The Doctrine of Public Policy in Canadian Contract Law

18 / Annual Review of Civil Litigation
2. Contracts Injurious to the State
There have traditionally been two heads of public policy included within
the category of contracts injurious to the state: (1) contracts which are prejudicial
to its foreign affairs; and (2) contracts which are prejudicial to its domestic
affairs.
The recognition that contracts injurious (although not treasonous) to the
foreign affairs of the state form a distinct head of public policy can be traced to
1799, when it was held that contracts with the enemy during a period of war
were unenforceable." There have since been several English judgments" (and
those where no principle has ever been distilled into a common set of propositions (such
as the rule against gaming contracts). Much as the line between "illegality" and public
policy is not easy to draw, there is significant overlap between the traditional public policy
categories. As noted by Chitty, supra note 6, at 940, "[c]ertain cases do not fit clearly into
any of these...categories." In this, as in virtually every area related to public policy,
commentators are divided over how best to characterize the doctrine. The authors of
Chitty, supra note 6, list five categories, while Fridman, supra note 5, lists six. Waddams
seems to have nine, although he never expresses an actual number. Curiously, although
there exists substantial disagreement as to the proper classification of the heads of public
policy, the commentators are in general harmony with respect to what is to be treated as
a "head" (i.e., as an instance of the application of the doctrine of public policy itself). For
the purposes of the present work, we have adopted the general organization of categories
suggested by Fridman, absent his first category (which is concerned with "illegal" contracts)
for reasons noted above. Given the scope of this paper, only the most cursory
exegesis and analysis of the categories may be here undertaken, and the reader is urged
to consult standard contract texts should he or she desire to gain a more mature understanding
of the cases in which public policy has been applied by the courts. The exhaustive
depiction of the categories undertaken by Buckley, supra note 8, extends to approximately
one hundred and fifty pages. Indeed, the sheer breadth of the topic has led Waddams,
supra note 4, at 397, to reject "[a] detailed account of each area of common law and
statutory illegality [as] out of place in a general study of contract law. The law of restraint
of trade, for example, fills whole books."
86 The Hoop (1799), 1 C. Rob. 196. This principle is of course tied to larger concerns relating
to national security. For a decision which recognized that national security could justify
a court in prohibiting the disclosure of confidential information on public policy grounds,
see The Lord Advocate v. The Scotsman Publications Ltd.,[1989] 1 F.S.R. 310 (Ct. Sess.),
affirmed [1990] I A.C. 812 (H.L.) at 319 [F.S.R.] . Another aspect of the rule which
prohibits contracts injurious to the foreign affairs of the state is the comity doctrine that
forbids the enforcement of contracts where this would result in an activity that breaches
the law of a friendly foreign country (see: De Wutz v. Hendricks (1824), 2 Bing. 314;
Ralli Brothers v. Companion Naviera Sota y Aznar,[1920] 2 K.B. 287 (Eng. K.B.); Foster
v. Driscoll,[ 1929] 1 K.B. 470 (Eng. K.B.); Shiesel v. Kirsch, [1931] O.R. 41 (C.A.) ; and
Re gazzoni v. K.C. Serhia, [1958] A.C. 301 (H.L.)), even if the contract is governed by
domestic law (Lemenda Trading Co. Ltd. v. African Middle East Petroleum Co. Ltd.,
[1988] Q.B. 448 (Q.B.D.)). However, this rule may not apply where the contract, while
illegal under the laws of a foreign country, is legal both in the place where it is to be