Re Mahmoud and Ispahani [1921] 2 KB 716
The effect of statutory illegality on contracts.
Facts:
Under the Defence of the Realm Act 1914 an Order was made, titled the Seeds, Oils and Fats Order 1919 that said “a person shall not… buy or sell or otherwise deal in” linseed oil without a licence. The claimant had a licence to deal in linseed oil and sold 150 tons of oil to the defendant. The defendant had incorrectly told the claimant that they had a licence to deal in oil. In fact they did not. Later, the defendant refused to accept delivery of the oil, and the claimant sued for damages.
Issues:
The defendant argued that as he had no licence to deal in oil the contract was illegal under the 1919 Order. Consequently, the contract should be illegal and void. Therefore, the claimant could not sue for damages upon it.
Held:
The Court of Appeal held that the claimant could not sue upon the contract as it was illegal. Banks LJ said:
“it is open to a party however shabby it may appear to be to say that the Legislature has prohibited the contract, and therefore it is a case in which the court will not lend its aid to the enforcement of the contract “.
Here, the Order expressly prohibited the type of contract the parties had entered into. Therefore, to enforce this would undermine the purpose of the statute. Atkin LJ said that a court could also infer a prohibition if the statute in question imposed a penalty upon someone entering into that particular contract. However, the terms of the statute would have to be examined very carefully.
Updated 20 March 2026
This article accurately describes the facts, issues, and decision in Re Mahmoud and Ispahani [1921] 2 KB 716. The case remains good law as an illustration of the principle that a contract expressly prohibited by statute will be void and unenforceable.
However, readers should be aware of a significant development in this area. The Law Commission’s recommendations led to the Illegal Contracts provisions in Part 3 of the Consumer Rights Act 2015 not addressing this area, but more importantly, the courts have since moved towards a more flexible, purposive approach to statutory illegality. The Supreme Court in Patel v Mirza [2016] UKSC 42 substantially reformed the law on illegality, replacing the earlier rigid rules with a multi-factor discretionary approach. Under Patel v Mirza, courts now consider: the underlying purpose of the prohibition in question and whether that purpose would be enhanced by denying the claim; any other relevant public policy considerations; and whether it would be disproportionate to deny the claim. This represents a material development beyond the approach described in this article. While Re Mahmoud and Ispahani itself is not overruled and remains a useful illustration of express statutory prohibition, the broader legal framework for assessing illegality has changed considerably. Students should study Patel v Mirza [2016] UKSC 42 alongside this case.
