Hitler Adolf Klokow v Michael Boyton Sullivan

On 4 September 2000, the plaintiff (Klokow) and defendant (Sullivan) entered into a written agreement for the purchase of a liquor-licensed business that provided adult entertainment. The purchase price was R500 000, of which the plaintiff paid R250 000. The plaintiff took possession on 5 September 2000. However, the parties did not obtain the required consent from the Chairperson of the Liquor Board as mandated by Section 38(1) of the Liquor Act 27 of 1989, which requires the holder of a liquor licence to obtain consent before permitting another person to procure a controlling interest in the business. On 18 October 2000, the plaintiff returned the business to the defendant and sued for repayment of the R250 000. Prior to signing the agreement, on 24 August 2000, the defendant had given the plaintiff a blank pro forma document (Form 16) for appointment of a manager. Neither party complied with Regulation 28, which required them to jointly apply for consent. The defendant retained both the business and the R250 000 paid by the plaintiff.

• Whether the agreement contravened Section 38(1) of the Liquor Act 27 of 1989
• Whether non-compliance with Section 38(1) rendered the agreement void
• Whether the par delictum rule (in pari delicto potior est conditio defendentis) precluded the plaintiff from recovering the money paid
• Whether the plaintiff was required to specifically plead facts justifying the relaxation of the par delictum rule on grounds of public policy or unjust enrichment
• Whether public policy considerations permitted recovery despite both parties being in pari delicto

The appeal was upheld with costs. The order of the Full Court was set aside. The practical effect was that the plaintiff's claim for repayment of R250 000 succeeded, restoring the judgment of Hartzenberg J in the court of first instance.

Where parties to an illegal contract are in pari delicto, but the facts pleaded demonstrate that one party has been unjustly enriched by retaining both the subject matter of the contract and the purchase price paid, while the other party has received nothing, public policy requires relaxation of the par delictum rule to prevent injustice. A plaintiff is not required to specifically plead 'further facts' or expressly invoke public policy considerations when the facts already alleged in the particulars of claim sufficiently demonstrate unjust enrichment. Pleadings must not be approached in an overly technical and formalistic manner when determining whether a plaintiff has made out a cause of action for recovery despite illegality. When a matter is decided 'as on exception', the defendant must show that on every possible reasonable interpretation of the pleaded facts, no cause of action is disclosed. Where the equities clearly favour restoration of the status quo ante, the par delictum rule will not operate as an absolute bar to recovery.

The Court observed that the par delictum rule is concerned with the moral guilt of contracting parties, not their criminal liability under statute. Whether or not a plaintiff might be prosecuted as an accomplice has no direct bearing on the question of moral turpitude for purposes of the par delictum rule. The Court noted that while courts are generally reluctant to decide the relaxation of the par delictum rule on public policy grounds at the exception stage (since the issue is invariably fact-bound), courts have historically not adopted an overly technical approach to pleadings. Instead, courts prefer to examine the results of illegal agreements at the end of trial to determine where the equities lie. The par delictum rule will generally defeat a plaintiff's claim at exception stage only in the clearest of cases. The Court also commented that where public policy considerations do not favour either party, the par delictum rule will operate against the plaintiff as a general principle.

This case is significant in South African contract law for clarifying the application of the par delictum rule and the requirements for pleading when seeking its relaxation on public policy grounds. It establishes that courts should not take an overly technical or formalistic approach to pleadings when considering whether to relax the par delictum rule to prevent unjust enrichment. The case reaffirms the principle from Jajbhay v Cassim (1939 AD 537) that the par delictum rule will be relaxed where necessary to prevent injustice or promote public policy, and that courts will examine where the equities lie between parties to an illegal contract. It clarifies that a plaintiff need not always specifically plead 'further facts' or expressly invoke public policy grounds for relaxing the rule if the facts already pleaded demonstrate unjust enrichment. The case is important for understanding when and how courts will grant restitutionary relief despite illegality, particularly in the context of liquor licensing regulations.