12. Illegal contracts

A contract is illegal if the law forbids making it, or if it is against public policy. The cases group as follows.

A contract to commit a crime, or whose consideration is a crime or a tort, is illegal. So is an agreement to stifle a prosecution for a serious offence. Bigos v Boustead: a contract to supply Italian currency in breach of the Exchange Control Act 1947 could not be enforced, and the share certificate deposited as security stayed where the illegality put it.

A contract illegal as formed, for example because a required licence was never taken out, is void from the start. Nobody acquires rights under it, whether or not they meant to break the law. Bostel Brothers v Hurlock treated a contract made in breach of building licensing rules as illegal.

Sierra Leone illustrations

Beckley v Evans, a 1963 case stated by the magistrate for the High Court, concerned an agreement not to report a road accident, contrary to section 7 of the Road Traffic Act, in return for payment for repairs. The court asked whether the statute was only a revenue penalty or was for the protection of the public. It was for the public. A contract to avoid it was illegal and void, and no action lay on it. Having bought off a police report, a party could not then sue on the original claim either.

Habib v Attorney-General concerned a licensed diamond dealer who handed his licence and stones to an unlicensed brother-in-law to sell them in Kenema. The Alluvial Diamond Mining Ordinance did not allow a dealer's servant to deal. The court would not help the dealer recover the stones. They were forfeited.

Other ways a term gets in

Contracts to defraud the revenue are illegal. Miller v Karlinski built income tax into an expenses claim. Napier v National Business Agency paid a round sum "for expenses" that both sides knew was salary. The illegal expenses term tainted the whole employment contract, so arrears of salary could not be recovered either.

Sexual immorality: Pearce v Brooks, the brougham hired to a prostitute for use in her trade, where the coachbuilders knew the purpose. Corruption in public life: Parkinson v College of Ambulance, money paid on a promise that a knighthood could be arranged. The donor could not recover it. Interfering with justice: Keir v Leeman, a compromise of a prosecution for riot, which was a matter of public concern and could not be bought off. A purely private assault, where the victim may choose a civil or a criminal remedy, can be compromised. McGregor, the cross-summons case, draws that distinction.

Contracts in restraint of trade, which the outline lists separately, are void unless the restriction is reasonable between the parties and reasonable in the public interest. The rule belongs with public policy.

Consequences and exceptions

The general rule is ex turpi causa non oritur actio. No action lies to recover money paid or property handed over. No action lies for breach. The court will not cut the illegal part out and enforce the rest if the illegality taints the whole, as in Napier. A collateral contract, such as a promissory note given for an illegal debt, is tainted too. A later lender is caught only if they knew what the money was for.

The exceptions are these. Where the parties are not equally at fault, the less guilty may recover. That covers a statute passed to protect a class of which the claimant is a member, and a person tricked into the illegal contract. Hughes v Liverpool Victoria Legal Friendly Society: premiums on an illegal life policy, induced by the agent's fraud, were recoverable. Where a party truly repents before any substantial part of the illegal purpose is carried out, they may withdraw and recover. Bigos shows that convenience is not repentance. Where the contract looks lawful and only one party knows of the illegal purpose, the innocent party may recover. Pearce v Brooks is the contrast: both knew. And a party who can frame the claim without relying on the illegal contract may succeed. Bowmakers v Barnet Instruments: the owners sued in conversion for their own goods. They did not need to lean on the illegal hire-purchase agreements.