(3) A contract associated with or in the furtherance of illegal purposes may not itself be directly contrary to the provisions of the statute by reason of any express or implied prohibition. As will become apparent, in our view this is the proper characterisation of the transactions between Farrow and the respondents which gave rise to the instruments the subject of the declaration and orders of the primary judge. The present is, if anything, a 'third category' case. In such a case, the courts may not enforce the contract in two instances. The first is where the contract can only be performed in contravention of the statute; that is not the present case. The second is where the party seeking to enforce it (here, Farrow) intended to perform the contract illegally or for an illegal purpose (ie contravention of s 133(3) of the Building Societies Act). In our view, the present, if anything, is such a case. Here the courts act not in response to a legislative prohibition but from the policy of the law. In that regard, Jacobs J in Yango Pastoral (at CLR 432-3; ALR 603-4) referred to what was said by Lord Wright in Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 at 293 that 'public policy … may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds'."
21 It should be added that, when a contract is not directly prohibited by a statute, a Court should not quickly or readily come to the conclusion that it is rendered illegal by the enactment in an indirect fashion. In Hayes v Cable [1962] SR(NSW) 1 the Full Court (Evatt CJ, Herron and Collins JJ) said at 5 - 6:
"It is also well recognized that any contract will be held void although not in contravention of the specific directions of a statute if it be opposed to the general policy and interest thereof: Craies Statute Law, 5th ed (1952), p 235, and cases there cited. But courts will not be astute to construe an Act so as to avoid a contract, or a contract so as to bring it within the prohibition of a statute: per Devlin J (as he then was) in St John Shipping Corporation v Joseph Bank Ltd [1957] 1 QB 267. His Lordship said at p 288: 'a Court should not hold that any contract or class of contracts is prohibited by statute unless there is a clear implication or "necessary inference" as Parke B put it, Cope v Rowlands (1836) 2 M & W 149 at 159; 150 ER at 711, that the statute so intended. If a contract has as its whole object the doing of the very act which the statute prohibits, it can be argued that you can hardly make sense of a statute which forbids an Act and yet permits to be made a contract to do it; that is clear implication. But unless you get a clear implication of that sort, I think that a court ought to be very slow to hold that a statute intends to interfere with the rights and remedies given by the ordinary law of contract. Caution in this respect is, I think, especially necessary in these times when so much of commercial life is governed by regulations of one sort or another, which may easily be broken without wicked intent. Persons who deliberately set out to break the law cannot expect to be aided in a court of justice, but it is a different matter when the law is unwittingly broken. To nullify a bargain in such circumstances frequently means that in a case - perhaps of such triviality that no authority would have felt it worth while to prosecute - a seller, because he cannot enforce his civil rights, may forfeit a sum vastly in excess of any penalty that a criminal court would impose; and the sum forfeited will not go into the public purse but into the pockets of someone who is lucky enough to pick up the windfall or astute enough to have contrived to get it. It is questionable how far this contributes to public morality."
FINDINGS OF FACT
22 As to the form of the agreement, the principal issue is as to whether the conversations referred to in [7] above took place. This in turn depends upon whether the evidence of the plaintiff or the first defendant is accepted as to conversations which took place between them alone and this turns on their respective credit as witnesses. Both were cross examined before me. The plaintiff appeared to be a witness who was doing his best to give the Court a truthful version of the facts. The first defendant was a very poor witness. He gave answers which were evasive, some to the point of untruthfulness. His demeanour was evasive. Furthermore, his evidence concerning the circumstances in which he took money from the trust account without informing the plaintiff was quite disingenuous. I prefer the evidence of the plaintiff to that of the first defendant. In general terms, where their accounts diverge, I accept the plaintiff's account of what occurred. This means that I accept the plaintiff's account of the conversations as to the regime that was to be adopted while the plaintiff did not have a full licence. Furthermore, this account is corroborated by what in fact occurred, as set out above.
CONCLUSIONS
23 As a result of the findings of fact made in [22], I conclude that the contract of partnership was partly oral and partly written. The written partnership agreement was supplemented by terms, arising from the conversations which I have found took place, to the effect that, until the plaintiff obtained his licence as a real estate agent, the business should be conducted under the first defendant's licence, with the plaintiff holding registration as a real estate salesperson under the supervision of the first defendant and participating in the business in that guise. There is no inconsistency between the written and oral elements of the contract: Hoyt's Proprietary Limited v Spencer (1919) 27 CLR 133.
24 In applying the principles relating to illegality set out in [19] to [21] above, one must constantly bear in mind the precise provisions of the statute, the impact of which is being considered. I have already expressed the view that the relevant statute is the new Act. The prohibition in that Act which is said to render the contract illegal is the provision of s 8(1) prohibiting a natural person without a licence from acting as or carrying on the business of or advertising, notifying or stating that the person acts as or carries on the business of a real estate agent. That section contains in subsection (5) the qualification that a person is not considered to carry on a business merely because the person is a member of a partnership that carries on the business.
25 The prohibition which it is alleged the contract of partnership contravened is the prohibition in s 8(1), that is, the prohibition of an unlicensed person from acting as or holding himself out to be a real estate agent. The contract is a contract to conduct a real estate agency in partnership, but upon the basis that it will be conducted, until the plaintiff attains a full licence, by the plaintiff acting as a registered salesperson employed by and under the supervision of the first defendant. It does not seem to me that the contract could be said to be a contract the formation of which is expressly prohibited by the provision in question.
26 Nor does the contract seem to me to be an agreement that a prohibited act shall be done, which would require the contract to be treated as being impliedly prohibited by the statute. Equally, it does not seem to me to be a contract which can only be performed in contravention of the statute. It may be that in carrying out the contract there were some acts by the plaintiff which infringed the proscriptions of s 8(1). One of those acts may have been the use of business cards which described the plaintiff as a principal of the firm. It may be a nice question as to whether the card is in fact an infraction. The firm is named as "Central Tablelands Real Estate" and the plaintiff as "principal". He is not actually described as a real estate agent and he was a partner in the firm. The section provides that it is not infringed simply by carrying on a business in partnership.
27 But, assuming that the use of the card was a breach of the statute, although there is no doubt that the cards existed, there is little evidence of what use was made of them during the comparatively short period of time the partnership operated. There is evidence of only one letter being signed by the plaintiff as "principal" and no clear evidence that it was sent. It is clear that other letters were signed by the plaintiff as sales manager, which was not inappropriate. However, even if there were some infractions of the prohibition by the plaintiff using the cards, they were not necessary to the carrying out of the contract as formed. In my view, such infractions do not lead to the conclusion that the contract itself was illegal in the sense that it was rendered void or unenforceable by the statutory provision relied upon.
28 There are two cases relating to businesses conducted without licences where the contracts were struck down, but their differences from the present situation reinforce rather than counter my conclusion that the present contract is not illegal. In a case relating to a real estate agent, the Supreme Court of Canada in Commercial Life Assurance Company of Canada v Drever [1948] SCR 306 found a contract illegal, but that was a contract appointing an agent, under which the plaintiff claimed a commission, although the contract was entered into at a time when the plaintiff's licence as an agent had expired and not been renewed. That contract was squarely within a prohibition against acting as an agent without a licence. In Pham v Doan [2005] NSWSC 201, Barrett J found that a contract of partnership had been formed, but that its formation was illegal by statute. There the statute was the Pharmacy Act 1964. That statute by s 25(1) prohibits a body of persons unincorporated from carrying on the business of a pharmacist, unless it is a partnership consisting only of pharmacists. This is, of course, in sharp contract to the provisions of s 8(5) of the new Act.
29 A case that seems to me to be closely analogous to the present case is the decision of Buckley J in Dungate v Lee [1969] 1 Ch 545. There the statute prohibited a person from acting as a bookmaker on his own account without being the holder of a permit. The plaintiff did not hold, but the first defendant did hold, a bookmaker's permit. The plaintiff and the first defendant carried on together a bookmaking business. The plaintiff mostly carried out duties in the conduct of the business which did not amount to him acting as a bookmaker, although on some occasions he may have accepted credit bets in circumstances which amounted to infractions of the prohibition. His Lordship found that the relationship amounted to a partnership, but that the contract constituting it was not rendered illegal by the statute, despite some infractions by the plaintiff. His Lordship said at 548:
"A contract of partnership is illegal if the purpose for which the partnership is intended to be formed is illegal or if, although that purpose is one which could be attained by legal means, it is the intention of the parties that it should be attained in an illegal way."
30 His Lordship subsequently analysed the incidence of the statute on the parties' contractual arrangement as follows at 550 - 551:
"In my judgment, the Act does not require that every partner in a bookmaker's business must obtain a permit, although it appears to me that it does require that every partner in a bookmaker's business who acts as a bookmaker in the course of that business must have a permit. There would, I think, be nothing wrong in A holding a bookmaker's permit and B holding no such permit carrying on a bookmaking business in partnership, A alone being actively engaged in the conduct of the business and B contributing the capital but taking no active part in the business. Nor do I think there would be anything wrong if B, instead of taking no active part in the conduct of the business, confined his activities in the business to activities other than receiving or negotiating bets or conducting part betting operations; in other words, so long as B did not act as a bookmaker. He might, for instance, confine his participation in the business to keeping accounts and records.