CONTRACTS CONCISE EXAM NOTES:
ILLEGALITY:
Doctrine can be summarised as follows:
Where contract is classified as illegal; void and unenforceable
- Contracts are illegal if they are prohibited by statute or public policy
- Contracts that are inconsistent with statute or policy are not illegal
- An illegal contract will usually be void, depending upon the illegality
Contracts prohibited by public policy – will become illegal and unenforceable where it:
- Involves statutory or common law wrongs
o Mere fact a contract contravenes a statute – may not be sufficient to render the contract
void
o Common law illegality:
Particularly serious where the illegality was a contemplated means of performance
and integral to the essence of the contract
- Impairs the administration of justice or foreign relations
o Agreement will be illegal where it stifles a criminal prosecution or seeks to prevent conduct
from being reported to the police
o In determining if prohibition is triggered:
Courts will consider the objects and implications of the contract
o Agreement that prevents a public authority from performing their duties
- Impermissibly ousts a court’s jurisdiction
- Furthers corruption, immorality, deprivation of liberty or revenue evasion
Holman rule:
Holman v Johnson (1775):
- Lord Mansfield – ‘No court will lend its aid to a man who founds his cause of action upon an immoral
or illegal act’
Criticisms – Nelson v Nelson (McHugh J):
- Suggests there is a greater proliferation of statutes today so the rule is now longer as easily applicable
Exceptions to Holman rule – 4:
1) Ignorance of the illegality may assist party seeking to enforce contract
o Tiu Sum Fat v Shun Sing Development Ltd
2) Where laws were enacted to benefit particular class or people, then designated agents may be able to
enforce contract
o Dewani
, 3) Prescence of fraud, oppression or undue influence by one party against the other will prevent the
defrauding party from relying on doctrine
o Nelson v Nelson
4) Where the illegal purpose has not been achieved, the illegality defence cannot be raised
o Payne v McDonald
Bowmaker’s rule:
Party to legality may recover legal/equitable interest in property is they can establish their claim without
relying on illegality
- Tinsley v Milligan:
o Endorsed Bowmakers rule
o Case – Involved 2 people buying a house; only registered in one name so M could continue to
claim welfare; dispute; Court held co-ownership existed
Public policy prohibition:
Impairment of foreign relations:
- Illegal if it:
o Impairs national security or foreign relations
Eg. Contract for supply og foods in contravention of a trade embargo; Regazzoni v K
C Sethia
Ousting court’s jurisdiction:
- Unenforceable where:
o It purports to oust the jurisdiction of the courts; Brooks v Burns Philp Trustee Co Ltd
- Exception:
o Where there is an agreement to submit a dispute to arbitration
Scott v Avery
Corruption:
- Likely illegal where:
o It places a person in public office in a position that impairs their partiality/instigates a conflict
of interest
Wilkinson v Osborne
- Focal consideration – if the contract interferes with faithful performance of duty
Immorality:
- Historically – concerned with sexual immorality
o Becoming less relevant; reflective of previous standards
Deprivation of liberty and revenue evasion:
- Situations that render contract unenforceable:
o Where it unduly restricts personal freedom
, Horwood v Millar’s Timber and Trading Co Ltd [1917] – Assigned borrower’s present
and future earnings to money-lender and prevented the borrower from changing
employment without consent of money lender
o Where it is designed to deceive a government agency
Alexander v Rayson – Misrepresenting amount of rent payable to deceive council
Penalties:
- Generally regarded as unenforceable not illegal
o AMEV-UDC Finance Ltd v Austin
- To determine if a clause to pay a certain amount constitutes a penalty; the following principles assist:
o Paciocco v Australia and New Zealand Banking Group Ltd (2016)
Page 149; contracts small textbook
Restraint of trade:
- Arises where:
o Party seeks to restrict another’s ability in the future to trade with third parties
Petrofina (Gt Britain) Ltd v Martin [1966]
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973)
Restraint required one party to operate a petrol stations and purchase
stock exclusively from one party for 15 years
o Ruled unenforceable
- Generally:
o Regarded as contrary to public policy and unenforceable rather than illegal
- To avoid unenforceability:
o Restraint must be reasonable in interests of parties; should be for adequate protection only
Contracts prohibited by statute:
An agreement may be unenforceable for statutory illegality where:
- Express prohibition – making/doing of an act essential to contract is expressly prohibited
- Implied prohibition – making of agreement is impliedly prohibited by statute
- Other – contract is associated with or in furtherance of illegal purposes
To determine:
- Statutory construction is applied ; also determines the consequences
o Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd – Gibbs ACJ:
‘Four main ways in which the enforceability of a contract may be affected by a
statutory provision…:
i) The contract may be to do with something that the statute forbids
ii) The contract may be one which the statute expressly or impliedly prohibits
iii) The contract, although lawful on its face, may be made in order to effect a
purpose which the statute renders unlawful
iv) The contract, although lawful according to its own terms, may be
performed in a manner which the statute prohibits
Construction of statute:
- Language, scope and purpose of statute are importance
ILLEGALITY:
Doctrine can be summarised as follows:
Where contract is classified as illegal; void and unenforceable
- Contracts are illegal if they are prohibited by statute or public policy
- Contracts that are inconsistent with statute or policy are not illegal
- An illegal contract will usually be void, depending upon the illegality
Contracts prohibited by public policy – will become illegal and unenforceable where it:
- Involves statutory or common law wrongs
o Mere fact a contract contravenes a statute – may not be sufficient to render the contract
void
o Common law illegality:
Particularly serious where the illegality was a contemplated means of performance
and integral to the essence of the contract
- Impairs the administration of justice or foreign relations
o Agreement will be illegal where it stifles a criminal prosecution or seeks to prevent conduct
from being reported to the police
o In determining if prohibition is triggered:
Courts will consider the objects and implications of the contract
o Agreement that prevents a public authority from performing their duties
- Impermissibly ousts a court’s jurisdiction
- Furthers corruption, immorality, deprivation of liberty or revenue evasion
Holman rule:
Holman v Johnson (1775):
- Lord Mansfield – ‘No court will lend its aid to a man who founds his cause of action upon an immoral
or illegal act’
Criticisms – Nelson v Nelson (McHugh J):
- Suggests there is a greater proliferation of statutes today so the rule is now longer as easily applicable
Exceptions to Holman rule – 4:
1) Ignorance of the illegality may assist party seeking to enforce contract
o Tiu Sum Fat v Shun Sing Development Ltd
2) Where laws were enacted to benefit particular class or people, then designated agents may be able to
enforce contract
o Dewani
, 3) Prescence of fraud, oppression or undue influence by one party against the other will prevent the
defrauding party from relying on doctrine
o Nelson v Nelson
4) Where the illegal purpose has not been achieved, the illegality defence cannot be raised
o Payne v McDonald
Bowmaker’s rule:
Party to legality may recover legal/equitable interest in property is they can establish their claim without
relying on illegality
- Tinsley v Milligan:
o Endorsed Bowmakers rule
o Case – Involved 2 people buying a house; only registered in one name so M could continue to
claim welfare; dispute; Court held co-ownership existed
Public policy prohibition:
Impairment of foreign relations:
- Illegal if it:
o Impairs national security or foreign relations
Eg. Contract for supply og foods in contravention of a trade embargo; Regazzoni v K
C Sethia
Ousting court’s jurisdiction:
- Unenforceable where:
o It purports to oust the jurisdiction of the courts; Brooks v Burns Philp Trustee Co Ltd
- Exception:
o Where there is an agreement to submit a dispute to arbitration
Scott v Avery
Corruption:
- Likely illegal where:
o It places a person in public office in a position that impairs their partiality/instigates a conflict
of interest
Wilkinson v Osborne
- Focal consideration – if the contract interferes with faithful performance of duty
Immorality:
- Historically – concerned with sexual immorality
o Becoming less relevant; reflective of previous standards
Deprivation of liberty and revenue evasion:
- Situations that render contract unenforceable:
o Where it unduly restricts personal freedom
, Horwood v Millar’s Timber and Trading Co Ltd [1917] – Assigned borrower’s present
and future earnings to money-lender and prevented the borrower from changing
employment without consent of money lender
o Where it is designed to deceive a government agency
Alexander v Rayson – Misrepresenting amount of rent payable to deceive council
Penalties:
- Generally regarded as unenforceable not illegal
o AMEV-UDC Finance Ltd v Austin
- To determine if a clause to pay a certain amount constitutes a penalty; the following principles assist:
o Paciocco v Australia and New Zealand Banking Group Ltd (2016)
Page 149; contracts small textbook
Restraint of trade:
- Arises where:
o Party seeks to restrict another’s ability in the future to trade with third parties
Petrofina (Gt Britain) Ltd v Martin [1966]
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973)
Restraint required one party to operate a petrol stations and purchase
stock exclusively from one party for 15 years
o Ruled unenforceable
- Generally:
o Regarded as contrary to public policy and unenforceable rather than illegal
- To avoid unenforceability:
o Restraint must be reasonable in interests of parties; should be for adequate protection only
Contracts prohibited by statute:
An agreement may be unenforceable for statutory illegality where:
- Express prohibition – making/doing of an act essential to contract is expressly prohibited
- Implied prohibition – making of agreement is impliedly prohibited by statute
- Other – contract is associated with or in furtherance of illegal purposes
To determine:
- Statutory construction is applied ; also determines the consequences
o Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd – Gibbs ACJ:
‘Four main ways in which the enforceability of a contract may be affected by a
statutory provision…:
i) The contract may be to do with something that the statute forbids
ii) The contract may be one which the statute expressly or impliedly prohibits
iii) The contract, although lawful on its face, may be made in order to effect a
purpose which the statute renders unlawful
iv) The contract, although lawful according to its own terms, may be
performed in a manner which the statute prohibits
Construction of statute:
- Language, scope and purpose of statute are importance
