United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/253

Tinsley (A.P.) (Appellant) v. Milligan (A.P.) (Respondent)

JUDGMENT

Die Jovis 24° Junii 1993

Upon Report from the Appellate Committee to whom was
referred the Cause Tinsley against Milligan, That the Committee
had heard Counsel as well on Wednesday the 25th as on Thursday
the 26th and Monday the 30th days of November last upon the
Petition and Appeal of Stella Ruth Tinsley of 141 Thomas Street
Abertridwr in the County of Mid Glamorgan, praying that the
matter of the Order set forth in the Schedule thereto, namely an
Order of Her Majesty's Court of Appeal of the 30th day of July
1991, might be reviewed before Her Majesty the Queen in Her Court
of Parliament and that the said Order might be reversed, varied
or altered or that the Petitioner might have such other relief
in the premises as to Her Majesty the Queen in Her Court of
Parliament might seem meet; as upon the case of Kathleen Milligan
lodged in answer to the said Appeal; and due consideration had
this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of Appeal
of the 30th day of July 1991 complained of in the said Appeal be,
and the same is hereby, Affirmed and that the said Petition and
Appeal be, and the same is hereby, dismissed this House: And it
is further Ordered. That the costs of the appellant and the
respondent be taxed in accordance with the Legal Aid Act 1988.

Cler: Parliamentor:




Judgment: 24.6.1993

HOUSE OF LORDS

TINSLEY (A.P.)
(APPELLANT)

v.

MILLIGAN (A.P.)
(RESPONDENT)

LORD KEITH OF KINKEL

Lord Keith
of Kinkel
Lord Goff
of Chieveley
Lord Jauncey
of Tullichettle
Lord Lowry
Lord Browne-
Wilkinson

My Lords,

I agree with the speech to be delivered by my noble and learned friend
Lord Goff of Chieveley, which I have had the advantage of reading in draft.
I would therefore allow this appeal.

LORD GOFF OF CHIEVELEY

My Lords,

There is before your Lordships an appeal by the appellant, Stella Ruth
Tinsley, from an order by the Court of Appeal whereby the court, by a
majority (Lloyd and Nicholls L.JJ., Ralph Gibson L.J. dissenting), dismissed
the appellant's appeal from an order of Judge Hywed Ap Robert, sitting in the
Caerphilly County Court, ordering (inter alia) that the appellant's claim for
possession of 141 Thomas Street, Abertridwr, Mid-Glamorgan, be dismissed,
and that the appellant holds 141 Thomas Street on trust for the respondent,
Kathleen Milligan, and herself in equal shares.

The appeal, which is brought by leave of the Court of Appeal, raises
the question whether the claim of the respondent to an interest in the property
in question is defeated by reason of frauds practised on the Department of
Social Security. The facts of the case can be encapsulated in a few brief
sentences. However it is desirable to obtain the full flavour of the case; and
for that reason I propose to adopt the account given by Nicholls L.J. in the



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report in [1992] Ch. 310, 315-317, which for convenience of reference I
propose to set out in full.

"The house in question is 141, Thomas Street, Abertridwr, Mid-
Glamorgan. It is registered in the name of the plaintiff Miss Stella
Tinsley. She is the sole legal owner. She and the defendant Miss
Kathleen Milligan were, to use the judge's expression, lovers for about
four years, from 1984 to 1988. In the discussions they had during the
course of their relationship, both the plaintiff and the defendant
expressly recognised they were running a lodging house first at 9,
Fitzhamon Embankment, Cardiff, and subsequently at Thomas Street,
as a joint business venture and that the ownership of the respective
houses was also on a joint basis.

The parties are intelligent and articulate. They met in 1984. The
plaintiff was then 19, and the defendant 38. The defendant was the
dominant character, but not such as to be able to impose her will on
the plaintiff. The defendant was living at 9, Fitzhamon Embankment,
which belonged to a Mr. Slater. She was running a bed-and-breakfast
business. In 1983 a Miss Llewellyn began living in the house, and
after a while she was treated as being the housekeeper in place of the
defendant. The housekeeper was the person to whom the D.S.S.
turned for verification that those to whom it was paying benefits were
indeed resident there. In December 1984 the plaintiff moved in and
Miss Llewellyn moved out. After a month or two the plaintiff took
her place as the nominal housekeeper, although most of the physical
work and much of the managerial work were done by the defendant.



The bank and building society accounts used by the parties were put
in the plaintiffs sole name, but they were regarded as joint property.
Through these accounts the parties conducted most of their financial
affairs: nearly all their money went into them, and nearly everything
they spent was paid from them. In July 1986 9, Fitzhamon
Embankment was purchased in the plaintiffs name. The price was
£29,000. A bank provided £24,000 by way of a mortgage loan to the
plaintiff alone. The balance was provided principally from the sale
proceeds of a car which belonged to them jointly.

Two years later this house was sold for £33,000, and the mortgage
repaid. 141, Thomas Street was bought for £19,000, again in the sole
name of the plaintiff. That was in August 1988. £12,000 was
provided by a bank loan to the plaintiff alone, and the balance came
from the proceeds of sale of 9, Fitzhamon Embankment. In this way
all the money provided by the parties for 141, Thomas Street cam
ultimately from their joint business. Shortly thereafter, the parties
quarrelled. The plaintiff moved out, and the defendant remained in
occupation. The plaintiff divided the money in her building society
account between them in roughly equal shares. In February 1989 she



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gave the defendant notice to quit. Six months later she brought this
action, claiming possession and asserting ownership of the whole of
the house. The defendant was willing that the house should be sold.
Indeed she counterclaimed for an order for sale. She also sought a
declaration that the property was held by the plaintiff upon trust for the
two of them in equal shares.

I can now turn to the illegality. Over a period of years the defendant
with the knowledge and assent of the plaintiff, made false claims to the
D.S.S. for benefits of one kind or another. The money paid by the
D.S.S. in response to those claims was paid into the bank or building
society accounts I have mentioned. The defendant was not alone in
perpetrating frauds upon the D.S.S. The plaintiff also did so. She
was prosecuted, convicted and fined, and had to make some
repayments to the D.S.S. As to 141, Thomas Street, the judge shied
away from holding that the reason why the transfer of this house was
in the plaintiff's sole name was to assist in a fraud on the D.S.S.
Having the property in the plaintiffs sole name assisted with the fraud
in the sense that it assisted in the concealment of the defendant's fraud.
On the claim forms the defendant answered "No" to the question, "Do
you own you own home?" and she named the plaintiff as her landlady,
to whom she said she was paying rent. If the D.S.S., having received
such claims, had made further inquiries, the falsity of the defendant's
answers would be more likely to remain concealed with the title deeds
in the plaintiffs sole name. The judge considered it was a great over-
simplification to regard fraud as the sole or even main objective of the
defendant in rendering herself invisible not only as to the legal title to
the house but also as to the bank account and the accounts for
electricity, gas, rates and so forth. He seems to have regarded this as
a 'psychological quirk'.

I do not think this conclusion can stand. At the outset of her cross-
examination the defendant frankly accepted that the reason why the
business and 9, Fitzhamon Embankment and 141, Thomas Street were
in the plaintiffs sole name was so that she, the defendant, could
misrepresent to the D.S.S. that she had no stake in the business or the
properties and that she was simply a lodger. The defendant did not
suggest any other reason for either property being put in the plaintiffs
sole name. The case was fought on that footing. It should be decided
on the same footing.

Two further features are to be noted. First, the money obtained from
the D.S.S. helped the two of them meet their bills, but it was not a
substantial part of their income. Their income consisted mostly of rent
from their lodgers. The fraud perpetrated by them both on the D.S.S.
played only a small financial part in the acquisition of the equity in the
house which is now in dispute. Secondly, there is no continuing
illegality. Late in 1988 the defendant made her peace with the D.S.S.



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She told the D.S.S. what she had done. Thereafter she continued to
draw benefit, but on a lawful basis. Apparently the D.S.S. did not
regard the situation with any alarm. The judge observed that no doubt
this was because it had become inured by daily experience of much
worse forms of fraud being practised upon it than any which could be
laid at the door of these two women."

Before the Court of Appeal it was the submission of the appellant that
there was a principle of law, binding on the Court of Appeal, that the court
will not give effect to an equitable interest arising from a transaction which
is unlawful by reason of a claimant's unlawful purpose; and that accordingly
the respondent was unable to establish any equitable interest in 141, Thomas
Street, or to defeat the appellant's claim to possession. This principle was
said to be well recognised in a number of authorities; but reliance was placed
in particular on Gascoigne v. Gascoigne [1918] 1 K.B. 223 and Tinker v.
Tinker [1970] P. 136, both decisions of the Court of Appeal. It was this line
of authority which ultimately persuaded Ralph Gibson L.J., in his dissenting
judgment, that the appellant's appeal should be allowed. But Nicholls L.J.
was not so persuaded. He first invoked a group of recent Court of Appeal
decisions, which point to a more flexible approach than has been adopted in
the past in cases of illegality under which, according to Nicholls L.J. (at p.
319H):

". . . the underlying principle is the so-called public conscience test.
The court must weigh, or balance, the adverse consequences of
granting relief against the adverse consequences of refusing relief.
The ultimate decision calls for a value judgment."

On that approach he concluded (at p. 321D) that "... far from it
being an affront to the public conscience to grant relief in this case, it would
be an affront to the public conscience not to do so." Furthermore, Nicholls
L.J. rejected (at p. 323G) the inflexible approach embodied in the earlier
authorities as according ill "with the underlying considerations of public policy
the court is seeking to discern and apply in this field"; the approach would,
he considered, also mean that equity was taking a less flexible attitude to
illegality than the common law, which would constitute a remarkable reversal
of the traditional functions of law and equity. He accordingly sought to
rationalise the older authorities in which relief was denied as cases in which,
in particular circumstances, the court considered that to have granted relief
would have been an affront to the public conscience. In answer to the
proposition that the legal estate must lie where it falls, Nicholls L.J. regarded
the proposition as being as apt to equitable estates as it is to legal estates.
Lloyd L.J., while agreeing with Nicholls L.J. that the appellant's claim must
fail, adopted a rather different approach. First he considered that in the
present case it was the appellant, and not the respondent, who was pleading
illegality; and that the illegality did not taint the respondent's claim, but was
purely collateral and incidental to it. Accordingly, the principle embodied in
the maxim ex turpi causa non oritur actio did not operate to bar the



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respondent's claim. Nor did he consider that the court should refuse to bar
her claim on grounds of public policy, since (on the test recently applied in
the Court of Appeal, which Lloyd LJ. with some reluctance held to be
binding on him) it would not shock the ordinary citizen that the respondent
should recover her half share in the property. Finally, Lloyd L.J. rejected the
argument, founded on the line of cases culminating in Gascoigne v. Gascoigne
[1918] 1 K.B. 223 and Tinker v. Tinker [1970] p. 136, that the court would
not assist a claimant such as the respondent who was seeking the aid of equity,
because she did not come to equity with clean hands; he distinguished these
authorities as cases in which the equitable balance came down against the
plaintiff, whereas in the present case it came down firmly in favour of the
respondent who was seeking the assistance of equity.

This brief summary of the judgments in the Court of Appeal reveals
a considerable difference of opinion among the members of the court. Faced
with this variety of reasoning it is, I consider, essential for your Lordships to
return to first principle; and, having identified the applicable principles of
law, to consider to what extent the opinions expressed by the members of the
Court of Appeal are consistent with them. If not, it will be necessary to
consider whether it was open to them, and if not open to them, whether it is
now open to your Lordships' House, to develop those principles along the
lines now suggested; and, if so, whether it is desirable to do so.

I turn then to the established principles; and I wish at once to express
my indebtedness to the scholarly argument of Mr. James Munby Q.C., who
appeared for the appellant in your Lordships' House. The basic principle was
stated long ago by Lord Mansfield C.J. in Holman v. Johnson (1775) 1 Cowp.
341, 343, in the context of the law of contract, when he said:

"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 the 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 plaintiffs 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. 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."

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That principle has been applied again and again, for over two hundred
years. It is applicable in courts of equity as well as courts of law: see e.g.,
the notes to Roberts v. Roberts (1818) Dan. 143, 150-151, and Ayerst v.
Jenkins (1873) L.R. 16 Eq. 275, 283, per Lord Selborne L.C. In 1869
Mellor J. said that the maxim in pari delicto potior est conditio possidentis "is
as thoroughly settled as any proposition of law can be": see Taylor v. Chester
(1869) L.R. 4 Q.B. 309, 313. It is important to observe that, as Lord
Mansfield made clear, the principle is not a principle of justice; it is a
principle of policy, whose application is indiscriminate and so can lead to
unfair consequences as between the parties to litigation. Moreover the
principle allows no room for the exercise of any discretion by the court in
favour of one party or the other.

Even so, the mere fact that a transaction is illegal does not have the
effect of preventing property, whether general or special, from passing under
it. In Scarfe v. Morgan (1838) 4 M. & W. 270, 281, Parke B. said that "if
the [illegal] contract is executed, and a property either special or general has
passed thereby, the property must remain; . . . ". This principle has been
applied on numerous occasions. Notable examples are to be found in Taylor
v. Chester L.R. 4 Q.B. 309; Alexander v. Rayson [1936] 1 K.B. 169; and
Singh v. Ali [1960] AC 167. In Singh v. Ali, the principle was explained by
Lord Denning in the following passage, at pp. 176-177:

"There are many cases which show that when two persons agree
together in a conspiracy to effect a fraudulent or illegal purpose - and
one of them transfers property to the other in pursuance of the
conspiracy - then, so soon as the contract is executed and the
fraudulent or illegal purpose is achieved, the property (be it absolute
or special) which has been transferred by the one to the other remains
vested in the transferee, notwithstanding its illegal origin . . . The
reason is because the transferor, having fully achieved his unworthy
end, cannot be allowed to turn round and repudiate the means by
which he did it - he cannot throw over the transfer. And the
transferee, having obtained the property, can assert his title to it
against all the world, not because he has any merit of his own, but
because there is no one who can assert a better title to it. The court
does not confiscate the property because of the illegality - it has no
power to do so - so it says, in the words of Lord Eldon: 'Let the
estate lie where it falls'; see Muckleston v. Brown 6 Ves. 52, 69."

Likewise a court of equity will not, at the instance of the settlor or his
personal representative, set aside a settlement which has been made for an
illegal consideration: see Ayerst v. Jenkins L.R. 16 Eq. 275. The effect in
that case was that the legal estate remained absolutely vested in the trustees
and (implicitly) that the beneficial interest vested in the beneficiary. (There
was however in that case no contest between the trustees and the beneficiary;
and in any event the case was not one in which (as in the present case) A puts



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his property in the name of B in order to conceal his (A's) interest in it for a
fraudulent purpose. In such a case, it is most unlikely that A will have
constituted B an express trustee of the property.)

From these two principles there is to be derived the principle invoked
by the appellant in the present case, viz. that if A puts property in the name
of B intending to conceal his (A's) interest in the property for a fraudulent or
illegal purpose, neither law nor equity will allow A to recover the property,
and equity will not assist him in asserting an equitable interest in it. This
principle applies whether the transaction takes the form of a transfer of
property by A to B, or the purchase by A of property in the name of B.

The principle appears first to have been recognised by Lord Hardwicke
L.C. in two cases decided before Holman v. Johnson 1 Cowp 341, viz.
Cottington v. Fletcher (1740) 2 Atk. 155, and Birch v. Blagrave (1755) 1
Amb. 265. But the case which has for nearly two hundred years been
regarded as the authoritative source of the principle is Muckleston v. Brown
(1801) 6 Ves. 53, in which Lord Eldon L.C. said in a much-quoted passage,
at pp. 68-69:




". . . the plaintiff stating, he had been guilty of a fraud upon the law,
to evade, to disappoint, the provision of the legislature, to which he is
bound to submit, and coming to equity to be relieved against his own
act, and the defence being dishonest, between the two species of
dishonesty the court would not act; but would say, 'Let the estate lie,
where it falls'."




There followed a consistent line of authority in which the principle has
been applied. The cases include: Curtis v. Perry (1802) 6 Ves. 739; Ex
parte Yallop (1808) 15 Ves. 60; Roberts v. Roberts Dan. 143; Groves v.
Groves (1828) 3 Y. & J. 163; Childers v. Childers (1857) 3 K. & J. 310;
In re Great Berlin Steamboat Co. (1884) 26 Ch. D. 616; Crichton v.
Crichton (1895) 13 R. 770; Gascoigne v. Gascoigne [1918] 1 K.B. 223;
McEvoy v. Belfast Banking Co. Ltd. [1934] N.I. 67; In re Emery's
Investments Trusts, Emery v. Emery [1959] Ch. 410; Preston v. Preston
[1960] N.Z.L.R. 385; Palaniappa Chettiar v. Arunasalam Chettiar [1962]
A.C. 294; Tinker v. Tinker [1970] P. 136; and Cantor v. Cox (1976) 239
E.G. 121.

Furthermore, the existence of the principle has been recognised on
numerous occasions, even where it has not been given effect to on the facts
of the case in question. In particular, an exception to the principle is to be
found in cases in which the illegal purpose has not been carried into effect;
but all those cases in which that exception has been recognised have proceeded
on the basis that, absent those exceptional circumstances, the principle would
have applied. It is not necessary to examine the nature of this exception for
present purposes. It is often said to derive from Taylor v. Bowers (1876) 1



-7-

Q.B.D. 291, which was in fact a case at law. However, the exception was
foreshadowed in a number of earlier cases in equity, notably Platamone v.
Staple (1815) G. Coop. 250; Cecil v. Butcher (1821) 2 Jac. & W. 565, and
Symes v. Hughes (1870) L.R. 9 Eq. Cas. 475; and it has since been applied
in, for example, Petherpermal Chetty v. Muniandi Servai (1908) L.R. 35 Ind.
App. 78, and Perpetual Executors and Trustees Association of Australia Ltd.
v. Wright (1917) 23 C.L.R. 185. Likewise Haigh v. Kaye (1872) L.R. 7 Ch.
App. 469, in which the defendant failed successfully to invoke the in pan
delicto principle because he did not specify the illegality in plain terms (he
"must clearly put forward his own scoundrelism if he means to reap the
benefit of it" per James L.J. at p. 473), proceeded on the assumption that, if
the defendant had done so, it would have been possible for him to succeed.

The reason why the court of equity will not assist the claimant to
recover his property or to assert his interest in it has been variously stated.
It is sometimes said that it is because he has not come to equity with clean
hands. This was the reason given by the Lord Chief Baron in Groves v.
Groves (1829) 3 Y. & J. 163, 174, and by Salmon L.J. (with whom Cross
L.J. agreed) in Tinker v. Tinker [1970] P. 136, 143. Sometimes it is said that
the claimant cannot be heard or allowed to assert his claim to an equitable
interest, as in Curtis v. Perry 6 Ves. 739, 746, per Lord Eldon L.C.;
Childers v. Childers (1857) 3 K. & J. 310, 315 per Page Wood V.-C.; and
Cantor v. Cox (1976) 239 E.G. 121, 122, per Plowman V.-C. But this is, as
I see it, another way of saying that the claimant must fail because he has not
come to the court with clean hands. It follows that in these cases the
requirements necessary to give rise to an equitable interest are present; it is
simply that the claimant is precluded from asserting them. This explains why,
in cases where the unlawful purpose has not been carried into effect, the court
is able to hold that, despite the illegality, there is an equitable interest to
which the claimant is entitled.

Another conclusion follows from the identification of the basis upon
which equity refuses its assistance in these cases. This is that the
circumstances in which the court refuses to assist the claimant in asserting his
equitable interest are not limited to cases in which there is a presumption of
advancement in favour of the transferee. If that was the case, the principle
could be said to be limited to those cases in which the transferor has to rely
upon the illegal transaction in order to rebut the presumption; in other words
the cases could be said to fall within what is sometimes called the Bowmakers
rule, under which a claimant's claim is unenforceable when he has either to
found his claim on an illegal transaction, or to plead its illegality in order to
support his claim: Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65.
Of course, in a number of cases of this kind, especially in modern times, the
presumption of advancement does apply, because many cases are concerned
with a man hiding away his assets in order to escape his creditors or for some
other similar purpose, by transferring them to his wife or to one of his
children. But there are cases in which the principle has been applied, or has



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been recognised, where there was no presumption of advancement. Examples
are Curtis v. Perry 6 Ves. 739; Ex parte Yallop 15 Ves. 60; Roberts v.
Roberts Dan. 14; Groves v. Groves 3 Y.& J. 163; Haigh v. Kaye L.R. 7
Ch. App. 469; In re Great Berlin Steamboat Co. 26 Ch D 616; and
Cantor v. Cox 239 E.G. 121. Of course, where the presumption of
advancement does apply, and the illegality is not established from another
source, for example by the defendant, the claimant will be in the particular
difficulty that, in order to rebut the presumption, he will have to rely upon the
underlying transaction and so will of necessity have to disclose his own
illegality. This is what happened in Palaniappa Chettiar v. Arunasalam
Chettiar [1962] AC 294, where the property in question had been transferred
by the claimant to his son who, having fallen ill, took no part in the hearing
and so himself gave no evidence of the illegality; even so, the father's claim
failed because he was unable to rebut the presumption of advancement without
relying upon the illegal transaction. But the case does not decide that the
principle only applies where it is necessary to rebut the presumption of
advancement; and, as I have already stated, there are many cases in which
the principle has been recognised or applied where there was no such
presumption. Furthermore, if for example the defendant proves that the
property was transferred to him for a fraudulent or illegal purpose, a court of
equity will refuse to assist the claimant when asserting his interest in it, even
though the claimant's case can be, and was, advanced, without reference to
the underlying legal purpose, for example on the simple basis that the transfer
of the property to the defendant was without consideration. This conclusion
follows inevitably from the nature of the principle, and the grounds upon
which equity refuses its assistance; it is at least implicit in a number of cases,
such as Platamone v. Staple G. Coop. 250, Groves v. Groves 3 Y. & J. 163;
and Haigh v. Kaye L.R. 7 Ch. App. 469. It follows that the so-called
Bowmakers rule [1945] K.B. 65 does not apply in cases concerned with the
principle under discussion, because once it comes to the attention of a court
of equity that the claimant has not come to the court with clean hands, the
court will refuse to assist the claimant, even though the claimant can prima
facie establish his claim without recourse to the underlying fraudulent or
illegal purpose. This is a point to which I will return when I come to
consider the judgment of Lloyd L.J. in the present case.

It is against the background of these established principles that I turn
to consider the judgments of the majority of the Court of Appeal. As I have
recorded, Nicholls L.J. in particular invoked a line of recent cases, largely
developed in the Court of Appeal, from which he deduced the proposition
that, in cases of illegality, the underlying principle is the so-called public
conscience test, under which the court must weigh, or balance, the adverse
consequences of respectively granting or refusing relief. This is little
different, if at all, from stating that the court has a discretion whether to grant
or refuse relief. It is very difficult to reconcile such a test with the principle
of policy stated by Lord Mansfield C.J. in Holman v. Johnson 1 Cowp 341,
343, or with the established principles to which I have referred. It is



-9-

necessary therefore to examine with some care the authorities relied upon by
Nicholls L.J. in support of his statement of the applicable law.

The first case is Thackwell v. Barclays Bank Plc [1986] 1 All E.R.
676. In that case the plaintiff claimed damages from the defendant bank for
negligence and conversion of a cheque by the bank. The point was taken that
the cheque formed part of a fraudulent financing scheme, to which the
plaintiff was a party; and the bank (whose defence under section 4 of the
Cheques Act 1957 failed, because the judge (Hutchison J.) held that the bank
ought to have been put on enquiry) pleaded that the plaintiffs claim must fail
by reason of the maxim ex turpi causa non oritur actio. It was conceded on
behalf of the plaintiff that, if he knew at the time that there was such a
scheme, his claim must fail. Hutchison J. held that the plaintiff knew from
the outset that the scheme was fraudulent and willingly participated in it.
Accordingly the plaintiff's claim failed. However, the defendant had
advanced an alternative argument on the basis of which he submitted that,
even if the plaintiff was innocent, his claim should fail. The judge accepted
this alternative argument, and indicated that, even if he had held the plaintiff
to be innocent, he would have denied him recovery. In this argument, we
find the origin of the so-called public conscience test, which involved (see p.
687d) -

"... the court looking at the quality of the illegality relied on by the
defendant and all the surrounding circumstances, without fine distinctions, and
seeking to answer two questions: first, whether there had been illegality of
which the court should take notice and, second, whether in all the
circumstances it would be an affront to the public conscience if by affording
him the relief sought the court was seen to be indirectly assisting or
encouraging the plaintiff in his criminal act."

It is to be observed that the test is not stated as a general principle, but as a
limited principle under which the court may deny relief in certain specific
circumstances, even though the claimant is not implicated in the illegality.
Furthermore, the test does not as stated involve any balancing exercise of the
kind described by Nicholls L.J. in the present case. It is unnecessary for
your Lordships' House to consider for present purposes whether the test
accepted by Hutchison J. is good law or not. I wish only to refer to the fact
that of the four cases relied upon as providing support for it, the first (Burns
v. Edman [1970] 2 Q.B. 541) was concerned with a claim under the Fatal
Accidents Acts founded upon the income from the deceased as a burglar; the
second (Murphy v. Culhane [1977] QB 94) was concerned with a claim for
damages by the deceased's widow, the deceased having been killed by the
defendant during a criminal affray initiated by the deceased); the third
(Shelley v. Paddock [1980] Q.B. 348) was concerned with a claim for
damages for fraud, where the defendant had swindled the plaintiff out of the
price paid by her for property in Spain, the plaintiff having innocently paid
the money in breach of the Exchange Control Act 1947; and the fourth
(Geismar v. Sun Alliance and London Insurance Ltd [1978] Q.B. 383) was a



- 10 -

case in which the plaintiffs claim to an indemnity under a contract of
insurance, in respect of the loss of jewellery deliberately imported in breach
of the Customs and Excise Act 1952, failed because recovery of such an
indemnity would indirectly enable the plaintiff to profit from his deliberate
breach of the law. It is by no means easy to see how any broadly applicable
public conscience test could be derived from these authorities.

However, in three subsequent cases the principle so accepted by
Hutchison J. was adopted and expanded by the Court of Appeal. The first
was Saunders v. Edwards [1987] 1 W.L.R. 1116. The case was concerned
with a claim by the

purchasers of the lease of a flat against the vendor for damages for
fraudulently misrepresenting that the flat included a roof terrace. In answer,
the defendant pleaded illegality, on the ground that the respective values of the
flat and certain chattels in it had been distorted in the contract at the
suggestion of the plaintiffs by exaggerating the value of the chattels and so
diminishing the value of the flat, in order to reduce the stamp duty payable on
the transaction. The plaintiffs succeeded in their claim, having an
unassailable claim for damages for fraud which did not involve any reliance
on the contract of sale itself; but reference was made to Hutchison J.'s
judgment in Thackwell [1986] 1 All E.R. 676, and Nicholls L.J. in particular
adopted and applied the public conscience test as being applicable in a case
concerned with a claim in tort arising out of fraudulent activities.

A further step was taken by the Court of Appeal in Euro-Diam Ltd v.
Bat hurst [1990] 1 Q.B. 1, a case concerned with a claim under an insurance
policy in respect of a consignment of precious stones exported to West
Germany which was stolen from a German company's warehouse. The
defendant raised an issue of illegality, which was rejected both at first instance
and by the Court of Appeal. It is enough for present purposes to record that
Kerr L.J., citing Saunders v. Edwards [1987] 1 W.L.R. 1116, stated the
principles relating to illegality in a series of numbered paragraphs, in the first
of which he stated, at p. 35, that "the ex turpi causa defence . . . . applies if
in all the circumstances it would be an affront to the public conscience to
grant the plaintiff the relief which he seeks because the court would thereby
appear to assist or encourage the plaintiff in his illegal conduct or to
encourage others in similar acts. . . ." This broad general statement appears
to have been qualified in a later paragraph in Kerr L.J. 's statement of the law;
even so,, we can here see the limited principle accepted by Hutchison J. being
given a new and wider role, apparently with the purpose of softening the
rigour of the principle of policy established in the older authorities.

A more decisive step was taken in the third case, Howard v. Shirlstar
Container Transport Ltd [1990] 1 W.L.R. 1292. The case was concerned
with a contract for the recovery from Nigeria of an aircraft owned by the
defendants which was being detained by the Nigerian authorities at Lagos.
Under the contract, the plaintiff was entitled to recover a fee of £25,000 if he
"successfully" removed the aircraft from Nigerian airspace. He succeeded



- 11 -

in so doing, in so far as he, at some risk to his life, flew the aircraft out of
Lagos as far as the Ivory Coast, where however the aircraft was impounded
by the authorities and returned by them to Nigeria. The plaintiffs claim for
the balance of his fee was met by the defence of illegality, on the ground that
he took off without obtaining the necessary clearance in breach of air traffic
control regulations at Lagos; in fact he had left in a hurry, without obtaining
clearance, because he had been warned that his and his wireless operator's
lives were in danger and that he would not be given permission to take off.
The Court of Appeal, deciding that the defence of illegality failed, relied
explicitly on the public conscience test, holding that the conscience of the
court would not be affronted by enforcing the plaintiffs claim under the
contract for the balance of his fee. This appears to have been a case
concerned not so much with an illegal contract as such, but with illegality
committed in the performance of the contract. In normal circumstances, one
would have expected it to be decided on the principle stated by Devlin. J. in
St. John Shipping Corporation v. Joseph Rank Ltd [1957] 1 Q.B. 267. In
any event, there was evidence that the plaintiffs and his companion's lives
were in danger, and that this might well have provided a defence to the
alleged breach of Nigerian law - a point left open by the Court of Appeal.

Finally there came the explicit reliance on the public conscience test
by Nicholls L.J. in the present case, in the manner I have described.

I feel driven to say that what appears to have happened is that a
principle, developed by counsel for the defendant bank in Thackwell [1986]
1 All E.R. 676 for a limited purpose in the context of a claim in tort, has
been allowed to expand, both in its terms and in its range of application, so
that it is now suggested that it operates as a broad qualifying principle,
modifying and indeed transforming the long established principles applicable
in cases of illegality, and in particular in relation to the principle established
as applicable in cases such as the present. Furthermore, this development has
been allowed to occur without addressing the questions (1) whether the test is
consistent with earlier authority; (2) if it was not so consistent, whether such
a development could take place consistently with the doctrine of precedent as
applied in the Court of Appeal; or (3) whether the resulting change in the
law, if permissible, was desirable. It is unnecessary for your Lordships to
decide whether any such test is applicable in the limited context in which it
originally emerged before Hutchison J. It is sufficient for present purposes
to say, with the greatest respect, that to apply the public conscience test as
qualifying the principle established for nearly 200 years as applicable in cases
such as the present is, for reasons I have already stated, inconsistent with
numerous authorities binding on the Court of Appeal. In expressing this
opinion, I wish to stress that, as can so often happen, your Lordships have
had the benefit of a far fuller citation of authority than was available to the
Court of Appeal, which has revealed that (contrary to the view expressed by
Nicholls L.J. [1992] Ch. 310, 322 E) the decision in Curtis v. Perry 6 Ves.
739 was not followed by "a surprising dearth of authority, for over a
century." On the contrary, there were numerous cases decided during that



- 12 -

period, many of which I have already cited, in which the principle was
recognised or applied. Nor in my opinion can it be said (as stated by Nicholls
L.J. at p.324 C-D) that the authorities in this line in which equity refuses its
assistance can properly be regarded as examples of cases in which, in
particular circumstances, the court considered that to have granted relief
would have been "an affront to the public conscience," or (as suggested by
Lloyd L.J. at p. 341 H) as cases "where the equitable balance came down
against the plaintiff." There is no trace of any such principle forming part
of the decisions in any of the cases in question. It follows that in my
opinion, on the authorities, it was not open to the majority of the Court of
Appeal to dismiss the appellant's claim on the basis of the public conscience
test invoked by Nicholls L.J., or indeed on the basis of the flexible approach
adopted by Lloyd L.J., to whose judgment I now turn.

Lloyd L.J. held that it was not the respondent, but the appellant, who
had relied on the illegality in the present case; and that accordingly, on the
Bowmakers rule [1949] K.B. 65, the respondent was entitled to succeed in her
claim for an equitable interest in the house. This theme is developed in the
speech of my noble and learned friend Lord Browne-Wilkinson, who has
discerned a development in the law since the late nineteenth century which
supports this approach.

For reasons which I have already given, I have been unable to
discover any such development in the law. As I read the authorities, they
reveal a consistent application of the principle, subject only to the recognition
of a locus poenitentiae for the claimant where the illegal, purpose has not been
carried into effect. Furthermore, the invocation by Lloyd L.J. of the
Bowmakers rule is, as I have already indicated, inconsistent with principle and
authority. This conclusion flows from the nature of the principle itself, which
is that a court of equity will not assist a claimant who does not come to equity
with clean hands. This equitable maxim is more broadly based than the
Bowmakers rule. It is founded on the principle that he who has committed
iniquity shall not have equity; and what is required to invoke the maxim is
no more than that the alleged misconduct has "an immediate and necessary
relation to the equity sued for": see Dering v. Earl of Winchelsea (1787) 1
Cox Eq. 318, 319-320, and Snell's Equity, 29th ed., (1990), p. 32.

I have already expressed my respectful disagreement with the view
expressed by my noble and learned friend Lord Browne-Wilkinson that the
law has already developed at least in the direction of the conclusion which he
favours. I have nevertheless considered whether your Lordships' House
should in the present case develop the law, with a view to qualifying the
principle by the application to it of the Bowmakers rule. I can see the
temptation of doing so, if one focuses only on the facts of the present case in
which it seems particularly harsh not to assist the respondent to establish her
equitable interest in the house where not only was the appellant implicated in
precisely the same fraud on the Department of Social Security, but the fraud
in question can be regarded as relatively minor and indeed all too prevalent,



- 13 -

and the respondent has readily confessed her wrongdoing to the Department
and has made amends to them. Furthermore it is probable that, if the appeal
should be allowed, the effect will be that she will lose all her capital. But it
is not to be forgotten that other cases in this category will not evoke the same
sympathy on the part of the court. There may be cases in which the fraud is
far more serious than that in the present case, and is uncovered not as a result
of a confession but only after a lengthy police investigation and a prolonged
criminal trial. Again there may be cases in which a group of terrorists, or
armed robbers, secure a base for their criminal activities by buying a house
in the name of a third party not directly implicated in those activities. In
cases such as these there will almost certainly be no presumption of
advancement. Is it really to be said that criminals such as these, or their
personal representatives, are entitled to invoke the assistance of a court of
equity in order to establish an equitable interest in property? It may be said
that these are extreme cases; but I find it difficult to see how, in this context
at least, it is possible to distinguish between degrees of iniquity. At all
events, I cannot think that the harsh consequences which will arise from the
application of the established principle in a case such as the present provide
a satisfactory basis for developing the law in a manner which will open the
door to far more unmeritorious cases, especially as the proposed development
in the law appears to me to be contrary to the established principle underlying
the authorities.

Finally, I wish to revert to the public conscience test favoured by
Nicholls L.J. in the Court of Appeal. Despite the fact that I have concluded
that on the authorities it was not open to the Court of Appeal to apply the
public conscience test to a case such as the present, I have considered whether
it is open to your Lordships' House to do so and, if so, whether it would be
desirable to take this course. Among the authorities cited to your Lordships,
there was no decision of this House; technically, therefore, it may be said
that this House is free to depart from the line of authority to which I have
referred. But the fact remains that the principle invoked by the appellant has
been consistently applied for about two centuries. Furthermore the adoption
of the public conscience test, as stated by Nicholls L.J., would constitute a
revolution in this branch of the law, under which what is in effect a discretion
would become vested in the court to deal with the matter by the process of a
balancing operation, in place of a system of rules, ultimately derived from the
principle of public policy enunciated by Lord Mansfield C.J. in Holman v.
Johnson 1 Cowp 341, which lies at the root of the law relating to claims
which are, in one way or another, tainted by illegality. Furthermore, the
principle of public policy so stated by Lord Mansfield cannot be disregarded
as having no basis in principle. In his dissenting judgment in the present case
[1992] Ch. 310, Ralph Gibson L.J. pointed out, at p. 334 E-G:

"In so far as the basis of the ex turpi causa defence, as founded on
public policy, is directed at deterrence it seems to me that the force of
the deterrent effect is in the existence of the known rule and in its
stern application. Lawyers have long known of the rule and must



- 14 -

have advised many people of its existence. It does not stop people
making arrangements to defraud creditors, or the revenue, or the
D.S.S. Such arrangements as are under consideration in this case are
usually made between married couples as in Tinker v. Tinker, or
between unmarried lovers as in this case or in Cantor v. Cox 239 E.G.
121. If they do not fall out, no one will know. If they do fall out,
one side may reveal the fraud. It is an ugly situation when that is
done. I think that the law has upheld the principle on the simple
ground that, ugly though its working may be, it is better than
permitting the fraudulent an avenue of escape if the fraud is revealed".



I recognise, of course, the hardship which the application of the present law
imposes upon the respondent in this case; and I do not disguise my own
unhappiness at the result. But, bearing in mind the passage from the
judgment of Ralph Gibson L.J. which I have just quoted, I have to say that
it is by no means self-evident that the public conscience text is preferable to
the present strict rules. Certainly, I do not feel able to say that it would be
appropriate for your Lordships House, in the face of a long line of unbroken
authority stretching back over two hundred years, now by judicial decision to
replace the principles established in those authorities by a wholly different
discretionary system.




In saying this, I have well in mind the reform introduced in New
Zealand by the New Zealand Illegal Contracts Act 1970, which in section 6
provides that "... every illegal contract shall be of no effect and no person
shall become entitled to any property under a disposition made by or pursuant
to any such contract: . . . "; and in section 7 confers on the court the power
to grant relief "by way of restitution, compensation, variation of the contract,
validation of the contract in whole or part or for any particular purpose, or
otherwise howsoever as the court in its discretion thinks just". These
provisions of the Act demonstrate how sweeping a reform was considered
necessary by the New Zealand legislature in order to substitute a system of
discretionary relief for the present system of rules founded upon the in pan
delicto principle; and even then the Act is restricted to cases concerned with
illegal contracts. Your Lordships have no means of ascertaining how
successful the Act has proved to be in practice; or whether, for example, it
is considered that the scope of the Act should be extended to embrace other
types of illegality. In truth, everything points to the conclusion that, if there
is to be a reform aimed at substituting a system of discretionary relief for the
present rules, the reform is one which should only be instituted by the
legislature, after a full inquiry into the matter by the Law Commission, such
inquiry to embrace not only the perceived advantages and disadvantages of the
present law, but also the likely advantages and disadvantages of a system of
discretionary relief, no doubt with particular reference to the New Zealand
experience. The real criticism of the present rules is not that they are
unprincipled, but rather that they are indiscriminate in their effect, and are
capable therefore of producing injustice. It is this effect which no doubt
prompted the reform of the law in New Zealand, embodied in the Act of



- 15 -

1970; and it prompts me to say that, speaking for myself, I would welcome
an investigation by the Law Commission, if this is considered desirable and
practicable by the authorities concerned; and that I would be more than happy
if a new system could be evolved which was both satisfactory in its effect and
capable of avoiding the kind of result which flows from the established rules
of law in cases such as the present.

For these reasons, which are substantially the same as those expressed
by Ralph Gibson L.J. in his dissenting judgment in the Court of Appeal, I
would allow the appeal.

LORD JAUNCEY OF TULLICHETTLE

My Lords,

The parties to this appeal lived together for some years in a house in
mid-Glamorgan which they ran as a lodging-house. The purchase price of the
house was provided by a mortgage loan from the bank and a sum of money
which was provided jointly by the parties. It was, however, agreed between
them that the title should be taken in the sole name of the appellant in order
to facilitate the making by the respondent of false claims upon the D.S.S. In
1988 the parties fell out and the appellant moved out of the house. She
subsequently raised the present action claiming possession of the property and
the respondent counter-claimed for a declaration to the effect that the appellant
held the property on trust for the respondent and the appellant in equal shares.
The County Court judge dismissed the claim and found for the defendant on
the counter-claim and the Court of Appeal by a majority (Ralph Gibson L.J.
dissenting) dismissed the appellant's appeal. The issues in the courts below
and before this House revolved round the illegal purpose of taking the title of
the house in the name of the appellant alone.

Had the case been heard by Lord Eldon in the early years of the 19th
century there could be no doubt as to what the results would have been. In
Muckleston v. Brown (1801) 6 Ves. 53, Lord Eldon L.C. said, at p. 69:

". . . the plaintiff stating, he had been guilty of a fraud upon the law,
to evade, to disappoint, the provision of the legislature, to which he is
bound to submit, and coming to equity to be relieved against his own
act, and the defence being dishonest, between the two species of
dishonesty the court would not act; but would say, 'Let the estate lie,
where it falls."'

In the following year in Curtis v. Perry (1802) 6 Ves. 739, the Lord
Chancellor had to consider whether a deceased Member of Parliament could
have claimed an equitable interest in a ship which had been registered in the



- 16 -

sole name of his partner in order to evade a statutory provision which would
have imposed penalties on the Member of Parliament had the ship been
employed in the service of the Government while he was a Member. It
appears to have argued, inter alia, that there was an implied trust by operation
of law since the purchase had been made of joint properties. The Lord
Chancellor rejected this argument saying that as between the two partners,
Chiswell, the Member of Parliament, could not be heard to say that he had
any interest in the ship. He went on the say, at p 744:

"The reason for waiving any right Chiswell had in consequence of the
manner, in which Nantes made this purchase, the object of keeping the
ships registered in the name of Nantes, was, that a profit might be
made by the employment of them in contracts with Government; and
Chiswell was a Member of Parliament; who, the law says , shall not
be a contractor. The moment the purpose to defeat the policy of the
law by fraudulently concealing, that this was his property, is admitted,
it is very clear, he ought not to be heard in this Court to say, that is
his property."

Curtis v. Perry was commented on by Lord Eldon in Ex parte Yallop (1808)
15 Ves. 60, in which it was held that the registry of ship was conclusive
evidence of ownership. The Lord Chancellor, after referring to Chiswell's
conduct, said, at p. 70:

"Two principles therefore stood in his way: first, that he had broken
in upon the policy of the Act of Parliament; and could not be permitted
to say, he had property of this nature, not subject to the regulations of
the Act; and farther, that he had done so for the purpose of defeating
another law; meaning to hold himself out not to be owner of those
ships; as they were bound by contracts, of which he, being a Member
of Parliament, could not have the benefit. Under those circumstances
it could not possibly be contended, that he had that character of owner,
which for his own private and fraudulent purpose he had disclaimed."

The Act of Parliament was of court the Act providing for registration of
ownership of ships. I do not understand the Lord Chancellor to be there
saying that Chiswell's claim to an equitable interest was defeated only because
of a combination of two grounds but rather that it would have been defeated
on either ground. It seems probable that the second ground would have been
decisive of the present appeal. The question in 1993 is whether the law
remains the same or whether in the intervening 180 or more years the very
broad principles enunciated by Lord Eldon have been to any extent modified.

At the outset it seems to me to be important to distinguish between the
enforcement of executory provisions arising under an illegal contract or other
transaction and the enforcement of rights already acquired under the completed
provisions of such a contract or transaction. Your Lordships were referred



- 17 -

to a very considerable number of authorities, both ancient an modern, from
which certain propositions may be derived.

First: it is trite law that the court will not give its assistance to the
enforcement of executory provisions of an unlawful contract whether the
illegality is apparent ex facie the document or whether the illegality of purpose
of what would otherwise be a lawful contract emerges during the course of the
trial. (Holman v. Johnson (1775) 1 Cowp 341, 343, per Lord Mansfield
C.J.; Pearce v. Brooks (1866) L.R. 1 Exch. 213, 217-218, per Pollock C.B.;
Alexander v. Rayson [1936] 1 K.B. 169, 182; Bowmakers Ltd. v. Barnet
Instruments Ltd. [1945] K.B. 65, 70).

Second: it is well established that a party is not entitled to rely on his
own fraud or illegality in order to assist a claim or rebut a presumption. Thus
when money or property has been transferred by a man to his wife or children
for the purpose of defrauding creditors and the transferee resists his claim for
recovery he cannot be heard to rely on his illegal purpose in order to rebut the
presumption of advancement. (Gascoigne v. Gascoigne [1918] 1 K.B. 223,
226; Palaniappa Chettiar v. Arunasalam Chettiar [1962] AC 294, 302;
Tinker v. Tinker [1970] P. 136, Salmon LJ. 143.)

Third: it has, however, for some years been recognised that a
completely executed transfer of property or of an interest in property made in
pursuance of an unlawful agreement is valid and the court will assist the
transferee in the protection of his interest provided that he does not require to
found on the unlawful agreement (Ayerst v. Jenkins (1873) L.R. 16 Eq. 275,
283, Alexander v. Rayson [1936] 1 K.B. 169, 184-185, Bowmakers Ltd. v.
Barnet Instruments Ltd. [1945] K.B. 65, Singh v. Ali [1960] AC 167, 176).
To the extent, at least, of his third proposition it would appear that there has
been some modification over the years of Lord Eldon's principles.

The ultimate question in this appeal is, in my view, whether the
respondent is claiming the existence of a resulting trust in her favour is
seeking to enforce unperformed provisions of an unlawful transaction or
whether she is simply relying on an equitable proprietary interest that she has
already acquired under such a transaction. The nature of a resulting trust was
described by Lord Diplock in Gissing v. Gissing [1971] AC 886, 905B as
follows:

"A resulting, implied or constructive trust - and it is unnecessary for
present purposes to distinguish between these three classes of trust - is
created by a transaction between the trustee and the cestui que trust in
connection with the acquisition by the trustee of a legal estate in land,
whenever the trustee has so conducted himself that it would be
inequitable to allow him to deny to the cestui que trust a beneficial
interest in the land acquired. And he will be held so to have
conducted himself if by his words or conduct he has induced the cestui



- 18 -

que trust to act to his own detriment in the reasonable belief that by so
acting he was acquiring a beneficial interest in the land."

I find this a very narrow question but I have come to the conclusion that the
transaction whereby the claimed resulting trust in favour of the respondent was
created was the agreement between the parties that although funds were to be
provided by both of them, nevertheless the title to the house was to be in the
sole name of the appellant for the unlawful purpose of defrauding the D.S.S.
So long as that agreement remained unperformed neither party could have
enforced it against the other. However, as soon as the agreement was
implemented by the sale to the appellant alone she became trustee for the
respondent who can now rely on the equitable proprietary interest which has
thereby been presumed to have been created in her favour and has no need to
rely on the illegal transaction which led to its creation.

My Lords, I have had the advantage of reading in draft the speech of
my noble and learned friend, Lord Browne-Wilkinson. I agree with it and
for the reasons contained therein as well as for the reasons in this speech I
would dismiss the appeal.

LORD LOWRY

My Lords,

I have had the advantage of reading in draft the speeches prepared by
your Lordships and find myself in agreement with the conclusions reached by
my noble and learned friends Lord Jauncey of Tullichettle and Lord Browne-
Wilkinson. I acknowledge the persuasive force which has informed both the
speech of my noble and learned friend Lord Goff of Chieveley and the
judgment of Ralph Gibson L.J. in the Court of Appeal, but I am unable to
accept and act upon Lord Eldon's wide principle despite its eminent authorship
and its impressive antiquity.

The advancement cases belong to a class in relation to which the rule
seems to me to conform with equitable principles. The ostensible donor
makes a gift with a fraudulent purpose in view; when he tries to assert his
equitable title, he is obliged to rely on his own fraud in order to rebut the
presumption of advancement. Equity, through the mouth of the court, then
says, "We will not assist you to recover your property, because you have to
give evidence of your own wrongdoing in order to succeed." On the other
hand, under the wide principle, someone in the position of Miss Milligan, who
has only to show a trust, resulting from the fact (which he must prove or
which may be admitted) that the property was acquired wholly or partly by the
use of his money, is said to be defeated by the maxim that he who comes into
equity must come with clean hands, on the ground that the original transaction



- 19 -

was undertaken for a fraudulent purpose. But in the latter case the claimant
is not relying on his own fraud in order to succeed and is merely said to be
defeated by a rule of policy, despite the fact that he already has an equitable
interest, as the locus poenitentiae rule confirms.

In Curtis v. Perry (1802) 6 Ves. Jun. 740, as to which I happily adopt
the analysis of my noble and learned friend Lord Jauncey, Lord Eldon gave
two reasons for defeating the creditors of Chiswell's estate, but much the
more important and just reason to my mind, as I think - the report of the
judgment indicates, was the fact that Nantes had registered the ships in his
name under the relevant Acts and that both he and Chiswell had led the
trading world to believe that they were Nantes's sole property. Of course, as
my noble and learned friend Lord Goff has illustrated, Curtis v. Perry is by
no means a unique example of the application of Lord Eldon's wide principle
to cases in which there was no presumption of advancement, but even a
plurality of examples does not in my opinion endow the wide principle with
validity.

The rule of policy which is said to justify the wide principle should be
closely examined. A and B buy property in equal shares and by agreement
B acquires the legal title. A, either by himself or in conspiracy with B (who
may or may not stand to benefit from the fraud), plans to obtain a financial
advantage by falsely pretending that he owns no property: if A goes through
with the scheme, the wide principle applies, although, in order to assert his
rights against B, A does not need to rely on his own fraud. Indeed, where the
presumption of advancement does not apply, it is B who will have to rely on
the fraud (to which in some cases he has been privy) as a defence. If, on the
other hand, the property has been innocently acquired and A later takes
advantage of his lack of a legal title to make the same false pretence, his
claim against B on foot of a resulting trust cannot be defeated. The criminal
sanction against A is the same in either case.

I am not impressed by the argument that the wide principle acts as a
deterrent to persons in A's position. In the first place, they may not be aware
of the principle and are unlikely to consult a reputable solicitor. Secondly, if
they commit a fraud, they will not have been deterred by the possibility of
being found out and prosecuted. Furthermore, the wide principle could be a
positive encouragement to B, if he is aware of the principle, because by means
of his complicity, he may become not only the legal owner but the beneficial
owner.

For A to take proceedings in order to vindicate his equitable rights as
sole or joint beneficial owner is not an example of the maxim ex turpi causa
non oritur actio because his equitable title and his cause of action do not arise
out of his illegal or immoral act. It is B who must rely on the turpis causa as
a defence.

- 20 -

The foregoing considerations render me all the more convinced that the
right view is that a party cannot rely on his own illegality in order to prove
his equitable right, and not that a party cannot recover if his illegality is
proved as a defence to his claim. I consider that the wide principle is not well
founded and, since it is not binding on your Lordships, that your Lordships
should not follow it.

While the Bowmaker rule could not unaided overturn a sound and
established principle of equity, I find it satisfactory that the course preferred
by my noble and learned friends Lord Jauncey and Lord Browne-Wilkinson
will promote harmony between equity and the common law. Accordingly, for
the reasons which they have given, and also for the further reasons which I
have mentioned, I would dismiss the appeal.

LORD BROWNE-WILKINSON

My Lords,

I agree with the speech of my noble and learned friend Lord Goff of
Chieveley that the consequences of being a party to an illegal transaction
cannot depend, as the majority in the Court of Appeal held, on such an
imponderable factor as the extent to which the public conscience would be
affronted by recognising rights created by illegal transactions. However, I
have the misfortune to disagree with him as to the correct principle to be
applied in a case where equitable property rights are acquired as a result of
an illegal transaction.

Neither at law nor in equity will the court enforce an illegal contract
which has been partially, but not fully, performed. However, it does not
follow that all acts done under a partially performed contract are of no effect.
In particular it is now clearly established that at law (as opposed to in equity),
property in goods or land can pass under, or pursuant to, such a contract. If
so, the rights of the owner of the legal title thereby acquired will be enforced,
provided that the plaintiff can establish such title without pleading or leading
evidence of the illegality. It is said that the property lies where it falls, even
though legal title to the property was acquired as a result of the property
passing under the illegal contract itself. I will first consider the modern
authorities laying down the circumstances under which an illegal transaction
will be enforced by the courts. I will then consider whether the courts adopt
a different attitude to equitable proprietary interests so acquired.

The position at law is well illustrated by the decision in Bowmakers
Ltd. v. Barnet Instruments Ltd [1945] K.B. 65. In that case Barnet acquired
three parcels of machine tools which had previously belonged to Smith. The
transaction was carried through by three hire-purchase agreements under



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which Smith sold the goods to Bowmakers who then hired them to Barnet.
All three agreements were unlawful as being in breach of Defence
Regulations: it is important to note that in the case of at least two of the
parcels the illegality lay in the contract under which Bowmakers acquired the
machine tools from Smith: see p. 69. Bowmakers succeeded in an action for
conversion against Barnet. Even though it appeared from the pleadings and
the evidence that the contract under which Bowmakers acquired the goods was
illegal, such contract was effective to pass the property in the goods to
Bowmakers who could therefore found their claim on the property right so
acquired.

The position at law is further illustrated by Ferret v. Hill (1854) 15
C.B. 207 where A, with intent to use premises as a brothel, took a lease from
B. B, having discovered that the premises were being used as a brothel,
ejected A. A was held entitled to maintain ejectment against B
notwithstanding that A entered into the lease for an illegal purpose.

In Taylor v. Chester (1869) L.R. 4 Q.B. 309 the plaintiff had deposited
with the defendant half a £50 note as security for payment due under an illegal
contract with the defendant. The plaintiff was held unable to recover the half
note as a special property in it (i.e. the security interest) had passed to the
defendant.

In Alexander v. Rayson [1936] 1 K.B. 169 the plaintiff had leased a
property to the defendant. For the purpose of defrauding the rating
authorities, the plaintiff had carried through the transaction by two documents,
one a lease which expressed a low rent the other a service agreement
providing for additional payments sufficient to bring up the annual payment
to the actual rent agreed. The plaintiff failed in an action to recover rent due
under the agreements but the Court of Appeal (at p. 186) said that if the
plaintiff had let the flat to be used for an illegal purpose, the leasehold interest
in the flat would have vested in the defendant who would have been entitled
to remain in possession of the flat until and unless the plaintiff could eject her
without relying on the unlawful agreement.

From these authorities the following propositions emerge:

1. Property in chattels and land can pass under a contract which
   is illegal and therefore would have been unenforceable as a contract;
   
   

2. A plaintiff can at law enforce property rights so acquired
   provided that he does not need to rely on the illegal contract for any
   purpose other than providing the basis of his claim to a property right;
   
   

3. It is irrelevant that the illegality of the underlying agreement
   was either pleaded or emerged in evidence: if the plaintiff has acquired
   legal title under the illegal contract that is enough.

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I have stressed the common law rules as to the impact of illegality on
the acquisition and enforcement of property rights because it is the appellant's
contention that different principles apply in equity. In particular it is said that
equity will not aid Miss Milligan to assert, establish or enforce an equitable,
as opposed to a legal, proprietary interest since she was a party to the fraud
on the D.H.S.S. The house was put in the name of Miss Tinsley alone
(instead of joint names) to facilitate the fraud. Therefore, it is said, Miss
Milligan does not come to equity with clean hands: consequently, equity will
not aid her.

Most authorities to which we were referred deal with enforcing
proprietary rights under a trust: I will deal with them in due course. But
before turning to them, I must point out that if Miss Tinsley's argument is
correct, the results would be far reaching and, I suggest, very surprising.
There are many proprietary rights, apart from trusts, which are only
enforceable in equity. For example, an agreement for a lease under which the
tenant has entered is normally said to be as good as a lease, since under such
an agreement equity treats the lease as having been granted and the "lessee"
as having a proprietary interest enforceable against the whole world except the
bona fide purchaser for value without notice. Would the result in Ferret v.
Hill 15 C.B. 207 have been different if there had only been an agreement for
a lease? Say that in Taylor v. Chester L.R. 4 Q.B. 309 the plaintiff had
deposited by way of security share certificates instead of half a bank note
(thereby producing only an equitable security): would the outcome have been
different? Similarly, if the plaintiff were relying on ah assignment of a chose
in action would he succeed if the assignment was a legal assignment but fail
if it were equitable?

In my judgment to draw such distinctions between property rights
enforceable at law and those which require the intervention of equity would
be surprising. More than 100 years has elapsed since law and equity became
fused. The reality of the matter is that, in 1993, English law has one single
law of property made up of legal and equitable interests. Although for
historical reasons legal estates and equitable estates have differing incidents,
the person owning either type of estate has a right of property, a right in rem
not merely a right in personam. If the law is that a party is entitled to enforce
a property right acquired under an illegal transaction, in my judgment the
same rule ought to apply to any property right so acquired, whether such right
is legal or equitable.

In the present case, Miss Milligan claims under a resulting or implied
trust. The court below have found, and it is not now disputed, that apart from
the question of illegality Miss Milligan would have been entitled in equity to
a half share in the house in accordance with the principles exemplified in
Gissing v. Gissing [1971] AC 886; Grant v. Edwards [1986] Ch 638 and
Lloyds Bank Plc. v. Rosset [1991] AC 107. The creation of such an
equitable interest does not depend upon a contractual obligation but on a
common intention acted upon by the parties to their detriment. It is a



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development of the old law of resulting trust under which, where two parties
have provided the purchase money to buy a property which is conveyed into
the name of one of them alone, the latter is presumed to hold the property on
a resulting trust for both parties in shares proportionate to their contributions
to the purchase price. In arguments, no distinction was drawn between strict
resulting trusts and a Gissing v. Gissing type of trust.

A presumption of resulting trust also arises in equity when A transfers
personalty or money to B: see Snell's Equity 29th ed. (1990) pp. 183-184;
Standing v. Bowring (1885) 31 Ch D 282, 287, per Cotton L.J.; Dewar v.
Dewar [1975] 1 W.L.R. 1532, 1537d. Before 1925, there was also a
presumption of resulting trust when land was voluntarily transferred by A to
B: it is arguable, however, that the position has been altered by the 1925
property legislation: see Snell 29th ed. p. 182. The presumption of a resulting
trust is, in my view, crucial in considering the authorities. On that
presumption (and on the contrary presumption of advancement) hinges the
answer to the crucial question "does a plaintiff claiming under a resulting trust
have to rely on the underlying illegality?". Where the presumption of
resulting trust applies, the plaintiff does not have to rely on the illegality. If
he proves that the property is vested in the defendant alone but that the
plaintiff provided part of the purchase money, or voluntarily transferred the
property' to the defendant, the plaintiff establishes his claim under a resulting
trust unless either the contrary presumption of advancement displaces the
presumption of resulting trust or the defendant leads evidence to rebut the
presumption of resulting trust. Therefore, in cases where the presumption of
advancement does not apply, a plaintiff can establish his equitable interest in
the property without relying in any way on the underlying illegal transaction.
In this case Miss Milligan as defendant simply pleaded the common intention
that the property should belong to both of them and that she contributed to the
purchase price: she claimed that in consequence the property belonged to them
equally. To the same effect was her evidence in chief. Therefore Miss
Milligan was not forced to rely on the illegality to prove her equitable interest.
Only in the reply and the course of Miss Milligan's cross-examination did
such illegality emerge: it was Miss Tinsley who had to rely on that illegality.

Although the presumption of advancement does not directly arise for
consideration in this case, it is important when considering the decided cases
to understand its operation. On a transfer from a man to his wife, children
or others to whom he stands in loco parentis, equity presumes an intention to
make a gift. Therefore in such a case, unlike the case where the presumption
of resulting trust applies, in order to establish any claim the plaintiff has
himself to lead evidence sufficient to rebut the presumption of gift and in so
doing will normally have to plead, and give evidence of, the underlying illegal
purpose.

Against this background, I turn to consider the authorities dealing with
the position in equity where A transferred property to B for an illegal purpose.
The earlier authorities, primarily Lord Eldon, support the appellant's



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proposition that equity will not aid a plaintiff who has transferred property to
another for an illegal purpose. In Cottington v. Fletcher (1740) 2 Atk. 155
a Roman Catholic had assigned an advowson to the defendant for a term of
99 years for the purpose of avoiding a statutory prohibition. On subsequently
becoming a Protestant, he sought to recover the advowson from the defendant.
The defendant pleaded the Statute of Frauds but also admitted that the
advowson was assigned to him as trustee. On what appears to have been an
interlocutory hearing, Lord Hardwicke, L.C., held, that in view of the
admission of trust, the plea of the Statute of Frauds was bad. However he
said (p. 156) that as the assignment was done in fraud of statute "I doubt at
the hearing whether the plaintiff could be relieved, such fraudulent
conveyances being make absolute against the grantor".

In Muckeston v. Brown (1801) 6 Ves. 53 (a case concerning secret
trusts) Lord Eldon, at p. 69, ... cast doubt on Lord Hardwicke's view,
possibly misunderstanding that Lord Hardwicke was dealing with the question
whether the Statute of Frauds provided a defence and not directly with the
question of illegality. Lord Eldon said, at pp. 68-69:

"Lord Hardwicke means to say, that, if the defendant admits the trust,
though against the policy of the law, he would relieve: but if he does
not admit the trust, but demurs, he would do, what does not apply in
the least to this case; the plaintiff stating, he had been guilty of a fraud
upon the law, to evade, to disappoint, the provision of the Legislature,
to which he is bound to submit, and coming to equity to be relieved
against his own act, and the defence being dishonest, between the two
species of dishonesty the court would not act; but would say, 'Let the
estate lie, where it falls.'"

Those remarks were obiter. But in Curtis v. Perry (1802) 6 Ves. 739
Lord Eldon founded his decision on the same principle. In that case Nantes
and Chiswell (who was a Member of Parliament) were partners. Ships had
been purchased by Nantes out of partnership assets but registered in the sole
name of Nantes. When Chiswell discovered the position, the ships were
shown in the partnership books as being partnership property. However with
Chiswell's connivance the ships remained registered in the sole name of
Nantes so as to evade a statutory prohibition against the ships being used for
Government contracts if owned by a Member of Parliament. In a dispute
between the partnership creditors and Nantes' separate creditors, Lord Eldon
held in flavour of the latter. He said, at p. 747:

"The moment the purpose to defeat the policy of the law by
fraudulently concealing, that this was his property, is admitted, it is
very clear, he ought not to be heard in this Court to say, that is his
property. In the case of a bill filed to have a reconveyance of a
qualification given by the plaintiff to his son to enable him to sit in
Parliament, the purpose being answered, the Bill was very properly
dismissed by Lord Kenyon with costs."

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See also Ex parte Yallop (1808) 15 Ves. 60.

The same broad principle was applied by the Exchequer Chamber in
Equity in Groves v. Groves (1829) 3 Y. & J. 163. In that case the plaintiff
had purchased land in the name of his brother so as to give the brother a
necessary qualification to vote. The plaintiff claimed to recover the land
under a resulting trust. His claim was dismissed on the grounds (p. 172),
inter alia, "... that the illegal purpose for which this conveyance was made
bars that equity". There are many other cases in the first half of the 19th
century where the same principle was applied.

However, in my view, the law was not so firmly established as at first
sight it appears to have been. The law on the effect of illegality was
developing throughout the 19th century. In particular, if Lord Eldon's
principle were to apply in its full vigour it would apply as much to claims by
a guilty party to enforce an express trust as to enforce an implied or resulting
trust: equity would not aid the plaintiff to enforce equitable claims against the
holder of the legal estate. Yet in Ayerst v. Jenkins (1873) L.R. 16 Eq. 275
Lord Selborne L.C. apparently treated a party to the illegality as being entitled
to enforce express trusts against trustees. In that case, the settlor transferred
investments to trustees and executed a settlement for the sole benefit of the
defendant with whom he was about to go through a ceremony of marriage
which, to the knowledge of both, was illegal i.e. the settlement was made in
contemplation of unlawful cohabitation. After the death of the settlor, his
personal representative sought to recover the investments from the trustees
claiming that the express trusts were invalid and that there was therefore a
resulting trust to the senior. The claim failed, partly on the ground that there
was no equity' in the senior to recover from the trustees in whom the legal title
was vested, but also on the ground that there was a fully executed trust
vesting in the defendant "the immediate and absolute beneficial interest": see
the explanation, at pp. 284-285, of Rider v. Kidder (1805) 10 Ves. 361, 366.
The whole case proceeded on the footing that the defendant, even if a party
to the illegality, was entitled to enforce against the trustees her equitable rights
as beneficiary under the express trusts against the trustees. This view would
be quite inconsistent with a general rule such as that propounded by Lord
Eldon that a court of equity will never enforce equitable proprietary interests
as the suit of a party to an illegality.

The law was developing in another direction during the 19th century.
There was originally a difference of view as to whether a transaction entered
into for an illegal purpose would be enforced at law or in equity if the party
had repented of his illegal purpose before it had been put into operation i.e.
the doctrine of locus poenitentiae. It was eventually recognised both at law
and in equity that if the plaintiff had repented before the illegal purpose was
carried through, he could recover his property: see Taylor v. Bowers (1876)
I Q.B.D. 291; Symes v. Hughes (1870) L.R. 9 Eq. 475. The principle of
locus poenitentiae is in my judgment irreconcilable with any rule that where
property is transferred for an illegal purpose no equitable proprietary right



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exists. The equitable right, if any, must arise at the time at which the
property was voluntarily transferred to the third party or purchased in the
name of the third party. The existence of the equitable interest cannot depend
upon events occurring after that date. Therefore if, under the principle of
locus poenitentiae, the courts recognise that an equitable interest did arise out
of the underlying transaction, the same must be true where the illegal purpose
was carried through. The carrying out of the illegal purpose cannot, by itself,
destroy the pre-existing equitable interest. The doctrine of locus poenitentiae
therefore demonstrates that the effect of illegality is not to prevent a
proprietary interest in equity from arising or to produce a forfeiture of such
right: the effect is to render the equitable interest unenforceable in certain
circumstances. The effect of illegality is not substantive but procedural. The
question therefore is, "In what circumstances will equity refuse to enforce
equitable rights which undoubtedly exist".

It is against this background that one has to assess the more recent law.
Although in the cases decided during the last one hundred years there are
frequent references to Lord Eldon's wide principle, with one exception
(Cantor v. Cox (1976) 239 E.G. 121) none of the English decisions are
decided by simply applying that principle. They are all cases where the
unsuccessful party was held to be precluded from leading evidence of an
illegal situation in order to rebut the presumption of advancement. Lord
Eldon's rule would have provided a complete answer whether the transfer was
made to a wife or child (where the presumption of advancement would apply)
or to a stanger. Yet with one exception none of the cases in this century has
been decided on that simple basis.

The majority of cases have been those in which the presumption of
advancement applied: in those authorities the rule has been stated as being that
a plaintiff cannot rely on evidence of his own illegality to rebut the
presumption applicable in such cases that the plaintiff intended to make a gift
of the property to the transferee. Thus in Gascoigne v. Gascoigne [1918] 1
K.B. 223, McEvoy v. Belfast Banking Co. Ltd. [1934] N.I. 67; In re Emery's
Investments Trusts [1959] Ch. 410; Palaniappa Chettiar v. Arunasalam
Chettiar [1962] AC 294 and Tinker v. Tinker [1970] P. 136, 141H, 142c the
crucial point was said to be the inability of the plaintiff to lead evidence
rebutting the presumption of advancement. In each case the plaintiff was
claiming to recover property voluntarily transferred to, or purchased in the
name of, a wife or child, for an illegal purpose. Although reference was
made to Lord Eldon's principle, none of those cases was decided on the
simple ground (if it were good law) that equity would not in any
circumstances enforce a resulting trust in such circumstances. On the contrary
in each case the rule was stated to be that the plaintiff could not recover
because he had to rely on the illegality to rebut the presumption of
advancement.

In my judgment, the explanation for this departure from Lord Eldon's
absolute rule is that the fusion of law and equity has led the courts to adopt



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a single rule (application both at law and in equity) as to the circumstances in
which the court will enforce property interests acquired in pursuance of an
illegal transaction viz. the Bowmaker rule [1945] K.B. 65. A party to an
illegality can recover by virtue of a legal or equitable property interest if, but
only if, he can establish his title without relying on his own illegality. In
cases where the presumption of advancement applies, the plaintiff is faced
with the presumption of gift and therefore cannot claim under a resulting trust
unless and until he has rebutted that presumption of gift: for those purposes
the plaintiff does have to rely on the underlying illegality and therefore fails.

The position is well illustrated by two decisions in the Privy Council.
In the first, Singh v. Ali [1960] AC 167 a plaintiff who had acquired legal
title to a lorry under an illegal transaction was held entitled to succeed against
the other party to the illegality in detinue and trespass. The Board approved
the Bowmaker test. Two years later in Palaniappa Chettiar v. Arunasalam
Chettiar [1962] AC 294 the Board had to consider the case where a father,
who had transferred land to his son for an illegal purpose, sought to recover
it under a resulting trust. It was held that he could not, since he had to rely
on his illegal purpose in order to rebut the presumption of advancement. The
Board distinguished, at p. 301, the decision in Haigh v. Kaye (1872) L.R. 7
Ch. 469 on the following grounds:

"It appears to their Lordships, however, that there is a clear distinction
between Haigh v. Kaye and the present case. In Haigh v. Kaye the
plaintiff conveyed a freehold estate to the defendant. In the
conveyance it was stated that a sum of £850 had been paid by the
defendant for it. The plaintiff proved that no such sum was paid and
claimed that the defendant was a trustee for him. Now in that case the
plaintiff had no reason to disclose any illegality and did not do so. It
was the defendant who suggested that the transaction was entered into
for a fraudulent purpose. He sought to drag it in without pleading it
distinctly and he was not allowed to do so. But in the present case the
plaintiff had of necessity to disclose his own illegality to the court and
for this reason: He had not only to get over the fact that the transfer
stated that the son paid $7,000 for the land, he also had to get over
the presumption of advancement, for, whenever a father transfers
property' to his son, there is a presumption that he intended it as a gift
to his son; and if he wishes to rebut that presumption and to say that
his son took as trustee for him, he must prove the trust clearly and
distinctly, by evidence properly admissible for the purposes, and not
leave it to be inferred from slight circumstances: see Shepherd v.
Cartwright [1955] AC 431, 445."

Further, the Board distinguished Singh v. Ali [1960] AC 167. It was
pointed out that in Singh v. Ali the plaintiff founded his claim on a right of
property in the lorry and his possession of it. The Board continued, at p
303:

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"[The plaintiff] did not have to found his cause of action on an
immoral or illegal act. He was held entitled to recover. But in the
present case the father has of necessity to put forward, and indeed,
assert, his own fraudulent purpose, which he has fully achieved. He
is met therefore by the principle stated long ago by Lord Mansfield
'No court will lend its aid to a man who founds his cause of action
upon an immoral or an illegal act' see Holman v. Johnson (1775) 1
Cowp. 341, 343"

In my judgment these two cases show that the Privy Council was
applying exactly the same principle in both cases although in one case the
plaintiffs claim rested on a legal title and in the other on an equitable title.
The claim based on the equitable title did not fail simply because the plaintiff
was a party to the illegal transaction; it only failed because the plaintiff was
bound to disclose and rely upon his own illegal purpose in order to rebut the
presumption of advancement. The Privy Council was plainly treating the
principle applicable both at law and in equity as being that a man can recover
property provided that he is not forced to rely on his own illegality.

I therefore reach the conclusion that, although there is no case
overruling the wide principle stated by Lord Eldon, as the law has developed
the equitable principle has become elided into the common law rule. In my
judgment the time has come to decide clearly that the rule is the same whether
a plaintiff founds himself on a legal or equitable title: he is entitled to recover
if he is not forced to plead or rely on the illegality, even if it emerges that the
title on which he relied was acquired in the course of carrying through an
illegal transaction.

As applied in the present case, that principle would operate as follows.
Miss Milligan established a resulting trust by showing that she had contributed
to the purchase price of the house and that there was common understanding
between her and Miss Tinsley that they owned the house equally. She had no
need to allege or prove why the house was conveyed into the name of Miss
Tinsley alone, since that fact was irrelevant to her claim: it was enough to
show that the house was in fact vested in Miss Tinsley alone. The illegality
only emerged at all because Miss Tinsley sought to raise it. Having proved
these facts, Miss Milligan had raised a presumption of resulting trust. There
was no evidence to rebut that presumption. Therefore Miss Milligan should
succeed. This is exactly the process of reasoning adopted by the Ontario
Court of Appeal in Gorog v. Kiss (1977) 78 D.L.R. (3d) 690 which in my
judgment was rightly decided.

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 Scon v. Brown, Doering, McNab & Co. [1892] 2 QB 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 plaintiffs rights. In



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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 Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65 and
Singh v. Ali [1960] 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
pan of the plaintiffs case.

I would therefore dismiss the appeal.

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