Misrepresentation

Gilbert Kodilinye and Maria Kodilinye in their literature, ‘Commonwealth

Caribbean Contract Law’, assert that material statements made by the parties during
negotiations leading up to a contract may constitute either contractual terms or mere
representations. However, a misrepresentation is a representation which turns out to be
untrue. A misrepresentation is not a violation of the contract since it was not a term of the
contract.
I will be explaining the three (3) types of misrepresentation which include fraudulent
misrepresentation, negligent misrepresentation and innocent misrepresentation. It is important
to note that, generally, there is no duty for a party to disclose all that he knows, except in
exceptional cases. Such exception arises where a failure to disclose may amount to
misrepresentation as in the case of With v O’Flanagan (1936) where the vendor of a medical
practice told the potential purchaser in January that the practice produced a certain amount of
income. This was true at the time, but the vendor became ill, and the income of the practice
had fallen dramatically by the time the contract for sale was entered into. The purchaser
refused to complete when he discovered this fact on the basis that there had been
misrepresentation at the time of the signing of the contract. Held, the vendor should have
disclosed to the purchaser the change in circumstances, and the contract was set aside.
A fraudulent misrepresentation is a false statement knowingly made, which caused the
other to enter into the contract. At common law this was the only type of misrepresentation
that was actionable. However, common law has long given a remedy in respect of fraudulent
misrepresentation under the title of the tort of ‘deceit’. The innocent party can rescind the
contract and he can bring an action in tort for damages for the tort of fraudulent
misrepresentation or deceit. The House of Lords held in Derry v Peek (1889) that the
defendant will only be liable for fraudulent misrepresentation if he knowingly made a false
statement of fact or did not believe that the statement he was making was true.
In Derry v Peek (1889), an Act incorporating a tramway company provided that the
carriages might be moved by animal power and, with the consent of the Board of Trade, by
steam power. The directors issued a prospectus. It contained a statement that by this special
Act the company had the right to use steam instead of horses. The directors believed the
statement to be true. The claimant bought shares on the strength of this statement. The Board
of Trade refused to consent to the use of steam. The company was wound up with great loss
to the investors. The claimant brought an action against the directors for deceit or fraudulent
misrepresentation. The defendants were not fraudulent in this case. They had made a careless
statement but they had honestly believed in its truth.
A negligent misrepresentation is a false statement carelessly made which induces a
party to enter into a contract. There was no remedy for it at common law. It was only in
equity that relief, by way of an order for recession, could be obtained for negligent
misrepresentation. Recession means the undoing of the contract and going back to the
original position. The remedy does not necessarily require any legal action as the injured
party may simply inform the other party that he will no longer be bound by the contract.
However, there will always be a case where the representee suffers loss of a kind which
cannot be repaired by recission, and he would then want to claim damages.
The House of Lords in the case of Hedley Byrne v Heller (1963) has held that a duty
of care exists when there is a ‘special relationship’ between the parties. The special
relationship arises whenever it is reasonable for the claimant to have relied upon the care or
skill of the defendant who made the statement. Moreover, the special relationship arises
where the defendant knew or ought to have known that the claimant was relying on him. The
claimants were advertising agents who asked their bankers to check the financial stability of a
company with whom they were considering advertising contracts. The bankers made
enquiries of the bankers for the company in question.The bankers carelessly issued positive
corporate references. However, they disclaimed ownership for the referrals and the claimants
signed advertising contracts based on such references. The firm liquidated shortly after and
the claimants lost a substantial sum. The company's bank was sued for negligent
misrepresentation. Without the specific disclaimer, the defendants would have owed the
claimants a duty of care not to cause financial loss by their statements, the House of Lords
held. Thus, professional advisers such as accountants, bankers, commission agents, and
surveyors, will owe a duty of care to their customers in respect of any professional advice
given.. It is imperative to note that no duty of care will arise where advice is given at a purely
social occasion.
An innocent misrepresentation is one which is neither fraudulent nor negligent. The
remedy for breach of contract due to innocent misrepresentation lies in equity in the remedy
of rescission, and damages are not available. In the case of Redgrave v Hurd (1881), the
defendant agreed to but the claimant solicitor’s practice in reliance on the claimant’s innocent
misrepresentation about the turnover of the business. The defendant could have discovered
the true position by reading some paperwork provided by the claimant, but did not do so. On
discovering that the business was practically worthless, the defendant sought to rescind the
agreement in his counterclaim against the claimant’s action for specific performance. Held,
the defendant was entitled to recission. The effect on an innocent misrepresentation is not got
rid of on the ground that the person to whom it was made has been guilty of negligence.
In cases where the balance between the parties is the other way round, where the
representor was wholly innocent and the representee was better placed to acquire accurate
information or confirmation, but failed to take reasonable steps to do so, the court might well
conclude that the representee did not rely on the initial misrepresentation but took the risk of
its accuracy.

The two types of misrepresentation that I shall describe are fraudulent

misrepresentation and innocent misrepresentation. A representation is a statement of fact
made by one party to a contract to the other party which, while not a term of the contract,
induces the other to enter the contract. It is a misrepresentation if it turns out to be untrue.
It is important to note that, generally, there is no requirement for a party to disclose all
that he knows, except in exceptional cases, e.g., of contracts such as insurance which are
known as contracts uberrimae fidei.
A fraudulent misrepresentation is one knowingly made. The innocent party can
rescind the contract and sue for the tort of fraudulent misrepresentation. The leading case is
Derry v Peek. There, the court held that the defendant will be liable in the tort of deceit or
fraudulent misrepresentation if he knowingly made a false statement of fact or did not believe
that the statement he was making was true. In this case, a prospectus contained a statement
that by a special Act of Parliament the company had the right to use steam power. In fact, the
statement was made negligently as the company only had a licence to use animals to power
the trams. It was held that they had not been fraudulent as they had merely made a careless
statement, but they had honestly believed it was true.
An innocent misrepresentation, by contrast, is one which is neither fraudulent nor
negligent. The remedy is the equitable remedy of rescission. Damages are not available. The
leading case is Redgrave v Hurd. Here, a solicitor sold his practice innocently making a
misrepresentation about the turnover of the business. The purchasing solicitor could have
discovered the true position by reading the paperwork provided by the seller, but did not do
so. On discovering the business was practically worthless, the purchaser sought to rescind the
agreement. The court held that the purchaser was entitled to rescission.
The issues presented in the scenario are whether Jamen Ltd is liable in the torts of
either fraudulent or negligent misrepresentation, and whether Bolden Ltd can claim damages
and/or rescission. It is not clear from the scenario, but if Jamen Ltd deliberately made the
exaggerated statement with intent to deceive, then it will have committed the tort of
fraudulent misrepresentation. If, however, Jamen Ltd carelessly made the misrepresentation,
then it will have committed the tort of negligent misrepresentation. No question of innocent
misrepresentation arises, since Jamen owed a duty to Bolden to take care not to exaggerate
claims as to the earning capacity of the mine it was selling to Bolden Ltd.
The law on fraudulent misrepresentation is set out in part (a) above. The leading cases
on the tort of negligent misrepresentation are Hedley Byrne v Heller and Esso Petroleum Co
Ltd v Mardon. In the former case in 1963 the court held that a duty of care in the making of a
statement arises where there is a special relationship between the two parties. This
relationship arises whenever it is reasonable for the claimant to rely on the care and skill of
the defendant who made the statement, and the defendant knew or ought to have known this.
The latter case decided that an action for negligent misrepresentation can be brought where
one party to a contract is induced to enter into the contract by a negligent misrepresentation
made by the other party upon which he reasonably relied.
The result is that professional advisers such as accountants, bankers, lawyers, and
surveyors, and even non-professionals who hold themselves out to hold a special skill or
knowledge to be able to advise, owe a duty of care to their customers in respect of any
professional advice they have in fact given.
The claimant has to show that the misrepresentation was the cause of his loss. He
must have relied on the misrepresentation. Where the misrepresentation did not influence the
claimant at all, there is no remedy. So, in JEB Fasteners v Marks Bloom & Co, the claimants
were negotiating to take over a company. The company's accounts, prepared by the defendant
accountants, contained substantial inaccuracies. JEB Fasteners read the accounts, but
suspected they were erroneous. They did not rely on them. They proceeded with the
acquisition anyway as they wished to acquire the services of the company's directors through
the acquisition. Later, when they suffered losses they sued the defendant accountants for their
mistatements. The court held that the claimants had never in fact relied on the accountants,
and they could not show that the misstatement had caused the loss they complained of.
Applying the above law to the scenario, the exaggerated statements made by Jamen
Ltd as to its earning capacity amount to a misrepresentatio. However, Bolden Ltd did not
simply accept the statement made by Jamen Ltd, but relied on their own expert agents. These
chacked the statements and, in error, reported them to Bolden Ltd as correct. Based on the
principle in JEB Fasteners above, Bolden Ltd will have difficulty in showing that it relied on
James Ltd’s misstatement in entering into the contract. It appears, instead, to have relied on
the advice of its own experts. However, Bolden Ltd may have a claim in neglignce against its
own profession.
In the event that Bolden Ltd had not sought independenace advice, it would more
easily be able to show that it relied on the misstatement made by Jamen Ltd. It would be
entitled to rescind the contract and to claim against Jamen Ltd damages for the tort of either
fraudulent or negligent misrepresentation, depending on whether the exaggerated statement
was deliberately and knowingly made or was carelessly made.
 The main issue in the scenario is whether Mary has made a fraudulent
misrepresentation which will entitle Nichole to recover her money and damages. A
representation is defined as a statement of fact made by one party to a contract to the other
party, which, while it does not become a term of the contract, induces the party to enter into
the contract. A misrepresentation is a representation which turns out to be untrue. The
contract is not automatically void but is voidable at the option of the innocent party.
Generally, a statement of opinion or belief is not the same as a statement of fact.
Unjustified statements of opinion seldom result in misrepresentation liability. In Bisset v
Wilkinson (1927), the defendant vendor said his property could hold 2,000 sheep, however,
sheep had never been farmed on that land The claimant purchaser sued to rescind the contract
and get his money back since the property could not hold 2,000 sheep. The court held that
this was a mere opinion of the seller, and the buyer was not justified in relying on it. The
purchaser was not entitled to rescission.
If the person making the statement promises to act on their future intention, it could
considered a misrepresentation. The contract term will be enforceable. In the case of
Edgington v Fitzmaurice (1885), the defendant borrowed money claiming it was to expand
his company, however, he had always intended to utilize it for something else. The claimant
claimed his money back on the basis of misrepresentation, and the defendant said he had only
made a statement as to his future conduct, and was entitled to change his mind.The court
ruled that his statement misrepresented the borrower's thinking and entitled the claimant to
receive his money back. Bowen LJ explained that the state of a person's mind is as much a
fact as the state of his digestion.
There are three types of misrepresentation: (a) fraudulent misrepresentation; (b)
negligent misrepresentation; and (c) innocent misrepresentation. Fraud is established where
the false statement is made (a) knowingly; (b) without belief in its truth; or (c) recklessly,
careless as to whether it is true or not.
The common law has long given the innocent party a remedy for fraudulent
misrepresentation for the tort of deceit. The remedies available for the innocent party were
rescission of the contract and damages and is established in the leading case is Derry v Peek
(1889). If fraud is proved, the motive of the person making the statement is irrelevant, as it
does not matter if there was no intention to cheat or injure the person to whom the statement
was made.
 Applying the law to the facts in the scenario, we see that Mary offered to make Nicole
her partner in the beauty salon business. She induced Nicole to agree to become a partner by
showing her a shop which she stated she had rented already. Men were working inside the
shop doing renovations when Nicole wanted to go inside to take a look. Mary prevented her
by telling her she could come back another day. As a result of this representation, Nicole
gave Mary $2,500 to assist her with the opening. From this, we can conclude that Nicole
agreed to become a partner and to be responsible for her share of the expenses. From these
facts we can infer that Nicole entered into the partnership contract as a result of the
representations made by Mary in showing her the shop with the renovations being done to it.
When, after six months, Nicole learns that Mary had never in fact rented the shop, we
can deduce that Mary deliberately deceived her. Mary would have known at the time that she
had not rented the shop. Her offer to show the rental agreement was clearly a falsehood, as
the agreement could never exist. These misrepresentations by Mary fit the definition of
fraudulent misrepresentation given in Derry v Peek, above.
Under the principle in Edgington v Fitzmaurice above, the statement by Mary that she
had already rented the premises was a promise that she had taken the action in question. This
would have become a term of the partnership agreement, which was breached by Mary.
Nicole would be entitled additionally to damages for breach of contract.

I would advise Nicole that she is entitled to sue Mary for the rescission of the
partnership agreement and for damages. She is entitled not only to liquidated damages of
$2,500.00, but also to general damages for the tort of deceit and the breach of contract.
 Frustration

Frustration is a defense against a charge that one has 'frustrated' the contract with
broken promises. Frustration arises when, without either party's failure, a contractual duty
cannot be executed because the circumstances would make it drastically different from the
contract. The duty must alter such that if done, it would be different from what was bargained
for.
Frustration terminates the contract and releases the parties. Due to this dramatic
consequence, the common law is hesitant to find that frustration occurs and allow a party to
leave a contract if the other party is not at fault. The doctrine of frustration is not to be lightly
invoked, and the common law keeps it within very narrow limits.
Each case turns on the construction of the particular contract. But,there a r e certain
recognised categories where frustration either will or will not operate to bring a contract to an
end . Examples include: non-occurrence of an essential event, destruction of the contract's
subject matter, increased expense, forced alteration of the manner of performance, illegality,
war, delay or temporary interruption, contracts for personal services, and self-induced
frustration.
In the case of a non-occurrence of an essential event, a contract may be frustrated if
both parties assumed it would occur. It is important to note that both parties must make the
assumption. Disappointing one party's intentions or assumptions is not enough. An
assumption must be shared for the doctrine to apply. The landmark case of Krell v Henry
(1903) demonstrates such concept.

Krell v Henry (1903) is a landmark English contract law case that illustrates the
doctrine of frustration, specifically frustration of purpose. In this case, Henry agreed to rent a
flat from Krell to watch King Edward VII’s coronation procession, but when the coronation
was unexpectedly postponed due to the King's illness, Henry refused to pay. The court ruled
that the contract was frustrated because its fundamental purpose—viewing the coronation—
could no longer be achieved, even though this was not explicitly stated in the contract. Since
the cancellation was unforeseen and beyond either party’s control, the contract was
discharged. This case established that frustration occurs when an unforeseen event destroys
the contract’s core purpose, making performance commercially or practically impossible.
 Contrasting Krell v Henry (1903) and Herne Bay Steamboat Co v Hutton (1903), it is
evident that both concern the doctrine of frustration but were decided differently based on
whether the purpose of the contract was fundamentally destroyed. In Herne Bay Steamboat
Co v Hutton (1903), a boat was hired to view a naval review and cruise around the fleet.
Although the review was canceled, the fleet was still present, meaning the contract could still
be performed in part. The court ruled there was no frustration since the naval review was
merely a motive for hiring the boat, not a fundamental contractual term. The key distinction
is that Krell involved an event that was central to the contract's purpose, whereas Herne Bay
involved a contract that remained partially performable despite the unforeseen change.

There are recognized areas where frustration may or may not lead to contract
termination. These include: (i) non-occurrence of essential event; (ii) contract subject matter
destruction; (iii) increased expense; (iv) forced performance alteration; (v) illegality; (vi) war
outbreak; (vii) delay or interruption; (viii) personal service contracts; and (ix) self-induced
frustration. I will explain six out of the nine areas aforementioned.

Frustration occurs when the subject matter no longer exists at the time of
performance, despite the parties' assumption that it would continue to exist. This is seen in
the case of Taylor v Caldwell (1863). A contracted to lease a music hall to B for four days.
Before the first day, the music hall was accidentally burnt down. B claimed damages. Held, A
was discharged from his obligation when the music hall burned down. The contract was,
therefore, frustrated.

Increased expense is also a concept under frustration. If the contract has become more
expensive to perform for one party, this will not frustrate the contract. So, if one party enters
into a contract because he thinks he can make a profit, but it turns out to be more expensive
than he thought, the contract is not frustrated. It is not the function of the law to relieve a
party from such a bargain if it turns out to have been a very bad one. The case of Davis
Contractors Ltd v Fareham UDC (1956) establishes this.

An occurrence that prevents one party from completing the contract as originally
planned does not invalidate the contract. His performance of the contract is his responsibility,
not the other party's. See Blackburn Bobbin Co Ltd v TW Allen & Sons Ltd (1918) explains
the concept of forced alteration of manner of performance. The seller agreed to supply
Finnish timber to the purchaser. The outbreak of war cut off its source of supply from
Finland. Finland was not the only source of this timber. Identical timber was available
elsewhere, but would be more expensive to source. When the purchaser sought damages for
breach of contract, the seller claimed that the contract had been frustrated by the outbreak of
war. Held, the contract was not frustrated. The seller might have found some other source of
supply.

By illegality is also under frustration. If the contract becomes illegal to perform, this
may frustrate the contract. The illegality must have a serious effect on the contract to have the
effect of discharging it.
The outbreak of war may affect a contract. War's impact on the contract will
determine if it frustrates it. The opposite party is usually not responsible if the conflict
impacts just one party's contract performance. No contract frustration. View the Blackburn
Bobbin case. If the conflict prevents the performance as expected, it may invalidate the
contract since both parties had made assumptions. If both parties agree to charter a ship, but
the government requisitions it during wartime, the contract may be voided, depending on how
long it lasts.

Delay will not generally amount to frustration. To frustrate a contract, the delay must
be so abnormal, in its cause, its effects, or its expected duration, that it falls outside what the
parties could reasonably contemplate at the time of contracting.

This scenario primarily involves the legal doctrines of frustration of contract and
illegality, both of which can impact the enforceability of the agreement. Since the agreement
involves an option for Ranna Hotels Ltd to purchase a timber yard, the key issue is whether
the contract is enforceable despite the war and the wartime control order in Bilani. The
wartime control order in Bilani makes trading under the agreement illegal. Courts generally
hold that if a contract becomes illegal due to new laws or government regulations, it is
considered void and unenforceable.

In Blackburn Bobbin Co Ltd v TW Allen & Sons Ltd (1918) , the 2seller agreed to
supply Finnish timber to the purchaser. The outbreak of war cut off its source of supply from
Finland. Finland was not the only source of this timber. Identical timber was available
elsewhere, but would be more expensive to source. When the purchaser sought damages for
breach of contract, the seller claimed that the contract had been frustrated by the outbreak of
war. Held, the contract was not frustrated. The seller might have found some other source of
supply. This scenario above may invoke the doctrine of frustration of a contract, meaning that
the contract is automatically discharged because it has become impossible to perform legally.
If the entire agreement is frustrated, Ranna Hotels Ltd may not be able to enforce the
purchase option.

Frustration causes neither party to be liable for breach, but Ranna Hotels Ltd may
seek restitution for any payments made before frustration occurred (if applicable). If the
contract is not frustrated but merely suspended (depending on the legal framework in the
jurisdiction), Ranna Hotels Ltd may be able to exercise the option once trading becomes legal
again. If the option to purchase the timber yard is a separate and independent clause from the
supply of timber, Ranna Hotels Ltd might argue that the option remains enforceable, despite
the primary agreement being frustrated. However, if the purchase option is deemed integral to
the contract (tied to the timber supply), it may also be affected by the frustration.

The issue is whether Ranna Hotels Ltd can still claim rights under the agreement,
particularly the option to purchase the timber yard, despite its managing director knowing
about the impending wartime control order at the time of signing the contract.Contracts are
interpreted based on the intent of the parties and the foreseeability of risks at the time of
signing.

The doctrine of frustration applies when an unforeseen event occurs that makes
contractual performance illegal or impossible. However, if one party was aware of an
impending event that could affect contract performance, frustration may not apply because
the risk was foreseeable. Additionally, misrepresentation (fraudulent, negligent, or
innocent) may allow a contract to be rescinded if one party knowingly withheld material
information.Since the managing director of Ranna Hotels Ltd knew about the impending
wartime control order but proceeded with the agreement, the doctrine of frustration is
unlikely to apply. Frustration requires an unforeseeable event, but in this case, Ranna Hotels
Ltd had prior knowledge of the risk of illegality.

Furthermore, if Ranna Hotels Ltd’s managing director deliberately failed to disclose

this information to Drake Building Supplies Ltd, it may constitute fraudulent
misrepresentation. If proven, Drake Building Supplies Ltd could argue that the contract
should be voided due to bad faith, preventing Ranna Hotels Ltd from enforcing the option
clause.Additionally, enforcing the option to purchase the timber yard while knowing that the
contract’s main purpose (timber supply) would become illegal could lead to unjust
enrichment. Courts may refuse to enforce the contract if it results in one party unfairly
benefiting at the expense of the other.

Illegal Contracts
The three categories of illegal contracts that I will be explaining are: immorality,
contrary to public policy and gaming contracts. A contract may be illegal as being (a) a
contract to commit a crime; (b) an immoral contract; (c) a contract tainted with illegality; (d)
a contract contrary to public policy; or (e) a gaming contract.
Contracts promoting sexual immorality, while not constituting criminal offences or
civil wrongs, may still be regarded as immoral, and contracts which involve them will be
treated as contrary to public policy. This will include any contract for sex outside marriage,
and would presumably cover otherwise lawful homosexual, as well as heterosexual activities.
The same approach will presumably apply to other 'immoral contracts'. The extent to which a
contract will be deemed void for immorality must now be considered in the light of the
decision in Armhouse Lee Ltd v Chappell (1996).
The publishers of a magazine sought to recover payment for advertisements which
had been placed by the defendants. The defendants resisted the claim on the basis that the
content of the advertisements was illegal or immoral, since they related to telephone 'sex
lines'. The trial judge found for the claimants. On appeal, the Court of Appeal considered a
range of ways in which the advertisements could be said to be illegal, including prostitution,
obscenity, and conspiracy to corrupt public morals. Al were rejected. In addition, the court
refused to find that "public policy' required the contracts to be treated as unenforceable. There
was no evidence that any generally accepted moral code condemned these sex lines.
Moreover, it was undesirable in such a case, involving an area regarded as the province of the
criminal law, for individual judges exercising a civil jurisdiction to impose their own moral
attitudes. The decision of the trial judge was therefore upheld, and the contracts were
enforceable by the claimants.
This case suggests that it is unlikely that there will be any significant extension of the
range of contracts that will be struck down on the basis of sexual 'immorality'. Based on the
Court of Appeal's remarks and conclusion, illegality for immorality may only impede
contract enforcement if the behavior is a crime. Operating a brothel is illegal in countries
where prostitution is not permitted. A contract to advertise illegal brothel services will be
void as being tainted with immorality.
Most cases of illegality involve the nebulous notion of 'public policy'. This involves
conduct frowned on by the court but which does not actually fall foul of the criminal or civil
law. The law is established in Parkinson v College of Ambulance Ltd (1925). The claimant
entered into an agreement to make a donation to the defendant charity in return for a promise
of a knighthood. When the knighthood was not conferred, the claimant sued. Held, as a
matter of public policy, the suit would be dismissed on the ground of illegality. Honours are
not supposed to be bought. Agreements to suppress evidence would be contrary to public
policy. For example a prospective witness who had been promised a sum of money not to
testify in court would be unable to sue to collect the promised payment.
In previous years, agreements which encouraged speculative litigation were illegal as
being contrary to public policy. An agreement made by a person with no interest in the
outcome of litigation to fund or otherwise support it was known as 'maintenance'. An
agreement by a solicitor or any other person to fund litigation in exchange for a financial
stake in the outcome, e.g., a percentage was known as ‘champerty’. The offences of
maintenance and champerty have now been abolished in Grenada. A champertous agreement,
however, remains contrary to public policy and unenforceable. In the UK today, an
arrangement whereby the solicitor stands to recover a percentage of the client's winnings,
remains unlawful as being a champertous agreement. In recent years, in the Eastern
Caribbean, public policy in this area in relation to solicitors' work has changed dramatically.
Today, 'conditional fee' arrangements or 'contingency fee' arrangements between solicitor and
client, whereby a solicitor is paid, or is paid more, only if the client's litigation is successful,
have begun to be permitted in some jurisdictions.
The last category of illegal contract that I will explain is gaming or wagering
contracts. A wager is a bet or gamble and gaming means gambling or the playing of any
lawful game such as football for money or money's worth. For this purpose a game includes
horse-racing. Special provisions apply to gaming and wagering contracts. These are illegal
and cannot be enforced. The classic definition of a wagering contract was provided by
Hawkins J in the landmark case Carlill v Carbolic Smoke Ball Co (1892), where he said,
“A wagering contract is one by which two persons, professing to hold opposite
views touching the issue of a future uncertain event, mutually agree that,
dependent upon the determination of that event, one shall win from the other,
and that other shall pay or hand over to him, a sum of money or other stake;
 neither of the contracting parties having any other interest in that contract than
the sum or stake he will so win or lose, there being no other real consideration
for the making of such contract by either of the parties.”
The contract in Carlill's case was not a wager because Miss Carlill, the user of the smoke-
ball, could not lose anything if she failed to catch influenza. She was not risking or gambling
anything.
In Grenada, gaming or gambling in a public place is an offence under the Criminal
Code. Gaming or gambling in private is not illegal. But, any person who runs a gambling
establishment, ie, uses it without an official licence for the purpose of gambling, betting or
the holding of a lottery or sweepstake, commits an offence under the Criminal Code. An
agreement to purchase a lottery ticket in Grenada is illegal unless the lottery has been
licensed under the National Lotteries Authorities Act. Under this Act, any person or agency
that organises a lottery without a licence from the government, commits an offence.
Such agreements are wholly unenforceable and no court remedies are available to the
parties. It follows that the winner cannot enforce any wager or gambling contract by a court
action. Nor can the loser recover back money paid under a lost bet. A loan made to enable a
person to play an illegal game is irrecoverable at common law. Similarly, a loan made
specifically for the purpose of enabling a loser to pay an illegal bet already lost is
irrecoverable.

The issue is whether Aaron can recover his house from Jane after transferring the
legal title to her in an attempt to evade property tax. Specifically, the question is whether the
illegality of the agreement prevents Aaron from asserting his equitable interest in the
property.
The doctrine of tainted with illegality states that courts will not enforce an agreement
that is contrary to public policy or illegal in nature. The maxim “ex turpi causa non oritur
actio” (no action arises from a dishonorable cause) applies, meaning a party cannot seek
relief if their claim is based on an illegal act.
The law lies in the case of Taylor v Bhail (1996) where a school suffered storm
damage and the headmaster agreed with a builder that, if the builder inflated the price of the
work in his estimate by £1,000 so as to defraud the insurance company, he would be awarded
the contract. The builder agreed, did the work and sued for the remaining instalment of the
price. The arrangement came out in the evidence. Held, the claim would be dismissed as the
contract was a plain conspiracy to defraud the insurance company. (The result was not to give
a windfall to the fraudulent headmaster, as both parties were out of pocket. The fraud entitled
the insurance company to avoid paying out on the claim altogether. So, the headmaster got
nothing.)
Aaron transferred the legal title of his house to Jane to avoid paying property tax,
which is an illegal purpose. Since the agreement was based on tax evasion, it is tainted with
illegality, and courts are generally unwilling to assist a party seeking to reverse an unlawful
transaction. If Aaron argues that he retains equitable interest because the house was
purchased with his money, the court might normally recognize a resulting trust in his favor.
However, because the purpose of the transfer was illegal, he is at risk of being denied relief
under the principle that courts do not aid those who engage in fraud.
I would advise Aaron that he cannot recover his house from Jane because the courts
will not enforce an agreement that is based on illegal purposes or is contrary to public policy.
Consequently, Jane may retain full ownership of the house.