It is a well-established principle of law that a claim cannot be made where the claim is based on an illegal act. For example, a contract between drug dealers would not be enforced by the court since drug dealing is illegal.
However, a recent case shows the limits of the principle. It involved the purchase of hotels, which it was alleged were intentionally overvalued by the defendant which caused the claimants to pay too much for them. When the deal was done, the claimants paid 92 per cent of the purchase price to the seller and 8 per cent to a property location agent. It was alleged by the defendant that this latter payment was done to evade tax. Since this was unlawful, the defendant contended that the whole claim should fail on the basis of illegality.
The claimants argued that even if the 8 per cent payment was for unlawful purposes, the illegality defence did not apply. The High Court agreed, accepting that the claimant was not attempting to make a claim which relied on the contract to pay 8 per cent, but on the contract to value the hotels. Although the whole of the arrangement was tinged with illegality, the alleged fraud was too remote from the contract for valuation.
However, the judge did accept that insofar as the claim for the 8 per cent commission was in point, the illegality defence may apply, because this arrangement was directly tainted with illegality.
When a contract is made to further an illegal purpose, it is unenforceable. We can help you protect your position if someone you deal with suggests a ‘dodgy deal’ is done.