The Supreme Court has handed down its decision in the case of Stoffel & Co v Grondona, in which it considers the much-debated defence of illegality and, in particular, the Court of Appeal's application of the judgment in Patel v Mirza [2016].

What is the defence of illegality?

The illegality defence denies an individual the right to a legal remedy where his claim relies in any way upon his own illegal act. It is a complex legal construct that has historically caused the courts many a headache, and this in turn has led to some inconsistency and uncertainty as to the correct legal approach.

The modern-day test was established by the House of Lords in Tinsley v Milligan [1994] and effectively confirms that a claim will be barred if a claimant has to rely on his own illegality to bring it. The test was considered – and ultimately replaced - by the Supreme Court in Patel v Mirza [2016], where the Court established that the principle will only apply if enforcing the claim would be harmful to the integrity of the legal system. It went on to set out a flexible three-tiered approach:

  • Look at the underlying purpose of the prohibition transgressed in the claim and determine whether that purpose would be harmed in the enforcement of the claim.
  • Consider any other public policy that the denial of the claim may have an impact on and the effect on it of denying the claim - "... any other relevant public policies which may be rendered ineffective or less effective by denial of the claim..."
  • Ask whether the denial of the claim would be a proportionate response to the illegality; taking into account, amongst other things, the seriousness of the illegality, the centrality of it to the contract, whether it was intentional and the respective culpability of the parties.

However, despite the Supreme Court'sthorough analysis of the area of illegality, the inherent discretion in the approach in Patel v Mirza has, in many ways, fanned the flames of confusion and inconsistency that has dogged this legal concept over the years. So the Supreme Court's decision in the Stoffel case has been eagerly awaited, in the hope that some much-needed clarity and consistency would be brought to bear.

Stoffel v Grondona – the facts

In 2000, Ms Grondona entered into an agreement with Mr Mitchell whereby she agreed to lend her name (and good credit rating) to Mr Mitchell for the purpose of obtaining more favourable mortgage terms than Mr Mitchell would otherwise have been able to obtain. In return, Ms Grondona was to receive 50% of the net profits when the properties were sold.

In July 2002 Mr Mitchell purchased the leasehold interest in a flat in London for £30,000 and subsequently borrowed a sum against the flat, in respect of which a charge was registered in the name of the lender.

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