Supreme Court applies Patel v Mirza to reject illegality defence where claimant had engaged in mortgage fraud

The Supreme Court has held that a claimant who had engaged in mortgage fraud was not barred from bringing a claim against her solicitors for negligently failing to register the forms transferring the property to her and releasing a prior mortgage: Stoffel & Co v Grondona [2020] UKSC 42.

The decision applies the (relatively) new test for the illegality defence, as established in Patel v Mirza [2016] UKSC 42 (considered here). This replaced the test adopted by the House of Lords in Tinsley v Milligan [1994] 1 AC 340, which turned on the formalistic question of whether the claimant had to rely on the illegality to bring the claim. The current test is described by the Supreme Court as “a more flexible approach which openly addresses the underlying policy considerations involved and reaches a balanced judgment in each case, and which also permits account to be taken of the proportionality of the outcome”.

However, while the test is no longer one of reliance, this question may still have a bearing on whether the fraud is central to the claim, which may in turn be relevant in considering whether it is proportionate to deny the claimant relief. It also suggests that, ordinarily, a claimant is unlikely to succeed in a claim to recover the profits of the fraud – not because the claimant would have to rely on the fraud in order to establish the claim, but because this is likely to be the outcome when the court balances the competing policy considerations.

For more information see this post on our Litigation Notes blog.