UK Law Commission Report on the Illegality Defence

The Law Commission (UK) has published its final report on the so-called Illegality Defence:

"The illegality defence arises when the defendant in a private law action argues that the claimant should not be entitled to their normal rights or remedies because they have been involved in illegal conduct which is linked to the claim. If the courts accept the illegality defence, it often involves granting an unjustified windfall to the defendant, who may be equally implicated in the illegality. However, if the courts refuse, they may be seen to be helping a claimant who has behaved illegally."

"The courts have attempted to set out rules to govern this area. However, the rules are complex and confused. This is because of the breadth of circumstances in which the issue arises. It may arise in many different areas of law, including contract, tort, unjust enrichment, property rights or trusts law. It may involve a wide variety of illegal behaviour, from parking offences to serious crime. The conduct may be integrally linked to the claim (as where a contract is to carry out a crime); or it may be just one of many background facts (as where a speed limit is broken in the performance of a contract). The consequences may be borne by the wrongdoer personally, or by a third party (such as the wrongdoer’s creditors)."

"(...) Our final recommendations follow the provisional recommendations in our 2009 consultative report. The recent case law shows that the courts have become more open in explaining the policy reasons behind the illegality defence. Therefore, in most areas of law, we think that the illegality defence should be left to developments in the common law."

"However, for trusts law we think that there is a need for a short, targeted Bill. This report therefore includes a draft Bill to be laid before Parliament."