5.4.2 Illegality Lecture
Statutory prohibition of contracts
Neither party will be able to enforce the contract - Re MahMoud and Ispahani  2 KB 716.
- If the sole object of the statute is to increase national revenue, the contract itself is not illegal
- Does the statute contemplate that the prohibited act will be done in the performance of a contract?
Contracts which are not illegal, but have been performed in an illegal manner
Ashmore, Benson, Pease & Co Ltd v A V Dawson Ltd  1 WLR 828
Restrictions - Anderson Ltd v Daniel  1 KB 138
- The object and intent of the party attempting to enforce the contract;
- The gravity of the illegality in the context of the claim; and
- The nature of the illegality.
The effect of statutory penalties
Proportionality - St Johns Shipping Corporation v Joseph Rank  1 QB 267.
Common law prohibition of contracts – Public Policy
Contracts to commit crimes
Bigos v Boustead  1 All ER 92 confirms a contract which includes an obligation to commit a crime will be illegal.
Contracts which prevent the administration of justice
Contracts which are sexually immoral
Sexually immoral contracts refer to those relating to contracts for sexual acts or services - Pearce v Brooks(1865) LR 1 Ex 213.
However, this approach has evolved along with societies views - Sutton v Mishon de Reya  EWHC 3166 (Ch).
Contracts which involve public corruption
Some contracts are invalid because they involve corruption - Parkinson v College of Ambulance Ltd  2 KB 1.
Common law prohibition of contracts – restraint of trade
Contracts that restrain trade can be void for illegality - Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd  AC 535.
Is the contract reasonable?
In Herbert Morris Ltd v Saxelby  AC 688 3 general presumptions identified.
Reasonableness as to the public interest is a further important consideration for the courts - Herbert Morris Ltd v Saxelby  AC 688.
Exclusivity dealing contracts
Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd  AC 269.
Exclusive service agreements
An exclusive service agreement is similar to an exclusive dealing contract, but instead it relates to where a person provides services for only one recipient.
The effect of illegality
Holman v Johnson(1775) 1 Cowp 341
Severable illegal contracts
Sadler v Imperial Life Assurance Co of Canada Ltd(1988) IRLR 388 – 3-part test
This may be enforceable, but only if providing for a remedy under the collateral contract is not equal to enforcing the illegal contract - Fisher v Bridges(1854) 3 El & Bl 642.
Claims based on an illegal contract
Euro-Diam Ltd v Bathurst  1 QB 1.
Recovery under illegal contracts
Both parties are guilty
Holman v Johnson (1775) 1 Cowp 341
One party unfairly induced into the illegal contract
Victim may successfully recover money or property they have passed subject to the contract - Hughes v Liverpool Victoria Legal Friendly Society  2 KB 482.
One party withdraws from the contract
Locus poenitentiae – Tribe v Tribe  Ch 107.
The withdrawal from the contract needs to be voluntary - Bigos v Boustead  1 All ER 92.
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