Stoffel & Co v Grondona: UK Supreme Court Applies Policy-based Approach To Illegality Defence

• Published date: 18 November 2020
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Mayer Brown
• Author: Mr James Whitaker and Tom Wild

Summary

The recently-clarified common law illegality defence has been considered by the Supreme Court in the context of a professional negligence claim brought against a solicitor by a mortgage fraudster, providing an example of the Supreme Court's approach to a relatively new test in an area of potentially broad application.

Legal background

There is a long-standing principle that the courts will not assist a party whose case is based upon an unlawful act. The correct application of that principle was, however, at least until quite recently, somewhat uncertain: were the courts required to apply relatively rigid rules, or could they adopt a more flexible principle-based approach?

In its 2016 judgment in Patel v Mirza¹, the Supreme Court resolved that uncertainty in favour of a more flexible approach. The core question for the courts to determine is whether permitting the claim would be contrary to the public interest, damaging the integrity of the legal system. The "trio of necessary considerations" in assessing this are as follows:

1. Identifying the underlying purpose of the prohibition which has been transgressed, and considering whether that purpose would be advanced by providing a defence to the claim.
2. Identifying the public policy grounds against granting a defence.
3. Considering whether, in the circumstances of the claim granting the defence and denying the claim would be a proportionate response to the unlawfulness.

Stoffel & Co v Grondona

The Supreme Court recently considered the Patel test in Stoffel & Co v Grondona². The facts are relatively straightforward. Ms. Grondona was buying a London flat. She applied for, and was granted, a mortgage from a building society, on the basis that the funds would be used to pay the seller and to release a charge over the property. Stoffel & Co, a law firm, was engaged to advise on the transaction by Ms. Grondona, the building society and (peculiarly) also the seller.

After the transaction completed, Stoffel negligently failed to make the Land Registry filings required to register the transaction. As a result of that failure, legal title did not pass to Ms. Grondona, the mortgage was not registered, the seller remained the registered owner, and the pre-existing charge remained in place, on the basis of which further advances were made to the seller.

Ms. Grondona subsequently defaulted on mortgage repayments and was sued by the building society for a money judgment. She in turn sought to pass the claim on to Stoffel, on the basis of its admitted...