Why Is The "illegality" Defence Back In The Spotlight?

• Published date: 30 July 2020
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, Professional Negligence, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: 4 New Square Chambers
• Author: Ms Helen Evans and Ian McDonald

It is not uncommon for defendants to professional negligence claims to argue that the claimant should be barred from recovering damages because his or her cause of action is tarred by illegality. However, over recent years, the law has taken a variety of approaches to when illegality will provide a defence. With the issue about to come before the Supreme Court again, Helen Evans and Ian McDonald of 4 New Square explain.

What is the relevant test for illegality and where does it come from?

Until 2016, the defence only worked if the defendant could show that the claimant had to rely on the illegality in order to bring the claim: Tinsley v Milligan [1994] 1 AC 340. In Patel v Mirza [2016] UKSC 42, the Supreme Court decided that this approach was too formulaic.

In Patel, the claimant gave the defendant '620,000 to bet on a bank's share prices with the benefit of insider information. The betting did not take place, but the defendant did not return the money. The claimant sued, but the defendant argued that the claim should fail because the claimant had to rely on an illegal agreement. The Supreme Court disagreed and established a new framework for deciding when illegality will prevent a claim. The new approach required the court to consider:

• The underlying purpose of the prohibition which has been transgressed and whether that purpose would be enhanced by denial of the claim;
• Any other relevant public policy on which the denial of the claim may have an impact; and
• Whether denial of the claim would be a proportionate response to the illegality.

The Supreme Court pointed out, however, that a judge is not free to decide a case in an undisciplined way. It emphasised that the court should always give a principled and transparent assessment of the considerations identified.

What is the potential problem with this new approach to the illegality defence?

Supporters of having more broad-based legal tests argue that they allow more nuanced outcomes. However, the trouble with taking a more liberal approach is that it can make the outcome of cases less predictable. The fact that the illegality defence has come before the Court of Appeal and Supreme Court so frequently in 2019 and 2020 suggests that the consequences of the Patel approach are yet to become clear. Below we explain three of the recent cases that have grappled with the issue, before returning to the case being argued before the Supreme Court this week.

The three recent cases are a good indication of the...