Illegality

• Author: John D. McCamus
• Pages: 500-575

500

CHAPTER 12

ILLEGALITY

A. INTRODUCTION

The rules determini ng whether a particula r agreement is unenforceable

by reason of illegality1 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 statute. For the most part, this

division of the topic is a satisfactory one. Agreements contrary to pub-

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

of agreement in question is suff‌iciently inconsistent with public policy

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

illegality, however, the discretion of the courts to determine public pol-

icy is, in theory at least, constrained by the fact that the policy deter-

mination with which the agreement is in conf‌lict has been made by

the legislature. For example, the determination that contracts restrain-

ing one’s ability to trade2 should be considered unenforceable rest on

a determination of public policy made by the courts themselves as a

matter of common law. On the other hand, in the extensive network of

regulatory schemes under which t he sale and distribution of goods and

services of various kinds are commonly regulated, the legislature has

articulated public policies of var ious kinds that m ay include an express

1 See generally R A Buckley, Illegality and Public Polic y, 4th ed (London: Sweet &

Maxwell, 2 017); N Enonchong, Illegal Transactions (London : Lloyd’s of London

Pre ss, 1998).

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

Illegality 501

or implied prohibition of certain types of agreements. Such agreements

are held to be unenforceable on the basis of so-called statutory illegality.

The distinction between common law and statutory illegality

becomes more diff‌icult to apply in the context of agreements t hat 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 third party, is unen-

forceable.3 The agreement is unenforceable as a matter of common law,

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

mination that the ag reement 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 illega lity is reserved, in theor y 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, how-

ever, it is a rare event that a statutory scheme explicitly stipulates that

particular types of agreements are void or unenforceable. The applica-

tion of the doctrine of statutory illegality therefore typically rests on

a judicial determination as to whether a particular statute implicitly

provides that a part icular type of agreement is unenforceable by reason

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

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

utory illegality in question is one that occurs during the performance

of the contract, but is not required by the terms of the 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 analysis of the structure and underlying purposes of the statute in

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

addition to stipulating the offence, is properly construed as requiring

that the agreement in question is an unenforceable one.4

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

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

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

as the contract is one that has 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 specif‌ied circumstances, there is a possibility that the

agreement in question will be classif‌ied 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

3 Allen v Rescous (1676), 2 Lev 174, 83 ER 505 (KB) [Allen v Rescous].

4 See Section C, below in t his chapter.

THE LAW OF CONTR ACTS502

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 illegality. 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 agreement 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 than as agreements to

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

will be useful to return to this issue in the context of the discussion 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 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 agreements to commit extor-

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

retail stamps,8 to distribute obscene material,9 to print libellous mate-

rial,10 or to obtain goods by false pretences.11 A contract entered into

for the purpose of committing the tort of inducement of breach of con-

tract is unenforceable.12 In a perhaps predictable Canadian illustration,

5 Allen v Rescous, above note 3.

6 Byron v Tremaine (1898), 31 NSR 425 (SC), aff’d 29 SCR 445.

7 Bigos v Bousted, [1951] 1 All ER 92 (KB) [Bigos].

8 United Dominion Promotion Sa les Inc v Shaw (1957), 119 CCC 380 (NB Co Ct).

9 Fores v Johnes (1802), 4 Esp 97, 170 ER 654 (Nisi Prius); Poplett v Stockdale

(1825), Ry & Mood 337, 171 ER 1041 (Nisi Prius).

10Apthorp v Ne ville & Co (1907), 23 TLR 575 (KB).

11Berg v Sadler an d Moore, [1937] 2 KB 158.

12Harrington v Victo ria Graving Dock Co(1878), 3 QBD 549. See also H

Lauterpacht , “Contracts to Bre ak a Contract” (1936) 52 Law Q Rev 494.