General
Cases
Gavin Low, Ltd. v. Field.
[1942] IR 86
Sullivan C.J. Supreme Court
“The plaintiffs are livestock salesmen and auctioneers, and on the 12th December, 1940, they exposed for sale in their sale yard a cow intended for human consumption which they had received for sale in the ordinary course of their business. It was bought by the defendant, a licensed victualler, for the sum of £16 10s. 0d., of which £4 was paid in cash and the balance £12 10s. 0d. by cheque drawn by him in the plaintiffs\’ favour. On the same day the cow was slaughtered on the defendant\’s premises at Dun Laoghaire in the presence of the Veterinary Inspector of the Public Health Department of the Dun Laoghaire Borough Corporation, and he found that the carcase was infected with tuberculosis. On the following day, the 13th December, the carcase was destroyed in the Corporation destructor as being unfit for human consumption, and the defendant stopped payment of his cheque. The plaintiff subsequently brought this action in the District
Court to recover £12 10s. 0d., being the amount of the defendant\’s cheque, and recovered a decree for that amount. The defendant appealed to the Circuit Court, and on the hearing of that appeal this case was stated.
The learned Judge of the Circuit Court found as a fact that the cow was unsound and unfit for human consumption at the time of its exposure for sale, but that this fact was unknown to the plaintiffs and could not have been ascertained prior to its slaughter without a veterinary test, the results of which would not be known for at least 24 hours. The question submitted for the opinion of this Court is whether upon the true construction of s. 133 of the Public Health (Ir.) Act, 1878, as amended by sects. 12 and 28 of the Public Health Acts Amendment Act, 1890, the decree of the District Court should be reversed and the plaintiffs\’ claim dismissed on the ground that the said cheque was given for an illegal consideration.
Sect. 132 of the Act of 1878 empowers any sanitary officer of the sanitary authority to inspect and examineinter aliaany animal exposed for sale or deposited in any place for the purpose of sale or of preparation for sale . . . and intended for the food of man, and, if such animal appears to be diseased, or unsound, or unwholesome, or unfit for the food of man, to seize and carry it away in order to have the same dealt with by a Justice. Sect. 133 provides that if it appear to the Justice that any animal so seized is diseased, or unsound, or unwholesome, or unfit for the food of man, he shall condemn the same and order it to be destroyed so as to prevent it being exposed for sale or used for the food of man; and that the person to whom the same belongs or did belong at the time of exposure for sale, or in whose possession or on whose premises the same was found, shall be liable to a penalty not exceeding £20 £or every animal . . . so condemned, or at the discretion of the Justice, without the infliction of a fine, to imprisonment for a term of not more than three months.
The English Public Health Act, 1875, contains in sects. 116 and 117 similar provisions to those contained in sects. 132 and 133 of the Irish Act.
The Public Health Acts Amendment Act, 1890, s. 28, provides:
\”(1) Sects. 116 to 119 of the Public Health Act, 1875, . . . shall extend and apply to all articles intended for the food of man, sold or exposed for sale, or deposited in any place for the purpose of sale, or of preparation for sale within the district of any local authority.
(2) A Justice may condemn any such article, and order
it to be destroyed or disposed of, as mentioned in s. 117 of the Public Health Act, 1875, if satisfied on complaint being made to him that such article is diseased, unsound, unwholesome, or unfit for the food of man, although the same has not been seized as mentioned in s. 116 of the said Act.\”
Sect. 12 provides that in the application of the Act to Ireland references to sects. 116 to 119 of the Public Health Act, 1875, shall be taken to be references to sects. 132 to 135 of the Public Health (Ireland) Act, 1878.
The question raised in this case is whether the effect of these sections is to render illegal the contract entered into by the plaintiffs and defendant on the 12th December, 1940. If that be the effect of the sections, then unquestionably the cheque given to the plaintiffs by the defendant as security for his liability under that contract is, as between the plaintiffs and the defendant, void. The contract is illegal if it is prohibited either expressly by those sections or by implication arising from the imposition of a penalty on the parties with the intention of prohibiting the contract. No question of express prohibition of the contract arises in this caseadmittedly there is none; but it is conceded by counsel for the plaintiffs that, if the effect of the sections be to impose a penalty on the plaintiffs for entering into the contract, then the object of the Legislature in this case was to prohibit such a contract, and it is prohibited by implication, and is therefore illegal.
It was contended on behalf of the plaintiffs:(1), that the effect of these sections was to impose a penalty, not on the sale of animals or articles intended for human consumption and unfit for that purpose, but on the exposure for sale, or deposit for the purposes of sale or of preparation for sale, of such animals or articles; and (2), that condemnation by a Justice of the Peacenow a Peace Commissioner (Courts of Justice Act, 1924, s. 88, sub-s. 3) is a condition precedent to a conviction for such offence.
In support of the first branch of this argument we were referred to the case of Bothamley v. Jolly (1) in which the Court of King\’s Bench in EnglandReading, C.J., Ridley, Darling, Avory and Rowlatt JJ.held that the appellant, who had sold diseased meat but had not exposed it for sale, was not liable to conviction under the provisions of s. 117 of the Public Health Act, 1875, as amended by s. 28 of the Public Health Acts Amendment Act, 1890. In that case the Court was pressed by counsel for the respondent to follow a previous decision of the Court of King\’s Bench Alverstone C.J., Pickford and Lush JJ.in the case of Salt v. Tomlinson (1) in which a conviction for the sale of unsound meat as constituting an offence under the same section was upheld, but Reading C.J. and Avory J., in the course of their judgments, pointed out that in Salt v.Tomlinson (1) there had been an exposure for sale of the meat in question, although the fact was not mentioned in the charge or referred to by any member of the Court, Avory J. saying (p. 436):\”The form of summons in Salt v. Tomlinson (1) is open to criticism in that it alleges the offender was the person \’to whom the meat belonged at the time that it was sold\’; it should have been \’when it was exposed for sale,\’ and this may have led to some inaccuracy of expression in the judgments, which was not directed to the point now in question.\”
The authority of Bothamley v. Jolly (2) was not challenged by counsel for the defendant, in fact Mr. Ryan said that it was an authority in their favour. They did not contend that the sections in question expressly penalised the contract for sale of a diseased animal or of unsound articles of food, what they did contend was that, if a contract be made for the sale of such animal or article when it is exposed for sale, then the exposure for sale and the sale together form one transaction, the entire of which is vitiated by the illegal exposure. In support of their argument they relied on the object that the Legislature had in view in enacting the sections in question, as stated by Lord Coleridge C.J. in Blaker v. Tillstone (3):\”The object of the Act is that people shall not be exposed to the danger of eating and drinking poison, that anything that is likely to injure life shall not be sold,\” and restated, in terms practically identical, by the Judges of the Court of Appeal in Hobbs v. Winchester Corporation (4). That object would, they submitted, be defeated if the vendor could recover the price of the \”poison\” which the purchaser had been induced to buy by seeing it exposed for sale.
The argument based on the policy of the Act loses in my mind much of its force when it is admitted that the Act does not penalise the sale of diseased or unsound articles of food. In my opinion the defendant\’s counsel, in order to succeed, must satisfy the Court that the contract for sale and the exposure for sale should be regarded as together constituting one unlawful transaction. Sir Frederick Pollock in his Principles of Contract (6th Ed., pp. 354-5) expresses the opinion that an agreement may be made void by its connexion with an unlawful purpose, though subsequent to the execution of it. \”To have that effect, however,\” he says, \”the connexion must be something more than a mere conjunction of circumstances into which the unlawful transaction enters so that without it there would have been no occasion for the agreement. It must amount to a unity of design and purpose such that the agreement is really part and parcel of one entire unlawful scheme.\”
I accept that as a correct statement of a legal principle which is, I think, applicable in the present case. In the view that I take of the facts in this case the connexion between the unlawful exposure and the sale does not amount to a unity of design and purpose such that the sale is part of one entire unlawful scheme.
I am, therefore, of opinion that the contract for sale between the plaintiff and the defendant was not an illegal contract, and that the cheque, upon which the plaintiff sues, was not given for an illegal consideration.
Having come to that conclusion it is unnecessary that I should express any opinion on the question whether condemnation by a Peace Commissioner of the diseased animal is a condition precedent to conviction for unlawfully exposing it for sale, or as to the relevancy of that question to the question submitted in the Case Stated.
The question submitted to this Court should, in my opinion, be answered \”No.\”
Namlooze Venootschap de Faam v. The Dorset Manufacturing Company, Limited
1949 IR 203
Dixon J.
“The goods in this case were sold and delivered while the Emergency Powers (Finance) (No. 7) Order, 1941, was in force. I do not find that the contract, or several contracts, under which the goods were ordered was or were thereby made either void or illegal. One reason is that the prohibitions in Art. 3 of the Order, although void, related rather to what might be a contemplated or possible sequel to the contract rather than its essential nature. Another, and perhaps stronger, reason is that I think the qualification in that Article enabling any of the prohibited acts to be done with the permission of the Minister for Finance places the contract in the category dealt with in J. W. Taylor & Co.v. Landauer & Co. (2), viz., as being a legal contract with an implied representation that, so far as permission of the Minister might be necessary, such permission existed or would be applied for.
In fact, such permission existed or was obtained to the extent of £5,419 14s. The total orders amounted to £7,161 11s. 5d., on foot of which payments were made to the amount of £4,038 11s. 5d., leaving an unpaid balance of £3,123 (now claimed) and an unapplied balance on the permission of £1,381 2s. 7d. Permission (although stated to have been applied for since the action was commenced) to cover the excess of the orders over the permission obtained £1,741 17s. 5d.has not apparently been definitely refused, but has not yet been obtained. Owing, apparently, to matters deposed to in an affidavit filed on behalf of the defendants, the permission obtained expired before the unapplied balance of £1,381 2s. 7d. had been availed of. A renewal of this permission is stated to have been sought, but here again, while there does not appear to have been a definite refusal, the renewal sought has not yet been obtained.
The position, therefore, is that so far as payment of the balance of £3,123 claimed could be a payment in the equivalent, of a foreign currency (Dutch guilders) or a payment to a person outside the State, the necessary permission, as to £1,741 17s. 5d. of it, was never obtained and, as to £1,381 2s. 7d. of it, has expired.
Since the contract and since the commencement of this action, a further order has come into force, viz., the Exchange Control Order, 1947 (S. R. & Or. 1947, No. 394), which contains somewhat similar prohibitions to those in the Order of 1941. In particular, it prohibits any payment to or by the order of any person resident outside the scheduled territories or the placing of any sum to the credit of any person resident within the scheduled territories by the order of, or on behalf of, any person resident outside the scheduled territories. It is admitted that the plaintiffs are persons resident outside the scheduled territories; and it is contended by the defendants that any attempt by them now to satisfy the claim of the plaintiffs would contravene the terms of this last-mentioned order and would render them (the defendants) liable to a penalty.
I think this contention is clearly right and, on the basis (which I understand to be conceded) that this is the only matter that could now defeat the plaintiffs\’ claim, the sole question is whether the Court should give judgment for the plaintiffs notwithstanding the existence and terms of this Order.
Whatever the terms of the Court\’s order, the legal effect of it would be to put the plaintiffs in a position to secure payment of the amount in question and it would thus, even if indirectly, compel the defendants to do an act prohibited by the law for the time being in force. Put thus, I feel that on general principles it would be improper and contrary to public policy for the Court to give judgment for the plaintiffs on their claim as now framed. There is persuasive authority for this view in a recent decision of the Court of Appeal in England in Stockholms Enskilda Bank Aktiebolag v. Schering, Ltd. (1). There, the claim was for an instalment provided for in a contract entered into before the Trading with the Enemy Act, 1939, but falling due after the coming into operation of that Act, and it was held that such payment would, in the circumstances of the case, be for the benefit of an enemy and would also be a payment of money to or for the benefit of an enemy. The Court accordingly dismissed the action, thereby implying that they considered that an order enabling the recovery of the instalment by the plaintiffs would amount to the same thing as a payment of it by the defendants.
As a statement of principles applicable to the present case, and allowing for the different circumstances of the two cases, I adopt the following passage from the judgment of Lord (then Sir Wilfred Greene M.R., at pp. 440, 441:\”He is claiming payment of a sum of money, and he is claiming it at a time when the law of this country declares that the thing which he is asking for, namely, payment, is illegal, and the fact that illegality has, struck what in its origin was a perfectly innocent and proper transaction is, it seems to me, an answer to the claim. It is true that, so far as anything in this Act of Parliament is concerned, the prohibition of payment is a temporary one. It only exists so long as the payee, or the person to receive the benefit, is an enemy. If and when he ceases to be an enemy, and in the absence of further legislation affecting his rights, he will, according to ordinary principles, be entitled to receive the benefit which was to flow to him under the machinery of these agreements. At the moment that benefit is prohibited, and it seems to me that that circumstance in this case is a defence to the action.\” He later added: \”The true analogy seems to me to be the case of an action prematurely brought.\”
This passage was primarily directed to an argument that the plaintiffs were at least entitled to a judgment which would declare and settle their rights, but with some sort of stay to prevent payment from being made during the continuance of the war or until a licence was obtained; and I think similar reasoning would preclude the adoption of any such course in this case.
The case cited of Hulbert and Crow v. Cathcart (1) does not seem to me to affect this view. It was merely a decision as to the proper form of, and manner of enforcing, a judgment on a money claim and is not an authority that the Court should facilitate or enable a payment prohibited by law.
The present claim is for the price of goods sold and delivered. Cases such as In re Anglo-Russian Merchant Traders and John Batt & Co. (London) (2); Mertens v.Home Freeholds Company (3) and J. W. Taylor & Co. v.Landauer & Co. (4) suggest that the existence or terms of the relevant orders would not prevent the plaintiffs maintaining an action for damages for failure to use reasonable diligence to obtain the necessary permission or possibly for allowing the permission obtained to expire before it was fully exhausted, if the plaintiffs are in a position to adduce the necessary proofs. No such claim is before me, and I have not the necessary materials, even if I were so inclined, to express any view on that aspect of the matter. I have, however, considered the question whether I could enable justice to be done between the parties by adjourning the matter for plenary hearing so that a claim on the lines indicated could be formulated; but I feel I am precluded from this course by the consideration that such a claim would be one for unliquidated damages and, thus, unappropriate to proceedings commenced by summary summons and within the decision, now of long standing, in Meares v.Connolly (1).
Kirkham v Anderton
[1989] EWCA Civ 3 [1990] 3 All ER 246, [1990] 2 QB 283
LLoyd LJ
I turn last to ex turpi causa non oritur actio. This is the most difficult part of the case. Prior to 1961 suicide was a crime. Although there appears to be no reported case directly in point, I do not doubt that a claim based on the failure of the authorities to prevent a suicide would have failed. The courts would have declined to lend their aid to enforce such a claim. But by section 1 of the Suicide Act 1961, the rule of law whereby it was a crime for a person to commit suicide was abrogated. The question is whether the Suicide Act, by abrogating the criminal nature of suicide, has taken away the defence of ex turpi causa. The learned judge took the straightforward line that the defence depends on some causally related criminal activity. He referred to Hardy v. Motor Insurers\’ Bureau [1964] 2 Q.B. 745 and Murphy v. Culhane [1977] QB 94 and considered that, since suicide is no longer a crime, the defence ex turpi causa is no longer available.
Unfortunately, the learned judge was not referred to three recent cases in which the scope of the defence has been considered: Thackwell v. Barclays Bank [1986] 1 All E.R. 676, Saunders v. Edwards [1987] 1 W.L.R. 1116 and Euro-Diam Ltd v. Bathurst [1988] 2 W.L.R. 517. The last two cases contain an elaborate analysis of the relevant principles by Kerr L.J. It would be superfluous to summarise the principles here. It is sufficient to quote two sentences from Kerr L.J.\’s judgment in the Euro-Diam case at p. 526.
\”The ex turpi causa defence ultimately rests on a principle of public policy that the courts will not assist a plaintiff who has been guilty of illegal (or immoral) conduct of which the courts should take notice. It applies if 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.\”
It is apparent from these authorities that the ex turpi causa defence is not confined to criminal conduct. So we cannot adopt the simple approach favoured by the judge. We have to ask ourselves the much more difficult question whether to afford relief in such a case as this, arising, as it does, directly out of a man\’s suicide, would affront the public conscience, or, as I would prefer to say, shock the ordinary citizen. I have come to the conclusion that the answer should be \”no\”. I would give two reasons.
In the first place the Suicide Act does more than abolish the crime of suicide. It is symptomatic of a change in the public attitude to suicide generally. It is no longer regarded with the same abhorrence as it once was. It is, of course, impossible for us to say how far the change in the public attitude has gone. But that there has been a change is beyond doubt. The fact that aiding and abetting suicide remains a crime under section 2 of the Suicide Act does not diminish the force of the argument.
The second reason is that in at least two decided cases courts have awarded damages following a suicide or attempted suicide. In Selfe v. Ilford and District Hospital Management Committee (unreported) Hinchcliffe J. awarded the plaintiff damages against a hospital for failing to take proper precautions when they knew that the plaintiff was a suicide risk. In Pigney v. Pointers Transport Services Ltd., to which I have already referred, Pilcher J. awarded damages to the dependants of a suicide under the Fatal Accidents Act 1846. Moreover, in Hyde v. Tameside Area Health Authority, another hospital case, the judge awarded £200,000.00 damages in respect of an unsuccessful suicide attempt. The Court of Appeal allowed the defendant\’s appeal, on the ground that there had been no negligence on the part of the hospital, but not on the ground that the plaintiff\’s cause of action arose ex turpi causa; the appeal was allowed. Selfe and Pigney are not binding on us. But they are important for this reason. They show, or appear to show, that the public conscience was not affronted. It did not occur to anyone to argue in either case that the granting of a remedy would shock the ordinary citizen; nor did it occur to the court.
For the above reason I would hold that the defence of ex turpi causa is not available in these cases, at any rate where, as here, there is medical evidence that the suicide is not in full possession of his mind. To entertain the plaintiff\’s claim in such a case as the present would not, in my view, affront the public conscience, or shock the ordinary citizen. I thus reach the same conclusion as the judge on this aspect of the case, but for somewhat different reasons.
I come last to the judgment of Lord Denning in Hyde v. Tameside Area Health Authority. I have already quoted his observations on volenti non fit injuria with which I find myself in respectful disagreement. As to public policy, he referred to the fact that suicide is no longer a crime, and continued:
\”But it is still unlawful. It is contrary to ecclesiastical law which was, and is still, part of the general law of England, see Mackonochie v. Lord Penzance [1881] 6 Appeal Cases at page 446 by Lord Blackburn. The suicide\’s body was not buried in the churchyard with Christian rites. You will remember the gravediggers\’ scene in Hamlet (Act V, sc i, 1):
\’Is she to be buried in Christian burial that wilfully seeks her own salvation?\’
I know this all sounds very out of date: but it has a useful lesson for us in modern times. I feel it is most unfitting that the personal representatives of a suicide should be able to claim damages in respect of his death. At any rate, when he succeeds in killing himself. And I do not see why he should be in any better position when he does not succeed. By his act – in self-inflicting this grievous injury – he has made himself a burden on the whole community. Our hospital services and our social welfare services have done, and will do, all they can to help him and his family – in the grievous injury that he has inflicted on himself and on them. But I see no justification whatever in his being awarded, in addition, the huge sum of £200,000 – because he failed in his attempt. Such a sum will have to be raised, in the long run, by society itself – a sum which it cannot well afford. The policy of law should be to discourage these actions. I would disallow them altogether – at the outset – rather than burden the community with them. Especially when, as this experience shows, they all fail in the end. At any rate, all failed before the trial judges until this one – and this one now fails before us.\”
Since there was no argument on the application of public policy, or the maxim ex turpi causa non oritur actio, the court was not referred to Selfe or Pigney. This explains why Lord Denning thought that all previous cases at first instance had failed. I accept of course that the ecclesiastical law is part of the law of England. But I would not for that reason refuse all relief in the common law courts. In the end it comes down to Lord Denning\’s view that to allow such an action as the present would be unfitting. I have respect for that view. But I do not share it. The court does not condone suicide. But it does not, in Bingham L.J.\’s graphic phrase in Saunders v. Edwards, \”draw up its skirts and depart.\” I notice that neither Tasker Watkins L.J. nor O\’Connor L.J. expressed agreement with that part of Lord Denning\’s judgment which I have quoted. Indeed, O\’Connor L.J. clearly contemplated the possibility of a successful claim arising out of a suicide. So I would not regard Lord Denning\’s judgment in Hyde v. Tameside Area Health Authority as standing in the way of the view I have formed.
I would dismiss the appeal against liability.
Patel v Mirza
[2016] UKSC 42 [2016] Lloyd\’s Rep FC 435, [2016] WLR(D) 417, [2016] 3 WLR 399, [2017] AC 467, [2016] 2 Lloyd\’s Rep 300
LORD TOULSON: (with whom Lady Hale, Lord Kerr, Lord Wilson and Lord Hodge agree)
Introduction
1. “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.” So spoke Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341, 343, ushering in two centuries and more of case law about the extent and effect of this maxim. He stated that the reason was one of public policy:
“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. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis.”
2. Illegality has the potential to provide a defence to civil claims of all sorts, whether relating to contract, property, tort or unjust enrichment, and in a wide variety of circumstances.
3. Take the law of contract. A contract may be prohibited by a statute; or it may be entered into for an illegal or immoral purpose, which may be that of one or both parties; or performance according to its terms may involve the commission of an offence; or it may be intended by one or both parties to be performed in a way which will involve the commission of an offence; or an unlawful act may be committed in the course of its performance. The application of the doctrine of illegality to each of these different situations has caused a good deal of uncertainty, complexity and sometimes inconsistency.
4. Holman v Johnson involved a claim for the price of goods which the plaintiff sold to the defendant in Dunkirk, knowing that the defendant’s purpose was to smuggle the goods into England. The plaintiff was met with a defence of illegality. The defence failed. Lord Mansfield held that knowledge on the part of the plaintiff that the defendant intended to smuggle the goods did not affect the plaintiff’s entitlement to recover the price of the goods, since he was not himself involved in the smuggling. By contrast, in Pearce v Brooks (1866) LR 1 Ex 213 a claim by a coachbuilder against a prostitute for the hire of what was described in the law report as an “ornamental brougham” was held to be unenforceable for illegality after the jury found that the defendant hired it for the purpose of prostitution and that the plaintiff knew that this was her purpose. It would seem that the difference between Holman v Johnson and Pearce v Brooks had to do with the type of goods supplied, because in both cases the plaintiff knew that the defendant was entering into the contract for an illegal or immoral purpose. In JM Allan (Merchandising) Ltd v Cloke [1963] 2 QB 340, 348, Lord Denning MR endeavoured to rationalise the authorities by saying that “active participation debars, but knowledge by itself does not”. However, the Law Commission commented in its discussion of the subject in its Consultation Paper on Illegal Transactions: the Effect of Illegality on Contracts and Trusts, LCCP 154 (1999) that the case law lacks clear guidance on what amounts to “participation” in this context.
5. It is unclear to what extent the doctrine of illegality applies to a contract whose object includes something which is in some respect unlawful, or the performance of which will involve some form of illegality, but not in a way which is central to the contract. In St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, 288, Devlin J said:
“If a contract has as its whole object the doing of the very act which the statute prohibits, it can be argued that you can hardly make sense of a statute which forbids an act and yet permits to be made a contract to do it; that is a clear implication. But unless you get a clear implication of that sort, I think that a court ought to be very slow to hold that a statute intends to interfere with the rights and remedies given by the ordinary law of contract. Caution in this respect is, I think, especially necessary in these times when so much of commercial life is governed by regulations of one sort or another, which may easily be broken without wicked intent.”
6. As to illegality in the manner of performance of a contract, Mance LJ observed in Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225, 246, that the conceptual basis on which a contract not illegal nor prohibited at the time of its formation may become unenforceable due to the manner of its performance is open to debate. In Anderson Ltd v Daniel [1924] 1 KB 138 a claim for the price of goods was held to be unenforceable because the seller had failed to give the buyer an invoice containing details which the seller was required to give him by statute. In the St John Shipping case Devlin J rejected the interpretation that the claim in Anderson Ltd v Daniel failed because in the course of performing a legal contract the plaintiff had done something illegal. The correct interpretation, he said, was that “the way in which the contract was performed turned it into the sort of contract that was prohibited by the statute”: [1957] 1 QB 267, 284. In the St John Shipping case the claim was for freight under a charter party. In the course of taking on bunkers the vessel was overloaded and the master thereby committed an offence, for which he was prosecuted and fined £1,200. The extra freight earned by the overloading was £2,295 and to that extent the ship owners stood to profit from their wrong. The cargo owners refused to pay that part of the freight. Devlin J rejected their defence. He held that since the goods had been delivered safely, the ship owners had proved all that they needed. He was not prepared to construe the statute as having the effect of making the contract prohibited. If it had been otherwise, the ship owners would not have been entitled to any freight and would therefore have suffered an additional penalty, much greater than that provided for by Parliament, for conduct which might have been unintentional.
7. In Ashmore, Benson, Pease and Co Ltd v Dawson [1973] 1 WLR 828 the Court of Appeal adopted a different approach. Manufacturers of heavy engineering equipment entered into a contract of carriage with road hauliers. There was nothing illegal in the formation of the contract, but the hauliers overloaded the vehicles which were to transport the load, in breach of road traffic regulations, and one of the lorries toppled over during the journey as a result of the driver’s negligence. The manufacturers’ transport manager was present when the goods were loaded and was aware of the overloading. A claim by the manufacturers for the cost of repair of the damaged load was rejected on grounds of illegality. The Court of Appeal did not perform the same analysis as had Devlin J in the St John Shipping case. They held simply that the manufacturers participated in the illegal performance of the contract and were therefore barred from suing on it.
8. These and other cases led the Law Commission to describe the effect that unlawful performance has on the parties’ contractual rights as very unclear. (Consultative Report on the Illegality Defence, LCCP 189 (2009), para 3.27.)
9. In this case the issue is whether Lord Mansfield’s maxim precludes a party to a contract tainted by illegality from recovering money paid under the contract from the other party under the law of unjust enrichment (to use the term now generally favoured by scholars for what used previously to be labelled restitution and, before that, quasi-contract). On one side it is argued that the maxim applies as much to such a claim as to a claim in contract, and that the court must give no assistance to a party which has engaged in any form of illegality. On the other side it is argued that such an approach would not advance the public policy which underlies Lord Mansfield’s maxim, once the underlying policy is properly understood.
Structure of this judgment
Law Commission
21. After the decision in Tinsley v Milligan the Law Commission included the illegality defence in its Sixth Programme of Law Reform (1995) (Law Com 234). It undertook a full inquiry of the kind which Lord Goff envisaged. It published its first consultation paper, Illegal Transactions: The Effect of Illegality on Contracts and Trusts (LCCP 154), in 1999. The responses, and developments in the case law, led the Commission to re-consider the problems and its proposals for reform. In 2009 it issued a further public consultation paper, The Illegality Defence: A Consultative Report (LCCP 189). In 2010 it issued its final confirmatory report, The Illegality Defence (Law Com 320). In relation to trust law, it proposed statutory reform and it produced a draft bill. In relation to the law of contract and unjust enrichment, the Commission considered that there were serious problems but that they were capable of being, and could best be, tackled by the process of judicial development. In 2012 the government announced that it did not intend to take forward the Commission’s recommendation for statutory reform of the law relating to trusts, because it did not consider reform of this area of the law to be a pressing priority for the government.
22. From its study of the case law and academic writing, the Commission identified the principal policy rationales for the illegality doctrine as 1) furthering the purpose of the rule infringed by the claimant’s behaviour, 2) consistency, 3) prevention of profit from the claimant’s wrongdoing, 4) deterrence and 5) maintaining the integrity of the legal system. It observed that these rationales were not mutually exclusive but overlapped to a greater or lesser degree. A sixth possible rationale, punishment, was controversial. The large majority of consultees considered that punishment was a matter for the criminal courts (to which one might add regulators) and should not be invoked in determining parties’ civil disputes. (LCCP 189, paras 2.5-2.31.)
23. The conclusion that the illegality defence presented serious problems represented the overwhelming view of academic commentators and consultees generally. The Commission analysed the problems under four heads – complexity, uncertainty, arbitrariness and lack of transparency. It did not suggest that the problems resulted generally in unsatisfactory outcomes, but it was critical of the way in which they were reached. It said that, on the whole, the case law illustrated the judges threading a path through the various rules and exceptions in order to reach outcomes which for the most part would be regarded as fair between the parties involved, although there were instances of results which the Commission considered to be unduly harsh, for example in unlawful employment cases. Generally, the courts managed to avoid unnecessarily harsh decisions either by creating exceptions to the general rules or by straining the application of the relevant rules on the particular facts so as to meet the justice of the case. Seldom was there an open discussion in the judgments of the considerations which led the court to its decision. (LCCP 189, paras 3.50-3.60.)
24. The Commission considered that Tinsley v Milligan, and cases following it, exemplified the problems of arbitrariness, uncertainty and potential for injustice. The rule applied in that case was arbitrary in that the question whether the illegality affected the recognition or enforcement of the trust depended not on the merits of the parties, nor the policies underlying the illegality defence, but on a procedural issue. Moreover the effect of applying the reliance principle in cases involving the presumption of advancement gave that presumption an overriding importance which it was never intended to have. It led to uncertainty because there was much confusion over what exactly amounted to “reliance”, particularly when the claimant was seeking to establish an equitable interest under a constructive trust. It had the potential to force the court into unjust decisions because, by focusing on procedural matters, the reliance principle precluded the court from paying attention to the policies that justified the existence of the defence, or taking into account such matters as the seriousness of the illegality and the value of the interest at stake. (Law Com 320, paras 2.13-2.15.)
25. The Commission examined the law in other jurisdictions, European law and European human rights law. In its first consultation paper in 1999 the Commission’s proposed recommendation was to introduce statutory reform on the lines of the New Zealand model. The New Zealand Illegal Contracts Act 1970, section 7, provides that the court may grant to any party to an illegal contract “such relief by way of restitution, compensation, variation of the contract, validation of the contract in whole or part or for any particular purpose, or otherwise howsoever as the court in its discretion thinks just”. In its 2009 consultative report the Commission noted that the operation of this provision had been widely heralded as a success; that it had not created the deluge of litigation that was feared by some commentators; and that this model of reform, with slight variations, had been recommended by the law reform bodies of several other Commonwealth jurisdictions (LCCP 189, para 3.81). Nevertheless, in its 2009 consultative report and in its final report the Commission did not recommend statutory change (except in relation to trusts) for a combination of reasons. Although the proposal for statutory reform in the 1999 consultation paper had been supported by a majority of consultees, a minority had made critical comments which persuaded the Commission that judicial reform was a better way forward, and the Commission found difficulties in drafting a satisfactory statutory model. Most importantly, developments in the case law and the critical responses of consultees led the Commission to conclude that it was open to the courts to develop the law in ways that would render it considerably clearer, more certain and less arbitrary.
26. Among domestic authorities, the Commission referred to the decisions of the House of Lords in Bakewell Management Ltd v Brandwood [2004] 2 AC 519 and Gray v Thames Trains Ltd [2009] AC 1339.
27. Bakewell bought an area of land registered as a common. Owners of neighbouring properties had for years driven across the land to reach the public highway. Bakewell brought an action to prevent them from continuing to do so. The defendants claimed to have acquired rights of way by prescription, but by driving across the land without the owner’s consent they had committed offences under the Law of Property Act 1925. So to establish their property rights the defendants had to rely on conduct which was criminal. This, Bakewell submitted, they were not entitled to do. Its argument was rejected. The House of Lords held that public policy did not prevent the defendants from acquiring an easement where the landowner could have made a grant which would have removed the criminality of the user. Lord Walker, with whom Lord Bingham and Lady Hale agreed, said at para 60:
“I do not see this as reintroducing the ‘public conscience’ test which this House disapproved in Tinsley v Milligan [1994] 1 AC 340. It is merely a recognition that the maxim ex turpi causa must be applied as an instrument of public policy, and not in circumstances where it does not serve any public interest: see for instance National Coal Board v England [1954] AC 403, 419.”
28. Gray v Thames Trains Ltd was a case in tort. Mr Gray developed post-traumatic stress disorder through being involved in a major railway accident, which caused him to suffer depression and a substantial personality change. He was previously of unblemished character but two years after the accident, and while under medical treatment, he pursued and stabbed to death a man who had stepped in front of his car. His plea of guilty to manslaughter on the ground of diminished responsibility was accepted and he was ordered to be detained in a mental hospital. He sued the train operator for negligence and liability was admitted. His claim for damages included compensation for his loss of liberty, damage to reputation and loss of earnings during his detention. The House of Lords held that public policy precluded him from recovering damages under those heads. The leading opinion was given by Lord Hoffmann, with whose reasoning Lord Phillips (subject to certain additional observations) and Lord Scott agreed.
29. Lord Hoffmann observed, at paras 30-32, that the maxim ex turpi causa expresses not so much a principle but a policy based on a group of reasons, which vary in different situations. The courts had therefore evolved varying rules to deal with different situations. Because questions of fairness and policy were different in different cases and led to different rules, one could not simply extrapolate rules applicable to one situation and apply them to another. It had to be assumed that the sentence was what the criminal court regarded as appropriate to reflect Mr Gray’s personal responsibility for the crime he had committed. It was therefore right to apply the rule that he could not recover damages for the consequences of the sentence, reflecting an underlying policy based on the inconsistency of requiring someone to be compensated for a sentence imposed because of his personal responsibility for a criminal act. It was also to right to apply a wider rule that you cannot recover damage which is the consequence of your own criminal act, reflecting the idea that it is offensive to public notions of the fair distribution of resources that a claimant should be compensated (usually out of public funds) for the consequences of his own criminal conduct.
30. Lord Phillips said, at para 15, that he would reserve judgment as to whether the ex turpi causa maxim should apply if it were clear from the judge’s sentencing remarks that the claimant’s offending behaviour played no part in the decision to impose a hospital order, or, where the claimant’s criminal act demonstrated a need to detain him both for his own treatment and for the protection of the public, if the judge made it clear that he did not believe that the claimant should bear significant personal responsibility for his crime. Lord Brown agreed with Lord Phillips’ reservations.
31. Lord Rodger said, at paras 78-83, that the civil court must assume that the order made by the criminal court was appropriate to reflect Mr Gray’s personal responsibility for the crime he had committed. The right approach on the facts of the case was that the court must “cleave to the same policy as the criminal court”. However, he considered that the approach might well be different if the offence of which he had been convicted was trivial but revealed that he was suffering from a mental disorder, due to the defendant’s fault, which made a hospital order appropriate.
32. The Law Commission drew from the various judgments a readiness on the part of the judges to examine the policy reasons which justified the application of the illegality defence and to explain why those policies applied to the facts of the case.
33. The Commission also considered the question how far illegal conduct may deprive claimants of rights under European Union law (LCCP 189, paras 3.82-3.89). Some contractual rights are now derived from EC directives. For example, the right to equal pay granted by the Equal Pay Directive (directive 75/117/EEC) is implied as a term into the employment contract. In other cases, such as the Sale of Consumer Goods Directive (directive 99/44/EC), EU law provides remedies that depend on the existence of a contract. The issue may therefore arise whether a national illegality doctrine which prevents a party from enforcing a contract is compatible with the EU law from which the contractual right arose.
34. In the 1990s various breweries let pubs to tenants on terms containing beer ties. These were found to be unenforceable because they breached article 81 (previously article 85) of the European Community Treaty. The issue then arose whether the fact that the tenant had been party to an illegal contract precluded him from claiming damages from the brewery. In Gibbs Mew plc v Gemmell [1999] 1 EGLR 43, 49 the Court of Appeal held that this was so, because “English law does not allow a party to an illegal agreement to claim damages from the other party for loss caused to him by being a party to the illegal agreement” (per Peter Gibson LJ).
35. In Courage Ltd v Crehan (Case C-453/99) [2002] QB 507, the Court of Appeal referred the question to the European Court of Justice, which took a different view. Advocate General Mischo expressed the view, at paras 38-43, that although the individuals protected by article 81 were primarily third parties (consumers and competitors), a rule which automatically excluded a party to the agreement from the protection of article 81 was “too formalistic and does not take account of the particular facts of individual cases”; and that a party which was too small to resist the economic pressure imposed on it by the more powerful undertaking had more in common with a third party than with the author of the agreement. (The potential parallel with the relationship in some cases between an employer and an employee is obvious.)
36. The court agreed with the Advocate General. It held that where a contract was liable to restrict or distort competition, community law did not preclude a rule of national law from barring a contracting party from relying on his own illegal actions, if it was established that that party bore significant responsibility for the distortion of competition. In that context the matters to be taken into account by the national court included the respective bargaining power and the conduct of the parties to the agreement in the economic and legal context in which they found themselves. It was for the national court to ascertain whether the party who claimed to have suffered loss through concluding such a contract was in a markedly weaker position than the other party, such as seriously to compromise or even eliminate his freedom to negotiate the terms of the contract. An absolute bar to an action being brought by a party to a contract which violated the competition rules would not advance the full effectiveness of the prohibition contained in the Treaty, but rather the reverse.
37. The effect of the court’s decision was not to treat article 81 as intended for the protection of parties who infringed it, as a class, but to treat it as a matter for the national court to determine whether on the facts of a particular case a party should be regarded as sinned against rather than sinning, and therefore entitled to damages for the consequences of the offending provision of the agreement.
38. The potential impact of European law was referred to, obiter, by Mance LJ in Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225. The claimant was dismissed from her employment as a chef when her employer became aware that she was pregnant. She brought a claim in the industrial tribunal for compensation under the Sex Discrimination Act 1975. The Act pre-dated the Equal Treatment Directive (76/207/EEC) but gave effect to its provisions. Mrs Hall succeeded on liability, but it emerged during the remedies hearing that her employer was defrauding the Inland Revenue by falsely pretending that her net salary of £250 per week was her gross salary. She was aware of the fraud, because she was given pay slips which showed her gross pay as £250, deductions of £63.35 and net pay of £186.65. She knew that this was untrue, but when she raised the matter with her employer she was told that this was the way in which they did business. The tribunal held that the contract was tainted by illegality and that she had no right to compensation under the Act. Its decision was upheld by the appeal tribunal but reversed by the Court of Appeal, which held that her acquiescence in the employer’s conduct was not causally linked with her sex discrimination claim and that public policy did not preclude her from enforcing her statutory claim. Mance LJ observed additionally that the Act should as far as possible be read as providing the same scope of protection as the Directive. Mrs Hall’s position fell within the wording and purpose of the Directive despite the tribunal’s finding of her knowledge of the fraud on the Inland Revenue.
39. That case did not involve the direct enforcement of a contractual obligation, but in cases where European Union rights depend on the existence of a contract (for example, in the consumer context), the Law Commission doubted whether the Court of Justice would be content with a system of domestic illegality rules which were formalistic and did not allow room for a proportionate balancing exercise to be carried out on the basis of clear principles of public policy (LCCP 189, para 3.89).
40. Where the terms or performance of a contract involve breach of a legislative provision, it is rare (as the Commission noted) for the statute to state expressly what are to be the consequences in terms of its enforceability. (For an example of an express statutory unenforceability provision, see section 127(3) of the Consumer Credit Act 1974, which arose for consideration in Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816.) It is to be noted that in the present case, as Gloster LJ pointed out, section 63(2) of the Criminal Justice Act 1993 stipulated that “No contract shall be void or unenforceable by reason only of section 52”, presumably because of a concern that if a contract which involved insider dealing contrary to section 52 were void, there could be undesirable consequences for parties down the line. The question whether a statute has the implied effect of nullifying any contract which infringes it requires a purposive construction of the statute, as illustrated by the decision of the Court of Appeal in Hughes v Asset Managers plc [1995] 3 All ER 669 which the Commission commended.
41. If a contract involving prohibited conduct is not void as a matter of statutory construction, the Commission recommended that in deciding whether a claim arising from it should be disallowed by reason of illegality, the court should have regard to the policies that underlie the doctrine. It stressed that it was not advocating a general discretion, but a principled evaluation recognising (as Lord Walker put it in the Bakewell case, at para 60) that the maxim ex turpi causa must be applied as an instrument of public policy and not in circumstances where it would not serve the public interest. The Commission identified a number of potentially relevant factors: most importantly, whether allowing the claim would undermine the purpose of the rule which made the relevant conduct unlawful, and, linked to that question, the causal connection between the illegality and the claim (including how central the illegality was to the contract), the gravity of the conduct of the respective parties and the proportionality of denying the claim. (LCCP 189, para 3.142) The Commission recommended a broadly similar approach to the maxim ex turpi causa in cases of unjust enrichment, tort and enforcement of property rights.
42. The Commission considered that it was within the power of the courts to develop the law in that direction and that there were signs of willingness to do so. The underlying principles were already to be found in the case law and courts were in practice influenced by them in reaching their decisions, in some cases more openly than in others.
43. In relation to the application of the illegality defence to claims of unjust enrichment, the Commission carried out a detailed review in its 1999 consultation paper (LCCP 154, paras 2.32-2.56) and a further review in its 2009 consultative report (LCCP 189, paras 4.1-4.62). An unjust enrichment claim may simply be to unwind the transaction by repayment of moneys paid and restoration of the parties to their original position, or it may take the form of a claim for recompense for benefits provided by one party to the other (a quantum meruit claim).
44. The Commission observed that one might have expected to find that illegality has little role to play as a defence to a claim for unjust enrichment, since the claimant is not seeking to execute the contract. However, after a more liberal start, the courts adopted a much tougher stance, applying the ex turpi causa maxim to such claims unless the claimant could bring himself within certain recognised exceptions. These were a) duress, b) possibly ignorance of a fact or law that rendered the contract illegal, c) possibly membership of a vulnerable class protected by statute and d) locus poenitentiae. The locus poenitentiae exception has given rise to difficult and conflicting case law, which was meticulously analysed in the judgments of the courts below in the present case with different conclusions. I do not propose to repeat their analysis because I do not consider it necessary to do so. The topic has only acquired importance because of the strictness of the basic rule which the courts have applied.
45. Not every case, however, has received such strict treatment. In Mohamed v Alaga & Co [2000] 1 WLR 1815 the Court of Appeal took a more flexible approach. The plaintiff, a Somali translator and interpreter, sued the defendant solicitors for breach of a contract by which he was to introduce Somali refugees to the firm, and assist in the preparation and presentation of their asylum claims, in consideration for a half share of the legal aid fees received by the firm. Alternatively, he claimed payment for his professional services as a translator and interpreter on a quantum meruit. His claim was struck out on the ground that the alleged fee sharing contract contravened rules which had statutory force under the Solicitors Act 1974 and that he was therefore precluded by the doctrine of illegality from claiming payment for services provided under the contract. The Court of Appeal restored the claim for payment on a quantum meruit.
46. Lord Bingham CJ (with whom the other members of the court agreed) differentiated between the claims for breach of contract and quantum meruit. As to the former, he held that the purpose of the prohibition in the statutory rules was the protection of the public, and that it would defeat the purpose of the prohibition if a non-solicitor party to the agreement could invoke the court’s aid to enforce the agreement. As to the quantum meruit claim, Lord Bingham acknowledged that on one view of the case the plaintiff was seeking to recover part of the consideration payable under an unenforceable contract. But he preferred to view it as a claim for a reasonable reward for professional services rendered. He considered it relevant (obviously to the question of the public interest in permitting or disallowing the claim) that the parties were not equal in blameworthiness. The firm could be assumed to know the rules and the likelihood was that it had acted in knowing disregard of them. By contrast, Lord Bingham had no difficulty in accepting that the plaintiff was unaware of any reason why the firm should not make the agreement, which was a common type of agreement in other commercial fields.
47. Mr Matthew Collings QC for Mr Mirza submitted in this case that Mohamed v Alaga & Co was a one off case and either represents an exception, peculiar to its particular facts, to the general rule that a party is not entitled to payment for services rendered under an illegal contract or was wrongly decided.
48. The Commission considered that the policies which underlie the illegality defence are less likely to come into play where parties are attempting to undo, rather than carry out, an illegal contract. As in the case of contractual enforcement, it recommended that a decision on disallowing a particular restitutionary claim for illegality should be based openly on the policies underlying the defence, taking into account the same sort of factors (such as the relative conduct of the parties and the proportionality of denying the claim).
49. I have said that the Commission examined the law of other jurisdictions. Before considering developments in domestic law since the Commission’s final report, it is convenient at this stage to refer to the law in Australia, Canada and the USA.
……
The law at a crossroads
82. In his Restatement of the English Law of Contract (Oxford University Press, 2016), pp 221-222, Professor Andrew Burrows explained the difficulty of attempting to state the law in relation to illegality:
“Leaving aside the law on what one can loosely label ‘statutory illegality’ [cases where a statute makes a contract or a contract term unenforceable by either or one party] the law on the effect of illegality in contract (which one may loosely refer to as ‘the common law of illegality’) is in a state of flux …
Traditionally, two Latin maxims have often been referred to without greatly illuminating the legal position: ex turpi causa non oritur actio (‘no action arises from a disgraceful cause’) and in pari delicto potior est conditio defendentis (‘where both parties are equally in the wrong the position of the defendant is the stronger’). As previously understood, illegality in the law of contract – as developed from those Latin maxims – was governed by a series of rules which tended to distinguish, for example, between illegality in formation and illegality in performance. Unfortunately, commentators and courts have found it very difficult to state those rules with confidence and precision. Hence the textbook treatments not only differ from each other but are characterised by long-winded attempts to explain the law. Sharp propositions when offered by the courts or the books have to be qualified by reference to cases or hypothetical examples that do not fit those rules; and convincing justifications of those rules have proved elusive. More recently, therefore, and in line with a similar trend in respect of illegality as a defence in tort, some courts have favoured greater flexibility culminating in a ‘range of factors’ approach aimed at achieving a proportionate response to contractual illegality in preference to the traditional rule-based approach.”
83. Since the law was at a crossroads, Professor Burrows set out alternative possible formulations of a “rule-based approach” and a “range of factors approach”.
84. One possible version of a rule-based approach, at p 224, which Tinsley v Milligan and Les Laboratoires Servier v Apotex Inc could be interpreted as supporting, would be a single master rule based on reliance:
“If the formation, purpose or performance of a contract involves conduct that is illegal (such as a crime) or contrary to public policy (such as a restraint of trade), a party cannot enforce the contract if it has to rely on that conduct to establish its claim.”
85. An alternative rule-based formulation, at p 225, saw the reliance rule as only one of a number of rules and essentially confined to the creation of property rights. On this approach a formulation of the rules might be:
“Rule 1. A contract which has as its purpose, or is intended to be performed in a manner that involves, conduct that is illegal (such as a crime) or contrary to public policy (such as a restraint of trade) is unenforceable (a) by either party if both parties knew of that purpose or intention; or (b) by one party if only that party knew of that purpose or intention.
Rule 2. If rule 1 is inapplicable because it is only the performance of a contract that involves conduct that is illegal or contrary to public policy, the contract is unenforceable by the party who performed in that objectionable way but is enforceable by the other party unless that party knew of, and participated in, that objectionable performance.
Rule 3. Proprietary rights created by a contract that involves conduct that is illegal or contrary to public policy will not be recognised unless the claimant can establish the proprietary rights without reliance on that conduct.”
86. Professor Burrows identified six criticisms of those rules and, more generally, of a “rule-based” approach to illegality.
87. First, the difficulty with the Tinsley v Milligan reliance rule, whether as a master rule or as a rule restricted to cases involving the assertion of proprietary rights, was that it could produce different results according to procedural technicality which had nothing to do with the underlying policies. The decision of the Court of Appeal in Collier v Collier [2002] EWCA 1095; [2002] BPIR 1057 provides a good illustration. A father granted a lease of property to his daughter to hold on trust for him in order to deceive creditors. His claim to beneficial title was rejected on the ground of illegality, because it was held that he needed to rely on the illegal purpose in order to rebut the presumption of illegality which arose in favour of the daughter. Mance LJ considered at paras 105-106 what appeared to be the distinction introduced by Tinsley v Milligan between a beneficial interest which could be established by “some objectively provable and apparently neutral fact” and a beneficial interest arising only from an agreement made for an unlawful purpose. He described the effect as “little more than cosmetic” where the court was perfectly well aware of the close involvement of both parties in the illegality. Tempted as he was to adopt a severely limited view of the meaning of reliance (encouraged by the judgment of Dawson J in Nelson v Nelson), he rightly did not consider that it was open to the Court of Appeal on the authorities to do so. He expressed strong sympathy with the criticisms of the law expressed by the Law Commission, and he concluded at para 113 that he had no liking for the result which the court was compelled to reach.
88. Second, the difficulties with rule 1 were illustrated by the ParkingEye case. The illegality in that case went to the contract as formed, because from the outset it was intended to send out to customers a form of letter of demand which contained some deliberate inaccuracies. The rule as stated did not permit differentiation between minor and serious illegality or between peripheral and central illegality. To have deprived ParkingEye of what would otherwise have been a contractual entitlement to damages of £350,000 would have been disproportionate. Moreover, as Sir Robin Jacob pointed out in that case, at paras 33-34, there was something odd about a rule which differentiated according to whether the intention was formed before or after the contract was made.
89. Third, as with the criticism of rule 1, the reference in rule 2 to performance that involved illegal conduct drew no distinction between serious criminality and relatively minor breach of a statutory regulation.
90. Fourth, although a purported advantage of firm rules is greater certainty, the cases do not always fit the rules because courts have often sought ways around them when they do not like the consequence. The flexible approach would not only produce more acceptable results, but would in practice be no less certain than the rule-based approach.
91. Fifth, although Lord Mansfield made it clear in Holman v Johnson that the illegality defence operates as a rule of public policy and is not designed to achieve justice between the parties, that does not mean that any result, however arbitrary, is acceptable. The law should strive for the most desirable policy outcome, and it may be that it is best achieved by taking into account a range of factors.
92. Sixth, although it may be argued that if there are deficiencies in the traditional rules, the way forward is to refine the rules to remove the deficiencies by appropriate exceptions, that task is one which has never been satisfactorily accomplished. The reason is that there are so many variables, for example, in seriousness of the illegality, the knowledge and intentions of the parties, the centrality of the illegality, the effect of denying the defence and the sanctions which the law already imposes. To reach the best result in terms of policy, the judges need to have the flexibility to consider and weigh a range of factors in the light of the facts of the particular case before them.
93. If a “range of factors” approach were preferred, Professor Burrows suggested, at pp 229-230, that a possible formulation would read as follows:
“If the formation, purpose or performance of a contract involves conduct that is illegal (such as a crime) or contrary to public policy (such as a restraint of trade), the contract is unenforceable by one or either party if to deny enforcement would be an appropriate response to that conduct, taking into account where relevant –
(a) how seriously illegal or contrary to public policy the conduct was;
(b) whether the party seeking enforcement knew of, or intended, the conduct;
(c) how central to the contract or its performance the conduct was;
(d) how serious a sanction the denial of enforcement is for the party seeking enforcement;
(e) whether denying enforcement will further the purpose of the rule which the conduct has infringed;
(f) whether denying enforcement will act as a deterrent to conduct that is illegal or contrary to public policy;
(g) whether denying enforcement will ensure that the party seeking enforcement does not profit from the conduct;
(h) whether denying enforcement will avoid inconsistency in the law thereby maintaining the integrity of the legal system.”
Professor Burrows noted that the final factor is capable of a wider or narrower approach, depending on what one understands by inconsistency.
94. The reference to what is an “appropriate response” brings to the surface the moral dimension underlying the doctrine of illegality, which inevitably influences the minds of judges and peeps out in their judgments from time to time. Tinsley v Milligan caused disquiet to Lord Goff and others precisely because its reasoning jarred with their sense of what was just and appropriate.
The way forward
95. In Yarmouth v France (1887) 19 QBD 647, 653, Lord Esher MR said:
“I detest the attempt to fetter the law by maxims. They are almost invariably misleading: they are for the most part so large and general in their language that they always include something which really is not intended to be included in them.”
In Lissenden v C A V Bosch Ltd [1940] AC 412, 435, Lord Wright quoted Lord Esher’s words and added:
“Indeed these general formulae are found in experience often to distract the court’s mind from the actual exigencies of the case, and to induce the court to quote them as offering a ready made solution.”
96. The maxims ex turpi causa and in pari delicto are no exception. It is interesting that, according to Professor JK Grodecki, Lord Mansfield himself was “conscious that if the brocard in pari delicto was to be a beneficial rule of jurisprudence it should not be allowed to become rigid and inflexible”: In pari delicto potior est conditio defendentis (1955) 71 LQR 254, 258. Professor Grodecki gave examples including Smith v Bromley (1760) 2 Doug KB 696n; 99 ER 441 and Walker v Chapman (1773) Lofft 342, 98 ER 684.
97. In Smith v Bromley (the earliest case in which the maxim in pari delicto appears to have been used) Lord Mansfield granted recovery to the plaintiff of money paid by the plaintiff to procure her brother’s discharge from bankruptcy, which was an illegal consideration. As he explained, Lord Mansfield, at p 698, regarded it as in the public interest that the plaintiff should be repaid notwithstanding the illegal purpose of the payment:
“Upon the whole, I am persuaded it is necessary, for the better support and maintenance of the law, to allow this action; for no man will venture to take, if he knows he is liable to refund.”
98. In Walker v Chapman the defendant, who was a page to the King, offered to take a bribe of £50 from the plaintiff in return for securing him a place in the Customs. The bribe was paid but the plaintiff did not obtain the appointment and so he sued for the return of his money. It was argued for the defendant that no action would lie, the plaintiff being party to an iniquitous contract, and that the law would not suffer a party to “draw justice from a foul fountain”. Lord Mansfield rejected the defence, distinguishing between a claim to overturn an illegal contract and a claim to obtain benefit from it. Later judges have taken a different and stricter approach.
99. Looking behind the maxims, there are two broad discernible policy reasons for the common law doctrine of illegality as a defence to a civil claim. One is that a person should not be allowed to profit from his own wrongdoing. The other, linked, consideration is that the law should be coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand.
100. Lord Goff observed in the Spycatcher case, Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 286, that the “statement that a man shall not be allowed to profit from his own wrong is in very general terms, and does not of itself provide any sure guidance to the solution of a problem in any particular case”. In Hall v Hebert [1993] 2 SCR 159 McLachlin J favoured giving a narrow meaning to profit but, more fundamentally, she expressed the view (at 175-176) that, as a rationale, the statement that a plaintiff will not be allowed to profit from his or her own wrongdoing does not fully explain why particular claims have been rejected, and that it may have the undesirable effect of tempting judges to focus on whether the plaintiff is “getting something” out of the wrongdoing, rather than on the question whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system.
101. That is a valuable insight, with which I agree. I agree also with Professor Burrows’ observation that this expression leaves open what is meant by inconsistency (or disharmony) in a particular case, but I do not see this as a weakness. It is not a matter which can be determined mechanistically. 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.
102. The relevance of taking into account the purpose of the relevant prohibition is self-evident. The importance of taking account of the relevant statutory context is illustrated by Hardy v Motor Insurers’ Bureau [1964] 2 QB 745. The Road Traffic Act 1960 required a motorist to be insured against the risk of causing death or personal injury through the use of a vehicle on a road, but a line of authorities established that a contract to indemnify a person against the consequences of a deliberate criminal act is unenforceable. The plaintiff, a security officer at a factory, was injured when he was trying to question the driver of a van, who drove off at speed and dragged him along the road. The driver was convicted of unlawfully causing grievous bodily harm. The driver being uninsured, the plaintiff sued the defendant under an agreement between the defendant and the Minister of Transport, by which the defendant agreed to satisfy any judgment against a motorist for a liability required to be covered under a motor insurance policy. The defendant relied on the maxim ex turpi causa, arguing that a contract purporting to insure the driver against his own deliberate criminal conduct would have been unlawful. The defence was rejected. Diplock LJ said at p 767:
“The rule of law on which the major premise is based – ex turpi causa non oritur actio – is concerned not specifically with the lawfulness of contracts but generally with the enforcement of rights by the courts, whether or not such rights arise under contract. All that the rule means is that the courts will not enforce a right which would otherwise be enforceable if the right arises out of an act committed by the person asserting the right (or by someone who is regarded in law as his successor) which is regarded by the court as sufficiently anti-social to justify the court’s refusing to enforce that right.”
He observed that the purpose of the relevant statutory provision was the protection of persons who suffered injury on the road by the wrongful acts of motorists. This purpose would have been defeated if the common law doctrine of illegality had been applied so as to bar the plaintiff’s claim.
103. Hounga v Allen and R (Best) v Chief Land Registrar are illustrations of cases in which there were countervailing public interest considerations, which needed to be balanced.
104. As to the dangers of overkill, Lord Wright gave a salutary warning in Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277, 293:
“Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds.”
105. To similar effect Devlin J questioned “whether public policy is well served by driving from the seat of judgment everyone who has been guilty of a minor transgression” in St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, 288-289.
106. In Saunders v Edwards [1987] 1 WLR 1116, 1134, Bingham LJ said
“Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law 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.”
107. In considering whether it would be disproportionate to refuse relief to which the claimant would otherwise be entitled, as a matter of public policy, various factors may be relevant. Professor Burrows’ list is helpful but I would not attempt to lay down a prescriptive or definitive list because of the infinite possible variety of cases. Potentially relevant 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.
108. The integrity and harmony of the law permit – and I would say require – such flexibility. Part of the harmony of the law is its division of responsibility between the criminal and civil courts and tribunals. Punishment for wrongdoing is the responsibility of the criminal courts and, in some instances, statutory regulators. It should also be noted that under the Proceeds of Crime Act 2002 the state has wide powers to confiscate proceeds of crime, whether on a conviction or without a conviction. Punishment is not generally the function of the civil courts, which are concerned with determining private rights and obligations. The broad principle is not in doubt that the public interest requires that the civil courts should not undermine the effectiveness of the criminal law; but nor should they impose what would amount in substance to an additional penalty disproportionate to the nature and seriousness of any wrongdoing. ParkingEye is a good example of a case where denial of claim would have been disproportionate. The claimant did not set out to break the law. If it had realised that the letters which it was proposing to send were legally objectionable, the text would have been changed. The illegality did not affect the main performance of the contract. Denial of the claim would have given the defendant a very substantial unjust reward. Respect for the integrity of the justice system is not enhanced if it appears to produce results which are arbitrary, unjust or disproportionate.
109. The courts must obviously abide by the terms of any statute, but I conclude that it is right for a court which is considering the application of the common law doctrine of illegality to have regard to the policy factors involved and to the nature and circumstances of the illegal conduct in determining whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed. I put it in that way rather than whether the contract should be regarded as tainted by illegality, because the question is whether the relief claimed should be granted.
110. I agree with the criticisms made in Nelson v Nelson and by academic commentators of the reliance rule as laid down in Bowmakers and Tinsley v Milligan, and I would hold that it should no longer be followed. Unless a statute provides otherwise (expressly or by necessary implication), property can pass under a transaction which is illegal as a contract: Singh v Ali [1960] AC 167, 176, and Sharma v Simposh Ltd [2013] Ch 23, paras 27-44. There may be circumstances in which a court will refuse to lend its assistance to an owner to enforce his title as, for example, where to do so would be to assist the claimant in a drug trafficking operation, but the outcome should not depend on a procedural question.
111. In Bowmakers [1945] 1 KB 65 the claim was for conversion of goods which had been obtained by the plaintiffs and supplied to the defendant under transactions which were assumed to be tainted by illegality. The Court of Appeal rightly said, at p 71, that “a man’s right to possess his own chattels will as a general rule be enforced against one who, without any claim of right, is detaining them or has converted them to his own use, even though it may appear either from the pleadings, or in the course of the trial, that the chattels in question came into the defendant’s possession by reason of an illegal contract between himself and the plaintiff”, but it added the qualifying words “provided that the plaintiff does not seek, and is not forced, either to found his claim on the illegal contract or to plead its illegality in order to support his claim”. The objections to the proviso have already been identified. It makes the question whether the court will refuse its assistance to the claimant to enforce his title to his property depend on a procedural question and it has led to uncertain case law about what constitutes reliance. The court ended its judgment, at p 72, by saying:
“We are satisfied that no rule of law, and no considerations of public policy, compel the court to dismiss the plaintiffs’ claim in the case before us, and to do so would be, in our opinion, a manifest injustice.”
That conclusion, rather than the answer to a procedural question, should have been the end of the illegality defence, since it is based on public policy.
112. In Tinsley v Milligan, even if Miss Milligan had not owned up and come to terms with the DSS, it would have been disproportionate to have prevented her from enforcing her equitable interest in the property and conversely to have left Miss Tinsley unjustly enriched.
113. Critics of the “range of factors” approach say that it would create unacceptable uncertainty. I would make three points in reply. First, one of the principal criticisms of the law has been its uncertainty and unpredictability. Doctrinally it is riven with uncertainties: see, for example, paras 4-8 above. There is also uncertainty how a court will in practice steer its way in order to reach what appears to be a just and reasonable result. Second, I am not aware of evidence that uncertainty has been a source of serious problems in those jurisdictions which have taken a relatively flexible approach. Third, there are areas in which certainty is particularly important. Ordinary citizens and businesses enter into all sorts of everyday lawful activities which are governed by well understood rules of law. Lord Mansfield said in Vallejo v Wheeler (1774) 1 Cowp 143, 153:
“In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.”
The same considerations do not apply in the same way to people contemplating unlawful activity. When he came to decide cases involving illegality, Lord Mansfield acted in accordance with his judgment about where the public interest lay: see paras 96-98.
114. In Tinsley v Milligan Lord Goff considered that if the law was to move in a more flexible direction, to which he was not opposed in principle, there should be a full investigation by the Law Commission (which has happened) and that any reform should be through legislation. Realistically, the prospect of legislation can be ignored. The government declined to take forward the Commission’s bill on trusts because it was not seen to be “a pressing priority for government” (a phrase familiar to the Commission), and there is no reason for optimism that it would take a different view if presented with a wider bill. In Clayton v The Queen (2006) 231 ALR 500, para 119, Kirby J said that waiting for a modern Parliament to grapple with issues of law reform is like “waiting for the Greek Kalends. It will not happen” and that “Eventually courts must accept this and shoulder their own responsibility for the state of the common law”. The responsibility of the courts for dealing with defects in the common law was recently emphasised by this court in R v Jogee [2016] 2 WLR 681, para 85, and Knauer v Ministry of Justice [2016] 2 WLR 672, para 26. In each of those cases the court decided that it should depart from previous decisions of the House of Lords. That is never a step taken lightly. In departing from Tinsley v Milligan it is material that it has been widely criticised; that people cannot be said to have entered into lawful transactions in reliance on the law as then stated; and, most fundamentally, that the criticisms are well founded.
115. In the present case I would endorse the approach and conclusion of Gloster LJ. She correctly asked herself whether the policy underlying the rule which made the contract between Mr Patel and Mr Mirza illegal would be stultified if Mr Patel’s claim in unjust enrichment were allowed. After examining the policy underlying the statutory provisions about insider dealing, she concluded that there was no logical basis why considerations of public policy should require Mr Patel to forfeit the moneys which he paid into Mr Mirza’s account, and which were never used for the purpose for which they were paid. She said that such a result would not be a just and proportionate response to the illegality. I agree. It seems likely that Lord Mansfield would also have agreed: see Walker v Chapman. Mr Patel is seeking to unwind the arrangement, not to profit from it.
116. It is not necessary to discuss the question of locus poenitentiae which troubled the courts below, as it has troubled other courts, because it assumed importance only because of a wrong approach to the issue whether Mr Patel was prima facie entitled to the recovery of his money. In place of the basic rule and limited exceptions to which I referred at para 44 above, I would hold that a person who satisfies the ordinary requirements of a claim in unjust enrichment will not prima facie be debarred from recovering money paid or property transferred by reason of the fact that the consideration which has failed was an unlawful consideration. I do not exclude the possibility that there may be particular reason for the court to refuse its assistance to the claimant, applying the kind of exercise which Gloster LJ applied in this case, just as there may be a particular reason for the court to refuse to assist an owner to enforce his title to property, but such cases are likely to be rare. (At para 110 I gave the example of a drug trafficker.) In Tappenden v Randall (1801) 2 Bos & Pul 467, 471, 126 ER 1388, 1390, a case of a successful claim for the repayment of money paid for an unenforceable consideration which failed, Heath J said obiter that there might be “cases where the contract may be of a nature too grossly immoral for the court to enter into any discussion of it: as where one man has paid money by way of hire to another to murder a third person”. The case was mentioned by the Law Commission (LCCP 189, para 4.53), but there is a dearth of later case law on the point. This is hardly surprising because a person who takes out a contract on the life of a third person is not likely to advertise his guilt by suing. But as a matter of legal analysis it is sufficient for present purposes to identify the framework within which such an issue may be decided. No particular reason has been advanced in this case to justify Mr Mirza’s retention of the monies beyond the fact that it was paid to him for the unlawful purpose of placing an insider bet.
117. In support of his argument that this purpose was sufficient to disentitle Mr Patel from obtaining the return of his money, Mr Collings relied on cases such as Parkinson v College of Ambulance Ltd [1925] 2 KB 1. In that case the plaintiff made a donation to a charity to secure a knighthood. When the honour failed to materialise he sued for the return of his money. The claim was rejected.
118. Bribes of all kinds are odious and corrupting, but it does not follow that it is in the public interest to prevent their repayment. There are two sides to the equation. If today it transpired that a bribe had been paid to a political party, a charity or a holder of public office, it might be regarded it as more repugnant to the public interest that the recipient should keep it than that it should be returned. We are not directly concerned with such a case but I refer to it because of the reliance placed on that line of authorities.
119. Since criticism was made of the Court of Appeal’s decision in Mohamed v Alaga and Co, I would affirm its correctness and reject the view that it should somehow be confined to its own peculiar facts. With hindsight, it is perhaps unfortunate that this court did not have the opportunity of considering a claim by Miss Hounga for a quantum meruit.
Summary and disposal
120. The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system (or, possibly, certain aspects of public morality, the boundaries of which have never been made entirely clear and which do not arise for consideration in this case). In assessing whether the public interest would be harmed in that way, it is necessary a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, b) to consider any other relevant public policy on which the denial of the claim may have an impact and c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts. Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather by than the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate.
121. A claimant, such as Mr Patel, who satisfies the ordinary requirements of a claim for unjust enrichment, should not be debarred from enforcing his claim by reason only of the fact that the money which he seeks to recover was paid for an unlawful purpose. There may be rare cases where for some particular reason the enforcement of such a claim might be regarded as undermining the integrity of the justice system, but there are no such circumstances in this case. I would dismiss the appeal.
Hounga v Allen & Anor
[2014] UKSC 47 [2014] WLR 2889, [2014] IRLR 811, [2014] WLR(D) 353, [2014] ICR 847, [2014] 1 WLR 2889, [2014] Eq LR 559, [2014] 4 All ER 595
Lord Wilson
THE DEFENCE OF ILLEGALITY
It will thus be seen that, of the various claims and complaints made by Miss Hounga against Mrs Allen in the tribunal, the only one to reach this court is the complaint of discrimination in relation to her dismissal. This particular complaint may well be said not to capture the gravamen of Miss Hounga\’s case against Mrs Allen. Irrespective of whether all of it can form the subject of a civil claim, the case which, on the tribunal\’s exiguous findings, Miss Hounga makes against Mrs Allen relates centrally to her participation in the plan to secure her entry into the UK on a false basis; to Mrs Allen\’s failure to pay her the promised wages and, in particular, to secure for her the promised education (although the tribunal made no finding that Mrs Allen had never intended to secure it for her); and to her acts of serious violence towards Miss Hounga over 18 months, coupled with threats of imprisonment which were entirely convincing to Miss Hounga and which in effect disabled her from taking any steps to rescue herself from her situation in Mrs Allen\’s home. In the event it was Mrs Allen\’s eviction of her which precipitated her rescue. Cruel though the manner of its execution was, the dismissal was, in a real sense, a blessing for Miss Hounga. But, while the facts upon which the present appeal is founded may not represent Miss Hounga\’s essential case against Mrs Allen, the clean legal issue remains: was the Court of Appeal correct to hold that the illegality defence defeated the complaint of discrimination?
The application of the defence of illegality to a claim founded on contract often has its own complexities. But, in that it was unlawful (and indeed a criminal offence under section 24(1)(b)(ii) of the Immigration Act 1971) for Miss Hounga to enter into the contract of employment with Mrs Allen, the defence of illegality in principle precluded her from enforcing it. In this regard a claim for unfair dismissal might arguably require analysis different from a claim for wrongful dismissal. But a claimant for unfair dismissal is nevertheless seeking to enforce her contract, including often to secure her reinstatement under it. In Enfield Technical Services Ltd v Payne [2008] EWCA Civ 393, [2008] ICR 1423, the Court of Appeal, while rejecting its applicability to the two cases before it, clearly proceeded on the basis that a defence of illegality could defeat a claim for unfair dismissal. This present appeal proceeds without challenge to the conclusion of the tribunal, upheld by the appeal tribunal, that the defence indeed precluded Miss Hounga\’s claim for unfair dismissal. Equally there is no challenge to the dismissal on that same basis of her claim for unpaid wages although the considerations of public policy to which I will refer from para 46 onwards might conceivably have yielded a different conclusion.
Unlawful discrimination is, however, a statutory tort: in relation to discrimination in the field of employment, see sections 56(1)(b) and 57(1) of the 1976 Act, now sections 124(6) and 119(2)(a) of the 2010 Act. The application of the defence of illegality to claims in tort is highly problematic.
In National Coal Board v England [1954] AC 403 an employee sued his employer for breach of statutory duty in respect of injuries suffered in an explosion. It had occurred while the employee was implementing an unlawful arrangement between him and a colleague that he, rather than the colleague, should join a cable to a detonator. The House of Lords accepted that he had been contributorily negligent but rejected the defence of illegality. Lord Asquith of Bishopstone said at pp 428-429:
\”The defendants relied on the maxim \’ex turpi causa non oritur actio\’ as absolving them of liability.
…
The vast majority of cases in which the maxim has been applied have been cases where, there being an illegal agreement between A and B, either seeks to sue the other for its enforcement or for damages for its breach. That, of course, is not this case. Cases where an action in tort has been defeated by the maxim are exceedingly rare. Possibly a party to an illegal prize fight who is damaged in the conflict cannot sue for assault (Boulter v Clark (1747) Bull N.P. 16, See: (1817) Bull N. P.).
…
If two burglars, A and B, agree to open a safe by means of explosives, and A so negligently handles the explosive charge as to injure B, B might find some difficulty in maintaining an action for negligence against A. But if A and B are proceeding to the premises which they intend burglariously to enter, and before they enter them, B picks A\’s pocket and steals his watch, I cannot prevail on myself to believe that A could not sue in tort… The theft is totally unconnected with the burglary.\”
But, although it has since become established that the defence will sometimes defeat an action in tort, the circumstances in which it will do so have never been fully settled.
In Saunders v Edwards [1987] 1 WLR 1116 the purchasers of a flat sued the vendor for damages for the tort of deceit in having fraudulently represented to them that the premises included a roof terrace. By arrangement between the parties, the price of the flat had been improperly reduced below its value, and the price of chattels also included in the sale had been correspondingly inflated above their value, in order to enable the purchasers to pay less stamp duty. The Court of Appeal held that the vendor could not rely on the defence of illegality. Kerr LJ, with whom Bingham LJ agreed, held at p 1127 that the purchasers\’ dishonest apportionment of the price was wholly unconnected with their cause of action and that their moral culpability in that regard was greatly outweighed by that of the vendor in making the fraudulent representation. Nicholls LJ, with whom Bingham LJ also agreed, held at p 1132 that the question (which he answered negatively) was whether to uphold the claim would be an affront to the public conscience in appearing indirectly to encourage the unlawful conduct of which the purchasers had been guilty.
For six years the public conscience test was applied to defences of illegality to claims both in tort and in contract: see for example Howard v Shirlstar Container Transport Ltd [1990] 1 WLR 1292. But in Tinsley v Milligan [1994] 1 AC 340 all members of the House of Lords, including the two dissenting judges, agreed that the public conscience was, as Lord Browne-Wilkinson observed at p 369, too imponderable a factor. The majority of the House considered that, once that test was stripped out of the law, a reliance test was laid bare, namely that, in the words of Lord Browne-Wilkinson at p 376, a claimant \”is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction\”. Before the House was, indeed, a claim to property, namely by Ms Milligan to a joint and equal equitable interest in a home which she had agreed to be vested in the sole name of Ms Tinsley, her cohabitant, only in order that she, Ms Milligan, could represent herself to be Ms Tinsley\’s lodger and claim state benefits accordingly.
In the wake of the Tinsley case the reliance test has inevitably taken hold; and it has been applied to claims in tort. In Stone & Rolls Ltd v Moore Stephens [2008] EWCA Civ 644, [2009] UKHL 39, [2009] AC 1391, a company sued its auditors for negligence in failing to detect fraudulent transactions into which its former controlling director had caused it to enter. It was held both in the Court of Appeal and, by a majority, in the House of Lords that the conduct of the director was to be attributed to the company; and that the defence of illegality defeated it. In his judgment in the Court of Appeal, with which Keene and Mummery LJJ agreed, Rimer LJ referred at para 16 to the reliance test and described its effect in stark terms as follows:
\”The relevant question it identifies is whether, to advance the claim, it is necessary for the claimant to plead or rely on the illegality. If it is, the Tinsley case decided that the axe falls indiscriminately and the claim is barred, however good it might otherwise be. There is no discretion to permit it to succeed.\”
In the House of Lords, Lord Phillips of Worth Matravers concluded at para 86 that the illegal conduct formed the basis of the company\’s claim, in other words that the company was forced to rely on it. He had, however, observed at para 25:
\”I do not believe… that it is right to proceed on the basis that the reliance test can automatically be applied as a rule of thumb. It is necessary to give consideration to the policy underlying ex turpi causa in order to decide whether this defence is bound to defeat [the company\’s] claim.\”
I will explain in paras 42 and following why I consider that Lord Phillips was correct to soften the effect of the reliance test by the need to consider the underlying policy. The test continues to carry maximum precedential authority but has attracted criticism. It is said that it can work arbitrarily: it was only the presumption of a resulting trust which saved Ms Milligan from having to plead the agreement to defraud and, had Ms Tinsley instead been, for example, her daughter, a presumption of advancement might well have operated and, if so, Ms Milligan would have had to plead the agreement. It is also said that the concept of a need to \”rely\” on an unlawful act is often easier to state than to apply. These concerns were summarised in the report of the Law Commission entitled \”The Illegality Defence\”, presented to Parliament on 16 March 2010, Law Com No 320, at paras 2.13-15, to which was annexed a draft Bill which, in relation to claims to equitable interests, would have replaced the reliance test.
Meanwhile, however, another test, overlapping with the reliance test but not coterminous with it, had been developed in relation to tort – and in particular was to be applied to complaints of unlawful discrimination: the inextricable link test.
In Cross v Kirkby CA [2000] EWCA Civ 426, The Times 5 April 2000, the claimant was a hunt saboteur and the defendant a local farmer. The claimant shouted to the defendant \”You\’re fucking dead\” and jabbed him in the chest and throat with a broken baseball bat. In order to ward off further blows, the defendant grappled with him. He wrested the bat from him and hit him on the head, causing his skull to fracture. The Court of Appeal held that the claimant\’s claim for assault and battery failed both because the defendant was acting in self-defence and because it was defeated by the illegality defence. Beldam LJ, with whom Otton LJ agreed, said at para 76:
\”In my view the [defence] applies when the claimant\’s claim is so closely connected or inextricably bound up with his own criminal or illegal conduct that the court could not permit him to recover without appearing to condone that conduct.\”
Judge LJ said at para 103 that the defence arose if the facts behind the claimant\’s claim were \”inextricably linked with his criminal conduct\” and that this factor went \”well beyond questions of causation in the general sense\”. He added at para 125 that, if the defendant\’s behaviour was truly disproportionate overall, it might be powerful evidence that the claimant\’s criminal conduct was not sufficiently linked to the injuries so as to attract the defence.
Three months later, in Hall v Woolston Hall Leisure Ltd [2001] ICR 99, the inextricable link test was applied to a complaint of unlawful sex discrimination. The employer dismissed the employee because of her pregnancy and thus discriminated against her on ground of sex. Her wages were £250 net per week but, to her knowledge, were misrepresented on her pay slips as £250 gross per week so that the employer might account to the Inland Revenue for less sums than were due. Rejecting the employer\’s defence of illegality, the Court of Appeal allowed her appeal against a refusal to include in her award compensation for loss of earnings. Peter Gibson LJ held at para 46 that there was no inextricable link between the employee\’s complaint and the employer\’s illegal underpayments to the Revenue. After citing the decision in the Cross case, Mance LJ said:
\”79. While the underlying test therefore remains one of public policy, the test evolved in this court for its application in a tortious context thus requires an inextricable link between the facts giving rise to the claim and the illegality, before any question arises of the court refusing relief on the grounds of illegality. In practice, as is evident, it requires quite extreme circumstances before the test will exclude a tort claim.\” [Emphasis supplied]
At para 80(D) he also concluded that there was no such inextricable link.
In Rhys-Harper v Relaxion Group plc [2003] UKHL 33, [2003] ICR 867, the House of Lords determined a different point, namely that an employer might discriminate against an employee in breach of the discrimination statutes even by acts occurring after termination of the employment. But Lord Rodger of Earlsferry quoted with approval from the judgments of Peter Gibson and Mance LJJ in the Hall case and if, as one might assume, he thereby impliedly indorsed the inextricable link test, he clearly thought that it would seldom, if ever, lead to the defeat of a complaint of discrimination. For he said at p 930:
\”where a contract of employment is tainted by illegality, an employee may none the less complain that her employer discriminated against her on the ground of her sex by dismissing her, since both the Equal Treatment Directive and the 1975 [Sex Discrimination] Act are designed to provide effective relief in respect of discriminatory conduct … \’rather than relief which reflects any contractual entitlement which may or may not exist\’.\”
In Vakante v Governing Body of Addey and Stanhope School (No 2) [2004] EWCA Civ 1065, [2005] ICR 231, the Court of Appeal upheld a defence of illegality to a teacher\’s complaint against a school of unlawful discrimination by dismissal on racial grounds. The teacher was an asylum-seeker who was not entitled to work in the UK without a work permit, which he never obtained. He had represented to the school that he did not need a permit and it was unaware that its employment of him was unlawful. Mummery LJ, with whose judgment Lord Slynn of Hadley and Brooke LJ agreed, analysed the inextricable link test as follows:
\”9. Although Hall\’s case… uses some of the familiar language of legal and factual causation (\’connection\’, \’link\’), the test does not restrict the tribunal to a causation question. Matters of fact and degree have to be considered: the circumstances surrounding the applicant\’s claim and the illegal conduct, the nature and seriousness of the illegal conduct, the extent of the applicant\’s involvement in it and the character of the applicant\’s claim are all matters relevant to determining whether the claim is so \”inextricably bound up with\” the applicant\’s illegal conduct that, by permitting the applicant to recover compensation, the tribunal might appear to condone the illegality.\”
Mummery LJ went on to hold at para 34 that the teacher\’s employment \”was unlawful from top to bottom and from beginning to end\” and at para 36 that his complaint was so inextricably linked with the illegality of his employment that, were it to have upheld it, the tribunal would have appeared to condone the illegality. In their case comment \”Race discrimination and the doctrine of illegality\” (2013) 129 LQR 12 Bogg and Novitz suggest that a series of errors entered the law in the Vakante case. They are right to say that, in para 9 of Mummery LJ\’s judgment above, there was a loosening of the inextricable link test and an entry into it of factors which, logically, might not have been entitled to entry. But whether the loosened test led the Court of Appeal to make the wrong decision is much less clear.
In Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339, the House of Lords, while not disapproving the inextricable link test, expressed reservations about it. The claimant was injured in the Ladbroke Grove rail disaster and in consequence suffered post-traumatic stress disorder. This led him to commit manslaughter, for which he was ordered to be detained in hospital. He sued two railway companies for negligence, which they admitted. The House held however that the defence of illegality barred such part of his claim as sought general damages arising out of his detention and damages for the loss of earnings which followed it. It held that the defence precluded compensation for losses arising from the sentence passed upon him for a criminal act for which he had had responsibility, albeit diminished. So, as Lord Rodger pointed out at para 63, the case was different from the National Coal Board case and the Cross case, in which the claimant had been engaged in an unlawful activity at the time when the defendant committed the alleged tort. Nevertheless reference was made to the inextricable link test. Lord Hoffmann said at para 54:
\”It might be better to avoid metaphors like \’inextricably linked\’ or \’integral part\’ and to treat the question as simply one of causation. Can one say that, although the damage would not have happened but for the tortious conduct of the defendant, it was caused by the criminal act of the claimant?… Or is the position that although the damage would not have happened without the criminal act of the claimant, it was caused by the tortious act of the defendant?\”
In the same vein Lord Rodger observed at para 74 that opinions were likely to differ about whether the alleged tort was inextricably linked with the claimant\’s criminal conduct. I agree but am not convinced that the alternative inquiry suggested by Lord Hoffmann is any more likely to secure consistency of decision-making.
Every formulation of a requirement to identify the active or effective cause of an event – or an act to which it is inextricably linked – has a potential for inconsistent application driven by subjective considerations. In his article entitled \”Ex Turpi Causa – when Latin avoids liability\” in the Edinburgh Law Review, 18 (2014) 175, Lord Mance made a related point at p 184:
\”Your painter negligently leaves your front door open, and a thief enters. Of course, in your action for negligence against the painter, the painter is responsible for causing the loss of your goods. Equally, however, in your action for theft of the goods against the thief, if he is caught, he is the cause. Causation, like much else in the law, depends on context.\”
The subjectivity inherent in the requisite value judgement is well demonstrated by the facts of the present case. Three judges in the Court of Appeal were of the view, articulated in the judgment of Rimer LJ, that Miss Hounga\’s complaint was inextricably linked to her own unlawful conduct – \”obviously\” so. They considered that the only difference between the complaints of Miss Hounga and of Mr Vakante was that, whereas his employers were unaware of the illegality, Mrs Allen and Miss Hounga were \”equal participants\” in entry into the illegal contract of employment. \”Whichever party bore the greater responsibility for making of the illegal contract\”, said Rimer LJ, \”[Miss Hounga] was a willing participant in it.\” He made a further point:
\”Ms Hounga\’s dismissal discrimination case was dependent upon the special vulnerability to which she was subject by reason of her illegal employment contract: she was relying on the facts that she was an illegal immigrant, had no right to be employed here, effectively had no rights here at all and so could be treated less well because of her inferior situation.\”
But were Mrs Allen and Miss Hounga equal participants in entry into the illegal contract? Was there any doubt about the identity of the party who bore greater responsibility for it? And, despite the superficial attraction in logic of Rimer LJ\’s further point, should Mrs Allen\’s cruel misuse of Miss Hounga\’s perceived vulnerability arising out of the illegality, by making threats about the consequences of her exposure to the authorities, be a further justification for the defeat of her complaint? As I will explain in para 49, such threats are an indicator that Miss Hounga was the victim of forced labour but in the hands of the Court of Appeal they become a ground for denial of her complaint.
If, indeed, the test applicable to Mrs Allen\’s defence of illegality is that of the inextricable link, I, for one, albeit conscious of the inherent subjectivity in my so saying, would hold the link to be absent. Entry into the illegal contract on 28 January 2007 and its continued operation until 17 July 2008 provided, so I consider, no more than the context in which Mrs Allen then perpetrated the acts of physical, verbal and emotional abuse by which, among other things, she dismissed Miss Hounga from her employment.
But the bigger question is whether the inextricable link test is applicable to Mrs Allen\’s defence.
PUBLIC POLICY
The defence of illegality rests upon the foundation of public policy. \”The principle of public policy is this…\” said Lord Mansfield by way of preface to his classic exposition of the defence in Holman v Johnson (1775) 1 Cowp 341, p 343, 98 Eng Rep 1120, p 1121. \”Rules which rest upon the foundation of public policy, not being rules which belong to the fixed or customary law, are capable, on proper occasion, of expansion or modification\”: Maxim Nordenfelt Guns and Ammunition Co v Nordenfelt [1893] 1 Ch 630, 661 (Bowen LJ). 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?\”
An answer to the first question is provided in the decision of the Canadian Supreme Court in Hall v Hebert [1993] 2 SCR 159. After they had been drinking heavily together, Mr Hebert, who owned a car, allowed Mr Hall to drive it, including initially to give it a rolling start down a road on one side of which there was a steep slope. The car careered down the slope and Mr Hall was seriously injured. The Supreme Court held that the illegality of his driving did not bar his claim against Mr Hebert but that he was contributorily negligent as to 50%. At the outset of her judgment on behalf of the majority, McLachlin J, at p 169, announced her conclusion about the basis of the power to bar recovery in tort on the ground of illegality, which later she substantiated in convincing terms by reference to authority. Her conclusion was as follows:
\”The basis of this power, as I see it, lies in [the] duty of the courts to preserve the integrity of the legal system, and is exercisable only where this concern is in issue. This concern is in issue where a damage[s] award in a civil suit would, in effect, allow a person to profit from illegal or wrongful conduct, or would permit an evasion or rebate of a penalty prescribed by the criminal law. The idea common to these instances is that the law refuses to give by its right hand what it takes away by its left hand.\”
Concern to preserve the integrity of the legal system is a helpful rationale of the aspect of policy which founds the defence even if the instance given by McLachlin J of where that concern is in issue may best be taken as an example of it rather than as the only conceivable instance of it. 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.
But what about the second question posed in para 42? It requires the court to consider whether Mrs Allen was guilty of \”trafficking\” in bringing Miss Hounga from Nigeria to the UK and into the home in Hanworth.
The accepted international definition of trafficking is contained in the UN Protocol to Prevent, Suppress and Punish Trafficking in Persons (\”the Palermo Protocol\”) signed in 2000 and ratified by the UK on 9 February 2006. Article 3 provides:
\”(a) \’Trafficking in persons\’ shall mean the recruitment, transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability… for the purpose of exploitation. Exploitation shall include, at a minimum, … sexual exploitation, forced labour or services, slavery or practices similar to slavery, servitude or the removal of organs;
(b) The consent of a victim of trafficking in persons to the intended exploitation set forth in subparagraph (a) of this article shall be irrelevant where any of the means set forth in subparagraph (a) have been used;
(c) The recruitment, transportation, transfer, harbouring or receipt of a child for the purpose of exploitation shall be considered \’trafficking in persons\’ even if this does not involve any of the means set forth in subparagraph (a) of this article.\”
So did Mrs Allen, together with other members of her family, recruit and/or transport and/or receive Miss Hounga, being then a child, for the purpose of exploitation, namely forced labour or servitude?
In her claim form Miss Hounga alleged that the UK Human Trafficking Centre had accepted her as a victim of human trafficking. Before the tribunal she filed a report on herself made by Ms Skrivankova, Trafficking Programme Coordinator, Anti-Slavery International, which intervenes in this appeal. The report must be handled with care because Ms Skrivankova did not interview Miss Hounga and relied on written material, in particular her witness statement, which included disputed allegations in relation to which the tribunal made no findings. At all events Ms Skrivankova reported that all the elements in the definition of trafficking in the Palermo Protocol were present in Miss Hounga\’s case. She suggested that it was a classic case of the trafficking of a vulnerable child, lacking family support, by people known to her, who abused her natural trust in them with promises which were not kept and who subjected her to forced labour. In this latter regard Ms Skrivankova referred to a list of six indicators of forced labour published by the International Labour Organisation (\”the ILO\”), which takes the view that, if at least two of the indicators are present, forced labour exists.
The tribunal made no finding whether Miss Hounga was the victim of trafficking. No doubt it considered that it had no need to do so. It is only at this third level of appeal that the issue crops up again; and this court\’s duty to be fair to Mrs Allen demands that it should approach the issue with the utmost caution. Nevertheless, although the court should remember, for example, that Miss Hounga was not actually locked into the home, it is hard to resist the conclusion that Mrs Allen was guilty of trafficking within the meaning of the definition in the Palermo Protocol. Thus, of the ILO\’s six indicators of forced labour, there might be argument about the existence of the second (restriction of movement) but, on the tribunal\’s findings, there certainly existed the first (physical harm or threats of it), the fourth (withholding of wages) and the sixth (threat of denunciation to the authorities where the worker has an irregular immigration status). Judicious hesitation leads me to conclude that, if Miss Hounga\’s case was not one of trafficking on the part of Mrs Allen and her family, it was so close to it that the distinction will not matter for the purpose of what follows.
The Council of Europe Convention on Action against Trafficking in Human Beings CETS No 197 (\”the Convention\”) was done in Warsaw on 16 May 2005 and, following ratification, the UK became obliged to adhere to it, as a matter of international law, on 1 April 2009. Among the purposes of the Convention, set out in article 1, are the prevention of trafficking, the protection of the human rights of victims and the design of a comprehensive framework for their protection and assistance. By article 4, the Convention imports the definition of trafficking set out in the Palermo Protocol. Article 15 provides:
\”3. Each party shall provide, in its internal law, for the right of victims to compensation from the perpetrators.\”
It is too technical an approach to an international instrument to contend that paragraph 3 relates to compensation only for the trafficking and not for related acts of discrimination. In my view it would be a breach of the UK\’s international obligations under the Convention for its law to cause Miss Hounga\’s complaint to be defeated by the defence of illegality. As Lord Hoffmann said in R v Lyons [2002] UKHL 44, [2003] 1 AC 976, at para 27,
\”Of course there is a strong presumption in favour of interpreting English law (whether common law or statute) in a way which does not place the United Kingdom in breach of an international obligation.\”
Article 4 of the European Convention on Human Rights provides:
\”1. No one shall be held in slavery or servitude.
2. No one shall be required to perform forced or compulsory labour.\”
In Rantsev v Cyprus and Russia (2010) 51 EHRR 1 a Russian woman, aged 20, had gone to work as an artiste in a cabaret in Cyprus. Three weeks later she was found dead in a street. The European Court of Human Rights (\”the ECtHR\”) upheld her father\’s complaint that Cyprus was in breach of article 4 in that its regime for the issue of visas for cabaret artistes had failed to afford effective protection to her against trafficking and that its police had failed properly to investigate events during those weeks which suggested that she was the victim of it. For present purposes the importance of the court\’s judgment lies in the following:
\”282. There can be no doubt that trafficking threatens the human dignity and fundamental freedoms of its victims and cannot be considered compatible with a democratic society and the values expounded in the Convention. In view of its obligation to interpret the Convention in light of present-day conditions, the Court considers it unnecessary to identify whether the treatment about which the applicant complains constitutes \’slavery\’, \’servitude\’ or \’forced and compulsory labour\’. Instead, the Court concludes that trafficking itself, within the meaning of article 3(a) of the Palermo Protocol and article 4(a) of the Anti-Trafficking Convention, falls within the scope of article 4 of the Convention.\”
In Siliadin v France (2006) 43 EHRR 16 the ECtHR ruled that a 15-year-old girl, brought from Togo to France and made to work for a family without pay for 15 hours a day, had been held in servitude and required to perform forced labour and that France had violated article 4 by having failed to introduce criminal legislation which would afford effective protection to her. In CN v United Kingdom (2013) 56 EHRR 24 the court made an analogous ruling against the UK. After the events in that case, Parliament had provided, by section 71 of the Coroners and Justice Act 2009 which extends to England, Wales and Northern Ireland, that it is a specific criminal offence to hold a person in slavery or servitude or to require her (or him) to perform forced labour. No doubt mindful of their obligations under article 4, the UK authorities are striving in various ways to combat trafficking and to protect its victims. I refer, for example, to the Draft Modern Slavery Bill, Cm 8770, presented to Parliament in December 2013 and in particular to the amendments to it proposed by the government in its paper, Cm 8889, presented in June 2014 by way of response to the report of a parliamentary committee on the draft Bill. I note, for example, that one such amendment would provide a statutory defence to a victim of trafficking who, as a result, has been compelled to commit a crime. 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; and Miss Hounga\’s appeal should be allowed.
Quinn -v- Irish Bank Resolution Corporation Ltd (In Special Liquidation) & ors
[2015] IESC 29
Clarke J
6 Discussion
6.1 It will be necessary to review the jurisprudence from a number of jurisdictions in due course. However, I think it would be fair to say that the underlying problem, with which all of the case law is concerned, stems from an attempt to reconcile or balance two competing but potentially equally legitimate principles. On one side there is the understandable reluctance of the courts to be seen to be coming to the aid of a person in relation to a transaction which was in breach of the law. Old maxims about \”clean hands\” are at the heart of the issue. The Latin maxim \”ex turpi causa non oritur actio \” explains this aspect of the Court\’s jurisprudence. A party should not, in accordance with that principle, be entitled to come to court and seek to enforce a transaction which is tainted with illegality in some form.
6.2 There is, however, another, and potentially conflicting, consideration, which is of considerable importance. Since the early case law on illegal contracts was developed, the extent of regulation by statute has expanded to an exceptional extent. The number of regulatory regimes is significant. The areas of life which are subject to regulation are corresponding large. The number of ways in which a party might be said to be in breach of some element of a regulatory regime is many and varied. Furthermore, the range of breaches which can arise stem across a spectrum from the minor and technical to the substantive and extremely grave. At one end of the spectrum, a party may simply not have a licence to conduct a particular activity in circumstances where they were clearly entitled to the licence concerned, and perhaps had held one in the past, where the failure of the relevant party was simply a short term oversight in renewing the relevant licence. Strictly speaking, the carrying on of the activity concerned may well, in those circumstances, be illegal, for the relevant statute may well specify that it is unlawful to carry on the activity concerned without the relevant licence.
6.3 At the other end of the spectrum, there may be a deliberate and serious breach of important obligations imposed in the public interest by the relevant regime. Furthermore, it is necessary to recognise that, depending on the nature of the regulatory regime concerned, all or many parties to a relevant transaction or series of transactions may either be culpable or may be aware of the illegality concerned, or at least of the facts which render the relevant activity illegal. It must also be kept firmly in mind that the broad application of the law in relation to illegal contracts also extends to cases where the relevant illegality derives from the ordinary criminal law. This can, of course, be so even where it might be said that the contract is illegal by statute, for much criminal activity is now covered by statutory offences. The weight to be attached to the public policy requirement that the courts refrain from enforcing contracts tainted by illegality is obviously very significant in such cases where they involve serious criminality.
6.4 As a review of the case law will reveal, it has always been acknowledged that the application of a strict rule of unenforceability can give rise to potential injustice. However, such an approach has, at least in the past, been taken to be justified as being required as a matter of public policy, both to deter illegality and to prevent the courts from being seen to act in aid of those who might be found guilty of illegal activity.
6.5 However, there is at least the potential of a real risk of injustice if the courts were to continue to adopt an absolute \”hands off\” policy to all cases of illegality by reason of the breach of a regulatory regime. It must be recognised that, where a court decides that it will not entertain any legal proceedings solely because it can be said that there was some element of illegality about the transaction which underlies the proceedings concerned, this, in effect, means that, for the parties, the results must lie where they fall. If, for example, one party has already obtained most of the benefit which it was intended to obtain as a result of the relevant transaction, but the other party has received little or none, then the consequences of a \”hands off\” approach by the court is that the party who is lucky enough to have obtained the benefit of the transaction gets a very significant gain at the expense of the party who, often as a matter of chance, has not as yet obtained the benefit. That consequence may well have little to do with the degree of blame which might be said to attach to the respective parties and a lot to do with luck. It may be that such a result can simply be regarded as a consequence of the parties engaging in a contract which is tainted with illegality. However, in a highly regulated age, it is clear, also, that there is significant potential for injustice in a system which automatically adopts a hands off approach and which recognises, as a necessary consequence, that some parties to an illegal transaction may benefit and others lose out.
6.6 But reconciling those two competing principles, that is the reluctance of the courts to become involved in being seen to enforce contracts which might be said to be tainted by illegality, on the one hand, and the recognition that a complete \”hands off\” approach might lead to serious injustice, on the other, is not necessarily an easy task.
6.7 It also needs to be recalled, as a review of the jurisprudence will disclose, that much of the initial development of the law concerning illegal contracts as a matter of common law was concerned with contracts which were considered by the common law itself to be illegal as a matter of policy or to involve criminal activity. It is the evolution of the approach of common law courts to the concept of illegality by statute which gives rise to the competing considerations which I have just sought to address. In that context, it must also be noted that there have been questions over the precise type of illegality which engages the doctrine of ex turpi causa so as to render affected contracts unenforceable. For reasons which will be touched on in due course, the modern view would appear to be that the relevant illegality must either involve a breach of the criminal law or be quasi criminal in nature. However, that, to some extent, begs the question. Very many regulatory regimes create technical offences or quasi criminal technical breaches for a whole range of activities. Such measures may well be taken to be a necessary part of the enforcement of the regulatory regime concerned. However, the wide range of breaches which may give rise to an offence or other public illegality potentially leads to the very difficulty with which this Court is now faced, being that courts are consequently required to consider whether such breaches ought to lead to the relevant contracts being treated as unenforceable. In order to gain assistance as to how the questions thus raised should be answered, it is of assistance to conduct a review of the relevant jurisprudence.
7 The Case Law
7.1 It is important to commence any review of the case law by recalling that the underlying issue, with which this Court is concerned, is as to whether the Quinns can rely on the alleged illegality of the various lending transactions which are at the heart of these proceedings to establish that they are not obliged to meet the obligations which would otherwise arise under the guarantees and security under challenge. The circumstances in which contracts may be regarded as illegal, void or unenforceable in common law countries are many and varied. There is no unique classification of all of the relevant headings. However, in order to understand the aspect of the broad area of \”unenforceability on the grounds of illegality\” with which this case is concerned, it is necessary to start by saying just a little about the area of illegal contracts as a whole. The authors of Chitty on Contract, 31st Ed., volume 1 suggest, at para. 16-005, that contracts may be invalidated for any one of five reasons, being: first, that the object of the relevant contract is treated as illegal by common law or by legislation; second, that the objects are injurious to good government; third, that the objects interfere with the proper working of the machinery of justice; fourth, that the objects are injurious to marriage and morality; and fifth, that the objects are, for economic reasons, against the public interest. However, as the authors go on to point out, not all cases fit neatly into one of the relevant boxes.
7.2 Furthermore, the authors note that contracts may be regarded as illegal either in their formation or in their performance. Contracts may be regarded as illegal as to their formation when they cannot be performed in accordance with the terms agreed without committing an illegal act. In contrast, contracts may be illegal as to performance where one or both of the parties intend to perform the contract in an illegal manner or to affect some illegal purpose.
7.3 The aspect of the jurisprudence in question, with which this Court is now concerned, involves an allegation that relevant contracts are illegal, and thus, unenforceable by reference to statute. This is said to be so by virtue of the fact that the contracts in question are alleged to have been intended to give effect to an illegal purpose, being, in the case of section 60, the giving of loans for the purchase of shares in the lender, and in the case of the MAR, lending designed to unlawfully maintain the share price of Anglo.
7.4 It is important to understand the reason why it is proper to characterise the issues in this case in that fashion. As was debated it the course of the hearing before us, the contracts which are at the heart of these proceedings are not, in and of themselves, unlawful in any way. They are contracts to lend money on terms and contracts to provide guarantees or security to back up those lending transactions. If, for example, identical transactions, including guarantees and security, were entered into for the simple and straightforward purpose of permitting Quinn entities to purchase shares in the ordinary way in a company wholly unconnected with Anglo, then no question of illegality would arise. Furthermore, none of the specific types of policy considerations considered by the common law itself (independent of statute) to render contracts void or unenforceable have been said to exist in this case.
7.5 I am satisfied that, at least in very broad terms, the framework within which the common law approaches these questions in this jurisdiction is the same as in the United Kingdom and, indeed, other common law jurisdictions such as Australia. However, that broad framework is not really in dispute between the parties to these proceedings. Rather, it is the precise way in which a court should go about determining the enforceability or otherwise of a contract which is said to be affected by an illegality imposed by statute that requires to be considered. In what way should a court approach the public policy question of enforceability while paying proper regard to the need to avoid being seen to enforce illegality or fail to discourage same while at the same time according appropriate weight to the policy of the relevant statute? Likewise, the application of that methodology to the statutes in question in this case needs to be addressed. Against the background of those very general observations I now turn to the case law.
7.6 The doctrine of illegality is often traced back to Holman v. Johnson, although the law thus articulated was well established before the time of that decision. Indeed, Charleton J. cited that judgment in his decision in this case in the High Court. The principle was put by Lord Mansfield in the following terms, at p. 343:-
“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. It is not for his sake, however, that the objection is ever allowed; but 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. 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. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis.”
7.7 Lord Mansfield, therefore, acknowledged that it was possible that a defendant might obtain what might be seen to be an unfair advantage by being able to rely on the principle of illegality. However, as has been acknowledged in many other cases, and indeed, noted by the trial judge in this case, the principle is one of policy rather than being based on attempting to do justice between the parties.
7.8 However, the more modern approach of the courts of the United Kingdom can be seen from a series of cases over the last 75 years or so. In Archbolds (Freightage) Limited v. S. Spanglett Limited [1961] 1 Q.B. 374 at p.389, Devlin L.J. expressed the approach in the following terms:-
\”The statute does not expressly prohibit the making of any contract. The question is therefore whether a prohibition arises as a matter of necessary implication. It follows from the decision of this Court in Nash v. Stevenson Transport Ltd. that a contract for the use of unlicensed vehicles is prohibited. In that case the plaintiff held \”A\” licences which the defendant wanted to purchase. But the Act of 1933 provides that licences may not be transferred or assigned, and it was therefore agreed that the defendant should run the vehicles in the plaintiff\’s name so that they might obtain the benefit of his licences. It was held by the court that that was an illegal agreement because the defendant was the person who was using the vehicles and the plaintiff the person who was licensed to use them; thus the user was not the licensee. In the present case there was no contract for the use of the vehicle\”.
7.9 Devlin L.J. went on to note that it did not follow that, because it is an offence for one party to enter into a contract, the contract itself is void. In that context, the Court reaffirmed the position which had been adopted in St. John Shipping Corporation v. Joseph Rank Limited [1957] 1 Q.B. 267, a case to which I will shortly turn.
7.10 Next, in Shaw v. Groom [1970] 2 Q.B. 504, the Court of Appeal reiterated the approach previously adopted by the House of Lords in Vita Food Products Inc. v. Unus Shipping Company Limited (In Liquidation) [1939] AC 277, where Lord Wright said, at p.293:-
\”Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds\”.
7.11 Other cases, such as Ailion v. Spiekermann [1976] Ch. 158, and Geismar v. Sun Alliance and London Insurance Limited [1978] Q.B. 383, are sometimes cited to the same effect. In that later case, it is worth noting that Talbot J., at pp.388 and 389, having made reference to the speech of Lord Macmillan in Beresford v. Royal Insurance Company Limited [1938] A.C. 586, and the decision in St. John Shipping suggested that is was of \”the highest importance that courts do not attempt to extend the doctrine of public policy in order to hold that contracts are unenforceable thereby, and that it is necessary to look to the accepted application of that doctrine and not go beyond that\”.
7.12 As will be noted by reference to recent Australian authority, a similarly broad approach has been adopted in that jurisdiction as well. However, a further broad question can well arise as to the extent to which an illegality may affect contracts which are not, of themselves, illegal, but where there is a connection with illegality.
7.13 Chase Manhattan Equities v. Goodman [1991] B.C.L.C. 897 involved a sale of shares by a person possessing insider information. Through a sham transaction involving a third party, it was sought to ultimately sell the shares to Chase Manhattan. Knox J. held that the share sale transaction (which had not, at the time of the proceedings, been completed) was unenforceable against Chase Manhattan on the grounds of illegality. The statute in question did not, of itself, render the share sale agreement in question void or unenforceable. Indeed, section 8(3) of the Company Securities (Insider Dealing) Act 1985 provided that no transaction was void or voidable “by reason only that it was entered into” in breach of the relevant insider trading provisions. A sale of shares was, of course, itself entirely legal. What made the contract illegal was the fact that the ultimate seller, Mr. Goodman, was in possession of insider information, and was selling the shares for the purposes of unlawfully benefiting by that information. As noted by Knox J., to enable Mr. Goodman to enforce the sale share contract against Chase Manhattan would have allowed Mr. Goodman to benefit by his own unlawful act. Section 8(3) was found to be designed to prevent the unwinding of completed stock exchange contracts and not, therefore, relevant to the case.
7.14 Those cases are, however, in reality, concerned with slightly different questions. The issue does not concern the question of whether public policy requires the courts to treat contracts as unenforceable as such, but rather concerns the reach of that policy requirement. How closely does a contract need to be connected to the relevant illegality in order that it may be treated as unenforceable, or can completed contracts be reversed? It might be said that these are but other aspects of the basic question. Does policy require that such contracts be treated as unenforceable, or reversed?
7.15 The current position in the United Kingdom can be seen from the judgments of the Supreme Court in Les Laboratoires Servier and anor v. Apotex Inc. and ors [2015] 1 All ER 671. The substance of the issue which arose in that case was as to whether an infringement of a foreign patent right constituted a relevant illegality or \”turpitude\” for the purposes of providing a defence. However, the Court did review the jurisprudence in respect of illegal contracts generally.
7.16 The principal judgment was given by Lord Sumption. Having traced the doctrine to Holman v. Johnson, Lord Sumption noted, at para. 14, that this area has given rise to \”a large body of inconsistent authority which rarely rises to the level of general principle\”. He also noted that the main reason for the disordered state of the case law is the distaste of the courts for the consequences of applying their own rules, consequences which he noted Lord Mansfield had pointed out two centuries ago. That is, indeed, the fundamental problem already identified in this judgment. A strict application of a rule of unenforceability in relation to all contracts tainted by illegality can have consequences which may appear very unjust on the facts of an individual case. That leads to attempts to find, normally by way of exception, a basis for avoiding the full rigours of the rule in cases where the consequence may appear to be particularly unjust.
7.17 Lord Sumption went on to consider a strand in the jurisprudence in the United Kingdom which emerged in more recent times, which sought to redefine the principle as a power vested in the court to be exercised in an appropriate case, rather than as a rule of law to be applied in all cases save those where there was an established exception or where, in accordance with the established jurisprudence, the rule did not apply because, for example, the transaction sought be rendered unenforceable was beyond the scope of the rule. In that context Euro-Diam Limited. v. Bathurst [1990] 1 Q.B. 1 is often cited.
7.18 The relevant line of authority suggested that the court had a power to decline to enforce contracts where it would be \”an affront to the public conscience\” to allow the plaintiff to succeed. As pointed out by Lord Sumption:-
\”Under this \”public conscience\” test, the application of the illegality defence was not discretionary in law. But it was clearly discretionary in nature. In substance it called for a value judgment about the significance of the illegality and the injustice of barring the claimant\’s claim on account of it\”. (See para. 14)
7.19 However, that approach had been clearly rejected in Tinsley v. Milligan. On the question of the proper test, Lord Keith and Lord Goff, in Tinsley v. Milligan, had suggested a rule which would bar any claim arising out of a transaction which was sufficiently closely connected to the illegal purpose. Lords Browne-Wilkinson, Jauncy and Lowry adopted a test which barred a claim only if it was necessary to assert, as part of the plaintiff\’s claim, facts which disclosed the relevant illegality.
7.20 In commenting on the two possible tests, Lord Sumption suggested the following at para. 18:-
\”Both are intended to exclude those consequences of an illegal act which are merely collateral to the claim. Neither makes the application of the illegality defence dependent on a value judgment about the significance of the illegality or the consequences for the parties of barring the claim. For present purposes, it is enough to point out that neither test is discretionary in nature. Neither of them is based on achieving proportionality between the claimant\’s misconduct and his loss, a concept derived from public law which is not easily transposed into the law of obligations. On the contrary, Lord Goff recognised, as Lord Mansfield had before him, that the practical operation of the law in this field will often produce disproportionately harsh consequences.\”
Given that the Supreme Court of the United Kingdom was not invited, in Les Laboratoires Servier, to revisit Tinsley v. Milligan, and, for that reason, did not do so, it must be taken that the majority view in Tinsley v. Milligan as to the proper test remains the law in that jurisdiction.
7.21 Having reviewed an observation of Lord Hoffman in Gray v. Thames Trains Limited [2009] 1 AC 1339 to the effect that the ex turpi policy is not based on a single justification, but on a group of reasons, together with criticism of the position adopted in Tinsley v. Milligan by the English Law Commission, Lord Sumption came to the view, at para. 20, that the \”discretionary\” alternative favoured by some \”makes the law uncertain, by inviting the courts to depart from existing rules of law in circumstances where it is difficult for them to acknowledge openly what they are doing or to substitute a coherent alternative structure\”.
7.22 I should not leave the judgment of Lord Sumption without citing what is said at para. 28 of his judgment concerning the nature of the illegality which invokes the principle of unenforceability. In that paragraph the following is said:-
\”Apart from these decisions, the researches of counsel have uncovered no cases in the long and much-litigated history of the illegality defence, in which it has been applied to acts which are neither criminal nor quasi-criminal but merely tortious or in breach of contract. In my opinion the question what constitutes \”turpitude\” for the purpose of the defence depends on the legal character of the acts relied on. It means 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. Torts (other than those of which dishonesty is an essential element), breaches of contract, statutory and other civil wrongs, offend against interests which are essentially private, not public. There is no reason in such a case for the law to withhold its ordinary remedies. The public interest is sufficiently served by the availability of a system of corrective justice to regulate their consequences as between the parties affected.\”
7.23 Finally, before leaving Les Laboratoires Servier, I should note what is said by Lord Toulson at para. 57 as follows:-
\”Servier relies on the often quoted statement of Lord Mansfield in Holman v Johnson in which he said that \”The principle of public policy is this; ex dolo malo non oritur actio.\” That statement made in 1775 remains a succinct statement of broad principle, but, as the cases over the last 340 years demonstrate, it does not provide a simple measuring rod for determining the boundaries of the principle. The case law is notoriously untidy. In deciding whether the principle should be applied in circumstances not directly covered by well-established authorities, it is right to proceed carefully on a case by case basis, considering the policies which underlie the broad principle. This has been said in the past by judges at the highest level.\”
7.24 Thereafter, Lord Toulson went on to cite the passage from the speech of Lord Wright in Vita Foods already referred to in this judgment, the comments of Lord Hoffman in Gray v. Thames Trains and also a passage from the judgment of Lord Wilson in Hounga v. Allen [2014] 1 WLR 2889, where the following was said at para. 42:-
\”The defence of illegality rests on the foundation of public policy. \’The principle of public policy is this…\’ said Lord Mansfield by way of preface to his classic exposition of the defence in Holman v Johnson (1775) 1 Cowp 341, 343. \’Rules which rest on the foundation of public policy, not being rules which belong to the fixed or customary law, are capable, on proper occasion, of expansion or modification\’: Maxim Nordenfelt Guns and Ammunition Co v Nordenfelt [1893] 1 Ch 630, 661 (Bowen LJ). 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?\’\”
7.25 In the light of those considerations, Lord Toulson expressed the view, at para. 62, that the question was whether public policy considerations merited applying the doctrine of illegality to the facts of the instant case.
7.26 It is clear, therefore, that Tinsley v. Milligan remains the law in the United Kingdom notwithstanding the fact that it has been criticised, and notwithstanding the fact that it is accepted that the general application of this area of law has been, perhaps, problematic.
7.27 In Tinsley, Lord Browne-Wilkinson held, in rejecting the stance taken by Nicholls L.J. in the Court of Appeal, that \”the consequences of being a party to an illegal transaction cannot depend … on such an imponderable factor as the extent to which the public conscience would be affronted by recognising rights created by illegal transactions\”. Lord Browne-Wilkinson added, at p. 369:-
“Neither at law nor in equity will the court enforce an illegal contract which has been partially, but not fully, performed. However, it does not follow that all acts done under a partially performed contract are of no effect. In particular it is now clearly established that at law (as opposed to in equity), property in goods or land can pass under, or pursuant to, such a contract. If so, the rights of the owner of the legal title thereby acquired will be enforced, provided that the plaintiff can establish such title without pleading or leading evidence of the illegality. It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the illegal contract itself.”
7.28 Having examined the authorities which lay down the circumstances in which a legal proprietary interest acquired as a result of an illegal transaction will be enforced by the courts (Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65, Ferret v. Hill (1854) 15 C.B. 207, Taylor v. Chester L.R. 4 Q.B. 309, Alexander v. Rayson [1936] 1 K.B. 169), Lord Browne-Wilkinson summarised the principles that emerged from those authorities (at p. 370):-
“(1) property in chattels and land can pass under a contract which is illegal and therefore would have been unenforceable as a contract; (2) a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; (3) it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough.”
7.29 It is correct, as counsel for Anglo accepted at the hearing, that Tinsley has not been expressly followed in this jurisdiction, although Laffoy J., in Stanley v. Kiernan [2007] IEHC 242, gave some consideration to the approach adopted by Lord Browne-Wilkinson.
7.30 It is next worth looking at the way in which the general principle has been applied in the United Kingdom. First, it must be said that there has been recognition that there are some limitations on the extent to which contracts, which may in some way be connected with illegal activity, can properly be regarded as unenforceable. In St. John Shipping, the Court was concerned with an attempt by cargo owners to avoid paying monies to a freight company in circumstances where it had been discovered that the relevant ship was illegally overloaded. Devlin J., in considering the effect of a breach of the statutory prohibition on overloading of the ship concerned, stated (at p.288):-
“A court should not hold that any contract or class of contracts is prohibited by statute unless there is a clear implication, or \”necessary inference,\” as Parke B. put it, that the statute so intended. If a contract has as its whole object the doing of the very act which the statute prohibits, it can be argued that you can hardly make sense of a statute which forbids an act and yet permits to be made a contract to do it; that is a clear implication. But unless you get a clear implication of that sort, I think that a court ought to be very slow to hold that a statute intends to interfere with the rights and remedies given by the ordinary law of contract. Caution in this respect is, I think, especially necessary in these times when so much of commercial life is governed by regulations of one sort or another, which may easily be broken without wicked intent. Persons who deliberately set out to break the law cannot expect to be aided in a court of justice, but it is a different matter when the law is unwittingly broken.”
It is also important to note that Devlin J. pointed out that the principle of illegality:-
\”cares not at all for the element of deliberation or for the gravity of the infraction, and does not adjust the penalty to the profits unjustifiably earned\”. (See p. 281).
7.31 In addition to the limitations identified in St. John Shipping, the United Kingdom courts have also drawn attention to the fact that the growth in regulation can result in a range of breaches of regulatory law, some bordering on the innocent. For example, in Shaw v. Groom [1970] 2 Q.B. 504, a failure by a landlord to provide a tenant with a rent book did not result in the landlord being unable to obtain payment of rent.
7.32 The fact that non-enforcement may also lead to unjust enrichment was identified by Devlin J., in St. John Shipping, as a factor to be taken into account where he noted that the consequences of non-enforcement in that case would be that the relevant monies \”will not go into the public purse but into the pockets of someone who is lucky enough to pick up the windfall or astute enough to have contrived to get it\”.
7.33 Next, the United Kingdom courts have recognised that it is important to distinguish between statutes which, while prohibiting certain contracts, may be taken to recognise by implication that the parties are not equally at fault. This may be done, for example, by imposing a sanction for breach on only one of the parties. Thus, for example, in Anderson v. Daniel [1924] 1 K.B. 138 (at p.147) Scrutton L.J. said that:-
\”When the policy of the act in question is to protect the general public or class of persons by requiring that a contract shall be accompanied by certain formalities or conditions, and a penalty is imposed on the person omitting those formalities or conditions, the contract and its performance without those formalities or conditions is illegal, and cannot be sued upon by the person liable to the penalties\”.
7.34 However, it seems clear that much of the evolution of the common law as it is understood in the United Kingdom is not so much concerned with the enforceability of illegal contracts as such, but rather is concerned with the extent to which the consequences of partly or completely executed contracts, which may be tainted by illegality, can be undone or reversed. That question is, of course, relevant to one of the issues which potentially arises on this appeal, which concerns the question as to whether the Quinns are entitled, as moving parties, to seek to have the effect of the various securities which were put in place declared invalid or unenforceable.
7.35 It is clear that Devlin J., in St. John Shipping, was influenced by the growing extent of regulation. In that context, caution needs to be exercised against an overbroad rule of illegality which would render unenforceable a whole range of contracts because of an association with illegality.
7.36 Furthermore, Devlin J. noted an important distinction. First, there may be a contract which has, as he put it, \”as its whole object the doing of the very act which the statute permits\”. Such contracts can readily be distinguished from contracts which are, in themselves, entirely lawful, but where some other factor connected with the relevant contract (such as overloading in St. John Shipping) renders it illegal. It is also of some relevance to note that Devlin J. considered that the true question was really as to what might be taken to be impliedly found in the statute. Even though the statute is silent on whether a contract of a particular type is to be regarded as voidor unenforceable, it may be much easier to infer that the statutory intention was that a contract may properly be regarded as unenforceable if the contract is to carry out the very act which the statute itself regards as illegal. On the other hand, such an inference can much less easily be drawn if the contract is lawful in itself and is only tainted by an indirect illegality deriving from something outside of the basic four walls of the contractual arrangements.
7.37 Furthermore, some of the case law seems to me to be more concerned with the question of the reach of the principle rather than its status. It is clear that contracts which are closely connected with the relevant illegality may be unenforceable, but contracts which are only tangentially connected may remain enforceable, not least because it may be possible for a party who wishes to enforce such a contract to mount a claim without placing any reliance on the illegality itself.
7.38 Also, it is important to note that there was a significant dissent in Tinsley. I will refer in more detail to that dissent in the context of the comments made on it by the High Court of Australia. It is, at least on one view,possible to discern something of a divergence of approach between, on the one hand, the United Kingdom and, on the other, Australia.
7.39 I, therefore, turn to the position in Australia. The Australian courts have given significant attention to the issue of illegal contracts over the last third of a century. In Yango Pastoral Company Pty. Limited and others v.First Chicago Australia Limited [1978] 139 C.L.R. 410, Mason J. in the High Court of Australia, said, at pages 429 and 430, the following:-
“However, in the present case Parliament has provided a penalty which is a measure of the deterrent which it intends to operate in respect of non-compliance with s.8. In this case it is not for the court to hold that further consequences should flow, consequences which in financial terms could well far exceed the prescribed penalty and could even conceivably lead the plaintiff to insolvency with resultant loss to innocent lenders or investors. In saying this I am mindful that there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty. This circumstance might provide a sufficient foundation for attributing a different intention to the legislature. It may be that the true basis of the principle is that the court will refuse to enforce a transaction with a fraudulent or immoral purpose: Beresford v. Royal Insurance Co. Ltd. On this basis the common law principle of ex turpi causa can be given an operation consistent with, though subordinate to, the statutory intention, denying relief in those cases where a plaintiff may otherwise evade the real consequences of a breach of a statutory prohibition.
Nevertheless, the principle that the court will not enforce a contract at the suit of a party who has entered into it with the object of committing an illegal act does not avail the appellant in this case.”
7.40 The case in question involved a secured loan which was given in circumstances where it was accepted by the lender, First Chicago Australia Ltd., that it did not have the proper authorisation required by law for the carrying out of the relevant banking business.
7.41 Gibbs A.C.J., in the same case, said the following at page 413:-
\”There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.\”
7.42 Additionally, Jacobs J. stated, at p. 432:-
“In other cases the prohibition against carrying on a business may not be able to be construed as either an express or implied prohibition against the making of a particular contract. Nevertheless in such a case the courts may not enforce such a contract but, if they do not, it is not because the contract itself is directly contrary to the provisions of the statute by reason of an express or implied prohibition in the statute itself but because it is a contract associated with or in the furtherance of illegal purposes, for instance, the purposes of a business being carried on illegally…One then enters the field of contracts not themselves unlawful but made for an illegal purpose. Of these the classic case is Pearce v. Brooks. The refusal of the courts to regard such contracts as enforceable stems not from a legislative prohibition but from the policy of the law, commonly called public policy. It is of these contracts that Lord Wright said in Vita Food Products Inc. v. Unus Shipping Co. Ltd.:
\’Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds.\’\”
7.43 It is clear that in Australia, a distinction is also made between contracts which have as their central object the doing of something which is expressly forbidden by statute, on the one hand, and contracts which, though not unlawful in themselves, may be unenforceable because they are tainted by an unlawful purpose or because of performance in a manner prohibited on the other hand.
7.44 It is also clear from Yango that the Australian courts regard it as important to consider the adverse express consequences provided for by statute as applicable to the relevant illegality (criminal or administrative penalties or sanctions or express civil consequences). Where those consequences are considered to be sufficiently serious to meet the policy requirement of achieving the purpose of the statute, then it may be less easy to infer that the policy requires that contracts be treated as void or unenforceable in addition. The Australian courts also recognise that, given that the common law doctrine of illegality stems from public policy, it follows that, as was said by Lord Wright in Vita Food, there may be cases where, \”public policy understood in a wider sense may at times be better served by a refusing to nullify a bargain save on serious and sufficient grounds\”.
7.45 In Master Education Services v. Ketchell [2008] H.C.A. 38, a case concerning the legality and consequent enforceability of a franchise agreement which contravened Franchising Code of Conduct and section 51AD of the Trade Practices Act 1974, the High Court of Australia quoted with approval the comments of Mason J. in Yango in stating (at para. 19) that “[i]n the absence of an express prohibition in the Act, any such prohibition against the making of an agreement, unless there has been compliance with an industry code, must be found by a process of implication”. The Court held that it is not to be assumed that the common law sanction applies to every contravention of a prohibition contained in the statute (at para. 11). The Court found (at para. 30) that the operation of the 1974 Act in respect of contraventions went beyond that of other regimes which were silent as to the consequences for the parties in civil law. The Court held that the detailed provisions of the 1974 Act concerning the consequences of non-compliance with the code did not support the conclusion that the legislature intended that consequences provided by the common law should follow contraventions of section 51AD.
7.46 Fitzgerald v. F.J. Leonhardt Pty Limited [1997] 189 C.L.R. 215 concerned the recovery of a debt by the plaintiff for boring holes for water on behalf of the defendant in circumstances where the defendant landowner failed to obtain the appropriate permits required by statute prior to the relevant holes being drilled. That obligation fell on the landowner, and there was no equivalent obligation on the party drilling holes to obtain the relevant permit. In that context, Kirby J. stated, at p. 242:-
“The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality affecting the contract. The law in question may be a rule of the Common Law but nowadays it is much more likely to be a provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally expressed. Courts, in this area, are faced with a dilemma. They do not wish to deprive a person of property rights, e.g. under a contract, least of all at the behest of another person who is also involved in a breach of the applicable law. On the other hand, they do not wish to ‘condone or assist a breach of statute, nor must they help to frustrate the operation of a statute.’ That is why the first function of the court, where a breach of a legislative provision is alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be imputed to the legislators. Little, if any, assistance will be derived for the ultimate task of a court from examination of the terms of other statutes or judicial classifications of them or by reference to their meaning as found.”
7.47 Kirby J. acknowledged that, in most cases, the relevant legislation “does not expressly deal with the consequences of conduct in breach of its terms upon a contract which has been fulfilled in some way in breach of a provision of the law”. In such circumstances, he found that it is necessary to ask whether the legislation “impliedly prohibits such conduct and renders it illegal”. While he agreed that the courts would be slow to imply a prohibition which interferes with the rights of the parties under contract law in situations in which the legislation does not expressly provide for a remedy, he suggested that “the duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words used” and that “[i]t would be artificial to expel implications from the task of legislative construction where they remain an established feature of the interpretation and application of legislation generally”.
7.48 However, Kirby J. also cautioned, at p. 244:-
“One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation and performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights. In a given case, such lost rights might be enormous, supplementing in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided.”
7.49 Kirby J. also added the following observation, at p.245:-
“It is important to keep the interpretation and public policy questions separate. Logically, the interpretation question arises first. This is because if, as a matter of interpretation, the contract is illegal as formed, or as performed, it is void as to those parts affected by the illegality. The secondary question of unenforceability for public policy reasons does not then arise. The contract is unenforceable but that is because it is void in law.”
7.50 In Nelson v. Nelson [1995] H.C.A. 25, the High Court of Australia held that there is no general proposition that equity will let the loss lie where it falls in situations where the illegality consists of contraventions of the policy of a statute. As observed by Deane and Gummow JJ. at p.558, this had been the view of the minority of the court (specifically Lord Goff of Chieveley and Lord Keith of Kinkel) in Tinsley v. Milligan. The minority in Tinsley stated, with reference to the judgment of Lord Mansfield in Holman v Johnson, that “the principle is not a principle of justice; it is a principle of policy, whose application is indiscriminate and so can lead to unfair consequences as between the parties to litigation. Moreover the principle allows no room for the exercise of any discretion by the court in favour of one party or the other.”
7.51 In his judgment, McHugh J. sought to explain why the doctrine of illegality expounded in Holman was no longer, in his view, the appropriate formulation to apply. While the underlying policy of that doctrine was still valid, he found that doctrine to be “too extreme and inflexible to represent sound legal policy in the late twentieth century, even when account is taken to the recognised exceptions to this dictum” (at p. 611). These exceptions were succinctly outlined by McHugh J. at p 604:-
“But [the dictum of Lord Mansfield in Holman] is subject to exceptions which allow relief to be granted despite the presence of illegality. First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. Second, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member. Third, the courts will not refuse relief where an illegal agreement was induced by the defendant\’s fraud, oppression or undue influence. Fourth, the courts will not refuse relief where the illegal purpose has not been carried into effect.”
7.52 McHugh J. held, at p.611, that a less rigid approach than that taken by the courts in Holman or Tinsley was necessitated by the fact that statutory illegality can arise in different forms:-
“First, the statute may directly prohibit the contract or trust. Second, while the statute may not prohibit making the contract or trust, it may prohibit the doing of some particular act that is essential for carrying it out. Third, the statute may not expressly prohibit the contract or trust but the contract or trust may be associated with or made in furtherance of a purpose of frustrating the operation of the statute. Fourth, the statute may make unlawful the manner in which an otherwise lawful contract or trust is carried out. It would be surprising if sound legal policy required each of these forms of illegality to be treated in the same way. There is, for example, a vast difference between the performance of a contract for carriage of goods by ship that is overloaded in breach of the law and the making of a contract for the carriage of goods where the making of the contract is specifically prohibited.”
7.53 McHugh J. (at p. 612) discussed the circumstances in which the courts could withhold relief because of an illegal transaction. In his view, the imposition of such a sanction on one of the parties to a transaction which would deprive that party of his or her property rights only to vest those in another person, who in many circumstances would be a wilful participant in the illegality, could only be justified if the following two conditions are met:-
“First, the sanction imposed should be proportionate to the seriousness of the illegality involved. It is not in accord with contemporaneous notions of justice that the penalty for breaching a law or frustrating its policy should be disproportionate to the seriousness of the breach. The seriousness of the illegality must be judged by reference to the statute whose terms or policy is contravened. It cannot be assessed in a vacuum. The statute must always be the reference point for determining the seriousness of the illegality; otherwise the courts would embark on an assessment of moral turpitude independently of and potentially in conflict with the assessment made by the legislature.
Second, the imposition of the civil sanction must further the purpose of the statute and must not impose a further sanction for the unlawful conduct if Parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies. In most cases, the statute will provide some guidance, express or inferred, as to the policy of the legislature in respect of a transaction that contravenes the statute or its purpose. It is this policy that must guide the courts in determining, consistent with their duty not to condone or encourage breaches of the statute, what the consequences of the illegality will be. Thus, the statute may disclose an intention, explicitly or implicitly, that a transaction contrary to its terms or its policy should be unenforceable. On the other hand, the statute may inferentially disclose an intention that the only sanctions for breach of the statute or its policy are to be those specifically provided for in the legislation.
7.54 Importantly, McHugh J. held that a court should not refuse to enforce legal or equitable rights simply because they were connected to an unlawful purpose unless:-
“(a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or
(b) (i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct;
(ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and
(iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.”
7.55 It is then necessary to look at the case law from this jurisdiction. In Gavin Lowe Limited v. Field [1942] I.R. 86, this Court had to consider an action in which a plaintiff sued on a cheque paid to buy a cow which turned out to be suffering from tuberculosis. The defence was that public health legislation made it an offence to \”expose for sale\” such an animal. The majority (Sullivan C.J., Murnaghan and Geoghegan JJ.) permitted recovery on the basis that the relevant legislation did not make it an offence to sell such a cow but rather only, as a matter of public health, to \”expose for sale\”. The minority (Meredith and O\’Beirne JJ.) disagreed, holding, in the words of O\’Beirne J., that \”it seems difficult to justify such a construction as would recognise the validity of a contract arising out of exposure for sale, though the exposure itself is made a criminal offence\” (see p.107). It does, however, seem clear that all members of the Court accepted in principle that a contract might be unenforceable if tainted by the appropriate illegality.
7.56 Costello J., in Hortensius, was concerned with the enforceability of contracts arising out of loans made to the plaintiffs by the Royal Trust Bank, the benefit of which had been transferred to the defendant Trustee Savings Bank. It was accepted that the purchase of the loans in question by the Trustee Saving Bank was not authorised by s.3 of the Trustee Savings Bank Act, 1965. The transaction thus fell to be considered under an alternative possibility, being s.15 of the Trustee Savings Bank Act, 1863. Costello J. accepted that the Trustee Savings Bank had contravened s.15 of the Trustee Savings Bank Act, 1863 but then considered whether that illegality rendered the loans unenforceable against the plaintiffs. Costello J. stated, at pp. 301 – 302, the following:-
“At common law the enforcement of certain contracts was regarded as being against public policy and such contracts were termed ‘illegal’. Illegal contracts included those which tend to injure the public service, or pervert the course of justice, or abuse the legal process, or are contrary to good morals, or restrain trade. Also included are those whose objects are clearly illegal, so that a contract which cannot be performed without a breach of the criminal law is unenforceable at common law. But in this case we are concerned with a statutory provision which prohibits the trustees from entering into the contracts of 19 December 1983, not a provision which made illegal the objects of the contracts they entered into. It seems to me therefore that the plaintiffs cannot rely on the common law rules relating to the unenforceability of illegal contracts to justify the claims for relief made in this action.
It remains then to consider whether on a true construction of the 1863 Act the contracts in suit are void and therefore unenforceable. Some statutes may expressly declare certain types of contract to be void and unenforceable (without declaring them to be illegal) as does s. 18 of the Gaming Act 1845 which provides that all agreements by way of wagering shall be null and void and which prohibits any action brought to recover a sum alleged to have been won on a wager. Others may prohibit the making of certain contracts and impose penalties for doing so but remain silent as to the civil rights of the parties to them; it is then a question of the construction of the statute as to whether the contract entered into between the parties is to be regarded as an illegal one. But in this case the 1863 Act did not make illegal contracts for the purchase of loans — it prohibited the trustees from entering into such contracts, which is not the same thing. There is, it seems to me, an important distinction between a statutory provision which makes it illegal for a trustee to enter into certain types of contracts and a statutory provision which makes certain types of contract illegal. In the former case (which is what happened on 19 December 1983) what the courts have to consider is what are the legal consequences which flow from a contract entered into by trustees contrary to the statutory provisions by which their trust is governed, in the latter case (which is not this case) what the court would have to consider are the consequences of entering into a contract declared by statute to be an illegal one.”
7.57 It seems fair to say that there has been little modern consideration by the Irish courts of the precise circumstances in which a contract, said to be tainted by illegality by reference to some form of statutory prohibition, may be considered to be enforceable or otherwise. While a decision made by the Employment Appeals Tribunal, the case of Lewis v. Squash Ireland [1983] I.L.R.M. 363, can, I think fairly, be said to represent the orthodox position in this jurisdiction and has also been implicitly recognised by the courts.
7.58 The case concerned the alleged unfair dismissal of a director of the respondent company. The decision focused on a sum of £2,000 which the appellant director received annually in addition to his annual salary. This sum was treated by the company as an expense for the purpose of tax evasion, thereby defrauding the Revenue. The Tribunal, having distinguished the case from St. John Shipping held the illegality did not render the contract of employment void, but that the illegality caused the contract to be unenforceable.
7.59 In the view of the Tribunal, public policy rendered the illegal contract unenforceable. The Tribunal considered, relying on the decision of the Tribunal in Newland v. Simons and Willer Ltd. (1981) I.C.R. 521, that the essential question is “Has the employee knowingly been a party to the deception on the Revenue?”. The Tribunal decided, on a subjective test, that the employee in question had been party to the deception. The chairman of the Tribunal stated, at 369:-
“It is public policy that the courts and this Tribunal, should not lend themselves to the enforcement of contracts either illegal on their face or in which the intended performance of obligations thereunder was illegal to the knowledge of the party seeking to enforce the contract.”
7.60 Since then, of course, the Unfair Dismissals Act has been amended by the Unfair Dismissals (Amendment) Act 1993 so that an employee now is, notwithstanding a contravention of the type which occurred in Lewis, entitled to redress under the Act in respect of his/her dismissal. This was observed by Laffoy J. in Re Red Sail Frozen Foods Ltd. (In Receivership) [2007] 2 IR 361.
7.61 It was held that the amendment to the Unfair Dismissals Act 1977 did not impede an employee from successfully pursuing a claim under that Act. The Minimum Notice and Terms of Employment Act 1973 contained a similar statutory provision. However, as regards holiday pay and arrears of wages, which were governed by the Protection of Employees (Employers\’ Insolvency) Act 1984, there was no such statutory provision and the common law rules on illegality were found to apply. However, the Department had adopted a pragmatic approach and made payments to the former employees on the basis of taxed payments to employees. Laffoy J. found that the Department made this decision either without regard to the issue of enforceability of the contracts of employment or, perhaps, was satisfied that no issue of enforceability arose. Laffoy J. held that it was lawful for the receiver to pay the arrears of wages and holiday pay to the Department in the circumstances. It can, I think, be said that Laffoy J. did not demur from the broad approach adopted in Lewis.
8 The Proper Approach
8.1 In the light of that review of the case law, it seems to me that it is appropriate for this Court, at this time, to consider the appropriate modern approach to be applied regarding the question of whether, and if so in what circumstances, a court in this jurisdiction should enforce a contract notwithstanding the fact that the relevant contract may, in some way, have a connection with illegality.
8.2 A starting point has to be to note that the question which was, at least for the time being, resolved in the United Kingdom in Tinsley has not been expressly considered in any detail in this jurisdiction in recent times. In my view, this Court is, therefore, free to consider the proper approach to adopt in the light of principle and precedent. I am also persuaded that there is much to be said for the criticism identified by Lord Sumption in Les Laboratoires Servier of the approach which sought to turn the principle of illegality from a rule of law into a power which could be exercised by the court on a discretionary basis depending on the merits of the case. Whatever may be the disadvantages of the rule of law approach, the uncertainty which would be created by leaving the question of enforceability up to a very broad consideration by a trial judge on the facts of any individual case would arguably be worse.
8.3 However, the approach adopted in cases such as Euro-Diam sought to solve the problem of attempting to balance, on the one hand, the public policy requirement that courts not act in aid of illegal activity with, on the other, the injustice to which a \”lie where it falls\” approach can give rise by inviting the court to decide each case on its own merits. An alternative approach, which seems to me to give rise to a much greater degree of certainty, seeks to reconcile the competing principles by having regard to what may be seen to be the policy requirements of the relevant statute which creates the illegality in the first place. On that basis, a court is required to assess whether the requirements of public policy, in respect of a particular statutory provision rendering, as a matter of the public law of the State, a particular type of activity illegal, require that contracts sufficiently connected with that particular type of illegality are to be regarded as unenforceable. Such an approach requires each statutory regime (or part of a statutory regime) to be independently assessed to determine whether policy requires particular types of contracts to be treated as unenforceable. However, such an approach does not mandate the court to take a different view as to whether one particular contract or another may be regarded as unenforceable by virtue of being in breach of the same statutory provision by reference to, for example, the severity of the breach concerned or the adverse consequences for the parties. The proper approach, in my judgement, is statute specific but is not case specific.
8.4 It must also be emphasised that the court must, in deciding whether public policy requires relevant contracts to be treated as unenforceable in the context of a particular statutory provision, place appropriate weight on the first principle, being the undesirability of courts being seen to enforce contracts which may be tainted by illegality and thereby failing to discourage such illegality. The weight to be attached to that principle in the context of an assessment of where the balance lies in relation to any particular statutory regime may depend on the nature of the statutory regime concerned and the type of activity which is thereby rendered unlawful. There might well be cases where the nature of the relevant illegality involves very serious criminal activity and where, therefore, the policy requirement that courts refrain from enforcing illegal contracts may be such as would manifestly override any other consideration. A contract to commit murder or to rob a bank would be obvious examples. There will, however, be other cases, not least in the regulatory area, where it may be necessary to assess, in the context of each relevant statutory provision, whether the policy requirements of the statute concerned, when taken in conjunction with the general policy requirement which leans against the enforcement of illegal contracts, may lead to a conclusion which favours enforceability.
8.5 However, once it is determined that policy requires that contracts which are deemed unlawful by reference to a particular statutory provision are to be regarded as unenforceable, no assessment of the merits of the individual case arises. The consequences lie where they fall. While there might be some uncertainty arising prior to the time when a court has the first opportunity to consider whether a particular statutory regime renders contracts unenforceable, such uncertainty stems from the silence of the relevant statute and any uncertainty will be removed once the matter is first determined. The application of the rule, as a rule of law, would then have been decided to apply in all cases under the relevant statutory provision so as to render appropriate contracts unenforceable. Likewise, if a court were to determine that contracts were not to be regarded as unenforceable by reference to a particular form of statutory illegality, then, again irrespective of the merits of any individual case, such contracts would be enforceable. The focus of the approach must, therefore, to be to determine whether public policy requires, in the context of a particular statutory provision, that contracts which may be tainted by illegality by reference to that specific statutory provision, are to be treated as unenforceable. While that approach is not entirely consistent with that adopted by the Supreme Court of the United Kingdom in Tinsley, it seems to me to be broadly supported by the approach adopted in Australia, and to be more appropriate in attempting to balance the public policy requirements involved in a highly regulated age.
8.6 If the statute makes clear what the consequences for relevant contracts are to be, then that is an end of the matter. The real problem arises where, as here, the statute is silent. Neither section 60 nor the MAR say anything directly about relevant contracts being void or valid, enforceable or unenforceable. The question which arises is, therefore, given that silence, as to what public policy requires. In that context it is apposite to note the important policy objectives identified as far back as Holman v. Johnson, but also to have regard to the fact, as noted by Lord Wright in Vita Food Products, that \”public policy understood in a wider sense may at times be better served by refusing to nullify a bargain\”.
8.7 Finally, as to the broad approach, it is necessary to note that questions may arise as to the extent to which contracts with a greater or lesser connection with the relevant illegality are to be treated as unenforceable. Clearly that issue does not arise if the proper conclusion to reach is that public policy does not require unenforceability at all. But where unenforceability arises, a further question may require to be determined as to just how closely connected to the relevant illegality a transaction may be required to be in order for it to be sufficiently tainted so as also to be treated as unenforceable.
8.8 But it is one thing to specify that the court must attempt to discern what public policy requires, in the light of the undesirability of courts enforcing contracts tainted with illegality coupled with the policy of the relevant statutory regime: deciding how, in more detail, the court should attempt to go about resolving that question in respect of any particular statutory regime is another.
8.9 However, the first two broad principles seem to me to be relatively clear. Those principles are the following:-
\”1. The first question to be addressed is as to whether the relevant legislation expressly states that contracts of a particular class or type are to be treated as void or unenforceable. If the legislation so provides, then it is unnecessary to address any further questions other than to determine whether the contract in question in the relevant proceedings comes within the category of contract which is expressly deemed void or unenforceable by the legislation concerned.
2. Where, however, the relevant legislation is silent as to whether any particular type of contract is to be regarded as void or unenforceable, the court must consider whether the requirements of public policy (which suggest that a court refrain from enforcing a contract tainted by illegality) and the policy of the legislation concerned, gleaned from its terms, are such as require that, in addition to whatever express consequences are provided for in the relevant legislation, an additional sanction or consequence in the form of treating relevant contracts as being void or unenforceable must be imposed. For the avoidance of doubt it must be recalled that all appropriate weight should, in carrying out such an assessment, be attributed to the general undesirability of courts becoming involved in the enforcement of contracts tainted by illegality (especially where that illegality stems from serious criminality) unless there are significant countervailing factors to be gleaned from the language or policy of the statute concerned.\”
8.10 Where the relevant statutory regime expressly provides that contracts of a particular type or category are considered to be either void or unenforceable (either in all circumstances or in certain specified circumstances), it is clear that the Oireachtas has determined that the balance between the two competing principles, which I have addressed earlier in this judgment, is to be resolved in favour of the \”hands off\” approach, leaving the consequences to lie where they fall. Doubtless, in such cases, the Oireachtas must be taken to be of the viewthat there are sound policy reasons for choosing that option. In certain cases it may be that the activity which is rendered illegal by statute is considered to be wrong in itself, and that parties engaging in that activity should not be able to enforce any relevant arrangements entered into.
8.11 If the legislation is clear in that regard, then, in the absence of any question as to the consistency of the relevant legislation with the Constitution, the courts must adopt the policy choice determined by the Oireachtas and treat any contract coming within the terms of the legislation itself as either void or unenforceable. There are also obvious reasons why this question should be the one first answered. If the legislation renders a particular class of contract void or unenforceable then that is the end of the matter. No other issues arise. All of the case law reviewed is consistent on this point. It is only if the legislation is silent in that regard that the further issues identified earlier need to be considered.
8.12 The second question is as to whether, even in the absence of an express provision rendering a contract of a particular type void or unenforceable, the courts should nonetheless treat that contract as being unenforceable as a contract tainted with illegality. It seems to me that the starting point for a consideration of this aspect of the case has to be to acknowledge that, by definition, in order for this second question to arise, the relevant contract must not have been expressly declared by statute to be void or unenforceable by the express terms of the legislation in question. Rather, it is very silence of the legislation on that point that leads to the second question. On the other hand, all due regard must also be paid to the importance of courts not being seen to countenance illegality by enforcing contracts which are tainted. As noted in the review of authorities from common law jurisdictions set out in the preceding section of this judgment, it does, however, need to be acknowledged that the range of matters which can give rise to some element of illegality in a modern, highly regulated age can be verysignificant indeed. Furthermore, the connection between any particular act of illegality and the contract whose enforceability is under consideration can vary. In addition, the purpose of the statute creating the illegality concerned may or may not tend to be furthered by treating relevant contracts as unenforceable.
8.13 In those circumstances, it seems to me that the Court must have regard to the fact, although it will not, of course, be decisive, that the Oireachtas could have, but chose not to, include an express provision rendering a contract of the type concerned void or unenforceable. The question comes down to one of assessing whether, notwithstanding the absence of such an express provision, nonetheless the Court should, as a matter of policy, treat the contract as unenforceable by reason of it being tainted with illegality.
8.14 It is, after all, the Oireachtas which, by enacting the legislation in question, has rendered certain activity unlawful. The reasons for the Oireachtas adopting that course of action may, of course, be many and varied.Thus, the policy behind the legislation in question may fall into many different categories. But it is precisely because it is the Oireachtas which has decided that a particular activity is to be regarded as unlawful that it is necessary to assess, and place significant weight on whether the policy of the legislation enacted by the Oireachtas requires that a particular of contract be treated as unenforceable.
8.15 I now move on to an assessment of the factors which may influence a decision as to whether the second principle requires that a contract of a particular type should be treated as void or unenforceable. This raises, it seems to me, the more difficult question with which this Court is now confronted, which is as to the proper approach which the Court should adopt in attempting to assess whether public policy generally and the policy of the relevant legislative provision requires that particular contracts, or types of contracts, are to be regarded as unenforceable. It is, perhaps, in that context that it may be said that the approach adopted in, respectively, the United Kingdom, on the one hand, and Australia, on the other, differs. That difference can, I think, be exaggerated. However, it can be seen that one aspect of the view of the minority in Tinsley found favour in Australia.
8.16 The original view, stretching back to Holman, was that, as a matter of policy, a court should not concern itself with attempting to give any effect to a contract which was in any way connected with an illegality. In principle, that illegality could derive from policy considerations recognised by the common law itself. As has already been noted, illegality can increasingly be found to derive from statutory prohibitions in one form or another. While it may be said that the original \”pure\” position adopted in Holman has been nuanced in both the United Kingdom and Australia, it seems that the way in which the common law has evolved on this topic in those two jurisdictions has diverged at least to some extent.
8.17 On one view, the evolution of the jurisprudence in the United Kingdom, as evidenced by Tinsley, and even in St. John Shipping, is more concerned with identifying a proper application of the \”pure\” position originally identified in Holman or exceptions to that position rather than modifying the underlying position itself. If the principle is that the courts should not be seen to be involved in giving effect to any contractual arrangements tainted by illegality, then that principle has no effect on the retention of property obtained by persons as a result of the completion or partial completion of the contract concerned. Such a party does not have to rely on the contract tainted by illegality to assert their entitlement to property, title to which has already passed as a result of the transaction concerned. The \”pure\” principle does not require that contracts tainted by illegality be reversed. It does not go that far. It simply suggests that the courts should not get involved in attempting to enforce such contracts. But if they have already been completed, then enforcement is no longer necessary. The principle would need to go much further, and require the active reversal of the consequences of a contract tainted by illegality, if it were to be the case that an action could be brought to recover the benefits which have actually been transferred as a result of a completed or partially completed contract.
8.18 In addition to that aspect of the United Kingdom jurisprudence, there are also the established exceptions to the \”pure\” rule, which were summarised in the judgment of McHugh J. in the High Court of Australia in Nelson in a passage already cited. But all of those exceptions and refinements do, in a sense, leave the basic rule intact. Contracts tainted by illegality should not be enforced by the courts. That rule may not, strictly speaking, apply where the contract has completed and where, therefore, it may be unnecessary to have recourse to the courts for its enforcement. Likewise, innocent parties, or those for whose benefit the relevant statutory regime was created may not suffer.
8.19 But the proposition which has found favour in Australia is that a more nuanced approach to the question of common law illegality itself is required.
8.20 In a highly regulated age, it seems to me that there may be an argument to the effect that a more nuanced approach is to be preferred. To treat every contract which might be said to be tainted by illegality as unenforceable, with all the potential for injustice to individual parties which such an approach would carry, may well not be consistent with modern policy requirements. As noted earlier, it is important to emphasise that it is open to the Oireachtas to determine whether particular categories of contract are to be regarded as unenforceable by reference to any aspects of a regulatory regime which the Oireachtas determines warrant such an approach. But where the Oireachtas has chosen not to expressly require that such contracts not be enforced, does it necessarily follow that policy always requires that the courts necessarily treat such contracts as unenforceable? There is, of course, nonetheless, the important policy requirement, which stretches back to Holman, and which is to the effect that the courts should not lightly be seen to be giving effect to contracts which are tainted by illegality. But modern experience demonstrates that there are other important policy considerations involved as well. Neither should the courts be readily seen to refuse to enforce otherwise binding commitments (where not expressly provided by statute) which can lead to injustice and consequences which are significantly disproportionate to the illegality concerned. Treating contracts as unenforceable in all circumstances can be as likely to lead to a breach of legitimate public policy requirements as to acting in their aid.
8.21 It seems to me to follow that, at least at the level of general principle, there is a case for a more nuanced approach, which seeks to identify the criteria by reference to which contracts tainted by illegality are to be regarded as unenforceable. Such an approach might be said to be mandated by the modern requirements of policy in a highly regulated age.
8.22 This leads to an important question. Legal certainty requires that there must be a reasonable level of clarity about the principles which are to be applied to determine whether contracts which might be said to be tainted by an illegality are nonetheless to be enforced. While the application of those principles to particular types of contract may require some analysis and may not always be easily determined, nonetheless the overall approach should be clear.
8.23 However, it is important to recall that the appropriate overall approach may have to be applied to a verylarge range of differing circumstances. In that context, it may well not be appropriate to attempt, in just one case which stems from a particular type of statutory or regulatory regime, to define with any great precision the overall approach which may be appropriate in all cases including very different types of situations involving different types of regimes.
8.24 In this context, it is important not to minimise the seriousness of the allegations which the Quinns make in this case. It is also important to record that those allegations are denied by Anglo, but that, for the purposes of this preliminary issue, the case is being considered on the assumption that the Quinns will be able to prove what they allege. It is worth reiterating that the reason why that approach is adopted is because Anglo argues that, even if those allegations are made out, the Quinns still cannot succeed.
8.25 But even when considering the broad category of underlying transaction which is under consideration in this case, being a lending transaction, it is possible to envisage a very wide range of circumstances, in which such a transaction might be said to be tainted with illegality. There might, for example, be money lent to a drug dealer in circumstances where it was known to the lender that the money was to be used for trafficking in drugs. At the other end of the spectrum, there might be lending which is connected with a transaction where the transaction concerned is in technical breach of a complex regulatory regime and where the lender, although aware of the facts, might not appreciate that there was a technical problem with the transaction for which the lending was being provided. A whole range of intermediate cases can be envisaged.
8.26 In those circumstances, it seems to me that it is appropriate to identify some of the issues or criteria which may need to be considered in the context of determining the enforceability or otherwise of contracts under any particular statutory regime without necessarily reaching a final conclusion as to whether, and if so in what way, each of those criteria should be applied. It will, however, in the context of this case, be necessary to reach a more definitive view on those aspects of the criteria which are of particular relevance to the question of the enforceability or otherwise of contracts which may be associated with alleged breaches of section 60 and/or the MAR. It would be prudent, in my view, to leave over a definitive decision in respect of criteria which are not crucial to this case to proceedings where the potential application of such criteria would be decisive, and where the focus of the Court\’s consideration would be on the application of such criteria to the real issues which arose in such cases.
8.27 In any event, it may not always be possible to provide an exhaustive list of the factors which should be taken into account. An inevitable consequence of trying so to do will be that the very next case which arises will throw up circumstances not envisaged. However, a review of the case law, and an analysis of modern conditions, suggests a number of factors which will almost certainly loom large in any court\’s consideration. I will address first those criteria which seem to me to be central to the issues in this case, and which, thus, require definitive determination. I will then turn to a brief consideration of criteria which may be relevant in other circumstances.
8.28 First it must be recalled that some statutory regimes render specified activity illegal per se. Other regimes render illegal activity which might ordinarily be lawful, but only in specified circumstances. The most obvious example of the latter is a case where there is a failure to obtain a necessary permission or licence. However, there may be cases where a type of transaction which is ordinarily lawful may be regarded as illegal because of the circumstances in which it was carried out, or due to the motives of one or other or both parties. The activities which are at the centre of the issues in the present case fall into that latter category. There is nothing, per se, wrong with a bank lending money and taking security for that lending, whether from the borrower or other parties connected to the borrower. However, where the lending concerned is designed to permit a party to buy shares in the lender, then section 60 will be breached. Where the lending is connected with activity which amounts to market abuse under the MAR, then the activity generally may be unlawful.
8.29 As pointed out by McHugh J. in Nelson, there is \”a vast difference between the performance of a contract for carriage of goods by a ship that is overloaded in breach of the law and the making of a contract for the carriage of goods where the making of the contract is specifically prohibited\”. As a further refinement, it is important to note that there may be contracts which, by their nature, and in the circumstances of the case, could only be performed in breach of the relevant law. On the other hand, there will be contracts which could quite easily be carried out in a lawful manner. There was no necessary reason why the goods in Nelson had to be carried in an overloaded ship. They could just as easily have been carried in a ship which was well within its limits.
8.30 Somewhat different considerations might, however, apply in a case where the very terms of the contract itself created a situation where it was, in the circumstances and to the knowledge of both parties, impossible to perform the contract without breaking the law.
8.31 In passing, it is important to recall, as McHugh J. also noted in Nelson, that the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. It is important to note that the exception thereby created is concerned with ignorance of the facts rather than ignorance of the law. If the claimant knew what he was doing but did not know that it was illegal, then that will not avail him. If he did not know enough about the facts to understand that the contract was unlawful, then a different situation may arise. But it is also important to recall that the exception to which I have referred is one which arises where it is the innocent party who wishes to enforce the contract in question. While a defendant may be able, in an appropriate case, to rely on illegality as a defence to a claim brought by the other party to a contract who was aware of all of the facts necessary to establish the relevant illegality, the same defence will not avail a defendant against a claimant who was not aware of sufficient facts to have knowledge of the illegality imputed to him. A party who knows enough about the facts so that it must be said that they knew, or ought to have known, that a contract could only be carried out in an illegal manner will not, under that analysis, be entitled to enforce same.
8.32 While not necessarily decisive in all cases, it seems to me that significant weight must, therefore, be attached to an analysis of whether the relevant contract is designed to require the parties to carry out the very act which the legislation is designed to prevent. The first matter which, therefore, a court should consider is:-
\”Whether the contract in question is designed to carry out the very act which the relevant legislation is designed to prevent.\”
8.33 Next, it seems to me that the court must give all appropriate weight to any express terms of the statute concerned, which might be taken to state, or necessarily imply, that the remedies or consequences specified in the statute concerned are to be the only adverse consequences, thus negativing any policy requirement in favour of the imposition of other consequences, such as the rendering of relevant contracts void or unenforceable.
8.34 In addition, therefore, the court should consider:-
\”Whether the wording of the statute itself might be taken to strongly imply that the remedies or consequences specified in the statute are sufficient to meet the statutory end\”.
8.35 In like vein, a court must also consider whether the act which the legislation seeks to render illegal is regarded as unlawful from the perspective of both parties, or of only one party. Thus, it may be unlawful to carry out a particular activity without a licence. But it may not be unlawful for a person to enter into a contract with an unlicensed service provider. The statutory policy may be clear. It may be designed to require a licence and, perhaps, to thus ensure that a licence holder is, in the public interest, subject to detailed regulation. The whole purpose of that legislation may be to protect consumers of the service concerned. But it may be clear that the policy of the legislation does not place on the consumer any obligation to be satisfied that the service provider holds the necessary authorisation. Indeed, in many cases, to do so would be to place a disproportionate burden on consumers.
8.36 The overloaded shipping cases are a good example. There was nothing, on any view, unlawful in the activities of the consignor. The consignor simply entered into a perfectly normal and valid contract for the consignment of goods. It was the activity of the shipper in overloading the vessel which was illegal. In such circumstances, there would, of course, be no reason in any event why the innocent consignor should not be able to sue on the contract. The questions of policy which I have sought to address are concerned with the issue as to whether the party who acts illegally, in that case the overloading shipper, is entitled to sue. On the other hand, it is also important to note that there will be many cases where both parties act unlawfully by entering into a particular type of contract.
8.37 Therefore, the court should take into account:-
\”Whether the policy of the legislation is designed to apply equally or substantially to both parties to a relevant contract, or whether that policy is exclusively or principally directed towards one party. Therefore, legislation which is designed to impose burdens on one category of persons for the purposes of protecting another category may be considered differently from legislation which is designed to place a burden of compliance with an appropriate regulatory regime on both participants\”.
8.38 Finally, insofar as matters of particular importance to this case are concerned, it must also be acknowledged that an important part of the policy behind the doctrine of illegality is concerned with achieving the purpose of the statute which creates the illegality in the first place. It is, therefore, necessary to consider whether rendering relevant contracts void or unenforceable might, in some circumstances, be counterproductive in that context. There will be cases where it is necessary to consider whether, and if so to what extent, treating the relevant contracts as unenforceable might tend to defeat the very purpose of the statute itself. A case where it is clear that the policy of the relevant legislation is to protect a particular class of persons will hardly be met by a refusal to enforce contracts to the further detriment of that very class.
8.39 Thus, in addition, the court should consider:-
\”Whether the imposition of voidness or unenforceability may be counterproductive to the statutory aim as found in the statute itself\”.
8.40 For reasons which I hope will become apparent when I turn to applying these principles to the facts of this case, it seems to me that the criteria which I have so far identified are sufficient to resolve the broad issue in this case. It must be recalled that the broad issue of principle is as to whether a combined consideration of the public policy requirement that the courts should not be seen to come to the aid of illegality, when coupled with the public policy behind the particular statutory provision which renders the relevant activity illegal, requires that sufficiently connected contracts be treated as unenforceable. However, a review of the case law from a number of jurisdictions discloses that there may well be further criteria or factors (beyond those already specified) which can and should be taken into account in appropriate cases. Without in any way attempting to be exhaustive, I now turn to a brief consideration of some further factors which might be relevant in this area of the law generally although, for the reasons already addressed, the views here expressed are necessarily tentative, and will require more detailed consideration in cases in which such questions might be decisive in order that a more definitive approach might be developed.
8.41 The first such matter which needs to be addressed in that context is to consider the adverse consequences which the statute itself provides for those who engage in the relevant illegal activity. It must, of course, be assumed that legislation does not deem certain activity to be illegal without providing for any consequences. What would be the point of rendering activity unlawful if it did not matter in law whether someone engaged in the activity or not? However, most regulatory regimes provide some form of adverse consequence in the case of breach. Criminal penalties may be imposed. Administrative consequences may result. For example, licensed persons or bodies may lose their licence or may have onerous conditions imposed. Individuals may be restricted in their future activities. Administrative penalties may be incurred although, in this jurisdiction, there may be some limits on the extent to which administrative consequences which amount to a penalty may be imposed in circumstances which might be considered to involve the administration of justice.
8.42 That being said, and subject to such constitutional limitations as there may be, persons or bodies found to have acted illegally may be subject to significant administrative financial penalties or the like. The examples which I have given are not sought to be exhaustive. The types of consequences which may be expressly provided by statute as flowing from illegality are many and varied, and are likely to be significantly dependent on the nature of the illegality concerned and the type of activity regulated by the statute in question. All that needs to be said for the purposes of this case is that a court may well be entitled to take into account the range of express potential adverse consequences of the relevant illegality in assessing whether it is to be implied that those consequences are sufficient in themselves to meet the purposes or policy of the statute.
8.43 It may be that an elaborate, significant and proportionate scheme of adverse consequences may be much more likely to lead to the inference that those consequences are sufficient to deal with the relevant illegality. Limited or minor consequences will more readily lead to the opposite inference and, thus, to a conclusion that it is required by policy that relevant contracts should be regarded as unenforceable. In such an assessment, it may well be that a court will be required to be mindful to identify the purpose of the statute (as inferred from its general structure and terms) and to consider whether it should be inferred that the specific consequences, set out in the legislation and to be applied in the case of illegality arising under the statute concerned, are sufficient to meet that statutory purpose.
8.44 It is at least arguable, therefore, that a court may be required to have regard to:-
\”Whether, having regard to the purpose of the statute, the range of adverse consequences for which express provision is made might be considered, in the absence of treating relevant contracts as unenforceable, to be adequate to secure those purposes\”.
8.45 Likewise, in carrying out such an assessment, it may be necessary to consider whether the further imposition on the parties which might be said to flow from treating a contract as void or unenforceable (with its potential for unjust consequences for the parties or one of them) might be, as McHugh J. suggested in Nelson, \”disproportionate to the seriousness of the unlawful conduct\”. In other words, the court may have to consider whether rendering all contracts connected with the illegal activity concerned void or unenforceable would impose an excessive and disproportionate burden on interested parties well beyond that necessary to secure that same statutory purpose.
8.46 It is important, however, to treat this aspect of the potential criteria with some care. I have already set out the reasons why it would, on balance, be undesirable to apply a test which required the court to balance the seriousness of the individual wrongdoing in the case in question with the consequences for the parties in that same case. The question of whether treating relevant contracts as unenforceable might be considered to be disproportionate must, therefore, be considered in the context of the general application of the relevant statutory measure and the general sort of circumstances which might be expected to be governed by it. There is no mandate for conducting a proportionality analysis on an individual case by case basis. There may well, however, be some justification in inferring the policy requirements of a statute concerning unenforceability from an analysis of general proportionality.
8.47 It is also, therefore, at least arguable that a court may be required to have regard to:-
\”Whether the imposition of voidness or unenforceability may be disproportionate to the seriousness of the unlawful conduct in question in the context of the relevant statutory regime in general.\”
8.48 In addition, it should be noted that, even where a relevant contract may be unenforceable as and between the parties thereto, it does not necessarily follow, certainly without further detailed analysis, that every supporting or collateral measure, such as a guarantee or the giving of security by a party other than a party to the original contract, is to be treated in exactly the same way as the underlying contract itself, particularly in circumstances where those involved in the connected transaction are unaware of, and are innocent in relation to, the relevant illegality, and whether those innocent parties may be said not to be beneficiaries of the arrangements concerned. Whether that question truly arises on the facts of this case is an issue to which it will be necessary to return.
8.49 It is important, in that context, to note that, for the purposes of the preliminary issue in this case, it must be assumed that, as they assert, the Quinns were, at the relevant times, unaware of any illegality. Thus, a question potentially arises, in circumstances such as those which underlie this case, as to whether a party to a transaction which is not itself illegal and which is merely collateral to illegal activity is necessarily bound by the consequences of such a collateral contract, even though more central contractual arrangements may be considered to be enforceable notwithstanding illegality under the principles which I have sought to analyse. As noted above, that question may come into greater focus where the parties concerned have not benefited in any way form the overall transaction. In that latter context it may well be important to make a distinction between two types of cases. There may very well be a strong justification for public policy treating such cases differently. On the one hand, it is possible to envisage a case where someone, wholly unconnected with and innocent of an illegal transaction, gives security for the benefit of, for example, a relative.
8.50 An analysis of the appropriate criteria might result in the conclusion that public policy requires that the underlying transaction between two guilty parties should nonetheless be enforced, notwithstanding its connection with illegality. But it would not necessarily follow that an entirely innocent guarantor should suffer to the benefit of a party who was directly engaged in the illegality concerned. On the other hand, different considerations might well apply where the guarantor was, whether innocently or otherwise, designed to benefit from the verytransaction itself or from closely connected transactions. In such circumstances it might be difficult to see how public policy required that such a party should potentially gain the benefit of an illegal transaction without having to comply with obligations entered into as part of the very same series of transactions. However, the precise way in which such considerations might work out in practice must await a case in which appropriate facts squarely arise, and where a determination of the proper approach would be decisive to the result. For example, it might well be that \”benefit\” in this context might properly be seen to be viewed from the time of the relevant transaction and not with hindsight. A series of transactions from which a party might have expected to benefit might not be viewed, for these purposes, differently if the expected benefit did not ultimately materialise.
8.51 In one sense, the question of connected transactions involving innocent parties is the opposite of the one raised by the issues already touched on in this judgment concerning contracts closely connected with illegality. As noted earlier, it may well be necessary, in cases where the application of relevant criteria leads to the conclusion that some degree of unenforceability must follow, to assess just how close a connection there must be between the contract or transaction under review and the relevant illegality so that such a contract might be sufficiently tainted so as to be treated as unenforceable. Such questions are concerned with the reach of illegality. Those issues are concerned with a situation where an underlying or central contract is to be regarded as unenforceable, and concern the question of whether collateral or connected contracts may also be unenforceable. But a similar question arises where the underlying or central contract is enforceable but where there may be circumstances, by reference to the relevant criteria, where it may be arguable that public policy does not extend so far as to require that all collateral contracts involving innocent parties are necessarily also enforceable.
8.52 Put in the context of this case, the question arises as to whether, even if it is the case that the underlying lending transactions entered into between the various Quinn Group companies and other Quinn entities, on the one hand, and Anglo, on the other, are tainted by illegality under either or both of section 60 and the MAR, but are, nonetheless, properly regarded as enforceable in themselves, it necessarily follows that security put in place by an innocent party in support of those transactions is also enforceable. There are, in reality, two questions involved. The first is to consider whether, having applied the appropriate criteria to the issue, the underlying lending contracts should be regarded as enforceable, it may be taken also to be required by that same policy that such collateral contracts are likewise to be regarded as enforceable. The second question is as to whether the fact that the relevant security is already in place, and that Anglo does not, therefore, have to invoke the jurisdiction of the courts to enforce their security, alters the overall legal situation. It should be noted that it is the Quinns who bring these proceedings seeking negative declarations. Anglo does not seek any order of the court which is designed to act in aid of the enforcement of their security. I will analyse, in due course, the nature of the negative declarations sought in this case and the possible effect of that form of action on some of the issues which require to be determined.
8.53 However, whether those questions, including the question as to whether Anglo, having the benefit of completed security arrangements, could, in any event, be deprived of its opportunity to seek to enforce those security arrangements provided that they did not have to invoke a court process, are issues which may not arise depending on the answer to the question of whether the underlying lending contracts are themselves enforceable or not. If the underlying lending contracts are unenforceable then the question of whether collateral contracts with innocent parties might be unenforceable even if the primary contract was enforceable would not arise. Likewise, Anglo would not have to rely on any question concerning the status of concluded security arrangements if the security contracts themselves are enforceable in any event.
8.54 It is appropriate, therefore, to summarise the considerations which may ordinarily need to be taken into account by a court in assessing whether it may be said that public policy requires that contracts tainted by association with illegality under that statute should be regarded as unenforceable.
8.55 In summary, the principal criteria are as follows:-
1. The first question to be addressed is as to whether the relevant legislation expressly states that contracts of a particular class or type are to be treated as void or unenforceable. If the legislation does so provide then it is unnecessary to address any further questions other than to determine whether the contract in question in the relevant proceedings comes within the category of contract which is expressly deemed void or unenforceable by the legislation concerned. (para. 8.9)
2. Where, however, the relevant legislation is silent as to whether any particular type of contract is to be regarded as void or unenforceable, the court must consider whether the requirements of public policy (which suggest that a court refrain from enforcing a contract tainted by illegality) and the policy of the legislation concerned, gleaned from its terms, are such as require that, in addition to whatever express consequences are provided for in the relevant legislation, an additional sanction or consequence in the form of treating relevant contracts as being void or unenforceable must be imposed. For the avoidance of doubt it must be recalled that all appropriate weight should, in carrying out such an assessment, be attributed to the general undesirability of courts becoming involved in the enforcement of contracts tainted by illegality (especially where that illegality stems from serious criminality) unless there are significant countervailing factors to be gleaned from the language or policy of the statute concerned. (para. 8.9)
3. In assessing the criteria or factors to be taken into account in determining whether the balancing exercise identified at 2 requires unenforceability in the context of a particular statutory measure, the court should assess at least the following matters:-
3(a) Whether the contract in question is designed to carry out the very act which the relevant legislation is designed to prevent (para. 8.32)
3(b) Whether the wording of the statute itself might be taken to strongly imply that the remedies or consequences specified in the statute are sufficient to meet the statutory end. (para. 8.34)
3(c) Whether the policy of the legislation is designed to apply equally or substantially to both parties to a relevant contract or whether that policy is exclusively or principally directed towards one party. Therefore, legislation which is designed to impose burdens on one category of persons for the purposes of protecting another category may be considered differently from legislation which is designed to place a burden of compliance with an appropriate regulatory regime on both participants. (para. 8.37)
3d) Whether the imposition of voidness or unenforceability may be counterproductive to the statutory aim as found in the statute itself.(para. 8.39)
4. The aforementioned criteria or factors are, for reasons which will become apparent, sufficient to resolve this case. However, the following further factors may well be properly taken into account in an appropriate case:-
4(a) Whether, having regard to the purpose of the statute, the range of adverse consequences for which express provision is made might be considered, in the absence of treating relevant contracts as unenforceable, to be adequate to secure those purposes. (para. 8.44)
4(b) Whether the imposition of voidness or unenforceability may be disproportionate to the seriousness of the unlawful conduct in question in the context of the relevant statutory regime in general. (para. 8.47)
5. Doubtless other factors will come to be defined as the jurisprudence develops.
8.56 In the light of that general approach, it is necessary to turn to the specific issues of enforceability which arise in this case. I, therefore, turn to the question of whether the underlying lending transactions can be said to be unenforceable as a result of the alleged illegality by reference to section 60 and the MAR. I will approach that question separately in respect of the two legislative measures. However, I should first make a general point applicable to both.