

the statutory offence in question is embedded in a regulatory scheme

of some kind, it is surely relevant to the determination as to whether

it is implicit in the scheme that the related ag reement should be con-

sidered unenforceable to consider the structure and purposes of the

regulatory scheme and deploy the analytical methods that have been

developed in the statutory illegality cases. Accordingly, the better view,

and the view followed here, is that in the context of reg ulatory offences,

agreements that involve the commission of such offences should be

classif‌ied as matters of statutory illegality rather th an as agreements to

commit offences subject to the common law doctrine. Nonetheless, it

will be useful to return to this i ssue in the context of the discussion of

the common law category of agreements to commit an offence.

B. AGREEMENTS CONTR ARY TO PUBLIC

POLICY AT COMMON LAW

1) Agreements to Commit an Unlawful Act: Crime, Tort,

and the Defrauding of Third Parties

Agreements to commit crimes or torts are unenforceable at common

law. An agreement to commit an assault on a third party is obviously

unenforceable.5 So too, for example, are agreement s to commit extor-

tion of third parties,6 to evade cur rency controls,7 to deal in prohibited

retail stamp s,8 to distribute obscene mater ial,9 to print libellous

material,10 or to obtain good s by false pretences.11 A contract entered

into for the purpose of committing the tort of inducement of breach of

5Allen v. Rescous, above note 3.

6Byron v. Trem aine (1898), 31 N.S.R. 425, aff’d 29 S.C.R. 445.

7Bigos v. Bousted, [1951] 1 All E.R. 92.

8United Dominion Promotion Sales Inc. v. Shaw (1957), 119 C.C.C. 380 (N.B. Co. Ct.).

9Fores v. Johnes (1802), 4 Esp. 97, 170 E.R. 654; Poplett v. Stockdale (1825), Ry. &

Mood. 337, 171 E.R . 1041.

10 Apthorp v. Neville & Co. (1907), 23 T.L .R. 575.

11 Berg v. Sadler and Moore, [1937] 2 K.B. 158.