Illegality Defence Further Evolves Into Natural Justice: Victus Estates And Others v Munroe And Others

• Published date: 28 September 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Criminal Law, Trials & Appeals & Compensation, Conveyancing, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Gatehouse Chambers
• Author: Mr Matthew Hodson and Amanda Eilledge

Victus Estates and others v Munroe and others [2021] EWHC 2411 (Ch)

Introduction

Once upon a time, as a matter of public policy, a transaction affected by illegality could not be relied upon as enforceable.

Then along came Patel v Mirza [2016] UKSC 42. That Supreme Court decision gave us the modern formulation, taking a new policy-based approach that invited a judge determining such a case to consider:

1. The underlying purpose of the illegality and whether that purpose would be enhanced by denying the claim.
2. Whether there are other public polices on which denying the claim might have an impact.
3. Whether denying the claim would be a proportionate response to the illegality.

This approached was to be supplemented by a 'range of factors' non-exhaustively stated to include: the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was a disparity in the parties' respective culpability. The civil courts were there to determine private rights and obligations, and not to punish.

Thus, the courts now have a far greater degree of discretion and may apply common sense and natural justice in deciding whether illegality should found a defence.

Decision

Fast forward five years to the recent case of Victus in August 2021. The claim was brought to determine the rights of two mortgage lenders over two properties charged to them as security.

The two properties in question had originally been owned by a man 'C' as legal and beneficial tenant in common with a woman 'M' (first property) and a second woman 'B' (second property).

C had executed a TR1 in relation to each property purporting to transfer them to transferees who then borrowed money from the lenders, granting charges over the properties. The TR1 forms, however, were fraudulent, with forged signatures from M and B who had not consented to the transactions. C had forged the signatures and the transferees knew it

At first instance the County Court held that the TR1s were shams, and that the transferees had acquired no interest, with the result that the lenders had no charge.

The case was appealed to the Chancery Division and heard by Morgan J who applied s.63(1) Law of Property Act 1925 to achieve a more instinctively fair outcome for the lenders. That section provides that a conveyance is effectual to pass all the interest the conveyancing party had in the property which they had the power to convey. As a result of an earlier bankruptcy the joint tenancies had been...