Illegality (Prohibited agreements or

terms)
 Mistake, misrepresentation, duress and un due influence are
factors that may vitiate a contract largely for want of true
consensus
 An agreement may also be unenforceable because some
aspect of it is prohibited; by statute or under the common law.
 It is not possible to give sufficient examples of statutes that
prohibit agreements or aspects thereof.
 We may note in general terms that a statute may proscribe
 The object or purpose of a contract;
 The involvement of certain parties;
 or the manner of its formation.
Statutory illegality.

 A statute that prohibits some aspect of a contract should

normally spell – out the consequences.
 In the prohibitions that we have so far seen, relating to
form, statutes state that “no agreement shall be of any
force or effect”, unless …
 The agreement is in other words void.
 In other situations, a contract may simply proscribe an
activity, without specifying the effect.
 What the Legislature may have intended should be
assessed from the text.
 Where the object or purpose is proscribed, at the very least,
the agreement should be void, or at least unenforceable.
Land Control Act, Cap 32:11

 One example of a statute that prohibits a particular type of

contract, and clearly spells-out the consequences is the Land
Control Act.
 This Act in effect provides that a controlled transaction entered
into without the consent of the Minister shall be void for all
purposes.
 A controlled transaction is a contract involving alienation and
transfer of agricultural land, or shares in a company that owns
agricultural land, to a person who is not a citizen of Botswana.
[S. 3 (1)]
 The contract becomes void at the end of 3 months if consent is
not sought, or at the expiration of 30 days after consent has been
refused. [S. 3 (2)]
Land Control Act ( cont)

 Although a controlled transaction may be “void for all purposes”, any

money or valuable consideration paid under it may be recoverable as a
debt. (S. 4)
 But it is a criminal offence, punishable by a fine or imprisonment to pay
money or enter into possession or remain in possession in furtherance of an
avoided contract. (S. 10) Recovery of money or consideration in this
situation may therefore be compromised.
 S. 5 of the Act requires that a proposed controlled transaction must be
advertised in the Govt. Gazette and in newspapers for a period of not less
than 90 days, so as to give citizens an opportunity to pre-empt or object to
transaction.
 S. 6 (2) of the Act controversially states that the Minister’s decision
whether to grant or refuse consent shall be final and conclusive, and shall
not be questioned in any court.
Employment Act
 The Employment act, Cap 47:01, is another law from which an
example of statutory illegality may be drawn.
 The Act generally lays down basic or minimum terms and
conditions of employment in Botswana, from which particular
contracts contract may not derogate.
 S. 38 provides that where a contract provides for less favourable
terms and conditions than those provided by the Act, the contract
“shall be null and void to the extent that it so provides. (See
Setilo v Tswelelopele Brigades Centre 1988 BLR 33 and Martex
Trading (Pty) Ltd v Lloyd 1998 BLR 201.
Common Law Illegality.

 Not every type of agreement or term can be prohibited by

statute.
 Some contracts or terms are regarded as prohibited by
reference to the common law.
 The yardsticks at common law are whether the agreement
or term can be said to be contrary to public policy or
contra bonos mores.
 These are fluid, contentious, interchangeable concepts,
referring to something inimical to the interests of the
community. Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1.
Common law illegality cont.

 At common law certain categories of contracts are

traditionally regarded as contrary to public policy. These
include:
 Contracts interfering with the administration of justice.
(Compare DPSM v Paya [2003] (1) BLR 132)
 Agreements interfering with marriage; such as collusion to divorce;
and
 Contracts encouraging prostitution or promoting sexual immorality;
 Contracts or terms in restraint of trade; and
 Terms such as pactum commissoria and parate executie in credit
and security arrangements.
Restraints of Trade (1)

 There are more cases, and more discussion is required, of

contracts or terms in restraint of trade.
 A restraint of trade is a restriction of a party’s ability to
carry out or practice his trade, business or profession.
 Restraints may be encountered in a variety of settings, such
as:
 Employment contracts;
 Contracts for the sale of a business;
 Retirement from a partnership; and
 Distribution agreements.
Restraints of Trade (2)
 The legality of a restraint is assessed in reference to two
competing philosophies.
 The old approach was that public policy encourages competition,
from which consumers are more likely to benefit.
 A restraint of trade is therefore prima facie invalid, unless the
party seeking to rely on it can show that the restriction in
question was justifiable.
 This could be done by showing that it served a legitimate
purpose; and reasonable means were employed for achieving that
purpose. See, for e.g. the English case of Esso Petroleum (Pty)
Ltd v Harpers Garage (stourport) Ltd [1967] 1 All ER 699,
involving a distribution arrangement.
Restraint of Trade (3)

 From Magna Alloys and Research (SA) Pty Ltd v Ellis,

1984 (4) SA 874, the competing philosophy, now in the
ascendancy, is that public policy also seeks to uphold the
sanctity of contracts.
 If a contract with a restraint of trade clause has been
properly entered into, the contract, and the restraint must
be enforced, unless the party seeking to avoid it can show
that it was unreasonable, and contrary to public policy.
 The onus thus is now on the party who seeks to avoid a
restraint in a contract properly entered into.
Case illustrations.

 The approach in Magna Alloys was followed in Equinox

Investments (Pty) Ltd v Lepopo (Pty) Ltd [2002] (1) BLR
149.
 The decision in Martex trading (Pty) Ltd v Lloyd [1998]
BLR 201 was probably informed by this approach.
 So too was the Court of Appeal decision in Emerald star
(Pty) Ltd (In Liquidation), and the High Court’s decision
in Drambore v Cyril Hurvitz that a pactum de non cedendo
was not contrary to public policy.
Pactum Commissorium

 From the recent cases, the clearest example of a term of a

contract that is illegal at common law, on grounds of being
contrary to public policy is a pactum commissorium.
 This is a clause in a mortgage bond, pledge or similar
arrangement by which it is provided that the creditor will
assume ownership of the property mortgaged or pledged in the
event of the debtor’s default.( Molome v Quick Cash [2001] 2
BLR 93; and Tswaing v Van Schalwyk.)
 Such a pact has been regarded as too oppressive to debtors, and
contrary to public policy, from Roman law days.
Parate Executie

 This is a term in a credit and security arrangement to be

carefully contrasted with a pactum commissoria.
 Parate executie means private executie.
 It refers to a term in a credit and security arrangement
authorising the creditor to have the property pledged or
mortgaged without, any further reference of the matter to the
debtor.
 At common law, a parate executie is unlawful in a mortgage
bond, but not in arrangements involving hypothecation or
pledging of movable property. See Mapenduka v Ashington
1919 AD343, 351 and Iscor Housing Utility Co. v Chief
Registrar 1971(1) SA 613.
Effects of Illegality (1)
 As noted above, a statute prohibiting a contract or some
aspect of it may indicate the effects of the prohibition.
 If a statute does not so indicate, or if the contract is prohibited
at common law, the effect of an unlawful contract or term
may be indicated through two maxims.
 These are:
 ex turpi causa non oritur actio : No action arises in a bad cause and
 in pari delicto portio est conditio defendentis: in equal guilt the
position of the defendant is stronger.
Effects of Illegality (2)
 These maxims reinforce or complement each other.
 By the first maxim, the courts will refuse to recognise or enforce an
illegal term or contract.
 It would be scandalous to do otherwise.
 By the second maxim, when courts refuse to recognise or enforce a
contract, it is preferable to let the defendant retain what has been
obtained under the illegal contract.
 In Olatotse v Makhala 1986 BLR 322 the High Court effectively
applied these maxims, but without explicitly so stating. The Court
simply dismissed the plaintiff’s claim for the return of a deposit
paid under an illegal contract.
Effects of Illegality (3)

 In Masilonyane v Setlhare 2007 (3) BLR 62 the High Court explicitly

referred to and applied the ex turpi causa maxim to dismiss the
plaintiff’s claim for repayment of a loan he alleged to have advanced
to the defendant. The Court did not find it necessary to discuss and
apply the in pari delicto maxim.
 Both maxims were considered in Molefi v Blue Bends Investments
(pty) Ltd 2004 (1) BLR 259, but, referring to Jabjay v Cassim 1939
AD 537, the Industrial Court held that in order to do justice and to
prevent unjust enrichment, it will not apply the in pari delicto maxim.
It ordered payment to the plaintiff of some benefits earned under an
illegal contract.
 By so ordering, the Court also effectively refused to apply the ex turpi
causa maxim, and possibly misdirected itself in the application of the
exception to the in pari delicto maxim.