I
While it seems a truth universally acknowledged elsewhere, Kenyan Courts are oblivious of it. The state of the law in respect to the illegality defence has been a bit of a mess. Commenting on the foundation case of Holman v Johnson[1], a decision still faithfully locally trotted out as sacrosanct, Lord Sumption pointedly stated “In the two centuries which followed Lord Mansfield’s apparently simple proposition, it was among the most heavily litigated rules of common law, and by the end of the twentieth century it had become encrusted with an incoherent mass of inconsistent authority.” [2]
And so in on the twenty-first century the UK Supreme Court has attempted to provide authoritative guidance with what, can only be summarized as mixed results. The various formulations and reformulations of what is required to succeed on, or avoid, an illegality defence brings to mind Justice Brandeis counsel, that it is better for the law to be settled than be settled right[3]. One would have thought in view of the admittedly unsatisfactory state of the law with absence of clear guidance all too evident, judges would take heed of this counsel and work towards a unanimous decision one way or another. Yet that did not come to pass. The latest joint effort Patel v Mirza when nine-judge panel was assembled to review the law afresh might have produced an agreed result but not reasoning. Lord Toulson’s judgment did command a solid majority so the dissents (politeness dictates we call them minority judgments) might be safely left for the academics to mull over, testing if Lord Sumption is right that “We would be doing no service to the coherent development of the law if we simply substituted a new mess for the old one.”
II
A whistle stop tour leading to the 21st century gyrations. The law on illegality is most famously propounded in extreme moral terms in legal Latinity expressing the Courts aversion to be used as mechanisms for bad – ex turpi causa non oritur actio or ex dolo malo non oritur actio. Having played around with such Latinity, Lord Mansfield put the principle in plain English- “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.” It is, of course, while little commented, worth noting that the defence did not succeed in that case for the seller’s action for the price of the goods was held not to have been affected by buyer’s illegal purpose smuggling the tea into England.
For reasons recognized by Lord Mansfield himself- ‘The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant-“ while acknowledging the public policy underlying the rule- vindication of the rule of law (“it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff, by accident, if I may so say”).- judges have always been uncomfortable with the defence. Does it really vindicate the rule of law? Often it has simply meant that one of miscreant parties to the illegal transaction who by sheer luck just happened to have the contested funds or property in her possession, retained it but not because of any legal entitlement. It was merely a windfall benefit since that Court declined to inquire whether or not (as was probably the case) she was so entitled to it. Surely Courts exist to administer justice? In fact, the judicial oath is to administer justice according to the law. As several wags have pointed out, justice comes before the law.
So exceptions were carved out or modifications built in to give some wriggle[4] room for claimants whose conduct lacked the moral turpitude which triggered the sensitivities to Court to toss their claims out as seeking to corrupt its process e.g. innocent as they were not aware of the illegality or otherwise not party to it; the illegality was not quite so serious; withdrew before the illegality was performed (there is a Latin phrase on this but we have exhausted our modern-day quota for Latinity in one article):
“The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendants should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff’s conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail.”[5]
These exceptions were widely regarded as incoherent or anomalous or both though one might well wonder if those particular vices, if they be that, necessarily spells doom[6]. It was necessary to find some common thread that tied everything together. This is what the English Court of Appeal tried to do in 1980s. For example take Saunders v Edwards[7] where the illegality defence was unsuccessfully raised to resist a claim for damages for misrepresentation in sale of a flat in which to bilk the revenue authorities on stamp duty, the sale price was misstated. The Court explicated the contending principles at play in the illegality defence as explained by Bingham LJ (before he became the now sainted Lord Bingham[8]):
“The courts are to adopt a pragmatic approach to these problems seeking where possible to see that genuine wrongs are righted so long as the Court does not thereby promote or countenance a nefarious object or bargain which it is bound to condemn….Where issues of illegality are raised, the courts have to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct.
The Court then suggested how this middle course should play out, what has come to be regarded as whether or not the conduct in issue shocked the public conscience as per Nicholls LJ though Kerr LJ was more circumspect than that:
I will not analyse them in detail, but they show that there are no rigid rules for or against the application of the ex turpi causa defence. This is not surprising, since it involves issues of public policy. To some extent these must depend on the circumstances of each case.’ and
‘. . . the conduct and relative moral culpability of the parties may be relevant in determining whether or not the ex turpi causa defence falls to be applied as a matter of public policy.’
His Lordship was not so circumspect subsequently, adumbrating a test – in all the circumstances it would be an affront to the public conscience to grant the plaintiff the relief which he seeks because the court would thereby appear to assist or encourage the plaintiff in his illegal conduct or to encourage others in similar acts.”
Of course in subsequent cases[9] Kerr LJ was not so coy expressly adopting the shock the conscience test which judges of appeal claimed, not incredibly, to be derived from the authorities which were subjected to close scrutiny. The issue for him was one of discretion to be exercised with a cautious pragmatic way.
These cases earned the opprobrium of the House of Lords in Tinsley v Milligan[10] as propounding an unprincipled test that depended in imponderables factor such an affront to the public conscience a test stated and applied in such stark terms by Lloyd & Nicholls LJ in the decision appealed from. Lord Goff could not countenance the introduction of discretion to what was a settled rule of law:
the adoption of the public conscience test… would constitute a revolution in this branch of the law, under which what is in effect a discretion would become vested in the court to deal with the matter by the process of a balancing operation, in place of a system of rules, ultimately derived from the principle of public policy enunciated by Lord Mansfield CJ in Holman v Johnson…
Reading through the speeches in Tinsley v Milligan creates the impression of wanton incompetence on part of the lower Courts which is hard to reconcile with the detailed analysis they undertook. It is far from clear that until the 1980s when sympathetic Courts begin to loose their mettle, there was categorical rule that did not allow for balancing. It is far from clear their judgments deserved that criticism that was heaped on them by the Law Lords but that is a discussion for another day. For present purposes it sufficient to note that the House of Lords, firmly jettisoned or squelched the affront to the public conscience test which, by a majority, was replaced with a reliance test:
“I therefore reach the conclusion that, although there no case for overruling the wide principle stated by Lord Eldon LC, as the law has developed the equitable principle has become elided into the common law rule. In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title; he is entitled to succeed if he is not forced to plead or rely upon the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.”
Applying that test, that majority found that Ms. Tinsley’s claim for her share for a house purchased jointly with Ms. Milligan but registered in the latter’s sole name to enable her collect social security she would not otherwise be entitled to, was not barred by ex turpi causa.
The minority, while recognizing the possible injustice which a rule might cause, in a particular case (its application is indiscriminate and so can lead to unfair consequences as between the parties to litigation) would have rejected Ms. Tinsley’s claim as she sought equitable relief without clean hands as the illegality was integral to her claim. I should, not however, leave the impression that the dissenting minority House of Lords was happy with the state of the law, which they most decidedly were not. They just thought it was beyond judicial rescue a not untypical we judges have messed up this area of the law so badly, only others can sort it out.
I should reiterate that the charge that a runway Court of Appeal was seeking to upset years of settled authority simply does not withstand a moment’s scrutiny for, in all three cases disapproved by the Appellate Committee are choker-block full of authority on supporting that position. I have already referred to the Indian Supreme Court discussion of that issue which was based on English law. For example they referred a passage from a then leading text on the English law of contract.
“If recovery is to be allowed by either partner or principal in any case, it must be where the illegality is of so light or venial a character that it is deemed more opposed to public policy to allow the defendant to violate his fiduciary relation with the plaintiff than to allow the plaintiff to gain the benefit of an illegal transaction.”[11]
The unbroken two hundred years of authority must have passed not just great judges[12] but also several eminent jurists, by[13]. Nor is it quite clear to me whether on an honest application of the reliance test, the results in the cases in which the Court of Appeal had held the claims barred would be the same. In Howard v Shirstar Container in which the Plaintiff’s claim in a contract in contravention on Nigerian law was held not to have barred by ex turpi causa as criminality in question was excusable since it was escape danger. Under the reliance test, since in Staughton’s words, “was central to performance of the contract, as it was in fact performed” it seems, the claim would have been barred.
The reliance test an arbitrary procedural bar dependant of skillful presentation of a claim established in Tinsley attracted much criticism perhaps most succinctly expressed by McHugh J of High Court of Australia in Nelson v Nelson:
“The Bowmaker’s rule has no regard to the legal and equitable rights of the parties, the merits of the case, the effect of the transaction in undermining the policy of the relevant legislation or the question whether the sanctions imposed by the legislation sufficiently protect the purpose of the legislation. Regard is had only to the procedural issue; and it is that issue and not the policy of the legislation or the merits of the parties which determines the outcome. Basing the grant of legal remedies on an essentially procedural criterion which has nothing to do with the equitable positions of the parties or the policy of the legislation is unsatisfactory, particularly when implementing a doctrine which is founded on public policy.”[14]
The Law Commission of England and Wales agreed with the criticism though that save for a limited category of trusts, legislative intervention was not required as the Courts even though poor at articulating it, were in fact applying policy factors so as to reach just results. So all that was required was more openness about this which would allow for the incremental development of the common law. [15] Richard Posner would approve. [16]
III
Anyway, all this was merely an entrée (admittedly rather extended) to the four cases in which the UK apex Court has confronted the issue in the 21st century. They are actually five but one in Stone & Rolls Ltd (in liquidation) & Moore Stephens (a firm)[17] for those like me who struggle make head or tail of it, can now safely ignored with the judicial imprimatur of Lord Neuberger who seems equally, perhaps more, flabbergasted:
“…..the time has come in my view for us to hold that the decision in Stone & Rolls should, as Lord Denning MR graphically put it in relation to another case in In re King [1963] Ch 459, 483, be “put on one side and marked ‘not to be looked at again’”. Without disrespect to the thinking and research that went into the reasoning of the five Law Lords in that case, and although persuasive points and observations may be found from each of the individual opinions, it is not in the interests of the future clarity of the law for it to be treated as authoritative or of assistance save as already indicated.”[18]
The speeches (which at least in the case of one of them was subsequently partially recanted) in that case merely confirm that 13 years after Tinsley v Milligan confusion still reigned. For example, Lord Phillips speaking it seems for himself only on this aspect of the case, did not think the reliance test ought to be applied mechanically- there was still room for discretion taking into account the underlying policy whatever that entails[19] while Lords Walker, Scott[20] and Mance regarded it ruling the roost but the latter two were dissenters. Yet it was precisely such discretion that Tinsley v Milligan sought to bury and the majority to chagrin of a skeptical minority, thought they did via the Bowmaker’s reliance test. As for the rest, I am not sure. Stone Rolls Ltd should be left for wicked law lecturers to include in exams. Why Lord Neuberger was not content to junk it, as opposed to joining his fellow judges in trying to make sense of it, must be a function of judicial comity. Two others pretty much buried it- “We conclude that Stone & Rolls should be regarded as a case which has no majority ratio decidendi. It stands as authority for the point which it decided, namely that on the facts of that case no claim lay against the auditors, but nothing more.”[21]
Two of the four decisions we have been leading to quite substantial with multiple judgments and each have dissents. I do not pretend my discussion (which in all instances will concentrate on the majority judgments) is original, full or necessarily fair but I hope not to be inaccurate.
IV
Start with Hounga v Allen[22] which tugs the heart strings crying out for compensation of the Claimant by the Respondents. Mrs. Allen is not a good person. Of mixed British and Nigerian descent and at the time resident in the UK, her mother, along with her brother had arranged for Miss Hounga, a Nigerian, then barely a teenager to illegally enter the UK under false pretences so that she can work for her as domestic help looking after her children on the promise of board, modest pay and education. These promises were never honoured. Upon entering the UK with a false passport on a six-month visa on the pretext of visiting her grandmother (Mrs. Allen’s mother), she overstayed her visa working for Mrs. Allen as a domestic help. Prior to her dismissal by ejection from the house some 18 months later following a quarrel over feeding the children, Miss Hounga had been assaulted as well as intimidated by the spectre of imprisonment as she was in the UK illegally. With some difficulty, she was able to lodge claim before the Employment Tribunal on multiple grounds. So far as material, at first instance her claim for unfair dismissal failed as the contract of employment was unlawful thus enforcement barred by policy but damages for compensation for racial discrimination in respect to that dismissal was successful. The partially successful claim was upheld on appeal by the Employment Appeals Tribunal but dismissed in the Court of Appeal which held it failed as it was founded on an illegal contract of employment in context of her illegal presence in the UK “In making good her dismissal discrimination case she was therefore directly invoking and relying upon the fact that she was here illegally and had been working illegally for the Allens.”[23]
A unanimous Supreme Court reversed the decision but did not quite agree on the grounds for rejecting the illegality defence. Lord Wilson speaking for three of them engaged in a balancing exercise of the various public policy issues in play (recall Bingham LJ), first identified and contrasted the reliance test, with a subsequent one- inextricably linked one sprung which, by his lights, had initially in the context of tort cases effectively demonstrating there were conceptual and practical problems with the former. It did not eliminate the subjectivity of the process while possibly sowing confusion. Lord Wilson then went back to the public policy justification for the illegality defence, the fluidity of such public policy and reformulated or modified it thus “So it is necessary, first, to ask “What is the aspect of public policy which founds the defence?” and, second, to ask “But is there another aspect of public policy to which application of the defence would run counter?”[24] Answering both parts of the question, he concluded that there allowing the claim would not seriously undermine any of the objects for which the provisions which Miss Hounga breached advanced. In answering the first question, rather than concentrating on whether the claim was inextricably linked with the asserted illegalities (which was apparently conceded to be the correct test in the Courts below), his Lordship’s focus was whether entertaining the claim adversely affected the integrity of the legal system, which he identified as the (though not sole) public policy basis of ex turpi causa:
I therefore pose and answer the following questions:
(a) Did the tribunal’s award of compensation to Miss Hounga allow her to profit from her wrongful conduct in entering into the contract? No, it was an award of compensation for injury to feelings consequent upon her dismissal, in particular the abusive nature of it.
(b) Did the award permit evasion of a penalty prescribed by the criminal law? No, Miss Hounga has not been prosecuted for her entry into the contract and, even had a penalty been thus imposed upon her, it would not represent evasion of it.
(c) Did the award compromise the integrity of the legal system by appearing to encourage those in the situation of Miss Hounga to enter into illegal contracts of employment? No, the idea is fanciful.
(d) Conversely, would application of the defence of illegality so as to defeat the award compromise the integrity of the legal system by appearing to encourage those in the situation of Mrs Allen to enter into illegal contracts of employment? Yes, possibly: it might engender a belief that they could even discriminate against such employees with impunity.
- So the considerations of public policy which militate in favour of applying the defence so as to defeat Miss Hounga’s complaint scarcely exist.[25]
On the other hand, disallowing the claim would undermine the strong international prohibition against human trafficking which is what essentially Mrs. Allen and her relatives had engaged in. He thus concluded although Miss Hounga is not in that category, the decision of the Court of Appeal to uphold Mrs. Allen’s defence of illegality to her complaint runs strikingly counter to the prominent strain of current public policy against trafficking and in favour of the protection of its victims. The public policy in support of the application of that defence, to the extent that it exists at all, should give way to the public policy to which its application is an affront. This of course is the balance of equities approach which apparently Tinsley put paid to.
Writing for himself and Lord Carnwarth, Lord Hughes was not prepared to go quite that far on the interpretation and application of the international conventions whose enforcement Wilson regarded as paramount. While advocating certainty, he forswore any comprehensive test cutting across the board recognizing that while answering the question the Court would always have to evaluate a variety of factors but concluded, applying a test that have sprung in context of torts[26], on the facts that there wasn’t a sufficiently close connection between Miss Hounga’s claim and the illegal employment contract- a rather startling conclusion on the facts. While we may be rightly skeptical as to Rimer’s link of the racial discrimination dismissal claim to illegal presence in the UK, the claim could not have been available without the illegal employment. It is impossible to follow how it could be said that the statutory tort of dismissal only fell to be tested against illegal entry and presence. At least Lord Wilson did try, however unpersuasively- (convention against human trafficking undermined by not enforcing an illegal contract?), to explain away the illegal contract point. Lord Hughes did make some important observations well worth noting on the irrelevance of the parties’ relative moral turpitude the basis of ex turpi causa:
“When a court is considering whether illegality bars a civil claim, it is essentially focusing on the position of the claimant vis-à-vis the court from which she seeks relief. It is not primarily focusing on the relative merits of the claimant and the defendant. It is in the nature of illegality that, when it succeeds as a bar to a claim, the defendant is the unworthy beneficiary of an undeserved windfall. But this is not because the defendant has the merits on his side; it is because the law cannot support the claimant’s claim to relief”
Though he did recognize that a Claimant’s moral turpitude may be relevant to the determination whether or not there was a sufficiently close connection between claim and illegality. His given example does not seem involve evaluation of Claimant’s moral turpitude but simply turned on fact that it the Claimant and only the Claimant who breached the law.
Anyway, clearly five judges of the Supreme Court did not regard Tinsley as dispositive in all cases in which ex turpi causa arose though an important qualification is that as we have already observed the illegality defence developed differently in respect to torts.
V
Three months later, five other judges on the UK Supreme Court joined the party in Les Laboratoires Servier v Apotex Inc[27]. We need not parse the convoluted facts of this case where the illegality asserted to defeat on a claim on an undertaking as to damages was a breach of patent (subsequently held invalid) that was held not to be good enough to engage the defence. We also need not examine the judgments of the Court of Appeal save to note that delivering the lead judgment Etherton LJ while recognizing Tinsley rejected the affront public conscience test, did not think the reliance test applied across the board as confirmed by subsequent cases. The application of ex turpi causa involved an application of the one or more of its underlying policy rationales to the facts of a particular case though rejecting a test proposed by Counsel- “My objection is that it imposes an unwarranted inflexibility in a difficult area, whereas what is required in each case is an intense analysis of the particular facts and of the proper application of the various policy considerations underlying the illegality principle so as to produce a just and proportionate response to the illegality. That is not the same as an unbridled discretion.” [28]
Lord Sumption spoke for the majority in the Supreme Court[29]. He started off with what he regarded as two settled features that by his lights have been present from the outset- “First, it is a rule of law and not a mere discretionary power. Secondly, it is based on public policy, and not on the perceived balance of merits between the parties to any particular dispute.”[30] He was categorical that short of abandoning the principle altogether, there was no room for modifying the rule and its application blasting both the Law Commission for suggesting otherwise giving a green light to lower Courts to ignore binding precedent. He did spend some time explaining what constituted turpitude for purposes of ex turpi causa in a manner that seems to narrow or confirms its narrow scope of the defence a rule of judicial abstention to acts which engage the interests of the state or, as we would put it today, the public interest. The illegality defence, where it arises, arises in the public interest, irrespective of the interests or rights of the parties” i.e. restricted to “criminal acts, and what I have called quasi-criminal acts. This is because only acts in these categories engage the public interest which is the foundation of the illegality defence” a formulation that allowed him to conclude that the defence of illegality was not engaged on the facts of the case. It was in the scope of what constitutes moral turpitude to attract the application of ex turpi that it seems to me, that Lord Sumption found wriggle room mitigating its harshness.
Hounga did not feature in Sumption’s judgment while it played a central role in Toulson’s. Hounga, which was dealt with by being ignored, was not the only decision standing in Lord Sumption’s way. He also had to deal with Gray v Thames’ policy-oriented approach. His contention that reads more that an advocate desperately seeking to distinguish an inconvenient authority rather than a judge apply principles already set out in a binding decision. Hoffman’s open acknowledgement that ex turpi causa was policy based on a variety of reasons was recast as “A court will commonly examine the policy rationale of a rule of law in order to discover what the rule is. This is what Lord Hoffmann was doing in the passage cited, which introduces an extended discussion of the “various rules” which the courts had evolved to deal with the dilemma that the denial of relief to one party would confer an unjustified benefit on the other. These rules did not seek to deal with the dilemma by leaving the court to make a value judgment about the seriousness of the illegality and the impact on the parties of allowing the defence.”
Lord Toulson, which will not come as a surprise given that he was one of those judges when it was in the Court of Appeal, drove past such green light shone by the Law Commission to ignore Tinsley, respectfully demurred. He viewed the matter as an wholly unjustified invitation to extend to doctrine to an area in which it had never before applied- breaches of parties private rights- classic civil law claims Unlike Lord Sumption, he declined to criticize the Court of Appeal the taking into account of public policy issues at play as that was fully consistent with authority[31] and called instead at the appropriate moment for reconsideration of Tinsley v Milligan[32].
VI
One would have that though that stage for such reconsideration was set when the Supreme Court considered Jetivia v Belta[33]. A seven-judge panel was assembled but that was for a different purpose. All of them did speak and at length on illegality which arose in circumstances in which, it seems the Defendants must have been rather optimistic it would ever succeed. The liquidator of the Plaintiff Company which had been used to run a missing trader fraud[34] instituted proceedings against the two of former directors as well as the entities alleged to have been parties to the conspiracy for knowing assistance in the breach of fiduciary duties, as well as constructive trust in a tax avoidance scheme seeking compensation losses occasioned to the Company which had been left to bear the burden payment of the VAT to the revenue.. A striking out application which, inter alia, relied on the director’s illegal contracts in diverting all the profits of the Company to third parties, as barring the pursuit of the claim, failed for similar reasons because for the Courts, the illegality laid at the foot of the directors could not be attributed to the Company. What is of immediate relevance is the contesting positions that the various Law Lords took on illegality (for reasons of incomprehension, I sidestep those parts discussing Stone Rolls)
- Lord Sumption reiterated his position in Les Laboratoires Servier elaborating and defending his position on ex turpi causa as a rule of law which admits no judicial discretion balancing competing equities. (Without parting company with him, Lords Neuberger and Mance hedged their bets). The good judge did not hold back reiterating his uncompromising position to illegality an inflexible to bar entertaining a claim. While Lord Sumption identified three questions[35] as generally arising when addressing the defence, it seems to me that the third one was peculiar to that case. The first two were (i) what acts constitute turpitude for the purpose of the defence? (ii) what relationship must the turpitude have to the claim? As I have already pointed out, by narrowly construing the answer to that second question that his Lordship has allowed an escape valve from the otherwise harsh strictures of hardnosed application of the ex turpi causa defence as rule of law. A good example of how the assessment of moral turpitude allowed him to wriggle- wiggle if will- is his handling of Hounga which he could avoid no more. While he denounced the approach of both the majority and minority positions in that case as inconsistent with the law as settled in Tinsley who was still good law, on the facts Miss Hounga’s claim would have succeeded as ex turpi causa was not engaged since illegalities exposed were just background facts not essential to her case. In his words “to make good that cause of action Ms Hounga did not rely, and did not need to rely on the circumstances in which she had entered into the United Kingdom, either by way of pleading or by way of evidence.” But hang on a minute. While the illegal circumstances of her entry were not directly relevant to the statutory claim for discrimination, how could the illegal nature of the employment in respect to which she faced discrimination be reduced to a background fact? Her employment to her knowledge was illegal. Her case was the discrimination in respect to that unlawful employment. How could she not rely on it or what would the cause of action be without pleading the employment? If this not arbitrary application of rules, where is the constraint? Perhaps our hard-headed rules guy has room for some heart? Is this not explicitly displayed as he observes “an examination of competing policies may be required, and that is where a competing public policy… requires the imposition of civil liability notwithstanding that the claim is founded on illegal acts.” Yet, he claims to have little patience for policy-driven exercise of discretion:
“ It is, however, important to bear in mind the proper role of policy in the law of illegality, for arguments based upon it can easily degenerate into the kind of discretionary weighing of the equities which was rejected in Tinsley v Milligan and Les Laboratoires Servier v Apotex Inc. The fact that the illegality defence is based on policy does not entitle a court to reassess the value or relevance of that policy on a case-by-case basis. In a broad sense, any rule of law which imposes civil liability in respect of a wrong may be described as a reflection of legal policy. It does not follow that the courts may apply the illegality defence or not according to the relative importance which they attach to the policy underlying it by comparison with desirability of allowing an otherwise sound claim to succeed. This was the essential problem about the reasoning of the Court of Appeal in Les Laboratoires Servier, which explains why this court felt unable to adopt that reasoning while arriving at the same result.”
- In their joint judgment, Lords Toulson and Hodge adopted a more flexible approach focusing on an analysis of the policy underlying the Court’s reluctance to enforce illegal arrangements rather than mechanical application of rules of law.
VII
Then comes Patel v Mirza a case which barely a toddler has a whole book[36] devoted to it not to mention scores of commentaries and articles. Will there be enough room on the shelves by the time it gets to be a strappling pre-schooler?
The luck of the draw ensured a composition of a nine-judge panel including Hale, Kerr, Wilson, Toulson & Hodge – all of whom had played their hand on the issue favouring open policy analysis – that predetermined the manner of the resolution of the case. Lord Sumption’s prior attempts at definitive affirmation of the law was one with Nineveh and Tyre.
While not as sympathetic a victim as poor Miss Hounga, Mr. Patel is not that much of rapscallion- just a greedy one- victim, that it. Eager to make a quick buck, he happily signed up to a scheme hatched by Mr. Mirza to make money betting on RBS’s shares on the back of insider information he hoped to obtain giving him [Mirza] 620,000 to do the dirty deed in violation of the English Criminal Justice Act in return for a cut of the profits. In the event, the deed was not done- no bet took place as the anticipated information was not forthcoming but Mr. Mirza, who we may rightfully call a rapscallion, held on to the money. When sued, he urged dismissal on ground of ex turpi causa. Such rapscallions do not have many fans within the judiciary. Not a single appellate judge was impressed though their grounds for throwing out the defence varied.
Lord Toulson delivered the lead judgment (which readers are charmingly invited, if they wish, to skip the first 95 paragraphs) channeling Lady Justice Gloster channeling Lord Justice Etherton earlier endorsed by Lord Toulson. Incredible how modest and flexible judicial minds are. The good Law Lord surveyed the field from which he propounded a range of factors test which should be weighed and applied as part of a determination whether the illegality defence holds good- eschewing rules for candour openly acknowledging the underlying policy issues in play with a three-part framework:
“So how is the court to determine the matter if not by some mechanistic process? In answer to that question I would say that one cannot judge whether allowing a claim which is in some way tainted by illegality would be contrary to the public interest, because it would be harmful to the integrity of the legal system, without a) considering the underlying purpose of the prohibition which has been transgressed, b) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality. We are, after all, in the area of public policy. That trio of necessary considerations can be found in the case law.”
The inquiry is directed at “whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed. Within this three- part framework, a range of factors may require evaluation as part of the analysis in determining what the proportionate response under the third part is appropriate. These factors include the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability, this his Lordship was reluctant to draw up an exhaustive list due to the infinite variety of possible cases.
Lord Sumption- another exemplar of judicial flexibility- who, of course, knew he has been right all along stuck to his guns, with only two of his fellow travellers in Les Laboratoires Servier, Lords Mance & Clarke, joining him while Lord Neuberger saw considerable merit in his approach though Toulson got it right for majority of the cases going forward. For him, it is all a matter of identifying any applying rules. Illegality is a rule of law that bars enforcement of claims founded on illegal contracts i.e. Plaintiff relies on the illegality unless (a) s/he was less culpable and (b) there is inconsistency in the law. Even after rereading his judgment and how he applied it to the facts, I am struggling to see how his approach is any less discretionary than Toulson’s. In his course of his dissent accusing the majority of preserving poor state of the law, Sumption delivered what has come to be the money quote from Patel v Mirza:
In my opinion, this is far too vague and potentially far too wide to serve as the basis on which a person may be denied his legal rights. It converts a legal principle into an exercise of judicial discretion, in the process exhibiting all the vices of “complexity, uncertainty, arbitrariness and lack of transparency” which Lord Toulson attributes to the present law. I would not deny that in the past the law of illegality has been a mess. The proper response of this court is not to leave the problem to case by case evaluation by the lower courts by reference to a potentially unlimited range of factors, but to address the problem by supplying a framework of principle which accommodates legitimate concerns about the present law. We would be doing no service to the coherent development of the law if we simply substituted a new mess for the old one
Lord Neuberger saw no need for such alarmism. While clearly in favour of some kind of rule-based approach, he was not convinced Toulson’s approach was a muddle. In his view that approach provides as reliable and helpful guidance as it is possible to give in this difficult field. He expressly endorsed the three-part framework a structured approach, preferable multi-factorial approach proposed by Professor Burrows, the structured approach proposed by Lord Toulson is not akin in practice to a discretion, and, in any event, it is the best guidance that can sensibly be offered at the moment. Experience shows that it is simply not possible to identify a more helpful or rigorous test.” But hang on a minute, what about the Lord Toulson embrace of a range of factors within that framework. Toulson did not disown Burrows‘ multifactorial approach which he found useful. He just declined to limit the number of factors that can be brought to play.
VIII
What are we to make of all this apart from lawyers’ capacity to disagree with each other rivals, or may well exceed of economists[37]? Take a moment to reflect that for all the learned disagreement, effusively expressed in longish judgments, there is surprisingly little disagreement as to the outcomes. Tinsley exempted, rule-bound as well as policy-oriented judges seem to unite in rejecting the illegality defence when it seems morally objectionable to let a defendant get away with it- shock to the conscience test anyone? A great deal of forensic skill is devoted poring over hundreds of cases across the two centuries (if I was not already clear enough contra Lords Goff, Sumption the cases do not and have not prior to disruption by roguish 80s judges spoken with one authoritative voice) but to what purpose? Is there an overflow of inconsistent determinations flooding the systems that requires straightening out in order to preserve the rule of law either by pronouncing a bright line rule or a establishing guided policy framework? Will either approach lead to less such inconsistencies considering that our calling as advocates to wiggle or wriggle?
As Lord Toulson pointed out, the range of factors approach has been applied in other jurisdictions without the grim forebodings causing the rule-based judges and their acolytes apoplexy, coming to pass. Recall the British and Australian courts attempts to cabin the law of negligence lest Court doors were opened to a floodgate of claims yet culminating the courts in those countries[38] which stayed true to Anns v Merton are yet to be overrun[39]. These are the questions now that empirical studies have solidly taken root, some whipper snappers among you might want to take up
Perhaps it was just that the cases which were before the Courts were easy with the requisite legal tools required, if a judge was inclined to, reject the illegality defence under whatever framework is applied. Les Laboratoires Servier and Jetiva, at any rate as far as ex turpi causa was concerned were no brainers. But both Hounga, Patel v Mirza and even Stone Rolls before them were far from being equally straightforward. As is clear from the Court of Appeal’s judgment in Hounga, the careful first instance judgment in Patel v Mirza[40] and the majority decision in Stone Rolls, whatever approach is adopted its does not take a great deal for the defence to succeed once the illegality is established. It is those seeking to reject it, who more often than not need to run through doctrinal loops and hoops. It is worth exploring when, and how often, the different approaches with yield contrary results.
But for now it is sufficient to recall the obvious truth that Justice Jackson whispered- [a] century and a half of partisan debate and scholarly speculation yields no net result but only supplies more or less apt quotations from respected sources on each side of any question. They largely cancel each other.” Much too often this excavation and discussion of the authorities confirms the truth of Judge Easterbrook’s observation that the alternative to disavowing precedent is to disavow it. Neither side in the rule versus policy approach to ex turpi debate can claim innocence. In reality, with discretion restored under the three-part framework range of factors approach, have the Court really moved that much for Evans LJ pithy summary- “When the plaintiff’s action in truth arises directly ex turpi causa, he is likely to fail …. Where the plaintiff has suffered a genuine wrong, to which the allegedly unlawful conduct is incidental, he is likely to succeed.” It seems simpletons like me Toulson is providing a structured approach to answering to those two questions? Conversely (if that is the right word), even without the discretion, is that not the issue which consideration of whether the conduct has sufficient moral turpitude to engage ex turpi causa by Sumption’s lights? Different forests, same trees?
There are of course alternative approaches such as that one which has found favour in the Antipodes as well as United States. It is a fairly straightforward approach. From an analysis of the statute which has been violated, can it be confidently said that it bars actions based on agreements/arrangements which are contrary to its provisions? While I can see the force that this redolent of the tort of breach of statutory duty, with all its attendant difficulties, it seems to me there is much to commend it. Admittedly, whether you go with Wilson in Hounga or Toulson in Patel or indeed foreshadowed by Sumption under moral turpitude required¸ there is more than an element of this in their respective frameworks but I think it should be the sole element. If you are daring enough to endure just one more talk from me, I will explore this on another occasion.
In passing it worth noting that apart from the somewhat vacillating Neuberger none of the judges budged from their original positions. In the face of a clear majority favouring a different approach in an area that everyone acknowledged required definitive settlement (whatever the practical consequences may be), Sumption, Mance and Clarke stuck to their guns on ex turpi causa as rule of law. Legal realists party on. Yet this statement masks more than it conceals for even though like me who believe ideology prevails and Lord Toulson is quite right in calling out his so-called rule-bound colleagues, it would be hard for us to identify exactly what ideology is in play in this particular controversy. Perhaps in some cases in the rules versus discretion debate it is the psychological make-up of the particular judge.
Patel v Mirza described as the most significant private law decision in a generation has excited legal practitioners and academics alike. Overall, it has been welcomed. Even excusing giants such as Burrows – whose book a fulcrum for Lord Toulson’s judgment- and Virgo- who was counsel for the prevailing party, criticism has attracted sharp criticism as well as effusive praise. Actually, we cannot ignore Virgo for he is one of the few critical voices charging the UK Supreme Court introducing unacceptable uncertainty in the operation of defence. By his lights Sumption was right and Toulson & Co, have taken the law back to dark times.
Burrows on the other hand, regards the decision as a triumph allowing the Court to overtly do what they have been covertly doing under the pretext of rules. Thus, a starting point for orderly mature development of the law. In his view the majority approach should be viewed as:
“allowing the courts the flexibility to reach satisfactory results in an open and transparent way and thereby leading, over time to the informed formulation of at least some of the rules capturing the decisions of the courts. In other words, the flexible balancing approach should in time allow the formulation of a certain number of rules that, always against the flexible background, reflect the complex variables involved.”
Not quite a rejection of legal rules but rather they should evolve organically from real world situations as opposed to being imposed arbitrarily on high. Oddly, this is what the lower English Courts thought had already happened which they derived the shock to the conscience test. For example, Kerr’s judgments in Saunders v Edwards and Euro-Diam attempt to assemble such rules from decided cases.
Of course as is well known, legal tests while inevitable, are fraught with risks. Regardless of the area of law, no single test can be sufficiently perspicuous covering all bases and constraining judicial discretion while being sufficiently flexible to accommodate the manifold (infinitely manifold?) faced courts on a daily basis.
I have burdened you long enough with these maunderings – time I wrapped up. As we said at the beginning the doctrinal free-for-all at the heart of the illegality defence engaging others seems to have by-passed the Kenyan courts who, determined to keep their corridors pristine, are adamant that entertaining claims that have a whiff of illegality or immoral is inimical to “the business of courts that is always geared toward upholding the rules of law and/or legality. As was held in Mapis Investment (K) Ltd v Kenya Railways C-operation( (2006) eKLR, courts ought not to pronounce themselves on obligations that are founded on illegal business or allow itself to be made an instrument of enforcing obligations arising out or illegal business.”
Perhaps this is just as well. It is not that the debate is not important though it still remains unsettled which in the rules versus discretion argument in social science makes the better judges, but formalism is certainly both inappropriate and misleading. While I disclaim any preference for the rule-based approach, for it far from clear whether the jurisprudential journey which the illegality defence has undertaken has delivered any practical benefit to English (or Canadian or Australian) law. If Lord Sumption is to be believed a categorical rule of law as stated in 1775 should be retained which is more or less what we have been doing by default. At any rate, so far, generations of Kenyan law students need not struggle “to ascertain or articulate principled rules from the authorities relating to the recovery of money or other assets paid or transferred under illegal contracts.”
Our authorities speak with one voice and it is that of Lord Mansfield transmitted via Mistry Amar Singh v. Serwano Wofunira Kulubya[41]. Provided you take his famous aphorism to heart and your lecturers are not excited by long overly wrought judgments, you will not flunk your Kenyan exams. And if you throw in a bit of Latin (though Lord Toulson did not preserve all that locus poenitentiae malachi), you might even ace them.
[1] (1775) 1 Cowp 341
[2] Jetivia v Bilta [2015] UKSC 23 at paragraph 61
[3] Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, [1932]
[4] Which, unlike the more common ‘wiggle’, as learn from the language guru, the late William Safire (“Narrative, NYT, Dec. 5, 2004) , vividly calls up the picture of sneaky evasion by artifice, which seems to be, however noble the motive, what the courts are doing. It is slightly, and amusingly pejorative but not condemnatory
[5] Kedar Nath Motani And Ors. vs Prahlad Rai And Ors AIR 1960 SC 213, 1960 1 SCR 861. Writing more than thirty years before, the Indian Supreme Court managed to combine both the reliance and shock the conscience test tacking in the latter as a final check on whether in light of a Plaintiff’s culpability illegality defence ought to succeed.
[6] pace Dworkin- Law’s Empire. See generally Joseph Raz, “The Relevance of Coherence”, in Ethics in the Public Domain 261 (1994) & Neil McComick “Coherence in Legal Justification”
[7] [1987]2 All ER 651
[8] Andenas and Duncan Fairgrieve (eds) Tom Bingham and the Transformation of the Law: A Liber Amicorum (2009)
[9] Euro-Diam Ltd v Barthust [1988] 2 All ER 23, CA & Howard v Shirlstar [1990] 3 All ER 366, CA
[10] [1993] 3 All ER 65, HL
[11] Supra, note 5 quoting Williston on Contracts (revised edition), Vol. VI. From the 9th edition (1976) of Cheshire and Fifoot’s Law of Contract, we are taught in respect to the public policy justification of ex turpi causa that, “Since public policy reflects the mores and fundamental assumptions of the community, the content of the rules should vary from country to country and from era to era. There is high authority for the view that in matters of public policy the courts should adopt a broader approach than they usually do to the use of precents.” This is hardly the anarchy that the rule-based contingent contends was unsuccessfully sought to be introduced in the eighties and early nineties.
[12] The casts of Court of Appeal judges alleged to have gone out of the reservation is indeed impressive- Bingham, Lloyd, Kerr, Russell, Buckley, Donaldson, Taylor & Staughton exceptional judges none of whom (all of whom bar one eventually served as Law Lord or occupied high judicial office) would ever be described as a wishy-washy bleeding-heart liberal. If these guys could not get it right, who could? But then again, it is the law not the judges that determine outcome of cases unless of course they do.
[13] In fairness some skepticism had been expressed by some judges in the Court of Appeal as to the public conscience approach as unsatisfactory- see Dillon LJ in Pitts v Hunt [1990] 3 ALL ER 344, at 362 to 364. He decried that uncertainty it entailed being affected by emotional and unsatisfactory graph of illegalities according to moral turpitude for grading excusable from non-excusable conduct. Pitts was a tort case that in which in which ex turpi causa has developed differently. As Lord Hoffman explained “The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations” hence his admonition that “[t]he questions of fairness and policy are different and the content of the rule is different. One cannot simply extrapolate rules applicable to a different kind of situation.”- Gray v Thames Train [2009] UKHL 33, [2009] 4 All ER 81 at paragraphs 30 & 31.
[14] Nelson v Nelson [1995] HCA 25; 184 CLR 538 at paragraph 25. This was also a case in which one of registered owner (a daughter) sought to resist a claim by the party ((the mother) who supplied by the fund for purchase of the property on the ground that this was done to obtain a statutory benefit, the Claimant but for the concealment would not have been entitled to.
[15]The Illegality Defence, Law Commission, Law Comm. 320 paragraphs 3.8 to 310; see also Consultation Paper No. 160 on “The Illegality Defence in Tort” & the Law Consultation Paper No. 189
[16] E.g. Richard Posner, How Judges Think (2008)
[17] [2009] UKHL 39
[18] Jetivia SA v Bilta (U.K) S.A. [2015] UKSC 23, [2015] 2 All ER 1083 at paragraph 30
[19] Ibid paragraphs 21 to 28
[20] Though driven by moral reprehension for the defendant’s conduct- The ex turpi causa rule is a procedural rule based on public policy. The perpetrators of illegality, a fortiori of dishonest illegality, ought not to be allowed to benefit from their reprehensible conduct….” Moore Stephens (A Firm) v Stone and Rolls Ltd [2009] UKHL*) 39, [2009] 3 WLR 455 at paragraph 120
[21] Ibid at paragraph 151 per Toulson & Hodge
[22] [2014] UKSC 47; [2014] 4 All ER 595
[23] Hounga -v- Allen and Another [2012] EWCA Civ 609, at paragraph 61
[24] Ibid at paragraph 42
[25] Ibid paragraph 44
[26] See for example Peter Gibson LJ- “It therefore follows that the correct approach of the tribunal in a sex discrimination case should be to consider whether the applicant’s claim arises out of or is so clearly connected with or inextricably bound up or linked with the illegal conduct of the applicant that the court could not permit the applicant to recover compensation without appearing to condone that conduct.” Hall v. Woolston Hall Leisure Ltd [2000] EWCA Civ 170, [2000] 4 All ER 787 at paragraph 42. The statutory tort for sex discrimination- dismissal on account of pregnancy, was held not to have been inextricably linked to illegality there, short-changing her Majesty’s revenue even though it was those earnings in respect to which compensation was sought. The result should have been the same under the reliance test for unless extremely badly pleaded, Ms. Hall did not have to rely on that illegality on succeed on her claim. A relieved Peter Gibson LJ was happy the claim was not barred – “I am glad to be able to reach the conclusion that that is not the law and that public policy does not so require.”
[27] [2014] UKSC 55, [2014] 3 WLR 1257
[28] Les Laboratoires Servier and Another v Apotex Inc and Others, [2012] EWCA Civ 593 at paragraph 75
[29] [2014] UKSC 55, 3 WLR 1257
[30] Ibid at paragraph 13
[31] Supra note 25 at paragraphs 57-62
[32] Ibid at paragraph 64
[33] [2015] UKSC 23, [2015] 2 All ER 1083
[34] How to Spot a Missing Trader Fraud HM Revenue & Customs, available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/366907/How-to-spot-missing-trader-fraud.pdf; Total Network SL v HMRC [2008] UKHL 19 at paragraphs 4 to 6.
[35] Supra note 31 at paragraph 63
[36] Illegality after Patel v Mirza (forthcoming)
[37] As the saying goes- if you ask the advice of five economists, you will get five different answers, or, if Keynes is one of the five, six answers.
[38] Cooper v Hobart 2001 SCC 79, [2001] 3 SCR 537; R v Imperial Tobacco Canada Ltd 2011 SCC 42, [2011] 3 SCR 45 at [38]; Alberta v Elder Advocates of Alberta Society 2011 SCC 24, [2011] 2 SCR 261 at [66]–[69]- Canada; Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297
[39] For a robust, and in my view entirely correct, defence of Anns v Merton- see Phang, Saw & Chan “Of Precedent, Theory and Practice- The Case for a Return to Anns,” Singapore Journal of Legal Studies [2006] 1-59
[40] [2013] EWHC 1892 (Ch) paragraphs 34 to 38
[41] [1963] E. A. 408
