|From:||William Swadling <email@example.com>|
|Date:||22/04/2015 14:51:17 UTC|
|Subject:||RE: UK Supreme Court on Illegality Defence and Attribution|
Can anyone explain how the following passage from Lord Sumption is consistent with the majority (rather than the minority) in Tinsley:
100. The illegality defence is based on the subordination of private rights and liabilities to certain interests belonging to the public sphere. The underlying rationale, as I sought to explain in Les Laboratoires Servier, at paras 23 and 25, is that the rights of private parties to remedies in private law may be overridden if the claims based on them are founded on “acts which are contrary to the public law of the state and engage the public interest”. These are acts which engage what in French and other civil law systems would be categorised as interests belonging to the ordre public or, as a writer has put it, “that part of law that is not at the free disposition of private individuals” (R de Lange, “The European Public Order”, Erasmus Law Review 3 (2007), 11). This is why a judge, as a public officer, may be required to take a point on illegality of his own motion, contrary to the ordinary adversarial practice of the English courts. And it is why ordinary private wrongs, sounding in tort or contract, do not give rise to the illegality defence.
Why was the creation of the trust in Tinsley, designed only to allow the parties to make fraudulent claims on the state, not an act which was ‘contrary to the public law of the state’ and engaging the public interest? Lord Sumption speaks of judges being public officials who may be required to take a point of illegality on their own motion. That, to me, is exactly what the minority did in Tinsley, in which case I’m at a loss to see how the majority decision can be right.
A seven-Justice panel of the UK Supreme Court has today handed down judgment in Jetivia SA v Bilta (UK) Limited  UKSC 23 https://www.supremecourt.uk/decided-cases/docs/UKSC_2013_0206_Judgment.pdf. It is yet another case on the operation of the illegality defence, this time in the context of the attribution of conduct of the fraudulent directors. The company had been wound up at the petition of HMRC as a result of the appellants involving the company in the a carousel fraud. The company’s liquidators then sued the directors and another company involved in the scheme. The court is unanimous as to the outcome – the defence does not bar the claims as the directors’ conduct cannot be attributed to the company when it comes to a claim by the company against the directors themselves..
The judgments run to  paragraphs. What is possibly of most general interest to members is that the scope of the illegality defence is still the subject of some disagreement amongst the Justices, especially over the correctness/standing of Tinsley v Milligan, as somewhat summarised by Lord Neuberger’s lead judgment:
13 First, then, there is the proper approach which should be adopted to a defence of illegality. This is a difficult and important topic on which, as the two main judgments in this case show, there can be strongly held differing views, and it is probably accurate to describe the debate on the topic as involving something of a spectrum of views. The debate 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.
14. In these proceedings, Lord Sumption considers that the law is stated in the judgments in the House of Lords in Tinsley v Milligan  1 AC 340, which he followed and developed (with the agreement of three of the four other members of the court, including myself and Lord Clarke) in Les Laboratoires Servier v Apotex Inc  UKSC 55,  3 WLR 1257. He distinguishes the judgment of Lord Wilson in Hounga v Allen  UKSC 47,  1 WLR 2889 as involving no departure from Tinsley v Milligan, but as turning on its own context in which “a competing public policy required that damages should be available even to a person who was privy to her own trafficking” (para 47). By contrast Lord Toulson (who dissented from that approach in Les Laboratoires) and Lord Hodge favour the approach adopted by the majority of the Court of Appeal in Tinsley and treat that of Lord Wilson in para 42ff of Hounga as supporting that approach.
15. In my view, while the proper approach to the defence of illegality needs to be addressed by this court (certainly with a panel of seven and conceivably with a panel of nine Justices) as soon as appropriately possible, this is not the case in which it should be decided. We have had no real argument on the topic: this case is concerned with attribution, and that is the issue on which the arguments have correctly focussed. Further, in this case, as in the two recent Supreme Court decisions of Les Laboratoires and Hounga, the outcome is the same irrespective of the correct approach to the illegality defence.
16. It would, in my view, be unwise to seek to decide such a difficult and controversial question in a case where it is not determinative of the outcome and where there has been little if any argument on the topic. In Les Laboratoires, the majority did opine on the proper approach not because it was necessary to decide the appeal, but because they considered that the Court of Appeal (who had reached the same actual decision) had adopted an approach which was inconsistent with Tinsley. Similarly in Hounga, as Lord Sumption has shown in para 99, it may well not have been necessary to Page 6 consider the proper approach to the illegality defence, but it nonetheless remains the fact that it was the subject of argument, and that Lord Wilson did express a view on the point, and two of the four other members of the court agreed with his judgment.
17. Les Laboratoires provides a basis for saying that the approach in Tinsley has recently been reaffirmed by this court and that it would be inappropriate for this court to visit the point again. However, it was not argued in Les Laboratoires that Tinsley was wrongly decided, and, as Lord Toulson pointed out in his judgment, the majority decision was reached without addressing the reasoning in Hounga. Lord Sumption is right to say that, unless and until this court refuses to follow Tinsley, it is at the very least difficult to say that the law is as flexible as Lords Toulson and Hodge suggest in their judgment, but (i) in the light of what the majority said in Hounga at paras 42-43, there is room for argument that this Court has refused to follow Tinsley, and (ii) in the light of the Law Commission report, the subsequent decisions of the Court of Appeal, and decisions of other common law courts, it appears to me to be appropriate for this court to address this difficult and controversial issue – but only after having heard and read full argument on the topic.
One may therefore pause to wonder why have a seven-Justice bench, and consider illegality again for the third time in three years, if not to consider the defence properly.
There is also a lot in the judgments for those interested in broader questions of attribution of conduct, the interaction between statute and common law, the contrasting reasoning of Lord Mance and Lord Sumption on illegality in previous cases, and even some material on extra-territorial application of s 213 of the Insolvency Act 1986.
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