Illegality
| Author | John D. McCamus |
| Pages | 500-575 |
500
CHA PTER 12
ILLEGALIT Y
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 contrar y 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 satisfactor y one. Agreements contrary to pub-
lic policy at common law rest on a judicial determin ation 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 t he policy deter-
mination with which t he agreement is in conflict has been made by
the legislature. For example, the determination that contracts restr ain-
ing one’s ability to trade2 should be considered unenforceable rest on
a determination of public policy made by the court s 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 var ious kinds are commonly regulated, t he 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 th at constitute statutory offences. At common
law, it was determined that a contract to commit a cri minal 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 t he 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 st ipulates that
particular t ypes of agreements are void or unenforceable. The applica-
tion of the doctrine of statutory illegality therefore typically re sts on
a judicial determinat ion 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 quest ion is one that occurs during the per formance
of the contract, but is not required by the term s 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 t he structure and underlying pur poses of the statute in
question, with a view to determ ining whether or not the statute, in
addition to stipulating the offence, is properly constr ued 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, t he commission of a statutory offence.
Some courts and writers treat this as a ca se of common law illegality
as the contract is one that ha s been entered for the purpose of com-
mitting an offence. Simila rly, where the regulatory offence prescr ibes
an act that is contractual in nature, such as a prohibition of the sale of
certain goods in specified circumstances, there is a possibility t hat 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
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 t hat the contract of sale should
itself be unenforceable. In other words, such case s 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 pur poses of the
regulatory scheme and deploy the analytical methods that have been
developed in the statutory illegalit y cases. Accordingly, the better view,
and the view followed here, is that in the context of reg ulatory offences,
agreements that involve the commis sion of such offences should be
classified as m atters of statutory illegality rat her than as agreements to
commit offences subject to the common law doctrine. Nonetheless, it
will be usef ul to return to this issue 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 agreements to commit extor-
tion of third parties,6 to evade currency controls,7 to deal in prohibited
retail sta mps,8 to distribute obscene mater ial,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 Canadi an illustration,
5 Allen v Rescous, above note 3.
6 Byron v Tremaine (1898), 31 NSR 425 (SC), aff’d 29 SCR 445.
8 United Dominion Promotion Sa les Inc v Shaw (1957), 119 CCC 380 (NB Co Ct).
(1825), Ry & Mood 337, 171 ER 1041 (Nisi Prius).
10 Apthorp v Ne ville & Co (1907), 23 TLR 575 (KB).
11 Berg v Sadler an d Moore, [1937] 2 KB 158.
12 Harrington 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.
To continue reading
Request your trial