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Week 5 - Illegality (Contracts prohibited by statute statute is likely…

- - - - Re Mahmoud and Ispahani [1921] 2 KB 716,
        an order made under the Defence of the Realm Regulations (UK) provided: “a person shall not…buy or sell or otherwise deal in …[linseed oil]...except under licence. The plaintiff, who had a seller’s licence, contracted to sell a quantity of linseed oil to the defendant in the mistaken belief that he had a buyer’s licence. The defendant later refused to accept delivery and the plaintiff sued him for damages for breach of contract.
        The plaintiff’s action failed. The order clearly prohibited the sale of linseed oil to an unlicensed purchaser and therefore expressly prohibited the contract in question.
      - Pham v Doan (2005) 63 NSWLR
        a pharmacist formed a business partnership contract with his brother-in-law. The problem was that the brother-in-law was not a pharmacist, and was therefore unable to be participating in this highly regulated industry. The partnership agreement was therefore illegal and void.
    - - Cope v Rowlands (1836) 2 M & W 149,
        a UK statute provided that brokers in the city of London had to be licenced or forfeit a fine of 25 pounds. The plaintiff, an unlicensed broker, performed work for the defendant and sued for his unpaid fee. The defendant argued that the contract was illegal and unenforceable because of the statute which really intended to prevent unlicensed broking contracts, and therefore impliedly made the contract illegal. It was held that the legislation was aimed at protecting the public by ensuring that only those who had passed through the licencing process could act as financial intermediaries. Consequently, broking contracts negotiated by unlicensed persons were impliedly prohibited and the fee was not recoverable.
      - Yango Pastoral Co v First Chicago Australia Ltd (1978) 139 CLR 410
        where penalty was applied but the underlying mortgage contract was still held to be valid.
- - - - The court will consider whether there are legitimate interests to be protected, and whether the ROT does only what is necessary to protect the legitimate interests. If the ROT goes beyond what is necessary, it will not be considered reasonable and therefore will not be enforceable.
        
        ROT is likely to be valid in one of two circumstances
        
        Where a business is sold, the seller of the business might be restrained from opening another competing business close by (and therefore attracting away all of the good-will and custom which the purchased business might otherwise have expected). However, even in such circumstances, the restraint will need to be reasonable.
        
        Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535,
        Nordenfelt sold his weapons and ammunition business to Maxim, and as part of the deal agreed not to manufacture guns or ammunition anywhere in the world for 25 years, and would not compete with Maxim “in any way”.
        
        The second circumstance in which a restraint might well be valid is where an employee is restrained from leaving their employer, and setting up business in direct competition with that employer (and therefore competing with the same clients they had come to establish a reputation with while employed by the employer). Again, the key question is likely to be whether the restraint is unfair.
        
        Attwood v Lamont [1920] 3 KB 571,
        Lamont was employed in the tailoring department of a general outfitters. When he commenced, he signed a ROT clause under which he promised not to undertake a wide range of activities (tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen's, ladies', or children's outfitter) within ten miles of the employer. He later did so, but the court determined that the ROT clause was unreasonably broad, so it refused to enforce it.
  - - - Honour Clauses are not the same
        What about honour clauses then? Don’t they seek to oust the jurisdiction of the courts? Well, in a sense they do, but they do so by making the agreement nonjusticiable: an honour clause says “this agreement is not a contract” whereas an ouster clause says “this agreement is a contract but you cannot sue anyway”
- - - - Everet v Williams (The Highwayman’s Case)
        Everet and Williams were robbers who had a joint enterprise to rob travellers, sell the goods onwards and split the proceeds evenly. For quite a time this joint enterprise went well. The men eluded capture and plundered quite handsomely, until Everet began to feel that he was not getting his fair share of the loot.
        So what do you think you did? He sued in equity! Naturally he did not openly say that he was a highwayman; he tried to style himself as skilled in secondhand goods. The courts saw through it all immediately, and not only did the court refuse to enforce the contract, but both highwaymen were immediately arrested. They were both later hanged.
    - - Pearce v Brooks (1866) LR 1 Exch 213,
        In which a carriage was let to a prostitute in the knowledge that she would use the carriage in pursuit of her business. The court found that the owner of the carriage could not sue for outstanding hiring costs. The rationale for this rule, of course, was that the court did not wish to assist conduct which was seen as sexually immoral. It is also matter of notoriety that during the 20th century sexuality underwent a transformation.
      - Ashton v Pratt (No.2) [2012] NSWSC 3.
        Some of you may remember this case from the time, as it caused something of a media stir. Ms Ashton was a prostitute and brothel madam who alleges that she received a promise from Mr Pratt, a billionaire, that if she left the sex industry and made herself available as his mistress whenever and wherever he wished, he would install her in luxurious accommodation, pay her a very generous annual allowance, and establish seven-digit trust funds for any children. Ms Ashton states that she left the sex industry on this basis.
        
        His Honour said:
        The arrangements between Ms Ashton and Mr Pratt involved none of the saving graces which enabled a different result to be reached in the cases to which I have referred. Those arrangements were not made to facilitate continuation of an existing cohabitation, but to establish the "mistress relationship". The evidence does not reveal a relationship, or consideration, beyond "meretricious sexual services". In my view, on the current state of the authorities, the arrangements were contrary to public policy and illegal in the relevant sense. Had they otherwise constituted a contract, it would have been void as contrary to public policy.
    - - person with knowledge of a crime might be “bought off” to prevent them from reporting the crime to the appropriate authorities.
        
        Public Service Employees Credit Union Co-operative Limited v Campion (1984) 56 ACTR 39)
        where Campion offered a financial benefit to the Credit Union if the Credit Union did not report his son for misappropriating money.
      - law has long forbidden what is known as “maintenance”, which is the payment by one person of the legal fees of another person, where they have no real interest in supporting the legal action.
      - law forbids what is known as champerty, a particular kind of maintenance, where the external party funds legal proceedings on the understanding that they will then obtain some benefit (usually a financial benefit) from the winnings at the end
        However in Qld in Elfic it was deemed
        “[67} The mere fact that proceedings are financed by third parties with no interest in the outcome other than repayment and profit from the litigation is not itself sufficient to invoke the jurisdiction of the court. Courts should be careful not to use that power to deny access to justice to a party who has sought to fund bona fide proceedings in a way which may be contrary to public policy unless that which has been done amounts to an abuse of the court's own process …”
        
        Elfic Ltd & Ors v Macks & Ors [2001] QCA 219.
        The Supreme Court nicely encapsulated the opposing arguments:
        “[64] The historical reasons for the development of the crime and civil wrong of maintenance and champerty in medieval times have little relevance today but the courts must remain vigilant to ensure in the interests of public policy that there is no trafficking in litigation or speculating in causes of action for improper gain. On the other hand, the courts also recognise the need for innovative but responsible ways of increasing access to justice for the impecunious: see the comments of Danckwerts J in Martell v Consett Iron Co Ltd.”
        
        Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 and Mobil Oil Australia Pty Ltd v Trendlen Pty Ltd [2006] HCA 42
        The question was whether proceedings instituted by means of litigation funding should be stayed as contrary to public policy or as an abuse of process.
        The court held the proceedings should not be stayed: (a) there was no general rule against maintenance and (b) particularly in those jurisdictions that had legislated on the issue, arguments on the basis of public policy could not prevail.
    - - Parkinson v College of Ambulance Ltd [1925] 2 KB 1
        Parkinson made a substantial donation to the college on the understanding that he would receive a knighthood in return. The donation was duly accepted, but no knighthood was forthcoming. Parkinson was quite nonplussed at this, and decided that his best course of action was to sue for a refund of his donation. He was unsuccessful, primarily because the contract was held to the unlawful: had the court enforced such a contract, it would have been tantamount to a situation in which public positions could be bought and sold.
    - - Hirsch v Zinc Corporation Ltd (1917) 24 CLR 34
        in which the High Court was called upon to unravel the mess created by an ongoing contract to sell zinc and silver to a German, resident in Germany (which was then of course an enemy nation). The question before the court was whether Hirsch was liable to pay for the zinc received before the outbreak of the war, or whether the entire contract was now void. There was no question, however, that the contract ceased in its effect once the war commenced.