Illegality and public policy

Illegality is the doctrine that determines whether the law will lend its assistance to a contract, or to claims arising from one, where one or both parties have engaged in conduct contrary to law or public policy. The doctrine has historically been one of the most disordered in English contract law: Lord Mansfield''s celebrated ex turpi causa non oritur actio (Holman v Johnson (1775) 1 Cowp 341) provided a maxim but not a workable test, and a century of overlapping rules — contracts illegal at formation versus illegal in performance; the Tinsley v Milligan reliance test; the locus poenitentiae doctrine — produced confusion that the Supreme Court acknowledged but did not fully resolve in Patel v Mirza [2016] UKSC 42.

This week tracks the doctrine from Lord Mansfield to the modern Patel framework. The principal questions are: (i) what makes a contract illegal? (ii) what are the consequences of illegality for enforceability and for restitution? (iii) how does the modern policy-based test in Patel v Mirza operate? The week also covers the restraint of trade doctrine, which sits at the boundary between contract and competition law, and the more specialised topics of contracts contrary to specific public-policy interests (sexual immorality; ousting court jurisdiction; trading with the enemy).

The topic connects to W6 (misrepresentation), W7 (mistake), W8 (duress and undue influence) — all vitiating-factor doctrines that produce different consequences from illegality (rescission rather than non-enforcement). It also connects to the law of restitution and to W13 (damages — the consequences for remedy of partial illegality).

The early common law of illegality was articulated in the seventeenth and eighteenth centuries through a series of cases on contracts contrary to morality, public order, or specific statutes. Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341 articulated the foundational maxim: ''No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.'' The maxim has been the doctrinal anchor of the doctrine ever since.

The nineteenth century elaborated specific categories: contracts in restraint of trade (Mitchel v Reynolds (1711); Mason v Provident Clothing & Supply Co [1913] AC 724); contracts to commit a tort or crime; contracts for sexual immorality (Pearce v Brooks (1866) LR 1 Ex 213); contracts in restraint of marriage; contracts ousting court jurisdiction (Lee v Showmen''s Guild [1952] 2 QB 329).

The twentieth century produced the Tinsley v Milligan [1994] 1 AC 340 reliance test for illegality affecting property claims. The House of Lords held by 3-2 that a claimant could recover property where the claim could be established without relying on the illegality. The test was widely criticised for being formalistic — it depended on how the pleadings were drafted rather than the substance of the wrongdoing — and for producing inconsistent results.

The Supreme Court''s decision in Patel v Mirza [2016] UKSC 42 abandoned the Tinsley reliance test and replaced it with a policy-based ''range of factors'' approach. Lord Toulson at [120] articulated three considerations: (a) the underlying purpose of the prohibition; (b) the consequences for the protection of the public; (c) whether denial of the claim would be a proportionate response to the illegality. The decision is the modern starting point for any illegality question.

The post-Patel case-law has generally applied the policy-based test, though concerns about indeterminacy have produced a body of case-law clarifying its operation (Henderson v Dorset Healthcare [2020] UKSC 43; Stoffel & Co v Grondona [2020] UKSC 42).

Three principles structure the modern law.

(1) The Patel v Mirza policy-based test. The court asks whether allowing the claim would be contrary to the public interest, identified through a ''range of factors'' analysis: (a) the underlying purpose of the prohibition; (b) any other relevant public policy on which the denial of the claim may have an impact; (c) whether denial of the claim would be a proportionate response to the illegality, having regard to (i) the seriousness of the conduct, (ii) its centrality to the contract, (iii) whether it was intentional, (iv) any disparity in the parties'' respective culpability. The test is open-textured and policy-driven; it has been criticised for indeterminacy but defended for replacing the formalism of Tinsley v Milligan.

Five graded practice questions are provided below — two foundation questions on the Patel v Mirza test and the Nordenfelt restraint-of-trade test, two standard questions on Henderson v Dorset Healthcare and Stoffel v Grondona, and one challenge question engaging with the Patel dissents and the rule-based alternative.

See the Further Reading panel for Treitel, Burrows, the Patel v Mirza commentary by Davies and Goudkamp, and the Law Commission Consultation Paper on Illegal Transactions.