Colen and Another v Cebrian (UK) Limited: CA 20 Nov 2003

The company paid the claimant sales commission. Part was diverted and paid to his wife to reduce the tax payable. The employer had appealed a finding of unfair disamissal, the company arguing that the contract was illegal.
Held: The contract was illegal in its performance only. A contract illegal in its formation or where it was intended from the outset to be performed illegally would be unenforceable. Where the illegality arrived later, the contract was not automatically made unenforceable. The burden was on the company to show the illegality. The appeal succeeded. The tribunal had jurisdiction to give effect to the contract.
Waller LJ said: ‘an analysis needs to be done as to what the party’s intentions were from time to time. If the contract was unlawful at its formation or if there was an intention to perform the contract unlawfully as at the date of the contract, then the contract will be unenforceable.’ Where the illegality arose only after the inception of the contract, thegeneral rule does not apply, with the test instead, being: ‘whether the method of performance chosen and the degree of participation in that illegal performance is such as to ‘turn the contract into an illegal contract’
Lord Justice Waller Lord Justice Peter Gibson Lord Justice Carnwath
[2003] EWCA Civ 1676, Times 27-Nov-2003, Gazette 15-Jan-2004, [2004] ICR 568
Bailii
England and Wales
Citing:
CitedMensah v East Hertfordshire NHS Trust CA 10-Jun-1998
An industrial tribunal should be helpful to litigants to help establish clearly whether issues which had been raised on the papers were not being pursued. An employee claiming racial discrimination but not pursuing it at the tribunal was not allowed . .
CitedHolman v Johnson 5-Jul-1775
ex turpi causa non oritur actio
Mansfield LCJ set out the principle of ex turpi causa non oritur actio: ‘The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, . .
CitedTinsley v Milligan HL 28-Jun-1993
Two women parties used funds generated by a joint business venture to buy a house in which they lived together. It was vested in the sole name of the plaintiff but on the understanding that they were joint beneficial owners. The purpose of the . .
CitedSt John Shipping Corporation v Joseph Rank Limited 1956
The defendants held a bill of lading for part of the cargo carried on the plaintiffs’ vessel from Mobile, Alabama, to Birkenhead. The vessel was over laden and the plaintiffs were guilty of an offence under the 1932 Act. The defendants relied on the . .
CitedAshmore, Benson, Pease and Co v A V Dawson Ltd CA 1973
By acquiescing in the overloading of the hauliers’ lorries, the consignors’ assistant transport manager and his assistant made the haulage contract unenforceable at the instance of the consignors, who were unable to recover when a lorry toppled over . .
CitedCoral Leisure Group Ltd v Barnett EAT 1981
The court was asked whether any taint of illegality affecting part of a contract necessarily rendered the whole contract unenforceable by a party who knew of the illegality. In the case of a contract not for an illegal purpose or prohibited by . .
CitedNewland v Simons and Willer (Hairdressers) Ltd 1981
The court was asked whether an employee could complain of unfair dismissal where the tribunal had held that the employee knew or ought to have known that her employer had failed to pay tax and national insurance contributions in respect of her . .
CitedWetherell v Jones 1832
The plaintiff sold spirits, misstating the strength to reduce the tax.
Held: A failure only to comply with regulations, which would result in a penalty, did not render void a sale of goods, and the plaintiff was entitled to recover the . .
CitedB and B Viennese Fashions v Losame CA 1952
Jenkins J considered tha illegal performance of a valid contract saying: ‘It is plain from Anderson Ltd. v. Daniel that illegality in the performance of a contract may avoid it although the contract was not illegal an initio. That being so, one has . .

Cited by:
CitedParkingeye Ltd v Somerfield Stores Ltd CA 17-Oct-2012
The claimant company operated parking management for the defendant, charging customers for overparking. The defendant came to believe that the claimant’s behaviour was over-aggressive, and the use of falsehoods, and terminated the contract. The . .

These lists may be incomplete.
Updated: 10 January 2021; Ref: scu.188051