#3672 - Illegality - Aspects Of Obligations

Holman v Johnson (1775) (HL) – goods prohibited in England were sold abroad even though seller knew they were going to be smuggled into England. Question was whether this contract could be sued upon. Lord Mansfield – the illegality of the objection is founded on public policy (ex dolo malo non oritur actio) that no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal right

Tinsley v Milligan (1994) (HL) – Lord Goff – it is a policy of justice whose application is indiscriminate and so can lead to unfair consequences as between parties to litigation. The principle allows no room for the exercise of any discretion by the court in favour of one party or the other

Gray v Thames Trains (2009) (HL) – Lord Hoffmann – the maxim ex turpi causa is not so much a principle as a policy, and is based on a group of reasons that vary in different situations. For property and contractual rights pursuant to an unlawful transaction, to deny relief on the ground of illegality would confer an unjustified benefit illegally obtained on other. But the questions of fairness are different in different situations and contexts

1. Legal Justification

   • Tinker v Tinker (1970) (CA) –Salmon LJ –the legal justification is that the party has not come to equity with clean hands

Tinsley v Milligan (1994) (HL) – Lord Goff –the requirements to get an equitable interest are present, but claimant is just precluded from asserting them

Tribe v Tribe (1996) (CA) –Millett LJ –locus poenitentiae is an exception that mitgates the harshness of the primary rule¹, but he must have withdrawn while purpose only in intention

1. Justifications

Gray v Thames Trains (2009) (HL) – Lord Hoffmann – the maxim ex turpi causa is not so much a principle as a policy, and is based on a group of reasons that vary in different situations. For property and contractual rights pursuant to an unlawful transaction, to deny relief on the ground of illegality would confer an unjustified benefit illegally obtained on other. But the questions of fairness are different in different situations and contexts

• Goudkamp – one justification is that the claimant should be punished. However, this can be criticised because punishment is not always proportionate to the wrong. The difficulty with a deterrence argument is that people are not aware of the law. The illegality/immorality divide is too uncertain

1. Illegality

   1. General

      • Les Laboratoires Servier v Apotex (2011) (HC) – whether or not the ex turpi causa rule applies depends on circumstances. Relevant factors are: [1] knowledge of claimant, [2] whether intention or negligence exists, [3] whether induced by defendant, [4] may not be sufficient if strict liability and claimant not aware of facts, [5] dishonest not always needed

   2. Sexual Immorality

      • Pearce v Brookes (1866) (CA) – claimant rented his coach to defendant, who was a prostitute. Claimant knew that defendant would carry on illicit activities there. Contract was tainted be immorality and was not enforced. No distinction made between illegality and immorality

      • Hegarty v Shine (1878) (CA) –claimant sued for battery as a result of contracting a venereal disease, arguing consent was vitiated. Court rejected this claim since the injury resulted from an extra-marital relationship

      • Sutton v Hutchinson (2005) (CA) – money was lent to a prostitute. Longmore LJ – it was arguable that this was tainted by illegality. Ultimately the prostitute didn’t need to rely on the illegality and the claim succeeded anyway. But it was not an obvious point

   3. Interference With Administration of Justice

      • Kearley v Thomson (1890) (CA) – solicitors were administrators and had incurred costs to be paid out of bankrupt’s estate. Claimant said he would pay this money if solicitors didn’t oppose bankrupt’s order of discharge. Before the order was made, claimant wanted money back. However solicitors had already appeared at public examination of the bankrupt. This was tainted by illegality

   4. Bribes

      • Nayyar v Denton Wilde Sapte (2009) (HC) –solicitors introduced claimants to a client, who the claimants bribed. Eventually nothing came of the introduction and claimants sued solicitors. Hamblen J –ex turpi causa extends to illegal and immoral acts, and a bribe is sufficient to engage it. Not necessary to decide whether criminal law was breached

   5. Price-Fixing

      • Safeway Stores v Twigger (2010) (HC) – defendants were directors of claimants who were sued after exposing claimants to price-fixing fines. Flaux J –ex turpi causa not limited to criminal acts but only seriously immoral acts enliven it. There must be an element of moral turpitude or moral reprehensibility. Here, price-fixing was enough

   6. Restraint of Trade

      • Esso Petroleum v Harper’s Garage (1968) (HL) –public policy against unreasonable restraints of trade meant contract was tainted by illegality

   7. EU Law

      • Courage v Crehan (1999) (ECJ) – AG Mischo – the fact that being party to an agreement that is illegal automatically constitutes a wrong is too formalistic and doesn’t take account of individual cases

2. Reliance Principle

   1. General

Tinsley v Milligan (1994) (HL) – two lesbians bought a house registered in T’s sole name so that social security department would be defrauded and benefits claimed. They split up and M claimed the other half. Held that she could rely on a resulting trust; therefore there was no need to rely on the illegality. If they had been married, presumption of advancement would have applied and the result would be different

Lord Goff (d) –the claim should fail here because the fact that there is no presumption of advancement is irrelevant; M has not come to equity with clean hands. This is the broader principle behind the reliance principle

Lord Jauncey – as soon as the agreement was implemented a resulting trust was made in favour of the claimant, c.f. the position if agreement had not yet been performed – she would then have had to rely on the illegal transaction, and would have had no claim

Lord Lowry – the wider principle advocated by Lord Goff will not act as a deterrent because people might not be aware of the principle, and are already deterred by fraud. It could also encourage one party, who would then become legal and beneficial owner. On the better view, the equitable right does not arise out of an illegal or immoral right

Equality Act 2010 s 199 –abolition of the presumption of advancement, prospective only

1. Transaction Not Carried Into Effect

Tribe v Tribe (1996) (CA) – Millett LJ – where the transaction has not been carried into effect, transferor could repent the illegal purpose and get the property back

• Tribe v Tribe (1996) (HC) – Weeks QC –difficult to see why the outcome in these cases should depend on arbitrary factors, such as whether the claim is brought by a father against a son, or a mother against a son, or a grandfather against a grandson

1. Intention and Motive

   • Nelson v Nelson (1995) (AUS)– mother transferred a house to her daughter in order to get social security payments. She did receive these payments and daughter resisted her claim to the house. Court ruled that neither the reliance principle nor Tribe exception could help the mother. Dawson J (d) – it is the intention rather than the motive/purpose that enables the presumption of advancement to be rebutted, with the latter providing evidence for the former

It is difficult to distinguish between motive and intention in this context. You might say intention cannot be asserted if tainted by an illegal purpose.

• Creighton –in Tinsley, it was a Gissing kind of resulting trust which does depend on intention. In Tinsley, the claimant could make out an interest even though her intention was tainted by a fraudulent motive. If you can separate intention from motive it is difficult to see why that should not be possible when seeking to rebut a presumption of advancement

1. Unhappy Outcomes

   • Collier v Collier (2002) (CA) – Mance LJ – although the father could not rely on his illegal purpose and a trust in favour of him could not stand, he is unhappy with the outcome

   • Q v Q (2008) (HC) – Black J – rules can sometimes favour one of a number of parties who are all equally implicated in the illegal purposes simply by how the case is plead

   • Creighton – it is difficult to determine boundaries of the rule, and likely to be capricious if it is applied to evidence where that is merely relevant to a material fact. In that case, ti will depend on how the case is plead

1. Calls for Reform

   1. Illegal / Immoral Behaviour

Tinsley v Milligan (1994) (HL)– Lord Goff (d) – thought that it is a good idea to look into alternatives that wouldn’t produce as much injustice, but this is a question for the legislature and the Law Commission

1. Recent Developments

Gray v Thames Trains (2009) (HL) –in relation to tort

Stone & Rolls v Moore Stephens (2009) (HL) –in relation to contract

1. Australian View

   • Nelson v Nelson (1995) (AUS) – McHugh J – depends on how the case is plead. It is too technical a rule and undermines the deterrent value by providing a substantial loophole. The rule may defeat the intention of legislature in imposing a sanction on the illegality other than that contemplated by the legislation that made the conduct unlawful. Held that the approach should be that recovery is denied only where the policy of the statute has been infringed

   • Creighton –problem is that where the statute is silent, you could just...