15 Jan Navigating The Legal Minefield: Retrieving Funds Or Assets Exchanged Under An Illegal Contract
Introduction
Contracts are the cornerstone of some personal and most business relationships, but not all of them are enforceable. A contract may be unenforceable on the basis that its object is illegal or contrary to public policy.[1]
An illegal contract is defined as a contract that is prohibited by statute or at common law as being contrary to public policy.[2] It has also been defined as a promise that is prohibited because the performance, formation, or object of the agreement is against the law.[3]
When most people think of illegal contracts, they first think about contracts which breach statutes or those that are tainted with a crime. A contract may however be considered illegal without contravening criminal law. Illegal contracts may include contracts promoting sexual immorality,[4] contracts for the commission of a crime,[5] agreements which purport to oust the jurisdiction of the courts completely and contracts which go against public policy.[6]
Public Policy
Public policy is a challenging concept but it has been defined as principles and standards regarded by the legislature or by the courts as being a fundamental concern to the state and the whole of society.[7] It has also been described as an unruly horse which can sometimes be difficult to restrain.[8]
The concept of public policy guides courts in determining whether a contract’s enforcement aligns with societal well-being. Courts often reject claims stemming from illegal contracts to prevent rewarding conduct detrimental to the public interest.[9] The doctrine of illegality of contract serves as a defence against the enforcement of the obligations of a contract.
Illegal Contracts
The area of illegal contracts is governed by two Latin maxims; “ex turpi causa non oritur actio” which translates as “no action can be based on a disreputable cause”[10] and “in pari delicto, potior est conditio possidentis” which translates as “in equal fault, the condition of the possessor is more favourable”.[11] They emphasize the courts’ reluctance to aid parties engaged in illegal actions.
It is based on ex turpi causa non oritur actio that courts generally do not enforce illegal contracts, nor are parties allowed to recover monies and assets transferred in the course of an illegal contract. This general rule is sometimes applied even where the contract was on its face, perfectly legal, but the plaintiff at the time of making it intended to perform his obligations unlawfully.[12] There are different public policy reasons for this doctrine. One such argument is that if a claimant is allowed to succeed in an action tainted by illegality, it would appear that the law endorses such conduct.
Another reason is that if illegal claims are disallowed by the court, it will aid in the enforcement of the law that the conduct has violated which is in the wider public interest.[13]
Exceptions to the Defence of Illegality
Did you know that the defence of illegality is not an absolute defence to a civil claim? The common law has developed a few exceptions to the rule against recovering benefits conferred under illegal contracts.
One exception is that the plaintiff can succeed in an action for recovery if he can do so without disclosing or relying upon the illegality or immorality.[14] If the plaintiff can rely on some independent and lawful ground other than the fact that the contract is an illegal one, they might succeed in an action to recover certain benefits under the contract.[15]
Recovery may also be permissible where the plaintiff is not “in pari delicto” with the defendant. “In pari delicto” is a phrase which translates as “in equal fault”.[16] A circumstance in which parties are not in pari delicto implies that parties are not equally guilty. If a party can demonstrate fraud, duress, oppression, or ignorance of the contract’s illegal nature or that he or she belonged to a vulnerable class protected by statute, they may be able to recover money or property they transferred to the other party under the contract.[17]
Additionally, exceptions exist if a party repents before the performance of the contract. This usually applies where money has been paid or property transferred for an illegal purpose which is yet to be performed and the plaintiff changes their mind and withdraws from the contract. A party to the contract is allowed an opportunity to repent and may be allowed to recover the money or property transferred under the contract, as long as the recovery proceedings are commenced before the illegal purpose has been performed either in whole or in part.
However, the defence of illegality is not always an absolute defence. Understanding the exceptions to the rule is important to ensure you can protect your rights. In particular, the plaintiff should have repented rather than simply bringing the action because the contract had been frustrated or the defendant failed to perform his end of the agreement.[18]
Case Study
In the recent case of Deborah Seyram Adablah v Ernest Kwasi Nimako and Anor,[19] Deborah Seyram Adablah (“the Plaintiff”) sought to enforce certain representations and assurances made to her by Ernest Kwasi Nimako (“the Defendant”). The parties allegedly had an agreement where the Defendant promised to give the Plaintiff certain benefits in exchange for the continuance of their romantic relationship. These benefits, which included buying her a car, paying for her accommodation for 3 years and giving her a lump sum to start a business with, were the basis for most of the reliefs the Plaintiff was seeking from the court.
However, the Defendant argued that the agreement was unenforceable as it was against public policy; at the core of the agreement was their parlour relationship.
The court agreed, ruling that the agreement promoted sexual immorality and was against public policy.
The Plaintiff failed to point to any act outside the provision of sexual services as the basis for the agreement and did not claim to be in pari delicto with the Defendant, nor did she repent and withdraw from the agreement before the Defendant reneged on his end of the bargain. Instead, she brought the action to enforce the agreement after the Defendant had failed to perform his end of the bargain.Top of Form
Conclusion
In the world of contracts, the doctrine of illegality in contracts serves as a safeguard against agreements contrary to laws or public policy. Typically, contracting parties are generally not allowed to recover proceeds or property transferred under an illegal contract. There are however exceptions, reflecting the law’s attempt to balance upholding the law with ensuring fairness in specific circumstances.
This publication may provide a summary of legal issues but is not intended to give specific legal advice. If you require legal advice, please speak to a qualified lawyer, which may include a qualified member of our legal team at B&P ASSOCIATES (info@bpaghana.com).
AUTHOR:
Tracy Akua Ansaah Ofosu (2023 Trainee Lawyer)
[1] Christine Dowuona Hammond, The Ghana Law of Contract, (2016) at page 250
[2] Oxford Reference < https://www.oxfordreference.com/display/10.1093/oi/authority.20110810105124854 > Accessed 18th January 2024
[3] Black’s Law Dictionary, (9th edition), at page 1351
[4] Christine Dowuona Hammond, The Ghana Law of Contract, (2016) at page 252
[5] Ibid at page 251
[6] Ibid at page 256
[7] Black’s Law Dictionary, (7th edition) at page 1351
[8] Richardson v. Mellish 1824 1 Bing 229 at 252
[9] CCW LTD V. Accra Metropolitan Assembly [2007 – 2008] SCGLR 409
[10] Oxford Reference < https://www.oxfordreference.com/display/10.1093/oi/authority.20110803095806471 > Accessed 6th December 2023
[11] Oxford Reference < https://www.oxfordreference.com/display/10.1093/acref/9780192897497.001.0001/acref-9780192897497-e- 4491#:~:text=in%20pari%20delicto%2C%20potior%20est%20conditio%20possidentis%20%5BLatin%3A%20in,the%20possessor%20is%20more%20favourable%5D&text=A%20maxim%20meaning%20that%20where,defendant%20holds%20the%20stronger%20ground. > Accessed 6th December 2023
[12] Schandorf v. Zeini and Anor. 1976 (2) GLR 559
[13] Ernestina Boateng v Phyllis Serwaa and Ors Civil Appeal No. J4/08/2020
[14] Schandorf v. Zeini and Anor. 1976 (2) GLR 559
[15] Amar Singh v Kulubya [1964] A.C 142
[16] Legal Information Institute <https://www.law.cornell.edu/wex/in_pari_delicto> Accessed 11th December 2023
[17] CCW LTD V. Accra Metropolitan Assembly [2007 – 2008] SCGLR 409
[18] Bigos and Boustead [1951] 1 All ER 92
[19] Suit No: GJ/0423/2023