Bye Tinsley, Hello Patel: Hong Kong Court of Appeal Overrules Tinsley v Milligan and Adopts UK Supreme Court's Test for Domestic Illegality

In Monat Investment Ltd v All Person(s) in Occupation of Part of The Remaining Portion of Lot No 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island [2023] HKCA 479 (click here for the judgment text), handed down today (reserved for ~1.25 years), the Hong Kong Court of Appeal ("HK CA"; Kwan and Chu V-PP and Yuen JA) unanimously decided that:

• "52.2. Since the common law on the defence of illegality is now expounded by the [UK Supreme Court ('UKSC')] in [Patel v Mirza [2017]?AC?467], applying the... stare decisis rule, it would only be logical that Patel is followed in the absence of any local circumstances that render it inappropriate.
• 52.3. This conclusion accords with the declaratory theory of the common law, but also makes practical sense generally.?When a UKSC decision on a point concerning the common law is given, there might or might not happen to be a case involving that point being processed through the Hong Kong courts.?Even if there happens to be a case involving that point, and even if one of the parties decides to appeal to the [Hong Kong Court of Final Appeal ('CFA')], there may be a time lag before the case can reach the final court.
• 52.4.... [I]t would be surprising if the common law as expounded by the highest authority in the UK (which the CFA has said should be accorded the greatest respect) is not to be regarded as the common law in Hong Kong simply because randomly, there may or may not happen to be a case involving the point being processed through the Hong Kong courts, which may or may not happen to reach the CFA.
• 52.5. Of course, when such a case does reach the CFA, it would be free to follow the UKSC decision or not,... but until the CFA pronounces on it, the courts in Hong Kong should not regard themselves as being 'hide-bound' to adhere to an old common law rule.??The common law is an integral part of the law governing global commercial activities.?Adherence to an old rule (while hoping or waiting for a case to reach the CFA) would only lead to a disconnect with other common law jurisdictions, and misunderstanding or confusion of parties engaged in commercial transactions."

This HK CA's decision is a jurisprudential milestone for Hong Kong's common law on the civil consequences of a domestic illegality, effectively putting an end to the hitherto well-entrenched "reliance approach" laid down in Tinsley v Milligan [1994] 1 AC 340 (HL) and adopted by the Hong Kong Courts ever since, including the CFA. By way of a convenient summary:

1. Tinsley "has been regarded as establishing as a general rule that a person should not be granted a remedy where he has to rely directly on unlawful conduct to succeed"; this is known as the "reliance approach" (Monat, para 27). In Tinsley itself, Lord Browne-Wilkinson explained (at 374D-E, 376D-F) that "[t]he effect of illegality is not substantive but procedural"; "a plaintiff... 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".
2. By contrast, in Patel, a 9-Justice Bench of the UKSC, after referring to “two centuries and more of case law about the extent and effect” of the maxim, concluded (by a 6-3 majority) that the reliance approach in Tinsley should no longer be followed, and declared that the correct test to be applied to the defence of illegality was "the range of factors approach" (Monat, para 34.3). Under this approach, "a court should consider the following 'trio of necessary considerations' found in case law to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act:

• (a) consider the underlying purpose of the prohibition which has been transgressed;
• (b) consider conversely any other relevant public policies?which may be rendered ineffective or less effective by denial of the claim;
• (c) keep in mind the possibility of overkill unless the law is applied with a due sense of proportionality” (Monat, para 36.4).

Whilst I commend the intellectual robustness of their Ladyships (an all-Ladies Bench), I would respectfully make a number of interesting immediate observations:

1. As Chow J (as he then was) said in Arrow ECS Norway AS v M Yang Trading Ltd [2018] 5 HKC 317, [2018] HKCFI 975, para 28: "... in Kan Wai Chung v Hau Wun Fai [2016] 5 HKC 585, Cheung JA (with whom Yeung VP and Kwan JA agreed) said at para 8.7 that '[the HK CA] is bound by the decision of the Court of Appeal which adopted the majority view of Tinsley'...." How this circle can be squared with today's ruling remains a mystery - and, interestingly, Kwan VP was on the CA panel in both Kan Wai Chung and Monat.
2. More generally, whilst I completely appreciate where their Ladyships come from in paras 52.4 and 52.5 above, their practical ramifications do not seem to have been fully bottomed out. Do they mean (as I think they do) that e.g. whenever the UKSC (or even the English CA) have issued a new ruling (departing from pre-existing case-law, whether English or HK) on an issue, the Hong Kong Courts should (or even must) follow them in priority to a previous CFA or HK CA decision unless and until the CFA itself declines to follow it or modifies it?
3. Practically speaking, in the context of summary judgment applications, following Patel would likely entail that, for the plaintiff, illegality will be very hard to establish to the summary judgment standard, but correspondingly, it will be very easy for the defendant to raise a triable issue on any relevant illegality defence.
4. Whether for this or other (particularly policy) reason Patel should be adopted is something the HK CA should, but seems not to, have grappled with.