Some thoughts on the consequences of illegal contracts

• Author: du Plessis, J.
• DOI: https://doi.org/10.47348/ACTA/2021/a7
• Published date: 23 August 2021
• Date: 23 August 2021
• Citation: 2021 Acta Juridica 177
• Pages: 177-202

177

https://doi.org/10.47348/ACTA/2021/a7

Some thoughts on the consequences of

illegal contracts*

JACQUES DU PLESSIS†

Few topics in the law of contract have generated as much debate

as determining the eects of contracts that infringe statutory or

common-law rules. While South African law has in some respects

adopted remarkably progressive positions in these debates, especially

by displaying exibility in determining when parties may claim

restitution, it also still applies some constructs, rules or maxims in

a manner that impedes determining the appropriate consequences

of infringing rules or illegality. In this regard it is argued (i) that

the concept of an ‘illegal contract’ should be treated with caution,

since dierent commentators automatically link it to dierent

consequences; (ii) that the continued reference to a construct styled

the par delictum rule is not helpful when determining whether duties

of restitution arise from these contracts; and (iii) that the ex turpi

maxim creates the misleading impression that tainted contracts are

invariably unenforceable, whereas the reality may be quite dierent.

I INTRODUCTION

Contracts are concluded within a legal order and therefore must

comply with its demands. Sometimes parties agree to a contract

that infringes a legal rule, which could arise from either a statute

or the common law. In judgments and academic commentary,

these agreements are usually called ‘illegal contracts’1 or, more

* I am honoured by the invitation to contribute to this special edition of

Acta Juridica dedicated to Dale Hutchison. Our association goes back as far as

1999, when Dale invited me to teach his contract law lectures while he was on

sabbatica l. He most helpfully g ave me his lecture notes, and this introduced me

to his remarkably lucid and logical style, devoid of any pretence or desire to

be fashionable. Through the years I have come to appreciate that the quest for

a principled development of the law is a hallmark of his scholarship. Finally, I

wish to express my gra titude to the referees for their feedback.

† BCom LLB LLM (Stell) PhD (Aberdeen); distinguished professor of law,

Stellenbosch Univer sity.

1 Jajbhay v Cassim1939 AD 537 contains one of the earliest references to the

term ‘i llegal contr act’, while more recent exa mples include Absa Bank Ltd v M oore

2017 (1) SA 255 (CC) para 48 n 34; MEC for Local Government and Traditional

2021 Acta Juridica 177

© Juta and Company (Pty) Ltd

178TH E FUTURE OF TH E LAW OF CONTR ACT

https://doi.org/10.47348/ACTA/2021/a7

rarely, ‘unlawful contracts’.2 The purpose here is to reect on

some problems relating to the consequences of a contract that

infringes the law or is ‘illegal’. The focus is not on how illegality

itself is determined. Whether a contract infringes a statute requires

interpretation of the statute and its terms. The common law in

turn traditionally required dierentiation between rather complex

standards, such as public policy, public interest and public moral ity,

to determine illegality. However, after some bold judicial Gordian

knot-cutting, there is now less need for such dierentiation, and

public policy has emerged as an overarching general principle

or standard.3 In determining whether both statutory and

common-law illegality exists, considerable uncertainty remains

about the relevance of the Constit ution and und erlyin g constitut ional

values such as good faith and ubuntu.4 Ultimately, much remains

to be done in determining the underlying justications for the

law to stand in the way of parties’ freely concluded agreements

being enforced.

However, these questions, vital as they may be, will not be

considered further. It will be assumed that we are dealing with a

Aairs, KwaZulu-Natal v Botha NO 2015 (2) SA 405 (SCA) para 20; Legator

McKenna Inc v Shea 2010 (1) SA 35 (SCA) para 30; Afrisure CC v Watson NO

2009 (2) SA 127 (SC A) para 46; Klokow v Sulli van2006 (1) SA 259 (SCA) para 18.

Academic literature often refers to ‘illegal contracts’, or contracts being ‘il legal’

– see eg GB Bradeld Christie’s Law of Contract in South Africa 7 ed (2016) 391;

D Hutchison & C Pretorius (eds) The Law of Contract in South Africa 3 ed (2017)

181–2; L van Huyssteen et a l Contract – General Prin ciples 6 ed (2020) 208.

2 S ee National Credit Regulator v Opperman 2013 (2) SA 1 (CC) para 14.

‘Unlawful contract’ is more prevalent when an administrative provision is

contravened. For examples, see Municipal Manager: Qaukeni Local Municipality v

FV General Trading CC 2010 (1) SA 356 (SCA) para 2 6; Bualo City Metropolitan

Municipality v ASLA Construction (Pty) Ltd 2019 (4) SA 331 (CC) para 144.

Sometimes ‘illegal contract’ and ‘unlawful contract’ are used interchangeably

in the same judgment: see Department of Transport v Tasima (Pty) Ltd 2017 (2)

SA 622 (CC) para s 162 and 177; Allpay Consolidated Investment Holdings (Pty) Ltd

v CEO, South African Social Security Agency 2014 (4) SA 179 (CC) para 67 (also

see n 47), para 70. Sonnekus translates the Afrikaans legal term ‘ongeoorloof’

with ‘unl awful’, rather th an the more customar y ‘illega l’: J Sonnekus Unjustied

Enrichment in South Afric an Law 2 ed (2017) 221.

3 S ee Sasn (Pty) Ltd v Beuke s1989 (1) SA 1 (A) 7–9. On the interchan geable

use of ‘public pol icy’ and ‘public interest’ s ee Van Huyssteen et a l (n 1) 211–12.

4 S ee J du Plessis ‘Fair ness and diversit y in the South Afr ican law of contrac t’

in J Meir & S Donlan (eds) Comparative Law: Mixes, Movements, and Metaphors

(2 019) 4 7.

© Juta and Company (Pty) Ltd