The Doctrine of Public Policy in Canadian Contract Law

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2 / Annual Review of Civil Litigation upon which society exists."' And yet, despite its seeming veneration and importance, there are few concepts which have given rise to greater confusion and uncertainty. Academic treatments of the subject are commonly riddled with allusions to the unusual degree of complexity that accompanies this area of the law.6 One author plainly states that "[t]his head of the law... has been clouded by much confusion of thought,"7 a sentiment which is amply illustrated by the fact that the first paragraph of a recent text devoted entirely to the subject is entitled "complexity."8 Such "confusion" and "complexity" are partially attributable to the fact that public policy, especially as the doctrine exists within contracts jurisprudence, is often invoked in response to a wealth of disparate situations wherein "[t]he underlying conflict between public and private interest is not readily conducive to the formulation of clear rules and principles."9 Yet it must also be acknowledged that the subject has produced an inordinate amount of judicial disagreement,'" leaving practitioners and commentators alike with little in the way of a consistent organizing principle." It is perhaps because of this lack of clarity that the doctrine has been the subject of such trenchant criticism. A famously recurrent expression of the 5 G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto, Carswell, 2006) at 362 [Fridman]. 6 See, e.g., H.G. Beale et al, eds., Chitty on Contracts, 29th ed. (London: Sweet and Maxwell, 2004) Vol. 1, at 938 [Chitty], stating that "[t]he diversity of fields with which public policy is concerned, and of the circumstances in which a contractual claim may be affected by it, combine to make this branch of the law of contract inevitably complex — a complexity which has been aggravated by lack of systemization and by the confusing terminology which has often been adopted". 7 Michael Furmston, Cheshire, Fifoot & Funnston's Law of Contract, 14th ed. (London: Butterworths, 2001) at 405 [Cheshire]. 8 R.A. Buckley, Illegality and Public Policy, (London: Sweet and Maxwell, 2002) at para. 1.01 [Buckley]. 9 Ibid. 10 A rather striking example of judicial conflict with respect to the meaning of public policy can be found in Egerton v. Earl of Brownlow (1853), 4 H.L.C. 1 (U.K. H.L.), where sixteen judges issued widely divergent opinions as to whether a condition in a will offended the doctrine. Winfield, supra note 1 at 88, states that "[t]he variety of opinions expressed reminds one of Jarndyce v. Jarndyce in Bleak House, of which Dickens says that no two lawyers could discuss it for five minutes without flatly contradicting each other." I 1 The lack of a working theory of public policy has always been acknowledged in the literature. Buckley, supra note 8, states at para. 6.04 that, "[t]he lack of any clearly defined doctrinal basis for declining to enforce contracts on public policy grounds can give rise to difficult questions..." See also D. Lloyd, Public Policy: A Comparative Study in English and French law (London: The Athlone Press, 1953) at 149 [Lloyd] (indicating that "[i]n English Law... public policy is treated as a haphazard rule the basis of which has never really been explored"), and "Note: A Law and Economics Look at Contracts Against Public Policy" (2005-2006) 119 Harv. L. Rev. 1445 at 1445 (referring to "the absence in the existing literature of a comprehensive framework for the void for public policy doctrine").
The Doctrine of Public Policy in Canadian Contract Law 13 judicial attitude towards public policy is found in the observation ofLord Davey in Janson v. Driefontein Consolidated Mines Ltd. that "public policy is always an unsafe and treacherous ground for legal decision..."12 Indeed, some courts have even gone so far as to state that "[a} series of decisions based upon grounds of public policy, however eminent the judges by whom they were delivered, cannot possess the same binding authority as decisions which deal with and formulate principles which are purely legal."" Despite being held in such low regard, it has generally been acknowledged that public policy is a necessary correlate to the rule of law.'4 Although it is beyond the scope of this paper to enter into a detailed discussion of the various justifications for the doctrine," it appears beyond dispute that some concept equivalent to public policy is required to supplement the express restrictions on human activity which have become codified in statute and precedent. As recognized more than a century ago by Holmes, considerations of public policy are "the secret root from which the law draws all the juices of life. . . Every important principle which is developed by litigation is in fact and at bottom the result of more or less definitely understood views of public policy"." One of the most interesting manifestations of public policy is its status as a doctrine of law that is capable of nullifying the validity of private agreements.17 12 [1902] A.C. 484 (H.L.) at 500 [Janson]. One author writes "[w]hy, then, have the modern rules of public policy developed as they have and, more curious, survived What is clear is that it is not because of judicial affection. Where applied they are often accompanied by expressions of distaste... Indeed the judges on occasion express a sense of achievement on having avoided the application of the rules of public policy..." (John Shand, "Unblinkering The Unruly Horse: Public Policy In The Law of Contract", [1972] Cambridge L.J. 144 at 158 [Shand]). 13 Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co., [1894] A.C. 535 (H.L.) at 553. 14 See, e.g., Egerton v. Earl of Brownlow (1853), 4 H.L.C. 1 (U.K. H.L.) at 197. 15 See, in this connection, Shand, supra note 12, in which punitive, deterrent, "purity of the court" and "unclean hand" justifications for the doctrine of public policy are examined. 16 Oliver Wendell Holmes, Jr., The Common Law (Boston: Little, Brown and Co., 1881) at 35. See also A. v. Hayden (1984), 156 C.L.R. 532 (H.C.A.) at 558, stating that "the place of public policy in the formulation of the common law has been recognized by the greatest judges from early times." A comparable concept, known as "public order" is also recognized in the civil law: see, e.g., Articles 1411 and 1413 of the Civil Code of Quebec. 17 It is important to appreciate that the role played by public policy in contract (and succession) law is not identical to the role which public policy plays in other areas of the law (such as torts or the conflict of laws). As noted by McHugh and Gummow J.J. for the High Court of Australia in Cattanach v. Melchior (2003), 215 C.L.R. I at para. 60, "'public policy' in relation to the common law of torts is not to be thought of as like that public policy which invalidates contracts and, one might add, certain trusts and conditions attached to voluntary dispositions by will or settlement. In those areas, the starting point has been the favour with which the law has looked upon the right of private contract and the performance of contracts, and upon the freedom of disposition of property, by dispositions inter vivos and testamentary." For a contrary view, see C.R. Symmons, "The Function and Effect of Public Policy in Contemporary Common Law" (1977) 51 Austl. L.J. 185 at 185-186 [Symmons].
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The Doctrine of Public Policy in Canadian Contract Law

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