THE PREFERRED APPROACH

The law on the defence of illegality is at a crossroads. There are three distinct routes which might be followed. The first is the purely public policy route, where illegality is treated as an absolute defence, and is constrained only by the adoption of a restricted definition of illegality and by the need to consider whether the illegality is sufficiently connected with the claim.^[1] Such an approach has no regard to the justice of the case as between the parties or countervailing policy considerations. The second route focuses on the public policies which underpin the illegality defence, but seeks to ascertain whether the operation of the defence can be justified by virtue of those policies.^[2] The legitimacy of this approach turns on the validity and acceptance of the underlying policies. There is a danger that this collapses from a principled exercise of judicial discretion into the exercise of arbitrary judicial discretion, potentially even returning to the old public conscience test. The third route adopts a middle way between the other two. It recognizes the public policy dimension of the illegality defence as a starting point for its application, but then moderates this by reference both to how illegality is defined and to various recognized mechanisms which can be analysed as involving both countervailing policy considerations and the need to consider the justice of the case as between the parties.

This middle way is preferable and should be adopted in the law of restitution. Consequently, where the claimant is no longer tainted by the illegality or can be considered to be less responsible for participation in the illegal transaction than the defendant, it is appropriate for a restitutionary remedy to be awarded, save where the turpitude is especially serious.

In Tinsley v Milligan^[3] Lord Goff said: ‘I would be more than happy if a new system could be evolved which was both satisfactory in its effect and capable of avoiding the kind of result which flows from the established rules of law.’ Subsequently, there have been demands for a statutory reform of the rule-based illegality defence,^[4] along the lines of the law in New Zealand^[5] and Israel,^[6] to allow restitution despite the taint of illegality through the exercise of a structured judicial discretion. But there is no need for such statutory reform; the existing law can be rationalized in such a way as to avoid the perceived injustices identified by Lord Goff. The Law Commission has rejected statutory reform,¹⁵⁸ save where a trust has been created to conceal the beneficiary’s interest in connection with a criminal purpose. It was right to do so.

The law can be summarized as follows: illegality should be recognized as a defence to restitutionary claims by virtue of public policy, primarily founded on the need for consistency between the criminal law and the law of restitution, but justice demands that the defence should not operate where the claimant is less responsible than the defendant for involvement in the illegal activity or cannot be considered to be tainted by the illegality anymore. Further, there may be countervailing policy reasons which trump the illegality defence, notably that the rule which makes the conduct illegal is not stultified by allowing restitution.

• [1] Les Laboratoires Servier v Apotex [2014] UKSC 55, [2015] AC 430.
• [2] This was the approach adopted in Stone and Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC1391, [25] (Lord Phillips); Hounga v Allen [2014] UKSC 47, [2014] 1 WLR 2889; Parkingeye Ltd v SomerfieldStores Ltd [2012] EWCA Civ 1338, [2013] QB 840; and Patel v Mirza [2014] EWCA Civ 1047, [2015] 2 WLR404, [62] (LJ). It was also adopted by the Court of Appeal in Apotex, which was rejected by the Supreme Court,and also by the Singapore Court of Appeal: TingSiew May v Boon Long Choo [2014] SGCA 28.
• [3] [1994] 1 AC 340, 363.
• [4] The Illegality Defence (Law Commission Consultation Paper No 189, 2009). See B Dickson, ‘Restitutionand Illegal Transactions’ in AS Burrows (ed), Essays on the Law of Restitution (Oxford: Clarendon Press, 1991),195; Lord Sumption ‘Reflections on the Law of Illegality’.
• [5] The Illegal Contracts Act 1970, s 7. 157 Contract Law (General Part) 1973, s 31.
• [6] 158 The Illegality Defence (Law Com No 320, 2010).