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Contracts - Illegality and Severance (2). Golden Oaks Enterprises Inc. v. Scott
In Golden Oaks Enterprises Inc. v. Scott (Ont CA, 2022) the Court of Appeal considered the elements of contract illegality, drawing a distinction between common law and statutory illegality:[80] The trial judge did not address the Trustee’s argument that the referral agreements were illegal contracts at common law (as opposed to breaching the Securities Act). Contracts will be considered illegal where they are either criminal on their face or, while facially legitimate, are entered into for the purpose of perpetrating a criminal act: Youyi Group Holdings (Canada) Ltd. v. Brentwood Lanes Canada Ltd., 2020 BCCA 130, 35 B.C.L.R. (6th) 326, at paras. 47-48. The Trustee alleged the referral agreements were illegal in this latter sense.
[81] The appellants as respondents in the cross-appeal argue that the Trustee’s claims alleged only that the referral agreements breached the Securities Act and not that the referral agreements were unlawful at common law, and it is for this reason that the trial judge canvassed only whether the agreements breached the Securities Act.
[82] While the Trustee’s claims did not expressly plead that the agreements were unlawful at common law, they did allege that the agreements were unlawful and contrary to the Securities Act: see the description of the pleadings by this court in Salewski v. Lalonde, 2017 ONCA 515, 137 O.R. (3d) 750, at para. 8. The allegation that the referral agreements were unlawful in addition to constituting a breach of the Act was sufficient to encompass the claim that the agreements were illegal at common law.
[83] I agree with the Trustee (as cross-appellant) that the trial judge erred in considering only one basis on which the referral agreements could be treated as unlawful for the purposes of unjust enrichment and that, based on her other findings regarding the conduct of the defendants, the referral contracts were illegal contracts at common law and could not be the basis of a juristic reason for payments enriching the defendants. . Kirloskar Technologies (P) Ltd. v. Best Theratronics Ltd.
In Kirloskar Technologies (P) Ltd. v. Best Theratronics Ltd. (Ont CA, 2022) the Court of Appeal considered, but denied, the possibility that foreign criminality might exonerate a defendant from contractual liability:[11] BTL argues that the trial judge erred by:(1) ordering a Canadian business to pay an agent in a foreign jurisdiction where there are “red flags” of potentially corrupt practices on the part of the agent (such as the Charge Sheet);
(2) declining to take judicial notice of the high level of corruption in India; and
(3) failing to find that the contract clauses that required KTPL to comply with the domestic laws of India and indemnify BTL for any malfeasance strengthened the policy argument against ordering payment, or provided an independent contractual basis to delay payment until and if KTPL is exonerated. [12] BTL argues that this court should recognize a principle, as a matter of public policy, that contract payments do not need to be paid to agents who are under a “cloud of suspicion for corrupt practices.”
[13] BTL’s submissions flounder on the state of the evidentiary record that was before the trial judge. At para. 32 of her reasons for decision, the trial judge wrote:From a review of the Charge Sheet, the prosecution in India appears to relate to the alleged bribery of government officials in India, but it is far from clear. BTL did not produce an expert in Indian law to provide the court guidance on the significance of the Charge Sheet or what charges are presently before the court in India. The parties do agree that the charges relate to allegations against KTPL that are unproven. The parties further agree that the transaction involved in the Indian criminal prosecution is unrelated to the sales for which KTPL is claiming outstanding commissions are owing from BTL in this lawsuit. [14] There simply was no evidence to ground BTL’s submission that the parties’ agreement was tainted by criminality or that BTL’s obligation to pay its debt was unenforceable.
[15] Moreover, the Supreme Court has emphasized that public policy considerations should be relied on “sparingly” and has cautioned against expanding the heads of public policy for setting aside contractual provisions: Uber Technologies Inc. v. Heller, 2020 SCC 16, at para. 109, per Brown J. (concurring).
[16] The trial judge stated, at para. 36, “I reject BTL’s argument that a perceived risk of prosecution under the CFPOA absolves BTL from paying the legitimate outstanding debt owed to KTPL or delays payment of that debt.” We see no error in the trial judge’s rejection of BTL’s argument that it should be relieved of paying its acknowledged debt to KTPL. In addition, even if judicial notice as requested had been taken, it would have had no impact on the outcome of this case.
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