Supreme Court urge for review of ex turpi causa

The Supreme Court has unanimously dismissed an appeal involving the illegality defence, ex turpi causa. The appeal depended on the attribution to a company of the acts of its directors and agents. The extra-territorial effect of section 213 of the Insolvency Act 1986 was also considered.

The appellants submitted that the first respondent was precluded from pursuing its claim because it was party to illegality. The seven Supreme Court justices agreed that this defence could not succeed, upholding the first instance decision in this regard (see Legal update, Ex turpi causa did not bar the claim where company was victim of the fraud and defendants were directors (High Court)). However, they disagreed on the proper approach.

Lords Toulson and Hodge said that the application of the illegality defence was inconsistent with a statutory policy requiring directors to have regard to the interests of the creditors of an insolvent (or a prospectively insolvent) company. It is a rule of public policy that depends on the particular circumstances of the claim (citing Hounga v Allen [2014] UKSC 47, see Legal update Illegal worker had right to bring discrimination claim (Supreme Court)).

Disagreeing, Lord Sumption stated that the illegality defence is a rule of law which is not dependent on the perceived balance of merits between the parties in any particular case (following Les Laboratoires Servier v Apotex Inc [2014] UKSC 55, see Legal update, Supreme Court rejects application of illegality rule to patent infringement).

Lord Sumption commented that the issue of the illegality defence had become "encrusted with an incoherent mass of inconsistent authority". However, as the issue was not determinative of the outcome in this case and there had been little argument on the topic, their Lordships refrained from deciding it. The differences in opinion expressed in this judgment demonstrate the pressing need for a review of the Law Commission's report (see Legal update, Law Commission publishes final report on the illegality defence) and the decision in Tinsley v Milligan [1993] UKHL 3.

Case: Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23 (22 April 2015) (Bailii).