Court holds civil servant contracts with third parties void as illegal and against public policy under Contract Law.

[*48] 1975 July 1

(PIKIS, AG. P.D.C.)

IN THE DISTRICT COURT OF LARNACA

Evripides I. Frangos,

Plaintiff,

and

Limited Liability Partnership

"PRASINO LIVADHI"

(a) Andreas Mouskos, general partner; and

(b) Elengo Mitsopoulou, limited liability partner,

Defendants.

(Action No. 239/75).

Contract - Illegality - Section 23 of the Contract Law, Cap. 149

- Principles applicable - Contract of service between Public Officer and third party - Public Officers prohibited by section 64 of the Public Service Law, 1967 from engaging in any work while in the Public Service - Said contract injurious to the interests of the Public Service and opposed to public policy - Unlawful and void - Section 23(d) and (e) of Cap. 149 (supra).

A. Mathicolonis, for the Plaintiff.

A. Poetis, for the Defendants.

JUDGMENT

The following judgment was delivered by:-

PIKIS, AG. P.D.C.: The following point [*49] of Law was set down for determination prior to the hearing of the action, in accordance with the provisions of 0.27 of the Civil Procedure Rules. The point is whether a contract entered into between the plaintiff and the defendants is illegal for infringement of the provisions of the Civil Service Law, Law 33/67. It is common ground that at the time of the formation of the contract and at all times material for the purposes of this action the plaintiff was a veterinary officer in the Ministry of Agriculture, employed on a daily basis. It is the allegation of the plaintiff, as it emerges from the statement of claim, that while in the public service he entered into a contract with the defendants agreeing to offer on a part time basis his services to them at a monthly salary of £40.-. It is admitted that the plaintiff, at no time, either sought or obtained the permission of the Minister of Finance for rendering services to any person or body other than the Government. The definition of a civil servant, contained in s. 2, Law 33/67, is evidently wide enough to encompass all persons in the public service irrespective of whether they hold a permanent or a temporary position.

It has been submitted on behalf of the defendants that the contract is illegal on the ground that it is prohibited by the provisions of 8.64, Law 33/67. On the other hand it is the contention of the plaintiff that Law 33/67 does not render illegal contracts of service entered into between a civil [*50] servant and a third party while the former is in the employment of the Government but merely exposes a civil servant to disciplinary sanctions.

At Common Law illegal contracts were divided into two classes: The first class concerned agreements entered into with the object of committing an illegal act; whereas the second class encompassed agreements expressly or impliedly forbidden by statute. In order to decide whether it was within the contemplation of the parties to commit an illegal act it is of paramount importance to discern the intention of the parties as it emerges from the contents of the agreement and the circumstances surrounding its execution. In the case of agreements prohibited by statute it is a matter of construction of the relevant provisions of the Law whether the agreement in question is prohibited by its provisions (see Halsbury's Laws of England, 4th edition, volume 9, paragraph 422 et seq.).

Several tests have been propounded from time to time as an aid in the construction of a statute with a view to deciding whether a certain class of contracts is expressly or impliedly forbidden by the terms of a statute. If an agreement has as its object the doing of the very act which the statute prohibits there is generally a clear Implication that the contract is also prohibited. It is invariably a matter of surmising the intention of the legislature from the wording of the statute and the mischief against which it is directed. A distinction is drawn between contracts prohibited by [*51] the statute as such and other acts which are incidentally prohibited (see Halsbury’s Laws of England, 4th edition, volume 9, paragraph 424).

In Cyprus the subject of Illegality is governed by the provisions of s.23 of the Contract Law, Cap. 149, a provision of the Law that renders void every agreement the object of which is unlawful. This enactment incorporates in broad lines the provisions of the Common Law on the subject and is modelled on the corresponding provisions of s.23 of the Indian Contract Law. In India the word "object”, in the context of s. 23, has been interpreted as meaning the purpose of the agreement (see Pollock & Mulla, India Contract And Specific Relief Acts 9th edition, 195).

In accordance with s. 23, Cap. 149, the following classes of contracts are declared illegal;-

(a) If it is forbidden by Law, or

(b) If it is of such a nature that if permitted it would defeat the provisions of any Law, or

(c) is fraudulent, or

(d) involves or implies injury to the person or property of another, or

(e) the Court regards it as immoral or opposed to public policy.

An act is forbidden by Law if it

violates a prohibitory enactment or a principle of the unwritten Law (see Gherulal Parekh v. Mahadeodas (1959) Supp. 2 S.C.R. 406).

[*52]

The question of illegality has been the subject of discussion in numerous decisions of Cyprus Courts (see Mavromoustaki

v. Iacovos N.Yeroudis as executor of the will of the deceased Spyros Michaelides (1965) 1 C.L.R. 1.76 - Iosiphakis and Others v.

Ghani (1967) 1 C.L.R. 190

- Kanaris v. Tosoun (1970) 1 J.S.C. 17 - Cyprus Import Corporation Limited v. Kaisis (1974) 12 J.S.C. 1234 - Stavrou v. Ttoouli and Another

(1973) 8 J.S.C. 1019 ( a decision of the District Court)). The cardinal consideration in each case is whether the contract is expressly or impliedly prohibited by the statute. If it is not so prohibited a contract will be declared illegal only when it is meant to be performed and is, in point of fact, performed in an illegal way. A contract legal in its inception does not become illegal merely because in the course of its performance an illegal act is done.

Law 33/67 is designed to regulate the terms and conditions of employment of civil servants, establish a code for their behavious and regulate matters pertaining to their status. The general purpose is to safeguard the efficient administration of the civil service, an aim that cannot be achieved unless it is first ensured that civil servants observe exemplary standards of behaviour in the discharge of their duties.

Section 64 of Law 33/67 clearly prohibits civil servants from engaging in any work or other business-like activity, while in the public service, [*53] unless the permission of the Minister of Finance is first secured. Though the Law does not expressly lay down that contracts of service between a civil servant and a third party are illegal, it is abundantly clear from the wording of the Law that such activity is forbidden and one may justifiably conclude that it was the intention of the legislature to make such contracts illegal. Such contracts are illegal not only because they violate the express provisions of s. 64, Law 33/67 and as such are rendered void by virtue of the provisions of s. 23(a) of the Contract Law, Cap. 149, but also because they are of such a nature that if permitted they would defeat the provisions of Law 33/67 and, therefore, they are unlawful in that they offend the provisions of s. 23(b), Cap. 149.

The fact that the Minister has a discretion to authorize the employment of a civil servant by a third party does not constitute any derogation from the intention of the legislature to make such contracts of service illegal. It merely confers power on the Minister to grant permission for such employment if this course is in the public interest. Though it is not my intention to define exhaustively the circumstances under which the Minister of Finance may authorize employment of a civil servant by a third party it would seem to me that the principal aim of the Law is to empower the Minister to authorize such employment where the knowledge or skill of a civil servant in a particular field is either unique or rare and the public interest demands that he be allowed to render services to the [*54] private sector as well. It is a relaxation to be resorted to only on rare occasions and then only in the face of cogent reasons.

A contract of service or a contract for services between a civil servant and a third party is a species of agreement opposed to public policy and, therefore, unlawful in accordance with the provisions of s. 23(e) Cap. 149. Public policy in this

context must, as Lord Wright observed in Vite Food Productions Inc. v. Unus Shipping Co. Ltd. (1939) 1 All E.R. 513 at 523, be understood in a wide sense and

the Court must, in each case, balance conflicting considerations in order to ensure in what way public interest is best served (see also Shaw v. Groom

(1970) 1 All E.R. 702). Its clearly in the public interest that civil servants should be exclusively devoted to their duties and such is the public policy on the subject as it is manifested by Law 33/67. The existence of contracts for the rendering of services by a civil servant to a third party or his engagement in any business or any other business-like activity is highly detrimental to the functioning of the public service in that it undermines the loyalty and devotion of public servants to their duties. Therefore such contracts are also illegal on the ground that they infringe the provisions of s. 23(e), Cap. 149, a provision of the Law that makes illegal agreements opposed to public policy.

Lastly it can be argued that agreements of this nature also infringe the provisions of s. 23(d), [*55] Cap. 149, that render illegal agreements which involve or imply injury to the person or property of another. The word "person” includes corporate bodies and certainly the formation of such contracts would be injurious to the interests of the public service.

For all the above reasons I find that the agreement referred to and relied upon in the statement of claim is unlawful and therefore void. The action is dismissed with costs in favour of the defendants, to be assessed by the Registrar.

Action dismissed with costs.