Illegality

• Author: John D. Mccamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 428-493

CHAP TER 12

ILLEGALIT Y

A. INTRODUCTION

The rules determining whether a pa rticular agreement is unenforceable

by reason of illegality

1 are normally divided into two categories, those

determined to be contrary to public policy as a matter of common law

and those determined to be u nlawful by st atute. For the most part, this

division of the topic is a sati sfactory one. Agreements contrar y to public

policy at common law rest on a judicial determination that the type of

agreement in question is suff‌i ciently inconsistent with public policy that

it should be treated as unenforceable. In the context of statutory illegal-

ity, however, the discretion of the courts to determine public policy is,

in theory at least, constrained by the fact that the policy determination

with which the agreement is i n conf‌l ict has been made by the leg islature.

For example, the determination th at contracts restraining one’s ability

to trade2 should be considered unenforceable rest on a determination of

public policy made by the courts themselves as a m atter of common law.

On the other hand, in t he extensive network of regulatory schemes under

which the sale and dist ribution of goods and services of various kinds

are commonly regulated, the legi slature has articulated public policies of

various kinds that may include an expre ss or implied prohibition of cer-

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

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

2 See below this Ch apter, section B(4).

428

Illegality 429

tain types of agreements. Such agreements are held to be unenforceable

on the basis of so-called statutory illegality.

The distinction between common law a nd statutory illegality be-

comes more dif f‌i cult to apply in the context of agreements th at involve

the commission of acts t hat constitute statutory offences. At common

law, it was determined that a contract to commit a cr iminal offence,

such as an agreement to commit an ass ault on a third party, is un-

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

law, even though the offence may be def‌i ned by statute, bec ause the de-

termination that the agreement is unenforceable is a decision made by

the court that is not preordai ned by the legislation def‌i ning the offence

of assault. The category of statutory illegality is reserved, in 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 stipulates

that particular ty pes of agreements are void or unenforceable. The ap-

plication of the doctrine of statutory illegality t herefore typically rest s

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

provides that a par ticular type of agreement is unenforceable by re ason

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

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

tory illegality in question is one that occurs during t he performance

of the contract, but is not required by the term s of the agreement, the

issue is classif‌i ed as a matter of statutory illegality and it is widely ac-

cepted that the correct analy sis of the issue under current law requires

a careful ana lysis of the str ucture and underlying pur poses of the st at-

ute in question, with a view to determ ining whether or not the statute,

in addition to stipulating t he offence, is properly construed as requir-

ing that the agreement in quest ion is an unenforceable one.4

The more di ff‌i cult case to classif y, however, is one in which the

agreement requires, in effect, t he 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 prescribes

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

certain goods in specif‌i ed circumsta nces, there is a possibil ity that the

agreement in question will be classif‌i ed as an agreement to commit an

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

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

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

4 See below this Ch apter, section C.

THE LAW OF CONTR ACTS430

to ask whether the legislature intended not only to create an offence

of sale but also implicitly determined that the contract of sale should

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

priate candidates for the category of statutory illegal ity. Indeed, where

the statutory offence in question is emb edded in a regulatory scheme

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

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

sidered unenforceable to consider the struct ure and purposes of the

regulatory scheme and deploy the analytical methods that have been

developed in the statutory illegality cases. Accordi ngly, the b etter view,

and the view followed here, is that i n the context of regulatory offences,

agreements that involve the commission of such offences should be

classif‌i ed as matters of statutory i llegality rather than a s agreements to

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

will be useful to return to th is issue in t he context of the discus sion of

the common law category of agreements to commit an offence.

B. AGREEMENTS CONTRARY TO PUBLIC

POLICY AT COMMON LAW

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

and the Defrauding of Third Parties

Agreements to commit crime s or torts are unenforceable at common

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

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

tion of third parties,6 to evade currency controls,7 to deal i n prohibited

retail stamp s,8 to distribute obscene material,9 to print libellous materi-

al10 or to obtain goods by false pretences.11 A contract entered into for

the purpose of comm itting the tort of inducement of breac h of contract

is unenforceable.12 In a perhaps predictable Canadian illustr ation, an

5 Allen v. Rescous, above note 3.

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

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

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

9 Fores 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.

12 Harrington v. Victoria Graving Dock Co. (1878), 3 Q.B.D. 549. See also H. Lauter-

pacht, “Contract s to Break a Contract” (1936) 52 Law Q. Rev. 494.