(D) THE POLICY BEHIND THE ILLEGALITY
In Australia the operation of the illegality defence is determined by reference to the policy of the law by virtue of which the relevant transaction was found to have been illegal.1 This was recognized by the High Court of Australia in Nelson v Nelson,125 where Deane and Gummow JJ indicated that statutory policy might be less likely to defeat a claim where the claimant sought restitution to restore the claimant to his or her original position, rather than where the claimant sought to enforce a contract.[1]
This focus on the policy behind the law which renders a transaction illegal was considered further by the High Court in Equus Corp Pty Ltd v Haxton.1 Money had been advanced under loan agreements which were made in furtherance of an illegal purpose to obtain tax deductions through an investment scheme in blueberry farms. The claimant sought restitution of the money transferred to the defendant, but it was held that the illegality which rendered the loan agreements unenforceable also denied the restitutionary claim, by reference to the scope and purpose of the statute which rendered the transaction illegal, particularly the purpose of protecting a class of persons from whom the claimant sought restitution. But the court also had regard to the responsibility of the claimant and whether it was innocent or was involved in the illegality,[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] which was specifically recognized as indicating that the parties were not in pari delicto.
Denying restitution where its award would stultify the purpose of the statute which rendered the relevant transaction illegal in the first place is clearly justified by the need to ensure coherence in the law, by avoiding stultification of the law.129 * * * * * * 136 137 This has been recognized by the American Law Institute’s Restatement of the Law, Third: Restitution and Unjust Enrichment,130 with reference to the need to ensure that the policy of the statute is not defeated or frustrated.
In England, whether it is possible to recover the value of a loan made pursuant to a void transaction has been held to depend on whether restitution would undermine the policy which rendered to transaction void. So, for example, in Haugesund Kommune v Depfa ACS Bank131 the value of a loan could be recovered by means of a claim in unjust enrichment, albeit that in that case the loan was unenforceable by virtue of the defendant’s incapacity to borrow the money, rather than because of illegality. But the Court of Appeal still emphasized that it was necessary to consider whether allowing restitution would be contrary to public policy with reference to the reason why the loan was void. It is likely that, where the loan transaction is illegal, the policy of the statute which renders the transaction void will deny restitution, especially where the policy is founded on the need to protect the defendant. Consequently, it is likely that Equus Corp Ltd v Haxton would be decided the same way in England.
- [1] Ibid, 5 52. 127 [2012] HCA 7. See also Miller v Miller [2011] HCA 9, (2011) 242 CLR 446.
- [2] Equus Corp Pty Ltd v Haxton [2012] HCA 7, [34] (French CJ, Krennan, and Kiefel JJ).
- [3] Boissevain v Weil [1950] AC 327, 341. 130 (2011) } 32(2), 505-6.
- [4] 131 [2010] EWCA Civ 579, [2012] QB 549. See p 375, above.
- [5] 132 Cross v Kirby [2000] EWCA Civ 426, [76] (Beldam LJ).
- [6] 133 Consultation Paper, No 189, The Illegality Defence (2009), 3.143.
- [7] 134 [2014] UKSC 55, [2015] AC 430, [22] (Lord Sumption).
- [8] 135 Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339 [32] (Lord Hoffmann). Lord Hoffmannpreferred the language of causation to that of inextricable link: ibid, [53]. Some cases have focused on thelanguage of remoteness, for example 21st Century Logistic Solutions Ltd v Madysen Ltd [2004] EWHC 231
- [9] (QB), [2004] 2 Lloyd’s Rep 92, [18] (Field J).
- [10] Askey v Golden Wine Co Ltd [1948] 2 All ER 35, 38 (Denning J).
- [11] Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339, [37] (Lord Hoffmann); Delaney v Pickett[2011] EWCA Civ 1532, [2012] 1 WLR 2149, [35] (Ward LJ).
