Illegality of Contract
Sources of Illegality:
- Statutory illegality
All contracts expressly or impliedly prohibited by statute are illegal.
Sale of organs – Human Tissue Act 2004 s32(1)(d)
Insider trading
No contract shall be void or unenforceable by reason only of s52 – CJA s52,
63(2)
- Illegality at common law
‘a very unruly horse’
‘with a good man in the saddle, the unruly horse can be kept under control’
Public Policy:
Contracts to commit a crime:
- Statute does not need to specifically prohibit contract
Triggered if contract entails engaging in the prohibited conduct
Can relate to formation, purpose or performance
- Saunders v Edwards
Contract to sell flat and its furniture
Vendor fraudulently represented that flat included roof garden
Parties valued furniture at £5000 rather than £1000 to save on stamp duty
Held: illegality did not prevent purchaser from claiming damages
- Extends to contracts to indemnify against the consequences of a crime
Imposes limits on the insurance of commercial risks
A company cannot insure against the risk of a breach of competition law
- Contracts to commit some other civil wrongs
Covers some civil wrongs such as fraud or libel (Apthorpe v Neville)
Unclear whether it includes others
Les Laboratories Servier v Apotex Inc
o Main focus of illegality should be on criminal acts
o Ex turpi causa principle founded on acts contrary to public laws
o Should only apply to civil wrongs which are ‘quasi-criminal’ such as
dishonesty
o Others only affect private interest, not public interest
- Contracts which oust the jurisdiction of the courts
E.g. contracts prohibiting a party from bringing legal proceedings (however
they are allowed ADR clauses and the creation of non-legal obligations)
- Also covers contracts obstructing the admission of justice
E.g. a contract agreeing to commit perjury or destroy evidence
- Agreements in restraint of trade
Agreement restricting liberty to carry on trade with other persons
Sources of Illegality:
- Statutory illegality
All contracts expressly or impliedly prohibited by statute are illegal.
Sale of organs – Human Tissue Act 2004 s32(1)(d)
Insider trading
No contract shall be void or unenforceable by reason only of s52 – CJA s52,
63(2)
- Illegality at common law
‘a very unruly horse’
‘with a good man in the saddle, the unruly horse can be kept under control’
Public Policy:
Contracts to commit a crime:
- Statute does not need to specifically prohibit contract
Triggered if contract entails engaging in the prohibited conduct
Can relate to formation, purpose or performance
- Saunders v Edwards
Contract to sell flat and its furniture
Vendor fraudulently represented that flat included roof garden
Parties valued furniture at £5000 rather than £1000 to save on stamp duty
Held: illegality did not prevent purchaser from claiming damages
- Extends to contracts to indemnify against the consequences of a crime
Imposes limits on the insurance of commercial risks
A company cannot insure against the risk of a breach of competition law
- Contracts to commit some other civil wrongs
Covers some civil wrongs such as fraud or libel (Apthorpe v Neville)
Unclear whether it includes others
Les Laboratories Servier v Apotex Inc
o Main focus of illegality should be on criminal acts
o Ex turpi causa principle founded on acts contrary to public laws
o Should only apply to civil wrongs which are ‘quasi-criminal’ such as
dishonesty
o Others only affect private interest, not public interest
- Contracts which oust the jurisdiction of the courts
E.g. contracts prohibiting a party from bringing legal proceedings (however
they are allowed ADR clauses and the creation of non-legal obligations)
- Also covers contracts obstructing the admission of justice
E.g. a contract agreeing to commit perjury or destroy evidence
- Agreements in restraint of trade
Agreement restricting liberty to carry on trade with other persons
