A-881-96
Kathleen Still (Applicant)
v.
The Minister of National Revenue (Respondent)
Indexed as: Stillv. M.N.R. (C.A.)
Court of Appeal, Strayer, Linden and Robertson JJ.A. "Toronto, October 8; Ottawa, November 24, 1997.
Contracts — Doctrine of illegality — Judicial review of T.C.C. decision upholding denial of U.I. benefits as contract of service illegal for breach of Immigration Regulations, 1978 — Classical, modern models of illegality reviewed — Classical model rejected as (1) having lost persuasive force, no longer applied consistently; (2) not accounting for reality finding of illegality dependent on purpose underlying statutory prohibition, remedy sought herein, consequences flowing from finding contract unenforceable; (3) common law of illegality varying from province to province — As illegality doctrine not statutory but of judicial creation, current judges must ensure it accords with contemporary values — Up to F.C.A. to chart course reflecting modern approach, public law milieu — Following principle better serving doctrine of statutory illegality in federal context: where contract expressly or impliedly prohibited by statute, court may refuse to grant relief when, in all circumstances and having regard to objects, purposes of statutory prohibition, contrary to public policy, as reflected in relief claimed, to do so — Purpose of Unemployment Insurance Act, restrictions in Immigration Regulations — Neither determinative — Policy considerations: (1) person should not benefit from own wrongdoing; (2) relief should not undermine purposes, objects of legislation — Community values relevant to moral disapprobation — Applicant legal immigrant, acting in good faith — Penalty disproportionate to breach — Not disentitled to benefits on ground of statutory illegality.
Unemployment insurance — Judicial review of T.C.C. decision upholding denial of U.I. benefits — While permanent resident application pending, applicant working as housekeeper without permit — Believed lawfully entitled to work in Canada — Immigration Regulations, s. 18(1) prohibiting those without permanent resident status from working without authorization — Tax Court holding applicant's contract of service illegal as violating s. 18 — Applicant legal immigrant, acting in good faith — Not disentitled to benefits on ground of statutory illegality — Penalty disproportionate to breach — Public policy favouring legal immigrant, acting in good faith.
Citizenship and Immigration — Status in Canada — Persons with temporary status — Judicial review of T.C.C. decision upholding denial of U.I. benefits — While permanent resident application pending, applicant working as housekeeper without permit — Immigration Regulations, s. 18(1) prohibiting those without permanent resident status from working without authorization — Tax Court holding applicant's contract of service illegal as violating s. 18 — Applicant legal immigrant, acting in good faith — Penalty disproportionate to breach — Not disentitled to benefits on ground of statutory illegality — Regulations encourage persons in applicant's position to take job Canadians unwilling to accept or for which insufficient qualified Canadian — Unnecessary to deny relief to preserve integrity of legal system.
Construction of statutes — Applicant denied unemployment insurance benefits as violating Immigration Regulations, s. 18 prohibiting person not having permanent resident status from working without authorization — T.C.C. holding contract of service illegal — Whether employment under void contract insurable employment not depending on application of ordinary rules of statutory construction — Parliament's intention not ascertained from contextual purposive analysis — If benefits denied, because of public policy — Policy considerations: (1) person should not benefit from own wrongdoing; (2) relief should not undermine purposes, objects of either legislation — Latter not determinative — Community values relevant to moral disapprobation — Applicant legal immigrant, acting in good faith — Penalty disproportionate to breach — Not disentitled to benefits on ground of statutory illegality — Relief need not be denied to uphold integrity of legal system.
This was an application for judicial review of the Tax Court's decision upholding the denial of unemployment insurance benefits. Pending consideration of her permanent resident status application, and acting in good faith, the applicant accepted employment without obtaining a work permit. From May 9, 1993 to October 1, 1993 she was employed as a housekeeper at a camp in Manitoulin Island, Ontario. On September 23 she was granted permanent resident status, which embraced the right to work in Canada without a work permit. On October 11, 1993 the applicant was laid off. Her application for unemployment insurance benefits was denied due to a breach of the Immigration Regulations, 1978, subsection 18(1) of which prohibits any person other than a Canadian citizen or permanent resident, from engaging in employment in Canada without a valid and subsisting authorization. There is no express penalty for a breach of this particular provision, but Immigration Act, section 98 serves as the general penal provision for cases in which no punishment is provided elsewhere in the Act or Regulations. It applies only to persons who knowingly contravene the legislation. Because she was not in possession of a work permit, the Tax Court Judge found that the contract of service was void for illegality. Recognizing that the law had developed exceptions to the harsh effects arising from a strict application of the illegality doctrine, the Tax Court Judge considered the policy implications of invalidating the contract. He concluded that there was a "social utility" in denying the applicant benefits in order to protect the solvency of the unemployment insurance fund.
The issues were: (1) whether the applicant's employment contract was illegal at common law and therefore void ab initio; and (2) whether the illegal contract of service fell within the definition of "insurable employment".
Held, the application should be allowed. The applicant's employment from May 9 to September 23, 1993 constituted insurable employment.
The doctrine of illegality is divided into two categories: common law illegality and statutory illegality. Under the classical model of illegality, a contract which is either expressly or impliedly prohibited by statute is considered void ab initio i.e. neither party is entitled to seek the court's aid, even if the party seeking relief acted in good faith. Ignorance of the law is no excuse. A court should not be quick to imply a prohibition and must not do so if the statutory prohibition goes to the performance of a contract as opposed to its formation. If the prohibition relates to the terms of performance, an innocent party to the contract may be entitled to enforce the contract.
The modern approach to the law of illegality rejects the understanding that simply because a contract is prohibited by statute it is illegal and therefore void ab initio. The contract may be declared illegal but relief is granted under the guise of an exception; or the contract is held not to be illegal and therefore enforceable. In either case the legal result is the same. The other distinguishing feature of the modern approach is that enforceability of a contract is dependent upon an assessment of the legislative purpose or objects underlying the statutory prohibition. Under the classical model, the purpose of the statute was relevant only in determining whether the prohibition was for the sole purpose of raising revenue.
Today, the purpose and object of a statutory prohibition is relevant when deciding whether or not the contract is enforceable.
The answer to the first issue depended upon whether the classical model of illegality was applicable. Immigration Regulations, 1978, subsection 18(1) prohibited the applicant from entering into and pursuing employment without a work permit, if not expressly, then by implication. But this was not a case where the statutory prohibition went to the performance of the contract as opposed to its formation. Accordingly, under the classical model of illegality, the applicant's employment from May 9 to September 23, 1993 constituted an illegal contract which was void from the outset. Employment under an illegal contract could not constitute insurable employment. But the classical model ought not to be followed because it had long lost its persuasive force and was no longer being applied consistently. The doctrine has been honoured more in its breach than in its observance through the proliferation of judicial "exceptions" which, in fact, represented a movement away from the doctrine itself. It also failed to account for the reality that today a finding of illegality is dependent on the purpose underlying the statutory prohibition, the remedy being sought, and the consequences which flow from a finding that a contract is unenforceable. In this case the ramifications of declaring an employment contract illegal are too far-reaching. That so many statutes (Ontario Employment Standards Act , Workers' Compensation Act) predicate entitlement or eligibility on an existing contract of service is sufficient for any court to decline the invitation to automatically declare any employment contract invalid on grounds of illegality, and more so if the declaration was based on the tenets of the classical doctrine of illegality. Also, the common law of illegality can vary from province to province. The Supreme Court of Canada has not determined the issue. Each case turns on its facts within a particular statutory framework.
Where a statute prohibits the formation of a contract but does not detail the contractual consequences flowing from a breach of a statutory prohibition, the courts should be free to decide the consequences. As the doctrine of illegality is a creature of judicial creation, it is incumbent on the judiciary to ensure that its premises accord with contemporary values. The following principle reflects both the modern approach and its public law milieu: where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party, when in all of the circumstances of the case, including regard to the objects and purposes of the statutory prohibition, it would be contrary to public policy, reflected in the relief claimed, to do so.
In the present case, the public policy dimension manifested itself in two ways: (1) a person should not benefit from his or her own wrongdoing (or moral disapprobation for wrongful conduct); and (2) relief should not be available to a party if it would undermine the purposes or objects of the legislation being violated, the Immigration Act, and the legislation giving rise to the benefits that have been denied, the Unemployment Insurance Act. As to the latter, the overall purpose of the Unemployment Insurance Act is to make benefits available to the unemployed. The objective underlying the restrictions in the Immigration Act is to prevent persons such as the applicant from adversely affecting the employment opportunities of Canadian citizens. The legislative purpose underlying the requirement of legal immigrants to obtain a work permit is compelling, but non-determinative of the issue. The denial of unemployment insurance benefits was a de facto penalty which was disproportionate to the statutory breach. The applicant was not subject to any penalty under the Immigration Act because of the statutory breach. If the Immigration Act is only concerned with those who knowingly fail to obtain a work permit, this Court should not impose a penalty amounting to thousands of dollars of lost benefits. If the concern was the possible depletion of the unemployment insurance fund by illegal workers, it had to be kept in mind that both the claimant and the employer contributed to the fund during the period of "illegal" employment. If the purpose of Immigration Regulations, 1978 section 18 is to discourage illegal immigrants from undermining the laws of Canada, the applicant was not an illegal immigrant and the Immigration Regulations do not seek to discourage one in her position from working in Canada. Rather, the Regulations encourage such persons to seek employment for which there are not enough qualified Canadians or employment which Canadians are unwilling to accept.
As to moral disapprobation, community values must be considered. The bona fides of the party seeking relief herein was of critical significance. The applicant was not an illegal immigrant. The Tax Court concluded that she acted in good faith. Having regard to the objects of the Unemployment Insurance Act, and considering the facts that the applicant was a legal immigrant and that she acted in good faith, she should not be disentitled to unemployment insurance benefits on the ground of illegality. The object of the statutory prohibition was a compelling one, but in the circumstances the penalty imposed was disproportionate to the breach. Allowing the applicant to claim benefits would not invite people to come to Canada and to work illegally. For a judge to find that an illegal immigrant acted in good faith would be an oxymoron. The payment of unemployment insurance premiums does not guarantee the right to benefits. Public policy weighed in favour of legal immigrants who have acted in good faith. Relief did not have to be denied to "preserve the integrity of the legal system". To grant unemployment insurance benefits to the applicant was not contrary to public policy.
While application of the classical model of the illegality doctrine would promote certainty in the law and ease of administration, it carries with it the risk of undue rigidity. Certainty must give way to flexibility herein.
statutes and regulations judicially considered
An Act relating to Banks and Banking, S.C. 1871, c. 5, s. 40.
Bank Act, R.S.C. 1970, c. B-1.
Civil Code of Lower Canada, 1866, Arts. 13, 14, 15.
Civil Code of Québec, S.Q. 1991, c. 64, Arts. 9, 1412, 1413, 1418.
Employment Standards Act, R.S.O. 1990, c. E.14.
Immigration Act, R.S.C., 1985, c. I-2, s. 98 (as am. by S.C. 1992, c. 49, s. 87).
Immigration Regulations, 1978, SOR/78-172, ss. 18(1) (as am. by SOR/89-80, s. 1), 20(1),(3).
Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1.
Lord's Day Act, R.S.C. 1970, c. L-13, s. 4.
Merchant Shipping (Safety and Load Line Conventions) Act, 1932 (U.K.), 1932, c. 9.
Mortgage Brokers Registration Act, R.S.O. 1960, c. 244.
Real Estate and Business Brokers Act, R.S.O. 1990, c. R.4, s. 22.
Unemployment Insurance Act, R.S.C., 1985, c. U-1, s. 3(1).
Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48.
Workers' Compensation Act, R.S.O. 1990, c. W.11.
cases judicially considered
applied:
Abrahams v. Attorney General of Canada, [1983] 1 S.C.R. 2; (1983), 142 D.L.R. (3d) 1; 83 CLLC 14,010; 46 N.R. 185; Sivasubramaniam v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 1549 (QL).
distinguished:
Bank of Toronto v. Perkins (1883), 8 S.C.R. 603; Polat v. Canada (Minister of National Revenue—M.N.R.), [1996] T.C.J. No. 1667 (QL); Sah v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 982 (QL); Allendes v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 161 (QL).
considered:
Holman v. Johnson (1775), 1 Cowp. 341; 98 E.R. 1120 (K.B.); Sidmay Ltd. v. Wehttam Investments Ltd., [1967] 1 O.R. 508; (1967), 61 D.L.R. (2d) 358 (C.A.); affd [1968] S.C.R. 828; (1968), 69 D.L.R. (2d) 336; Cope v. Rowlands (1836), 2 M. & W. 149; 150 E.R. 707; St. John Shipping Corpn. v. Rank (Joseph) Ltd., [1956] 3 All E.R. 683 (Q.B.); Royal Bank of Canada v. Grobman et al. (1977), 18 O.R. (2d) 636; 83 D.L.R. (3d) 415; 2 B.L.R. 145; 25 C.B.R. (N.S.) 132; 2 R.P.R. 101 (H.C.); Christie v. The York Corporation, [1940] S.C.R. 139; Hall v. Hebert, [1993] 2 S.C.R. 159; (1993), 101 D.L.R. (4th) 129; [1993] 4 W.W.R. 113; 26 B.C.A.C. 161; 78 B.C.L.R. (2d) 113; 15 C.C.L.T. (2d) 93; 45 M.V.R. (2d) 1; 152 N.R. 321; 44 W.A.C. 161; Mohamed v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 458 (QL); Kaur v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 950 (QL).
referred to:
Neider v. Carda of Peace River District Limited, [1972] S.C.R. 678; (1972), 25 D.L.R. (3d) 363; [1972] 4 W.W.R. 513; Reference re Certain Titles to Land in Ontario, [1973] 2 O.R. 613 (C.A.); McDonald and McDonald v. Fellows, Fellows Doherty Bros. Realty Ltd. and Wilkinson (1979), 17 A.R. 330; 105 D.L.R. (3d) 435; [1979] 6 W.W.R. 544; 9 R.P.R. 168 (C.A.); Ball v. Crawford (1983), 53 B.C.L.R. 153 (C.A.); Roman Hotels Ltd. v. Desrochers Hotels Ltd. (1976), 69 D.L.R. (3d) 126 (Sask. C.A.); R. v. Big M Drug Mart Ltd. et al., [1985] 1 S.C.R. 295; (1985), 60 A.R. 161; 18 D.L.R. (4th) 321; [1985] 3 W.W.R. 481; 37 Alta. L.R. (2d) 97; 18 C.C.C. (3d) 385; 85 CLLC 14,023; 13 C.R.R. 64; 58 N.R. 81; Archbolds (Freightage) Ltd. v. S. Spanglett Ltd., [1961] 1 Q.B. 374 (C.A.); Kingshott v. Brunskill, [1953] O.W.N. 133 (C.A.); Kocotis v. D'Angelo, [1958] O.R. 104; (1957), 13 D.L.R. (2d) 69 (C.A.); Love's Realty & Fin. Services Ltd. v. Coronet Trust, [1989] 3 W.W.R. 623 (Alta. C.A.).
authors cited
American Law Institute. Restatement of the Law of Contracts. St. Paul, Minn.: American Law Institute, 1932.
Baker, J. H. An Introduction to English Legal History. London: Butterworths, 1971.
Fridman, G. H. L. The Law of Contract in Canada, 3rd ed. Toronto: Carswell., 1994.
Grodecki, J. K. "In Pari Delicto Potior est Conditio Defendentis" (1955), 71 L.Q. Rev . 254.
Law Reform Commission of British Columbia. Illegal Contracts. Working Paper No. 38. Vancouver: The Commission, 1982.
Notes, "The Highwayman's Case (Everet v. Williams )" (1893), 9 L.Q. Rev . 197.
Ontario Law Reform Commission. Report on Amendment of the Law of Contract. Ontario Ministry of the Attorney General, 1987.
Treitel, G. H. The Law of Contract, 9th ed. London: Sweet & Maxwell, 1995.
Waddams, S. M. The Law of Contracts, 3rd ed. Toronto: Canada Law Book, 1993.
APPLICATION for judicial review of the Tax Court's decision (Still v. Canada (Minister of National Revenue—M.N.R.), [1996] T.C.J. No. 1228 (QL)) upholding the denial of unemployment insurance benefits because the contract of service was illegal, the applicant not having had a work permit as required by Immigration Regulations, 1978, subsection 18(1). Application allowed.
counsel:
Michael W. Shain for applicant.
Roger Leclaire for respondent.
solicitors:
Manitoulin Legal Clinic, Little Current, Ontario, for applicant.
Deputy Attorney General of Canada for respondent.
The following are the reasons for judgment rendered in English by
Robertson J.A.:
1. Introduction
The applicant, Ms. Still, is an American citizen who was lawfully admitted to Canada. Pending consideration of her application for permanent resident status, and acting in good faith, she accepted employment as a housekeeper without obtaining a work permit as required under the Immigration Act [R.S.C., 1985, c. I-2]. Upon being laid-off she submitted a claim for benefits under the Unemployment Insurance Act [R.S.C., 1985, c. U-1]. Due to the statutory breach, the claim was rejected. The Unemployment Insurance Commission, the Board of Referees, the Minister of National Revenue and the Tax Court of Canada have taken the position that Ms. Still's failure to obtain a work permit resulted in the formation of an illegal contract of service and, correlatively, that such a contract does not constitute "insurable employment" within the meaning of the Unemployment Insurance Act . With respect to the allegation of illegality, reliance is placed on the legal maxims "ex dolo malo non oritur actio" and "ex turpi causa non oritur actio" embraced by Lord Mansfield in Holman v. Johnson (1775), 98 E.R. 1120 (K.B.), at page 1121. These maxims translate as follows: no court will lend its aid to a person who founds his cause of action upon an immoral or illegal act. It is upon these maxims that the common law doctrine of illegality is predicated. This appeal bears out the difficulties of adopting and applying private law principles within an administrative law context. It comes to us as a matter of first impression. In the final analysis, I find for the applicant Ms. Still.
2. Facts
The facts are not in dispute. The applicant married a Canadian citizen and immigrated to Canada to be with her husband. She applied for permanent resident status and on September 22, 1991 was provided with the following document by immigration officials:
This will verify that, for the person(s) named hereunder, a recommendation has been sent to the Governor-in-Council for Canada for an exemption pursuant to subsection 114(2) of the Immigration Act
KATHLEEN STILL
Pending Governor-in-Council approval and provided all other requirements are met, the above-named will be granted permanent resident status in Canada. The above-named is/are hereby eligible to apply for employment and/or student authorizations, as applicable.
The applicant took the above document to mean that she was entitled, at that point and without further action on her part, to work in Canada. From May 9, 1993 to October 1, 1993, she was employed as a housekeeper at Camp Hiawatha in Manitoulin Island, Ontario. On September 23, 1993 she was granted status as a permanent resident, which status embraced the right to work in Canada without a work permit. The applicant was laid off from work on October 1, 1993 and her application for unemployment benefits was denied on the ground that her contract of service was illegal and invalid for the period May 9 to September 23, 1993. The period during which she did work under a valid contract of service, September 23 to October 1, 1993, was not long enough to qualify her for benefits. Ultimately, the applicant appealed to the Tax Court of Canada [Still v. Canada (Minister of National Revenue—M.N.R.), [1996] T.C.J. No. 1228 (QL)].
The Tax Court Judge found that the applicant believed in good faith that she was lawfully entitled to work in Canada. He also found that, in the period prior to the date she was declared a permanent resident, the applicant did not qualify for benefits because she was not engaged in insurable employment as contemplated by subsection 3(1) of the Unemployment Insurance Act. That subsection reads as follows:
3. (1) Insurable employment is employment that is not included in excepted employment and is
(a) . . . service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise; [Emphasis added.]
Specifically, the Tax Court Judge held that the applicant was not engaged in insurable employment because of a violation of subsection 18(1) of the Immigration Regulations, 1978 [SOR/78-172 (as am. by SOR/89-80, s. 1)] which states:
18. (1) Subject to subsection 19(1) to (2.2), no person, other than a Canadian citizen or permanent resident, shall engage or continue in employment in Canada without a valid and subsisting employment authorization [a work permit].
There is no express penalty for a breach of this particular provision. Section 98 [as am. by S.C. 1992, c. 49, s. 87] of the Immigration Act serves as the general penal provision for cases in which no punishment is provided elsewhere in the Act or Regulations. However, it applies only to persons who knowingly contravene the legislation:
98. Every person who knowingly contravenes any provision of this Act or the regulations or any order or direction lawfully made or given thereunder for which no punishment is elsewhere provided in this Act is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both.
It is common ground that the applicant paid the insurance premiums and complied with all other requirements of the Unemployment Insurance Act. However, because she was not in possession of a work permit, the Tax Court Judge found that the contract of service with her employer was void for illegality. In support, he relied on the classic decision of Lord Mansfield in Holman v. Johnson, supra. Recognizing that the law had developed exceptions to the harsh effects arising from a strict application of the illegality doctrine, the Tax Court Judge considered the policy implications of invalidating the contract under the reasoning adopted in Royal Bank of Canada v. Grobman et al. (1977), 18 O.R. (2d) 636 (H.C.) discussed more fully, infra.
In the end, the Tax Court Judge concluded that there was a "social utility" in denying the applicant unemployment benefits based on the policy of discouraging non-citizens and non-residents from working and on the policy of protecting the solvency of the unemployment insurance fund generally. In support of his decision not to award benefits, the Tax Court Judge referred to other Tax Court jurisprudence. Ultimately, it will be necessary to address those decisions as well.
3. The Issue
The parties have chosen to address the issue at hand by first asking whether the applicant's employment contract is classified as an illegal contract at common law and, therefore, void ab initio. As will be explained shortly, this is an oversimplification of a problem which has befuddled the judiciary for over two centuries. The second part of their legal argument is to have this Court determine whether the illegal contract of service falls within the definition of insurable employment. The Minister takes the position that employment under a void contract is not insurable employment. This legal argument does not depend on the application of the so-called "ordinary rules" of statutory construction, as was initially argued by counsel for the applicant.
The definition of insurable employment found within the Unemployment Insurance Act makes no express or implicit reference to whether it is to include or exclude employment obtained in breach of another federal statute. Similarly, in regard to the Immigration Act there is no express or implicit stipulation in that legislation which could lead one to reasonably conclude that a breach of that statute was intended to have the effect of denying a person unemployment insurance benefits. This is not a case in which one can isolate legislative intent (a "slippery" concept indeed) through a contextual or purposive analysis of that Act. If benefits are to be denied this applicant, it will not be for the reason that Parliament so intended, but for the same reason the common law refuses to lend its assistance to parties to a contract which is deemed illegal"public policy.
Putting aside the matter of statutory construction, it is also imperative that one recognize that the issue before us is not whether a breach of the Immigration Act disentitles the applicant to benefits otherwise available under the Unemployment Insurance Act. This case could never stand for the proposition that a person who is in breach of one federal statute is not entitled to benefits available under another. For example, I take it for granted that the government has no right to withhold Canada Pension Plan benefits simply because a person is in breach of the Income Tax Act [R.S.C., 1985 (5th Supp.), c. 1]. Any right of set-off would have to be found in the applicable legislation. Why is it then that the Minister of National Revenue feels he can withhold unemployment insurance benefits from a person who meets all the requirements of the Unemployment Insurance Act, when the statutory breach is under the Immigration Act? The answer must lie in the fact that there is a rational connection between the statutes. That connection is the allegedly illegal employment contract entered into by the applicant. We turn now to the parameters of the contractual illegality doctrine, beginning with some general observations regarding the state of the common law.
4. The Common Law Doctrine of Illegality
Law reform agencies have been quick to conclude that the law of illegality is in an unsatisfactory state: see Ontario Law Reform Commission (OLRC), Report on Amendment of the Law of Contract (1987), at page 222; and Law Reform Commission of British Columbia, Illegal Contracts (1982), at page 63. There is a plethora of conflicting decisions and great uncertainty as to the principles which should be guiding the courts. Arguably, so many exceptions have been grafted on to the common law rule that illegal contracts are void ab initio that the validity of the rule itself is brought into question. In Sidmay Ltd. v. Wehttam Investments Ltd., [1967] 1 O.R. 508 (C.A.) Laskin J.A. (as he then was) doubted whether a single rationalizing principle could be applied to cases on illegality (at page 534). The treatment accorded the doctrine by scholars reveals the extent to which it is difficult to rationalize the jurisprudence. Each commentator's treatment offers a unique perspective on a complex area of the law: see S. M. Waddams, The Law of Contracts 3rd ed., 1993, at page 373; G. H. L. Fridman, The Law of Contract in Canada, 3rd ed., 1994, at page 370; and G. H. Treitel, The Law of Contract (9th ed) (1995), at page 389. Against this background, I shall attempt to give an overview of those aspects of the doctrine which reasonably bear on the issue at hand.
The doctrine of illegality is divided into two categories: common law illegality and statutory illegality. The former category has its origins in an unreported case said to have been decided in 1725. In Everet v. Williams, a highwayman brought an action in equity to obtain an accounting against his partner. Not only was the suit rejected, but the plaintiff's lawyers were allegedly held in contempt of court, fined and committed to Fleet prison pending payment of the fine: see Notes, "The Highwayman's Case (Everet v. Williams )" (1893), 9 L.Q. Rev. 197. Invariably, the concept of illegality and its effect on the contractual rights and obligations of parties to an otherwise enforceable agreement is traced to the following passage of Lord Mansfield's reasons in Holman v. Johnson, supra, at page 1121:
The principle of public policy is this: ex dolo malo non oritur actio. No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant but because they will not lend their aid to such a plaintiff.
As significant as that principle may be to the history and development of the common law notion of illegality, the factual context in which it was made together with the ultimate outcome, is as revealing as the principle itself. The facts of Holman are straightforward. The plaintiff, a resident of Dunkirk (France), sold a quantity of tea to the defendant knowing that it was to be smuggled by the latter into England. The tea was delivered to the defendant in Dunkirk and the plaintiff brought an action in England to recover monies owing. The defendant purchaser resisted the claim on the ground of illegality. Lord Mansfield held that the plaintiff was entitled to recover the price of the goods. He was not guilty of any offence, nor had he breached any statutory laws of England. The plaintiff was free to make a complete contract for the sale of goods in Dunkirk and what the buyer was going to do with the goods was of no concern to that contract. Lord Mansfield noted that had the plaintiff agreed to deliver the tea in England where such goods were prohibited then the defendant would not have been liable for the sale price.
The significance of Holman is that it established the general principle (not rule) that contracts can be rendered unenforceable on grounds that they are contrary to public policy. Public policy arguments in contract are rooted in an analysis of moral precepts and so-called criminal acts: that is conduct which is deemed injurious to the public good. In light of subsequent developments in the law, it is of little import that Lord Mansfield did not lay down a rule that any contract tainted with illegality is void ab initio. Legal historians have shown that Lord Mansfield was conscious that if his principle was to be of assistance to the just application of the law it should not become inflexible. Unfortunately, subsequent generations of judges would fail to see the wisdom in this adaptable approach. History discloses that the flexibility achieved in contract law in the 18th century was superseded in the 19th and early 20th century by a doctrinal rigidity which promoted certainty in the law at the expense of other pressing values: see J. K. Grodecki, "In Pari Delicto Potior est Conditio Defendentis" (1955), 71 L.Q. Rev. 254, at page 258; Waddams, supra, at page 369; J. H. Baker, An Introduction to English Legal History (1971), at page 174.
Since Holman, the courts have been called upon to examine innumerable transactions which involve so-called immoral or illegal acts. But as this category of illegality is of no concern to the present case, I turn to the concept of statutory illegality. While the refusal of a court to entertain an accounting between highwaymen may seem eminently justified, the refusal to enforce a contract because of a statutory breach has proven to be the more problematic aspect of the illegality doctrine. The fact that the legal maxims embraced by Lord Mansfield were formulated long before the proliferation of diverse regulatory schemes is a factor which, until recently, seems to have been overlooked. Little would be gained from an extensive analysis of the case law in the area of statutory illegality and, thus, the following analysis seeks only to shed some light on where the law has been (the old) and where it appears to be going (the new).
Case law fully supports the understanding that if the making of a contract is expressly or impliedly prohibited by statute then it is illegal and void ab initio. Words to the effect that "no contract shall be entered into unless a person is licensed" fit the express category. Less precise language often attracts the allegation that prohibition cannot even be implied. This was the argument advanced in Cope v. Rowlands (1836), 150 E.R. 707, a decision still cited today and the one which remains the locus classicus of statutory illegality. Parke B. laid down what he considered to be settled law (at page 710):
. . . where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no court will lend its assistance to give it effect. It is equally clear that a contract is void if prohibited by a statute, though the statute inflicts a penalty only, because such a penalty implies a prohibition.
In Rowlands, the plaintiff, an unlicensed broker, sought to recover under a contract for work done. The statute in question merely prohibited a person from acting as broker unless licensed and was silent on the effect of a contract with unlicensed brokers. The argument advanced by the plaintiff was that the statute intended only to impose a penalty for a breach and not to prohibit the contract with the defendant. Parke B. accepted that the statute in question did not expressly prohibit the contract. Hence, the issue turned to whether the prohibition arose by implication. The answer to that question was said to depend on whether the statute was enacted for the purpose of raising revenue through the imposition of licensing fees (in which case no prohibition could be implied) or whether it was passed for the protection of the public by preventing unqualified persons from acting as brokers. It was found that one of the purposes of this section of the statute related to the latter objective and, therefore, the broker was not entitled to succeed. The clause in the statute imposing a penalty "must be taken . . . to imply a prohibition of [unlicensed persons] to act as brokers and consequently to prohibit, by necessary inference, all contracts which such persons make" (at page 711).
According to Rowlands, a finding that a contract is impliedly prohibited requires an examination as to the purpose or object underscoring the legislation. To avoid this issue altogether, some statutes have been drafted to actually state, for example, that an unlicensed person cannot maintain an action for services rendered. This is typical of legislation governing the real estate industry: see section 22 of the Ontario Real Estate and Business Brokers Act [R.S.O. 1990, c. R.4].
As stated above, case law distinguishes between an express and implied prohibition. In cases where no such express language is found it has not been difficult for courts to imply such a prohibition and rightly so. This is certainly true in regard to contracts that were entered into in breach of section 4 of the Lord's Day Act, R.S.C. 1970, c. L-13 (since repealed) which provided, inter alia, that it was "unlawful" for persons to sell real estate on Sundays. Though that legislation imposed only a penalty for breach, the Supreme Court of Canada readily concluded that contracts entered into on Sunday were illegal and unenforceable: see Neider v. Carda of Peace River District Limited , [1972] S.C.R. 678. In response, the law reports are now replete with cases in which courts resorted to various judicial techniques to avoid innocent parties suffering the consequences of a finding of illegality under that legislation, see for example: Reference re Certain Titles to Land in Ontario, [1973] 2 O.R. 613 (C.A.); McDonald and McDonald v. Fellows, Fellows Doherty Bros. Realty Ltd. and Wilkinson (1979), 17 A.R. 330 (C.A.); Ball v. Crawford (1983), 53 B.C.L.R. 153 (C.A.); Roman Hotels Ltd. v. Desrochers Hotels Ltd. (1976), 69 D.L.R. (3d) 126 (Sask. C.A.). Ultimately the Lord's Day Act was held unconstitutional by the Supreme Court see: R. v. Big M Drug Mart Ltd. et al., [1985] 1 S.C.R. 295.
Generally, it is not difficult to make a finding that a contract is either expressly or impliedly prohibited by statute. Nonetheless, there are instances where it is improper to imply such a prohibition. In 1957, Lord Devlin cautioned that: "the courts should be slow to imply the statutory prohibition of contracts and should do so only when the implication is quite clear." This advice was proffered in St. John Shipping Corpn. v. Rank (Joseph) Ltd. , [1956] 3 All E.R. 683 (Q.B.), a high point in English law. For the first time a clear distinction is drawn between contracts illegal in their formation and those illegal as performed.
A contract is illegal as to formation when it is prohibited by statute. It is illegal as performed if, though lawful in its formation, it is performed by one of the parties in a manner prohibited by statute. The distinction was of critical significance in St. John Shipping because it permitted the plaintiff carrier to recover the full contract price when the defendant resisted payment on the ground that the carrier had overloaded its ship in contravention of the Merchant Shipping (Safety and Load Line Conventions) Act, 1932 [(U.K.), 1932, c. 9] even though the goods were delivered safely. The loading restrictions were held to go to the performance of the contract and not its formation. As Professor Waddams has so adroitly remarked (at page 381): "If every statutory illegality, however trivial, in the course of performance of a contract, invalidated the agreement, the result would be an unjust and haphazard allocation of loss without regard to any rational principles."
Despite this welcome development in the law, Lord Devlin reiterates the basic tenets of the illegality doctrine. It is said that if the contract is expressly or impliedly prohibited by statute, the court will not enforce it regardless of whether the parties intended to break the law. That is to say it is immaterial whether the illegal actions were accidental, deliberate, serious or trivial. Above all the argument is that ignorance of the law is not an acceptable reply to a defence of illegality. However, where the statutory prohibition goes to the performance of a contract and not its formation, a party acting in good faith is entitled to relief notwithstanding the statutory breach. In such circumstances a defendant cannot successfully plead his or her own illegality: see Archbolds (Freightage) Ltd. v. S. Spanglett Ltd., [1961] 1 Q.B. 374 (C.A.).
In recognition of the rigidity and oft-times unfair application of the classical illegality doctrine, the courts developed several ways in which a party may be relieved of the consequences of illegality where appropriate. For example, where the doctrine of ex turpi causa might otherwise apply, the courts have developed three exceptions to the rule that a court will not order the return of property transferred under an illegal contract. These are: (1) where the party claiming for return of property is less at fault; (2) where the claimant "repents" before the illegal contract is performed; and (3) where the claimant has an independent right to recover (for example, a situation where recovery in tort might be possible despite an illegal contract), see generally: Fridman, supra , at page 424. In situations where a party enters into two related transactions (or makes two promises within an agreement) one of which is illegal and the other legal, courts have been willing to enforce the legal one if convinced that the provisions are "severable" (see: Waddams, supra , at page 390). The difficulty with these exceptions to the doctrine arises from the legal manoeuvring that must take place to arrive at what is considered a just result.
Admittedly, the foregoing is but a superficial overview of the law of illegality in its doctrinal form. At this point it is instructive to examine four decisions of the Ontario courts, two of which clearly reflect an antagonism towards the common law doctrine and a refusal to apply blindly its precepts. These two cases, we suggest, represent a departure from the old law, or what can be termed the "classical model" of the illegality doctrine, and the beginnings of the new or "modern approach" to illegality. The first two cases discussed below are representative of the classical model.
In Kingshott v. Brunskill, [1953] O.W.N. 133 (C.A.) one farmer sold and delivered his apple crop to another farmer without grading the apples as required by provincial regulations. Both parties expected that the apples would be graded before sale to the public by the second farmer who had the necessary equipment. When a dispute arose as to the quantity of apples actually received, the second farmer successfully resisted payment on the ground of illegality. The first farmer could recover neither the contract price nor the value of the apples. Roach J.A. found that the contract was illegal as the regulations were passed for the protection of the public and could admit of no exceptions. Justice Roach went so far as to suggest that even if the second farmer was the only party with the equipment necessary to grade the apples the legal result would have had to have been the same. The decision has been criticized by the Ontario Law Reform Commission and Professor Waddams. The former regards the result as a penalty totally disproportionate to the offence. The latter on the ground that it was hard to see what public policy was served by the decision: see OLRC, supra, at page 218 and Waddams, supra, at page 381.
Kocotis v. D'Angelo, [1958] O.R. 104 (C.A.) is a case in which an electrician with a "Class C" licence (maintenance electrician) was unable to recover for work requiring a "Class A" licence (electrical contractor's licence) under a city by-law. Relying on Cope v. Rowlands , Laidlaw J.A. found that there was an implied prohibition and that the plaintiff knowingly breached the by-law intended to protect the public against the mistakes of unqualified persons. In dissent, Schroeder J.A. concluded that the licensing requirement was, in the language of Rowlands, intended to protect the revenue and not the public. His advice was that if you want to restrict a person's right to compensation for work performed in deprivation of common law rights clear and unequivocal language should be used. This leads me to the remaining two decisions which, in my view, provide the thread used in weaving the modern approach.
In Sidmay Ltd. v. Wehttam Investments Ltd., supra, the plaintiff borrower sought a declaration of invalidity as to certain mortgages given to the defendant, a privately controlled Ontario corporation that had not been registered under the Mortgage Brokers Registration Act [R.S.O. 1960, c. 244]. Those who fell within the ambit of that Act were required to register before transacting business in Ontario. In the Court of Appeal the statute was construed (narrowly) so as not to apply to the defendant. (Sidmay was affirmed by the Supreme Court of Canada on this ground only: see [1968] S.C.R. 828.)
Kelly J.A. (Wells J.A., concurring) went on to hold that even if he were in error with respect to the interpretation issue, he would not have been prepared to declare the mortgage transaction illegal for two reasons. First, the legislation imposed no penalty on the unregistered corporation, but only its promoters, and there was no reference in it to the effect of a breach on contractual obligations. Second, this view was consistent with the intention of the legislation to protect borrowers, creditors and security holders. To permit the borrower to retain the loaned monies would be to defeat the very purpose for which the registration requirement was legislated in the first place. In the alternative Kelly J.A. indicated that if the mortgage transaction were deemed illegal then the borrower could not seek relief as it was not a person for whose protection the legislation was enacted. Finally, and in the further alternative, he opined that declaratory relief would not be available unless the borrower was willing to repay the loan. In short, Kelly J.A. was not prepared to grant relief to the borrower under any circumstances.
Laskin J.A. (as he then was) reached the same conclusion while framing the issue differently. Assuming that the mortgage transaction was void as between the parties, the true question was whether the borrower could obtain declaratory relief as to the invalidity of the mortgage without being prepared to repay the loan. Laskin J.A. responded "no", for the reason that the borrower was a party to an executed illegal transaction. Finally, he concluded [at page 537] that the facts of the case came within section 601 of the American Law Institute's, Restatement of the Law of Contracts which provides: "If refusal to enforce or to rescind an illegal bargain would produce a harmful effect on parties for whose protection the law making the bargain illegal exists, enforcement or recision, whichever is appropriate, is allowed."
The fourth decision is Royal Bank of Canada v. Grobman et al., supra, rendered by Krever J. (as he then was) of the Ontario High Court. One of the two issues raised in that case was whether a mortgage taken by the Bank, and which exceeded the 70% loan to value ratio prescribed by the Bank Act [R.S.C. 1970, c. B-1], was unenforceable on grounds of illegality. The borrower relied "strongly" on the reasoning of the Supreme Court in Bank of Toronto v. Perkins (1883), 8 S.C.R. 603. In that case, and at that time, the Bank Act [An Act relating to Banks and Banking, S.C. 1871, c. 5, s. 40] dictated: "The Bank shall not, either directly or indirectly, lend money . . . upon the . . . hypothecation of any lands". When the plaintiff bank sought to establish its right under the hypothec, the defendant borrower resisted successfully. At page 610 Ritchie C.J. observed: "It would be a curious state of the law if, after the Legislature had prohibited a transaction, parties could enter into it, and, in defiance of the law, compel courts to enforce and give effect to their illegal transactions." Strong J. reiterated the state of the law as it stood at the end of the nineteenth century (at page 613): "Whenever the doing of any act is expressly forbidden by statute, whether on grounds of public policy or otherwise, the English courts hold the act, if done, to be void, though no express words of avoidance are contained in the enactment itself."
In response to the argument based on Perkins, Krever J. noted in that case there was an express prohibition against lending on the security of land whereas in Grobman the Bank Act did not prohibit such lending transactions, but only the amount which could be loaned on the security of land. He went on to suggest that this distinction may be significant in any consideration as to whether Parliament intended to invalidate mortgages given in contravention of the loan to value ratio prescribed by the Bank Act.
Without expressly stating as much, Justice Krever's analysis embraces the understanding that if the statutory prohibition goes to the performance of the mortgage contract, and not its formation, the case falls outside the illegality doctrine. Applying St. John Shipping Corpn. v. Rank (Joseph) Ltd., supra, it can reasonably be maintained that this was not a case in which the legislature either expressly or impliedly prohibited the giving or taking of a mortgage. However, there is also another valid ground for distinguishing Bank of Toronto v. Perkins, supra.
I hasten to point out that Perkins was on appeal from the Quebec Court of Appeal and that the case was decided on both the ground of illegality at common law and pursuant to Articles 13, 14 and 15 of the Civil Code of Lower Canada [1866]. (The Supreme Court appears to have been undecided as to which law was applicable.) Article 13 declared: "No one can by private agreement, validly contravene the laws of public order and good morals." Article 14 went on to state that: "Prohibitive laws import nullity, although such nullity, be not therein expressed." Article 15 of the Code provided that the word "shall" in a statute was to be construed as "imperative". In short, Perkins is a case where the Civil Code had the effect of nullifying the hypothec, as did the illegality doctrine (see discussion, infra, with respect to the bijuridical nature of the Federal Court).
Justice Krever's decision in Grobman is best known for his criticism of the illegality doctrine found at pages 651-652 of his reasons: "As I understand the evolution of the current law of contract, modern judicial thinking has developed in a way that has considerably refined the knee-jerk reflexive reaction to a plea of illegality." He formulated the modern approach in this way (at page 653): "The serious consequences of invalidating the contract, the social utility of those consequences and a determination of the class of persons for whom the prohibition was enacted, are all factors which the Court will weigh."
Justice Krever went on to adopt the reasoning of Laskin J.A. in Sidmay and the principle articulated in the Restatement of the Law of Contracts, supra. In the end, he held that it would be inconsistent with the purpose underlying the existence of the lending restriction to hold the security unenforceable.
At this point, it is proper to ask how it is that the classical model of illegality differs from the modern approach. In my view, the latter approach rejects the understanding that simply because a contract is prohibited by statute it is illegal and, therefore, void ab initio. There are alternative ways of expressing this legal conclusion: (1) the contract may be declared illegal but relief is granted under the guise of an exception. Alternatively, (2) the contract is held not to be illegal and therefore enforceable. In either case the legal result is the same. The other distinguishing feature of the modern approach is that enforceability of a contract is dependent upon an assessment of the legislative purpose or objects underlying the statutory prohibition. Under the classical model, the purpose of the statute was only relevant when determining whether the prohibition was for the sole purpose of raising revenue. Today, the purpose and object of a statutory prohibition is relevant when deciding whether the contract is or is not enforceable. Against this background I am in a position to deal with the doctrine of illegality as it applies to the facts of the present case.
5. Analysis
From the outset the Minister's position has been that the employment contract between the applicant and Camp Hiawatha was illegal because of her failure to obtain a work permit as required under the Immigration Act. Accordingly, my analysis must begin by addressing that issue. Of course, the answer depends on whether the classical model of illegality is applicable. This is a convenient place to offer a summary of its tenets.
A contract which is either expressly or impliedly prohibited by statute is normally considered void ab initio. That is to say, prima facie neither party is entitled to seek the court's aid. This is so even if the party seeking relief acted in good faith. Ignorance of the law is no excuse. A court should not be quick to imply a prohibition and must not do so if the statutory prohibition goes to the performance of a contract as opposed to its formation. If the prohibition relates to the terms of performance then an innocent party to the contract may be entitled to enforce the contract.
Applying the above doctrinal framework to the facts of this case, the first question is whether it can be said that subsection 18(1) of the Immigration Regulations, 1978 either expressly or impliedly prohibits persons such as the applicant from entering into and pursuing employment, without a work permit. In my view, the words of that provision leave no doubt that what the applicant did was prohibited by statute: "no person, other than a Canadian citizen or permanent resident, shall engage or continue in employment in Canada" [underlining added]. Even if I were to concede that those words do not evidence an express prohibition, it certainly arises by implication. In reaching this conclusion I am aware of Lord Devlin's caution, in St. John Shipping Corpn. , supra, not to readily imply a prohibition. But this is certainly not a case where the statutory prohibition goes to the performance of the contract as opposed to its formation.
Under the classical model of the illegality doctrine, the fact that the applicant acted in good faith is an irrelevant consideration. Accordingly, her employment during the period May 9 to September 23, 1993, constituted an illegal contract which was void ab initio. Assuming this to be so, the next issue is whether employment under an illegal contract can constitute insurable employment within the meaning of the Unemployment Insurance Act. If I accept that the applicant's employment contract was void from the outset then surely that question must be answered in the negative. Nonetheless, I am not prepared to accept the classical model for several reasons.
First, I am of the view that the classical model has long since lost its persuasive force and is no longer being applied consistently. The doctrine is honoured more in its breach than in its observance through the proliferation of so-called judicial "exceptions" to the rule. I am not the first to recognize that these exceptions are truly a movement away from the doctrine itself (see: supra at paragraph 24 and Love's Realty & Fin. Services Ltd. v. Coronet Trust, [1989] 3 W.W.R. 623 (Alta. C.A.), per Kerans J.A., at page 629). In my view, decisions such as Sidmay and Grobman mark a new era in the illegality doctrine while retaining the quintessential feature underlying its existence. That feature is the jurisdiction of the courts to refuse relief to those in breach of a statutory prohibition, the grounds of refusal being on a principled and not arbitrary basis.
The second reason for rejecting the classical model is that it fails to account for the reality that today a finding of illegality is dependent, not only on the purpose underlying the statutory prohibition, but also on the remedy being sought and the consequences which flow from a finding that a contract is unenforceable. It must be remembered that the law of illegality arose out of a live controversy between parties to an allegedly illegal contract. In this case, there is no live controversy between contracting parties and the ramifications of declaring an employment contract illegal are too far-reaching. For example, I might be prepared to speculate that an Ontario court would not hold the applicant's employer liable for breach of contract had it dismissed her after learning that she did not have the required work permit. But am I to assume that the applicant would have no right to unpaid wages earned prior to the dismissal or for that matter a right to the protection found in the Ontario Employment Standards Act [R.S.O. 1990, c. E-14]? What if the applicant's employer hired her knowing full well that she had not received a work permit. Would this factor make her claim for unpaid wages more palatable? What if the applicant had been injured on the job? Would an Ontario court conclude that she was not entitled to benefits under the Workers' Compensation Act [R.S.O. 1990, c. W.11] of that province? The fact that so many statutes predicate entitlement or eligibility on an existing contract of service is reason enough for any court to decline the invitation to automatically declare any employment contract invalid on grounds of illegality, and more so if the declaration is based on the tenets of the classical doctrine of illegality.
I think it also important to note that the common law of illegality can vary from province to province. There is no seminal jurisprudence on this issue that has yet emanated from the Supreme Court of Canada. Each case turns on its facts within a particular statutory framework. Arguably, this Court should be applying the common law doctrine of illegality as understood and applied in each province. In theory, the legal consequences flowing from a person's failure to obtain a work permit, as required under the Immigration Act, could be dependent on the common law of the province in which the employment contract arose. Given the bijuridical nature of the Federal Court, we cannot lose sight of the fact that cases originating from Quebec are to be decided under the illegality provisions found within the Civil Code of Québec [S.Q. 1991, c. 64]. Article 13 in force when Bank of Toronto v. Perkins, supra, was decided has been recast as Article 9 of the new Civil Code. Article 1413 of that Code provides that: "A contract whose object is prohibited by law or contrary to public order is null": See also Articles 1412 and 1418. (To date, Tax Court decisions emanating from Quebec, and pertaining to the issue before us, make no reference to any civil law jurisprudence.)
It is true that this Court need only decide the issue of legality in the federal context and nothing we decide with respect to the validity or enforceability of a contract of employment is binding on the provincial courts. Nonetheless, I believe that the Federal Court should strive to promote consistency in decision making with respect to entitlement to unemployment insurance benefits.
Professor Waddams suggests that where a statute prohibits the formation of a contract the courts should be free to decide the consequences (at page 372). I agree. If legislatures do not wish to spell out in detail the contractual consequences flowing from a breach of a statutory prohibition, and are content to impose only a penalty or administrative sanction, then it is entirely within a court's jurisdiction to determine, in effect, whether other sanctions should be imposed. As the doctrine of illegality is not a creature of statute, but of judicial creation, it is incumbent on the present judiciary to ensure that its premises accord with contemporary values. One need only look at the Supreme Court's now infamous decision in Christie v. The York Corporation, [1940] S.C.R. 139 to appreciate the significance of this observation. In that case, the classical principles of contract supported the right of a merchant to refuse to accept an offer from a person of colour. Even without human rights legislation, we know that the case would not be decided the same way today.
I also note that, in the law of tort, the effect of wrongdoing on the part of a plaintiff is no longer as severe as it was in the past. Where once a plaintiff was barred from recovery where any fault could be attributed to the plaintiff, statutory reform in the form of provincial negligence acts led to the development of the concept of comparative negligence. Even where a plaintiff is partly to blame, a defendant is no longer relieved of all responsibility. Recovery is instead reduced. With respect to the illegal actions of a plaintiff, the application of ex turpi causa has been much curtailed. Justice McLachlin in Hall v. Hebert, [1993] 2 S.C.R. 159, at page 169 explained the new rationale:
My own view is that courts should be allowed to bar recovery in tort on the ground of the plaintiff's immoral or illegal conduct only in very limited circumstances. The basis of this power, as I see it, lies in [sic] duty of the courts to preserve the integrity of the legal system, and is exercisable only where this concern is in issue.
In conclusion, the extent to which the precepts of the common law doctrine of illegality are ill-suited to resolving the issue at hand provides the impetus for this Court to chart a course of analysis which is reflective of both the modern approach and its public law milieu. In my opinion, the doctrine of statutory illegality in the federal context is better served by the following principle (not rule): where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party when, in all of the circumstances of the case, including regard to the objects and purposes of the statutory prohibition, it would be contrary to public policy, reflected in the relief claimed, to do so.
As the doctrine of illegality rests on the understanding that it would be contrary to public policy to allow a person to maintain an action on a contract prohibited by statute, then it is only appropriate to identify those policy considerations which outweigh the applicant's prima facie right to unemployment insurance benefits. Public policy is, of course, a variable concept which is more easily illustrated than defined (e.g. the case of the highwaymen discussed supra). In the present case, the public policy dimension manifests itself in two ways. The first is reflected in the strongly held belief that a person should not benefit from his or her own wrong. This is an alternative way of expressing moral disapprobation for wrongful conduct. The second rests in the understanding that relief should not be available to a party if it would have the effect of undermining the purposes or objects of the two federal statutes which are involved in this judicial review application. While on the one hand we have to consider the policy behind the legislation being violated, the Immigration Act, we must also consider the policy behind the legislation which gives rise to the benefits that have been denied, the Unemployment Insurance Act.
The purposes underlying the Unemployment Insurance Act are enshrined in the reasons of Wilson J. in Abrahams v. Attorney General of Canada, [1983] 1 S.C.R. 2. In that case, the Supreme Court considered the interpretation of a section of the Unemployment Insurance Act, 1971 [S.C. 1970-71-72, c. 48] providing that a claimant who lost his employment because of a strike was not allowed to claim benefits unless "regularly engaged" in other employment. Wilson J. on behalf of the Court found that it was, "legitimate to ask what the object of the legislature was" in enacting the provision. She concluded that a "liberal" interpretation of the re-entitlement provision would resolve the matter in favour of the claimant and fulfil the overall purpose of the Act to make benefits available to the unemployed.
On the other hand, there are the objectives underlying the restrictions found within the Immigration Act. The clearest statement of the purpose underlying the requirement that a person receive a work permit before engaging in employment is found in subsections 20(1) and (3) of the Immigration Regulations, 1978. Subsection 20(1) provides that an immigration officer shall not issue a work permit if "in his opinion" the employment of persons such as the applicant: "will adversely affect the employment opportunities for Canadian citizens". Subsection 20(3) goes on to provide that in forming an opinion, the immigration officer is required to consider whether the prospective employer has made reasonable efforts to attract or train Canadian citizens or permanent residents. Consideration must also be given to: "whether the wages and working conditions offered [by the prospective employer] are sufficient to attract and retain in employment Canadian citizens or permanent residents." The latter consideration may be said to be a politically correct way of stating that if Canadians are unwilling to accept poorly paid employment, it can be made available to lawful immigrants.
Using common sense, it can be seriously questioned whether a person who gains employment as a housekeeper would adversely affect the employment opportunities of Canadians. However, I decline to pursue this type of analysis for the reason that it is not for this Court to speculate on whether a work permit would have issued had it been sought by the applicant. To hold otherwise would be tantamount to placing the onus on the Minister to establish in each and every case that a work permit would not have issued. In the end, I recognize that the legislative purpose underlying the requirement of legal immigrants to obtain a work permit is compelling, but non-determinative of the issue at hand. I turn now to the other policy consideration noted earlier, that is, the strongly held belief that a person should not benefit from his or her own wrong.
Moral disapprobation is likely to arise in those cases where a person gains entry to this country through stealth or deception, obtains employment and then seeks unemployment benefits after losing his or her job. Public policy, of course, cannot be equated with public opinion. But there are occasions when community values are rationally supported and not reflective of a "knee-jerk" reaction to a multi-layered problem. While moral disapprobation of employment obtained in flagrant disregard of Canadian laws is not an unreasonable policy consideration, this sentiment should not be permitted to degenerate into the belief that everyone who gains employment in Canada without a work permit should be so judged.
In my view, this is a case in which the bona fides of the party seeking relief is of critical significance. Ms. Still is not an illegal immigrant. In concluding that she acted in good faith, the Tax Court Judge took into consideration the government document provided to her. The significant portion [at paragraph 1] reads as follows: "The [applicant] is . . . hereby eligible to apply for employment and/or student authorizations". That document can be said to serve one of two purposes. First, it reinforces the Tax Court Judge's conclusion that the applicant had acted in good faith (in ignorance of the law). Alternatively, it can be said that the document either induced or misled the applicant into believing that she could obtain employment without a work permit. As this argument was not raised before us, I refrain from commenting further.
There is one other factor I believe to be of significance. It is open to ask whether the denial of unemployment benefits is a de facto penalty which is disproportionate to the statutory breach. I note that there is no express penalty for the breach in question and that a conviction under the general penal provision could not be obtained because of the requirement that a person knowingly contravene the Immigration Act. In effect, the applicant is not subject to any penalty under that legislation because of the statutory breach. If the Immigration Act is only concerned with those who knowingly fail to obtain a work permit, why should this Court impose a penalty amounting to thousands of dollars in benefits? The Tax Court Judge expressed concerns about the possible depletion of the unemployment insurance fund by "illegal" workers, however it should be noted in this case that both the claimant and the employer contributed to the fund during the period of "illegal" employment, thus the solvency of the fund was not affected. The Tax Court Judge also concluded that the "social utility" in denying the applicant unemployment benefits lay in the understanding that it would discourage the employment of "non-citizens and non-residents". I take the Tax Court Judge's reasons to mean that the purpose of the requirement to obtain a work permit is to discourage illegal immigrants from undermining the laws of Canada. In response, I simply note that the applicant, Ms. Still, is not an illegal immigrant and that the Immigration Act does not seek to discourage her from working in Canada. Rather it encourages her to seek employment for which there are not enough qualified Canadians or employment which Canadians are unwilling to accept. The fabric of many a nation has been woven from the cloth of those who have fallen into the latter category.
Having regard to objects of the Unemployment Insurance Act, the fact that the applicant is a legal immigrant to this country and that she acted in good faith, I am not prepared to conclude that she is disentitled to unemployment insurance benefits on the ground of illegality. I recognize that the object of the statutory prohibition is a compelling one, but that in the circumstances of this case the penalty imposed is disproportionate to the breach. Allowing the applicant to claim benefits would not invite people to come to Canada and work illegally. In fact, for a judge to find that an illegal immigrant to Canada acted in good faith would be nothing short of an oxymoron. The payment of unemployment insurance premiums would not by itself guarantee the right to benefits. No one is being given a licence to abuse Canada's social services. In the end, public policy weighs in favour of legal immigrants who have acted in good faith. To paraphrase the words of Justice McLachlin in Hall v. Hebert, supra, this is not a case where relief must be denied in order to "preserve the integrity of the legal system". In conclusion, it is in the public interest, not contrary to public policy, to grant unemployment benefits to the applicant.
Undoubtedly, there will be a few who would prefer to see the classical model of the illegality doctrine applied to the issue at hand. Admittedly, that approach promotes certainty in the law and ease of administration, at least for the Unemployment Insurance Commission. But a uniform approach, while convenient, carries with it the risk of undue rigidity. There are occasions, and this is one, where certainty must give way to flexibility, as Lord Mansfield would surely agree. If I am wrong, it is open to Parliament to amend the legislation.
As this case comes to us as a matter of first impression and there are conflicting views in the Tax Court of Canada as to the approach to be followed, it is proper for me to comment on the existing jurisprudence. Before engaging in that task I note that many of the Tax Court cases reflect the fact that the claimant is unrepresented and that the Minister's argument is restricted to the bald assertion that the claimant did not hold insurable employment because of the statutory breach and the doctrine of illegality. Thus, my observations as to the correctness of these cases is for guidance purposes only.
Of the six cases decided by the Tax Court of Canada, only one involves a claimant who had not obtained a work permit. In Polat v. Canada (Minister of National Revenue—M.N.R.), [1996] T.C.J. No. 1667 (QL), the claimant had applied for a work permit but commenced work prior to its issuance because he felt it was taking too long for the immigration officials to process his application. Though the claimant was successful before the Tax Court, we note that the reported facts lead one to conclude that he knew he was acting illegally. There is no indication of good faith on the part of the claimant in Polat as in the case before us. Good faith was also lacking in Sah v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 982 (QL). In that case the claimant obtained a work permit which restricted him to a particular employer in the high-tech industry. In breach of that restriction, he sought out and obtained another high-tech employer. Unemployment benefits were rightly denied this applicant. The remaining four cases involve claimants who had obtained a work permit but failed to renew it as required by law. In my view, some of these cases are more problematic than others.
Allendes v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 161 (QL), is a case illustrative of a lack of good faith on the part of the claimant. After her application for a renewed work permit had been denied, the claimant continued to work for her husband. The Tax Court Judge ruled against her and rightly so. In contrast, the facts in Sivasubramaniam v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 1549 (QL), do not reveal a lack of good faith on the part of the claimant. He inquired of immigration officials with respect to renewing his work permit and was advised that it was unnecessary to do so provided that he remained with the same employer, which he did. The claimant was successful before the Tax Court of Canada and the decision seems to be in accord with the reasons herein. In Mohamed v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 458 (QL), the claimant continued with his employment pending the outcome of his application for a renewal permit. The facts of that case are not sufficiently described and the same holds true in Kaur v. Canada (Minister of National Revenue—M.N.R.), [1995] T.C.J. No. 950 (QL). For that reason alone it would be inappropriate to comment further on those cases.
6. Disposition
In conclusion, I am of the opinion that this judicial review application must be allowed, the decision of the Tax Court of Canada dated September 18, 1996 set aside and the matter referred back to the Tax Court for reconsideration on the basis that the employment held by the applicant for the period May 9 to September 23, 1993 constituted insurable employment within the meaning of the Unemployment Insurance Act.
Strayer J.A.: I agree.
Linden J.A.: I agree.