15 Illegality

Ille galit y  Where parties enter into an agreement wherein the consideration of the agreement or the object of the agreement is unlawful, the agreement is void and the court will not enforce it. 1

Ex amp le

 Munawwar is an illegal drugs’ dealer  Munawwir ordered Munawwar to provide him 2 cargo of heroin and morfin drugs for distribution and sale in Koding Kedah.  Munawwar dan Munawwir entered into an agreement, whereas Munawwar agreed to supply and Munawwir agreed to buy the drugs at the price of RM 999.999 million.  Munawwar sent the drugs as agreed to Munawwir.  However, Munawwir failed to pay any cent to Munawwar.  Munawwar could not sue Munawwir because the sale of drug is illegal 2

Co ntr acts Ac t  S 10 provides that for an agreement to be a contract, it must be made by free consent of the parties competent to contract and that the consideration and object of the agreement must be lawful and not expressly declared to be void 3

Se ctio n 24  The consideration or object of an agreement is unlawful if:  A) IT IS FORBIDDEN BY LAW;  B) IT IS OF SUCH A NATURE THAT IF PERMITTED IT WOULD DEFEAT ANY LAW;  C) IT IS FRAUDULENT;  D) IT INVOLVES OR IMPLIES INJURY TO THE PERSON OR PROPERTY OF ANOTHER; OR  E) THE COURT REGARDS IT IS IMMORAL OR OPPOSED TO PUBLIC POLICY. 4

Ex amp le  See example between Munawwar and Munawwir above.  The sale of drugs is forbidden by the Dangerous Drugs Act (DDA).  The sale also would defeat DDA.  The contract was illegal according to section 24 (a) and (b). 5

Ex amp le

 Ali wanted to sell his BMW car at the price of RM 50,000.00  However, the market value of the car is only RM 1,000.00  Ali mentioned to Abu that many people wanted to buy 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 reduced price ie RM 50,000.00  Abu thought this is actually a good buy as he could buy the car at the very cheap price. Abu does not realized that the car was only priced RM 1,000.00  Abu and Ali entered into the contract of sale of the car.  The contract is void as it involved fraudulent practice, pursuant to section 24 (c). 6

Ex amp le

 Ali is a strong man, came from Kampung Gedohom, Kodiang.  He is the champion in the most coveted Muai Thai (tomoi) national competition held in Tak Bai, Thailand on 11 January, 2005.  He needs a lot of money to finance his son’s operation in Kedah Medical Centre.  So, he met a secret gangster group called ‘BENGANG GANG’, operating near Bukit Kayu Hitam asking certain work for good money.  ‘BENGANG GANG’ asked him to cause injury and hit to dead Perlis Menteri Besar for RM 500,000.00  Ali agreed.  ‘BENGANG GANG’ and Ali entered into an agreement, whereas, the ‘BENGANG GANG’ would pay RM 500,000 to Ali if Ali could cause permanent injury and 7 suffering to the MB until he died slowly.

 Ali successfully cause injury to the MB and after 12 months the MB died of great suffering caused by the injury due to hard blow by Ali.  However, ‘BENGANG GANG’ only paid RM 1,000.00 to Ali, Ali sued ‘BENGANG GANG’.  The contract was void as it is INVOLVES OR IMPLIES INJURY TO THE PERSON OR PROPERTY OF ANOTHER pursuant to section 24 (d)

8

Ex amp le  Bakar interested to enter into UUM studying law.  He met Anuar, a law lecturer in UUM, teaching law of contract II.  However, the problem for Bakar is that he had failed in his English in SPM and his MUET only in band 1.  His application was rejected.  However, he entered into agreement with Anuar that if Anuar would persuade FPAU dean, to still take Bakar, Bakar would pay RM 20,000 to Anuar.  Anuar succeeded in persuading the dean to 9 take Bakar to study law in UUM.

 But Bakar only pay Anuar RM 500.00. Anuar was very angry and sued Bakar.  The contract was void as it is against public policy pursuant to section 24(f).

10

Ma nang Lim N ative Sdn Bhd. v M anang S el aman [1986] 1 ML J 379  An agreement to transfer Native Area Land in Sarawak to a non native is deemed under section 8 of the Sarawak Land Code to have been entered into for an illegal consideration. 11

Ar umugam Ch itt y v Lim Ah Ha ng  The plaintiff lent money to the defendant employed for the purpose of running a brothel. The object of the contract was therefore immoral. When the plaintiff sued for payment, the court held that plaintiff could not recover his money. 12

Pe arc e v Br ooks  The plaintiff agreed to hire a coach to the defendant a prostitute, knowing that she shall use it for her trade.  The plaintiff’s claim for the hire charges failed on the ground that the object of the agreement was immoral. 13

 In Sahabumi Sdn Bhd. V Datuk Yap Pak Leong :  The Federal Court held that an agreement is only void for illegality if the statute prohibits the act which the parties contracted to do and not whether the statute prohibits the contract or the making of contract in question by the parties. 14

At tempts to d efeat t he la w  Hee Cheng v Krishanan  The plaintiff sold his house built on a piece of land in respect of which he was the holder of a Temporary Occupation License to the defendant. The defendant refused to perform the agreement and the plaintiff claimed specific performance or alternatively damages for breach of contract. 15

Th omso n J  The agreement entered into was an attempt to sell and to purchase the plaintiff’s rights under the Temporary Occupation License.  This contrary to rule 41 of the Land Rules 1930 which states that no license for the temporary occupation of state land shall be transferable. 16

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

17

Re ad  Lim Kar Bee v Duofortis Properties (M) Sdn Bhd.  Chung Khiaw Bank Ltd. V Hotel Rasa Sayang Sdn Bhd.

18

Nafsia h v Ab dul Ma jid  The word used in section 24(a) and (b) is not restricted to statutory law and may include other law.

19

 Read Datuk Jagindar Singh v Tara Rajaratnam  The court held that the appellants who are advocates and solicitors were guilty of fraud, breach of agreement and undue influence.

20

Se ctio n 24(d)  Contracts injurious to the person or property of another  Syed Ahamed Alhabshee v Puteh Sabtu (1922) 5 FMSLR 243  Where the defendant agreed to sell a property of the plaintiff in which an infant had an interest. The court held that the dealing was detrimental to the infant’s interest. 21

Se ctio n 24(e)  Agreement that are immoral or opposed to public injury.  Illustrations (j) and (k)  Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff Shah  Court of Appeal stated that the standard of sexual morality in Malaysia and England is different. 22

 At common law immorality is restricted to sexual immorality only  However, the Illustration (j) to section 24 point to a wider interpretation of the meaning of immorality in Malaysia. It may mean more than mere ‘sexual immoral’. It’s meaning is much wider than the meaning as understood in England.  A who is B’s advocate, promises to exercise his influence as such with B in favour of C, and C promises to pay RM1000 to A. The agreement is void because it is immoral. 23

Oppose d t o p ubli c polic y  5 groups:  Illegal by common law or by legislation;  Injurious to good government, either in the field of domestic or foreign affairs;  Case Datuk Ong Kee Hui v Sinyium Anak Mutit [1983] 1 MLj 36 24

 Interfere with the proper working of the machinery of justice;  Cases: SEA Housing Corp. Sdn. Bhd. v Lee Poh Choo [1982] 2 MLJ 31  Engku Leh Engku Dris v Che Wok (1949) 15 MLJ 61

 injurious to family life;  Hamzah Musa v Fatimah Zaharah [1982] 1 MLJ 361 25

 Economically against the public interest  Cases  Thong Foo Ching v Shigenori Ono  [1988] 4 MLJ 585  Aspinal Curzon Ltd Khoo Teng Hock [1991] 2 MLJ 484

26

Co nse quences o f il le gality  The contract is unenforceable  Maxim ex turpi causa non oritur actio  The position under the Contracts Act 1950 and English Law are same.  No person can claim any right or remedy whatsoever under an illegal transaction in which he has participated.

27

Chung Kiaw Bank Lt d. V Hotel Rasa Sayang Sdn Bhd  It may be stated as a general principle that a contract the making of which is prohibited by statute expressly or by implication shall be void and unenforceable, unless the statute itself saves the contract or there are contrary intentions, which can reasonably be read from the language of statute itself. 28

 Supreme court found that in the circumstances the bank who had made the loans were clearly implicated in the illegality and was indeed party to an agreement to defeat the object of a statute and should accordingly be precluded from suing upon it-ex turpi causa non oritur actio. 29

Re ad  Khau Daw Yau v Kin Nam Realty Development Sdn Bhd  Chai Sau Yin v Liew Kwee Sum  Beca (Malysia) Sdn Bhd v Tan Choong Kuang

30

Remedy under s ection 66 Cont ract s Act  When an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. 31

 Section 66 provides 2 conditions:  The agreement is discovered to be void; and  Case: Ahmad Udoh V Ng Aik Chong  The other party has received an advantage.  Case: Ng Siew San v Menaka

32

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

33

Foo Sa y Lee v Oo i He ng Wai  The sale of a Malay Reservation land with the provision that it is subject to the approval of the state government and the Ruler in Council was not contrary to the provisions of the Kelantan Malay Reservations Enactment 1930 and not void. 34

Ex amp le  Mat is the owner of Malay Reservation land in Changloon.  According to the land law, this land (malay reservation) could not be sold nor transferred to non-malay.  However, the land can be sold if the status has changed (from malay reservation land to an ordinary land (where every body can buy the land)), after application made by the owner 35

 Mat finally sold the land to Cheng for RM 10 million.  Mat and Cheng entered into the agreement of sale, provided that Mat should apply for change of status of the land.  Before Cheng paid the RM 10 million, Mat had applied to the Jitra Land office for the change of status of the land to become ordinary land (not Malay reserve land).  Later, Mat changed his mind, not to sell the land to Cheng.  Cheng sued Mat.  Cheng can succeed as he only would get the land, after application to change the status of the land by Mat had been approved by Jitra Land Office, according to Foo Say Lee v Ooi Heng Wai 36

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

37

Ex amp le  Mat entered into a contract with Man, whereby Mat agreed to pay RM 1,000 to Man, if Man agreed to:  1) teach him additional mathematic;  2) persuade Mat’s add mathematic teacher to pass Mat’s examination even though Mat failed (against public policy). Later Man succeeded to carry out these terms and asked Mat to pay that RM 1,000.00 However, Mat refused to pay any.

38

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

39

 Case Murugesan v Krishnasamy  Section 57(2) a contract to do an act which after the contract is made, become impossible, or by reason of some event which the promisor could not prevent, the contract becomes void when the act becomes impossible or unlawful. 40

Cl aims wholly i ndependent of the alleged illegal cont ract  Sajan Singh v Sardara Ali held that where the plaintiff’s claim is wholly independent of the alleged contract, the contract is lawful and enforceable.  Read Tan Lai v Mohamed bin Mahmud 41