Two women parties used funds generated by a joint business venture to buy a house in which they lived together. It was vested in the sole name of the plaintiff but on the understanding that they were joint beneficial owners. The purpose of the arrangement was so that false benefit claims could be made to the Department of Social Security which was duly done. The money obtained helped the parties in a small way with their bills. Subsequently, the defendant repented of the frauds and told the DSS. The parties quarrelled and the plaintiff moved out. The plaintiff claimed possession and asserted that she was the sole owner of the property. The defendant counterclaimed for an order for sale and a declaration that the plaintiff owned the property on trust for the pair of them in equal shares.
Held: Illegality bars a claim under prescription only if the Plaintiff has to rely upon the illegal element to make out the claim. Illegality does not defeat claim unless the illegality goes to the root of the claim. The claimant cannot found his claim on an unlawful act. But when the claimant is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the claimant’s case. ‘It is important to observe that, as Lord Mansfield made clear, the principle is not a principle of justice; it is a principle of policy, whose application is indiscriminate and so can lead to unfair consequences as between the parties to litigation. Moreover, the principle allows no room for the exercise of any discretion by the court in favour of one party or the other.’ and `the following propositions emerge: (1) property in chattels and land can pass under a contract which is illegal and therefore would have been unenforceable as a contract; (2) a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; (3) it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough.’
A ‘public conscience’ test has no place in determining the extent to which rights created by illegal transactions should be recognised. Lord Goff said that the adoption of that test: ‘would constitute a revolution in this branch of the law, under which what is in effect a discretion would become vested in the court to deal with the matter by the process of a balancing operation, in place of a system of rules, ultimately derived from the principle of public policy enunciated by Lord Mansfield C.J. in Holman v Johnson , 1 Cowp. 341 which lies at the root of the law relating to claims which are, in one way or another, tainted by illegality.’ and ‘It is important to observe that, as Lord Mansfield made clear, the principle is not a principle of justice; it is a principle of policy, whose application is indiscriminate and so can lead to unfair consequences as between the parties to the litigation. Moreover the principle allows no room for the exercise of any discretion by the court in favour of one party or the other.’
Lord Browne-Wilkinson said: ‘The law was developing in another direction during the 19th century. There was originally a difference of view as to whether a transaction entered into for an illegal purpose would be enforced at law or in equity if the party repented of his illegal purpose before it had been put into operation, i.e. the doctrine of locus poenitentiae. It was eventually recognised both at law and equity that if the plaintiff had repented before the illegal purpose was carried through, he could recover his property: see Taylor v Bowers, 1 Q.B.D. 291; Symes v Hughes, L.R. 9 Eq. 475. The principle of locus poenitentiae is in my judgment irreconcilable with any rule that where property is transferred for an illegal purpose no equitable proprietary right exists. The equitable right, if any, must arise at the time at which the property was voluntarily transferred to the third party or purchased in the name of the third party. The existence of the equitable interest cannot depend upon events occurring after that date. Therefore if, under the principle of locus poenitentiae, the courts recognise that an equitable interest did arise out of the underlying transaction, the same must be true where the illegal purpose was carried through. The carrying out of the illegal purpose cannot, by itself, destroy the equitable interest. The doctrine of locus poenitentiae therefore demonstrates that the effect of illegality is not to prevent a proprietary interest in equity from arising or to produce a forfeiture of such right: the effect is to render the equitable interest unenforceable in certain circumstances. The effect of illegality is not substantive but procedural. The question therefore is ‘In what circumstances will equity refuse to enforce equitable rights which undoubtedly exist?’
Judges:
Lord Browne-Wilkinson, Lord Goff
Citations:
Independent 06-Jul-1993, Times 28-Jun-1993, [1994] 1 AC 340, [1993] UKHL 3, [1993] 3 WLR 126, [1993] 3 All ER 65
Links:
Jurisdiction:
England and Wales
Citing:
Appeal from – Tinsley v Milligan CA 1992
The court considered the defence of illegal user to a claim to have established an easement by prescription: ‘These authorities seem to me to establish that when applying the ‘ex turpi causa’ maxim in a case in which a defence of illegality has been . .
Cited – Holman v Johnson 5-Jul-1775
ex turpi causa non oritur actio
A claim was made for the price of goods which the plaintiff sold to the defendant in Dunkirk, knowing that the defendant’s purpose was to smuggle the goods into England. The plaintiff was met with a defence of illegality.
Held: The defence . .
Cited – Curtis v Perry 10-Mar-1802
Fraudulent Registrations Ineffective
Ships had been purchased by a partnership, but were then held separately in the name of one of them. Only later were they included within the partnership accounts, but the separate registrations were maintained, and unlawfully so as to avoid them . .
Cited – Bowmakers Ltd v Barnet Instruments Ltd CA 1945
An action was brought for the wrongful conversion of machine tools delivered under hire purchase agreements which contravened wartime statutory orders. The plaintiff established its legal title to the goods at issue without relying upon the illegal . .
Approved – Chettiar v Chettiar PC 14-Feb-1962
(Malaya) A father, in registering shares in the names of his children, had transferred the beneficial interest in those shares to them. Many years later the father had treated the shares as his own. The question arose as to whether this fact . .
Disapproved – Euro-Diam Ltd v Bathurst CA 1988
The court had found that securities had been registered misleadingly in the US. The court held that it could not aid illegality. The court considered the defence of ‘ex turpi cause non oritur actio’. Kerr L.J: ‘The ex turpi causa defence ultimately . .
Mentioned – Pearce v Brooks 1866
The contract was for the hire of an ornamental brougham to a prostitute which was supplied with knowledge that it would be used ‘as part of her display’. She returned it in a damaged condition, and refused to make any payments under the contract as . .
Cited by:
Cited – David MacDonald v Geoffrey Myerson, John Callaghan, Derek A H Law CA 26-Jan-2001
The claimant had been involved in mortgage frauds, using the defendant firm of solicitors. He claimed an account following sales of the properties. At the time of the sales, the first defendant knew of the false identities used. The defendants . .
Cited – Colen and Another v Cebrian (UK) Limited CA 20-Nov-2003
The company paid the claimant sales commission. Part was diverted and paid to his wife to reduce the tax payable. The employer had appealed a finding of unfair disamissal, the company arguing that the contract was illegal.
Held: The contract . .
Cited – 21st Century Logistic Solutions Limited (In Liquidation) v Madysen Limited QBD 17-Feb-2004
The vendor sold computers to the defendant, intending not to account to the commissioners for the VAT. The seller went into liquidation, and the liquidator sought payment. The purchaser had been unaware of the intended fraud and resisted payment. . .
Cited – Costello v Chief Constable of Derbyshire Constabulary CA 22-Mar-2001
The police seized a car from Mr Costello, believing that it was stolen. The seizure was lawful at the time, by virtue of section 19 of PACE. The police never brought any criminal proceedings against Mr Costello, but they refused to return the car to . .
Cited – Bakewell Management Limited v Brandwood and others HL 1-Apr-2004
Houses were built next to a common. Over many years the owners had driven over the common. The landowners appealed a decision that they could not acquire a right of way by prescription over the common because such use had been unlawful as a criminal . .
Applied – Gibbs Mew Plc v Gemmell and Gibbs Mew Plc and Centric Pub Company Ltd v Gemmell CA 22-Jul-1998
The brewery sought possession of a public house, tied by type. The lessee claimed damages for breach of Art. 81 and a declaration that the Block Exemption was inapplicable to his lease. His appeal from the judge’s order in favour of the brewery was . .
Cited – Dunbar (As Administrator of Tony Dunbar Deceased) v Plant CA 23-Jul-1997
The couple had decided on a suicide pact. They made repeated attempts, resulting in his death. Property had been held in joint names. The deceased’s father asked the court to apply the 1982 Act to disentitle Miss Plant.
Held: The appeal was . .
Cited – Soleimany v Soleimany CA 4-Mar-1998
The parties were Iranian Jews, father and son. The son arranged to export carpets from Iran in contravention of Iranian law. The father and son fell into dispute about their contracts and arranged for the issues to be resolved by the Beth Din . .
Cited – Polanski v Conde Nast Publications Ltd HL 10-Feb-2005
The claimant wished to pursue his claim for defamation against the defendant, but was reluctant to return to the UK to give evidence, fearing arrest and extradition to the US. He appealed refusal of permission to be interviewed on video tape. Held . .
Cited – Sudershan Kumar Rampal v Surendra Rampal CA 19-Jul-2001
The parties were divorced, but when the husband applied for ancillary relief, the wife petitioned for nullity on the basis that the marriage was bigamous. The husband countered that she had known that his first marriage had only ended after this . .
Cited – J v S T (Formerly J) CA 21-Nov-1996
The parties had married, but the male partner was a transsexual, having been born female and having undergone treatment for Gender Identity Dysphoria. After IVF treatment, the couple had a child. As the marriage broke down the truth was revealed in . .
Cited – Lowson v Coombes CA 26-Nov-1998
A house was purchased by an unmarried couple to live together, but conveyed into the female partner’s sole name. Her partner was still married, and she feared that on his death his wife would inherit.
Held: ‘the case being one of illegality, I . .
Cited – Collier v Collier CA 30-Jul-2002
Fraudulent Intent Negated Trust
The daughter claimant sought possession of business premises from her father who held them under leases. He claimed an order that the property was held in trust for him. The judge that at the time the properties were conveyed, the father had been . .
Cited – Halifax Plc v Chandler CA 13-Nov-2001
The claimant had sought payment of a substantial shortfall debt from the defendant after repossessing and selling the defendant’s home. It compromised that debt, and was paid, but now sought to re-open the compromise on the basis of an alleged . .
Cited – Slater v Simm ChD 27-Apr-2007
The deceased and her partner did not marry but owned three properties together. They could not agree on the interpretation of the documents setting out their interests, and whether they had been varied.
Held: The court set out the various . .
Cited – Vellino v Chief Constable of Greater Manchester Police CA 31-Jul-2001
The police were not under any duty to protect someone who had been arrested from injuring himself in an attempt to escape. The claimant had a history of seeking to avoid capture by jumping from his flat window. On this occasion he injured himself in . .
Cited – Gray v Thames Trains Ltd and Another CA 25-Jun-2008
The claimant was a victim of the Ladbroke Grove rail crash. He later committed and was convicted of a manslaughter and detained under the 1983 Act. He said that the accident had caused a major personality change. The defendant relied on the defence . .
Cited – Enfield Technical Services Ltd v Payne and Another CA 22-Apr-2008
The appellant company appealed dismissal of their defence to a claim for unfair dismissal that the employment contract was tainted with illegality. The EAT had heard two cases with raised the question of the effect on unfair dismissal claims of . .
Cited – SQ v RQ and Another FD 31-Jul-2008
The home in which the family had lived was held in the name of a brother. Each party claimed that it was held in trust for them. Chancery proceedings had been consolidated into these ancillary relief applications. The home had been in the husband’s . .
Cited – Gibson v Revenue and Customs Prosecution Office CA 12-Jun-2008
The claimant’s husband had been made subject to a criminal confiscation order in the sum of pounds 5.5 million. She now sought to appeal an action against life policies in which she claimed a 50% interest.
Held: Despite the finding that she . .
Cited – Gray v Thames Trains and Others HL 17-Jun-2009
The claimant suffered psychiatric injury in a rail crash caused by the defendant’s negligence. Under this condition of Post-Traumatic Stress Disorder, the claimant had later gone on to kill another person, and he had been detained under section 41. . .
Cited – Moore Stephens (A Firm) v Stone Rolls Ltd (in liquidation) HL 30-Jul-2009
The appellants had audited the books of the respondent company, but had failed to identify substantial frauds by an employee of the respondent. The auditors appealed a finding of professional negligence, relying on the maxim ex turpi causa non . .
Applied – Webb v Chief Constable of Merseyside Police CA 26-Nov-1999
The Police had confiscated money suspected to be the proceeds of drug trafficking, but no offence was proved. The magistrates had refused to return the money under the 1897 Act. The claimants now sought to reciver it under civil proceedings.
Cited – O’Leary International Ltd v North Wales Police Admn 31-May-2012
The company employed drivers to cross the UK. They were stopped and did not have the requisite drivers records. Instead they produced certificates as to having had rest days. These proved false, and the drivers said that the had been produced for . .
Cited – Merseyside Police v Owens Admn 31-May-2012
The police had refused to returns items seized from Mr Owens on the basis that to do so would indirectly encourage and assist him in suspected criminal activity. CCTV footage had been removed from him to attempt identify an arsonist of a house.The . .
Cited – Twentieth Century Fox Film Corp and Others v Harris and Others ChD 5-Feb-2013
The court was asked whether a copyright owner has a proprietary claim to money derived from infringement of the copyright.
Held: He did not. No such argument could be shown to have suceeded before. . .
Cited – Les Laboratoires Servier and Another v Apotex Inc and Others SC 29-Oct-2014
Ex turpi causa explained
The parties had disputed the validity a patent and the production of infringing preparations. The english patent had failed and damages were to be awarded, but a Canadian patent remained the defendant now challenged the calculation of damages for . .
Cited – Jetivia Sa and Another v Bilta (UK) Ltd and Others SC 22-Apr-2015
The liquidators of Bilta had brought proceedings against former directors and the appellant alleging that they were party to an unlawful means conspiracy which had damaged the company by engaging in a carousel fraud with carbon credits. On the . .
Cited – Patel v Mirza SC 20-Jul-2016
The claimant advanced funds to the respondent for him to invest in a bank of which the claimant had insider knowledge. In fact the defendant did not invest the funds, the knowledge was incorrect. The defendant however did not return the sums . .
Lists of cited by and citing cases may be incomplete.
Equity, Contract
Leading Case
Updated: 29 April 2022; Ref: scu.89901
