Lecture notes
Law 1121 Illegality Notes
- Module
- Contract Law
- Institution
- Newcastle University (NCL)
This is a comprehensive and detailed note on Illegality for Contract law. *Essential!! *Precise!! *For you!!
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IllegalityThe doctrine of illegality is based on two principles:
first, that people should not benefit from their own wrongdoing, and
second, that the law should not condone illegality
Perhaps oddly, a contract can be illegal because it involves doing something that is against public
policy, as well as because it involves something that is against the law, such as a crime or tort. Under
common law the general principle is that an illegal contract is void and unenforceable, but certain
exceptions to this have been developed by the courts. Where the contract is illegal because of a
statute, the impact of this illegality will depend on the terms of the statute
When is a contract illegal?
Contracts can be illegal in two ways:
• from the time the contract was formed, due to the content of what was agreed;
• due to the way they were performed.
Contracts illegal at the time of formation
If a contract cannot be performed without an illegal act, it will be illegal from the beginning.
An obvious example would be an agreement with a hitman to kill someone you don’t like; if
the hitman does the job and you then refuse to pay, he would not be able to sue you for his
money, because the contract could not be performed without him doing an illegal act. Illegal
acts for this purpose are not restricted to crimes; a contract can be illegal if it involves
committing a tort, or a breach of any statute, for example.
In Levy v Yates (1838), there was at the time a statutory rule that a royal licence was required
to perform a play within 20 miles of London. The parties in the case made a contract for the
performance of a theatrical production within that area, but no royal licence had been
obtained, so the contract was illegal at the time of its formation. However, if a contract is
entered into with the intention of using it to achieve an illegal purpose, but that illegal
purpose is remote from the contract itself, the contract will not be tainted by that illegality
and will still be valid.
In 21st Century Logistic Solutions Ltd v Madysen Ltd (2004), the parties made a contract for
the sale of goods, and the purchaser intended to defraud the Government of VAT. The High
Court held that this intention to defraud the Government was not sufficient to render the
contract itself void for illegality, as this contract was just a standard contract for the sale of
goods. The contract itself was lawful and merely provided the opportunity for the
individual behind the intended fraud to profit from it.
There is, obviously, often a fine line between a purpose that is too remote and one which is
not.
, Illegal due to mode of performance
In some cases, a contract may be perfectly legal when it is made, but may be carried out in
an illegal manner.
This was the case in Anderson Ltd v Daniel (1924), where a statute provided that a seller of
artificial fertiliser had to supply buyers with an invoice detailing certain chemicals used in its
manufacture. The sellers failed to provide the necessary invoice. It was not against the law to
sell artificial fertiliser, but it was against the law to sell it without following the statutory
rules. As a result, the sellers were unable to claim the price when the defendants refused to
pay.
Types of illegality
Illegality can be a breach of
a common law rule,
or of statute.
Breach of common law
The most common examples of contracts held to be illegal due to a breach of common law
are where they involve committing a crime or a tort.
In Everet v Williams (1725).
Two highwaymen had agreed to share the spoils of their crime and when one tried to evade
the agreement, the other sued for his share. Needless to say, he was unsuccessful.
In Les Laboratoires Servier v Apotex Inc (2014), the Supreme Court stated that where a crime
is one of strict liability, and the party doing the illegal act does not know the facts which
make the conduct illegal, the illegality defence will not apply.
As far as contracts involving commission of a tort are concerned, the most important area is
contracts in restraint of trade. These are agreements which contain clauses limiting an
individual’s right to use his or her skills for payment, or to trade freely.
Such contracts fall into four groups:
• Contracts for the sale of a business, where the seller promises not to compete with the
purchaser. This might arise where, for example, Ann buys a shop from Ben, and seeks to
prevent Ben from opening up another similar shop just around the corner, which might
attract the old shop’s potential customers.
• Contracts between businesses by which prices or output are regulated. This category is
now largely governed by legislation (see below).
• Contracts in which an employee agrees that on leaving the company, they will not set up
in business or be employed in such a way as to compete with that employer. This is
common in businesses where personal skills and reputation attract custom, such as
hairdressing or advertising, and a contract will often provide that the employee should not
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