11

IllegalityIllegality

Where parties enter into an Where parties enter into an agreement wherein the agreement wherein the consideration of the agreement or consideration of the agreement or the object of the agreement is the object of the agreement is unlawfulunlawful, the agreement is void and , the agreement is void and the court will not enforce it.the court will not enforce it.

22

ExampleExample Munawwar is an illegal drugs’ dealerMunawwar is an illegal drugs’ dealer Munawwir ordered Munawwar to provide him 2 cargo Munawwir ordered Munawwar to provide him 2 cargo

of heroin and morfin drugs for distribution and sale in of heroin and morfin drugs for distribution and sale in Koding Kedah.Koding Kedah.

Munawwar dan Munawwir entered into an agreement, Munawwar dan Munawwir entered into an agreement, whereas Munawwar agreed to supply and Munawwir whereas Munawwar agreed to supply and Munawwir agreed to buy the drugs at the price of RM 999.999 agreed to buy the drugs at the price of RM 999.999 million.million.

Munawwar sent the drugs as agreed to Munawwir. Munawwar sent the drugs as agreed to Munawwir. However, Munawwir failed to pay any cent to However, Munawwir failed to pay any cent to

Munawwar.Munawwar. Munawwar could not sue Munawwir because the sale Munawwar could not sue Munawwir because the sale

of drug is illegal of drug is illegal

33

Contracts ActContracts Act

S 10 provides that for an agreement S 10 provides that for an agreement to be a contract, it must be made by to be a contract, it must be made by free consent of the parties free consent of the parties competent to contract and that the competent to contract and that the consideration and object of the consideration and object of the agreement must be agreement must be lawfullawful and not and not expressly declared to be voidexpressly declared to be void

44

Section 24Section 24

The consideration or object of an agreement is The consideration or object of an agreement is unlawfulunlawful if: if: A) IT IS FORBIDDEN BY LAW;A) IT IS FORBIDDEN BY LAW; B) IT IS OF SUCH A NATURE THAT IF B) IT IS OF SUCH A NATURE THAT IF

PERMITTED IT WOULD DEFEAT ANY LAW;PERMITTED IT WOULD DEFEAT ANY LAW; C) IT IS FRAUDULENT;C) IT IS FRAUDULENT; D) IT INVOLVES OR IMPLIES INJURY TO THE D) IT INVOLVES OR IMPLIES INJURY TO THE

PERSON OR PROPERTY OF ANOTHER; ORPERSON OR PROPERTY OF ANOTHER; OR E) THE COURT REGARDS IT IS IMMORAL OR E) THE COURT REGARDS IT IS IMMORAL OR

OPPOSED TO PUBLIC POLICY.OPPOSED TO PUBLIC POLICY.

55

Example Example

See example between Munawwar and See example between Munawwar and Munawwir above.Munawwir above.

The sale of drugs is forbidden by the The sale of drugs is forbidden by the Dangerous Drugs Act (DDA).Dangerous Drugs Act (DDA).

The sale also would defeat DDA.The sale also would defeat DDA. The contract was illegal according to The contract was illegal according to

section 24 (a) and (b).section 24 (a) and (b).

66

ExampleExample Ali wanted to sell his BMW car at the price of RM Ali wanted to sell his BMW car at the price of RM

50,000.0050,000.00 However, the market value of the car is only RM However, the market value of the car is only RM

1,000.001,000.00 Ali mentioned to Abu that many people wanted to buy Ali mentioned to Abu that many people wanted to buy

the car at the price of RM 100,000 but because Abu is the car at the price of RM 100,000 but because Abu is Ali’s friend, Ali does not bother to sell at the very Ali’s friend, Ali does not bother to sell at the very reduced price ie RM 50,000.00reduced price ie RM 50,000.00

Abu thought this is actually a good buy as he could buy Abu thought this is actually a good buy as he could buy the car at the very cheap price. Abu does not realized the car at the very cheap price. Abu does not realized that the car was only priced RM 1,000.00that the car was only priced RM 1,000.00

Abu and Ali entered into the contract of sale of the car.Abu and Ali entered into the contract of sale of the car. The contract is void as it involved fraudulent practice, The contract is void as it involved fraudulent practice,

pursuant to pursuant to section 24 (c).section 24 (c).

77

ExampleExample Ali is a strong man, came from Kampung Gedohom, Kodiang.Ali is a strong man, came from Kampung Gedohom, Kodiang. He is the champion in the most coveted Muai Thai (tomoi) He is the champion in the most coveted Muai Thai (tomoi)

national competition held in Tak Bai, Thailand on 11 January, national competition held in Tak Bai, Thailand on 11 January, 2005.2005.

He needs a lot of money to finance his son’s operation in Kedah He needs a lot of money to finance his son’s operation in Kedah Medical Centre.Medical Centre.

So, he met a secret gangster group called ‘BENGANG GANG’, So, he met a secret gangster group called ‘BENGANG GANG’, operating near Bukit Kayu Hitam asking certain work for good operating near Bukit Kayu Hitam asking certain work for good money.money.

‘‘BENGANG GANG’ asked him to cause injury and hit to dead BENGANG GANG’ asked him to cause injury and hit to dead Perlis Menteri Besar for RM 500,000.00Perlis Menteri Besar for RM 500,000.00

Ali agreed.Ali agreed. ‘‘BENGANG GANG’ and Ali entered into an agreement, whereas, BENGANG GANG’ and Ali entered into an agreement, whereas,

the ‘BENGANG GANG’ would pay RM 500,000 to Ali if Ali could the ‘BENGANG GANG’ would pay RM 500,000 to Ali if Ali could cause permanent injury and suffering to the MB until he died cause permanent injury and suffering to the MB until he died slowly.slowly.

88

Ali successfully cause injury to the MB and Ali successfully cause injury to the MB and after 12 months the MB died of great after 12 months the MB died of great suffering caused by the injury due to hard suffering caused by the injury due to hard blow by Ali.blow by Ali.

However, ‘BENGANG GANG’ only paid RM However, ‘BENGANG GANG’ only paid RM 1,000.00 to Ali, Ali sued ‘BENGANG 1,000.00 to Ali, Ali sued ‘BENGANG GANG’.GANG’.

The contract was void as it is INVOLVES The contract was void as it is INVOLVES OR IMPLIES INJURY TO THE PERSON OR IMPLIES INJURY TO THE PERSON OR PROPERTY OF ANOTHER pursuant OR PROPERTY OF ANOTHER pursuant to to section 24 (d)section 24 (d)

99

ExampleExample Bakar interested to enter into UUM studying law.Bakar interested to enter into UUM studying law. He met Anuar, a law lecturer in UUM, teaching law He met Anuar, a law lecturer in UUM, teaching law

of contract II.of contract II. However, the problem for Bakar is that he had However, the problem for Bakar is that he had

failed in his English in SPM and his MUET only in failed in his English in SPM and his MUET only in band 1.band 1.

His application was rejected.His application was rejected. However, he entered into agreement with Anuar However, he entered into agreement with Anuar

that if Anuar would persuade FPAU dean, to still that if Anuar would persuade FPAU dean, to still take Bakar, Bakar would pay RM 20,000 to Anuar.take Bakar, Bakar would pay RM 20,000 to Anuar.

Anuar succeeded in persuading the dean to take Anuar succeeded in persuading the dean to take Bakar to study law in UUM. Bakar to study law in UUM.

1010

But Bakar only pay Anuar RM 500.00. Anuar was But Bakar only pay Anuar RM 500.00. Anuar was very angry and sued Bakar.very angry and sued Bakar.

The contract was void as it is against public policy The contract was void as it is against public policy pursuant to pursuant to section 24(f).section 24(f).

1111

Manang Lim Native Sdn Bhd. v Manang Lim Native Sdn Bhd. v Manang Selaman [1986] 1 MLJ Manang Selaman [1986] 1 MLJ 379379

An agreement to transfer Native An agreement to transfer Native Area Land in Sarawak to a non Area Land in Sarawak to a non native is deemed under section 8 of native is deemed under section 8 of the Sarawak Land Code to have the Sarawak Land Code to have been entered into for an illegal been entered into for an illegal consideration. consideration.

1212

Arumugam Chitty v Lim Arumugam Chitty v Lim Ah HangAh Hang

The plaintiff lent money to the The plaintiff lent money to the defendant employed for the purpose defendant employed for the purpose of running a brothel. The object of of running a brothel. The object of the contract was therefore immoral. the contract was therefore immoral. When the plaintiff sued for payment, When the plaintiff sued for payment, the court held that plaintiff could not the court held that plaintiff could not recover his money.recover his money.

1313

Pearce v BrooksPearce v Brooks

The plaintiff agreed to hire a coach The plaintiff agreed to hire a coach to the defendant a prostitute, to the defendant a prostitute, knowing that she shall use it for her knowing that she shall use it for her trade.trade.

The plaintiff’s claim for the hire The plaintiff’s claim for the hire charges failed on the ground that the charges failed on the ground that the object of the agreement was object of the agreement was immoral.immoral.

1414

In In Sahabumi Sdn Bhd. V Datuk Yap Pak Sahabumi Sdn Bhd. V Datuk Yap Pak LeongLeong : :

The Federal Court held that an The Federal Court held that an agreement is only void for illegality if the agreement is only void for illegality if the statute prohibits the act which the parties statute prohibits the act which the parties contracted to do and not whether the contracted to do and not whether the statute prohibits the contract or the statute prohibits the contract or the making of contract in question by the making of contract in question by the parties. parties.

1515

Attempts to defeat the Attempts to defeat the lawlaw

Hee Cheng v KrishananHee Cheng v Krishanan The plaintiff sold his house built on a piece of The plaintiff sold his house built on a piece of

land in respect of which he was the holder of a land in respect of which he was the holder of a Temporary Occupation License to the Temporary Occupation License to the defendant. The defendant refused to perform defendant. The defendant refused to perform the agreement and the plaintiff claimed specific the agreement and the plaintiff claimed specific performance or alternatively damages for performance or alternatively damages for breach of contract.breach of contract.

1616

Thomson JThomson J

The agreement entered into was an The agreement entered into was an attempt to sell and to purchase the attempt to sell and to purchase the plaintiff’s rights under the Temporary plaintiff’s rights under the Temporary Occupation License.Occupation License.

This contrary to rule 41 of the Land Rules This contrary to rule 41 of the Land Rules 1930 which states that no license for the 1930 which states that no license for the temporary occupation of state land shall temporary occupation of state land shall be transferable.be transferable.

1717

The agreement was unlawful and void The agreement was unlawful and void under under section 24section 24 of the Contracts of the Contracts Ordinance as being of such a nature that Ordinance as being of such a nature that if permitted would defeat the provision of if permitted would defeat the provision of any law.any law.

1818

Read Read

Lim Kar Bee v Duofortis Properties (M) Lim Kar Bee v Duofortis Properties (M) Sdn Bhd. Sdn Bhd.

Chung Khiaw Bank Ltd. V Hotel Rasa Chung Khiaw Bank Ltd. V Hotel Rasa Sayang Sdn Bhd.Sayang Sdn Bhd.

1919

Nafsiah v Abdul Majid Nafsiah v Abdul Majid

The word used in section 24(a) and (b) is The word used in section 24(a) and (b) is not restricted to statutory law and may not restricted to statutory law and may include other law.include other law.

2020

Read Read Datuk Jagindar Singh v Tara RajaratnamDatuk Jagindar Singh v Tara Rajaratnam

The court held that the appellants who The court held that the appellants who are advocates and solicitors were guilty are advocates and solicitors were guilty of fraud, breach of agreement and undue of fraud, breach of agreement and undue influence.influence.

2121

Section 24(d)Section 24(d)

Contracts injurious to the person or property of Contracts injurious to the person or property of anotheranother

Syed Ahamed Alhabshee v Puteh Sabtu (1922) Syed Ahamed Alhabshee v Puteh Sabtu (1922) 5 FMSLR 2435 FMSLR 243

Where the defendant agreed to sell a property Where the defendant agreed to sell a property of the plaintiff in which an infant had an of the plaintiff in which an infant had an interest. The court held that the dealing was interest. The court held that the dealing was detrimental to the infant’s interest.detrimental to the infant’s interest.

2222

Section 24(e) Section 24(e)

Agreement that are immoral or opposed Agreement that are immoral or opposed to public injury.to public injury.

Illustrations (j) and (k)Illustrations (j) and (k) Tengku Abdullah ibni Sultan Abu Bakar v Tengku Abdullah ibni Sultan Abu Bakar v

Mohd Latiff ShahMohd Latiff Shah Court of Appeal stated that the standard of Court of Appeal stated that the standard of

sexual morality in Malaysia and England is sexual morality in Malaysia and England is different.different.

2323

At common law immorality is restricted to At common law immorality is restricted to sexual immorality only sexual immorality only

However, the Illustration (j) to section 24 point However, the Illustration (j) to section 24 point to a wider interpretation of the meaning of to a wider interpretation of the meaning of immorality in Malaysia. It may mean more than immorality in Malaysia. It may mean more than mere ‘sexual immoral’. It’s meaning is much mere ‘sexual immoral’. It’s meaning is much wider than the meaning as understood in wider than the meaning as understood in England. England.

A who is B’s advocate, promises to exercise A who is B’s advocate, promises to exercise his influence as such with B in favour of C, and his influence as such with B in favour of C, and C promises to pay RM1000 to A. The C promises to pay RM1000 to A. The agreement is void because it is immoral.agreement is void because it is immoral.

2424

Opposed to public policyOpposed to public policy

5 groups:5 groups: Illegal by common law or by Illegal by common law or by

legislation;legislation; Injurious to good government, Injurious to good government,

either in the field of domestic or either in the field of domestic or foreign affairs;foreign affairs;

Case Case Datuk Ong Kee Hui v Sinyium Datuk Ong Kee Hui v Sinyium Anak Mutit [1983] 1 MLj 36Anak Mutit [1983] 1 MLj 36

2525

Interfere with the proper working of Interfere with the proper working of the machinery of justice; the machinery of justice;

Cases: Cases: SEA Housing Corp. Sdn. Bhd. v Lee SEA Housing Corp. Sdn. Bhd. v Lee Poh Choo [1982] 2 MLJ 31Poh Choo [1982] 2 MLJ 31

Engku Leh Engku Dris v Che Wok (1949) 15 Engku Leh Engku Dris v Che Wok (1949) 15 MLJ 61MLJ 61

injurious to family life;injurious to family life; Hamzah Musa v Fatimah Zaharah [1982] 1 Hamzah Musa v Fatimah Zaharah [1982] 1

MLJ 361MLJ 361

2626

Economically against the public Economically against the public interestinterest

CasesCases Thong Foo Ching v Shigenori OnoThong Foo Ching v Shigenori Ono [1988] 4 MLJ 585[1988] 4 MLJ 585 Aspinal Curzon Ltd Khoo Teng Hock Aspinal Curzon Ltd Khoo Teng Hock

[1991] 2 MLJ 484[1991] 2 MLJ 484

2727

Consequences of Consequences of illegalityillegality

The contract is unenforceableThe contract is unenforceable Maxim Maxim ex turpi causa non oritur actioex turpi causa non oritur actio

The position under the Contracts Act 1950 The position under the Contracts Act 1950 and English Law are same.and English Law are same.

No person can claim any right or remedy No person can claim any right or remedy whatsoever under an illegal transaction in whatsoever under an illegal transaction in which he has participated.which he has participated.

2828

Chung Kiaw Bank Ltd. V Hotel Chung Kiaw Bank Ltd. V Hotel

Rasa Sayang Sdn BhdRasa Sayang Sdn Bhd

It may be stated as a general principle It may be stated as a general principle that a contract the making of which is that a contract the making of which is prohibited by statute expressly or by prohibited by statute expressly or by implication shall be void and implication shall be void and unenforceable, unless the statute itself unenforceable, unless the statute itself saves the contract or there are contrary saves the contract or there are contrary intentions, which can reasonably be read intentions, which can reasonably be read from the language of statute itself.from the language of statute itself.

2929

Supreme court found that in the Supreme court found that in the circumstances the bank who had made circumstances the bank who had made the loans were clearly implicated in the the loans were clearly implicated in the illegality and was indeed party to an illegality and was indeed party to an agreement to defeat the object of a agreement to defeat the object of a statute and should accordingly be statute and should accordingly be precluded from suing upon it-precluded from suing upon it-ex turpi ex turpi causa non oritur actio.causa non oritur actio.

3030

Read Read

Khau Daw Yau v Kin Nam Realty Khau Daw Yau v Kin Nam Realty Development Sdn BhdDevelopment Sdn Bhd

Chai Sau Yin v Liew Kwee SumChai Sau Yin v Liew Kwee Sum Beca (Malysia) Sdn Bhd v Tan Choong Beca (Malysia) Sdn Bhd v Tan Choong

KuangKuang

3131

Remedy under section 66 Remedy under section 66 Contracts ActContracts Act

When an agreement is discovered to be When an agreement is discovered to be void or when a contract becomes void, void or when a contract becomes void, any person who has received any any person who has received any advantage under the agreement or advantage under the agreement or contract is bound to restore it, or to make contract is bound to restore it, or to make compensation for it, to the person from compensation for it, to the person from whom he received it.whom he received it.

3232

Section 66 provides 2 conditions:Section 66 provides 2 conditions: The agreement is discovered to be The agreement is discovered to be

void; andvoid; andCase:Case: Ahmad Udoh V Ng Aik Chong Ahmad Udoh V Ng Aik Chong

The other party has received an The other party has received an advantage.advantage.Case: Case: Ng Siew San v MenakaNg Siew San v Menaka

3333

Contracts not affected by Contracts not affected by illegalityillegality

A contract that is prohibited by statute A contract that is prohibited by statute does not become void and unenforceable does not become void and unenforceable if the statute itself saves the contract or if the statute itself saves the contract or there are contrary intentions, which can there are contrary intentions, which can reasonably be read from the language of reasonably be read from the language of the statute itself.the statute itself.

3434

Foo Say Lee v Ooi Heng WaiFoo Say Lee v Ooi Heng Wai

The sale of a Malay Reservation land The sale of a Malay Reservation land with the provision that it is subject to the with the provision that it is subject to the approval of the state government and the approval of the state government and the Ruler in Council was not contrary to the Ruler in Council was not contrary to the provisions of the Kelantan Malay provisions of the Kelantan Malay Reservations Enactment 1930 and not Reservations Enactment 1930 and not void.void.

3535

ExampleExample Mat is the owner of Malay Reservation land in Mat is the owner of Malay Reservation land in

Changloon.Changloon. According to the land law, this land (malay According to the land law, this land (malay

reservation) could not be sold nor transferred reservation) could not be sold nor transferred to non-malay.to non-malay.

However, the land can be sold if the status has However, the land can be sold if the status has changed (from malay reservation land to an changed (from malay reservation land to an ordinary land (where every body can buy the ordinary land (where every body can buy the land)), after application made by the ownerland)), after application made by the owner

3636

Mat finally sold the land to Cheng for RM 10 million.Mat finally sold the land to Cheng for RM 10 million. Mat and Cheng entered into the agreement of sale, Mat and Cheng entered into the agreement of sale,

provided that Mat should apply for change of status of provided that Mat should apply for change of status of the land.the land.

Before Cheng paid the RM 10 million, Mat had applied Before Cheng paid the RM 10 million, Mat had applied to the Jitra Land office for the change of status of the to the Jitra Land office for the change of status of the land to become ordinary land (not Malay reserve land).land to become ordinary land (not Malay reserve land).

Later, Mat changed his mind, not to sell the land to Later, Mat changed his mind, not to sell the land to Cheng.Cheng.

Cheng sued Mat.Cheng sued Mat. Cheng can succeed as he only would get the land, Cheng can succeed as he only would get the land,

after application to change the status of the land by after application to change the status of the land by Mat had been approved by Jitra Land Office, according Mat had been approved by Jitra Land Office, according to to Foo Say Lee v Ooi Heng WaiFoo Say Lee v Ooi Heng Wai

3737

Severability Severability

Where a contract contains an illegal term, Where a contract contains an illegal term, the court may sever the unlawful part of the court may sever the unlawful part of the contract from the lawful part thus the contract from the lawful part thus leaving the agreement free of any leaving the agreement free of any illegality. Thus the parties can sue on the illegality. Thus the parties can sue on the agreement unaffected by any illegalityagreement unaffected by any illegality

3838

ExampleExample Mat entered into a contract with Man, whereby Mat Mat entered into a contract with Man, whereby Mat

agreed to pay RM 1,000 to Man, if Man agreed to:agreed to pay RM 1,000 to Man, if Man agreed to:

1) teach him additional mathematic;1) teach him additional mathematic; 2) persuade Mat’s add mathematic teacher to pass 2) persuade Mat’s add mathematic teacher to pass

Mat’s examination even though Mat failed (against Mat’s examination even though Mat failed (against public policy).public policy).

Later Man succeeded to carry out these terms and Later Man succeeded to carry out these terms and asked Mat to pay that RM 1,000.00asked Mat to pay that RM 1,000.00

However, Mat refused to pay any.However, Mat refused to pay any.

3939

Man can sue Mat only for part of RM Man can sue Mat only for part of RM 1,000.00 (may be RM 500 being half of RM 1,000.00 (may be RM 500 being half of RM 1,000) being his wages in teaching add 1,000) being his wages in teaching add mathematic, while he could not get any mathematic, while he could not get any payment for his effort to persuade Mat’s payment for his effort to persuade Mat’s teacher to pass Mat’s paper even though teacher to pass Mat’s paper even though Mat had failed, as this is against the public Mat had failed, as this is against the public policy (section 24 (f)). policy (section 24 (f)).

4040

Case Case Murugesan v KrishnasamyMurugesan v Krishnasamy Section 57(2) a contract to do an act Section 57(2) a contract to do an act

which after the contract is made, become which after the contract is made, become impossible, or by reason of some event impossible, or by reason of some event which the promisor could not prevent, the which the promisor could not prevent, the contract becomes void when the act contract becomes void when the act becomes impossible or unlawful.becomes impossible or unlawful.

4141

Claims wholly independent of Claims wholly independent of the alleged illegal contractthe alleged illegal contract

Sajan Singh v Sardara AliSajan Singh v Sardara Ali held that held that where the plaintiff’s claim is wholly where the plaintiff’s claim is wholly independent of the alleged contract, the independent of the alleged contract, the contract is lawful and enforceable.contract is lawful and enforceable.

Read Read Tan Lai v Mohamed bin MahmudTan Lai v Mohamed bin Mahmud