Illegality, (void for)

Johnson v. Lazzarino, 1999 CanLII 18678 (ON CA)

BY THE COURT: We agree with the analysis of Sharpe J. The Rule in question was intended to regulate the professional conduct of members of the Institute of Chartered Accountants of Ontario by prohibiting contingency fees. It did not provide that contracts entered into in contravention of the Rule were void or otherwise unenforceable.

The professional consequences to the respondent flowing from his alleged breach of that Rule are for the Institute. The effect, if any, of the breach of that Rule on the validity of the contract made between the parties is for the court to determine applying judge-made rules applicable to allegations that a contract is void for illegality.

As Sharpe J. observes, this court favours an approach which looks to the purpose animating the statute which is said to have been violated, and the circumstances under which the particular contract was made and then asks whether it would be contrary to public policy to enforce the contract: Beer v. Townsgate I Ltd. (1997), 1997 CanLII 976 (ON CA), 36 O.R. (3d) 136, 152 D.L.R. (4th) 671 (C.A.). In this case, the alleged breach of the Rule had no impact on the creation of the contract, caused no harm to the appellants, and did not affect the performance of the contract. Indeed, by the time payment was due under the contract, the rules had been amended so as to permit contingency fees like that contemplated in this agreement.

To give effect to the appellant's argument would be to sanction to unjust enrichment of the appellant without in any way furthering the regulatory purposes of the Rule. In our view, that would not be good public policy.

Runciman v Wilkins, 2018 CanLII 110985 (ON SCSM)

46. Early in the trial I had queried whether the court can enforce an illegal contract. Counsel for the plaintiff Andrew Ferguson states that one possibility is to sever the legal from the illegal parts of the contract. If I were to do so, then I would only consider the litigation dealing with the “permitted” work - the garage and breezeway. Alternatively, he says, I could dismiss both claims.

...

70. Ultimately, I must decide what parts of Pastor Wilkins claim should properly be considered by the court, given that the scope of the work planned included both what was permitted, and what was not, and how to deal with his claim based on the duty to carry out a contract in good faith. I do not think that this is a proper case to enforce the illegal parts of a contract. Both parties went into this with their eyes wide open. Pastor Wilkins did so because it was cheaper and more efficacious: he thought he could complete the job within a $100,000 envelope and do so more quickly, with less intervention from the authorities. He would have his mother-in-law as a paying tenant, and would enhance the value of his property.

North v. Metaswitch Networks Corporation, 2017 ONCA 790 (CanLII)

[39] In Oudin, the motion judge relied on the wording of the specific severability provision in the employment contract that directed modification “only to the extent necessary” to comply with the law: see Oudin, at paras. 35, 40. The motion judge found that this established the clear intention of the parties: see Oudin, at para. 42. Similarly in Miller v. Convergys CMG Canada Limited Partnership, 2014 BCCA 311, 16 C.C.E.L. (4th) 49, leave to appeal to SCC refused, [2014] S.C.C.A No. 424, the court stated at para. 42:

Where the parties anticipated the possibility of severance and chose contractual language to govern this eventuality, severability is not just a remedial question. Before turning to remedy, the starting point must be to give effect to what the parties reasonably intended if a provision of the contract is found unenforceable by reason of illegality.

[40] The problem with this approach is that, to the extent that it effectively rewrites or reads down the offending provisions, it has the very effect referred to by Iacobucci J. in Machtinger – employers will be incentivized to contract out of the ESA but include a severability clause to save the offending provision in the event that an employee has the time and money to challenge the contract in court. Similar concerns were recognized by this court in 2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2015 ONCA 152, 124 O.R. (3d) 776, where the court declined to order severance of an illegal clause in a franchise agreement because, if the only consequence to a franchisor is that the illegal clause is read down to make it legal, franchisors would be encouraged to draft illegal contracts.

Daniel R. Auto Body v Agapia Nagy, 2016 CanLII 106243 (ON SCSM)

29. Therefore, I find that the oral contract of sale of the VW between Mr. Ratiu and Mrs. and Mr. Nagy is not enforceable due to the illegality on the part of Mr. Ratiu in selling the vehicle without having registered as a dealer under the M.V.D.A. By his conduct Mr. Ratiu totally defeated the public policy behind that Act, and this overrides any injustice which might lie in relieving Mrs. Nagy of her joint obligation to pay the balance of the purchase price. Moreover, I find that there is no injustice in that relief, because the issues which arose soon after the sale concerning the condition of the vehicle and the meaning of the phrase “as is” are the very things which the Act and the regulations are intended to prevent or remedy. Mr. Ratiu by operating outside the law of this province has deprived his customers of all the consumer protections that law would otherwise provide to them. The conduct of Mr. Ratiu and the circumstances which eventuated in this case are exactly what the M.V.D.A. was enacted to eliminate.

Sheppard v Carvalho, 2015 ONSC 3266 (CanLII)

[15] Joseph advances an argument that the contract is illegal and ought not to be enforced by the court. In Berne Development Ltd. v. Haviland et al, [1983] O.J. No. 2917, Saunders J. restated a basic principle at para. 26 that, “It is well-established that the court will not assist a party to enforce an illegal contract.” On the facts of that case, Berne, a sophisticated developer, offered a second mortgage to the buyers without full and proper disclosure to the principal lenders. However, as the court noted at para. 36:

While the action of Rockport and Berne, in attempting to deceive CMHC is reprehensible, it is not, in my opinion, a moral turpitude of such a magnitude as to call for the severe consequence of depriving the vendor of the balance of the purchase price to the benefit of the purchaser.

However, the court limited the recovery of Berne by stating at para. 36:

On the other hand, because of the illegal nature of the transaction, Berne should not be able to recover further interest or to enforce its security and other remedies under the mortgage.