Consequences of Illegality

Legal Matters with Arthur Marara

A contract is a legally enforceable agreement entered into by two or more people.

The key word in the definition of a contract is “legal”. In other words, if it is not legal, then there is no contract to talk about, and, consequently, the issue of enforcement falls away.

In the past, we touched on common law and statutory illegality in contracts. This week, we are going to look at some instances of statutory illegality from previously decided cases as we deal with the consequences of illegality.

What happens if parties enter into an illegal contract? This is the question we want to deal with this week and shed a bit of light on the principles that apply in such a case.

Ex turpi causa and in pari

delicto principles

In Jajbbay v Cassim 1939 AD 537, the court had occasion to discuss the import of the two rules of our law with regard to illegal contracts.  The first rule is the ex turpi causa non oritus action, which means no action can arise from a disgraceful or dishonourable cause.  This rule means that an illegal contract is void and unenforceable.  This rule is absolute and admits no exceptions. [see Mega Pak Zimbabwe Pvt Ltd v Global Technologies Central Africa Pvt Ltd 2008 (2) ZLR 195 (H)].

In Chipunza v Muzangaza NO 2004 (1) ZLR 377 (H), it was held that the court will not enforce an illegal agreement that has not yet been performed (either in part or in whole).

The second rule is the in pari delicto potior est conditio defendantis’ sen possidentis (in case of equal guilt, the defendant or possessor is in the stronger position).  The purpose of this rule is to discourage illegal agreements by preventing a person (such as the plaintiff) from recovering that which he has performed in terms of his illegal contract.

This rule is not absolute.  It can be relaxed at the court’s discretion.  A guilty party may be allowed to recover his performance if public policy or simple justice between man and man so requires.

In X-Trend – A – Home v Hoselaw Investments 2000 (2) ZLR 348 (S), the Supreme Court interpreted s 39 of the Regional Town and Country Planning Act to mean that what is prohibited is the agreement itself that may lead to a change of ownership of any portion of a property, irrespective of the time of signing that agreement. The relevant portions of s 39(1) of the Regional, Town and Country Planning Act read:

“39   No subdivision or consolidation without permit

(1) ” . . . (N)o person shall —

(a) subdivide any property; or

(b) . . .except in accordance with a permit granted in terms of section forty …”

So, if parties enter into an agreement to buy and sell a portion of land which is part of a whole, but without a subdivision permit, that agreement will be patently illegal.

It is unenforceable. No rights or obligations derive from it.

A court of law will not associate itself with, or relate to such an agreement.

 

It is tough luck if one of the parties suffers loss by reason of anything done, or not done, in terms of that agreement, eg if the seller has already parted with possession of the property before the purchase price has been paid and now wants the property back, or conversely if the purchaser has already paid the purchase price before taking transfer and now wants his or her money back.

It is such an agreement as will be affected by the ex turpi causa and in pari delicto principles. (principle was cited with approval in the case of Maranatha Ferrochrome (Pvt) Ltd v RioZim Ltd HH 482-20).

The maxim ex turpi causa non oritur actio means “no action arises from an immoral cause”: see Dube v Khumalo 1982 (2) ZLR 103 (S), at 109D – F, and Mega Pak Zimbabwe (Pvt) v Global Technologies Central Africa (Pvt) Ltd 2008 (2) ZLR 195. It is a rule absolute. It admits of no exception. Explaining the rationale for this rule, MAKARAU JP, as she then was, in the Mega Pak Zimbabwe case above, said(1):

“In my view, the general principle expressed in the maxim does not permit litigants to bring their ‘dirty’ transactions into the clean halls of justice. Justice will not soil its hands by touching such transactions. ‘Dirty’ in this regard not only refers to immoral transactions, contracts specifically prohibited by law but also includes transactions that seek to defeat the law.”

In Jajbhay v Cassim 1939 AD 537, at p 551, and quoting from Collins v Blantern (2 Wilson, 347) (1767), reference was made to “… no polluted hand shall touch the pure fountains of justice.”

On the other hand, the in pari delicto principle (in pari delicto est conditio possidentis), in its classical form, says that in case of equal guilt, the loss stays where it falls; he who is in possession prevails: see Schierhout v Minister of Justice 1926 AD 99: Dube v Khumalo, supra; Matsika v Jumvea Zimbabwe (Pvt) Ltd 2003 (1) ZLR 71 (H) and Gambiza v Taziva 2008 (2) ZLR 107 (H). The rationale is to discourage illegality by denying judicial assistance to persons who part with money, goods or incorporeal rights in furtherance of an illegal transaction: Schierhout v Minister of Justice, supra. But this principle is not as inflexible as the ex turpi causa doctrine.

In Honeycomb Hill (Pvt) Ltd v Herentals College (Pvt) Ltd HH 265-16 Justice Mafusire held that the ex turpi causa and in pari delicto doctrines seem to be cognates but that they are distinct. Whilst ex turpi causa is inflexible and admits of no exception, in pari delictum is flexible and is subject to exceptions, especially those grounded in public policy.

In a nutshell, ex turpi causa prohibits the enforcement of immoral or illegal contracts. In pari delictum curtails the rights of the delinquents or offenders to avoid the consequences of their performance, or part performance of such contracts (per STRATFORD CJ in Jajbhay v Cassim, supra, at p 540 – 541).

In Dube’s case above, GUBBAY JA, as he then was, confirming the position that in suitable cases the courts will relax the in pari delictum rule, said that this is done “…(to do) simple justice between man and man” (also Jajbhay, supra, at p 544).

In RCM Civil (Private) Limited v Petrotrade (Private) Limited HH34/20 Chiweshe JP (as he then was) refused to relax the in pari delicto rule. He held that’

“In casu I do not see any basis for the relaxation of that rule in order to entertain the plaintiff’s claim for damages.  Firstly, both parties knew that the law requires that there be obtained first the EMA certificate.

“They had at their disposal, in addition, the services of a specialist consultant whose advice they ignored.  Thirdly, any project to do with fuel or petroleum products is potentially hazardous to the environment and indeed the community.  It would not in my view be in the interests of public policy to allow the plaintiff to recover under circumstances where it has brazenly acted in violation of the law.

“To do so would be to send the wrong signal to would-be offenders.”

In this regard the sentiments expressed in Sasfin (Pty) Ltd v Beukes 1989 (1) SA (1) (A) are apposite.

“Agreements which are clearly inimical to the interests of the community, whether they are contrary to law or morality, or run counter to social or economic expedience, will accordingly, on the grounds of public policy, not be enforced.”

In their book “Contract — General Principles” 4th ed, the authors, Van der Merwe and three others reiterate, the following point at p 166.

“Agreements are illegal if they conflict with Statutory law (including, of course, the Constitution) or common law.  Typical instances of illegality occur where the conclusion of an agreement or the agreed performance or the purpose for which the agreement is concluded is contrary to the law.”

In RCM Civil (Private) Limited v Petrotrade (Private) Limited HH34/20 the Court held that;

“I conclude therefore that the agreement reached between the parties allowing the plaintiff to move to site and commence work was illegal because it contravened the clear provisions of section 97 of the Environmental Management Act.

It is for that reason null and void and is therefore not enforceable.  Further, the plaintiff should not be allowed to recover its damages under the in pari delicto rule as to do so would only serve to undermine public policy.  Would be offenders would not be deterred by such an approach.”

 

LEGAL DISCLAIMER: The material contained in this post is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the article/post. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.

 

 

Arthur Marara is a corporate law attorney practicing law in Harare, Zimbabwe. You can follow him on social media (Facebook Attorney Arthur Marara), or WhatsApp him on +263780055152 or email [email protected].