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ILLEGALITY (Covenants (clauses) in restraint of trade (To help determine…
ILLEGALITY
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General
Effect: inability to enforce an illegal contract means that one of the parties will suffer the resulting loss, e.g. will not get paid for goods delivered or services rendered. $$$ paid or property transferred under an illegal contract is not recoverable. Loss lies where it falls – the law will not grant any assistance. Impossible to recover from illegal contract.
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Courts will not enforce a contract which is illegal or contrary to public policy: justice would be tainted and the dignity of the court offended by intervention on behalf of the claimant; lack of enforceability has a deterrent effect
A contract may be illegal or legal but contrary to public policy… (i.e. it would not be ok to enforce it)
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Civil vs criminal implications, not every breach of statute means that the contract involves the commission of a crime or that it has adverse civil consequences! (question may be: does criminal liability also have civil consequences?)
Common law illegality
Depends on prior case law + the relevant public policy (risk of too much discretion…) Ting Siew May: concept of public policy is indeed an unruly horse and must therefore be applied wisely.
The following contracts are unenforceable, i.e. no remedies available (list not exhaustive):
Contracts prejudicial to administration of justice (e.g. champerty); Contracts to deceive public authorities; Contracts to oust jurisdiction of courts; Contracts to commit (or involving) a crime, tort or fraud; Contracts prejudicial to public safety (trading with enemy or “certain nations”); Contracts promoting sexual immorality; Contracts that are liable to corrupt public life (“abuse” of office); Contracts entered into with object of committing an illegal act.
Ting Siew May
Category of contracts illegal at common law - contracts entered into with an illegal or unlawful object. Contract in themselves not unlawful. May include contracts with object of using the subject-matter of the contract for an illegal purpose, intention of using contractual documentation for an illegal purpose, and intended to be performed in an illegal manner.
Application of the doctrine to this category is subject to (limiting) principle of proportionality. If illegality is remote from contract / rendering it void is disproportionate response - enforceable. Necessary. Court will not permit guilty party to benefit from his own wrong as this would be affront to public policy. But some legal wrongs are relatively trivial, so might be disproportionate to render it void.
(Balance (a) seriousness of illegality and (b) effect of avoiding contract for illegality (whether response proportionate))
If illegal conduct too remote, to find that contract rendered void would be to administer doctrine of illegality and public policy in a disproportionate manner. Principle of proportionality is broader and more malleable than that of remoteness. Capable of encompassing remoteness, nature of illegality, effects of rendering contract unenforceable. Proportionality preferred for its simplicity and adaptability.
Factors to consider in proportionality test: proportionality in the context of contracts entered into with object of committing an illegal act: (a) whether allowing the claim would undermine the purpose of the prohibiting rule; (b) the nature and gravity of the illegality; (c) the remoteness or centrality of the illegality to the contract; (d) the object, intent, and conduct of the parties; (e) the consequences of denying the claim.
Application: Firstly, resp' object was to use the false date stated in the Option for a purpose which they knew was prohibited. Resp knew of 4 Oct Notice. Secondly, the nature of the illegal act was not trivial. The main policy objective of the Notice was to limit the quantum of residential property loans to foster stability in market. The part of the Notice which resp sought to contravene directly related to the policy objective, not merely trivial or administrative. Thirdly, allowing claim would undermine purpose of the rule. Fourthly, illegal purpose was not too remote from Option. Indeed an overt (integral) step in carrying out the unlawful intention.
For contract entered into with object of committing illegal act, general approach was to examine the relevant policy considerations so as to produce a proportionate response.
One clear situation would involve contravention of statutory provision. The contract which contravened a particular statutory provision but not prohibited by the provision per se could still be void, if one / both parties had intention / purpose of contravening the statutory provision in question. Illegality here was the contravention of a statutory instrument (Notice). Intentionally backdate. Illegality was in resp' intention to use Option to circumvent and contravene the Notice.
Resp said they abandoned original unlawful intention. Any abandonment could be taken into account only if there was ignorance of unlawfulness of intention in the first place.
Even if contract involves lawful acts, and not expressly or impliedly prohibited by statute, still can be unenforceable due to illegal object.
Proportionality: ParkingEye v Somerfield Stores: contract not tainted by illegality because approval of the form of demand letters was collateral and distinct from main contract. Illegality neither central to nor necessary for perf of contract. Will lead to disproportionate result.
Patel v Mirza: approved proportionality test in ParkingEye and expanded it. Must consider: (a) underlying purpose of prohibition, (b) any relevant public policies which maybe rendered ineffective / less effective by denial of claim, (c) keep in mind possibility of overkill unless law applied with due sense of proportionately. Some relevant factors include seriousness of conduct, centrality to the contract, whether intentional, and whether there was marked disparity in parties' respective culpability.
Statutory illegality
Depends on the intention of parliament and the effect of the infringement of the statute upon the contract (statutes often state the effect of illegality on the contract, if any) + note problems with subsidiary regulations!
Question of interpreting the particular statute (i.e. determining legislative intent and purpose of statute, e.g. revenue generation or protection of public or protection of a particular class/profession + local “factors”)
Threshold requirement of contravention of statute (Ting Siew May). Second, inquiry was whether the statutory provision was intended to prohibit not only the conduct but the contract as well.
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Illegal as formed vs illegal as performed. Former: no recovery. Latter: recovery possible, depends on whether performance turned contract into one that is prohibited (St John)
Ting Siew May: distinction not legally significant. focus on crux of inquiry which is whether or not the contract (as opposed to conduct) has been prohibited.
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