CQUniversity
Division of Higher Education
School of Business and Law
LAWS11062
Contract Law B
Topic 5 Illegality
Term 2, 2014
Anthony Marinac
© CQUniversity 2014
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Table of Contents
1.0 Introduction ...................................................................................... 3
1.1 Objectives ......................................................................................... 4
1.2 Prescribed Reading .......................................................................... 5
1.3 Key Terms ........................................................................................ 6
2.0 Contracts opposed by Common Law ................................................ 6
2.1 Contracts illegal at common law on the grounds of public policy ... 7
2.2 Review questions ........................................................................... 14
2.3 Contracts void at common law ...................................................... 16
2.4 Review questions ........................................................................... 21
3.0 Contracts Prohibited by Statute ...................................................... 22
3.1 Express Statutory Prohibition ....................................................... 22
3.2 Implied Statutory Prohibition .......................................................24
3.3 Review questions ...........................................................................26
4.0 Consequences for Illegal and Void Contracts ................................. 27
5.0 Review ............................................................................................ 28
6.0 Tutorial Problems ...........................................................................29
7.0 Debrief............................................................................................ 30
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Topic 5: Illegality
1.0 Introduction
Right back at the very start of Contracts A, I introduced you to
the concept of classical contract theory. The idea of classical
contract theory was that any two parties could create a private
law which would be binding upon themselves; a further concept
underpinning this theory was the idea of freedom of contract;
that parties should be free to make those binding private laws
in just about whatever fashion they wish.
But how far should we push this? Ultimately, don’t you feel that
the law of the land ought to dominate over the private laws of
contract? To take the most obvious example, how would you
feel about two parties forming a contract where Party A pays
Party B a sum of money to rape or murder a third party?
This week, we look at those circumstances in which the law
(both statute and common law) either prohibits contracts
altogether, or simply makes them unenforceable. In cases of the
first type, you might potentially be punished simply for
engaging in the contract; in cases of the second type, the law
will simply not assist parties who are engaged in activities
contrary to the law itself.
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1.1 Objectives
After studying Topic 5 you should be able to demonstrate
knowledge of:
 The key reasons contracts are forbidden by the common
law:
o Contracts to commit a crime, a tort or a fraud;
o Contracts to promote sexual immorality;
o Contracts prejudicial to the administration of justice;
o Contracts promoting corruption in public life;
o Contracts prejudicial to national interests;
 The range of contracts not forbidden by the common law,
but which the common law will refuse to enforce;
 Contracts ousting the jurisdiction of the courts;
 Contracts prejudicial to the status of marriage;
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 Contracts for the restraint of trade;
 The ways in which statutes may affect the enforceability of
contracts, either by an express or an implied prohibition;
and
 The circumstances in which a party to an illegal or
unenforceable contract might nevertheless be able to
obtain relief.
1.2 Prescribed Reading
 Lindy Willmott, Sharon Christensen, Des Butler and Bill
Dixon, Contract Law (Australia Oxford University Press,
4th ed, 2013) Ch. 18;
 Ashton v Pratt (No.2) [2012] NSWSC 3
 Attwood v Lamont [1920] 3 KB 571
 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd
(2006) 229 CLR 386
 Cope v Rowlands (1836) 2 M & W 149
 Dobbs v National Bank of Australia Ltd (1935) 53 CLR
643
 Everet v Williams (1725), unrep. Exch, 30 October 1725
 Hirsch v Zinc Corporation Ltd (1917) 24 CLR 34
 Nelson v Nelson (1995) 184 CLR 538
 Nordenfelt v Maxim Nordenfelt Guns and Ammunition
Co Ltd [1894] AC 535
 Parkinson v College of Ambulance Ltd [1925] 2 KB 1
 Pearce v Brooks (1866) LR 1 Exch 213
 Pham v Doan (2005) 63 NSWLR
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 Public Service Employees Credit Union Co-operative
Limited v Campion (1984) 56 ACTR 39
 Re Mahmoud and Ispahani [1921] 2 KB 716
 Scott v Scott (1904) 25 ALT 174
 Yango Pastoral Co v First Chicago Australia Ltd (1978)
139 CLR 410
1.3 Key Terms
Administration of justice: A general term to describe the
broad range of activities required in order to operate a justice
system – may encompass everything from policing functions
through to court processes, and the operation of prisons.
Champerty: A tort where an external party funds legal
proceedings on the understanding that they will then obtain
some benefit (usually a financial benefit) from the winnings at
the end.
Maintenance: A tort involving the payment by one person of
the legal fees of another person, where they have no real
interest in supporting the legal action.
Meretricious: Based upon pretence, deception, or insincerity;
particularly applied to prostitutes, given their role of
undertaking relationships on a meretricious basis.
Restraint of trade: A contract which limits the freedom of
one party to undertake specific trading or commercial activities
within a specific market (usually defined geographically).
2.0 Contracts opposed by Common Law
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Over the centuries, the common law has identified a range of
types of contracts which it will not enforce because those
contracts are contrary to public policy (i.e. they are contrary to
the court’s understanding of the common good). As we will see
below, these categories are not closed (and it may even be
unhelpful to see them as categories at all) but they do provide a
mechanism to understand the types of contracts which the
court will not enforce.
2.1 Contracts illegal at common law on the grounds
of public policy
Where contracts are illegal, the very existence of the contract is
contrary to the law. If the contract is merely void, the law will
tolerate its existence but will not assist either party to enforce
the contract. In these illegal cases, the very contract is
considered to be unlawful. Let’s look at a range of these:
2.1.1 Contracts to commit a crime, a tort or a fraud
OK, we’ve all watched The Sopranos, right? Or Mr & Mrs
Smith? I suspect your life must have been sadly lacking in
entertainment if you had never come across the concept of a
contract killing. And yet the idea of one of the parties to such a
contract suing in the event that something went wrong seems
patently ludicrous!
And yet that is just what happened in a case known to history as
The Highwayman’s Case, or more properly Everet v Williams.
This was a case filed in Chancery (that is, the court of equity) in
1725. At that time, not all judgments were recorded in writing,
and sadly this was not one which made the grade. However
contemporary news circulars recorded the case and knowledge
about it has been passed down. In essence, Everet and Williams
were robbers who had a joint enterprise to rob travellers, sell
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the goods onwards and split the proceeds evenly. For quite a
time this joint enterprise went well. The men eluded capture
and plundered quite handsomely, until Everet began to feel that
he was not getting his fair share of the loot.
So what do you think you did? He sued in equity! Naturally he
did not openly say that he was a highwayman; he tried to style
himself as skilled in secondhand goods. The courts saw
through it all immediately, and not only did the court refuse to
enforce the contract, but both highwayman were immediately
arrested. They were both later hanged.
Wikimedia commons
In all seriousness, it is not too likely that too many highwaymen
will be suing in the 21st century. However, less ludicrous forms
of the legal agreement do still take place. For instance, it does
not seem all that unlikely that a truck driver might come under
pressure from a trucking company, in the course of executing
his or her employment contract, to carry an overweight load, to
drive too fast, or to avoid work-rest requirements. Neither does
it seem at all unlikely that business partners might jointly
conspire in a contract with the effect of avoiding taxation. Even
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within my own experience, long ago as an undergraduate it was
made clear to me that in my part-time employment as a pizza
delivery driver I would be expected to exceed the speed limit in
order to get those yummy, yummy pizzas to hungry parties on
time.
2.1.2 Contracts to promote sexual immorality
Until quite recently, one might have been forgiven for thinking
that the rule prohibiting contracts which promote sexual
immorality was simply an anachronistic thing of the past. The
classic case is Pearce v Brooks (1866) LR 1 Exch 213, in which a
carriage was let to a prostitute in the knowledge that she would
use the carriage in pursuit of her business. The court found that
the owner of the carriage could not sue for outstanding hiring
costs. The rationale for this rule, of course, was that the court
did not wish to assist conduct which was seen as sexually
immoral. It is also matter of notoriety that during the 20th
century sexuality underwent a transformation. In the age of 50
Shades of Grey, is it really still possible to say that there is such
a widespread concept of sexual immorality that the law should
intervene? Until 2012, I would have said no.
However in 2012, along came the famous case of Ashton v Pratt
(No.2) [2012] NSWSC 3. Some of you may remember this case
from the time, as it caused something of a media stir. Ms
Ashton was a prostitute and brothel madam who alleges that
she received a promise from Mr Pratt, a billionaire, that if she
left the sex industry and made herself available as his mistress
whenever and wherever he wished, he would install her in
luxurious accommodation, pay her a very generous annual
allowance, and establish seven-digit trust funds for any
children. Ms Ashton states that she left the sex industry on this
basis.
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Mr Pratt then died, and as you can imagine his wife was less
than enthusiastic about continuing to support Ms Ashton. Ms
Ashton sued to enforce the agreement. The Judge
acknowledged that there had been a substantial change in
sexual morality, but found that the particular type of
relationship enjoyed by Mr Pratt and Ms Ashton was still
contrary to public morality, because the sex was entirely
meretricious – that is, unlike other circumstances where clients
are said to fall in love with a prostitute, there was no pretence in
this case of any affectionate relationship between the two; the
relationship was rather an ongoing sexual transaction. His
Honour said:
The arrangements between Ms Ashton and Mr Pratt involved none
of the saving graces which enabled a different result to be reached
in the cases to which I have referred. Those arrangements were not
made to facilitate continuation of an existing cohabitation, but to
establish the "mistress relationship". The evidence does not reveal
a relationship, or consideration, beyond "meretricious sexual
services". In my view, on the current state of the authorities, the
arrangements were contrary to public policy and illegal in the
relevant sense. Had they otherwise constituted a contract, it would
have been void as contrary to public policy.
This is still quite difficult to understand. Ashton was a lawful,
registered prostitute, and Pratt was an experienced
businessman. As there was no emotional relationship, the
question of undue influence does not seem to arise. Under
those circumstances, it is difficult to see why two free and selfdetermining adults should not make a contract, even an
extremely generous one, for meretricious sex.
However it probably still makes sense to regard this case is
being an exception, rather than the rule. In these days, it would
be quite difficult to assert that there is a common public
morality, let alone describing its actual content. So, while it
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remains the case that contracts promoting sexual immorality
are unlawful, sexual morality is now such that these contracts
will be few and far between.
2.1.3 Contracts prejudicial to the administration of
justice
Prejudice to the administration of justice by, for instance,
preventing a witness from giving evidence in court, is already a
serious criminal offence, so contracts for these purposes would
be made unlawful on that basis. There are, however, three
additional circumstances in which a contract might interfere
with the administration of justice.
First, a person with knowledge of a crime might be “bought off”
to prevent them from reporting the crime to the appropriate
authorities. This was essentially what happened in Public
Service Employees Credit Union Co-operative Limited v
Campion (1984) 56 ACTR 39), where Campion offered a
financial benefit to the Credit Union if the Credit Union did not
report his son for misappropriating money.
Second, the law has long forbidden what is known as
“maintenance”, which is the payment by one person of the legal
fees of another person, where they have no real interest in
supporting the legal action. So, for instance, it would not be
maintenance for a father to pay his daughter’s legal bills, but it
would be maintenance for a complete stranger to do so (for
instance, in order to keep the other side under the pressure of
an impending legal dispute). Maintenance is now regarded as
something of an “antique” tort, although it does come up from
time to time.
Finally, the law forbids what is known as champerty, which is
where an external party funds legal proceedings on the
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understanding that they will then obtain some benefit (usually a
financial benefit) from the winnings at the end. Champerty was
also long considered to be an antique tort, but it has enjoyed
something of a resurgence in recent years. Consider, for
instance, Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd
(2006) 229 CLR 386, which considered the position of a firm
whose sole real business was to encourage tobacco retailers to
participate in a class action for the recovery of overpaid taxes.
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2.1.4 Contracts which promote corruption in public life.
The classic case here is Parkinson v College of Ambulance Ltd
[1925] 2 KB 1, in which Parkinson made a substantial donation
to the college on the understanding that he would receive a
knighthood in return. The donation was duly accepted, but no
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knighthood was forthcoming. Parkinson was quite nonplussed
at this, and decided that his best course of action was to sue for
a refund of his donation. He was unsuccessful, primarily
because the contract was held to the unlawful: had the court
enforced such a contract, it would have been tantamount to a
situation in which public positions could be bought and sold.
For example with a more Australian flavour, consider the
famous “Kirribilli Agreement” made in 1988 by then Prime
Minister Bob Hawke and Treasurer Paul Keating. The effect of
the agreement was that if Mr Hawke won the 1990 general
election, he would step down during that term and allow Mr
Keating to take the Prime Ministership. In return, Keating
would not mount a leadership challenge in the meanwhile.
After the 1990 election was won, Hawke showed no inclination
to step down. He was eventually overthrown by Keating in late
1991. Had Keating chosen to try to enforce the Kirribilli
Agreement, it would have been unenforceable due to its
tendency to promote corruption in public life (by potentially
allowing a Prime Minister to remain in his position even if he
genuinely lacked the support of the parliament).
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14337129
Parkinson was most upset when he didn’t get his knighthood … he had bought a
sword and everything!
2.1.5 Contracts prejudicial to national interests
Contracts which are prejudicial to Australia’s national interests
may not be enforced by Australian courts. The most obvious
example of such contracts might be contracts dealing with an
enemy in time of war. An example here is Hirsch v Zinc
Corporation Ltd (1917) 24 CLR 34, in which the High Court was
called upon to unravel the mess created by an ongoing contract
to sell zinc and silver to a German, resident in Germany (which
was then of course an enemy nation). The question before the
court was whether Hirsch was liable to pay for the zinc received
before the outbreak of the war, or whether the entire contract
was now void. There was no question, however, that the
contract ceased in its effect once the war commenced.
2.2 Review questions
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Question 1
Which of the following principles of sexual morality has been
upheld by an Australian court in recent years, as the basis for
forbidding a contract?
a) that adults should remain chaste until they are married or
in a de facto relationship;
b) that adults who are in a relationship should only engage in
sexual conduct with their partner;
c) that an ongoing sexual relationship should not be based
upon money alone; and
d) that couples should clarify their sexual health status before
engaging in unprotected sex.
Answer: (c)
Question 2
Which of the following contracts would not be excluded by the
common law?
a) A contract for the sale of stolen goods, where both parties
knew the goods were stolen;
b) A contract between Party A and Party B whereby Party A
was to blackmail Party C in return for a share of the
proceeds of Party C’s recent lottery win;
c) A contract to import forbidden sports supplements into
Australia;
d) A contract intended to create a tax-effective loss for one of
the parties to the contract.
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Answer: (d)
Question 3
Which of the following would not be considered prejudicial to
the administration of justice?
a) A contract whereby a witness agreed not to report a crime
or come forward with information, in return for a cash
payment;
b) A contract whereby a party agreed to pay the expenses
incurred by a witness in attending court;
c) A contract whereby a banker undertakes to pay the legal
expenses of a person, in return for a 40% share of any
damages;
d) A contract whereby a person funds litigation against his
worst enemy, with the intention of running up that
enemy’s costs.
Answer: (b)
2.3 Contracts void at common law
Next we move to contracts which are not forbidden outright by
the common law, but which the common law holds to be void
and will not enforce. Again, there are a range of these.
2.3.1 Contracts which oust the jurisdiction of the courts
The whole point of a contract is that it should be able to be
enforced within the courts. Consequently, a provision in a
contract which prevents one party or both parties from taking
court action will be void. “It is not possible for a contract to
create rights and at the same time to deny the other party in
whom they invest the right to invoke the jurisdiction of the
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courts to enforce them” (Dobbs v National Bank of Australia
Ltd (1935) 53 CLR 643).
Having said this, there is no problem with a contract containing
a mechanism to resolve disputes between the contracting
parties, or a provision requiring a party to undertake certain
actions prior to commencing court action. However if a contract
purports to prevent a party from being able to go to the court
altogether, the provision will be invalid.
What about honour clauses then? Don’t they seek to oust the
jurisdiction of the courts? Well, in a sense they do, but they do
so by making the agreement nonjusticiable: an honour clause
says “this agreement is not a contract” whereas an ouster clause
says “this agreement is a contract but you cannot sue anyway”.
2.3.2 Contracts prejudicial to the status of marriage
Here is another moral provision which sounds positively
antique. A range of types of contracts have been voided under
this rule, including agreements not to live together after
marrying (Scott v Scott (1904) 25 ALT 174), agreements by a
married party to marry another party, agreements by an
unmarried party not to marry at all, or only to marry a
particular person (without there being an engagement, or a
similar agreement by the other person), and even separation
agreements, which were considered to be avoided because of
their effect on the sanctity of marriage prior to their
endorsement in family law legislation. Finally, and perhaps
most interestingly, the role of a marriage broker is void under
these laws. A person whose role is to seek out and arrange
marriages will potentially be unable to sue for their fee.
Personally, my view is that if there is a test case on this issue
from this point forward, this rule may not hold up to modern
scrutiny.
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2.3.3 Contracts for restraint of trade
A contract for the restraint of trade is a contract in which one
party agrees not to compete in the same marketplace with
another party. Such an agreement represents, in economic
terms, a market failure and may lead to an abuse of market
power, to the detriment of the public and the economy as a
whole.
However, contracts for the restraint of trade are not
automatically a bad thing. Under some circumstances, they
may be an appropriate action by a party to protect its legitimate
interests, as opposed to simply seizing market power. If you
think about it, even something like copyright law is really a
restraint on trade, but it is regarded as quite legitimate.
So, how do we tell the difference?
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In essence, the court looks to two factors. First, it considers
whether the restraint on trade is fair as between the parties to
the contract. In other words, is the restraint just an unfair
effect of one party having superior bargaining power? Second,
it considers whether the restraint on trade is in the interests of
the public.
Generally speaking, a restraint of trade clause is likely to be
valid in one of two circumstances. First, where a business is
sold, the seller of the business might be restrained from
opening another competing business close by (and therefore
attracting away all of the good-will and custom which the
purchased business might otherwise have expected). However,
even in such circumstances, the restraint will need to be
reasonable. In Nordenfelt v Maxim Nordenfelt Guns and
Ammunition Co Ltd [1894] AC 535, Nordenfelt sold his
weapons and ammunition business to Maxim, and as part of the
deal agreed not to manufacture guns or ammunition anywhere
in the world for 25 years, and would not compete with Maxim
“in any way”.
The court found that the restraint of trade, in itself, was no
problem. The sale price had fairly reflected this loss of liberty
on Nordenfelt’s part. However the court found that a promise
not to compete “in any way” was too broad, and refused to
enforce that part of the contract. The court was still able to
sever that part of the contract, and enforce the rest.
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For those who are interested, the colour tips indicate the type of bullet: purple for
incendiary, and red/orange for two different types of tracer rounds. Regardless of
the colour, one of these will ruin your whole afternoon 
The second circumstance in which restraint of trade might well
be valid is where an employee is restrained from leaving their
employer, and setting up business in direct competition with
that employer (and therefore competing with the same clients
they had come to establish a reputation with while employed by
the employer). Again, the key question is likely to be whether
the restraint in trade is unfair. In the case Attwood v Lamont
[1920] 3 KB 571, Lamont was employed in the tailoring
department of a general outfitters. When he commenced, he
signed a restraint of trade clause under which he promised not
to undertake a wide range of activities (tailor, dressmaker,
general draper, milliner, hatter, haberdasher, gentlemen's,
ladies', or children's outfitter) within ten miles of the employer.
He later did so, but the court determined that the restraint of
trade clause was unreasonably broad, so it refused to enforce it.
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2.4 Review questions
Question 4
Which of the following would be void at common law?
a) A contract requiring parties, in the event of a dispute, to
engage in mediation prior to the commencement of any
litigation;
b) A contract requiring the parties to commence any legal
action in Victoria, under Victorian law;
c) A contract whereby the parties agree that neither party is
entitled to sue the other;
d) An agreement whereby the parties agree that neither party
is entitled to sue the other, because the agreement is
subject to an honour clause.
Answer: (c)
Question 5
Which of the following are considerations the court will take
into account where restraint of trade is alleged?
a) Whether a reasonable person would consider the clause to
be a restraint of trade;
b) Whether the restraint is in the public interest;
c) Whether the restraint is subject to licencing regimes;
d) Whether the restraint is fair as between the parties.
Answer: (b) & (d)
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3.0 Contracts Prohibited by Statute
By now you are no doubt well and truly aware that from a legal
perspective, we live in a statutory world. While contract law,
more than most other areas of law, still relies on caselaw,
contract has not been immune from the progressive
predominance of statute law. Many statutes (by far too many to
list separately here) either prohibit or restrict specific activities
which might be done under a contract.
In general, statute is likely to make a contract void in one of
four ways. These were outlined in Yango Pastoral Co v First
Chicago Australia Ltd (1978) 139 CLR 410:
1. The contract may be to do something which the statute
forbids;
2. The contract may be one which the statute expressly or
impliedly prohibits;
3. The contract, although lawful on its face may be in order
to effect a purpose which the statute renders unlawful;
4. The contract, although lawful according to its own terms,
may be performed in a manner which the statute
prohibits.
3.1 Express Statutory Prohibition
Perhaps the most important one to look out for is express
statutory prohibition. In these circumstances, the statute
effectively says ‘these contracts are illegal and may not be
formed’. This usually involves words such as ‘shall not sell’,
‘shall not engage’ or ‘shall not deal’. If contracting parties make
a contract to do something with the law says they must not,
then obviously the law will not enforce the contract; and in
addition, the contracting parties may be committing an offence.
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For example, in Re Mahmoud and Ispahani [1921] 2 KB 716, an
order made under the Defence of the Realm Regulations (UK)
provided: “a person shall not…buy or sell or otherwise deal in
…[linseed oil]...except under licence. The plaintiff, who had a
seller’s licence, contracted to sell a quantity of linseed oil to the
defendant in the mistaken belief that he had a buyer’s licence.
The defendant later refused to accept delivery and the plaintiff
sued him for damages for breach of contract.
The plaintiff’s action failed. The order clearly prohibited the
sale of linseed oil to an unlicensed purchaser and therefore
expressly prohibited the contract in question.
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More recently in New South Wales, in the case Pham v Doan
(2005) 63 NSWLR, a pharmacist formed a business partnership
contract with his brother-in-law. The problem was that the
brother-in-law was not a pharmacist, and was therefore unable
to be participating in this highly regulated industry. The
partnership agreement was therefore illegal and void.
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3.2 Implied Statutory Prohibition
Implied statutory prohibition occurs when the statute does not
expressly prohibit the contract itself, but it does prohibit certain
conduct which comes within the contract. In such
circumstances, it will usually be found that the parliament’s
intention was not just to prohibit the conduct, but was also to
prohibit any contract to undertake the conduct. In such cases,
the contract is impliedly prohibited and will not be enforced.
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This is very similar to the common law rule that a contract can
be void for illegality.
In Cope v Rowlands (1836) 2 M & W 149, a UK statute
provided that brokers in the city of London had to be licenced
or forfeit a fine of 25 pounds. The plaintiff, an unlicensed
broker, performed work for the defendant and sued for his
unpaid fee. The defendant argued that the contract was illegal
and unenforceable because of the statute which really intended
to prevent unlicensed broking contracts, and therefore
impliedly made the contract illegal. It was held that the
legislation was aimed at protecting the public by ensuring that
only those who had passed through the licencing process could
act as financial intermediaries. Consequently, broking contracts
negotiated by unlicensed persons were impliedly prohibited
and the fee was not recoverable.
www.nyse.com
However, sadly this principle is not as simple as it might seem.
Under some circumstances, particularly when voiding the
contract may have negative consequences for an innocent party,
and whether statute simply provides a penalty for certain
prohibited conduct, the court may choose to enforce the
contract but also to enforce the penalty. This occurred in Yango
Pastoral Co v First Chicago Australia Ltd (1978) 139 CLR 410,
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where penalty was applied but the underlying mortgage
contract was still held to be valid.
3.3 Review questions
Question 6
Which of the following is not one of the ways in which a statute
may make a contract void?
a) If the contract is to do something which the statute
forbids;
b) If the contract is to do something lawful, in an unlawful
way;
c) If the contract is to do something the statute forbids by
implication;
d) If the contract is to do something which the statute
regulates.
Answer: (d)
Question 7
If a statute states that certain building activities require the
payment of a stamp duty, which of the following is true?
a) A contract to undertake the building without paying the
stamp duty will be incomplete;
b) A contract to undertake the building without paying the
stamp duty will be expressly prohibited;
c) A contract to undertake the building without paying the
stamp duty will be impliedly prohibited;
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d) A contract to undertake the building without paying the
stamp duty would be void on the grounds of public policy.
Answer: (c)
4.0 Consequences for Illegal and Void
Contracts
As a general rule, the consequences for illegal and void
contracts are fairly easy to understand. Simply put, they are
completely void and neither party will be able to recover any
money they have paid or any losses they have suffered through
their involvement with the contract. However this rule is not
absolute. There are four circumstances in which they party may
be able to recover some form of relief. As you will see, all these
circumstances operate where the party seeking a remedy was in
some way innocent, or at least less culpable in relation to the
illegality of the contract. The circumstances were set out in
Nelson v Nelson (1995) 184 CLR 538, which in itself is a rather
complicated real estate matter. McHugh J identified the
circumstance in which a party might claim under an illegal
contract:
 Where the claimant was ignorant or mistaken as to the
factual circumstances which rendered the contract illegal;
 Where the statutory scheme that rendered the contract
illegal was enacted for the benefit of a class to which the
claimant is a member;
 Where the legal agreement was induced by the other
party’s fraud oppression or undue influence; and
 Where the illegal purpose has not been carried into effect.
In addition, the court has considered circumstances in which
only one part of the contract is illegal. Under those
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circumstances, it may be possible to sever the unlawful part of
the contract and to give effect to the lawful part of the contract.
This will be a question of fact for each case. A good example is
the Nordenfelt case above. The promise not to compete with
Maxim “in any way” was too broad, but the promise not to
manufacture guns or ammunition was not considered too
broad. There was no reason why the rest of the contract should
not continue to operate, provided Maxim did not seek to
enforce the provisions that Nordenfelt should not compete with
them “in any way”.
5.0 Review
One of the basic understandings we have carried with us
throughout our study of Contracts is that in some cases, the law
will come to the aid of a party who needs to enforce what would
otherwise be a private obligation. Realistically, though, one
would hardly expect the law to come to the aid of those seeking
to enforce obligations which are profoundly opposed to the
community’s general interests. This week we have considered
circumstances in which the law will not enforce a contract, even
when all of the other aspects of contract law are met.
First, and perhaps most obviously, the courts will not enforce a
contract which is illegal in nature. The common law forbids
this; and in addition, the courts will not enforce contracts which
are contrary to the express or implied requirements of statute.
In addition, there are a range of other circumstances in which
the courts will not enforce contracts on the grounds of what
amounts to the public interest. The courts will not, for
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instance, enforce contracts which oust the jurisdiction of the
courts, because it is fundamental to the notion of law that
parties in dispute should be able to approach the courts.
Perhaps most important of these is the question of restraint of
trade. Restraint of trade, in itself, is not prohibited. Under
some circumstances, restraint of trade might be perfectly
sensible. Who would hire staff if doing so meant the risk of
those staff departing and taking one’s customers with them?
However under other circumstances, restraint of trade may be
unfair and unreasonable. The court therefore considers
whether a restraint of trade clause is fair as between the parties,
and also whether it is in the interests of the community.
6.0 Tutorial Problems
Problem 4
Fruit trees are boring
Please watch the short animated video at the following link, and
then consider the questions below. I promise I tried to get the
animation software to pronounce “Akubra” properly, but it
couldn’t be done!
https://www.youtube.com/watch?v=JWB66sVUTOM
Is the contract between our client and the wholesaler forbidden
outright, or is it just void?
What, if any, obligations does our client have towards the
wholesaler?
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Consider the doctrine of mistake. Is it relevant to this dispute?
Do you think either party was under a duty to inquire whether
the rabbits were to be farmed in Queensland? Was the
wholesaler entitled simply to assume the farmer would be
farming lawfully?
[30 Minutes]
7.0 Debrief
After completing this topic you should recognize:
 That contracts to commit a criminal offence, a tort or a
fraud are forbidden by the common law.
 That contracts promoting sexual immorality are
forbidden, although the content of “sexual immorality” is
highly contested.
 That contracts which prejudice our systems of governance
– by interfering with the administration of justice,
promoting corruption among public officials, or
prejudicing the national interest – are all forbidden by the
common law.
 That a contract purporting to oust the jurisdiction of the
courts will be void;
 That, historically, contracts prejudicial to the status of
marriage were void, although it is doubtful how a court
would respond to this now;
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 That contracts for the restraint of trade may be
permissible if the contract is fair as between the parties,
and also in the community’s interests;
 That contracts will be void if they require conduct which
breaches an express or implied prohibition contained in a
statute (even where that prohibition does not amount to a
criminal offence).
 That an innocent party to a contract forbidden by statute
may nevertheless obtain relief if:
o They were ignorant or mistaken about the fact that
the contract was illegal;
o The law which makes the contract illegal was enacted
to protect them, not constrain them;
o They were induced to enter into the contract by the
other party’s fraud, oppression or undue influence; or
o If the illegal purpose has not been carried into effect.
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