Illegal Contracts
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Some contracts are not enforced because they involve the commission of an illegal act or because they are to be undertaken in an illegal manner. Agreements to a commit a crime or civil wrong are void.
An agreement to undertake a crime or indeed certain civil wrongs, constitutes the criminal offence of conspiracy. The courts will not enforce a contract that involves the performance of which requires an unlawful act, even if this is not apparent from the terms of the contract. Persons are not to be allowed to benefit from the own wrongdoing.
There are also certain types of contracts which the courts will not enforce on public policy grounds, notwithstanding that they do not involve illegality in the sense of being criminal or a breach of civil obligations. What might offend public policy may change over time.
Contracts undermining Legal System
Contracts prejudicial to the administration of justice are not enforced. It is not unlawful to compromise a prosecution. The public interest in punishing crime requires that private parties may not settle criminal cases. It is an offence to conceal an arrestable offence. An arrestable offence is any crime or offences, which is potentially subject to imprisonment of five years or more.
Contracts which encourage speculative litigation are not enforceable. Maintenance is improperly facilitating and encouraging litigation by giving aid to one party to bring or defend a claim without a legitimate interest. The interest must be independent of that other person. Maintenance is itself unlawful and agreements giving effect to it are not enforceable.
Champerty is also unlawful. It is where a person, other than the litigant. stands to gain from litigation. Agreements, including contingency legal fees, fee sharing, assigning a right to litigate may be void under this principle. A contingency fee is where a lawyer agrees to make payment of his fees conditional on the basis of success of the litigation. There are limitations that rule. A lawyer may conduct litigation on the basis that he will be paid his usual fee if he wins, but not if it looses.
It is possible to assign certain claims, which are enforce by a legal claim. These are so called “choses in action”. See our chapter on intangible property. An assignee of a legal right must have a genuine commercial interest in enforcing litigation for its own benefit.
Agreements Defrauding Revenue
An agreement to defraud the Revenue Commissioners is void. Where, for example parties agree to sell at a particular price, but declare a lower price to reduce tax liability, the courts may refuse to enforce the contract.
Where parties engage in tax evasion, the court may not enforce their claims. They may take the view that the entire arrangement is tainted with illegality. Where an employer and employee underdeclare income to evade tax liability, the courts may refuse to hear an employment dispute.
The Employment Appeals Tribunal refused to enforce unfair dismissal claims by employees, where there was a knowing evasion of tax in the salary arrangements. The Unfair Dismissal legislation was changed so as not to deny an employee redress for unfair dismissal in these circumstances. There relevant Revenue Comissioners, must, however, be informed.
Where the claim is not linked to the illegality and the claimant has not actively participated and acquiesced in it, then the court may take the view that the agreement is not wholly tainted with illegality.
Contracts Against Public Policy
Contracts tending to undermine morality were invalid at common law. Contracts in consideration of sexual favours or an agreement for sexual services is unenforceable. A conact to procure the employment of a prostitute is unenforceable.
Contracts, contrary to the interest of the state are not enforceable . Trading with the enemy in a time of war is illegal. Contrast that jeopardise the international relationship of the state will be unenforceable. There is a modern EU based provision for the enforcement of sanction against state which are subject to sanctions or equivalent provisions.
Contracts to remove or “oust” the jurisdiction of the courts are void as against public policy as it would remove the right to enforce the contract. Arbitration contracts are an exception to this principle. A valid arbitration clause may be a precondition to the right to take legal action. The arbitration legislation permits parties to apply to court to restrain legal proceedings, where there is a valid arbitration agreement in place.
Contracts to subvert marriage are void. Contracts by which parties make a profit from marriage may be void. Marriage brokerage contracts are generally void. Contracts restraining a person from getting married are generally void. This raises questions in the context of prenuptial agreements. They were formerly viewed as likely to end jeopardise marriage. However, this is less likely nowadays.
Cohabitation agreements, were once contrary to public policy as they subverted marriage However, agreements regulating co habitation are likely to be enforced, given cultural and legislative changes. Contracts to marry were formerly legally enforceable, but this was by statute in 1981.
Void by Regulatory Legislation
A wide variety of legislation, particularly regulatory legislation renders void certain contract. In many cases, the prohibition will be clear. In other cases, the conduct may be legal, but be subject to regulation. It will be a matter of interpretation whether the legislation requires that contracts involving a breach of statute, will be rendered void. The extent of the breach and the nature of the contract will be relevant.
If a business requires to be licensed, and the court interprets that such licensing is for the protection of the public, the unlicensed operator may not be able to enforce a contract for the provision of the relevant service. On other hand if the operator is licensed, but there is a breach of licensing conditions, e.g. loading, vehicle weight for a licensed haulier, is unlikely to mean that a contract to carry the goods is invalid. It is ultimately a matter of interpretation of the reason and purpose of the legislation
Enforcement
The basic rule is that the courts will not enforce an illegal contract or a contract affected or “tainted” by illegality. Damages, injunction and orders for performance will not be granted. Restitution will not be available.
Where both parties equally at fault, the status quo remains. A person in possession of an asset or money is left with them. The loss or benefit lies where it falls.
Unlawful Means of Performance
There is a difference between contracts that are inherently unlawful and lawful contracts which one party intends to perform unlawfully. A contract, which is itself unlawful, cannot be enforced.
Where one person intends to perform a contract unlawfully which is capable of being performed lawfully, it is still likely to be enforceable at the behest of the person does not intend or know about the unlawful performance. The other party may not be able to enforce the contract.
Where a contract relates to a lawful matter, which is intended to be performed illegally, the court may refuse to enforce. Even if one party does not raise the issue of illegality, the court may not enforce the claim, if it becomes aware of the illegality in the manner of performance.
Restitution
If the parties are not equally at fault, the more innocent party may be entitled to restitution of monies paid. Where the legislation is designed to protect a particular party to the contract is rather than the other, the innocent party may be entitled to enforce the contract or to restitution
Where a contract is illegal, but one party has been forced to enter it by fraud pressure on undue influence, he maybe entitled to restitution. Where property has passed cover goods have passed and the underlying contract is invalid and it may be possible to recover then based n property rights .n this case the loss will not lie where it falls
If the contract is illegal transaction is illegal, but one party repents before being performed he may be able to recover property transferred This policy encourages persons to withdraw from unlawful arrangement before it is implemented that the view repentance must be times.. It will be too late, once a substantial part of the agreement has already been implemented.
Where part of the agreement is void and of no effect, the question arises as to whether the entire agreement is affected or whether the part only is void so that the rest may stand. This is the principle of severance.
If the illegal purpose is the main consideration, severance would not be possible. Severance will not be possible if conditions are not independent.
Modern Approach
In Quinn v IBRC, the Supreme Court, following the broad approach of the UK courts, modernised and restated the law on the effect of illegality on the validity of a contract. Fundamentally, whether a contract, illegal by statute, is void or voidable depends on the public policy purpose of the statute
The Court held that proper approach which provides the greatest level of certainty involves consideration of the public policy purpose of the statute. This determines whether any contract which contravenes the statute must be held to be void or voidable. The proper approach is specific to the statute, not the case.
The Supreme Court Test
Clarke J writing for a unanimous Court (here) set out the issues to be considered:
1. Whether the relevant legislation expressly states that contracts of a particular class or type are to be treated as void or unenforceable.
2. Where, however, the relevant legislation is silent … the court must consider whether the requirements of public policy … and the policy of the legislation concerned, … gleaned from its terms, … require that, in addition to whatever express consequences are provided for in the relevant legislation, an additional sanction or consequence in the form of treating relevant contracts as being void or unenforceable must be imposed.
3. In assessing the criteria … the court should assess at least the following matters: –
3(a) Whether the contract in question is designed to carry out the very act which the relevant legislation is designed to prevent
3(b) Whether the wording of the statute itself might be taken to strongly imply that the remedies or consequences specified in the statute are sufficient to meet the statutory end.
3(c) Whether the policy of the legislation is designed to apply equally or substantially to both parties to a relevant contract or whether that policy is exclusively or principally directed towards one party. Therefore, legislation which is designed to impose burdens on one category of persons for the purposes of protecting another category may be considered differently from legislation which is designed to place a burden of compliance with an appropriate regulatory regime on both participants.
3(d) Whether the imposition of voidness or unenforceability may be counterproductive to the statutory aim as found in the statute itself.
4. The aforementioned criteria or factors are, for reasons which will become apparent, sufficient to resolve this case. However, the following further factors may well be properly taken into account in an appropriate case:-
4(a) Whether, having regard to the purpose of the statute, the range of adverse consequences for which express provision is made might be considered, in the absence of treating relevant contracts as unenforceable, to be adequate to secure those purposes.
(b) Whether the imposition of voidness or unenforceability may be disproportionate to the seriousness of the unlawful conduct in question in the context of the relevant statutory regime in general.
5. Doubtless other factors will come to be defined as the jurisprudence develops.