Illegality Under Ghana’s Contract Law: Meaning, Scope, and Legal Consequences

ILLEGALITY UNDER GHANA’S CONTRACT LAW

1. Introduction

A fundamental requirement for a valid and enforceable contract under Ghanaian law is that the agreement must be lawful. Even where offer, acceptance, consideration, intention to create legal relations and capacity are present, the courts will refuse to enforce a contract whose formation or performance is tainted by illegality.

Illegality operates as a complete bar to enforcement in appropriate cases because the courts will not lend their authority to transactions that violate the law or undermine public interest.

The doctrine of illegality in Ghana derives from the sources of law recognized under Article 11 of the 1992 Constitution, namely the Constitution, statutes, subsidiary legislation, existing law and the common law. Where a contract conflicts with any of these sources, the conflicting part or the entire contract may be declared unenforceable.

2. Meaning and Classification of Illegality

Illegality in contract law refers to a situation where the formation, object or mode of performance of a contract is prohibited by law or is contrary to public policy.

Under Ghanaian law, illegality arises mainly in two forms:

1. Illegality by breach of statute or Constitution
2. Illegality by breach of public policy

3. Illegality by Breach of Statute or Constitution

Nature of Statutory Illegality

A contract is illegal by statute where its formation or performance directly violates a written law. In such cases, the court does not exercise discretion. The statute or constitutional provision overrides the agreement of the parties.

Examples include contracts that conflict with provisions of the Contracts Act, Sale of Goods Act, Hire Purchase Act, Bills of Exchange Act, Exchange Control regulations and constitutional requirements such as Article 181 on international business transactions.

Where Parliament or the Constitution prescribes mandatory procedures, failure to comply renders the transaction void and unenforceable.

Illustration

If the Government of Ghana enters into a contract with a foreign construction company to build a national railway system involving foreign financing and profit sharing without obtaining parliamentary approval, the contract will be unenforceable. Even if both parties acted in good faith, constitutional noncompliance nullifies the agreement.

Similarly, where a landlord insists on rent payment exclusively in foreign currency without Bank of Ghana approval and later refuses possession after receiving payment, a tenant who sues without relying on the illegality may still obtain relief where equity demands justice.

Landmark Case: Attorney-General v Balkan Energy (Ghana) Ltd

Facts

The Government of Ghana entered into a Power Purchase Agreement with Balkan Energy Ghana Limited. The agreement resulted from negotiations involving foreign investors. The contracting companies were substantially foreign owned and the transaction contained major international commercial elements.

The agreement was executed without parliamentary approval.

Issue

Whether the agreement constituted an international business transaction under Article 181(5) of the Constitution requiring parliamentary approval.

Decision

The Supreme Court held that the agreement was an international business transaction. Since parliamentary approval was not obtained, the agreement was unconstitutional and unenforceable.

Principle

Where the Constitution prescribes mandatory procedures for specific categories of contracts, noncompliance renders the contract void regardless of the intentions of the parties.

Kwabena Yeboah v Acheampong

Facts

The parties were found to have entered into a joint venture for the purpose of illegal mining. 

Decision

The court held that it had discretion as to whether or not to enforce a contract tainted by illegality. In this case, the court refused to give legal effect to the joint venture on the basis that it was illegal. 

4. Illegality by Breach of Public Policy

Meaning of Public Policy

Public policy refers to the collective interest and welfare of society which the law seeks to protect. Under Article 295 of the Constitution, public interest means anything that enures to the benefit or advantage of the public. Article 12 also provides that rights and freedoms are subject to public interest.

In contract law, public policy requires that private agreements must not undermine morality, justice, good governance or public administration.

Illustration

If a senior officer at the Lands Commission agrees to fast-track registration documents for a developer in exchange for land shares, the agreement is illegal because it involves abuse of public office for private gain.

Locus Classicus: Kessie v Charmant

Facts

The plaintiff was Ghana’s Ambassador to Liberia. He entered into an agreement with private businessmen who sought to establish companies in Liberia. Under the agreement, the ambassador used his official influence to secure favourable treatment for the defendants. In return, he was promised shares and a directorship.

Decision

The court held that the agreement was contrary to public policy because it involved the use of public office for private benefit. The contract was illegal and unenforceable.

Principle

Contracts involving corruption, abuse of public office or private profit at the expense of public duty offend public policy.

5. Categories of Contracts Illegal on Grounds of Public Policy

(a) Contracts to Commit a Crime, Tort or Fraud

Agreements intended to defraud or commit unlawful acts are void.

Berg & Sadler v Moore

The plaintiff arranged to obtain goods using another person’s name after being blacklisted by a trade association. When delivery was refused, he sued. The court held that the claim was founded on fraud and refused to assist him.

Illustration

Where two persons agree to create fake company documents to secure a government contract and later dispute profit sharing, neither can obtain relief because the agreement is founded on fraud.

(b) Contracts Promoting Sexual Immorality

Pearce v Brooks

Coach builders hired a decorative coach to a commercial sex worker knowing it would be used to attract clients. When payment defaulted, the court refused enforcement because the agreement promoted immoral activity.

Illustration

If a designer knowingly supplies luxury clothing to a commercial sex worker for promotional use in soliciting clients, the contract is unenforceable.

(c) Contracts Interfering With Foreign Regulations

Agreements that undermine diplomatic relations or foreign regulatory systems violate public policy.

Foster v Driscoll

In the present case the parties entered into a contract for the purpose of smuggling whisky to the United States. The court held that the contract was contrary to public policy since it involved a breach of the laws of a foreign country.

(d) Contracts Prejudicial to the Administration of Justice

Agreements to suppress evidence, manipulate witnesses or obstruct justice are void.

Keir v Leeman

The defendants were charged with assault of a sheriff’s officer and his assistants. Which assault was occasioned when the victims acted in respect of a judgment debt due A. the defendants entered into an agreement with A to repay the debts, provided he would not give evidence against them. He then sued on the basis of the agreement. The court held that the agreement was an unlawful compromise and therefore void. 

(e) Contracts Promoting Corruption in Public Life

Parkinson v College of Ambulance Ltd

An agreement to procure a knighthood in exchange for money was held illegal because it corrupted public institutions.

Illustration

Where a political intermediary promises to secure a national honour in return for payment, the contract is void even if the money was described as a donation.

(f) Contracts to Deceive Public Authorities

Any agreement intended to mislead regulatory agencies violates public policy.

(g) Contracts to Oust the Jurisdiction of the Courts

Parties cannot by agreement exclude courts from determining questions of law.

In Re Ghana Private Road Transport Union; Tetteh v Essilfie

The Supreme Court held that while arbitration clauses are respected, courts retain supervisory jurisdiction and will examine exclusionary clauses that offend public policy.

Illustration

A clause stating that disputes must never be taken to court is void to the extent that it excludes judicial review on matters of law.

(h) Contracts Using Public Office for Private Reward

Kwarteng v Donkor

An agreement to influence the removal of a chief and install a preferred candidate in exchange for debt forgiveness was held illegal and unenforceable.

Illustration

Where families finance the removal of a chief to install their preferred candidate and later dispute reimbursement, the courts will refuse enforcement.

6. Contracts in Restraint of Trade

A contract in restraint of trade restricts a person’s freedom to carry on business or profession. Such contracts usually arise between employers and employees or between vendors and purchasers of businesses.

Since freedom of trade benefits society, such agreements are prima facie void. However they may be enforced where they are reasonable between the parties and reasonable in the public interest.

Article 24 of the Constitution protects economic rights subject to public interest and the rights of others.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd

Nordenfelt sold his arms manufacturing business and agreed not to compete for 25 years. The court upheld the restraint because it protected goodwill and was reasonable.

Illustrations

If a bakery owner sells his business and agrees not to open another bakery within ten kilometres for three years, the restraint is likely enforceable.

If an employee is barred from working in any food business in Ghana for twenty years, the restraint is unreasonable and void.

If a software engineer with access to confidential data agrees not to work with competitors within Accra for one year, the restraint may be enforceable.

7. Effects and Consequences of Illegality

Where a contract is illegal from inception, it is void and unenforceable.

Where illegality arises during performance, different consequences apply depending on the conduct of the parties.

Schandorf v Zeini

The defendant received payment partly in foreign currency and later refused to transfer property. The court held that the plaintiff was innocent and entitled to relief because he was not relying on illegality.

Illustrations

Where a supplier uses an unlicensed vehicle to deliver goods without the buyer’s knowledge, the buyer may enforce the contract.

Where two traders jointly smuggle goods and later dispute payment, neither can enforce the contract.

8. Governing Principles on Illegal Performance

1. A party responsible for illegal performance cannot rely on contractual remedies.
2. An innocent party who did not participate in illegality may enforce the contract.
3. Where both parties condone illegality, the contract is treated as illegal from inception.

Ghanaian Jurisprudence

Kwabena Yeboah v Acheamong supra

“I have adverted my mind to the new trend in enforcement of contracts which are contrary to statute. It appears the courts have adopted a more discretionary approach instead of treating such contracts as void ab initio and unenforceable. Cases such as Ernestina Boateng v. Phyllis Serwaa Boampong Nyamekye & Anor, and Sulley Dolley v. Messrs. FND & Ade Coker are very instructive on this point.

For instance, in the Ernestina Boateng case, supra, the Supreme Court speaking through Pwamang JSC had to say at page 19 of the Judgment:

 “In line with our decision in City & Country Waste case, we adopt the discretionary approach for determination of the question whether or not to allow a claim for recovery of trust property that on the evidence is tainted by illegality. The discretion is to be exercised on consideration of the following factors; 

a) the seriousness of the illegality,

b) whether the denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts, and 

c) whether it would be harmful to the integrity of the legal system to allow the claim”.”

Therefore, the Ghanaian position when determining the effects and consequences of illegality is to use discretion in light of:

– the seriousness of the illegality

– whether the denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts, and

– whether it would be harmful to the integrity of the legal system to allow the claim

9. Pari Delicto Rule and Exceptions

The general rule is expressed in the maxim in pari delicto potior est conditio defendentis meaning where parties are equally at fault, the defendant’s position is stronger.

Illustrations

Where two persons agree to bribe a public officer and the bribe fails, recovery will not be allowed.

Where a vulnerable apprentice is pressured into an illegal contract by an employer, the apprentice may recover because he is not equally guilty.

Where a party withdraws from an illegal agreement before performance, recovery may be allowed under the doctrine of locus poenitentiae.

10. Remedies in Illegal Contracts

Generally courts will not grant damages or specific performance for illegal contracts.

However equitable remedies may be granted where the plaintiff is innocent, the illegality is incidental and public interest will not be harmed. Restitution may also be allowed to prevent unjust enrichment.

SUMMARY TABLE

Category	Description	Key Authority	Legal Effect
Illegality by statute	Breach of written law or Constitution	AG v Balkan Energy	Void and unenforceable
Public policy illegality	Abuse of public interest	Kessie v Charmant	Contract void
Crime and fraud	Agreement to deceive	Berg v Moore	No recovery
Sexual immorality	Promotes prostitution	Pearce v Brooks	Unenforceable
Corruption	Purchase of honours	Parkinson case	Void
Traditional manipulation	Chieftaincy interference	Kwarteng v Donkor	Illegal
Ouster clauses	Court exclusion	GPRTU case	Partly void
Restraint of trade	Restriction on business	Nordenfelt case	Valid if reasonable
Illegal performance	Innocent party claim	Schandorf v Zeini	Recovery allowed