REFORMING ILLEGALITY IN PRIVATE LAW
| Author | TEY Tsun Hang BCL (Oxford), LLB (KCL), AKC; Advocate & Solicitor (Singapore), Advocate & Solicitor (Malaya), Barrister (Gray’s Inn); Associate Professor, Faculty of Law, National University of Singapore. |
| Published date | 01 December 2009 |
| Date | 01 December 2009 |
The application of the defence of illegality often leads to harsh results. The sheer number of regulatory laws implemented in our modern world exacerbates this situation. In minimising injustice in particular contexts and in coping with the shifting winds of public policy, the judiciary in the common law jurisdictions have made ad-hoc inroads and exceptions to this defence, resulting in departures from the strict ex turpi causa principle that are needlessly complex, often irreconcilable with one another, and have little consistency between the different areas of private law. This article makes a comparative survey of the jurisprudence in Australia, England and Wales, New Zealand, Canada, Israel and Singapore, and evaluates: (a) the rationales giving expression to the various grounds of public policy; (b) the possibility and desirability of a unified approach in private law for the relief of unenforceability due to the application of the defence of illegality; and (c) the various reform models and proposals in these jurisdictions, and the optimal approach to statutory reform in Singapore.
1 Personal claims in tort, contract and trusts are subject to the defence of illegality — based on the Latin maxim, ex turpi causa non oritur action1— that the court does not generally lend its assistance to a plaintiff in obtaining a remedy where his action is founded on illegality.
2 The strict application of this defence often leads to harsh results,2 with considerations of fairness and justice between the plaintiff and defendant often not taken into account. The sheer multitude of
regulatory laws implemented in our modern world exacerbates this situation, making the legal landscape a potential minefield for the plaintiff. Further, the grounding of this principle on public policy has engendered uncertainty. The requirements of public policy are uncertain and the notion of public policy liable to change over time.3
3 In minimising injustice in particular contexts and in coping with the shifting winds of public policy, the judiciary in the common law jurisdictions have made ad hoc inroads and exceptions to the defence of illegality to reach sensible results on the facts of each case. These departures from the strict ex turpi causa principle have become needlessly complex, are often irreconcilable with one another, and have little consistency between the different areas of private law. In addition, the case law in this area is often unclear as regards the rationale for denying or allowing a claim to succeed. There are risks that these ad hoc rules may be applied in ways which are arbitrary, undesirable as regards the outcome reached, or disproportionate to the seriousness of the illegality.4
4 Thus, there is a pressing need for clarity. An argument could be made for a unified approach to the law of illegality in private law. This article starts off with a brief commentary on the problematic state of the defence of illegality in tort, contract and trusts. The rationales — express and otherwise — underlying the disparate defence of illegality are evaluated to demonstrate that the defence of illegality should be maintained. This article then delves into the possibility and desirability of a unified approach in private law for the relief of unenforceability due to the application of the defence of illegality. The various models of, and possible approaches to, law reform are evaluated. In particular, this article argues that a unified approach to the illegality defence in private law can be taken, and that the optimal approach to possible reform is by a structured discretion in the judicial evaluation of claims tainted with illegality.
5 The defence of illegality, if successfully pleaded, results in the court’s denial of the plaintiff’s normal legal rights and remedies. The
harsh result has long prompted the courts, in the common law tradition, to make piecemeal inroads and exceptions to the defence of illegality in order to produce just outcomes.5 The application of the ex turpi causa principle has become unnecessarily complex and intolerably unclear. Despite the numerous exceptions made, the propensity of the illegality defence in producing unjust decisions has not been fundamentally ameliorated.
6 The numerous strict and technical illegality rules are a rich source of complexity. On top of this, the crude and harsh nature of the illegality rules has prompted judges to create a significant number of exceptions, introduced in piecemeal fashion, to their application in order to do justice in difficult cases, further compounding the complexity in the doctrine.6 The outcome, a confounding mishmash of disparate rules, is more like a muddle than a system.
7 The set of strict technical rules dealing with contractual enforceability, for example, include unnecessary distinctions that further complicate the doctrine which is convoluted enough as it is. For example, contract law generally draws a distinction between a contract performed illegally after formation (which is generally enforceable, even by the guilty party),7 and one where the illegality was contemplated by the contracting parties at formation (which is unenforceable by the guilty party).8 In St John Shipping Corp v Joseph Rank Ltd,9 the shipper was allowed to claim his full freight because his decision to overload his ship only came after the agreement to ship the defendants’ goods. Devlin J opined that had the shipper intended to overload his ship when the contract was entered into, then he would not be able to enforce it.10 However, would the purpose of the statute have required the shipping contract to be unenforceable if overloading was contemplated at the
time of contracting, but enforceable if the decision to overload was taken subsequently?11
8 In another example, the intent of contracting parties in statutorily prohibited contracts is immaterial (such contracts are unenforceable notwithstanding there was no intention to break the law),12 whereas for contracts unenforceable at common law, ignorance of the law or of the circumstances surrounding the contract formation seems to be pertinent.13 In J M Allan (Merchandising) Ltd v Cloke,14 the plaintiffs hired a roulette wheel to the defendants for an express purpose which, unknown to both parties, breached the UK Betting and Gaming Act 1960. When discovered, the Court of Appeal did not allow the plaintiffs’ claim for the hire instalments due under the contract, stating emphatically that “it is no answer for those concerned to say that they did not know the law”.15 This can be contrasted with cases involving contracts unenforceable at common law, especially where fraud has been perpetrated by one of the parties, in which the intentions of the parties must necessarily be taken into account.16 This distinction is theoretically unsound, introduces a fundamental disjunct within the illegality defence, and engenders a needless layer of complexity.
9 The law with regard to illegality in trusts is equally — if not more — complex. In fact, the Law Commission of England and Wales thought it prudent to include a caveat in their consultation paper that the exposition set out as the present law was to be regarded “merely as a tentative and novel attempt to produce some order out of chaos”.17 The effect of the “reliance principle” upon the operations of the presumption of resulting trust, and the contrary presumption of advancement, is a
major source of complexity when dealing with illegal trusts.18 The interplay of these doctrines has produced a complex body of strict rules which generate arbitrary results depending upon the presumption which applies.19
10 Even in restitutionary claims for benefits conferred under illegal contracts or trusts, the courts have traditionally adopted a formalistic, technical approach in deciding if the parties are in pari delicto.20 The court would allow recovery only if the plaintiff could “show that he was induced to enter into the illegal transaction as a result of fraud, duress or oppression of the other party, that he was ignorant of a fact that rendered the contract illegal, or that he belonged to a vulnerable class protected by statute”.21
11 The complexity of the illegality defence is compounded in tort because of the wide-reaching area of the law, and its application in a myriad of situations and circumstances. The 2001 Law Commission of England and Wales Consultation Paper22 categorised tortious claims in which illegality has been raised as an arguable defence (even if the defence ultimately failed) into six groups: (a) injury incurred in the course of an illegal joint venture;23 (b) injury in the course of the
plaintiff’s own illegal activity;24 (c) compensation for detention as a result of the plaintiff’s crime;25 (d) indemnity for liability arising from the plaintiff’s crime;26 (e) compensation for the defendant’s fraud or other wrongs;27 and (f) conversion.28 The law on the defence of illegality in these six disparate categories was so complex, the Law Commission found it “not easy to state the principles governing [the illegality defence] in tort other than in broad terms”.29
12 Besides being a problem itself, the complexity of the rules of the illegality defence is also to blame for causing other related difficulties.
13 One inevitable result of the complexity is that there are certain areas where the applicable rules cannot be stated with any certainty. In relation to illegal contracts, for example, the jurisprudence has been contradictory as to when the defendant’s illegal purpose in entering into a contract would cause the plaintiff’s claim to fail. Langton v Hughes30 is authority for the proposition that mere knowledge of the defendant’s illegal purpose is sufficient to bar the otherwise innocent plaintiff’s claim. Another line of authorities...
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