Contract - Illegality of contracts - Lecture 20A Key Themes Link between illegality and public policy 2 rationales for unenforceability of illegality contracts · Deterrence · Integrity of contract Yet there is a need to ensure justice is done to avoid confusion or lead to conflict General approach of Courts . Tinsley v Milligan (1994) . Leading case on general approach: Patel v Mirza (2016) Patel v Mirza (2016) · Agreement to engage in 'insider trading' Two broad policy factors . A person should not profit from his illegal conduct . The law should be coherent, not self-defeating Lord Toulson set out three factors to consider: · Underlying reasons for the prohibition . Other public policies affected by the claim . Need for proportionality Flexible approach Lord Toulson: "I would say that one cannot judge whether allowing a claim which is in some way tainted by illegality would be contrary to the public interest, because it would be harmful to the integrity of the legal system, without (a) considering the underlying purpose of the prohibition which has been transgressed, (b) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and (c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality. We are, after all, in the area of public policy." (at 1010) Categories of Illegal Contracts - There are four main categories of illegal contract 1. Contracts Illegal by Statute Express prohibition - E.g .: Consumer Credit Act 1974
- Express statutory provisions probably preclude Lord Toulson's approach - Re Mahumoud and Ispahani (1921) - Mohamed v Alaga & Co (1990) - which is consistent with Toulsen's approach Implied prohibition - Also, likely to exclude Lord Toulson's balancing approach - St John Shipping Corp v Joseph Rank Ltd (1921) - Archbolds (freightage) Ltd v Spanglett (1961) Contracts performed in an illegal manner Making illegal contracts - Cope v Rowlands (1836) Lawful contracts illegally performed - Anderson v Daniel (1924) - Shaw v Groom (1970) - St John Shipping Corp v Joseph Rank Ltd (1956) - 'purpose of statute' - Hughes v Assent Managers plc (1995) - 'intent of parliament' - Archbold's (freitage) Ltd v S Spanglett (1961) - 'knowledge of innocent party' 2. Contracts illegal under common law - Eg contract for a hitman or to commit a bank robbery and share proceeds - Criminal Law Act 1977, s. 1 - conspiracy - All 'criminal' contracts are unenforceable and Lord Toulson's balancing approach unlikely to apply ... - Bigos v Bousted (1951) - exchange control_ - Beresford v Royal Insurance (1937) - insurance for suicide - Tinline v Whitecross Insurance (1921) - driving offence - Also includes contract to commit a tort (eg to defraud a person) - Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd (1957) 3. Contracts contrary to Public Purposes - This is a wide category of contracts. - Public Policy is a fluid concept