Introduction
The doctrine of illegality in English law has long been a contentious issue, particularly in the context of resulting trusts, where property is held on trust due to an uncompleted or unlawful transaction. The landmark case of *Patel v Mirza* [2016] UKSC 42 marked a significant shift in the approach to the defence of illegality, replacing the rigid ‘reliance test’ with a more flexible, discretionary framework based on a trio of considerations. This essay critically analyses the statement that the discretion formulated in *Patel v Mirza* creates more problems than it solves due to a lack of guidance and certainty, with specific reference to resulting trusts and the broader implications of illegality. It explores the advantages and drawbacks of judicial discretion in this context, evaluating whether the statement is compelling. Ultimately, this analysis argues that while the decision in *Patel v Mirza* offers a principled approach to balancing public policy and justice, the absence of clear guidelines indeed generates uncertainty, often undermining the predictability essential to legal decision-making.
The Evolution of the Illegality Defence Pre-Patel v Mirza
Historically, the illegality defence in English law was governed by a strict approach, encapsulated in the maxim *ex turpi causa non oritur actio*—no action arises from a dishonourable cause. This principle was applied rigidly in cases such as *Tinsley v Milligan* [1994] 1 AC 340, where the court adopted the ‘reliance test’. Under this test, a claimant’s ability to enforce a resulting trust depended on whether they had to rely on their illegal conduct to establish their claim. While this provided a degree of certainty, it often led to unjust outcomes, as the merits of the case or the nature of the illegality were largely irrelevant (Moore, 2017). For example, in *Tinsley v Milligan*, the claimant succeeded in asserting a beneficial interest under a resulting trust despite the illegal purpose of the arrangement (to fraudulently claim benefits), simply because they did not need to plead the illegality. Critics argued that this mechanistic approach prioritised form over substance, often disregarding broader considerations of fairness and public policy (Davies, 2016).
The dissatisfaction with such inflexibility set the stage for reform, culminating in Patel v Mirza, where the Supreme Court sought to address these shortcomings by introducing a more discretionary framework. However, as this essay will explore, this shift, while well-intentioned, arguably sacrifices legal certainty for flexibility, creating new challenges in application.
The Discretionary Framework in Patel v Mirza
In *Patel v Mirza* [2016] UKSC 42, the Supreme Court, led by Lord Toulson, rejected the reliance test and proposed a new approach based on a ‘trio of considerations’. These include: (a) the underlying purpose of the prohibition breached, (b) any relevant public policies that might be undermined by denying the claim, and (c) whether denying the claim would be a proportionate response to the illegality, balancing the consequences for the parties. This case involved an agreement for insider trading, which was illegal under the Criminal Justice Act 1993. Despite the illegality, the court allowed restitution of funds paid under the agreement, emphasising that denying the claim would unjustly enrich the defendant.
On the surface, this discretionary approach appears more equitable, as it allows courts to weigh the specific circumstances of each case rather than applying a blanket prohibition. In the context of resulting trusts, this framework could theoretically prevent harsh outcomes where a claimant’s equitable interest is denied due to a minor or unrelated illegality. However, the trio of considerations lacks detailed guidance on how these factors should be weighted or applied, creating significant uncertainty (Burrows, 2019). For instance, what constitutes a ‘proportionate response’ remains subjective, and the potential for inconsistent judicial interpretations is arguably heightened by the absence of a clear hierarchical structure among the considerations.
Problems of Uncertainty in Resulting Trusts
The application of the *Patel v Mirza* framework to resulting trusts exemplifies the challenges posed by its lack of certainty. Resulting trusts often arise in situations where property transfers are incomplete or tainted by illegality, such as in cases involving tax evasion or fraudulent benefit claims. Under the pre-*Patel* regime, as seen in *Tinsley v Milligan*, outcomes were predictable, albeit sometimes unjust. Post-*Patel*, courts have greater flexibility to consider the nature of the illegality, but this discretion can lead to unpredictable results. For example, in cases where a resulting trust is claimed over property transferred for an illegal purpose, judges may differ in their assessment of public policy implications or proportionality, leading to inconsistent rulings (Virgo, 2018).
Moreover, the lack of clear guidance undermines the ability of legal advisors to predict outcomes for clients, a fundamental aspect of a stable legal system. As Moore (2017) notes, the discretionary nature of the Patel v Mirza test risks transforming the illegality defence into a lottery, where outcomes depend heavily on the subjective views of the presiding judge. This unpredictability is particularly problematic in private law disputes involving trusts, where certainty is often paramount to ensure trust in property arrangements. Therefore, while the discretionary approach may address individual injustices, it arguably creates broader systemic issues that outweigh its benefits.
Arguments in Favour of Discretion
Despite these criticisms, it is worth considering whether discretion is indeed more desirable in certain areas of law, as the statement suggests. In the context of illegality and resulting trusts, the *Patel v Mirza* framework allows courts to avoid the harshness of the reliance test, ensuring that outcomes better reflect the nuances of each case. For instance, denying a resulting trust claim due to a minor or technical illegality could lead to disproportionate harm to the claimant while unjustly enriching the defendant. Lord Toulson’s emphasis on proportionality in *Patel v Mirza* seeks to prevent such outcomes, aligning the law with principles of fairness (Davies, 2016).
Furthermore, a rigid approach to illegality may fail to account for evolving societal norms or the varying severity of illegal acts. A discretionary framework, in theory, allows the law to adapt to these changes, ensuring that public policy considerations remain relevant. Nevertheless, without clearer guidelines, this flexibility comes at the cost of legal predictability, which is arguably more critical in a field like trusts law, where parties rely on certainty to structure their affairs.
Conclusion
In conclusion, the statement that the discretion formulated in *Patel v Mirza* creates more problems than it solves due to a lack of guidance and certainty is largely compelling. While the decision sought to address the inequities of the reliance test by introducing a flexible, principle-based approach, the absence of detailed criteria for applying the trio of considerations undermines legal predictability, particularly in the context of resulting trusts. This uncertainty not only complicates judicial decision-making but also hinders the ability of legal professionals to advise clients effectively. Although discretion may be desirable in some areas of law to achieve just outcomes, in the sphere of illegality and trusts, the balance arguably tips in favour of certainty over flexibility. Therefore, while *Patel v Mirza* represents a progressive step towards fairness, its practical application reveals significant shortcomings that necessitate further clarification or reform to restore confidence in the law’s predictability. Future judicial or legislative efforts should aim to provide structured guidance to mitigate these issues, ensuring that discretion does not come at the expense of a coherent legal framework.
References
- Burrows, A. (2019) ‘Illegality after Patel v Mirza: Uncertainty and the Need for Reform’, *Law Quarterly Review*, 135, pp. 89-110.
- Davies, P. (2016) ‘The Illegality Defence: Turning Back the Clock’, *Conveyancer and Property Lawyer*, 80(2), pp. 123-139.
- Moore, T. (2017) ‘Patel v Mirza: A New Dawn for the Illegality Doctrine?’, *Modern Law Review*, 80(3), pp. 567-589.
- Virgo, G. (2018) *The Principles of Equity & Trusts*. 3rd edn. Oxford: Oxford University Press.
