Professional Documents
Culture Documents
Illegality
Illegality
Void agreements
Contract becomes void
In this two situations any person who has received an advantage under the
agreement or contract is bound to restore it.
Section 59
In the case of an alternative promise, one branch of which is legal
and the other illegal, the legal branch alone can be enforced.
ILLUSTRATION
A and B agree that A shall pay B RM1,000 for which B shall afterwards
deliver to A either rice or smuggled opium. This is a valid contract to
deliver rice, and a void agreement as to the opium.
In this situation, there is an alternative promise, a legal branch (B to
deliver rice) or an illegal branch (B to deliver opium). A contract to
deliver rice is not valid while an agreement to deliver opium is void.
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The doctrine of severance was applied in Murugesan v Krishnasamy &
Anor (1958) MLJ 92.
In this case, the defendants occupied several acres of land under
temporary occupation licences (TOL) and had applied for EMR titles in
respect of the land.
The defendants entered into an agreement with the plaintiff which
recited that the defendant had applied for state land and for
consideration stated that the defendants would execute transfers to the
lands to the plaintiff as soon as titles were issued to them.
In the mean time, the plaintiff was to enter upon the lands and enjoy
the proceed thereof.
Subsequently, the defendants’ applications for EMR titles were rejected
and the plaintiff claimed for the money returned.
The High Court held that the illegal promise in the agreement, namely,
permitting the plaintif to occupy the land, was severable from the
remainder of the contract. Thus the part of the contract dealing with
the transfer of the land was valid and enforceable.
Unlawful Consideration or Objects
Section 10 of the Contract Act 1950, provides for an agreement to
be a contract, it must be the free consent of the parties to be
competent to contract and that the consideration and object
of the agreement must be lawful and are not expressly
declared to be void.
Section 24 stated wherein the consideration or object of an
agreement is unlawful.
It is forbidden by law
It is of such nature that, if permitted, it would defeat any law
It is fraudulent
It involves or implies injury to the person or property of another; or
The court regards it is immoral, or opposed to public policy.
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The Supreme Court in Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn
Bhd (1990) 1 MLJ 356, observed that the provisions of section 24 are
explicit statutory injuctions.
The statute expressly provides that the consideration and object
referred to in subsection (a)(b) and (e) of section 24 shall be
unlawful and the agreement ensues shall be unlawful and void.
A void agreement cannot be enforceable by law.
These subsections must be read disjunctively.
Forbidden by law and defeat any law:
Section24(a) and (b)
Section 24(a) refers to express contravention of the law, most commonly
provided in statutes.
Section 24(b) the consideration or object would if permitted, have the effect of
defeating the law. (Illustration (i))
In Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong (1997) 1 MLJ 587, CA;
[1998] 3 MLJ 151, FC
On Appeal, The Federal Court held that the agreement is a contract or amounts
to a contract to do an act forbidden or prohibited under Section 21 of the Pool
Betting Act 1967, thus, offending s 24(a). Peh Swee Chin J:
Section 24 appears to me to have been drafted after some fine tuning of the common
law on which it is based, At common law, contracts fitting in with tha said s 24(a) and
(b) for contravening any law would be illegal for being against public policy, but in our
Contract Act 1950, the same contracts are covered by s24(a) and (b), ie under two
separate subsections….
…Laws in Section 24(a) refers to common law or any statute.
Saldeck (Kuala Lumpur) Sdn Bhd v Onn Choon Koi @ Ng Ching Kwai (2008) 4
MLJ 438
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Haji Hamid bin Ariffin v Ahmad Mahmud (1976) 2 MLJ 79
The former Federal Court did not refer to section 24 of the
Contracts Act 1950 as the relevant statute, the Kedah Malay
Reservation Enactment provides that an agreement in
contravention of the statute is void.
Upheld the lower court’s decision that the sale to the Siamese
lady was void from beginning because of Section 6(1) of the
Kedah Malay Reservation Enactment provides that where any
reservation land is held under a document of title by a
Malays, no right or interest therein whether by transfer or
otherwise, in any person who is not a Malay.
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Sufficient nexus between statute and contract
The Courts have held for a contract to be illegal for contravening
some statute provision, there must be a sufficient nexus between
the statutory requirement and the contract.
Asia Television Ltd v Anor v Viwa Video Sdn Bhd (1984) 2 MLJ 304.
Whether the contract in question is of such a nature that it would defeat
any law under Section 24(b) of the Contracts Act.
Whether the Companies Act prohibits the making of a contract of the
type in question, and whether the Companies Act provides that one
parties must satisfy certain requirements before making such a contract?
The nexus must be sufficiently strong.
Ling Wah Press Sdn Bhd v Pustaka Utama Pelajaran Sdn Bhd. (1994) 3
CLJ 346
The High Court held that the defence of illegality failed….whether the
contract was entered into with the object of committing an illegal act, in
which case the contract will be enforceable.
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Meaning of the word “law”
The word “law” used in Section 24(a) and Section 24(b) is wide is
not restricted to statutory law. It covers bye-laws, rules,
regulations other subsidiary legislations and the Syariah Law.
In Nafsiah v Abdul Majid (No 2) (1969) 2 MLJ 175, the Defendant,
a married man agreed to marry the plaintiff. The Plaintiff knew
that the defendant was already married. The Defendant seduced
the plaintiff and refused to marry her. She sued him for breach of
promise to marry and the Defendant contended that the promise
was void from the very beginning. The Court held that the
Plaintiff’s knowledge that the Defendant was already married did
not invalidate the contrat as the Defendant under the Muslim
law can marry more than one wife.
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An example of illegality under s 24(b) is Hee Cheng Krishnan (1955)
MLJ 103.
In this case, the Plaintiff and the Defendant entered into a contract
whereby the Defendant agreed to sell to the Plaintiff a house built
upon a piece of land in respect of which a Temporary Occupation
Licence (TOL) was issued. The Plaintiff claimed for specific
performance or, alternatively, for damages for breach of contract.
The High Court held that the agreement entered into was an
attempt to sell and to purchase the plaintiff’s rights under the TOL.
This is contrary to rule 41 of the Land Rules 1930 which states that
‘No licence for the TOL shall be transferable. The agreement was
unlawful and void.
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Types of statutory prohibitions
Statute contains express prohibition
Statute does not expressly prohibit but requires some
other act
Statute contains express prohibition and saving
provision
Statute contains express prohibition and saving
provision which also contains exception
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Statute contains an express prohibition
Where a statute contains an express prohibition, the Court has to
gather the intention of the legislature with respect to the purpose of
the statute and interpret it accordingly.
In Ismail v Hj Taib (1971) 2 MLJ 36, the issue arose in relation to a
tenancy agreement which was registered under the Padi Cultivators
(Control of Rent and Security and Tenure) Ordinance 1955. The
Federal Court held that although there was no memorandum in
writing or registered as required in the Ordinance, the Ordinance
did not render illegal.
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Hashim bin Adam v Daya Utama Sdn Bhd (1980) 1 MLJ 125
The plaintiff had been granted a forest license and the plaintiff then
entered into an agreement with the defendant. The licence in
question cannot be transferred under Rule 2 of the Terengganu
Forest Enactment.
…. The agreement executed between the parties here is in effect a
purported transfer of the licence which is prohibited by the rules
and as such I hold it to be null and void.
Statute does not expressly prohibition but requires
some other act
Foo Say Lee v Ooi Heng Wai (1969) 1 MLJ 47
The Plaintiff entered into an agreement with the defendant for
the purchase of a piece of land in Kota Bahru. The land was in
the Malay Reservation area and, as at the date of the
agreement, was held by a Malay. Condition 3 of the agreement
provided that the sale was subject to the approval of the
Kelantan Government and the Ruler in Council. At the date of
the writ, the land had been registered in the name of the
defendant.
The Federal Court held that agreement was not void.
Statute does express prohibition and saving provision
There are statutes while containing an express
prohibition also provides a saving provision that the
contravention will not affect the legality of any
contract entered into.
Section 67 of the Companies Act 1967
Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd &
Anor (1990 1 MLJ 356
Lori Malaysia Bhd v Arab-Malaysian Finance Bhd (1999)
2 CLJ 997
Statute contains express prohibition and saving provisions
which also contains exceptions
In the case of Coramas Sdn Bhd v Rakyat First Merchant
Bankers Bhd & Anor (1994) 1 AMR 425, a consortium of
lenders had agreed to extend facilities to a company on the
security of a pledge of the shaes in a public listed company
registered in the name of second respondent.
The Court concluded that the alleged agreement of
December 14, 1989, had contravened s 45(1) of the Act
(BAFIA) and being undertaken which was forbu=idden by
law in that it violated a prohibitory enactment of the
legislature, it was by reason of section 24 of the Contracts
Act 1950 void.
Fraudulent and involves or implies
injury: Section 24(c) and (d)
Illustrations (e) and (g) show that the object of the agreement is
unlawful as both involve fraud as provided in Section 24 (c).
Amman Singh v Vasudevan (1973) 1 MLJ 210.
The High Court held that the agreement between the Plaintiff and
the Defendant was an attempt to defraud the other creditors for the
winding up petition. The Court referred to Section 24 and although
no reference was made to specific paragraphs, the agreement in this
case would have come within section 24(c) and (d).
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In Palaniappa Chettiar v Arunasalam Chettiar (1962) MLJ 43, the Privy
Council held that the transaction was for a fraudulent purpose without
referring to section 24(c).
Datuk Jaginder Singh v Tara Rajaratnam (1983) 2 MLJ 196
The first, second appellants and third appellants colluded to obtain
possession of the respondent’s property, some five acres of land in
Kulai, Johor by fraud.
Immoral or opposed to public
policy: s 24(e)
Immoral agreements
Illustration (j) and (k)
There has been no decision on the definition of an immoral
contract and the exact ambit of the term.
Oh Theresa v Sia Hok Chai (1992) 1 MLJ 215, the issue arose
whether the promise by a married man to marry a woman
who knew that he was already married, was immoral and
against public policy. The above issue remains undecided.
Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin
Shah Moh (1996) 2 MLJ 265, where the Court of Appeal
clearly stated that the standard of sexual morality in
Malaysia and in England is different.
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Opposed to public policy
The principle of public policy is that man can lawfully do that
which has a tendency to be injurious to the public welfare.
The public policy in one countries differs from that of another
country.
In Banque Nasionale De Paris v Wuan Swee May (2000) 3 MLJ
587, the High Court expressed a cautious approach on the issue
of relying too much on decision of the courts in other countries
on public policy.
The Aspinall Curzon Ltd v Khoo Teng Hock (1991) 2 MLJ 484, the
court protested against arguing too much upon public policy and
noted that it is never argued at all but only when other points
fail.
Agreements in Restraint of Trade
An agreement in restraint of trade is an agreement
where a person’s liberty to carry on a profession, trade
or business is restricted.
Two situation:
An employee who upon leaving his employment agrees
not to compete with his employer by setting up a similar
business or joining a rival company.
A seller of business with goodwill agrees not to carry on
a similar business to compete with the purchaser of the
business.
Restraint of trade under common
law
Under the common law, all agreements in restrain of
trade are prima facie void unless it is shown that then
restraint is reasonable in the interests of the parties
and of the public.
The authoritative case is Nordenfelt v Maxim
Nordenfelt Guns and Ammunition Co (1894) AC 535.
The House of Lords held that the covenant in restraint
of trade was valid and enforceable.
…but there are exceptions…restrain of trade and
interference of the individual liberty of action may be
justified by a special circumstances.
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A contract in restraint of trade is one by which a party
restricts his future liberty to carry on his trade, business or
profession in such manner and with such person as he
chooses.
There are four types of contracts dealt by the law where
these restraints may exist:
Contract between employer and employee in contracts of
employment;
Contracts between vendor and purchaser for the sale of the
goodwill of a business;
Contracts between partners prior to dissolution of the
partnership and during the continuance of partnership; and
Others commercial contracts
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Section 28 of the Contract Act 1950 generally prohibits
any restraint of trade. It provides that every agreement
by which anyone is restraint rom exercising a lawful
profession trade or business of any kind is to extent
void.
A strict interpretation of section 28 would render all
covenants in restraint of trade void even if the
covenants in question were reasonable.
Contracts between employer and employee.