Illegality

Question 1

what are the two requirements for an illegal contract under s 71(1) CCLA

Answer 1

• one relating to the legal source being breached (statute or common law)
• one relating to the moment from when illegality is given (‘from the creation or the performance of the contract’)

Question 2

what is a contract illegal at inception

Answer 2

express stipulation would be given where a statute stipulates:

• that a contract in breach of its provisions is illegal or
• that the CCLA applies

Question 3

what are contracts illegal by performance and give and example

Answer 3

a contract may be lawfully entered into but is performed in such a way as to breach a statutory provision

Carey v Hastie - contracting someone to build is not illegal, but doing so without a required permit is

Sale of a motor vehicle without a valid warrant - Fenton v Scotty’s Car Sales, Automobile Centre v Facer

Question 4

when does s72 CCLA 2017 apply

Answer 4

only to illegal performance, not those illegal at their inception.

Question 5

how do we apply s72 of the CCLA 2017

Answer 5

the courts must determine:

• what the object of the legislation is and
• whether it is necessary to declare the contract illegal to achieve that objective
• when a regulation, in case of non-compliance, provides for a fine only, the courts may regard the fine as sufficient to achieve the objective of the legislation so it is not necessary to declare the contract illegal

Question 6

what contracts are illegal at common law (‘in equity’)

Answer 6

• contracts to commit crimes, torts of fraud - Brown Jenkinson v Percy Dalton
• Contracts prejudicial to the administration of justice e.g. concealing offenses or compromising prosecution (Keir v Leeman) or a contract to not commence private prosecution (Polymer Developments Group v Tilialo)
• contract prejudicial to good government - interfering with the democratic process (Peters v Collinge - precluding a person standing for parliament), promoting corruption in public life e.g. contracts for buying and selling of public offices and titles (Parkinson v College of Ambulance)
• contracts prejudicial to national safety - trading contracts between a nation and an enemy in waretime or those intended to violate the laws of a friendly country (Regazzoni v KC Sethia)
• contracts to defraud inland revenue (Miller v Karlinski)

Question 7

what is the consequence of illegal contracts under s 73(1) CCLA

Answer 7

where s 72 doesn’t apply:

an illegal contract is of no effect as to the transfer of rights or property (and the court must take illegality into account even if it is not pleaded - Duncan v McDonald). But this is subject to any other enactment e.g. s 89(5) Commerce Act 1986

Question 8

what relief can be sought under s 76 CCLA for illegality

Answer 8

the court has wide discretion to grant ‘any relief that the court thinks just’ so as to make an appropriate apportionment of losses amongst wrongdoers (Duncan v McDonald). The preferred form of relief is validation but can also include restitution, compensation, variation etc. The court must take into account the conduct of the parties, object of the enactment and the gravity of the penalty expressly provided for any breach of the enactment and any other matters the court thinks proper

Question 9

discretion to grant relied under s 76 CCLA is given where an enactment?

Answer 9

• makes a contract void
• does no more than make a contract illegal
• in addition to making a contract illegal, provides a particular result

Question 10

courts must have regard to matters in which section of the CCLA when giving relief for illegality under s 76

Answer 10

• matters mentioned in s 78 and other matters the court thinks proper within the meaning of s 78 e.g. delay.

House v Jones - to validate a contract after more than 5 years could work an injustice

Question 11

is knowledge of illegality of the contract a bar to relief

Answer 11

no, but it is a factor to be taken into account under s 80(2) CCLA. the courts will look at the policy underlying the statute/common law and determine if it would be frustrated by granting relief.

Question 12

are third party rights protected if they are innocent for illegality?

Answer 12

yes, under s 74 CCLA - they are good faith and have no knowledge of the illegality or vitiating elements

Question 13

what are some common law safeguards for illeglity

Answer 13

• clauses to oust the jurisdiction of the courts (s84(1)(b)) = void
• honour clauses valid (denying the contractual nature of an agreement)
• arbitration clauses valid (do not substitute arbitration for the courts, it just must be tried first)
• contracts prejudicial to the status of marriage e.g. marriage brokerage contract - the marriage brokers (e.g. nowadays tinder) cannot sue for fees for a relationship that ends up at marriage, it is void due to being at odds with the sanctity of marriage. BUT an engagement is valid because of reciprocal obligation.

Question 14

what is the legal consequence of illegality

Answer 14

unenforceability insofar as the contract contravenes the law

• void contract not illegal but unenforceable - void provisions could be severed from the contract and the non-void parts could stay in force. Whereas, with illegality, the contract never existed and is ineffectual should s73 apply. Courts can generate the same outcome that the common law provides for void contracts for illegality by validating the contract and varying the terms, severing provisions that make the contract illegal under s 76 so they can end up the same despite the automatic legal consequences being very different.
• through severance, the contract, other than void provisions can still be enforced
• through recovery, money paid or property transferred under a void contract can be recovered because a void contract does not bring about any contractual entitlements