UK: Sumption To Think About: A War About Illegality In The Supreme Court

"In the two centuries which followed Lord Mansfield's apparently simple proposition, it was among the most heavily litigated rules of common law, and by the end of the twentieth century it had become encrusted with an incoherent mass of inconsistent authority."

Lord Sumption in Jetivia v Bilta [2015] UKSC 23

The rule referred to in the above quotation is commonly expressed through the maxim: ex turpi causa non oritur actio. Or, as Lord Mansfield put it in 1775: "No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act." It is the defence of illegality. 

There is currently a war in the Supreme Court over the very foundation of the defence. Three battles have been fought in the highest court of the land, with differently constituted benches reaching seemingly inconsistent decisions. Before reviewing the most recent judgments, however, it is helpful to remind ourselves of the legal landscape as it stood before the most recent shots were fired.


Not long before the turn of the last century, the courts' approach to the illegality defence was by way of the 'public conscience' test. As Lord Nicholls LJ stated in Saunders v Edwards [1987] 1 WLR 1116, the relevant question was:

"whether to uphold the claim would be an affront to the public conscience in appearing indirectly to encourage the unlawful conduct of which the [claimants] had been guilty."

This inquiry necessarily involved the exercise of a judge's discretion as to what the public conscience was, and whether the illegality complained of was serious enough to affront it. Although this approach was taken with a desire to achieve a fair and just outcome in each case, some commentators expressed the view that the public conscience test had led to uncertainty and unpredictability in the law. They advocated a new approach based on a principled test that could be applied uniformly and predictably by the courts.

The House of Lords agreed with these concerns. It decisively rejected the public conscience test in Tinsley v Milligan [1994] 1 AC 340. In its place the majority substituted the 'reliance test', by which a claimant was entitled to recover as long as he was not forced to plead or rely on the illegality when making his claim. There was no room for discretion on the part of the judge. The test acquired the character of a procedural rule of pleading.

The reliance test was received with widespread disapproval by commentators, judges and the Law Commission. The latter expressed support for the old public conscience test in its paper The Illegality Defence: A Consultative Report (2009). There was an expectation that the highest court in the land might re-visit the illegality defence in the near future in order to ameliorate the indiscriminate, and sometimes harsh, effect of the reliance test.

With this background in mind, we turn to the first recent Supreme Court case in which battle commenced over the defence of illegality: Hounga v Allen [2014] UKSC 47.

Hounga v Allen

In January 2007 Miss Hounga, aged about 14, was trafficked into the UK from Nigeria under arrangements made by the brother of Mrs Allen. He told Miss Hounga that Mrs Allen had offered to send her to school and pay her £50 per month in addition to the provision of bed and board. Miss Hounga willingly accepted the offer and achieved entry into the UK by her presentation to the immigration authorities of a false identity and their grant to her of a visitor's visa for six months. 

For the following 18 months Miss Hounga lived with Mrs Allen and her husband. Although Miss Hounga had no right to work in the UK, and no right to remain there after July 2007, Mrs Allen employed her as an au pair in the family home. Contrary to what had been promised, she was not sent to school and received no wages. Instead, Mrs Allen inflicted serious physical abuse on Miss Hounga and told her that, were she to leave the house and be found by the police, she would be sent to prison because her presence in the UK was illegal.

On 17 July 2008, Miss Hounga's employment terminated when she was beaten by Mrs Allen and thrown out of the house. She was found the next morning in the car park of a local supermarket and was taken to the social services department of the local authority. A claim was made on her behalf in the employment tribunal consisting of contractual claims (unfair dismissal, unpaid wages, holiday pay, etc.) and a claim under the Race Relations Act 1976 ("the Act") for dismissal on racial grounds.

The tribunal held that the former, contractual, claims were all barred by the defence of illegality. It did, however, uphold the discrimination claim under the Act, finding that Mrs Allen had dismissed Miss Hounga from her employment because of her vulnerability consequent upon her immigration status. The employment appeal tribunal upheld the judgment in full, but when the case reached the Court of Appeal the court held that each of Miss Hounga's claims were barred by the illegality defence, and it set the order for compensation aside. 

The only claim to reach the Supreme Court was the complaint of discrimination under the Act in relation to Miss Hounga's dismissal. The question was: did the criminal offence committed by Miss Hounga (under section 24(1)(b)(ii) of the Immigration Act 1971) preclude her from enforcing her rights under the Act?

Lord Wilson, with whom Lady Hale and Lord Kerr agreed, began his analysis by distinguishing Tinsley, noting that Miss Hounga's claim was based on a statutory tort. He stated that the relevant test was the 'inextricable link' test, which was "overlapping with the reliance test, but not co-terminus with it". He gave the following colourful example from the case of Cross v Kirkby [2000] EWCA Civ 426: 

"the claimant was a hunt saboteur and the defendant a local farmer. The claimant shouted to the defendant "You're f**king dead" and jabbed him in the chest and throat with a broken baseball bat. In order to ward off further blows, the defendant grappled with him. He wrested the bat from him and hit him on the head, causing his skull to fracture. The Court of Appeal held that the claimant's claim for assault and battery failed both because the defendant was acting in self-defence and because it was defeated by the illegality defence."

The Court of Appeal in Cross held that the claimant's claim was so closely connected or inextricably bound up with his own illegal conduct that the court could not permit him to recover without appearing to condone the conduct. 

After setting out what he thought was the correct test, however, Lord Wilson decided the case on an entirely different point: that of competing public policies. His starting point was Lord Mansfield's classic exposition of the illegality defence in Holman v Johnson (1775) 1 Cowp. 341, which begins "The principle of public policy is this...".

Lord Wilson held that the illegality defence was predicated on the duty of the courts to preserve the integrity of the legal system, and on preventing a person from profiting from his own wrong. But in his view these justifications were not applicable to Miss Hounga's claim because:

(a) The award of compensation did not allow her to profit from her wrongful conduct in entering into the contract of employment. The award was for injury to feelings consequent on her dismissal;

(b) The award did not permit evasion of a penalty prescribed by criminal law. Miss Hounga has not been prosecuted for her entry into the contract and, even had a penalty been imposed upon her, the award would not represent evasion of it;

(c) The idea that the award compromised the integrity of the legal system by encouraging those in Miss Hounga's position to enter into illegal contracts of employment was fanciful; and

(d) The integrity of the legal system might be compromised if the award was set aside. It could engender a belief that employers could discriminate against such employees with impunity.

Lord Wilson's conclusion was that the considerations of public policy militating in favour of applying the illegality defence "scarcely exist[ed]" on the facts of Miss Hounga's case.

Lord Wilson then asked whether there was any competing public policy that could override the public policy underpinning the illegality defence in the current circumstances. He found his answer in the anti-trafficking conventions that the UK was a party to, including the UN Protocol to Prevent, Suppress and Punish Trafficking in Persons 2000 and the Council of Europe Convention on Action against Trafficking in Human Beings 2005. 

The public policy underlying these conventions was the protection of victims of human trafficking, such as Miss Hounga. Lord Wilson thought that the public policy in support of the application of the illegality defence, to the extent that it existed at all, should give way to the public policy against trafficking and the protection of its victims. On that basis he allowed Miss Hounga's appeal.

The other members of the court, Lords Hughes and Carnwath, felt unable to agree with the majority's approach based on competing public policies. Instead they applied the inextricable link test that Lord Wilson had initially set out in his judgment. They concluded that there was an insufficiently close connection between Miss Hounga's immigration offences and her claims for the statutory tort of discrimination, and allowed the appeal.

The majority of the Supreme Court had therefore applied the illegality defence with no more than a passing reference to Tinsley. It was unclear to what extent the court intended to depart from that decision, but nevertheless opponents of the reliance test latched onto the majority judgment as evidence that the highest court in the land may be changing direction on the ex turpi causa principle. 

While the result in Hounga represented a victory for those who favoured more flexibility in the illegality defence, it also highlighted the problems with such an approach. When the Court of Appeal heard the case it too applied the inextricable link test. It came to the exact opposite conclusion to that of the Supreme Court. Rimer LJ went so far as to say the illegality and the claim were "obviously" inextricably linked. Indeed it seems a fine distinction to draw between one's contractual rights under a contract of employment and one's tortious rights not to be dismissed under the same contract.

Les Laboratoires Servier v Apotex

The next battle was fought three months later in the Supreme Court judgment in Les Laboratoires Servier v Apotex [2014] UKSC 55.

Les Laboratoires Servier ("LLS") was a French pharmaceutical company. It discovered the perindopril erbumine compound, an ACE inhibitor used for treating hypertension and cardiac insufficiency. It was granted patents for the compound in several countries, including in the UK and Canada. 

Apotex was a Canadian company specialising in the manufacture and marketing of generic pharmaceutical products. In March 2006 it wrote to LLS to notify them that Apotex intended to manufacture and market a specific crystalline form of perindopril in the UK. 

LLS sought and obtained an interlocutory injunction in the UK courts preventing Apotex from importing and selling the crystalline form of perindopril in the UK. LLS gave the normal undertaking to compensate Apotex for any loss caused if the injunction was later found to have been wrongly granted. This indeed turned out to be the case. On 11 July 2007 Pumfrey J held that the patent in issue was invalid, and discharged the injunction. LSS's subsequent appeal to the Court of Appeal was dismissed. 

Meanwhile, on 2 July 2008, LLS was granted a final injunction against Apotex in the Canadian courts restraining it from manufacturing the perindopril compound in Canada. Apotex could therefore lawfully sell the compound in the United Kingdom, but could not lawfully manufacture it in Canada, where its manufacturing operation was based.

The question before the Supreme Court was whether it was contrary to public policy for Apotex to recover damages for being prevented from selling a product in the United Kingdom whose manufacture in Canada would have been illegal in that country. 

All the members of the Supreme Court agreed that the illegality defence failed, but again the reasons given in the judgments differed. Lord Sumption, with whom Lord Neuberger and Lord Clarke agreed, lamented the "disordered state of case law" and was at pains to re-anchor the law on the House of Lords decision of Tinsley v Milligan.

He emphasised that the effect of that decision was to make clear that the application of the illegality defence was not discretionary but instead operated as a rule of law. Lord Sumption rejected the 'public conscience' test as contrary to 200 years of authority and criticised the Law Commission for its suggestion in its consultation paper, The Illegality Defence: A Consultative Report (2009), that the test was:

"useful in suggesting that the present rules should be regarded as no more than guidance that help the court to focus its attention on particular features of the case before it. What lies behind these 'rules' is a set of policies. This is why the courts are sometimes required to 'bend' the rules (if possible) to give better effect to the underlying policies as they apply to the facts of the case before them."

The majority of the Supreme Court thought that this approach would make the law uncertain and unprincipled, and the outcome exceptionally difficult for a party's advisors to predict in advance. 

Notably, however, the majority made no reference to the decision of the court in Hounga, which had taken a markedly different approach to the illegality defence. This is even more surprising because in both cases the wrong in question was a statutory tort. It was accepted in Les Laboratoires that an infringement of a Canadian patent constituted a strict liability statutory tort under Canadian law.

Lord Sumption highlighted three questions that would often arise in the application of the ex turpi causa principle: (i) what acts constitute turpitude for the purpose of the defence? (ii) what relationship must the turpitude have to the claim? (iii) on what principles should the turpitude of an agent be attributed to his principal?

Only the first of these questions was relevant to the dispute before the court. After the lengthy discussion on the foundations of the illegality defence, the majority decided that the defence was not engaged at all, because Apotex's manufacture in breach of a patent would not constitute the necessary turpitude for the purpose of the defence. A criminal or 'quasi-criminal' act was required. Only private rights were engaged by the breach of the patent, which could be sufficiently vindicated by the availability of damages for the infringements in Canada. 

Lord Mance gave a separate short judgment agreeing with the majority's reasoning. Lord Toulson, by contrast, while agreeing that the illegality defence should fail, conspicuously did not approve the reasoning of the other members of the court. 

Instead Lord Toulson justified the result on the rather narrow ground that LLS was attempting to extend the doctrine of illegality beyond any previously reported decision and he saw no good public policy reason to do so. 

For Lord Toulson that was sufficient reason to dispose of the appeal, but he took the time to approve Lord Wilson's speech in Hounga and call for a detailed re-analysis of the Tinsley decision. In applying the illegality defence it was necessary in his view to "consider the policies which underlie the broad principle". 

In contrast to Hounga, the Les Laboratoires Servier decision struck a blow for the Tinsley status quo. With one victory each in the Supreme Court, this set up both warring sides for the largest skirmish on the battleground of the illegality defence.

Jetivia v Bilta

The case of Jetivia SA v Bilta (UK) Ltd [2015] UKSC 23 took place in front of 7 Supreme Court Justices. 

Bilta (UK) Ltd ("Bilta") was an English company whose directors entered into a series of transactions relating to European Emissions Trading Scheme Allowances (better known as 'carbon credits') with Jetivia SA ("Jetivia"), a Swiss company. These transactions were made in order to perpetrate a carousel fraud against Her Majesty's Revenue & Customs ("HMRC"). 

The effect of the transactions was to place Bilta under an obligation to account to HMRC for output VAT. It was inherent in the fraud that Bilta would always be insolvent and unable to meet this obligation. 

Bilta was compulsory wound up upon petition by HMRC and a liquidator was appointed. The liquidator brought proceedings against Jetivia, Jetivia's chief executive, and the two former directors of Bilta, one of which was also the sole shareholder of the company. 

The four defendants applied to strike out Bilta's claim. They argued that Bilta could not succeed because the fraud of its directors could be attributed to the company itself, which could not recover loss resulting from its own fraud. The application was refused at first instance and the defendants' subsequent appeal to the Court of Appeal was dismissed.

Unsurprisingly, the Supreme Court unanimously dismissed the defendants' appeal. The battle lines in the Justices' reasoning, however, were sharply drawn. There was no agreement on the fundamental approach that the court should adopt in relation to the ex turpi causa principle. Lord Sumption was again the standard bearer for the decision in Tinsley. Lord Toulson was back on the side of the majority in Hounga, this time joined by Lord Hodge. Lord Neuberger, with whom Lord Clarke and Lord Carnwath agreed, was left to act as umpire between the two sides. Lord Mance expressed no view on the matter.

Lord Sumption set out the law as stated in Tinsley. He viewed the decision as binding authority, which the highest court had never been invited to overrule. It stood for the proposition that the illegality defence depends on a rule of law and was "not a discretionary power on which the court is merely entitled to act, nor is it dependent upon a judicial value judgment about the balance of the equities in each case".

 Unlike in Les Laboratoires Servier, Lord Sumption did offer a view as to the interpretation of the majority judgment in Hounga. He said that it was not inconsistent with the reliance test as set out in Tinsley, and the court was not purporting to depart from that decision without saying so. He distinguished it a case which arose in a very different context of unlawful discrimination and human trafficking, and expressed the opinion that no statement of principle of general application should be drawn from the decision.

By contrast, Lords Toulson and Hodge viewed the dispute through the lens of public policy as Lord Wilson had done in Hounga. In their view the critical issue was:

"whether it is contrary to public policy that the company, through the liquidators, should enforce for the benefit of its creditors the duty which the directors owed for the protection of the creditors' interests as part of their fiduciary duty to the company."

They came to the conclusion that it was not. Encouraging such enforcement was in fact advancing a valuable public policy, namely protecting creditors of an insolvent company. As the illegality defence was based on public policy, and there was no public policy which would be protected by the application of the defence, it had no application to the facts of the case. 

Lords Toulson and Hodge directly addressed the arguments made by Lord Sumption. They took the position that the approach of the majority in Hounga was not precluded by the decisions in Tinsley or Les Laboratoires Servier. The did acknowledge however, that the difference in approach between them and Lord Sumption suggested a pressing need for a review of the law.

Lord Neuberger recognised the struggle before him over the proper approach to be adopted to the defence of illegality. He referred to the "strongly held differing views" in the two opposing judgments of Lord Sumption and Lords Toulson and Hodge.

In a carefully worded section of his judgment, Lord Neuberger conceded that both sides had made valid points. He opined that Les Laboratoires Servier provided a basis for saying that the approach in Tinsley had been recently reaffirmed by the Supreme Court and that it would be inappropriate for the court to visit the point again. On the other hand, he noted that the majority in Les Laboratoires Servier reached their decision without reference to Hounga, which had arguably refused to follow Tinsley.

The correct course of action, he concluded, was for the Supreme Court to address this topic again in front of seven or nine Justices as soon as possible, with full argument on the basis of the ex turpi causa principle. 

As with Hounga and Les Laboratoires Servier, the debate over the foundation of the illegality defence was all obiter, and all the Justices agreed that the appeal should be dismissed on the ground that the fraudulent actions of Bilta's directors could not be attributed to Bilta itself, and so Bilta was involved in no illegality on which the ex turpi causa principle could bite.


The various debates in the Supreme Court can be seen as epitomising the familiar tension between the need for principle, clarity and certainty in the law with the equally important desire to achieve a fair and appropriate result in each case. 

The approach in Tinsley has the advantage of certainty and uniformity of application. It is a fundamental tenet of the rule of law that parties should be able to identify, with the help of legal advice if necessary, how the law will be applied and what the likely outcome will be if a matter came before the courts. 

On the other hand, the objections to the Tinsley approach were best expressed by McHugh J in the High Court of Australia in Nelson v Nelson (1995) 184 CLR 538:

"The [reliance] rule has no regard to the legal and equitable rights of the parties, the merits of the case, the effect of the transaction in undermining the policy of the relevant legislation or the question whether the sanctions imposed by the legislation sufficiently protect the purpose of the legislation. Regard is had only to the procedural issue; and it is that issue and not the policy of the legislation or the merits of the parties which determines the outcome. Basing the grant of legal remedies on an essentially procedural criterion which has nothing to do with the equitable positions of the parties or the policy of the legislation is unsatisfactory, particularly when implementing a doctrine which is founded on public policy."

Conversely, while the Hounga approach has the benefit of being able to consider important factors which would otherwise be ignored, its application is undoubtedly uncertain, as illustrated by the difference its application by the Court of Appeal and the Supreme Court in Les Laboratoires Servier.

As things stand, the safe bet is that the law underpinning the illegality defence remains as stated in Tinsley v Milligan. The decision remains binding authority unless and until the Supreme Court expressly departs from its approach. With the prospect of a final battle involving every member of the Supreme Court, however, it is advisable to wait until the dust settles before a victor in this war about illegality can be declared.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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