Are illegal contracts still unenforceable?

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It is an established point of law that an illegal contract is unenforceable and would be “void for illegality” (see Patel v Mirza [2016]), however, the issue was reconsidered and clarified recently in Harb v Aziz [2018].  In this case, a woman claimed that she had agreed to retract certain statements about her ex-husband in exchange for money and property. These false retractions were made by way of a “statutory declaration”, which Aziz tried to take advantage of, as making a false statutory declaration involved perjury and was a criminal offence.  Accordingly, Aziz asserted that any contract relying upon this false declaration as consideration must be void for illegality.

Whilst the High Court found that the contract was in any event unenforceable for lack of contractual intention and certainty, the Judge did also consider whether the illegality defence would have succeeded and provided some useful guidance on the issue.

In particular, the Judge looked at:

1.  The underlying purpose of the prohibition on perjury (in this case to ensure that statutory declarations, which are a form of formal written evidence, are truthful and can be relied upon);

2. Whether there are any other relevant public policies (in this case balancing the fact that illegal contracts should be considered void with a policy of encouraging out of court settlement by ensuring parties can rely on formal evidence when negotiating without fear of that evidence being subsequently withdrawn); and

3. Proportionality (in this case the woman’s conduct was not considered that serious in light of the surrounding facts of the case).

Matthew Howat, Commercial & Dispute Partner, comments: “This case is of particular interest as it adds further grey to the straight question “are illegal contracts unenforceable?”.  The answer is now “sometimes”, as the background, purpose and consequences of the illegal contract must also be taken into consideration”.

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Howat Avraam Solicitors provide Commercial, Employment and Contract Dispute advice to companies and business owners.  As business owners ourselves, we have a pragmatic in-house approach to resolving issues before they arise by working alongside our clients, often on monthly retainers.  We are commercial, practical and entrepreneurial in our approach to legal services.

To discuss any commercial or legal matter on a no obligation basis, please contact Matthew Howat, Company and Disputes Partner, on 020 3735 6700 or email Matthew at Matthew.Howat@hasolicitors.co.uk.  Alternatively, visit our website at www.howatavraamsolicitors.co.uk.

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