New “range of factors” test suggests broad use in future civil matters and fairer, more nuanced outcomes.
The High Court has applied the new fact-sensitive “range of factors” test in Harb v Aziz[i] to determine whether a defendant to a civil claim can rely on the claimant’s wrongdoing to defeat the claim. The Supreme Court adopted this new “range of factors” test in the 2016 case of Patel v Mirza[ii], which replaced the “reliance test” identified in Tinsley v Milligan (widely criticised as being too formal). See Latham’s related blog, UK Supreme Court Adopts New “Range of Factors” Approach to Defence of Illegality.
The principles of the illegality defence are that a person should not be able to benefit from their own wrongdoing, and the court should not enforce claims that harm the integrity of the legal system. The defence is potentially far reaching, particularly under the new “range of factors” test, and so its recent application will be of interest to many litigants — especially if there is evidence of a claimant’s wrongdoing.
In Harb v Aziz, the court considered a claim by Mrs Harb (allegedly married to the late King Faad of Saudi Arabia) to enforce a contract against a Saudi Prince (the King’s son), pursuant to which she would obtain US$12 million and two properties in Chelsea, London. The prince argued that the contract was void for various reasons, including illegality. The prince succeeded on other defences, but the court considered obiter whether the illegality defence would have succeeded, and cited the test described by Lord Toulson in Patel v Mirza:
“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:
(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.”
The prince contended that the illegality defence should prevent the claim because the claimant made a statutory declaration in connection with the negotiation of the contract, in which she retracted statements she had made previously about the King — even though she believed the statements to be true at the time. The prince therefore contended that Mrs Harb had committed perjury and performed the contract in an illegal manner, rendering it unenforceable on grounds of illegality.
The court’s ruling
The court concluded that “the statutory declaration was false … which amounts to perjury”. The court then considered each of the Patel v. Mirza factors in turn:
- The relevant contravened prohibition was in relation to perjury. The court found that underlying purpose of the prohibition is to ensure that statutory declarations are truthful.
- Two public policies were relevant. First, that contracts should be enforced, albeit the doctrine of illegality should take precedence if appropriate. Second, out of court settlements should be encouraged. The judge noted that many settlement agreements contain formal withdrawals of allegations when the withdrawing party would still maintain the allegations to be true. It would be undesirable if those settlements could not be enforced. However, as he acknowledged, an allegation does not need to be withdrawn by means of statutory declaration.
- In assessing proportionality, the court considered that Mrs Harb’s conduct was “serious, but not … of great seriousness” in the context of the claim, even though the conduct was “intentional”. What was “most important” to the court was that the prince was “nearly as culpable as Mrs Harb”, and so to rule the agreement unenforceable would give him “a substantial windfall”. The prince had demanded an acknowledgement that the statements about the King were false, which would have required Mrs Harb to make a “false statement” (even if the contract did not require her to make it in the form of a statutory declaration).
The court concluded that preventing the enforcement of the agreement on the grounds of illegality would have been disproportionate, and would undermine the policy of favouring settlement agreements.
This new decision indicates that the “range of factors” test will have wide application in civil matters, and will not be confined to unjust enrichment cases like Patel v Mirza, as some commentators suggested. The decision also provides a good illustration of the test’s application, and shows the significance of the “culpability” question, which the Supreme Court indicated would be relevant to assessing proportionality.
The “range of factors” test seems to have achieved, at least on this occasion, a more nuanced and equitable outcome than the previous reliance test. Latham expects to see this new test feature in defendants’ toolkits more in the future.
[i]  EWHC 508 (Ch)
[ii]  UKSC 42
This post was prepared with the assistance of Tom Watret in the London office of Latham & Watkins.