Author - Leung Hoi Ming
“No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act” (Holman v Johnson (1775) 1 Cowper 341, 343, per Lord Mansfield CJ).
The reliance doctrine treats illegality as an absolute bar to enforcing a claim where the claimant has to plead or lead evidence of his or her own unlawful purpose as an element of the claim (Tinsley v Milligan).
The doctrine of locus poenitentiae is a well-established policy exception to the reliance doctrine. The doctrine was summarized by Lord Millet:
“[A] person who has transferred property for an illegal purpose can nevertheless recover his property provided that he withdraws from the transaction before the illegal purpose has been wholly or partly performed.” (Tribe v Tribe).
Tribe provides an example of the doctrine of locus poenitentiae in action. A father transferred property to his son to allow the father to evade the claims of his creditors. The unlawful purpose was never carried out as the father resolved his financial difficulties through negotiations with his creditors. The English Court of Appeal allowed him to plead his unlawful (but never carried out) purpose of evading creditors to recover his property from his son.
Changes Brought by Patel v Mirza
In Patel v Mirza, Lord Toulson criticized Tinsley’s approach to illegality on the basis that it led to injustice “by focusing on procedural matters”. He proposed a new, holistic approach requiring the court to weigh;
(a) the underlying purpose of the prohibition which has been transgressed; against (b) any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, while (c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality.
It is thus now the position that courts have discretion since the need to plead illegality is no longer a bar to a successful claim.
Where does this leave the locus poenitentiae doctrine?
Is the doctrine still relevant after Patel v Mirza? If so, what role does it play? Does withdrawal from an unlawful scheme within the locus poenitentiae always mean that a claim can be brought? Alternatively, is this withdrawal just one of the factors to be considered?
In Chung Tin Pui v Li Pak Sau a tso assigned land to a developer pursuant to an agreement requiring the developer to build several houses on the land. The developer failed to carry out the agreement.
The tso sought to have the contract set aside on the ground that it was tainted with illegality. The Tso claimed that the developer held the land on resulting trust for it. The illegality of the agreement lay in the fact that the developer divided the land into smaller lots and assigned it to parties who would falsely declare to the government that they were the beneficial owners of the property.
When considering the tso’s application to amend its statement of claim, the Court of First instance took the view that “the principles to be considered are those outlined in § 120 of the judgment in Patel v Mirza” (Chung Tin Pui., para 58). It is thus arguable that Hong Kong treated the Patel factors as exhaustive. This would exclude any application of the locus poenitentiae doctrine since it seems not to be an element of the framework proposed by Lord Toulson.
This is consistent with Lord Toulson’s view that it would not be necessary to consider the locus poenitentiae which “assumed importance only because of a wrong approach to the issue” (Patel [2017] AC 467, 503). Applying the locus poenitentiae doctrine would unduly fetter the court’s discretion. It appears that particular circumstances, such as the withdrawal of the plaintiff, should not be given overriding weight, or any at all.
Relevance of Locus Poenitentiae after Patel v Mirza
On the other hand, none of the criticisms towards the old law in Tinsley was directed towards the generosity of the locus poenitentiae doctrine. Preservation of the doctrine appears to be strongly consistent with the Patel factors Considering the relevance of a party’s withdrawal from an unlawful purpose does not involve a focus on “procedural technicality”. It attaches importance to the question as to whether the illegality has taken place or not.
Thus, the justification for reforming the doctrine of illegality appears to endorse, albeit collaterally, the preservation of locus poenitentiae in the new framework. This echoes Lord Mance’s dissenting view that “the concept must be seen as an integral part of the overall principle governing illegality” (Patel [2017] AC 467, 525).
As noted in Lord Sumption’s dissent, locus poenitentiae originated from a consideration of the “moral quality of the plaintiff’s reason for resiling”. (Patel [2017] AC 467, 541). It was not until later that it was interpreted as a factual question of withdrawal in line with the procedural interpretation towards illegality.
Not unlike the Patel factors, the essence of locus poenitentiae rests on the substance of the plaintiff’s pre-action conduct. Even assuming that the first instance judgement in Chung Tin Pui means that locus poenitentiae is no longer part of the “illegality” framework after Patel, it does not follow that withdrawal from an illegality would be irrelevant to the balancing exercise. It is, in fact, highly relevant to the comparison required by Patel.
The Law Commission of England and Wales (The Illegality Defence, Law Com. No. 320) was of the view that “policies which underlie the illegality defence are less likely to come into play where the parties are attempting to undo, rather than carry out, an illegal contract”. This is consistent with the analysis proposed here. It recognises a distinction between cases in which the party withdrew from an unlawful transaction and those where the transaction was carried into effect.
Conclusion
The rationale underlying the locus poenitentiae doctrine is largely consistent with the new framework developed in Patel v Mirza. As, however, Patel represents an expansion of the court’s discretion towards illegality, the doctrine of locus poenitentiae should no longer have its previous effect of inevitably allowing the enforcement of a claim tainted by illegality. It should, nevertheless, remain a significant consideration under the Patel approach.