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Published online by Cambridge University Press: 12 February 2016
One cannot overemphasize the basic rule that the maxims ex turpi causa and in pari delicto operate negatively, that is to say, only so as to bring about the rejection of actions tainted with illegality in its widest sense; but they never operate so as to outlaw culprits or deprive even habitual offenders of their civil rights.
Some doubt may, however, arise whether the same rule applies to illegal associations. After all, associations are not natural human beings, whose rights as such are regarded as fundamental human rights or safeguarded by Bills of Rights. Associations and corporations, of all kinds, owe their very existence to a legal concept which regards them as something additional, sometimes even entirely different from their members.
It is not self-evident then, that illegal associations should or should not be recognized for any civil law purpose, and it is not surprising, therefore, that there has been a diversity of legal opinion on that point.
1 Modern English law does not recognize the Roman conception of capitis deminutio, Inst. 1.16., in any degree or form. See also the Australian case Noble v. Maddison (1912) 12 S.R. (N.S.W.) 435 where the court granted relief in some actions brought in respect of partnership between the litigants, though that partnership was, to a certain extent, connected with another, a highly illegal one, between the same parties.
2 Everet v. Williams (1725) cited by Lindley, on Partnership (13th ed.) 130Google Scholar. See Pollock in (1893) 9 L.Q.R. 197: “Truth is always stranger than fiction. The story of a highwayman filing a Bill in Equity for an account against his partner, which we had always doubted, (at p. 105 of that volume it was referred to as ‘a well known legal legend’) is correct after all”.
3 Re South Wales Atlantic Steamship Co. (1876) L.R. 2 Ch. 763, 765Google Scholar.
4 Everet v. Williams, ubi supra.
5 Farmer v. Russell (1797) 1 Bos. & Pul. 296.
6 See Sykes v. Beadon (1879) 11 Ch. D. 170, overruled by Smith v. Anderson (1880) 15 Ch. D. 247. See Gower, , Modern Company Law, 192Google Scholar.
7 Most of those cases arose in earlier times, when the procedure of incorporation was incomparably more difficult, expensive and cumbersome, and on the other hand the big incentive in the form of income tax advantages was lacking. It may be of some interest to note here, that in Re South Wales Atlantic Steamship Co., ubi supra, the people seeking the winding up of the association on grounds of illegality, were no other than the solicitors who had been engaged in drafting the rules of association of that body.
8 For full treatment of the law regarding unincorporated associations, see Lloyd, , Unincorporated Association (1938)Google Scholar.
9 Partnership Act, 1890, sec. 1(1).
10 See e.g. Watson, on Partnership (2nd ed., 1807) 1Google Scholar, where he defines partnership as “voluntary contract … having for its object the advancement and protection of fair and open trade”.(!)
11 Indian Partnership Act, p. 5.
12 (13th ed.) Part I, Chap. 8, p. 127.
13 Scots law, however, treats partnership as a separate legal entity; Partnership Act, 1890, sec. 4(2). See also Bell, , Introduction to the Law of Scotland, § 357Google Scholar, but this difference seems not to have much practical effect.
14 It is, however, somewhat bewildering to see that Indian courts have invariably held that a partnership for an illegal purpose is void ab initio. See Velu Padayachi v. Sivassoorium A.I.R. (1950) Mad. 444; Venkata Subayga v. Attar Sheik Mostan (1948) 2 M.L.J. 198; Sonthanarama Mudeliar v. Sami Kurripundas (1910) 14 L.W. 226; Pollock's view expressed in his treatise on Indian Partnership Act, cited above, was not referred to at all in those judgments, which however found the strongest authority for their reverse decision in the express provisions of sec. 23 of the Indian Contract Act, drafted by Sir Frederick Pollock himself, which reads: “…Every agreement of which the object or consideration is unlawful is void”.
15 Pollock, on Partnership (15th ed. by Prof.Gower, ) 9Google Scholar.
16 [1908] 2 K.B. 696, 718. See also O'Connor v. Rolston [1920] 3 K.B. 451; Thomas v. Dey (1908) 24 T.L.R. 272; all of them have been overruled or rendered “very distinguished”. See infra.
17 [1921] 2 K.B. 351. See also Lindley, on Partnership (13th ed.) 33Google Scholar, and authorities cited there; Hill v. Stewart (1887) 13 V.L.R. 76.
18 Ibid., at p. 363.
19 The power to enter into a binding contract and enforce it, on behalf of all the partners.
20 Ibid., at p. 355.
21 Not only as a separate legal entity, which it would not be even if lawful, but also as the relationship between the members of the group.
22 But not, it is contended for all purposes. See infra.
23 (1882) 9 Q.B. 225.
24 25 & 26 Vict. (c. 89).
25 The object of promoting a society for mutual loans or insurance was held to be “for carrying on business that has for its object the acquisition of gain by the individual members”, and therefore illegal if carried on by an unincorporated society having more than twenty members.
26 Field and Cave JJ.
27 Ibid. at p. 229.
28 (1882) 20 Ch. 137.
29 Jessel M.R., and Brett and Lindley L.JJ.
30 Ibid., at p. 143.
31 Sec. 199 of the Companies Act, 1862.
32 Ibid., at p. 146.
33 It is suggested that Brett L.J. presumably meant: “as if it existed as a company, or other lawful association”.
34 See supra n. 17.
35 Halsbury, (Simonds), Laws of England, vol. 6, p. 794Google Scholar. See similar language in Halsbury, (Hailsham), Laws of England, vol. 7, p. 946Google Scholar.
36 See Underhill, on Partnership (9th ed.) 26Google Scholar.
37 Being misled to believe that it is exclusively for other apparently legal purposes.
38 Either contractual or by way of holding out. The language used in the dictum cited above, if not limited in the direction suggested in this article, seems to be sweeping enough to include both. Besides, agency by holding out is based on estoppel, which is not immune from the effects of illegality. See Re Mahmoud and Ispahani [1921] 2 K.B. 716Google Scholar; Brightman v. Tate [1919] 1 K.B. 463. We propose to discuss in a future article the effects of criminality upon contracts.
39 Against the “poisoning effect” of illegality.
40 In cases where he would not be entitled to it otherwise.
41 R. v. Tankard [1894] A.B. 548; R. v. Frankland (1863) 9 Cox 273; R. v. Stainer (1870) 39 L.J. (M.C.) 54. The older decision, R. v. Hunt (1838) 8 C. & P. 692, can be regarded as overruled. It was not even cited in R. v. Frankland, and ignored, though relied upon by counsel for the defence in R. v. Tankard. The High Court of Australia, in Leonard v. Booth [1954] Argus Law Reports 1033, also adopted this doctrine. Taylor J. at p. 1046, applying Scarfe v. Morgan, M. & W. 270; Alexander v. Rayson [1936] 1 K.B. 169; Bowmakers v. Barnet [1945] 1 K.B. 65; and Gordon v. Chief Commissioner of Metropolitan Police [1910] 2 K.B. 1080; held: “And if one person may acquire property in the course of carrying on a business which is illegal I see no reason why a similar result should not follow where several persons are concerned and the illegality alleged is the formation of an association of more than twenty persons for the purpose of carrying on business with the object of acquisition of gain … In Re Thomas is some authority for the proposition that the property of an unincorporated association of more than twenty persons may devolve upon an incorporated association formed for the purpose of acquiring and taking over the business assets and liabilities of the unincorporated association”. See, however, Webb J. ibid. at p. 1040: “The acquisition by the syndicate would, I think, have been invalid only as to property shown to have been acquired by it for an unlawful purpose, i.e. for the carrying on of the business in violation of the Companies Act, that is to say, unregistered or unincorporated”. This view of Webb J., seems not to have been shared by the other four judges of the High Court of Australia.
42 (1797) 1 Bos. & Pul. 296.
43 (1797) 1 Bos. & Pul. 3: A more moderate case, where the action entertained was in respect of insurance money paid to a broker on behalf of the plaintiff, under an illegal marine insurance policy.
44 Per Buller J. in Tenant v. Elliot, ubi supra at p. 4.
45 See supra, n. 42.
46 See supra n. 43 at p. 4.
47 See, however, the dissenting judgment of Roche J.
48 [1951] A.C. 507.
49 Ibid., at p. 517.
50 Especially those unlawful for failure to incorporate.
51 (1849) 2 Ph. 801.
52 See supra n. 6.
53 The decision as to the illegality of investment trust companies consisting of over twenty members has been overruled in Smith v. Anderson (1880) 15 Ch. D. 247, which upheld the legality of unincorporated investment trust companies, irrespective of the numbers of members-beneficiaries. The general rules regarding illegal trusts, as laid down by Jessel M.R. in Sykes v. Beadon, ubi supra, were, however, unchallenged by the Court of Appeal in Smith v. Anderson.
54 See supra n. 51.
55 See supra n. 6 at p. 195.
56 See supra n. 43.
57 See supra n. 42.
58 See supra n. 51.
59 See supra n. 6 at p. 197.
60 Ibid.
61 See supra n. 51
62 See supra n. 6 at p. 197, per Jessel M.R.
63 (1883) 11 Q.B. 563, 571. See also Romily M.R. in Brett v. Beckwith (1857) 26 L.J. 130, 133: “If, however, the evidence proves that there was a partnership, their having entered into an illegal transaction could not destroy the evidence of there being a partnership”.
64 (1876) 1 Ch. 699.
65 Ibid. at p. 702 per Bacon J.
66 [1926] Ch. D. 657.
67 Ibid., at p. 665, where he concluded: “I am happy to think that the law is not so feeble that it cannot protect the subscribers by ordering an account”.
68 [1893] 2 Ch. 154.
69 25 T.L.R. 674, 675.
70 42 T.L.R. 97.
71 9 Q.B. 225.
72 11 Q.B. 563. See, however, Joseph v. Pebrer (1825) 3 B. & C. 639.
73 (1875) 2 Ch. D. 763.
74 Ibid., at p. 769.
75 Ibid., at p. 772.
76 Per Haggallay J. A., Ibid., at p. 782.
77 See supra n. 28.
78 Ibid., at p. 146; see discussion supra.
79 Ibid. at p. 150.
80 Discussed supra; cf. the Australian case Mailer v. Clayton (1899) 1 W.A.L.R. 3.
81 See Leonard v. Booth [1954] Argus Law Reports 1033, in which the High Court of Australia dealt with the law regarding illegal associations.
82 See Kahn-Freund, , “The Illegality of a Trade Union” (1949) 7 M.L.R. 192CrossRefGoogle Scholar, where he sums up the effect of the illegality upon trade unions, in different stages of their development, to be the following: “The common law illegality of the trade unions which had been a means of their suppression and later an obstacle placed in the way of the protection of their funds, became, after 1871, a weapon of their own armoury”.