The Doctrine of Public Policy in Canadian Contract Law

The Doctrine of Public Policy in Canadian Contract Law 117
course, public policy still renders a contract which violates it "unlawful" in the
sense that it will not be enforced, but this unlawfulness is the result of, rather
than the reason for, the court's logic. If contracts in violation of public policy
were to be deemed "illegal" merely because the doctrine afforded a basis for
invalidity, then there would be nothing to prevent agreements falling within
any ground of contractual invalidity, such as mistake or incapacity, from also
being so construed.
Many contracts that have been held by commentators to be contrary to
"public policy" have in truth simply contravened an enforceable legal obligation
(whether through a crime, tort or breach of an equitable obligation).83 This is
perhaps owing to the fact that illegality and public policy are often difficult to
distinguish. Indeed, it is not hard to imagine activities that are offensive to a
fundamental public value and which at the same time are in violation of a
common law obligation." Nevertheless, the distinction is vital. It is submitted
that only a contract whose invalidation has been primarily motivated by its
incongruity with a fundamental value should be held contrary to "public policy."
It is to the nature of such values, concealed as they are within the various
"categories" of public policy (i.e., contracts injurious to the state and the administration
of justice, contracts involving immorality, contracts affecting marriage
and contracts in restraint of trade) that we now turn.85
"[i]n the former group of cases... [t]he court itself makes the judgment as to what is public
policy... In the case of an agreement that is contrary to a statute, though of course public
policy remains the root reason for intervention, the court does not itself make the judgment
of what is public policy". It is submitted that this distinction is applicable to all contracts
which are "illegal" owing to either statute or common law — in both cases, the interest at
stake (i.e., the legal obligation offended) is worthy of protection owing to its source,
regardless of its normative importance. However, in the case of public policy, the interest
at stake (i.e., the value or social obligation offended) is deemed worthy of protection
because of its normative importance.
83 An excellent example of this is Ontario (Public Guardian & Trustee) v. AIDS Society for
Children (Ontario) (2001), 2001 CarswellOnt 1971, [2001] O.J. No. 2170 (Ont. S.C.J.),
where the Court found contrary to "public policy" an agreement between a charity and
its agent, whereby the former agreed to pay the latter 70 per cent of the monies which the
agent obtained from the public on the charity's behalf, in circumstances where the public
were not informed that virtually no money would be applied to the charitable purpose.
This finding is clearly attributable to the misrepresentations made to the public (which,
indeed, formed an alternative basis for the Court's conclusions). See also Neville v.
Dominion of Canada News Co. Ltd., [1915] 3 K.B. 556 (C.A.) and the explanation given
for this decision by Buckley, supra note 8 at para. 7.27.
84 In certain cases, such as contracts involving maintenance and champerty, the common
law obligation is indistinguishable from public policy.
85 These "categories" of public policy involve cases where "public policy has partially
precipitated itself into recognised rules which belong to law properly so called, but where
these rules have remained subject to the moulding influence of the real reasons of public
policy from which they proceeded" (Rodriguez v. Speyer Brothers, [1919] A.C. 59 (H.L.)
at 81). They may accordingly be distinguished from cases which have crystallized into a
positive rule of law (such as the rule against perpetuities or restraints on alienation), and