ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr David Donaldson QC, sitting as a Deputy High Court Judge
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE GLOSTER
LORD JUSTICE VOS
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Mr William McCormick QC and Mr Faisel Sadiq (instructed by Dale Langley Solicitors) for the Respondent
Hearing date: 30 January 2014
Crown Copyright ©
Lord Justice Rimer :
'8. … Mr Mirza confirmed that he had contacts in RBS who could supply him with information of meetings with government officials, and in particular of a public statement expected from the Chancellor which would have an effect on the RBS share price. Mr Mirza expressed his readiness to include Mr Patel's money in a bet based on such information, and wrote down the details of his bank current account to which Mr Patel could send the money.
9. I interject by way of brief technical excursus that a spread bet on listed shares is on analysis a contract of differences, based on movements in the quoted share price over a specified period. In the case of IG Index the client was required, as Mr Mirza told me, to deposit 15-20% of the initial share price and maintain a deposit to at least this level as the price moved. The level of the deposit meant that substantial gearing, of at least 5 times, could be achieved. Mr Mirza told me that the level of margin required would decrease – and hence the available gearing would increase – with the size of the bet. It follows that Mr Mirza could benefit from agglomerating outside money with his own in placing any bet.'
'3.1 [Mr Mirza] would get advance knowledge of what information a statement anticipated to be made by the Chancellor of the Exchequer about the Government investment in [RBS] would contain, and that the shares in [RBS] would rise or fall dependent upon what information that statement contained.
3.2 If [Mr Patel] were to transfer monies to [Mr Mirza], he would place them in his IG Index account and would be able to gear them up to gain maximum benefit from such rise or fall.
3.3 [Mr Mirza] would only place any funds provided to him by [Mr Patel] once he had the information set out in sub-paragraph 3.1 above and therefore there was no risk associated with the placing of the funds with him.
3.4 [Mr Mirza] would be placing a large sum representing his personal funds into the same transaction.'
The judge's decision
'… who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff.'
'The plaintiff now demands the repayment of that money. He can only do that on the ground that he is entitled to sue for it in an action for money had and received, and that it is contrary to what is aequum et bonum for the defendants to retain it. To maintain an action for money had and received he has to prove the exact circumstances in which the money was paid, and the circumstances which he says entitle him on grounds of justice to have an order for repayment. If, however, he proceeds to that proof he can only establish his claim by proving facts which show that he was engaged in a criminal attempt to obtain goods by false pretences. The Court on well-established principles will refuse to give its aid to any claim which can only be established by proving facts of that nature.'
Romer LJ agreed with Lord Wright's judgment, at 167. Scott LJ said, at 169, that by framing his claim on the basis of money had and received upon the total failure of consideration of his contract, the plaintiff was inevitably invoking the assistance of the court to enforce an illegal contract. Mr Patel was doing exactly the same. Moreover, when pleading the oral agreement he had made with Mr Mirza, he was required by paragraph 7.4 of Practice Direction 16 – Statements of Case, supplementing CPR Part 16, to 'set out the contractual words used and state by whom, to whom, when and where they were spoken.' Mr Shepherd's submissions that we should approach Mr Patel's case on the basis that he could have pleaded his case in various alternative ways that carefully kept the illegal cat secure in the bag cut no ice with me. To make good his case based on a total failure of consideration, or unjust enrichment, Mr Patel had to plead the facts that made that case and he did so. Moreover, the judge found the facts proved.
'Plaintiff's counsel further contended that inasmuch as the plaintiff had failed in his attempted fraud, and could therefore no longer use the documents for an illegal purpose, he was now entitled to sue upon them. The law, it was said, would allow the plaintiff a locus poenitentiae. So, perhaps, it would have done had the plaintiff repented before attempting to carry his fraud into effect: see Taylor v. Bowers (1876) 1 QBD 291. But, as it is, the plaintiff's repentance came too late – namely, after he had been found out. Where the illegal purpose has been wholly or partially effected the law allows no locus poenitentiae: see Salmond and Winfield's Law of Contract, p. 152. It will not be any the readier to do so when the repentance, as in the present case, is merely due to the frustration by others of the plaintiff's fraudulent purpose.'
'If dishonest people pay money for a dishonest purpose, and then, by good fortune the offence which they designed to commit is not committed, are they entitled in this Court to come and ask for recovery of the money? In my opinion they are not. It would be a bad example if this Court were to entertain an action by a man for money dishonestly paid for the purpose of committing an offence against the criminal law, and he were allowed to claim from the Court an order that the money should be repaid.'
'If a particular case may be held to fall within the category of repentance cases, I think the law is that the court will help a person who repents, provided his repentance comes before the illegal purpose has been substantially performed. If I were able, in this case, to take the view that the defendant had brought himself within that sphere of the authorities, it might well be that I would have been able to help him by saying that his repentance had come before the illegal purpose had been substantially performed, but I do not take that view. I think, however, that this case falls within the category of cases which I call the frustration cases, and that it is proper to regard it as in the same category as Alexander v. Rayson  1 KB 169 and Berg v. Sadler & Moore  2 KB 158, rather than as in the category of cases such as Taylor v. Bowers (1876) 1 QBD 291 and Kearley v. Thomson (1890) 24 QBD 742, and, to some extent, Hermann v. Charlesworth  2 KB 123.'
'… whether, where the presumption of advancement applies, the transferor can still recover the property, on the ground that, although he is forced rely on the illegality in order to rebut the presumption, the illegal purpose has not been carried into effect in any way.'
'… the whole thing rested on what might happen but never did happen. That such a state of things, carried no further, is not a bar to the [plaintiff's] claim to what is beneficially his own is to me apparent …'.
And, per the joint judgment of Isaacs, Gavan Duffy and Rich JJ, at 196:
'The test appears to be, not whether the plaintiff in such a case relies on the illegal agreement, because in one sense he always does so, but whether the illegal purpose from which the plaintiff insists on retiring still rests in intention only. If either he is seeking to carry out the illegal purpose, or has already carried it out in whole or in part, then he fails.
And again, at 198:
'In this case no creditors have been defrauded, the illegal purpose has never been in any respect carried into effect, and therefore the [plaintiff] was entitled to succeed. …'
'Certainly the transaction was carried into effect by the execution and registration of the transfer. But Wright's case, 23 CLR 185, shows that it is immaterial. It is the purpose which has to be carried into effect and that would only have happened if and when a creditor or creditors of the plaintiff had been deceived by the transaction. The judge said there was no evidence of that and clearly he did not think it appropriate to infer it. Nor is it any objection to the plaintiff's right to recover the shares that he did not demand their return until after the danger had passed and it was no longer necessary to conceal the transfer from his creditors. All that matters is that no deception was practised on them. …'.
'In Bigos v. Bousted  1 All ER 92 this was, perhaps dubiously, extended to prevent withdrawal where the scheme has been frustrated by the refusal of the other party to carry out his part.
The academic articles Grodecki, "In Pari Delicto Potior Est Conditio Defendentis" (1955) 71 L.Q.R. 254, Beatson, "Repudiation of Illegal Purpose as a Ground for Repudiation" (1975) 91 L.Q.R. 313 and Merkin, "Restitution by Withdrawal from Executory Illegal Contracts" (1981) 97 L.Q.R. 420 are required reading for anyone who attempts the difficult task of defining the precise limits of the doctrine. I would draw back from any such attempt. But I would hold that genuine repentance is not required. Justice is not a reward for merit; restitution should not be confined to the penitent. I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient. It is true that this is not necessary to encourage withdrawal, but a rule to the opposite effect could lead to bizarre results. Suppose, for example, that in Bigos v. Bousted  1 ALL ER 92 exchange control had been abolished before the foreign currency was made available: it is absurd to suppose that the plaintiff should have been denied restitution. …'
Lady Justice Gloster :
The correct approach to the defence of illegality
"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causâ, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis."
"The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations".
Gray v Thames Trains was obviously a very different type of claim from the present. It was a claim in tort by a man who had suffered post-traumatic stress disorder as a result of the Ladbroke Grove train crash and, as a consequence of his mental condition, had killed a man and was convicted of manslaughter. The claimant's negligence claim against Thames Trains (whose negligence was responsible for the crash) was upheld in relation to the claim for general damages, but the claim for loss of earnings (following his detention in a mental hospital) failed, because that part of the claim relied on his own criminal conduct. Lord Hoffmann made it clear that, in considering whether the ex turpi causa principle applied, the degree of connection between the wrongful conduct and the claim made was an important consideration. He said:
"This distinction, between causing something and merely providing the occasion for someone else to cause something, is one with which we are very familiar in the law of torts. It is the same principle by which the law normally holds that even though damage would not have occurred but for a tortious act, the defendant is not liable if the immediate cause was the deliberate act of another individual… It was Judge LJ … who formulated the test of "inextricably linked" which was afterwards adopted by Sir Murray Stuart-Smith … Other expressions which he approved… were "an integral part or a necessarily direct consequence" of the unlawful act … and "arises directly ex turpi causa" ... It might be better to avoid metaphors like "inextricably linked" or "integral part" and to treat the question as simply one of causation. Can one say that, although the damage would not have happened but for the tortious conduct of the defendant, it was caused by the criminal act of the claimant? ... Or is the position that although the damage would not have happened without the criminal act of the claimant, it was caused by the tortious act of the defendant?"
"25. Although Tinsley v Milligan does not establish a general rule that if a claimant founds his claim on his own illegal conduct, the defence of ex turpi causa will apply, earlier cases support this principle: Marles v Philip Trant & Sons Ltd  1 QB 29; Archbolds (Freightage) Ltd v S. Spanglett Ltd  1 QB 374. I do not believe, however, that it is right to proceed on the basis that the reliance test can automatically be applied as a rule of thumb. It is necessary to give consideration to the policy underlying ex turpi causa in order to decide whether this defence is bound to defeat S&R's claim. As Lord Hoffmann recently remarked in Gray v Thames Trains Ltd  UKHL 33;  3WLR 167 at para 30:
"The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations". (My emphasis.)
"21. The House in Tinsley v Milligan did not lay down a universal test of ex turpi causa. It was dealing with the effect of illegality on title to property. It established the general principle that, once title has passed, it cannot be attacked on the basis that it passed pursuant to an illegal transaction. If the title can be asserted without reliance on the illegality, the defendant cannot rely on the illegality to defeat the title…. The House held that it also applied in the case of both legal and equitable title to realty. The House did not hold that illegality will never bar a claim if the claim can be advanced without reliance on it. On the contrary, the House made it plain that where the claim is to enforce a contract the claim will be defeated if the defendant shows that the contract was for an illegal purpose, even though the claimant does not assert illegal purpose in making the claim; see Alexander v Rayson  1KB 169, approved by Lord Browne-Wilkinson at page 370." (My emphasis.)
"26…. The policy can be sub-divided into two principles in relation to contractual obligations.
1) The court will not enforce a contract which is expressly or impliedly forbidden by statute or that is entered into with the intention of committing an illegal act.
2) The court will not assist a claimant to recover a benefit from his own wrong doing. This extends to claims for compensation or an indemnity aspect of the adverse consequences of the wrong doing: see Beresford v Royal Insurance Co Limited  AC 586."
"Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct."
"I do not believe that there is any general principle that the claimant must either plead, give evidence of or rely on his own illegality for the principle to apply. Such a technical approach is entirely absent from Lord Mansfield's exposition of the principle. I would, however, accept that for the principle to operate the claim made by the claimant must arise out of criminal or illegal conduct on his part. In this context "arise out of" clearly denotes a causal connection with the conduct…In my view the principle applies when the claimant's claim is so closely connected or inextricably bound up with his own criminal or illegal conduct that the court could not permit him to recover without appearing to condone that conduct." (My emphasis.)
That passage is of course to be read subject to Lord Hoffmann's comments in Gray v Thames Trains quoted above that it might be better to avoid metaphors like "inextricably linked" or "integral part" and to treat the question as simply one of causation.
"encouraging developments which indicate a willingness to move away from a mechanical application of the reliance principle and instead explore the relevant policy reasons which are at the heart of the defence.".
The Law Commission still considered, however, that targeted legislation was needed to abolish the Tinsley reliance principle and to give the courts a discretion to determine the effect of illegality on the creation of trusts.
In the event that the courts take their lead from the tort cases to develop a common law discretion to determine the effect of illegality on claims in unjust enrichment, what principles should underpin this discretion? We consider that the primary enquiry in any case where benefits have been transferred under an illegal contract should be on the policy underlying the rule that renders the contract illegal, and on the question whether this would be stultified if a claim in unjust enrichment were allowed. Some claims should also be prohibited on the grounds of extreme moral turpitude-claims to recover money paid to a defendant to murder a third party would be an example. But a high threshold of turpitude would be needed to trigger this secondary principle and claimants who are guilty of fraud or theft should not be denied recovery on this ground.81
81 Cf. Tinsley  AC 340; Tribe  Ch 107."
"66. Following its Consultation Paper No. 160 on "The Illegality Defence in Tort", the Law Commission in its 2009 Consultation Paper No. 189 and its 2010 final Report (Law Com 320) on "The Illegality Defence" recommended that the illegality defence should be allowed where its application can be firmly justified by one or more of the following policies underlying its existence: furthering the purpose of the rule which the illegal conduct has infringed; consistency; the claimant should not profit from his or her own wrong; deterrence; and maintaining the integrity of the legal system. As the cases plainly show, this does not mean that the illegality defence will always apply where one or more of those policy rationales is relevant. It means that, if the illegality defence applies at all, it must find its justification firmly in one or more of them. [Emphasis added]
73. It is clear, then, that the illegality defence is not aimed at achieving a just result between the parties. On the other hand, the court is able to take into account a wide range of considerations in order to ensure that the defence only applies where it is a just and proportionate response to the illegality involved in the light of the policy considerations underlying it. As Lord Hoffmann said in Gray at :
"The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations." [Emphasis added]
"Limits on section 52
63 (2). No contract shall be void or unenforceable by reason only of section 52."
According to Gore-Browne on Companies:
"The purpose of this provision, according to the Treasury, is to avoid the difficulties which are associated with undoing deals on a contemporary market. It would seem that the intention behind this provision is to exclude the application of the common law doctrine of illegality." (My emphasis.)
"The unattractive nature of [the respondent]'s position will not be lost on the Court of Appeal. [The respondent] suggested the scheme. He is a very senior director of Tullett Prebon one of the world's leading interdealer brokers. [The appellant] is a property dealer who nobody suggests had any idea what was proposed in by [the respondent] was illegal. "
Mr McCormick QC, counsel for Mr Mirza, did not suggest otherwise.
"It seems to me that the distinction adopted by Mr. Justice Buller between contracts executory and executed, if taken with those modifications which he would necessarily have applied to it, is a sound distinction. Undoubtedly there may be cases where the contract may be of a nature too grossly immoral for the Court to enter into any discussion of it; as where one man has paid money by way of hire to another to murder a third person. But where nothing of that kind occurs I think there ought to be a locus poenitentiae, and that a party should not be compelled against his will to adhere to the contract."
And, as Goff and Jones states, at the passage cited above, it may well be that unjust enrichment claims should be prohibited in such cases of extreme moral turpitude. Nor can I accept the suggestion that the present case is "no different in kind" from the murder example. As I have attempted to explain above, the present case raises very different policy considerations from those which would arise in a murder case. Given the seriousness of the intended crime of murder, there is every public policy justification in such a case to deny recovery. In the present case there is no such public policy justification.
The reliance issue
"I do not believe that there is any general principle that the claimant must either plead, give evidence of or rely on his own illegality for the principle to apply. Such a technical approach is entirely absent from Lord Mansfield's exposition of the principle."
And in Tinsley v Milligan Lord Browne-Wilkinson concluded at 376-7:
"Finally, I should mention a further point which was relied on by Miss
Tinsley. It is said that once the illegality of the transaction emerges, the court must refuse to enforce the transaction and all claims under it whether pleaded or not: see Scott Brown, Doering, McNab & Co.  2 Q.B. 724. Therefore, it is said, it does not matter whether a plaintiff relies on or gives evidence of the illegality: the court will not enforce the plaintiff's rights. In my judgment, this submission is plainly ill founded. There are many cases where a plaintiff has succeeded, notwithstanding that the illegality of the transaction under which she acquired the property has emerged: see, for example, Bowmakers Instruments Ltd. v Barnet Instruments Ltd.  K.B. 65 and Singh v. Ali  AC 167. In my judgment the court is only entitled and bound to dismiss a claim on the basis that it is founded on an illegality in those cases where the illegality is of a kind which would have provided a good defence if raised by the defendant. In a case where the plaintiff is not seeking
to enforce an unlawful contract but founds his case on collateral rights acquired under the contract (such as a right of property) the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the plaintiff's case." (My emphasis.)
"To maintain an action for money had and received he has to prove the exact circumstances in which the money was paid, and the circumstances which he says entitle him on grounds of justice to have an order for repayment."
can be applied as some sort of mantra in the present case, so as to have required Mr Patel to plead the fact that the proposed collective speculation in RBS shares was going to be based on illegal insider information. Whilst Rimer LJ is critical of Mr Shepherd's submission that "we should approach Mr Patel's case on the basis that he could have pleaded his case in various alternative ways that carefully kept the illegal cat secure in the bag", in my view the correct question to ask is whether of necessity the pleading of the illegal purpose was an essential element of Mr Patel's cause of action. If it was not, then the fact that the illegal cat was let out of the bag by Mr Patel does not in my view matter. If Mr Patel could have discharged "the burden .. on a claimant in an action for money had and received to prove that the money was not paid by way of gift or pursuant to an enforceable contract" referred to by Millett LJ in Tribe v Tribe without needing to refer to the illegal purpose of the collective speculation or if, alternatively, Mr Patel could have relied on a different cause of action to justify the repayment of the funds which he had paid over, I see no reason why he should not have done so.
"with money paid by a principal to an agent for a specified purpose. As such the agent is obliged to account to his principal for, and pay back any money is not in the event employed on that purpose, without resort to any question of contractual consideration or its failure."
"Common Law Duty to Pay Over Money Held for Principal
Subject to the provisions of Article 70, an agent who holds or receives money for his principal is bound to pay over or account for that money at the request of his principal, notwithstanding claims made by third persons, even if the money has been received in respect of a void or illegal transaction.683
The principle expressed in this Article is a principle of common law which applies wherever an agent holds money for his principal. Thus if the agent has received money on his principal's behalf, or receives it for a particular purpose which he does not carry out, the principal can sue the agent in restitution.684 Further, if the principal has entrusted money to his agent for a particular purpose which the agent has not carried out, the principal can recover that money on the same basis.685 When available, such common law actions in restitution have long been alternatives to an account.686 Where the money can be regarded as held in trust, however, a proprietary remedy will be available, and may be more advantageous.687
An agent usually discharges his liability by handing over the money or property he has received to his principal, but he may also pay a third party in accordance with the principal's instructions693; he will also be discharged if he pays a third party in obedience to the instructions of the court.694 Furthermore, an agent, in accounting for money received for his principal, is entitled to set off all just allowances and any sums expended by him in that connection with the authority of the principal,695 even if they were spent for an unlawful purpose696; but if the authority to deal with the money in an unlawful manner is revoked before the agent has used the money, the principal can recover.697"
"Even though the agent receives money for his principal in respect of a transaction which is void or illegal, the principal can sue his agent in restitution. Thus if an agent was employed to make bets and he won money, he was under a duty to pay it over to the principal, although the betting transactions were themselves void; similarly, if an agent is employed to sell shares, he cannot retain the money he receives by saying that the sale is illegal by Act of Parliament. But if the contract between the principal and agent is itself illegal, then the principal cannot recover any money received by the agent. The reason is that since both parties are equally to blame, the court will not assist the plaintiff: ex turpi causa non oritur actio."
As is obvious there is something of a tension between the proposition articulated in the first sentence of the text and the proposition articulated in the last two sentences.
"No such considerations arise in the present case; indeed they are clearly ruled out, because we have from the Defendant in this case a clear admission of the payment of the money, and no suggestion that it was paid in settlement of an existing debt, or that it was given in return for cash, or anything of that sort. If the Defendant seeks to evade repayment of the money which was paid to him, it seems to me that the judge was right in placing the onus on the Defendant. In the absence of any such circumstances A did not need to open or lead any evidence".
Seldon v Davidson was neither an illegality nor a trust case. It is none the less instructive. The judge rejected this argument at paragraphs 35-39 of his judgment.
The recovery issue
i) title to the monies paid has passed to the transferee; and
ii) there may have been no genuine "repentance" before the parties to the illegal transaction, for whatever reason, decide not to go ahead with it.
"Notwithstanding this, it is contended on behalf of the Appellant that so much confusion would be imported into the law, if the maxim in pari delicto potior est condito possidentis were not rigorously applied to this case, and, apparently, that the cause of commercial morality would be so much prejudiced if debtors who desired to defraud their creditors were not deterred from trusting knaves like the defendant, that in the interest of the public good, as it were, he ought to be permitted to keep for himself the property into the possession of which he was so unrighteously and unwisely put.
The answer to that is that the plaintiff, in suing to recover possession of his property, is seeking to put everyone, as far as possible, in the same position as they were in before that transaction was determined upon. It is the defendant who is relying upon the fraud and is seeking to make title to the lands through and by means of it. And despite his anxiety to effect great moral ends, he cannot be permitted to do this. And, further, the purpose of the fraud having not only been effected, but absolutely defeated, there is nothing to prevent the plaintiff from repudiating the entire transaction, revoking all authority of his confederate to carry out the fraudulent scheme, and recovering possession of his property. The decision of the Court of Appeal in Taylor v Bowers (1 QBD 291) and the authorities upon which that decision is based clearly establish this. Symes v Hughes (LR Eq 475, at p. 479) and In re Great Britain Steamboat Co (26 Ch D 616) are to the same effect. And the authority of these decisions, as applied to a case like the present, is not, in their Lordships' opinion, shaken by the observations of Fry LJ, in Kearley v Thomson (24 QBD 742).
Mr Upjohn contended that, where there is a fraudulent arrangement to defeat creditors, such as was entered into in this case, if anything be done or any step taken to carry out the arrangement, such as, on the trial of an indictment for conspiracy, would amount to a good overt act of the conspiracy, any property transferred by the debtor to his co-conspirator cannot be recovered back. This, however, is obviously not the law. In conspiracy the concert or agreement of the two minds is the offence, the overt act is about the outward and visible evidence of it. Very often the overt act is but one of the many steps necessary to the accomplishment of the illegal purpose, and may, in itself, be comparatively insignificant and harmless; but to enable a fraudulent confederate to retain property transferred to him in order to reject a fraud, a contemplated fraud must, according to the authorities, be effected. Then, and then alone, does the fraudulent grantor, or giver, lose the right to claim the aid of the law to recover the property he has parted with."
Lord Justice Vos :
"It is clear that he must withdraw voluntarily, and that it is not sufficient that he is forced to do so because his plan has been discovered … I would draw back from [attempting the difficult task of defining the precise limits of the doctrine]. But I would hold that genuine repentance is not required. Justice is not a reward for merit; restitution should not be confined to the penitent. I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient".
"107. … Taking Tribe v Tribe, as I do, as the most recent and an authoritative statement of the law, this court there held withdrawal under the doctrine of locus poenitentiae to be possible, despite the existence of a presumption of advancement, so as to enable recovery from a person into whose names shares had been transferred, with a view to deceiving creditors. There was however no evidence that the transfer had ever been communicated to creditors or relied on or used for this illegal purpose in any way. The shares were in these circumstances recoverable by their transferor.
108. The present case raises issues concerning the scope of the illegal purpose, and whether it was carried into effect in such a way and to such an extent as to make it too late for the father to "withdraw" and recover the property as beneficial owner. I proceed on the basis that genuine repentance is not required, and that "voluntary withdrawal from an illegal transaction when it has ceased to be needed" suffices: see Tribe v Tribe, 938H per Millett LJ; and also Professor Merkin (above) at pages 428-431. …
111. … But, however generous an attitude is taken to the exception, I do not think that it can sensibly cover a situation, where creditors have been successfully deceived over a number of years, by being misled into accepting and treating the proceeds of the exercise of the options as the father's only interest in the properties".
Note 21 See paragraphs 20 – 31 of the judgment. There was no appeal against the judge’s finding that the arrangement or agreement gave rise to offences under section 52 of the 1993 Act and section 1 of the 1977Act. [Back] Note 23 Cf. the decision of Knox J in Chase Manhattan Equities v Goodman  BCLC 897 where he refused to make available the powers of the court to enforce a transaction which was still incomplete, on the basis that to do so would be to enforce an objectional transaction. However the relevant legislation in force at that time, viz. section 8(3) of the Companies Securities (Insider Dealing) Act 1985 merely provided: “(3) No transaction is void or voidable by reason only that it was entered into in contravention of section 1, 2, 4 or 5.”
Note 21 See paragraphs 20 – 31 of the judgment. There was no appeal against the judge’s finding that the arrangement or agreement gave rise to offences under section 52 of the 1993 Act and section 1 of the 1977Act. [Back]
Note 23 Cf. the decision of Knox J in Chase Manhattan Equities v Goodman  BCLC 897 where he refused to make available the powers of the court to enforce a transaction which was still incomplete, on the basis that to do so would be to enforce an objectional transaction. However the relevant legislation in force at that time, viz. section 8(3) of the Companies Securities (Insider Dealing) Act 1985 merely provided: “(3) No transaction is void or voidable by reason only that it was entered into in contravention of section 1, 2, 4 or 5.” [Back]