ILLEGALITY

WEEK 6
DR SUZI FADHILAH ISMAIL
ILLEGALITY

S.24 CA 1950
 The validity of many
INTRO agreements entered into by
parties has increasingly been
challenged on the ground that
the contracts were made in
contravention of some
legislations or regulations.
 As most of such legislations or
regulations are silent as to the
WHAT IS THE
EFFECT OF A effect of a contravention,
CONTRAVENTION?  the courts often have been
faced with the difficult task of
determining the enforceability
of such agreements.
THE TRUTH IS….

not every contravention of any legislation

or regulation is intended by the law-makers
to have the effect of nullifying a
commercial transaction.
 AN AGREEMENT MAY
BECOME ILLEGAL
BECAUSE OF;
Unlawful Unlawful
consideration object
 Rationale of The law will not give
Q : Why is illegal assistance to a man
unenforceability
agreement who found his cause
of illegal of action upon an
unenforceable?
agreement  immoral or illegal act.

ex turpi causa
non oritur actio
 S.10 : ‘……the consideration
PROVISIONS UNDER
and object of the agreement
CA 1950
must be lawful….’
S.24 lists down 5 specific
circumstances wherein the
consideration or object of an
agreement is unlawful
Examples of lawful consideration

sale of property

a contract of
guarantee

a contract of
Insurance

a contract for
Services
EXAMPLES OF  Illust. (f) :
UNLAWFUL opposed/against
CONSIDERATION public policy
 Examples of unlawful object

Fraudulent

opposed/against
public policy

Fraudulent

opposed/against
public policy [i.e., to
stifle prosecution]
ARUMUGAM V SOMASUNDRAM [1934] FMSLR 322 HC

 D employed P to drive his motorcar for him.

 Both knew that the car was licensed for private
use only but used it for hire contrary to the
Motor Vehicles Enactment.
 When D failed to pay his wages, P claimed for
his wages.
 Held :
 there is nothing illegal in agreeing to drive a car for hire.
 However, if the object of the agreement was to drive an
unlicensed car for hire, then the object of the arrangement
was unlawful.
 Both parties were in pari delicto; P failed in the claim for his
wages.

ARUMUGAM V SOMASUNDRAM [1934]

  [Pl - creditor ;
defendant –
AROOMOOGUM debtor/keeper of a
brothel]
CHITTY V LIM
AH HANG
[1894] 2 SSLR  P sued D to recover
80 a sum of $630
balance due on a
Promissory Note.
 Argument by D:

AROOMOOGUM the amount received by her was to

CHITTY V LIM the knowledge of P - borrowed for the
AH HANG purpose of buying jewellery and
[1894] clothing for the inmates of her brothel,
thus the object of the contract being
immoral and no action can lie.
 AROOMOOGUM CHITTY V LIM AH HANG [1894]
 It was proved that when P lent the money, he knew it was
required for the purpose of working the brothel.

 Upon these facts, the court held the maxim ex turpi causa
non oritur actio* applies, & P cannot recover.

 *Latin for "from a dishonorable cause, an action does not arise” is a legal doctrine which states
that a plaintiff will be unable to pursue legal remedy if it arises in connection with his own
illegal act.
 PEARCE V BROOKS [1866] LR 1 EX 213

 This case was cited with approval by the judge in the

case of Aroomoogum Chitty v Lim Ah Hang.
Facts:
 A coach builder sued a prostitute for the hire of a
brougham*.

 Held (Pallock C. B.):

“…Nor can any distinction be made between an "illegal
and an immoral purpose”.

 *four-wheeled closed carriage drawn by one horse

 P’s claim for the hire charges failed.
Both parties to a contract for the
hire-purchase of a brougham knew
PEARCE V that D prostitute was going to use
BROOKS
the brougham in the course of plying
[1866]
her trade.
The claimant could not sue for the
hire.
S.24 (a) SCOPE & The exact scope & differences
APPLICATION : between S.24(a) & (b) is not clear.
AGREEMENTS
WHICH ARE
FORBIDDEN BY The courts have used the words of
either sub-section in its decision
LAW without indicating why they have
relied on one & not the other.
Basically, both subsections
refer to agreements that are
S.24 (a) SCOPE &
illegal; APPLICATION :
 for expressly contravening AGREEMENTS
a statute or any subsidiary WHICH ARE
legislation; FORBIDDEN BY
 or by implication. LAW
S.24 (a) SCOPE & Q : HOW TO
APPLICATION :
DISTINGUISH
AGREEMENTS WHICH
(a ) & ( b)?
ARE FORBIDDEN BY LAW
 Clause (a) deals with
BOTH CLAUSES
MAY BE cases of express/direct
DISTINGUISHABLE : prohibition;

while clause (b) deals

with implied/indirect
prohibition.
BOTH CLAUSES MAY BE DISTINGUISHABLE…
Clause (b) covers those situations where even if there is no express provision
of law against making a contract, but such contract would not be allowed if it
would defeat the purpose/spirit of law.

 Illust. (i) to S.24

 Plaintiffs administrators of the Siamese lady's
estate/purchasers;

HAJI HAMID BIN

ARIFIN V AHMAD Defendant administrator of Mahmud's estate
BIN MAHMUD
[1976] 2 MLJ 79 A dispute concerning a piece of Malay Reservation Land in
FC Kedah.

In 1944, its registered proprietor, one Mahmud bin Samad

(a Malay), sold the land to a Siamese lady, Ah Yam d/o Ah
Nam @ Nyonya Yam d/o Indin Nom.
  On the execution of the agreement,
possession of the land and of the title
HAJI HAMID BIN deed to the land was given to the
ARIFIN V AHMAD BIN purchaser.
MAHMUD [1976]  Subsequently, the Siamese lady (now
deceased) sold the land to the present
P.s who are Malays.
 The land is still registered in Mahmud's
name. Mahmud has since died.
 P.s sued for the for specific
performance.
 Ah Yam d/o Ah
Mahmud bin Nam @ Nyonya Haji Hamid bin
Samad Yam d/o Indin Arifin
Nom

Issue: whether the sale in 1944 by Mahmud to the

Siamese lady was enforceable under the provisions of
the Kedah Malay Reservation Enactment ?
 The first sale was void because
of s. 6 of the Enactment
The second sale by the

HELD : Siamese lady to the P.s was

also void although P.s were
also Malays & dismissed the
P.s' claim.
 P.s appealed.
 ISSUE (ON APPEAL):
 whether or not the first sale by Mahmud to the Siamese
lady was void?
 The court concluded that the purported* sale here was an
“outright”** sale.

 *alleged
 **wholly/completely/directly/absolutely/no conditions attached to it
  The court would be inclined to consider it
valid if it had been conditional and
expressed to be subject to the State
Authority (1) allowing the land to be
excised under s. 4 or (2) agreeing to
HELD: declare the Siamese lady a Malay for the
purposes of the Enactment ….vide* Foo
Say Lee v Ooi Heng Wai [1968] 1LNS 3.

  appeal was dismissed.

 *see
FOO SAY LEE V OOI HENG WAI [1969] 1 MLJ 47 FC

Condition three of the agreement provides

that the sale was subject to the approval of
the Kelantan government and His Highness
the Ruler in Council.
 ISSUE :

Whether the agreement is null & void under the

Malay Reservations Enactment 1930 and if so,
 is P entitled to specific performance of the
said agreement and for damages for breach?
 Section 13A(i) of the
FOO SAY LEE V Enactment gives the power to
His Highness the Ruler in
OOI HENG WAI Council in his discretion to
[1969] approve a transfer of a right or
interest of any Malay in
Reservation land to any person
not being a Malay.
  Since the Enactment itself has provided a method
of effecting a transfer of a Reservation land from a
Malay to a non-Malay, the court is unable to come
to the conclusion that any agreement to transfer
FOO SAY LEE V such land by a method so provided by the
Enactment itself, can be said to be contrary to the
OOI HENG WAI provisions of the Enactment & therefore null & void
[1969] under s. 12; nor could it be said that the
agreement is an attempt to evade the provisions of
the Enactment.

Held:
 The agreement was not null & void.
 CASE-LAW

Hassan v Ismail [1970] 1 MLJ 210 FC Lim Eng Heng v Lim Sam Keow & 2 Ors
[2003] 2 AMR 520 HC; [2003] MLJU 47 HC

Issue: whether the contract was void ab initio as the

subdivision was forbidden under the Kelantan Land Agreement to pay plaintiff commission for
Enactment and the National Land Code; procuring purchasers for defendant's
properties; Plaintiff was not registered as
Held: although the subdivision was forbidden under the estate agent under Valuers Appraisers and
Kelantan Land Enactment and the National Land Code Estate Agents Act 1981; Action by plaintiff to
there was provision for exemption under the enactments recover unpaid commission; Issue: Whether
and therefore the contract was not ab initio the agreement was void and unenforceable
S.24 (B) SCOPE & Case : Hee Cheng v Krishnan
APPLICATION : [1955] MLJ 103 OCJ
AGREEMENTS
WHICH ARE OF D was the holder of Temporary
SUCH NATURE THAT, Occupation Licence (TOL).
IF PERMITTED ,
THEY WOULD
P & D entered into a contract,
DEFEAT ANY LAW attempting to sell and purchase
defendant’s rights under TOL.
 Held:
HEE CHENG V the contract was unlawful by
KRISHNAN [1955] reason of s. 24 of the
MLJ 103 Contracts Ordinance as being
of such a nature that if
permitted it would defeat the
provisions of any law , hence
it is void.
 The TOL licence was issued under r. 40 of
the Land Rules 1930; and
HEE CHENG V
KRISHNAN r. 41 : "No licence for the temporary
occupation of State land shall be
[1955] transferable".

That is the provision of the law which would

be defeated if effect were given to a
contract of this nature.
  Lim Kar Bee was a wealthy landowner who
incorporated a company, Duofortis to buy the
relevant land in the event of his death.
 The directors and shareholders of the company were
DUOFORTIS
the wife & children of Lim Kar Bee.
PROPERTIES (M)
 The said company was incorporated in pursuance of
SDN BHD V LIM
a scheme devised by a tax consultant to avoid
KAR BEE [1992] payment of estate duty payable in regard to the said
2 MLJ 281 SC land if the landowner died.
 Estate duty is a tax on the total market value of a person's assets (cash
and non-cash) at the date of his or her death. It does not matter if the
person has a will or not, the assets are still subject to estate duty. The
deceased person's assets, as a whole, are called an estate.
 DUOFORTIS PROPERTIES (M) SDN BHD V LIM KAR
BEE [1992]

Held:
 The agreement for the sale and purchase of the land and related documentation were
unenforceable.
 The controllers of the company were the wife and children of Lim Kar Bee who would
otherwise have to pay estate duty on the land in the event of his death.
 The primary purpose of the scheme was to avoid paying the estate duty, as the said land
would remain with members of the immediate family of the landowner.
 The scheme was therefore illegal.
  The real test to be applied in any given transaction
seems to be whether the primary purpose of the
transaction is to avoid tax; if it is, it is an illegal
purpose, that is, of such a nature that, if permitted, it
would defeat the tax law in question, coming under s
DUOFORTIS 24(b) of the Contracts Act 1950.
PROPERTIES (M)
SDN BHD V LIM
 The scheme was therefore illegal. The
KAR BEE [1992]
agreement of sale and purchase of the said
land & the subsequent trust deed were
therefore unenforceable.
Q : How to interpret the
term ‘law’ in S. 24(a)
and (b)?
 A : The word ‘law’ used in S.24(a) and (b) is not
confined to statutory law and may include other law,
for example, principles of Islamic Law, as illustrated
in the following case ;

 Nafsiah v Abdul Majid [1969] 2 MLJ 174 OCJ

 P claimed damages for breach of contract of
marriage.

NAFSIAH V She claimed that:

ABDUL MAJID  D made a promise in 1963 & it was

reduced into writing by a document.
[1969]
 she was seduced by D & as a result of such
seduction, she became pregnant & a son
was born to her through D in 1964.

D denied both of P’s claims.

NAFSIAH V ABDUL MAJID [1969]

Counsel for D’s argument:

P knew that D was already married;

even if D had made any promise to marry P, such a promise or

agreement in such circumstances was void ab initio.
 Counsel’s argument might very well be true of a
society in which marriage is a monogamous
institution.
The parties in the present suit, however, are
governed by Muslim law & D is under his own
COURT’S personal law entitled to more than one wife,
OBSERVATION hence such an argument does not apply to the
conditions which prevail in this country and more
particularly to males professing the Muslim faith.

Held:
 D was liable to pay damages of $1,200
 S.24 (c ) & ( d) SCOPE & APPLICATION :
AGREEMENTS INVOLVING FRAUD AND CAUSING INJURY

Subsection (c ) covers
agreements that are
fraudulent – refer Illust Subsection (d) covers
(e) and (g). agreements that involve or
imply injury to the person
or the property of another.
 Illust (j) & (k) are examples of
S.24 ( e) SCOPE & agreements that are immoral.
APPLICATION :
AGREEMENTS THAT ARE At common law, immorality is
IMMORAL/ confined to sexual immorality
OPPOSED TO PUBLIC only, but illust (j) seems to
POLICY indicate a wider interpretation
of the meaning of immorality in
Malaysia.
“OPPOSED TO/AGAINST PUBLIC POLICY”?
UNDER COMMON LAW, SUCH TERM DENOTES THE
FOLLOWING :
(a) illegal by common law or by legislation
Contracts Act 1950: S.24(a) & (b)

(b) injurious to good government

S. 31 CA 1950: with regards to agreements by way of wager

(c) interfere with the proper working of the machinery of justice

Contracts Act 1950: S.29
“OPPOSED TO/AGAINST PUBLIC POLICY”?
UNDER COMMON LAW, SUCH TERM DENOTES THE
FOLLOWING :

(d) injurious to family life

Contracts Act 1950: S.27

(e) economically against the public interest

Contracts Act 1950: S.28
 The position in Malaysia is
“OPPOSED TO/
AGAINST PUBLIC
not clear whether the above
POLICY” notion of public policy under
common law is applicable to
S.24(e).
  P.s stock and share brokers;
 D  remisier

 P.s were members of the Stock Exchange of Malaysia &

Singapore, which is governed by its bye-laws.
THERESA CHONG
V KIN KHOON &  The bye-laws provided for a member firm to appoint a remisier
CO [1976] 2 MLJ whose name is required to be registered with the Stock
253 FC Exchange.

 Any member found guilty of any violation of the bye-laws and

rules of the Stock Exchange is liable to a fine or suspension of
membership.

 D was not registered with the Stock Exchange as P.s' remisier.

 On appeal, it was contended for
THERESA CHONG V A that when P.s entered into an
KIN KHOON & CO agreement with D to engage her
as a remisier, without her being
[1976]
registered with the Stock
Exchange, they were entering
into an agreement which was
void as being contrary to public
policy.
 The general head of public
policy covers, in English law, a
ISSUE : wide range of topics.
WHAT IS Agreements may offend against
PUBLIC public policy by tending to the
POLICY? prejudice of the State in time of
war (trading with enemies,
etc.),…
 THERESA CHONG V KIN KHOON & CO [1976]

..by tending to the perversion or abuse of municipal justice (stifling

prosecutions, champerty and maintenance) or, in private life, by
attempting to impose inconvenient and unreasonable restrictions
on the free choice of individuals in marriage, or their liberty to
exercise any lawful trade or calling.... It is now understood that the
doctrine of public policy will not be extended beyond the classes of
cases already covered by it. No Court can invent a new head of
public policy.
 Held:
THERESA CHONG V the present contract does not fit
KIN KHOON & CO into any of the traditional
[1976] pigeonholes, thus the contract
between P.s & D was not illegal.
Appeal was dismissed.
 no court will enforce an agreement
OOI KIAH INN CHARLES to stifle prosecution if such
& ANOR V KUKUH MAJU agreement, if allowed to be
INDUSTRIES SDN BHD enforced, could mean that the law of
freedom to contract has been
(FORMERLY KNOWN AS abused. Such contracts are unlawful
PEMBINAAN MUNCUL because their consideration or
HEBAT SDN BHD) [1993] object is against public policy and
2 MLJ 224 SC are caught by the second limb of
s.24(e) of the Act.
CONTRACTS NOT AFFECTED BY ILLEGALITY

i.e., when the statute itself saves the contract

The case to illustrate the above rule:

Rengamah a/p Rengasamy v Tai Yoke Lai & Anor [1998] 5

260 HC
 P entered into an agreement with D.s to
sell the land. D.s paid deposit upon
execution of the agreement.
RENGAMAH A/P
RENGASAMY V
TAI YOKE LAI & The balance sum was to be paid in
ANOR [1998] accordance with cl. 3 of the agreement
which provided that the formation of a
binding contract depended upon the
P proprietor of the land(vendor), required approval from the Estate Land
D  purchaser
Board.
  P later wrote to D.s rescinding the agreement &
returning the deposit on the basis that by entering into
such agreement, P would be violating s. 214A of the
National Land Code 1965.
RENGAMAH
A/P
Section 214A of the NLC 1965 provides, inter
RENGASAMY V
alia that no estate land shall be capable of
TAI YOKE LAI & being transferred without the approval of the
ANOR [1998] Estate Land Board.

 P claimed that the agreement was void as it was

illegal.
 It is settled law that a contract which 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.
HELD :
Section 24 of the Contracts Act 1950 does
not apply to such a contract for the obvious
reason that the statute itself has saved the
contract which was otherwise forbidden.
Clause 3 of the agreement made it clear that
the formation of a binding contract of sale of
the land depended on obtaining the required
RENGAMAH
approval from the Estate Land Board. A/P
RENGASAMY V
The agreement would be TAI YOKE LAI &
rendered null and void if the ANOR [1998]
approval was not obtained.
 EFFECT & REMEDY
•illegal contract is void and
Effect unenforceable under S.24.

•S.66 provides the remedy

Remedy of restitution.
 RESTITUTION

there are 2 conditions

(1) the agreement is (2) the other party has
for the availability of
discovered to be void; received an
the remedy of
and advantage
restitution under S.66
 AHMAD BIN UDOH V NG AIK CHONG
[1970] 1 MLJ 82 FC

D.s entered into agreement to lease out their

padi land for the years 1965 to 1970 at an
annual rent of $250 & on the execution of
the agreement, received the six years' rent in
advance amounting to $1,500.

D the lessor of padi land,

P  lessee
 The agreement was drafted by a
AHMAD BIN UDOH V layman and in the colloquial
NG AIK CHONG Malay language.
[1970]
It is provided inter alia that if P
should be prevented from
cultivating the land, D.s must
return the advance.
 Section 3 of the Padi Cultivators (Control of
Rent and Security of Tenure) Ordinance
1955 provides that:

no tenancy agreement for the cultivation of

padi shall be for a term of less than one
AHMAD BIN UDOH season or more than one year
V NG AIK CHONG
[1970]
Section 16 of the Act provides that:

any contravention of any provisions of the

Ordinance is an offence.
 D.s argued:
that the agreement was void and
unenforceable because it contravened
the provisions of the Padi Cultivators
AHMAD BIN (Control of Rent and Security of Tenure)
UDOH V NG AIK Ordinance 1955; &
CHONG [1970] that P was in pari delicto* with D.s on
the ground that P based his claim on the
said agreement.

 *in equal fault

 whether the money paid by P to D.s
under the agreement may or may not be
ISSUE : recovered back by P under s. 66 of the
Contracts (Malay States) Ordinance by
reasons of the provisions of ss. 24 and
25 of the said Ordinance.
 An agreement discovered to be void is one
discovered to be not enforceable by law, and, on
the language of the section, would include an
agreement that was void in that sense from its
inception as distinct from a contract that becomes
COURT’S void.
OBSERVATION :
There may be cases where parties enter into an
agreement honestly thinking that it is a perfectly
legal agreement & where one of them sues the
other or wants the other to act on it, it is then that
he may discover it to be void.
 Since the facts and
circumstances of the case
proved that the parties were
HELD : ignorant that they were
executing an illegal agreement,
s. 66 of the Contracts (Malay
States) Ordinance would apply,
hence P was entitled to the
return of his advance.
 The court will examine the facts of each
case to determine whether the party was
aware of the illegality at the time of entering
into the agreement.
AHMAD BIN UDOH
V NG AIK CHONG
 To obtain the remedy of restitution
[1970]
under S.66, the party must not be
aware of the illegality.

A guilty party to an illegal agreement will not

receive any remedy under S.66.
 Both R & A had testified
that they had entered
into the two
THONG FOO CHING AND agreements separately
ORS V SHIGENORI ONO in order to circumvent
the FIC requirement &
[1998] 4 MLJ 585 CA that this intention was
present throughout the
transaction.
As the arrangement between the parties
is illegal & the illegality is not only with
regard to its performance but in its very
inception, such arrangement is void ab THONG FOO
initio.
CHING AND ORS
R, being a party thereto, cannot claim any
remedy under this arrangement.
V SHIGENORI
ONO [1998]
it is not open to R to revert to his status
quo under s. 66 of Act 136.
 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
SEVERABILITY free of any illegality.

The parties can sue on the agreement

unaffected by any illegality.

 *divide, break, or make separate, esp. by cutting

MURUGESAN V KRISHNASAMY & ANOR [1958] 1 MLJ 92 OCJ

D Temporary Occupation Licence holder (vendor),

P  purchaser

D & P entered into agreements for sale & purchase of the right, title and interest in the
said pieces of land.

D.s agreed to execute valid transfers of the land to P as soon as the Collector of Land
Revenue issued titles.
  The agreements also contain the
clause to the effect that pending
MURUGESAN V the execution of transfers the
KRISHNASAMY & purchaser is to enter into the land
ANOR [1958] and occupy it.

 This amounts to an attempt to

transfer to him, at least, a part of
the vendors' rights under the
Temporary Occupation Licences.
 It is well settled law that:

PRINCIPLE :
if several distinct promises are made for
one & the same lawful consideration & one
or more of these promises is such as the
law will not enforce that will not of itself
prevent the rest from being enforceable.
The general rule is that,
 where you cannot sever the illegal from the legal
part of a covenant, the contract is altogether void;
 but, where you can sever them, whether the
illegality be created by statute or by the common
law, you may reject the bad part and retain the
good.
 The contracts are void by reason of
s. 57 of the Ordinance, when it
HELD : became impossible for D.s to
transfer the titles of the land to P
when the State Authority refused D.s’
application.

This is not a case of

agreements which are void and The plaintiff was allowed to recover
have never become contracts
by reason of illegality but of the purchase money in accordance
contracts which have been
avoided by circumstances such with s. 66.
as are contemplated in s. 57.
SOME OF RECENT CASE-LAW :

Yogananthy a/p AS
Thambaiya v Harta
Yeep Mooi v Chu Chin
Pusaka Idris bin Osman
Chua [1981] 1 MLJ 14
[2020] 5 MLJ 455 FC –
FC - illegality
public policy – para 42-
49