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LAW AND COMMERCE

The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui Tee Ming Zee, University of Oxford

Introduction

to work against their favour.

‘No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.’1 Lord Mansfield’s dicta in Holman v Johnson represents the orthodox position of the common law defence of illegality: that a person should not be able to benefit from their own wrongdoing. The rationale behind this doctrine is the preservation of the integrity of the legal system2: to allow an actionable claim founded upon an illegal act would produce ‘inconsistency and disharmony’3, by ‘giving with the left hand what [the law] takes with the right’4. The defence applies in a wide range of commercial scenarios, as where an investor claims loss for a void investment because his representative failed to hold the necessary licence to invest, or where a buyer seeks the return of money paid for goods sold illegally.

While the rationale for the defence is clear, the rules it operates by are less so. As Gloster LJ in the Court of Appeal opined in Patel v Mirza (“Patel”),7 ‘it is almost impossible to ascertain or articulate principled rules from the authorities’, either for the recovery of money or assets transferred under illegal contracts, or for the range of cases to which the defence might apply – such as claims for contractual damages, specific performance, tort, or unjust enrichment. Lord Toulson in the Supreme Court (hearing the same case decried the law of illegality as fraught with ‘uncertainty, complexity and sometimes inconsistency’8. And the Singapore Court of Appeal in Ting Siew May v Boon Lay Choo (“Ting Siew May”) described the defence as being ‘one of the most confused (and confusing) areas in the common law of contract’9.

However, the defence of illegality cannot be absolute. In certain situations, a claim tainted by illegality can and should be enforced by courts. This is because the plaintiff’s breach may be so egregious such as to outweigh the seriousness of the defendant’s initial illegality; for example, the forfeiture of contractual remedies because of minor or incidental transgressions would seem like an unjust outcome.5 This difficulty particularly plagues the broad category of contracts that are not expressly prohibited by statute nor common law public policy, but which nevertheless involve the commission of a legal wrong in their formation, purpose or performance6. Thus, this swathe of contracts could potentially be rendered unenforceable, yet plaintiffs have no clear guidance on the degree of knowledge or participation in illegality required before a defence of illegality applies

Academics and practitioners are united in their desire to uphold a coherent legal system; however, disagreements arise on the method best able to achieve this ideal. Should we vest our trust in judges to direct the law on questions of policy, or task them to apply predetermined principles to the facts? Alternatively, is there a compromise solution available, such as the ‘structured discretion’ proposed by the Law Commission10? Whatever the answer may be, courts must take care that this process of rationalisation does not, as Lord Sumption put it, ‘simply substitute a new mess for the old one’11.

1

Holman v Johnson (1775) 1 Cowp 341, 343.

2 See McLachlin J’s dicta in Hall v Hebert [1993] 2 SCR 159 [169]: ‘the basis of this power [to allow the illegality defence], as I see it, lies in duty of courts to preserve the integrity of the legal system, and is exercisable only where this concern is in issue’, affd in Patel v Mirza [2016] UKSC 42 and Ochroid Trading Ltd v Chua Siok Lui [2018] SGCA 5 [20].

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3

Hall v Herbert [1993] 2 SCR 159 [100].

4

Patel (n 2) [99].

This article considers two such methods of rationalisation: the discretionary approach of Patel, which departed from the traditional strict position of Holman v Johnson, and the approach of the Singapore Court of Appeal in Ochroid Trading Ltd v Chua Siok Lui (“Ochroid”),12 which upheld the traditional position subject to a caveat. It argues that the Singapore approach manages to balance 7 [2014] EWCA Civ 1047 [47], affd in the United Kingdom Supreme Court in Patel (n 2) [15]. 8

Patel (n 2) [265].

9

[2014] 3 SLR 609 [3].

5 Lord Sumption, ‘Reflections of the Law of Illegality’ (2012) 20 RLR 1, 2; Law Commission, The Illegality Defence: A Consultative Report (Law Com CP No 189, 2009) para 3.31.

10 Law Commission, The Illegality Defence in Tort (Law Com CP No 160, 2001) para 7.18. 11

Patel (n 2) at [265].

6

12

(n 2).

Ochroid (n 2) at [31].

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Singapore Comparative Law Review 2018  

The 13th edition of the Singapore Comparative Law Review, an annual law journal published by the United Kingdom Singapore Law Students' Soci...

Singapore Comparative Law Review 2018  

The 13th edition of the Singapore Comparative Law Review, an annual law journal published by the United Kingdom Singapore Law Students' Soci...

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