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Cheats Never Prosper: Rethinking the Defence of Illegality in Tort

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About The Author

Keir Baker (Former Editor in Chief)

Keir is a Trainee Solicitor currently in the fourth and final seat of his training contract at a major US law firm. He is a law graduate from Selwyn College, University of Cambridge. Outside the law, Keir is an accomplished goalkeeper in both football and hockey, as well as a keen actor and pianist. He is a long-suffering supporter of Middlesbrough FC.

I would prefer even to fail with honor than win by cheating

Sophocles

There is a defence of illegality that can be applied to civil claims. The overarching principle behind the defence is that no action can be founded upon a wicked act. Put more precisely, if a person suffers an injury – physical or financial – whilst doing, or resulting from, an illegal act, then he cannot have a claim for that injury.

However, both the application and the underlying theory behind this defence has been the subject of a recent disagreement between some of the UK’s most senior judges. In the case of Jetivia SA v Bilta (UK) Ltd [2015], two directors of a company had committed, among other things, a tort, the consequences of which led to the company requiring liquidation. However, lawyers acting on behalf of the company said that the illegal actions of the company should not prevent the company from launching a legal appeal against its liquidation because the directors had not acted on behalf of the company. They argued, as Lord Neuberger upheld in his decision, that:

Where a company has been a victim of wrong-doing by its directors, or of which its directors had notice, then the wrongdoing... cannot be attributed to the company as a defence to a claim brought by the company’s liquidator.

Lords Toulson and Hodge agreed with Lord Neuberger, but also added that they felt the common law defence of illegality could also be dismissed (thereby also allowing the company to launch an appeal) because it had been overridden by statutory policy.

But Lord Sumption disagreed with this part of the reasoning. He felt that the relevant statute, the Companies Act 2006, and the common law principles could not be interpreted as imposing ‘a civil liability on directors notwithstanding the illegality defence.’ He felt that Lords Hodge and Toulson’s dismissal of the defence as inapplicable was incorrect, calling it ‘unnecessary and undesirable.’

These clashing opinions were just another example of long-standing judicial disagreements over the application of, and the rationale behind, the defence of illegality. Indeed, as a result of this case, the Supreme Court’s president, Lord Neuberger announced that:

The proper approach to the defence of illegality needs to be addressed by the court... as soon as appropriately possible[.]

This article will examine the main debate surrounding the current law and examine whether any improvements can be made, by following the suggestions of Lords Hodge and Toulson and scrutinising two potential sources of improvement: a Law Commission report on the defence, and the use of the defence in other jurisdictions.

What is the Illegality Defence?

The illegality defence (or ex turpi causa) is a defence to liability in tort, albeit one that rarely succeeds. Indeed, in Vellino v Chief Constable of Greater Manchester [2001], Sedley LJ explained that the reason for its declining use was that it had ‘been consciously eliminated by the courts on policy grounds.’ This was reinforced by Lord Sumption, who stated in Les Laboratoires Servier v Apotex Inc [2014] that the defence ‘is based on public policy, and not on the perceived balance of merits between the parties to any particular dispute.’

As described above, the overarching principle behind the defence is that no action can be founded upon a wicked act. If a claimant suffers injury whilst, or as a result of doing an illegal act, he cannot sue the person who caused that injury.

As far as the illegal act is concerned, it must be shown that the illegal act was something that should be considered serious. For example, as held in Froom v Butcher [1975], the defence will not apply if the claimant’s conduct is something as trivial as not wearing a seatbelt. However, the cases of Kirkham v Anderton [1989] and Apotex imply that the definition of serious need not be confined to the legal definition, as it was suggested in dicta that the defence could apply to non-criminal but grossly immoral conduct.

For the defence to apply, it must also be shown that there was a causal link between the illegality in which the claimant (C) was implicated and the loss for which he is now complaining. Both a factual cause (known often as a ‘but for’ cause) and legal cause are required.

The Problem: Differing Opinions on the Rationale

In the case of Pitts v Hunt [1990], Dillon LJ explained that:

[T]he fact that a C was engaged in an illegal activity which brought about his injury does not automatically bring it about that his claim for damages for personal injury as a result of the negligence of the D must be dismissed.

This is because, within this area of the application of the illegality defence, there is confusion as to whether the narrower form or the wider form of the defence should be used. This was a distinction that was concisely outlined by Lord Hoffman in Gray v Thames Trains & Ors [2009], where he said:

In its wider form, [the illegality defence states] that you cannot recover compensation for loss which you have suffered in consequence of your own criminal act[.]

In its narrower form [the illegality defence states] that you cannot recover for damage which flows from loss of liberty, a fine or other punishment lawfully imposed upon you in consequence of your own unlawful act.

The rationales underlying each form of the defence differ:

The narrow form, where a claimant cannot recover damages incurred thanks to punishment for criminal activity, is a need for consistency across the legal system: the law of tort cannot be allowed to undermine the criminal law. For example, in Gray, the claimant was a passenger on a train involved in a crash which caused by the defendant’s negligence. As a result, the claimant developed post-traumatic stress disorder and stabbed someone else to death. However, because the defence applied, the claimant was unsuccessful in suing the defendant for the damages he incurred, thanks to the criminal proceedings and repercussions he faced.

In its wider form, a claimant cannot recover any damages caused by his illegal conduct. Here, Lord Hoffman in Gray articulated the rationale as the inconsistency principle, for it would be:

Offensive to public notions of the fair distributions of resources that a C should be compensated… for the consequences of his own criminal conduct.

The application of the wider form of the defence can occur in a wide variety of cases:

It can apply to simple cases of a claimant suing a defendant, such as the case of Vellino, where the claimant unsuccessfully sued the defendant (the police) for injuries caused when he jumped out of a window whilst resisting arrest. In the case of Hewison v Meridian Shipping Pte [2002], it was also held that the wider form of the defence applied to lost earnings that would only have been gained thanks to illegal activity.

The wider form of the defence can also apply to cases of joint criminal enterprise, where the claimant is one criminal trying to sue his accomplice for damages caused during their combined criminal activity. In these instances, it was held in the case of National Coal Board v England [1954] that for the defence to apply, there must be a close connection between A’s tort and the illegal activity in which A and B engage. Furthermore, A’s tort must have been committed as part of an attempt to aid the success of A and B’s illegal activity. For example, the defence applied in the case of Joyce v O’Brien [2012] on the following facts: the claimant and the defendant had stolen ladders, and the claimant was sitting in the back of the van holding them, thereby furthering the criminal purpose, when he fell out.

However, finding evidence for overall judicial support and supremacy for either of the forms of the defence has proved elusive. Support for the narrower form was evident in Lord Wilson’s judgement in Hounga v Allen [2014], and also in the court’s judgement in Moore Stephens (a firm) v Stone Rolls Ltd [2009]But in Tinsley v Milligan [1993], the court’s judgement suggested that the wider form was to be preferred, a view mirrored in Lord Sumption’s judgment in Apotex.

What Is Needed? – The Law Commission’s View

The disagreement in Jetivia about whether the illegality defence can be overridden by a statute coupled with all the confusion surrounding which form of the defence should be applied demonstrates why the illegality defence is one about which the courts need guidance, either from new legislation or an overriding precedent.

A Law Commission report from 2010 – to which Lords Hodge and Toulson referred in Jetivia – agreed that something more was needed, describing the current situation as consisting of:

A body of case law made up of an intricate web of tangled rules that are difficult to ascertain and distinguish.

However, the Law Commission were keen to stress that they felt it was ‘rare for the courts to reach what might be regarded as an “unjust” result.’ Rather, the main issues revolved around the failure of the judiciary to:

[A]rticulate the policy reasons behind their reasoning [meaning] that the law was not as transparent and clear as it might be.

It recommended no legislative intervention, but called for the courts to be more explicit when outlining which form of the defence and with what underlying rationale, and the policy reasons that they were using when applying the defence. Given that all this already existed within the case law, the Commission felt that what was required was an incremental change, as courts became more prepared to articulate the policy reasons behind their decisions.

In short, the Law Commission advocated giving the judiciary free reign to use whatever form or rationale, and apply whatever policy reasons they wish when applying the defence of illegality; a position that can be criticised as failing to solve the issues regarding lack of clarity or certainty with this defence.

Whilst it may be fair to argue that the courts have yet to reach a decision that could be considered too ‘unjust’, this position seems to overlook the importance of the substantive rule of law requirement of clear law, the significance of which was stressed relatively recently in the case of R (Purdy) v DPP [2009].

Indeed, it fails to address or resolve the disagreements between members of the judiciary, and offers no guidance as to which form of the judiciary claimants and defendants alike can expect to have to argue for/against. This will not deal with the inconsistency surrounding this defence and leaves claimants and defendants alike unsure of their legal position.

What Is Needed? – Other Jurisdictions

With the Law Commission seeming to prove unhelpful, inspiration could be drawn from the use of the illegality defence in other jurisdictions, whether that be the providing of comprehensive and effective rationales that the English & Welsh judiciary could apply, or approaches which could, at least to some extent, help to alleviate England & Wales’ inconsistency in this area of the law.

For example, Scottish and Irish law have both made the relatively simple extension of preventing the illegality defence from applying in cases of joint enterprise, although applying this to English and Welsh law would be unlikely to remove its unpredictability.

In terms of the initial disagreement at the centre of the Jetivia case, Australian law disagrees with Lord Sumption with the case of Miller v Miller [2011], stating that the defence of illegality cannot override a statute. Furthermore, usefully for the purposes of this article, Miller saw articulated a principle from which English and Welsh law could draw inspiration (as French law did): if the law stigmatises the conduct of the claimant as illegal or criminal, it is inconsistent for the law to allow legal rights to be founded on that conduct. In other words, all illegal acts should be devoid of all civil legal consequences; an approach showing parallels with both the application and the rationale behind the wider form of the defence that was articulated by Lord Hoffman in Gray.

Another potential source of inspiration is German law, which offers a new rationale revolving around the concept of deterrence. Gerhard Danneman explains that the Bürgerlichen Geseztbuches (the German code of Civil Law) holds that the defence of illegality must apply to prevent scenarios in which it would appear from the outside that the court was condoning the illegal activity if they granted the claimant damages. This again seems to suggest that the view on the continent is that the wider form of illegality defence is preferable.

Conclusion

Ultimately, it seems difficult to argue against the fact that the inconsistency in this area of English and Welsh law is something that needs to be addressed, despite the Law Commission’s attempts. Nevertheless, the Commissions’ recommendation of not using a statute seems preferable: the illegality defence is a common law entity and has been since Roman times.

By examining the law in other jurisdictions, the overwhelming conclusion is that the wider form of the illegality defence should be preferred, for the narrow form is not comprehensive enough to prove effective in meeting the majority of the suggested rationales for the defence.

Indeed, included within the rationales it fails to meet is that found within the German law, which seems theoretically safest. Public opinion towards the justice system may be undermined if it could be perceived that the law was condoning illegal actions, especially within the tabloid press. More significantly, as Cesare Beccaria suggested, humans are rational creatures capable of weighing up the costs and benefits of their actions: if people felt that an added benefit to committing a crime could be the gaining of damage payments if they incurred injury (physical, financial or otherwise), this may lead more willingness amongst people considering committing crimes.

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Tagged: Commercial Law, Criminal Law, Tort Law

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