Oxford University Comparative Law Forum
The Role of Illegality in the English Law of Unjust Enrichment.
by William Swadling
(2000) Oxford U Comparative L Forum 5 at ouclf.iuscomp.org | How to cite this article
Table of content
When English unjust enrichment
lawyers talk of "illegality", they generally do so in the context of the
unravelling of partly-performed illegal contracts. Two parties enter into
an illegal contract. What generally happens is that one pays for a service
to be performed but fails to receive the agreed exchange. Can that party
recover the value he has transferred to the non-performing recipient? The
law in this area is complex and difficult to state with any accuracy.
There are a number of reasons
why the judges do not find it easy to come to an agreed answer to this
problem. The consequence of a finding of illegality in English law is that
the contract is null and void. No action may be brought for compensation
for non-performance, nor will an order for specific performance be available.
With such a harsh attitude taken to contractual performance, the pressure
falls entirely on the law of unjust enrichment to sort out the mess. And
the difficulties are only exacerbated by the fact that English law adopts
an extremely wide view as to what amounts to an illegal contract.1
Not only does it include contracts to commit crimes, as, for example, a
contract to kill or to injure another person, but also contracts of which
performance, though not illegal in any criminal sense, will not be enforced
for various reasons of public policy. Examples of such contracts are marriage
brokage contracts, contracts to commit civil wrongs, contracts to indemnify
another against liability for unlawful acts, contracts in restraint of
marriage, contracts promoting sexual immorality, contracts of insurance
where there is no insurable risk, contracts purporting to oust the jurisdiction
of the courts, trading with the enemy, and contracts restricting personal
liberty. The merits of the plaintiff who pays a hit-man to murder a business
rival are clearly different from one who pays a premium on an insurance
policy in which he has no insurable interest.
A further difficulty in this
area is caused by the fact that in many cases the role the contractual
illegality is playing is ambiguous. Though in some cases it clearly provides
a defence to what would be an otherwise valid claim for restitution of
unjust enrichment, in others the illegality, at least at first sight, appears
to provide a ground of claim in itself. In other words, the illegality
gives rise to a liability to make restitution of an unjust enrichment which,
absent the illegality, would not be present. Unfortunately, this distinction,
between illegality as a defence to a claim for restitution of unjust enrichment,
and illegality as a cause of action in unjust enrichment, is not always
cleanly drawn, both in the case-law2 and
in the academic literature. The cases on illegality as defence and illegality
as cause of action tend simply to be run together, making an already difficult
subject almost impossible to comprehend. This essay, adopting the scheme
first suggested by Professor Birks,3 proceeds
on the basis that the role of illegality in the context of unjust enrichment
claims cannot be understood unless a separation is first made between cause
of action and defence. The test which will be adopted here to decide on
which side of the line any particular case falls is as follows. If we put
aside the illegality, will the plaintiff still have a good cause of action?
If the answer to that question is yes, then the illegality is operating
as a defence. But where, conversely, the removal of the illegality would
cause the claim to fail, the illegality goes to the existence of a cause
of action, and is not operating as a defence.
But there is yet another
difficulty of a similar nature. Little attempt is made by the majority
of writers, both judicial and academic, to distinguish between claims based
on the unjust enrichment of the defendant and those in which plaintiffs
are seeking to enforce rights not generated by the unjust enrichment of
the defendant, more precisely, property rights not generated by
the unjust enrichment of the defendant.4
Claims for the enforcement of rights generated by the defendant's unjust
enrichment and claims for the enforcement of property rights not generated
by unjust enrichment are clearly two different things,5
for they are rights generated by different causative events, and to which
different defences may or may not apply. As we shall see, it was precisely
this failure to distinguish between the two species of rights in Bigos
v Bousted6 which led the court into
The aims of this essay are
relatively modest. What it does not purport to do is to provide an answer
to the difficult question, "When will illegality bar an otherwise valid
claim for restitution of unjust enrichment?".7
What it instead seeks to do is much more basic. First, it will demonstrate
the need to keep distinct the operation of the defence of illegality where
the claim is one to the enforcement of property rights not generated by
unjust enrichment from one where the claim is to the restitution of unjust
enrichment. Secondly, it will seek to establish whether in the law of restitution
of unjust enrichment, illegality really does have the bivalent role ascribed
to it above, viz, that it operates as both a defence and a cause of action
(or "unjust factor"). Though well established as a defence to claims for
restitution of unjust enrichment, the authority for saying that illegality
also operates as a cause of action is weak. The so-called "repentance"
cases apart, the decisions in which the illegality looks to be operating
as an unjust factor can all be explained on alternative grounds. And what
is more, even the repentance cases themselves provide no authority for
claims in unjust enrichment, for they are in the main concerned with claims
in respect of property rights not generated by unjust enrichment, and,
moreover, are cases in which the illegality of the transaction is operating,
albeit unsuccessfully, as a defence, and not a cause of action. The conclusion
which is reached is that in English law illegality operates only as a defence
to claims for restitution of unjust enrichment and never as a cause of
II. Illegality as a Defence
The defence of illegality
is not unique to claims for restitution of unjust enrichments. We have
already seen that it will bar claims in respect of the non-performance
of contractual promises. It can also bar claims for compensatory damages
for torts,8 and, more controversially,
for the enforcement of property rights not generated by unjust enrichment.
And since cases in the latter category are often run together with claims
for restitution of unjust enrichment, it is to those which we must first
1) Illegality as a defence to claims for the enforcement of property rights not generated by unjust enrichment
The operation of the defence
of illegality to claims for the enforcement of property rights not generated
by the unjust enrichment of the defendant is complex. In order to make
any sense of the law in this area we need to examine separately the position
at law from that obtaining in equity.
a) Common law property rights
So far as the common law
is concerned, illegality does not operate as a defence to claims for the
enforcement of property rights not generated by the defendant's unjust
enrichment. The reason seems to be that, unlike claims for the enforcement
of contractual rights, the owner does not seek to extract his rights from
any illegal act, but rather from rights which were in existence before
the illegal act. In asserting such rights, therefore, the holder has no
need to rely on any unlawful conduct on his part. An example is Bowmakers
v Barnet Instruments.9 Machine
tools were delivered pursuant to an unlawful hire-purchase agreement. Not
all the instalments under the agreement were paid by the purchaser and
the seller brought conversion when his demand for the return of the tools
was not met. The purchaser defended the claim by pointing to the illegality
of the hire-purchase agreement. The Court of Appeal held that this was
no defence. Du Parcq LJ, delivering the judgment of the court, said:
"... a man's right to possess
his own chattels will as a general rule be enforced against one who, without
any claim of right, is detaining them, or has converted them to his own
use, even though it may appear either from the pleadings, or in the course
of the trial, that the chattels in question came into the defendant's possession
by reason of an illegal contract between himself and the plaintiff, provided
that the plaintiff does not seek, and is not forced, either to found his
claim on the illegal contract or to plead its illegality in order to support
The same result was reached
in Singh v Ali11 The plaintiff
haulier wanted to acquire a lorry but knew that, because he did not satisfy
the certain government conditions, he would not be granted a haulier's
permit by the relevant authorities. He therefore entered into an agreement
with the defendant haulier, who did satisfy those conditions, under which
the defendant would buy the lorry, register it in his own name, and then
sell it on to the plaintiff, all the while concealing the second sale from
the authorities by keeping the registration unchanged. The defendant did
acquire such a lorry, registered it in his own name, and then sold and
delivered it to the plaintiff. The parties later fell out, and the defendant
seized the lorry from the plaintiff, who thereupon sued him in detinue.
The defendant set up the illegality of the second sale as a defence. The
trial judge, Smith J, held that the defence succeeded, that there was a
"moral estoppel" generated by the illegal design which prevented the plaintiff
from recovering. The Judicial Committee of the Privy Council disagreed.
Although the transaction between the plaintiff and the defendant was illegal,
property in the lorry passed through the act of delivery. The plaintiff
could assert his title to the lorry against all the world, not because
he had any merit of his own, but because there was no-one who could assert
a better one. As Lord Denning explained:
"The court does not confiscate
the property because of the illegality - it has no power to do so ... The
parties to the fraud are, of course, liable to be punished for the part
they played in the illegal transaction, but nevertheless the property passes
to the transferee."12
That must be right. As Lord
Denning makes clear, it is not for the civil court to punish the plaintiff
for his illegal conduct. And in any case, the "punishment" which would
be meted out might bear no relation to the seriousness of the conduct involved.
As Singh v Ali demonstrates, a fairly minor criminal infringement,
which might attract a fine of only a few hundred pounds from a criminal
court, could well be visited with a confiscation of property worth many
thousands of pounds were the court to allow illegality to operate as a
defence to the enforcement of property rights not generated by unjust enrichment.
b) Equitable property rights
The position here is more
complex. Until recently, the opposite position to that which obtained at
common law prevailed. Applying the maxim "he who comes to equity must do
so with clean hands", the courts refused relief to a plaintiff who was
party to an illegal design where what was claimed was an equitable, as
opposed to a legal, property right. An example is provided by Chettiar
v Chettiar,13 a decision of
the Privy Council on appeal from the Court of Appeal of Malaya of almost
the same vintage as Singh v Ali, with Lord Denning once again delivering
the opinion of the Board. There, a father owned 139 acres of land. In order
to evade administrative regulations as to its use, he transferred 40 acres
into his son's name, on the express understanding that the son was to hold
it for him on trust. The father later contracted to sell the land and asked
his son for a power of attorney to do so. The son refused and the father
sought a declaration that the son held the land for him on trust, founding
his claim not on the express trust14
but on the resulting trust which is presumed in the case of gratuitous
transfers of property rights.15 The trial
judge, who had also decided Singh v Ali at first instance but who,
as we have seen, had been reversed on appeal, held that the plaintiff's
possible turpitude was "no reason for denying him the orders which he seeks".
The Judicial Committee of the Privy Council, however, disagreed:
"In Singh v Ali the
plaintiff founded his claim on his right of property in the lorry and his
possession of it. He did not have to found his cause of action on an immoral
or illegal act. He was held entitled to recover. In the present case the
father has of necessity to put forward, and indeed, assert, his own fraudulent
purpose ... He is met therefore by the principle stated long ago by Lord
Mansfield "No court will lend its aid to a man who founds his cause of
action upon an immoral or an illegal act," see Holman v Johnson
(1775) 1 Cowp 341, 343. Their Lordships are of opinion that the courts
should not lend their aid to the father to obtain a re-transfer from the
Being entirely at odds with
the attitude taken by the common law, and with its tendency to impose a
disproportionate punishment on the plaintiff, it is not surprising that
the equitable position is subject to a number of exceptions. The first
is that relief will be given where that purpose for which the illegal trust
was created fails to take effect. So, in Symes v Hughes17
the plaintiff, who was in financial difficulties, conveyed leasehold property
to a widow with whom he was "on intimate terms" to hold for him on trust,
the intention being to keep the leasehold property out of the hands of
his creditors should he become bankrupt. Not surprisingly, the conveyance
made no mention of the trust, instead falsely declaring that the widow
had given valuable consideration for it. Although he did become bankrupt
three years later, the widow had in the meantime conveyed the lease to
her son-in-law. After her death, the plaintiff sought a reconveyance from
the son-in-law, alleging that the latter took the lease with notice of
the former's equitable interest. Before the cause came on for hearing,
the plaintiff was adjudicated bankrupt, and at the first meeting with his
creditors, he persuaded them to revest his property in him so that he could,
at his own expense, prosecute the claim against the son-in-law. Lord Romilly
MR held that the plaintiff's claim was not defeated by his illegality.
He said that where the purpose for which the assignment was given was not
carried into execution, and nothing was done under it, the mere intention
to effect an illegal object when the assignment was executed did not deprive
the assignor of his right to recover the property from the assignee.18
A further inroad into the
confiscatory attitude of equity was made very recently by a majority of
the House of Lords in Tinsley v Milligan,19
where the clean hands rule was held to be confined to the situation in
which the plaintiff had to somehow plead his own illegality as part of
the evidential basis of his case. If he could plead his case without mentioning
the illegality, then even though that illegality might later be disclosed
during the trial of the action, the plaintiff would be given equitable
In Tinsley v Milligan
the plaintiff and the defendant bought a house with joint funds. In order
enable both parties to make fraudulent claims to welfare benefits, the
property was conveyed into the name of the plaintiff alone, although the
agreement between the parties was that it would be held by her on trust
for the two of them. Fraudulent claims were in fact made by both parties,
but having now made her peace with the authorities, and having fallen out
with the plaintiff, the defendant sought a declaration that the plaintiff
held the property on trust for them both. As in Chettiar v Chettiar,
she relied not upon the express trust, but on the presumed trust which
arose through the device of a purchase money resulting trust.20
A majority of the House of
Lords allowed the plaintiff's claim. Lord Browne-Wilkinson said that the
defendant won her case simply because it was not necessary on the pleadings
for her to rely in any way on the illegality. He said that the common law
principle enunciated in Bowmakers Ltd v Barnet Industries Ltd21
should apply with equal force to claims in equity:
"... English law has one
single law of property made up of legal and equitable interests. Although
for historical reasons legal estates and equitable estates have differing
incidents, the person owning either type of estate has a right of property,
a right in rem not merely a right in personam. If the law is that a party
is entitled to enforce a property right acquired under an illegal transaction,
in my judgment the same rule ought to apply to any property right so acquired,
whether such right is legal or equitable."22
His lordship said that the
mere fact of her contribution to the purchase price of the house was enough
to give the plaintiff an interest under a resulting trust and her motive
for leaving her name off the title could not affect that result.
But the differences between
common law and equity have not been completely eradicated, as the subsequent
case of Tribe v Tribe23 demonstrates.
There, recovery was allowed, but only under the principle enunciated in
v Hughes.24 Had the illegal purpose
there been achieved, the plaintiff's interest would have been forfeit,
something which, as Singh v Ali25
demonstrates, could not have happened at common law. In Tribe v Tribe
a father owned 459 out of 500 shares in a family-run clothing company.
The father also held a lease of two shops, which the company occupied as
licensee. The shops were in a state of disrepair and, worried about his
liability under the repairing covenants and that he might, in order to
meet those liabilities, be forced to dispose of his shares in the family
company, the father transferred the shares to his son to hold for him on
trust, the purpose of the trust being to keep the shares out of the hands
of the father's creditors. But the crisis passed, the matter being settled
with the landlords by a surrender of the lease in the one case and a purchase
of the reversion in the other. At no stage did the fact that the shares
were in the hands of the son affect the outcome of the settlements. The
father later sought the return of the shares from his son, again, not on
the basis of the express trust,26 but
by arguing that the gratuitous nature of the conveyance gave rise to a
resulting trust in his favour. Not surprisingly, the son in turn argued
that a presumption of advancement (gift) operated in his favour,27
which presumption could only be rebutted by the father leading evidence
of his illegal purpose, which Tinsley v Milligan28
prevented him from doing.
The Court of Appeal found
for the father. Tinsley v Milligan was a liberalising decision,
and was certainly not to be seen as abolishing the Symes v Hughes
exception, with the result that because the father had not in fact defrauded
his creditors he would be allowed to lead evidence of the illegal purpose
in order to rebut successfully the presumption of advancement in favour
of his son. Any other result, said the court, would have been nonsensical.
As Nourse LJ remarked, "If Miss Milligan was able to recover against Miss
Tinsley even though she had succeeded in defrauding the Department of Social
Security over a period of years, it would indeed be a cause for concern
if a plaintiff who had not defrauded his creditors in any way was prevented
from recovering simply because the defendant was his son."29
It will be apparent that
there are a number of difficulties with the operation of the illegality
defence where a claim is made to the enforcement of equitable property
rights not generated by the unjust enrichment of the defendant. If, as
Lord Denning pointed out in Singh v Ali,30
a common law court has no power to confiscate such property rights because
of illegality, the question which then arises is why the position in equity
should be any different? For as Chettiar v Chettiar illustrates,
the potential for confiscation still exists, the reasoning in that case
being left untouched by Tinsley v Milligan. Second, the operation
of the illegality defence in equity is arbitrary. Recovery depends upon
who is forced to play the illegality card. As Millett LJ pointed out in
v Tribe, the rule that the plaintiff wins so long as he does not have
to rely on his own illegality:
"... is procedural in nature
and depends on the adventitious location of the burden of proof in any
given case. Had Mr Tribe transferred the shares to a stranger or distant
relative whom he trusted, albeit for the same dishonest purpose, it cannot
be doubted that he would have succeeded in his claim."31
As it was, Mr Tribe only
succeeded because he was able to bring himself within the Symes v Hughes
exception. Had his illegal design succeeded, his interest would have been
forfeited to his son.
2) Illegality as a defence to claims for restitution of unjust enrichment
The illegality of a contract
will sometimes operate not only to prevent enforcement of that contract,
but also to disqualify the plaintiff's right to restitution of benefits
transferred pursuant to it in what would otherwise be a valid claim based
on more familiar unjust factors such as mistake or failure of consideration.
The operation of the defence is governed by two overlapping maxims, ex
turpi causa non oritur actio (no disgraceful matter can ground an action)
and in pari delicto potior est conditio defendentis (where the guilt
is shared the position of the defendant is the stronger). As we have noted,
the exact limits of the defence are the subject of much conjecture and
we will not be entering into that debate. All we need do is note that illegality
undoubtably does sometimes have the effect barring what would otherwise
be valid claims for the restitution of unjust enrichments.
An example of a claim in
respect of a mistaken payment barred by illegality is provided by Parkinson
v College of Ambulance,32 where the
secretary of a charity fraudulently misrepresented to the plaintiff that
either he or the charity was in a position to undertake that the plaintiff
could be got a knighthood in return for a large donation to the charity.
The plaintiff made the donation but did not receive the promised knighthood.
He sued to recover the money which he had paid on the ground that the payment
had been induced by fraud (a species of mistake). Lush J refused the claim.
Although it was true that the plaintiff had been defrauded, he knew that
the contract into which he was entering was illegal and one which he ought
not to have made. He could not therefore claim that he was not in pari
delicto with the defendant. He had only himself to blame for his loss.
Applying the test set out above,33 the
illegality is here clearly operating as a defence since, if we put the
illegality aside, the plaintiff would undoubtably have had a good cause
of action based on his mistaken transfer.
The same is true of a case
involving a failure of consideration, Berg v Sadler & Moore.34
The plaintiff tobacconist had been put on a stop-list by the Tobacco Trade
Association. He tried to get supplies by putting up another person to buy
them with his money, an action which amounted to a criminal offence. After
the money had been paid over but before the goods had been delivered, the
defendant wholesalers realised what was happening. They declined either
to deliver the goods or to return the money. The Court of Appeal refused
the tobacconist restitution of the moneys he had paid. Since, absent the
illegality, the plaintiff would have undoubtably had a claim for restitution
of unjust enrichment based on a total failure of consideration, the illegal
nature of the design is undoubtably operating as a defence here too.
But the mere fact that the
contract is illegal will not always operate as a bar. An exception is implicit
in the wording of one of the maxims used in this area. If the rule is in
pari delicto potior est conditio defendentis, then, in cases where
the plaintiff does not share the defendant's guilt, recovery ought to be
allowed. So, for example, in Hughes v Liverpool Victoria Legal
Friendly Society,35 the plaintiff
was induced by a fraudulent misrepresentation to pay premiums on policies
on lives in which she had no insurable interest. The contract of insurance,
since it did not relate to an insurable interest, was an illegal one.36
The plaintiff sought recovery of the premiums which she had paid but was
met with the defence of in pari delicto. She succeeded nonetheless.
The Court of Appeal held that as the victim of a fraud, she was innocent
and so entitled to say that she was not in pari delicto with the
defendant who by a false representation had induced her to believe that
the transaction was an innocent one and one which was enforceable in law.
Once again, therefore, illegality is operating as a defence, though this
time it is found to have no application to the facts of the case in hand.
III. Illegality as Cause of Action
Nowhere in any other branch
of English private law does illegality per se provide a plaintiff
with a cause of action that he would not otherwise have. Although illegality
operates in contract and tort to bar what would otherwise be valid claims,
it never creates a cause of action in itself. And nor does illegality ever
give rise to property rights, at least not property rights not created
as a response to unjust enrichments. But, it is said, this is not the case
in claims for the restitution of unjust enrichment. Goff and Jones, for
example, while acknowledging that it in general it operates as defence,
assert that "there are situations where a plaintiff is able to rely on
illegality itself as the ground to support his restitutionary claim".37
This is also the view of Burrows, who devotes separate chapters to "Illegality
as a ground of restitution" and "Defences", one of which is illegality.38
The question which will now be addressed, and the point which is the main
focus of this paper, is whether this is right. Does illegality, or more
accurately, "transfer of benefits pursuant to an illegal contract", ever
constitute a ground of restitutionary claim?
We should immediately notice
that the ground as formulated does not allege any vitiation or qualification
of the plaintiff's consent to the transfer. If it comes anywhere, therefore,
it has to come under some head of policy-motivated restitution. But before
addressing the question whether it does fall under that heading, we must
clear away two potential distractions. The first is that there are some
cases which are claimed as examples of restitution for illegality but which
can be explained on more orthodox grounds, as cases in which the unjust
factor is the vitiation of the plaintiff's consent to the transfer. The
second is that an illegal contract is a void contract, and there is an
argument which says that void contract is a ground of claim.
1) Illegality within vitiated consent
There are some cases which
are claimed as examples of illegality operating as a cause of action but
which, on closer examination, are better explained as examples of restitution
for vitiated consent. Some are clearer than others.
A clear case is Smith
v Bromley,39 where the ground of
claim was duress. The plaintiff's brother was bankrupt. The defendant,
his chief creditor, had taken out a commission against him, but afterwards,
finding no dividend likely to be paid, refused to sign his certificate
unless he was paid £40 and given a credit note for a further £20.
The plaintiff paid the money and the defendant signed the certificate.
When the plaintiff sought to recover the money, the defendant argued that
the consideration for the payment was illegal and that the plaintiff was
party to that illegality. Lord Mansfield nevertheless allowed recovery.
The case was, he said, analogous to Astley v Reynolds40
(a case of duress of goods), and, the plaintiff not being in pari delicto,
the illegality presented no bar to her claim.41
The fact pattern of this case is, therefore, exactly the same as that in
v Liverpool Victoria Legal Friendly Society.42
Illegality is being raised as a defence, though a defence which fails on
the particular facts of the case because the parties are not in pari
delicto. In no way is the illegality of the transaction in this case
operating as a cause of action.
Next, there is a group of
cases in which the ground of claim can also be explained as non-voluntary
transfer, though this is admittedly more controversial. We will call these
cases the "protected class" cases.43
In Kiriri Cotton Ltd v Dewani,44
a landlord charged a premium for the grant to a tenant of a seven year
lease. By virtue of section 3(2) of the Uganda Rent Restriction Ordinance,
a landlord committed an offence in demanding or receiving such a premium.
But the ordinance was poorly drafted, and both parties honestly and reasonably
believed that the provision did not apply to their transaction. The tenant
went into possession, but, upon discovering that the restriction did in
fact apply to his lease, sought the return of his premium. In his defence,
the landlord argued that the tenant's claim was barred because he was guilty
of aiding and abetting a criminal offence. He also denied the existence
of any ground of claim, the mistake on the part of the tenant being a mistake
of law.45 The Privy Council nevertheless
allowed recovery. Lord Denning, who gave the opinion of the Board, said
that the issue was whether the plaintiff was in pari delicto with
the defendant. He said that he was not, because "The duty of observing
the law is firmly placed by the ordinance on the shoulders of the landlord
for the protection of the tenant; and if the law is broken, the landlord
must take the primary responsibility." From that it followed that the plaintiff
won. "Seeing, then, that the parties are not in pari delicto, the tenant
is entitled to recover the premium by the common law."
It is not immediately obvious
why a finding that the parties were not in pari delicto should lead
to the conclusion that the tenant could recover his premium. As we saw
with the case of Smith v Bromley,46
a finding that a plaintiff is not in pari delicto gives us a reason
why illegality should not bar an otherwise valid claim; but it gives us
no positive reason why a claim which is bad from the start should be allowed.
Indeed, Kiriri Cotton Ltd v Dewani is a prime example of the phenomenon
referred to above,47 of a court failing
to distinguish between illegality as a defence and illegality as a cause
of action. But if we look closely, there is in fact a ground of restitution
contained in the decision which is independent of the illegality. A better
explanation of the case is that, like Smith v Bromley, this too
was a case on a non-voluntary transfer. Housing was in short supply in
Uganda, with the result that landlords had the upper hand, and tenants
were vulnerable to exploitation. And while we normally leave the market
to mediate in such situations, statute had recognised the transactional
inequality by forbidding this particular type of bargain. The law having
decreed that the tenant was not capable of bargaining as an equal, restitution
followed because of his lack of free will to the bargain. An alternative
explanation, again within non-voluntary transfer, is mistake. Though the
mistake was one of law, the fact that the statute was passed for the protection
of the tenant against the landlord meant that the usual restrictions on
recovery for mistake of law were removed.
But, since there was no evidence
of a mistake, mistake of law cannot explain the case of Hermann v Charlesworth.48
Nor can failure of consideration, even if we remove the requirement that
the failure be "total".49 In this case
a woman who had entered into a marriage brokage contract with the defendant
was able to recover the fee she had paid, despite the fact that the defendant
had partly performed the agreement. Indeed, the Court of Appeal said that
even if there had been full performance, the plaintiff would still have
been allowed to recover.50 This can again
be explained as a case of transactional inequality, the rule that such
contracts are illegal being for the protection of single women as a vulnerable
2) Void contracts
An illegal contract is a
void contract.51 There is an argument
which says that "void contract" is in itself a ground of restitution. That
proposition is demonstrably wrong, but this is not the place to chase that
hare. The only point to make is that illegal contracts and void contracts
are not co-terminus. A contract may be void for many reasons other than
illegality, for example, for incapacity52
or for want of formality.53 So, if restitution
follows because of a contract's invalidity, it must be the invalidity and
not the illegality which is the trigger.
3) Illegality per se
Having now cleared away those
potential distractions, we now reach the heart of our enquiry. The first
point to note is that it is clear that "payment under an illegal contract"
is not per se a ground of restitution. This can be illustrated by
reference to two cases: Green v Portsmouth Stadium Ltd and Shaw
In Green v Portsmouth
Stadium Ltd54 the plaintiff bookmaker
had paid £2 for entry to a greyhound track. This was almost four
times the amount the owner of the track was allowed by statute to charge,
and the overcharging in fact amounted to a criminal offence on his part.
The Court of Appeal held that there was no ground on which the plaintiff
could recover his overpayment. Denning LJ said:
"... there is no allegation
that the plaintiff was under any mistake of fact, nor is there any allegation
that he was under a mistake of law; nor that he was oppressed or imposed
upon in any way. We must assume on this pleading that the bookmaker knew
perfectly well that the only lawful charge was 11s. 3d.; nevertheless he
voluntarily chose to pay £2 to the stadium, and he now seeks to recover
it back. He does not claim, and cannot claim, for money paid on a consideration
that has wholly failed, for he has had the consideration. He has gone on
the track and conducted his bookmaking operation there. The only ground
on which he claims the money is that there was a breach of the statute
in charging him too much."55
No orthodox ground of unjust
enrichment having been found, the next question was whether the statute
made bookmakers a protected class. The Court of Appeal held that it did
not. The statute was passed for the regulation of race-courses via the
criminal law; it did not create a "bookmakers' charter". That being the
case, the court held that the breach of the statute did not, standing alone,
give rise to a claim for repayment.
In Shaw v Shaw,56
the plaintiff sought to recover £4,000 paid for a flat in Majorca.
The contract of sale was illegal, as the Treasury consent required under
the Exchange Control Act 1947 had not been obtained. The defendant's application
to have the claim struck out as disclosing no cause of action was granted
by the Court of Appeal. Lord Denning MR said:
"It has long been settled
that no person can found a cause of action upon his own illegal act. ...
If the plaintiff is to overcome this bar, he must [put] forward some reason
why he should not be defeated by his own illegality. To take a simple illustration:
supposing the flat in Majorca had not been conveyed to him and that it
had not been handed over to him in return for the £4,000, then I
can well see that he could make out a claim. He could say that the money
had been paid over on a consideration which had wholly failed, but he does
not attempt to do that. On this pleading, it may well be that he has got
the flat and yet still wants his money back. He bases himself on nothing
but the illegal payment. To my mind, it is clearly bad."57
The starting point, therefore,
is that "payment under an illegal contract" is not in and of itself a ground
of restitution. Indeed, given that it entails no defect or qualification
of consent, nor any inherent policy reason why restitution should issue,
any other conclusion would be absurd.
But though "payment under
an illegal contract" is not per se a ground of restitution, there
are said to be two classes of case in which, were the illegality to be
removed, the claim would fail. Thus, the argument goes, the illegality
is operating as an ingredient of a cause of action. The two classes of
case are the "protected class" cases and the "repentance" cases.
We have already dealt with
the "protected class" cases, and have seen that they properly belong under
the heading of vitiated consent, for in them there is a deemed transactional
inequality. The "repentance" cases are more difficult to explain. In these
there is said to be a policy-motivated head of claim in unjust enrichment
concerned with encouraging the renunciation of unlawful contracts. But
why should the availability of an unjust enrichment claim be considered
as encouraging the renunciation of illegal designs? The reason given is
that if money, goods or services have changed hands pursuant to a still
executory illegal contract and restitution were not available, then the
transferor will have no incentive to repent. If he cannot get restitution
he will be more likely to go ahead with the unlawful design, for he will
have nothing to lose. Whereas if he knows that if he repents he can recover
his outlay, he will be more likely to do so. Though plausible, this explanation
suffers from the obvious difficulty that it somewhat unrealistically assumes
a fairly sophisticated knowledge of the law of restitution on the part
of participants in illegal designs.58
But it is not the rationale
of the principle which is in question, but its existence. That there is
such a principle is said to stem from a dictum of Mellish LJ in
v Bowers, where he said that:
"If money is paid, or goods
delivered for an illegal purpose, the person who has so paid the money
or delivered the goods may recover them back before the illegal purpose
is carried out."59
This "repentance principle"
must, however, be read in context.
In Taylor v Bowers
itself, the plaintiff, fearing his own insolvency, handed over the possession
of his goods to a friend to keep them out of the hands of his creditors.
The delivery was dressed up as a sale, with fictitious bills of exchange
given by the friend in return. But there was no intention to transfer property
in the goods to the friend, with the result that became only a bailee.
Two meetings of the plaintiff's creditors were held, but no compromise
was effected. The friend later sold the goods to the defendant, who knew
of the fraudulent arrangement. The plaintiff brought detinue against the
defendant, and, in his defence, the defendant pleaded the illegal nature
of the original bailment. The Court of Appeal held that the defence of
illegality failed. The fraudulent purpose not having been carried out,
the plaintiff was not relying on the illegal transaction, but was entitled
to repudiate it, and recover his goods from the friend, and the defendant
had no better title than the friend, as he knew how the latter had become
possessed of the goods.
The point to note about this
case is that all three judges in the Court of Appeal treated the illegality
of the bailment as a possible defence, but held it inapplicable on the
facts, the reason for the inapplicability being that the illegal purpose
had not been carried out. In other words, the case is in the same mould
as Smith v Bromley and Hughes v Liverpool Victoria Legal Friendly
Society. In no sense was the illegality itself treated as the cause
of action. The cause of action was instead one based on the plaintiff's
continuing property rights in the goods. Ironically, this comes out most
clearly in a passage in Mellish LJ's judgment, where he says:
"I think the only question
open upon this rule is, assuming that the plaintiff had never really intended
to part with his goods to Alcock or to Bowers, whether he was precluded
from recovering the goods from Bowers on the ground that he could not do
so without proving the illegal transaction to which he was a party."60
There is, however, a dictum
similar to that of Mellish LJ in the earlier case of Hastelow v Jackson.61
There, Littledale J said:
"If two parties enter into
an illegal contract, and money is paid upon it by one to the other, that
may be recovered back before the execution of the contract, but not afterwards."62
But again, this statement
has to be read in context. A and B had deposited equal sums with a stakeholder
to abide the event of a boxing match between them. The match was played
and B was adjudged the winner. A did not accept the result and told the
stakeholder not to pay over his stake to B. The stakeholder nevertheless
paid it to B, and A sued the stakeholder for money had and received. He
won. But the court made it clear that the question was simply one of want
of authority. Before paying the money over to B, A's consent to the payment
had been withdrawn. As Bayley J said:
"... if a stakeholder pays
over money without authority from the party, and in opposition to his desire,
he does so at his own peril."63
The case is not, therefore,
one in which the plaintiff's repentance of an illegal design is founding
a cause of action in unjust enrichment.
But the biggest problem for
those who argue that Taylor v Bowers is authority for the proposition
that repentance from an illegal design is a cause of action in unjust enrichment
is that it is not actually a case involving restitution of unjust enrichment.
The court was clear that property in the goods did not pass to the friend.
The claim was not therefore made on the basis of rights arising from unjust
enrichment but from rights arising in some other way, presumably, in this
case, the consensual purchase of the goods by the plaintiff at some time
prior to the bailment. Thus, even if the principle which it lays down is
correct, Taylor v Bowers provides no authority for repentance as
a ground of claim in unjust enrichment.
But a case which did involve
restitution for unjust enrichment, and a case in which the claim actually
failed, was Kearley v Thomson.64
The defendants were solicitors to the petitioning creditor in certain bankruptcy
proceedings, and had incurred costs which were to be paid out of the estate.
The plaintiff, a friend of the bankrupt, offered to pay the defendants
a sum of money for these costs, which had not been paid owing to want of
assets, on their undertaking not to appear at the public examination of
the bankrupt, and not to oppose his order of discharge. The defendants,
with the consent of their client, agreed to this, and received the money.
They did not appear at the public examination of the bankrupt, but, before
any application for his discharge had been made, the plaintiff brought
an action to recover back the money from them.
The Court of Appeal65
held that the money was not recoverable. Fry LJ, who gave the only reasoned
judgment, doubted the validity of the dictum of Mellish LJ in Taylor
v Bowers, but anyway distinguished it on ground that in the instant
case the illegal purpose had been partly carried out. But Fry LJ thought
the better rule was that there should be no recovery, whether the contract
was executed or executory. In other words, and keeping an eye on the distinction
between illegality as a cause of action and illegality as a defence, he
said that even in the case of a total failure of consideration, where the
illegal purpose had in no part been carried out, the illegality of the
contract should operate as a defence to an otherwise valid claim.
So far, then, the repentance
principle, if seen as a principle dictating restitution of unjust enrichment,
would seem to have little, if any, support. It forms no part of the decision
in Taylor v Bowers, which was in any case not a claim for restitution
of unjust enrichment, and its correctness was doubted by Fry LJ in Kearley
v Thomson. Unfortunately, however, it was applied in Bigos v Bousted.66
Bousted had deposited a share certificate as security for a loan of money
to be made in contravention of exchange controls. The loan was never made
and Bousted sought the return of his certificate. He argued that though
the contract was an illegal one, as it was still executory, he was allowed
a locus poenitentiae, and was, therefore, entitled to claim the
return of the certificate. He failed. Pritchard J held that Bousted could
not succeed because he could not bring himself within the repentance principle.
The parties were in pari delicto at the time of the making the agreement
and Bousted was not entitled to seek the aid of the court to recover the
certificate. Bousted had not withdrawn from the agreement because of repentance
but rather because the illegal contract had been frustrated by the lender's
refusal to perform.
Despite the doubts cast upon
the validity of Mellish LJ's dictum, it was said by Pritchard J
to be proved by the decision of the Court of Appeal in Hermann v Charlesworth.67
But, as we have seen,68 Hermann v
Charlesworth was not a case explicable on any principle of repentance,
for the court would have allowed recovery even had Miss Hermann contracted
a valid marriage, and that the better explanation of the case is that it
was a claim in respect of money transferred pursuant to a vitiated consent.
v Bousted is a clearly different type of case. Being a claim to a common
law property right not generated by unjust enrichment, the correct principle
to be applied was that contained in Singh v Ali, which would have
led to recovery by the plaintiff, however unrepentant he may have been.
While there is no doubt that
in English law illegality can operate as a defence to a claim for restitution
of unjust enrichment, the argument which has been made is that there is
no support in the case-law for the proposition that illegality can found
a claim in unjust enrichment. Most of the cases normally cited in favour
of illegality as a cause of action can be explained as cases of transfers
under an impaired consent, including the "protected class" cases. That
only leaves the repentance cases, which turn out on closer examination
not to be concerned with claims for restitution of unjust enrichment at
all but with actions for the enforcement of the plaintiff's property rights
generated by events other than the defendant's unjust enrichment. As such,
they can tell us nothing about the role of illegality within the law of
unjust enrichment. And when those cases are extracted from the law of unjust
enrichment there remains no authority for saying that illegality ever operates
as a cause of action in the English law of unjust enrichment.
1 For a
general account of illegality in the context of contractual undertakings,
see Sir Guenter Treitel, The Law of Contract (10th ed, London, 1999),
worst offender in this regard is probably the decision of the Privy Council
in Kiriri Cotton Ltd v Dewani  AC 192.
Birks, An Introduction to the Law of Restitution (Oxford, rev ed,
1989), pp 299-303, 424-432.
is not to deny the possibility, at least in English law, of property rights
being generated by the defendant's unjust enrichment, as witness the decision
of Goulding J in Chase Manhattan Bank SA v Israel-British Bank (London)
Ltd  Ch 105 (recipient of a mistaken payment said to hold it
on constructive trust for the payee). On the question whether it is correct
for the courts to create property rights as a response to unjust enrichment,
see W J Swadling, "Property and Unjust Enrichment" in J W Harris (ed),Property
Problems: From Genes to Pension Funds (London, 1997).
this is something which the word "restitution" tends to disguise: see P
Birks, "Misnomer" in Cornish et al (edd), Restitution: Past,
Present and Future (Oxford, 1998).
1 All ER 92.
seeking an answer to this question should consult Peter Birks, "Recovering
Value Transferred Under an Illegal Contract"  Theoretical Inquiries
in Law 155.
Coal Board v England  AC 403, 429, Lord Asquith said:
"If two burglars,
A and B, agree to open a safe by means of explosives, and A so negligently
handles the explosive charge as to injure B, B might find some difficulty
in maintaining an action for negligence against A."
For a general account of the
defence of illegality in tort, see W V H Rogers, Winfield & Jolowicz
on Tort (15th ed, London, 1998), pp 866-871.
at p 71.
at p 177.
is not clear why a claim was not made on the basis of the express trust.
One probable reason is that there was no written evidence of the declaration,
a statutory requirement in English law by virtue of Law of Property Act
1925, s 53(1)(b), and its predecessor, Statute of Frauds 1677, s 7. If
the 1677 statute had not been in force in Malaya at the time the case was
decided, it would have only been because it was replaced by a more modern
piece of legislation to the same effect.
a man seised of land make a feoffment thereof and it appeareth not to what
use the feoffment was made, nor it is not upon any bargain or other recompence,
then it shall be taken to the use of the feoffor, except the contrary can
be proved": Christopher St Germain,Dialogues between a Doctor of Divinity
and a Student of the Common Law (1532), ii, c 21.
AC 294, 303.
LR 9 Eq 475.
LR 9 Eq 475, 479.
1 AC 340. The minority, Lords Goff of Chieveley and Keith of Kinkel, adhered
to the old position that once the court was apprised of the illegality
it should automatically refuse relief.
the trust of a legal estate, whether freehold, copyhold, or leasehold;
whether taken in the names of the purchasers and other jointly, or in the
names of others without that of the purchaser; whether in the one name
or several; whether jointly or successive - results to the man who advances
the purchase-money": per Eyre CB inDyer v Dyer (1788) 2 Cox
Eq 92, 93.
KB 65. See discussion at text to n 9 above.
1 AC 340, 371.
LR 9 Eq 475.
there are no formality requirements attaching to a declaration of trust
of personalty, this is probably explained by the fact that the writ was
issued before the decision of the House of Lords in Tinsley v Milligan
 1 AC 340 had been handed down.
... the circumstance of one or more of the nominees being a child or children
of the purchaser, is to operate by rebutting the resulting trust ...":per
Eyre CB in Dyer v Dyer (1788) 2 Cox 92, 93.
1 AC 340.
Ch 107, 122.
AC 167, 177.
Ch 107, 134.
2 KB 1.
to n 3.
2 KB 158.
2 KB 483.
Assurance Act 1774, s 1.
Jones (ed), Goff and Jones: The Law of Restitution (5th ed, London,
1998), p 607 (hereafter Goff and Jones).
S Burrows, The Law of Restitution (London, 1993), chaps 11 and 15.
2 Doug 696n. Goff and Jones (at p 613) would appear to claim this as an
example of illegality as a cause of action, though it must be admitted
that their treatment of it is ambiguous.
2 Str 915.
case has parallels in the Roman law, where the condictio ob turpem causam,
ob iniustam causam would have been available to such a litigant.
2 KB 483.
the plaintiff in Smith v Bromley was in a protected class, this
fact went to the inapplicability of the defence (because she was not in
pari delicto) rather than to the cause of action itself, which in this
case was duress.
was not until 1998 that English law allowed recovery for mistake of law:
Benson Ltd v Lincoln City Council  3 WLR 1095.
2 Doug 696n.
to n 2.
2 KB 123.
Lord Goff of Chieveley recently did in Goss v Chilcott  AC
788, at least in cases in which there are no computational difficulties
are involved in valuing the benefits received by the plaintiff.
2 KB 123, 133-134 (Sir Richard Henn Collins MR), 136 (Mathew LJ), 138 (Cozens-Hardy
Steamship Co v McGregor, Gow & Co  AC 25, 39, per
in Hazell v Hammersmith and Fulham LBC  2 AC 1, where an interest-rate
swap agreement between a local authority and a merchant bank was held to
be beyond the powers of the local authority.
in the case of contracts for the sale of interests in land which are not
in signed writing: Law of Property (Miscellaneous Provisions) Act 1989,
2 QB 190.
at p 195.
1 WLR 537.
at p 539.
the comment of Millett LJ in Tribe v Tribe  Ch 107, 133-134,
"It is, of course,
artificial to think that anyone would be dissuaded by the primary rule
[that no court will lend its aid to a man who founds his cause of action
on an illegal act] from entering into a proposed fraud, if only because
such a person would be unlikely to be a studious reader of the law reports
or to seek advice from a lawyer whom he has taken fully into his confidence."
1 QBD 291, 300.
at p 298-299.
8 B & C 221. Although there are earlier statements to similar effect,
all before this case are obiter: R Merkin, "Restitution by Withdrawal
from Executory Illegal Contracts" (1981) 97 LQR 420, 423.
at p 226.
at p 225.
24 QBD 742.
Coleridge CJ, Lord Esher MR, and Fry LJJ.
1 All ER 91.
2 KB 123.
to n 48.
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