“…the law on illegality is not entirely clear in this jurisdiction.”

This was the position expressed by BVI Commercial Court Judge, Justice Adrian Jack in his judgments of 17 June 2021 and 15 February 2022 in Briefline Assets Ltd v Nikolay Anatolyevich Falin, Belfast Services SA [2020] ECSCJ No 223, BVIHC (COM) 2020/00223. The underlying dispute in that case concerned a transaction which is alleged to have been entered into with the purpose to defraud banks. The Judge opined on whether the claimant’s involvement in such a transaction automatically barred him from asserting any rights in light of the seminal House of Lords decision in Tinsley v Milligan [1994] 1 AC and the more recent reframing of illegality as a defence as applied by the Supreme Court decision of Patel v Mirza [2016] UKSC 42.

This article considers the position of the Eastern Caribbean Supreme Court on the law of illegality since Patel v Mirza and in light of Tinsley v Milligan [1994], and whether there is indeed any uncertainty in this jurisdiction.

llegality as a Defence – “The Reliance Test” versus the “Multi-factorial Approach”

The House of Lords in Tinsley v Milligan held that the question of whether illegality would be an automatic bar to a claim would depend on how the cause of action is pleaded. Lord Browne Wilkinson at page 377 summarizes the Tinsley v Milligan approach thus:

“…In a case where the plaintiff is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract (such as a right of property) the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the claimant’s case.”

The Tinsley v Milligan approach therefore meant that if the claimant needed to plead or rely on the illegal matters to found his cause of action, he lost. If he did not, he won, subject of course to proving his pleaded case.

In 2016, the Supreme Court in Patel v Mirza expressly decided that the reliance principle applied per Tinsley v Milligan should no longer be followed. The question of illegality as a defence to a civil claim should be considered using a multi-factorial approach. The multi-factorial approach is intended to give effect to policy considerations behind illegality as a defence, namely that (i) a person should not be allowed to profit from his own wrongdoing, and (ii) the law should be coherent and not self-defeating.

Applying Patel v Mirza, the Court should now assess the question of illegality by considering whether allowing the claim would damage the integrity of the legal system or be inconsistent with any underlying public policy. In conducting that exercise, the court will consider a variety of factors described by Lord Toulson JSC in Patel v Mirza as the ‘trio of considerations’ including (i) considering the underlying purpose of the prohibition which has been transgressed, (ii) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim and (iii) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality.

The Approach taken by the Eastern Caribbean Supreme Court

Patel v Mirza has seemingly been applied within some Eastern Caribbean jurisdictions without uncertainty.

In the Anthony Jonathon Nunns v Howard Mark Rotherham High Court decision from Montserrat (decided on 16 July 2021), Morley J in his discussion on illegality at paragraph [19] of his judgment said the following:

“…illegality used to be a mostly automatic response founded on the long standing reliance test, emphasised in Tinsley v Mulligan 1994, supra, being, ‘the question is whether the person making the claim is obliged to rely in support of it on an illegal act on his part’ per Lord Sumption at para 234 in the seminal rewrite by the UK Supreme Court of the illegality doctrine in Patel v Mirza 2016 supra. Though Patel is not ‘year zero’ rendering previous case law irrelevant, nevertheless the reliance test has been clearly superseded, and qualified…”

Further, High Court Judge Rosalyn E. Wilkinson, in a decision from Antigua Kenneth Meade, Hilda Meade v Cleveland Seaforth et al (decided 22 March 2017), held that the defendant Bank was entitled to enforce the contract entered into with Emerald Spring Villas Ltd (“Emerald”) to secure repayment of a loan although the contract for the loan was unlawful. Applying the principles set out in Patel v Mirza, Wilkinson J took the position that to do otherwise would leave Emerald unjustly enriched. The Judge went on to dismiss the application for an injunction seeking to restrain the Bank from enforcement. That decision was appealed.

On 8 November 2017, the Court of Appeal, in an oral judgment, determined that Wilkinson J had considered the relevant law on illegality and while noting that it was not necessary for the Judge to decide the issue on enforcement, determined that her Ladyship was entitled to form the view that there was no triable issue with respect to the claim that any part of the contract was void ab initio and of no legal effect because it formed part of an illegal transaction. The appeal was dismissed.

In SR Projects Ltd v Rampersad [2022] UKPC 24 (judgment delivered on 26 May 2022) the Privy Council, hearing an appeal from the Republic of Trinidad and Tobago (not part of the Eastern Caribbean jurisdiction), held that the law relating to illegality had now been rationalised and put on a coherent footing in England and Wales by the Supreme Court in Patel v Mirza and that the subsequent decisions of the Supreme Court namely Grondona v Stoffel & Co [2020] UKSC 42 and Henderson v Dorset Healthcare University NHS Foundation Trust [2020] UKSC 43 have left no doubt that the approach articulated in Patel v Mirza applies across all areas of private law.

What is the approach of the BVI Courts?

Returning to Briefline v Falin et al, Jack J sets out why he considers the law on illegality to be not entirely clear in this jurisdiction. His judgment cites three Privy Council decisions which support the Tinsley v Milligan reliance test, and cites the cases of Petherpermal Chetty v Muniandi Servai (1908) LR 35, Singh v Ali [1960] AC 167 and Palianiappa Chettiar v Arunasalam Chettiar [1962] AC 294 which led him to opine that “it is unclear whether this Court is bound to follow those Privy Council decisions or treat them as impliedly overruled by the UK Supreme Court decision.”

While there is no written judgment from the Eastern Caribbean Court of Appeal applying Patel v Mirza, it would be a surprise if the Privy Council were to take a different view on the question of illegality to that set out in SR Projects Ltd v Rampersad on hearing appeals from territories within the Eastern Caribbean. With due respect to the issues highlighted by his Lordship in Briefline v Falin, the answer would appear to be clear. The law has moved on, and has done so, it may be considered, in the right direction. The question of illegality now requires the BVI Court to carry out a proportionality exercise and to consider the relevant public policy considerations specific to each case on their particular facts.

The automatic bar to civil claims enshrined in Tinsley v Milligan is now, we believe, a thing of the past.

Allana-J Joseph

Associate

British Virgin Islands

Mark J. Forte

Partner, Head of BVI Litigation & Restructuring and Office

British Virgin Islands

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