This chapter deals with situations where otherwise valid contracts may be wholly or partly unenforceable because they are deemed to involve ‘illegality’ or are otherwise contrary to public policy (whether or not such agreements also result in criminal liability). The following issues are discussed:
The reasons why ‘illegal’ contracts are potentially wholly or partially unenforceable. ‘Public policy’ is the central issue – but underlying reasons include ‘deterrence’ and maintaining the integrity of the legal process (that is, not allowing it to be used to enforce illegal arrangements).
Categories of ‘illegality’:
Contracts to commit crimes or (intentional) torts. These are usually ‘illegal’.
Contracts contrary to particular professional regulations (for example, Solicitors’ Practice Rules). These may be unenforceable (although, as will be noted, a party may be able to claim for work actually done).
Contracts where performance involves the breach of a statute. The most difficult area is where the act itself is legal, but the manner of performance is not. The purpose of the statute and the knowledge of the parties will be relevant to the issue of enforceability.
Contracts to indemnify a person for breaking the law. This is generally not allowed in relation to criminal liability or intentional torts, but may be permitted in other areas.
Effects of illegality. Two aspects need consideration:
Enforcement. Specific performance generally will not be available, but traditionally a legal right related to an illegal transaction may have been enforceable if the party did not need to rely on the ‘illegality’ to found the claim.
Recovery of money or property. Traditionally the general rule was that recovery was not possible, but it was sometimes allowed where:
the illegal purpose had not been carried out – a party was allowed time for a change of mind in relation to the illegal transaction;
the contract resulted from ‘oppression’;
there was no reliance on the illegal transaction;
the claimant was a member of the class that the statute concerned is intended to protect.
The Supreme Court recently considered this area in Patel v Mirza (2016) and, in effect, reversed the general rule.
Agreements contrary to public policy. In this category traditionally fall:
Contracts related to marriage – for example:
for future separation (pre-nuptial agreements were traditionally caught by this);
imposing a liability if a person marries;
receiving payment for arranging a marriage.
Contracts promoting sexual immorality. There are old cases supporting this category but it may well be largely obsolete in the modern law.
Contracts to oust the jurisdiction of the courts. The parties may agree, for example, that matters of fact may be determined by other processes (for example, arbitration).
Contracts involving a breach of human rights. It is possible that the courts will be prepared to treat contracts that conflict with Human Rights Act obligations as unenforceable on public policy grounds.
391Normal effects of agreements contrary to public policy:
no specific performance;
property transferred can possibly be recovered.
Wagering contracts. These have been unenforceable as a result of statutory controls, but the controls have been removed by the Gambling Act 2005. Wagers will often now be enforceable.