The principle of ex turpi causa (that a claim cannot succeed where it is founded upon an illegal act by the claimant) is a commonly cited defence to English civil claims. Essentially, it is premised on the idea that, as a matter of public policy, claimants should not be able to benefit from actions that, are or would have been, illegal. It is commonly applied by the courts such that a contract which is expressly or impliedly forbidden by statute, or that is entered into with the intention of committing an illegal act, will not be enforced.

The courts' approach to illegality has historically been different, though, where particular conduct would be illegal under a foreign system of law, as opposed to English law. In these cases, the question has been one of comity, rather than one of English public policy. The principle of comity states that the laws of foreign jurisdictions should be respected by the English courts when dealing with issues relating to those jurisdictions. Therefore, questions of illegality under those legal systems should not be assessed by the English courts.

The recent decision in Magdeev v. Tsvetkov [2020] EWHC 887 (Comm) suggests a potential move away from this, and towards a more unified approach to underlying illegality, whether under foreign or domestic law. However, the approach taken in this case is controversial, and arguably creates a degree of uncertainty in what was previously a well-settled area of law.

Illegality under English Law

The ex turpi causa principle has been in enshrined in English common law since the maxim was first used by Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341.

Lord Mansfield's reasoning for this principle, as set out in that judgment, was as follows:

“If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. 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.”

Such is the weight of this judgment, that when Lord Toulson set out the two public policy reasons for the ex turpi causa defence in Patel v. Mirza [2016] UKSC 42 in 2016 very little had changed since Lord Mansfield's comments in 1775:

"a person should not be allowed to profit from his own wrongdoing, and the law should be coherent, not self-defeating, and should not condone illegality."

What has changed in recent years, however, is the flexibility afforded to judges to decide whether the defence in fact applies.

Patel set out a new framework of considerations to be applied by judges when assessing whether the enforcement of the doctrine in a particular case would be harmful to the English legal system. According to Lord Toulson, judges should undertake a balancing act, considering: the underlying purpose of the relevant prohibition; conversely, the impact of allowing the claim on any other relevant public policy; and, finally, whether the denial of the claim would be proportionate. A "range of factors" were said to be relevant when carrying out this exercise.

Thus, the courts now have a wide discretion when deciding whether to apply the ex turpi causa principle to claims arising from alleged breaches of English law.

Illegality under Foreign Law

By contrast, however, and despite the fact that the issues underlying domestic and foreign illegality disputes are often similar, the courts have consistently deemed contracts that are unlawful under foreign law to be unenforceable.

These decisions have typically been reached on the basis of one or both of the following two rules:

1. A contract will be unenforceable if the parties' "real object and intention" was to contravene a foreign state's laws (per Foster v. Driscoll [1929]1 K.B. 470); and/or

2. A contract will be unenforceable if the contract is illegal in the place of performance, even if legal by the governing law (per Ralli Brothers v. Comapnia Naviera Sota y Aznar [1920] 2 K.B. 287).

Applying the rule in Foster, historically the courts have only held a contract to be unenforceable if the breach of foreign law is "sufficiently serious" according to domestic foreign policy. Otherwise they have taken the approach that they have no discretion as to whether apply this rule. When applying Ralli, they have taken the approach that, if performance of the contract is unlawful in the place of performance, the courts have no choice but to treat the contract as unenforceable. Accordingly, previously the courts have held that these rules allow for very little flexibility as to how they approach allegations of illegality under foreign law.

The reason for this is that the rules in Ralli and Foster are not rooted in the principle of ex turpi causa. Rather, they are rooted in the principle of comity. The reluctance of the common law to enforce contracts that would be illegal in the place of performance reflects its respect for the sovereignty of other states. This is similar, for example, to situations where a court may decline to hear a dispute where another forum may be more appropriate, or the approach taken to enforcing the judgments of foreign courts.

Magdeev v Tsvetkov – a new approach to foreign illegality?

It is interesting, therefore, that the recent case of Magdeev v. Tsvetkov seems to signal a departure from the foreign law illegality orthodoxy.

The two questions posed in Magdeev, as articulated by Cockerill J, were as follows:

332. The first, arising out of Ralli Bros is: does the existence in a contract of a term which can only be performed in a manner which is unlawful in the place of performance render unenforceable a different obligation, the fulfilment of which would not necessarily be unlawful in the place of performance?

323. The second is: how is the principle in Foster v Driscoll to be applied where the parties have more than one object and intention in reaching their arrangement, one of which objects necessitates the performance of an act unlawful by the place of performance and one of which does not?

The alleged foreign law illegality in this case was a sham employment contract, which was held to constitute visa fraud under UAE law.

In her judgment Cockerill J expressly acknowledged the distinction between the approach to domestic illegality and the "comity" doctrine for foreign illegality. She therefore held that Patel v. Mirza cannot be directly applied to issues of foreign illegality. Cockerill J also took care to mention that the Court must not look to the specific questions raised by Lord Toulson in that case, because the "the public policy which underpins the question in the foreign illegality cases is different" and it is important to avoid domestic judges opining on the moral priorities of other states.

However, disagreeing with counsel for Mr Magdeev, Cockerill J. stated that despite these differences the current jurisprudence does not reflect "a perverse dichotomy with a flexible rule in one context and a rigid and inflexible rule in another". Rather, the two approaches (illegality and comity) are, she considered, similar in that "a balancing exercise has to be performed". Specifically, the court has to balance the need to be able to enforce contracts and public policy considerations (albeit that these public policy considerations will be different) if the answer is not clear from the main principles.

Cockerill J. cited the decision in Ryder Industries Limited v. Chan Shui Woo [2016] 1 HKC 323, a decision of the Hong Kong commercial court (but which was heard by Lord Collins). In Ryder, neither party intended any illegal act, and the illegal act performed was not a necessary part of the contract. Lord Collins held that in this case it would have been "contrary to common sense and justice" to prohibit the performance of a contract where the only illegality amounted to mere “administrative contraventions”. He stated that "a more flexible approach having regard to the seriousness of the foreign illegality is required to determine whether public policy and comity really require enforcement of the contract to be denied in such a case".

Cockerill J therefore applied this more flexible approach in Magdeev. In doing so, she concluded that the illegality was "incidental" to the main venture, which was a loan agreement. Further, as only a single term of the loan agreement was illegal under UAE law, Ralli did not apply. Meanwhile, Foster also did not apply as the contravention of UAE law was only one of the "object[s] and intention[s] in reaching [the parties] agreement". As a result, she held that the agreement was enforceable in spite of the illegality issues.

Conclusion

In taking this approach, Cockerill J moved away from the previous certainty of approach to foreign illegality that existed under English law.

Despite expressly saying that she could not "follow… Patel v. Mirza" in applying a discretionary approach to foreign illegality, in practice her approach is very similar to that set out in Patel v. Mirza. In particular, she balanced the same three factors as set out in Lord Toulson's proportionality test in Patel: i) the seriousness of parties' conduct, ii) that conduct's centrality to their agreement, and iii) parties' relative intentions and culpabilities, despite expressly acknowledging that English judges are not in a position to make these kinds of evaluations with respect to questions of foreign law.

Arguably this represents a move towards a more consistent approach to illegality overall. However, the main impact of the judgment is to introduce some uncertainty as to the precise scope of the foreign law illegality doctrine. Specifically the attempt to focus less on comity and more on consistency with domestic doctrine has led to a confused and contradictory judgment. This is not to say that some level of discretion should not be applied, as advocated by Lord Collins in Ryder, but the courts must be careful not to stray into value judgements, which they are not best placed to perform.