'Public Policy, Illegality and Contracts': Cambridge Private Law Centre Allen & Overy Lecture 2015

When Sarah Worthington invited me to give this lecture I had a dim recollection going back to 1970 of having revised the chapter on illegality for the 7th edition of Sutton & Shannon on Contracts. This was a textbook with which few here will be familiar because - no doubt for good reason - there never was an 8th edition. I looked out my battered old copy and read the illegality chapter. Immorality and public policy both had walk on roles but I had a strong sense that the law, which was concisely and accurately summarised, lacked principle and logic and was as 'untidy' then as it still is 45 years later. The same point is made by The Chancellor, Sir Terence Etherton in Sharma which is the most recent decision of the Court of Appeal (10 November 2015).The law was well summarised in that chapter because a certain Mr AGP Hughes - now Lord Hughes - was a key member of our research team.

When Sarah and I spoke I also knew there had recently been a spate of cases at Court of Appeal and Supreme Court level but, apart from Tinsley v. Milligan, I hadn't followed the debate in detail. It is true that through the recent judgments a number of important differences between distinguished jurists have emerged, but the quality of the debate and the modern willingness of our leading judges to identify and give expression to what used often to be the unstated major premise of a piece of legal reasoning is a welcome development.

I have five headline points and one digression. First, I will deal with the principal emerging differences: the detail was painstakingly summarised and explained by Lord Neuberger in his judgment in Jetivia SA v. Bilta (UK) Ltd [2015] UKSC 23.

Secondly, I think the time has come to resist further incantation of Lord Mansfield's statement of principle in Holman v. Johnson (1775) 1 Cowp. 341. Without disrespect to the great man that passage raises more questions than it answers. It would be better to ask ourselves what purpose the law in this area should be concerned to achieve and to take full account of the observations of Bingham LJ in his judgment in Saunders v. Edwards:

‘Where issues of illegality are raised, the courts have…to steer a middle course between two unacceptable positions. On the one hand, it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct….’

The Supreme Court is uniquely positioned to adopt those wise words. I will come back to this point.

Thirdly, we should recognise that Tinsley v. Milligan [1994] AC 340 is an unsatisfactory decision - not in the result but in the reasoning of the majority. In that case two single women jointly owned a business running lodging houses. With funds generated by the business they bought a house and lived in it together. The title to the house was, by agreement between them, vested solely in the name of Ms. Tinsley on the understanding that they were the joint beneficial owners of the house. The purpose of the arrangement was to assist in the perpetuation of frauds on the DSS because Ms. Milligan, with the connivance of Ms. Tinsley, made false benefit claims on the dishonest basis that she paid rent and was not a house owner. The judges regarded Ms Milligan's misbehaviour as unattractive but, in Lord Goff's words, it was of a 'relatively minor' nature. This was, no doubt, because he was impressed with the fact that she had come clean with the DSS and repaid the money improperly obtained.

Ms Milligan succeeded on a technicality: she was able to assert an equitable proprietary interest in the house without the need to rely on the dishonest purpose of the agreement.

This decision is binding and the Supreme Court should, in the next appropriate case, be invited to depart from it. We need an illegality rule which is principled so that the result won’t turn on the availability or otherwise of a presumption derived from equity: cf Tinsley with the case of Collier. In Collier, in order to defraud his creditors when he thought he was in financial difficulties, the father granted leases of two premises to his daughter, as well as options to acquire the freeholds. In the event, the anticipated financial problem evaporated but the father and daughter fell out. The father sued. It was held there was no withdrawal on his part before the illegal purpose had been performed. Indeed, the father had directed his daughter to exercise the options and to take a transfer of the freehold interests. Also there was no resulting trust presumption in favour of the father and his claim failed.

Fourthly, the endeavour to achieve certainty is a noble one, especially if it has the effect of producing clarity for the parties at the stage of drafting the contract. But even then it may only have a holy grail quality because, e.g. the interpretation in due course adopted by the court may focus on the supposed commercial purpose of the bargain rather than the words used by the parties in their contract. Recent cases, including Rainy Sky SA v. Kookmin Bank [2011] UKSC 50 and Arnold v. Britton [2015] UKSC 36, are a welcome development on that front.

In this area of the law certainty is less of a concern because when deciding whether or not to make an illegal bargain it is unlikely that the enforceability of the transaction would have figured in the minds of the negotiators.

Fifthly, and this is really a constitutional point, it is wrong in principle for the courts below the Supreme Court, in effect to legislate recommendations of the Law Commission and to do so in the face of binding decisions of the highest court. That can and should only be done by the Supreme Court or by Parliament. This is an unfortunate aspect of the story and I think is at the heart of some of the differences between the judges in the recent cases.

Between 1999 and 2010 the Law Commission recommended legislative reform to give the courts a statutory discretion in relation to the illegality defence, but it eventually concluded (in CP 189 and Report 320) that the matter should be left to be developed by the common law 'in the way we hoped'. By this expression the Commission meant that the defence should be applied flexibly and only allowed where 'its application can be firmly justified by the policies that underlie its existence'; and that the court should consider on the facts of the individual case whether the application of the illegality defence could be so justified. According to the Law Commission the 'so-called rules' developed in the cases were only 'guidance' which the courts 'bent'. It said that case law should only be followed sometimes where it 'helps'.

For those of us who were raised on Prof Rupert Cross' magnum opus 'Precedent in English Law' these views of the Law Commission reveal a novel approach to stare decisis. In support of its views the Law Commission relied, in particular, on some obiter remarks of Lord Hoffmann in Gray v. Thames Trains Ltd [2008] EWCA Civ 713 and Lord Phillips in Stone & Rolls v. Moore Stephens [2008] EWCA Civ 644. Since then the courts have given conflicting judgments: the Court of Appeal in Parkingeye [2012] EWCA Civ 1338; Apotex [2012] EWCA Civ 593 and Patel [2014] EWCA Civ 1047 (explicitly) and the Supreme Court in Hounga [2014] 1 WLR 2889 (implicitly) adopted the Law Commission approach. That approach was in turn firmly rejected by the Supreme Court in Apotex [2014] UKSC 55 (by Lord Sumption with whom Lords Neuberger, Mance and Clarke agreed) but with Lord Toulson in the minority essentially disagreeing with his Supreme Court colleagues.

By comparison with the trenchant dissenting observations of Justice Scalia in the recent US Supreme Court decision of Obergefell v Various State Governors (2015) 576 US, our own justices are remarkably polite and mild-mannered toward each other. The issue in Obergefell was which of the Federal Court or the State Legislature was authorised to decide whether the 14th Amendment contained a fundamental right to permit same-sex marriage. Amongst the gems were describing the majority opinion as “lacking even a thin veneer of law”; saying that “buried beneath the mummeries and straining-to-be-memorable passages of the opinion is a candid and startling assertion”; and a footnote, no less, that: “The Supreme Court of the United States has descended from the disciplined legal reasoning of John Marshall and Joseph Story to the mystical aphorisms of the fortune cookie”. To add insult to injury, Justice Scalia drew attention to the fact that the majority opinions had discovered in the 14th Amendment a fundamental right which had been “overlooked by every person alive at the time of ratification, and almost everyone else in the time since”. He names all what he calls the “lesser legal minds” who also missed the point: Thomas Cooley, John Marshall Harlan, Oliver Wendell Holmes, Learned Hand, Louis Brandeis, William Howard Taft, Benjamin Cardozo, Hugo Black, Felix Franfurter, Robert Jackson and Henry Friendly. I could not resist that digression.

I will say something about some of the recent cases but my thesis is that they can be reconciled when divided into two broad categories. First, those in which the claimant's cause of action is 'founded' on illegality, by which I mean where he has to rely on, or would benefit from, an illegal or immoral act: in such cases the general principle preventing recovery based on Holman and Tinsley still applies. The Law Commission's recommendations are inconsistent with this proposition.

Secondly, cases such as Parkingeye and Hounga where the claim is not founded on an illegal or immoral act but may still be so closely connected with illegality as to be tainted by it: in such cases the law is more flexible and the approach of the Law Commission is broadly consistent with it.

As to the first proposition, the reliance rule is rigorously applied but there may be some flexibility where the illegality is trivial, eg if the claimant was unaware of some statutory rule or was ignorant of the facts constituting the breach. The extent of this exception is uncertain.

In tort cases the rule will apply where the claimant seeks recovery for loss caused by his own illegal act: Gray v. Thames Trains is such a case. Having pleaded guilty to a charge of manslaughter the ex turpi causa principle prevented Mr Gray from recovering damages for loss of liberty, loss of earnings, damage to his reputation and feelings of remorse and guilt. He was also barred from claiming an indemnity against any claim brought by the dependants of his victim notwithstanding that his mental state was allegedly caused by Thames' negligence in connection with the Ladbroke Grove train crash. This is because it would have been inconsistent for the civil court to compensate him for the consequences of the sentence imposed on him by the criminal court.

There is also a line of cases which shows that the court will take note of the illegality and bar the claim even though the illegality is not relied on: Beresford v. Royal Insurance (insurance claim in respect of a suicide when that was a crime); Alexander v. Rayson (contract intended to be performed illegally either at the outset or subsequently); and cases where the claim is 'inextricably linked' with criminal conduct, eg the claim by a bank robber against the driver of the getaway car for negligent driving.

It is 'exceedingly rare' for the court to sustain the illegality defence in a tort case: Cross v. Kirby is a homely example where a hunt protestor attacked a participant with a baseball bat. The participant wrested the bat from the protestor and delivered his own blow in response. The protestor's claim for assault was held to be so closely connected with or inextricably bound up with his own criminal behaviour that the court 'could not permit him to recover without appearing to condone that conduct'. Perhaps it is no great surprise that the court of appeal should have upheld the God-given right of a man on a horse to beat a protestor with impunity.

The rarity of a successful plea of illegality in a tort case is consistent with the willingness of the court to permit a restitutionary remedy: the tort claim is essentially a restitutionary remedy.

I want now to say something about the recent cases.

Apotex concerned a claim for damages on a cross-undertaking following the discharge of an interim injunction restraining infringement of the claimants' patent. The damages were in respect of product which, but for the injunction, would have been manufactured in Canada. This would have been a strict liability statutory wrong in Canada, because it would have breached a Canadian patent owned by a member of the claimants' group of companies. The Court of Appeal held the breach would have been an illegal act but Apotex was nevertheless entitled to recover damages based on Canadian manufacture.

Kitchen and Laws LJJ agreed with Etherton LJ that the court should adopt the Law Commission approach and would permit the illegality defence only when it was just and proportionate in the light of various policy considerations. The court decided the illegality principle was engaged but allowed the appeal relying on a variety of factors: Apotex believed the Canadian patent was invalid; the illegality was, in the words of Etherton LJ, 'low on the scale of culpability'; the sale in the UK would not have been unlawful; the Canadian court had declined to grant an interlocutory injunction restraining local manufacture; and Apotex conceded it would give credit for the amount of the manufacturing profit for which it would have been liable in Canadian law.

The decision of the Court of Appeal in Apotex ignores previous binding authority; it treats the Law Commission proposals as the law; and it is inconsistent with Hewison v. Meridian Shipping [2002] EWCA Civ 1821 because the claim was in respect of profits which could only have been earned by what the Court of Appeal decided would have been an illegal act. In Hewison the appellant claimed loss of earnings calculated on the basis that, but for the accident, he would have continued to work as a seaman/crane operator until normal retirement age. The respondants’ case was that it would be contrary to public policy to award damages on that basis because an essential part of the claim would have involved the claimant continuing to deceive his employers by fraudulently representing that he was not suffering from epilepsy, as he had done in the past.

Furthermore, although the judgment of the Court of Appeal in Apotex refers to the rejection of the public conscience test and adopts instead a 'just and proportionate response ... in the light of the policy considerations' it is difficult to see how, if at all, the two tests differ in practice.

In Parkingeye the lead judgment was given by Sir Robin Jacob (with whom Toulson and Laws LJJ agreed). Sir Robin took the Law Commission recommendations as his starting point and adopted its view that minor and incidental transgressions, even if intended at the outset, should not render the contract unenforceable. On the facts he held that Parkingeye did not need to rely on any illegality; the illegal performance was neither an object of the contract nor was it necessary for its performance; it was only minor and would have been corrected if the illegality had been pointed out.

Toulson LJ's judgment supports the Law Commission test as being broadly consistent with a body of previous unclear authority but the notion that the proportionality test is a different thing from the public conscience is, I think, doubtful. It is difficult to imagine anything that would be relevant to the former which would not also come into an assessment of the dictates of the public conscience.

I suppose it can be said that the modern terminology has the worthwhile merit of being less pompous.

The result reached by the Court of Appeal in Apotex was affirmed by the Supreme Court on the different ground that the illegality rule was not engaged by the infringement of the patent under Canadian law. Civil wrongs, unless they involve dishonesty or corruption, do not amount to 'turpitude' because they are not contrary to the public law of the state and do not engage the public interest.

The majority of the Supreme Court disapproved the Law Commission approach and Etherton LJ's reasoning as being inconsistent with Tinsley. Lord Sumption (with whom Lord Neuberger, Lord Mance and Lord Clarke agreed) was particularly troubled by the Court of Appeal's 'largely subjective judgment ... about how badly Apotex had behaved and how much it mattered' when what was in fact required was 'the application of general rules of law and not ... fact-based evaluations of the effect of applying them in each individual case'. For Lord Sumption the key question is whether there is turpitude and if so how close is its relationship to the claim.

But what is “turpitude”? Lord Mansfield did not elucidate. Lord Sumption in Apotex said it covers criminal and what he calls “quasi-criminal” acts, which he says “engage the public interest in the same way”. He cites the example of infringements of competition law and notes the “anomalous categories of misconduct such as prostitution”. At the same time, he says, a run of the mill breach of statutory duty will not amount to “turpitude”. Does Lord Sumption’s “rule of law” then change according to the morals and values of the time: after all, Amnesty International is now campaigning to legalise all consensual sexual activity, including prostitution? We have seen enormous changes in attitudes to such matters in my lifetime, short as it has been. Prior to 1967, consensual homosexual activity, even in private, was criminal. Now we have gay marriage.

Such questions, even over what is “turpitude” allow for wriggle room for the advocates and the judge to find the “right” answer, dressed up as principle.

Lord Sumption also refers to what he calls a “recognised exception” to the category of turpitudinous acts for cases of strict liability, generally arising under statute, where the claimant was not privy to the facts making his act unlawful. One wonders on what basis this is a “recognised exception”? The obvious answer is that no judge would want to punish such an innocent party, by enforcing the illegality rule.

The danger with this sort of analysis is that although dressed up as principle, it is, in reality, simply an example of the court acting to get the “right” answer. That is not very far from the discretionary approach of the Court of Appeal in Apotex, which attracted the opprobrium of the Supreme Court.

The next case - Hounga - is problematic and has given rise to a good deal of debate in the profession as well as in law faculties everywhere.

The facts were simple: the claimant Nigerian was employed as a family help under an employment contract which was unlawful from inception. She had obtained entry into the UK by stating fraudulently that she was a relative of the family. Both parties knew throughout that it was illegal for her to work here and she was a willing participant in the illegality.

The Employment Tribunal rejected her claims for unpaid salary, damages for unfair dismissal and for the statutory tort of dismissal on racially discriminatory grounds because they were all inextricably bound up with her illegal conduct which could not be condoned. The EAT allowed her appeal in relation to the statutory tort on the ground that her illegal employment was not inextricably linked with the physical abuse and forcible eviction to which she had been subjected.

The defendant successfully appealed to the Court of Appeal. Rimer LJ said:

'In making good her dismissal discrimination case she was ... directly invoking and relying upon the fact that she was here illegally and had been working illegally for the Allens. She was making a direct link between the discriminatory treatment of which she complained and the circumstances in which she came to be, and was, employed by the Allens.'

The Supreme Court reversed the Court of Appeal. It made no express reference to the Law Commission's reports but applied its approach. Lord Wilson (with whom Baroness Hale and Lord Kerr agreed) concluded, on the basis of a dictum of Lord Phillips in Stone & Rolls, that the Tinsley reliance test could not automatically be applied and thought it appropriate 'to soften the effect of the reliance test by the need to consider the underlying policy'.

On the 'inextricable link' test Lord Wilson said:

'I ... would hold the link to be absent. Entry into the illegal contract on 28 January 2007 and its continued operation until 17 July 2008 provided ... no more than the context in which Mrs Allen then perpetuated the acts of physical, verbal and emotional abuse by which, among other things, she dismissed Miss Hounga from her employment.'

Although he went on to say 'the bigger question was whether the inextricable link test was applicable' Lord Wilson did not explicitly answer that question and focused instead on the public policy foundation of the illegality defence. He referred to the well known dictum of McLachlin J in Hall v. Hebert and said that awarding compensation for injured feelings to Miss Hounga did not allow her to profit from her wrongful conduct in entering the contract; or to evade a criminal penalty; nor did it encourage others to enter similar illegal contracts; conversely to allow the illegality defence would encourage other disreputable employers to discriminate with impunity against their employees. These public policy considerations led Lord Wilson to conclude that there 'scarcely exist[ed]' any justification for applying the illegality defence. In essence this was an example of the approach favoured by the Law Commission.

It is, however, noteworthy that in his enumeration of the policy considerations Lord Wilson omitted the most obviously applicable one, namely, consistency in the law: how could the law prohibit the employment, yet reward Miss Hounga with damages for its discriminatory termination?

Lord Hughes (with Lord Carnwath) agreed with Lord Wilson that there was not a sufficiently close connection between the illegality and the statutory tort. This was in contrast with the claims for breach of contract when the contract was 'prohibited and illegal'. The employment 'merely provided the setting or context' for the commission of the tort and to allow recovery for that tort 'would not amount to the court's condoning what it otherwise condemns'.

I think the Court of Appeal was right to say that all Miss Hounga's claims, including the one on which ultimately she succeeded, were 'obviously' inextricably bound up with the illegal employment: it is difficult to see on what basis the unfair dismissal was, but the racially discriminatory dismissal was not, caused by it. This looks like an example of Lord Sumption's interesting observation in Apotex to the effect that the disordered state of the law is due to 'the distaste of a court for the consequences of applying their own rules'. The Law Commission would say this is an example of the law being 'bent' in order to achieve a palatable result. Miss Hounga was relying, for all her claims, on her own unlawful employment.

In the later case of Bilta there is a valiant attempt by Lord Sumption to support Hounga. At para 102 he says: 'Miss Hounga did not rely, and did not need to rely on the circumstances in which she had entered into the' UK. I don't think that quite hits the point: the circumstances of Miss Hounga's entry into the UK may have been background, but the illegal contract clearly was not. It was central to any unfair or racially discriminatory dismissal claim.

In my view the real question in Hounga should have been whether, on the true construction of the provision which created the statutory tort - the Race Relations Act 1976, section 4(2) - it applied to unlawful contracts of employment. That question was never addressed either by the Court of Appeal or by the Supreme Court. The section deals with employment discrimination and access to opportunities for promotion and training, as well as dismissal and other forms of detriment. The decision in Hounga implies that a person knowingly in illegal employment can nevertheless make claims across the whole range, eg but for his race, the terms of the illegal employment would have been improved or he would have been promoted to more senior illegal employment. That cannot be right.

Hounga may be a classic example of a hard case making bad law.

It certainly does not follow that the decision in Hounga is in conflict with Tinsley. They are different cases. Tinsley decides that the illegality defence depends on a rule of law: it doesn't turn on the supposed equities and it certainly isn't a discretionary power exercisable on the basis of a judicial value judgment or balancing exercise. Cases such as Parkingeye and Hounga are different because the claimant is not obliged to rely on his own illegality and Tinsley is not applicable. In Apotex the claimant relied on the alleged illegality and the Tinsley principle was engaged: in Hounga the Supreme Court decided the illegality was merely background or context so the Tinsley principle was not engaged. In Hounga there was also a competing public policy. For this reason the singular expression 'the illegality defence' is misleading and should be avoided.

Hounga was followed in Best v. Chief Land Registrar [2015] EWCA Civ 17. There a squatter was held to be entitled to claim title to a residential property in reliance upon his adverse possession notwithstanding that his occupation amounted to a criminal offence under The Legal Aid, Sentencing and Parliament Act 2012, section 144. The Court of Appeal concluded that in enacting section 144Parliament did not intend to produce any collateral effect upon the settled law of adverse possession in respect of registered or unregistered land.

The next case is Patel where, contrary to the Criminal Justice Act 1993, section 52, the claimant paid £620k to the defendant under an illegal contract to bet on the movement of shares in Royal Bank of Scotland using inside information. In the event the illicit information was never forthcoming. The contract was frustrated but the defendant refused to repay the money. The Court of Appeal unanimously held in favour of the claimant because the contract was wholly unperformed. The reason why the claimant had withdrawn was held to be irrelevant and it was unnecessary for the claimant to have to show this had been done voluntarily or that there had been, on his part, some hand wringing expression of repentance. This aspect of the decision confirmed the point made some years earlier by Millett LJ in Tribe v Tribe [1996] Ch 107 at 135 and has sensibly clarified a previously unresolved chestnut. The combined effect of Millett LJ in Tribe and the decision in Patel means that Bigos v Boustead is no longer good law.

The court was, however, divided on the distinct question whether, if the judge's decision that the claimant could not withdraw in the events which had happened, had been correct, the claim would have been barred because of the need to rely on the illegality. Rimer and Vos LJJ held that it would have been barred because the claimant had relied on the agreement and its frustration in all its gory detail in his pleadings. The point was trenchantly summarised by Rimer LJ: he said the claimant could not have pleaded a case which 'carefully kept the illegal cat secure in the bag'.

I'm not sure about the concept of an illegal cat but no matter.

Gloster LJ (the third judge) took the view that it did not matter what had been pleaded. Basing herself on Tinsley - Lord Browne Wilkinson at 476-7 - she said the test was whether reliance on the illegality of necessity formed part of the claimant's case. In Patel it did not. The claimant merely had to show that he had paid over the money for the purpose of speculating in shares in Royal Bank of Scotland and that this purpose had never been carried out. Gloster LJ also drew attention to section 63(2) of the 1993 Act to the effect that individual bargains should not be unenforceable from which she inferred that public policy did not require the claim to be infected by the illegality.

There are two meritorious features of the approach adopted by Gloster LJ, which I should highlight. First, she applied the necessity test which was authoritatively established in Tinsley. Secondly, the answer to this sort of question should not turn on arcane case law about pleadings. This is a public policy issue which should be decided on the actual facts and the applicable principles of law.

That analysis does not, however, sit happily with the fact that the illegality may be raised by the Court, e.g. in a case where it has never been pleaded. In Cross v Kirby (the hunt protestor case) Beldam LJ said:

“I do not believe that there is any general principle that the Claimant must either plead, give evidence of or rely on his own illegality for the principle to apply. Such a technical approach is entirely absent from Lord Mansfield’s exposition of the principle.”

I agree with Professor Graham Virgo on this point. The current law on the reliance point needs to be clarified. The correct answer should not depend on artifice or formalism, i.e. the subtleties of the way the case is or might be pleaded.

I should try to summarise where I think we are.

If we step back from the respective positions thus far adopted by different judges and ask ourselves the question: ‘what has been happening in these cases?’ the answer is that, broadly speaking, the courts have reached the right answers. In all these cases they have come to a view on the merits and engineered the appropriate result. Sometimes that has been done in the forthright way advocated by the Law Commission. The reasoning in such cases has the merit of openness and more transparency than we have ever had before: Hounga is an example.

In other cases the courts have adopted a principled rule which has sufficient flexibility to enable it to accommodate the judicial instinct for fairness and justice. With this approach it has and should be possible for the court to decide whether the illegality and the claim are, or as the case may be, are not, ‘inextricably linked’ so there is a built in safety valve.

Ordinarily, my personal preference would be in favour of a rigorous and principled rule but, for three reasons, in this particular context, I do not feel so constrained.

First, our judges are rather good a spotting where the true merits lie and that enables them to get to what I would call the right answer.

Secondly, as previously mentioned, certainty in the law is desirable whether you are advising a client when entering a contract or advising him about his prospects of success when a transaction has broken down. In this context that point does not arise. The parties to an illegal bargain can hardly complain if the court decides for itself what the result should be. In any event, it will be an unusual case where there is not one party with clearly more “merits” than the other.

Thirdly, litigation lawyers have always cautioned clients – rightly in my view - that the merits of the case are vitally important in front of most judges. Contrary to popular belief judges are human beings. In my experience the merits of a case might even extend to the unsavoury appearance of a client.

I have a vivid memory as a pupil attending an application for leave to appeal to the House of Lords. The Judical Committee was chaired by Lord Diplock and I think Lord Roskill was also present – a formidable court. Our client, apart from being a crook, also looked the part. Sam Stamler (my pupil master) had tried to dissuade the client from attending in person but he had insisted on being present. Stamler was on his feet for no more than a couple of minutes and was told to sit down. His opponent was then given a ten minute blasting and leave was given without the need for the customary withdrawal of counsel. As we walked back to the robing room along the red carpet on the Committee floor, our opponent congratulated Sam on his extraordinary success. He said he had advised his client that he would not be called on still less that leave to appeal would be granted. He said this was particularly impressive because Sam’s physically unattractive client was in Court. ‘Yes’, said Stamler ‘that’s why I told him to sit behind you on your side of the Court’.

The other aspect of illegality I want briefly to deal with this evening is the restitution point, ie recovery of property transferred under an illegal contract.

A variety of policy arguments have been deployed as supposed justifications for denying the remedy of restitution where the claimant has been tainted with illegality. In summary, they are consistency, i.e. between the criminal law and private law – see Lord Hughes in Hounga. That is a powerful argument.

The other points are less impressive for reasons which I won’t address in this lecture. They are: deterrence, punishment and the dignity of the court. The arguments are well set out by Professor Graham Virgo in his article: “The Defence of Illegality in Unjust Enrichment”.

There may be circumstances where one or other of these points will, on the facts of the particular case, have great sway. Leaving that aside, summarising the position shortly, the current state of the law appears to be as follows.

The first point is that, property so transferred is recoverable if, for whatever reason, the contract is wholly unperformed.

Secondly, it is established that for this purpose property includes tangible assets: Bowmakers Limited v. Barnett Instruments Limited (machine tools); it also includes real estate as in Tinsley; and (subject to the Supreme Court in Patel) the right to be repaid money.

Thirdly, property may also be recovered even if the agreement is no longer executory provided the claimant can establish ownership without having to rely on the illegal agreement: see Tinsley and Collier (the contrasting presumption cases we looked at earlier). As I have already suggested the reasoning in these two cases is unsatisfactory and arbitrary.

In Patel the claim for return of the £620k was not an attempt to get a profit, still less to secure a benefit for Mr Patel from the illegality: Mr Patel wanted his money back. This case strikingly illustrates the subtle way in which there has been a shift in public policy. Lord Mansfield would not have permitted the court process to be used to assist Mr Patel but, provided he is not being rewarded for his improper behaviour, the courts today are or may be more sympathetic to the claimant even if his hands are a little bit grubby. I think this is the point which was anticipated nearly 30 years ago by Bingham LJ - you will recall that learned judge's excellent image in his judgment in Saunders v. Edwards of the court drawing up its skirts.

If, in a case like Patel, the claimant is barred from recovering it would follow that the defendant would retain a windfall and profit from the illegality. This was an acceptable outcome to Lord Mansfield but I think it should not be permitted today: the defendant should not be permitted to retain the claimant's property.

Finally - and I know that word always brings relief to the audience – my understanding is that on the restitution point, French law is ahead of the game. In France recovery of property is permitted so as to restore the parties to their original positions. The illegal transaction is reversed and is of no effect. On this isolated and recherché point I think we would do well, just for once, unashamedly to follow the French.