Illegality

Question 1

What is the underlying policy question to be considered when determining the remedial consequences of entering an illegal contract?

E.g. where a party was meant to receive (illegal) insider information

Answer 1

Whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law and cause damage to integrity of legal system

Question 2

What are the trio of necessary conditions for illegality?

Patel v Mizra

• P and M entered into contract where P paid large sum for M to bet on changes in share prices; M expected to receive inside information about shares concerned - they were therefore pursuing insider dealing = agreement illegal
• Insider information not received and P sought return of money, whereas M defended on basis of illegality (P involved in illegal transaction so court should not allow P’s claim)
• SC judges agreed that defence of illegality should not apply to defeat P’s claim for return of money - underlying policy question here was whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system
• In determining this question, they identified the trio of necessary conditions…

Answer 2

1. Consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim
2. Consider any other relevant public policy on which the denial of the claim may have an impact; and
3. Consider whether denial of the claim would be a proportionate response to illegality (bearing in mind punishment is a matter for criminal courts)