The UK Supreme Court has rejected a formal “reliance” test to determine whether a defendant to a civil claim can rely on the claimant’s wrongdoing to defeat the claim, replacing it with a more fact-sensitive “range of factors” approach, which may expand cases in which the defence operates.
“No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”, Lord Mansfield’s dicta in Holman v Johnson (1775)[i], encapsulate the English common law defence of illegality to civil claims. The defence is based on the public policy that a person should not be able to benefit from their own wrongdoing and that the courts should not enforce claims that harm the integrity of the legal system. It is a potentially far-reaching defence which can apply in any civil claim, and the recent case of Patel v Mirza[ii] indicates that all litigants should now consider it whenever allegations or evidence indicate wrongdoing.
However, whilst the rationale is clear, authorities have been less so. As Gloster LJ put it in the Court of Appeal, “it is almost impossible to ascertain or articulate principled rules from the authorities”[iii], either for the recovery of money or other assets paid or transferred under illegal contracts, or for the range of cases to which the defence might apply (e.g. to claims for contractual damages or performance, to claims in tort, or to restitutionary claims for unjust enrichment).
In the previous leading case of Tinsley v Milligan[iv], the majority of the House of Lords (now the UK Supreme Court) articulated what became known as the “reliance test”. Broadly, this meant that where a defendant raised a defence of illegality, the court would consider whether the claim “relied” on the claimant’s own illegal act. If it did then – subject to certain exceptions – the defence of illegality would succeed.
The reliance test has long been subject to criticism (most notably by the UK Law Commission in its 2009 Consultation Paper[v]) that it created arbitrariness, uncertainty and the potential for injustice, largely because it focused on procedural issues rather than the policy reasons underlying the doctrine of illegality, and created uncertainty as to what exactly amounts to “reliance”.
In Patel v Mirza the Supreme Court rejected the reliance test and held that a “range of factors” test should apply instead. Lord Toulson (for the majority) set out the new test as follows:
“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… In assessing whether the public interest would be harmed in that way, it is necessary
- to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,
- to consider any other relevant public policy on which the denial of the claim may have an impact, and
- 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.”[vi]
It is clear that the defence of illegality may now be a potentially relevant factor in a wider range of disputes, and will not depend on how the case is formally pleaded. Claimants and defendants would be well advised to consider this in every dispute involving a potential illegal factor.
[i] 1 Cowp 341, 343
[ii]  UKSC 42 http://www.bailii.org/uk/cases/UKSC/2016/42.html
[iii] Paragraph 47, endorsed by the Supreme Court at paragraph 15
[iv]  1 AC 340
[v] The Illegality Defence (Consultation Paper 189).
[vi] Paragraph 120 of the judgment.
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