Social security fraud as illegality, L.Q.R.

1994, 110(Jan), 3-8

L.Q.R. 1994, 110(Jan), 3-8

Law Quarterly Review

1994
Social security fraud as illegality
R.A. Buckley
© 2016 Sweet & Maxwell and its Contributors

Subject: Criminal law

Other Related Subject: Social security

Keywords: Equitable interests; Fraud; Illegality; Social security offences

Cases: Tinsley v Milligan [1994] 1 A.C. 340 (HL)

Tinsley v Milligan [1992] Ch. 310 (CA (Civ Div))

*3 ILLEGALITY cases are notoriously difficult. They invariably involve sharp clashes between, on the one hand, the
established doctrines of one branch of the law and, on the other, the need to deter or denounce anti-social activities. The
reductio ad absurdum technique can also prove a powerful forensic weapon in this context. An unattractive result in the case
before the court, it may be argued, is the *4 only way of avoiding intuitively abhorrent results in supposedly indistinguishable
hypothetical cases.

Faced with such intractable problems judges usually adopt one of three approaches. A Draconian rule may be adopted and its
application insisted upon however unpalatable in the particular case (see, e.g. the decision of Parker J. in Bedford Insurance Co.
v. Insitutio de Resseguros do Brasil [1985] Q.B. 966 which was reversed by the Financial Services Act 1986, s.132(6)). At the
opposite extreme resort may be had to the minutiae of legal technicality in order to achieve a result which is not only intuitively
attractive but which also appears to be principled (the well-known judgment of Devlin J. in St John Shipping Corporation
v. Joseph Rank [1957] 1 Q.B. 267 is a classic example of this technique). The third approach is to favour the application of
judicial discretion so as to enable cases to be dealt with on an ad hoc basis thereby escaping the shackles of precedent and
arguments based on absurdity. (This approach has actually been sanctioned by statute in one common law jurisdiction: see the
New Zealand Illegal Contracts Act 1970).

All three approaches are vividly illustrated by the various judgments delivered in the Court of Appeal and House of Lords in the
case of Tinsley v. Milligan [1993] 3 W.L.R. 126. The appellant and respondent were cohabitees who bought a house using both
their resources. The house was, however, put solely in the appellant's name to enable the respondent fraudulently to assert to the
D.S.S. that she was without means and was the appellant's lodger. The proceeds of the fraud, which were not substantial, were
used by both parties. The respondent subsequently admitted the fraud to the D.S.S., and resolved the matter to their satisfaction
by making repayments to them. But the appellant relied on the illegal scheme in an attempt to defeat the respondent's claim to
a share of the proceeds of sale on disposal of the property, after the parties had fallen out. By a majority (Nicholls and Lloyd
L.JJ., Ralph Gibson L.J. dissenting) the Court of Appeal upheld the decision of the county court judge that the respondent's
claim would not be barred by illegality. A bare majority of the House of Lords (Lord Jauncey of Tullichettle, Lord Lowry and
Lord Browne-Wilkinson, Lord Goff of Chieveley and Lord Keith of Kinkel dissenting) upheld the Court of Appeal.

The Draconian approach was adopted by the dissentients in both the Court of Appeal and the House of Lords. Ralph Gibson
L.J. considered that the respondent should lose her capital pour encourager les autres: “the force of the deterrent effect is

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Social security fraud as illegality, L.Q.R. 1994, 110(Jan), 3-8

in the existence of the known rule and in its stern application” ([1992] Ch. 310 at p. 334). Lord Goff emphasised that the
respondent was relying on an equitable interest in the proceeds of sale and considered that her claim was *5 barred by a
particular application, asserted by Lord Eldon L.C. in Muckleston v. Brown (1801) 6 Ves. 53, of the “clean hands” doctrine.
Lord Goff was opposed to any suggestion that a clear if strict rule, supported by the authorities as he perceived them, should
be replaced by an approach which would in practice give the court “a discretion whether to grant or refuse relief” ([1993] 3
W.L.R. at p. 136). The reductio ad absurdum argument was also invoked. What of cases in which armed robbers bought a house
in the name of a third party as a base for their activities: “Is it really to be said that criminals such as these, or their personal
representatives, are entitled to invoke the assistance of a court of equity in order to establish an equitable interest in property?
It may be said that these are extreme cases; but I find it difficult to see how, in this context at least, it is possible to distinguish
between degrees of iniquity” ([1993] 3 W.L.R. at p. 140).

Lord Keith simply expressed his agreement with Lord Goff's dissent, and Lord Jauncey and Lord Lowry delivered short speeches
in which they expressed their agreement with the reasoning of Lord Browne-Wilkinson, who developed at length the views of
the majority in the House of Lords. His Lordship in effect adopted the technique of invoking technical arguments in support of
the respondent which largely avoided confronting the illegality issue directly. He saw the appeal as turning upon the relationship
between common law and equity. Bowmakers v. Barnet Instruments [1945] K.B. 65 had confirmed that property rights could
be acquired under illegal transactions, and enforced at common law, by a party able to make out a claim without relying on the
illegality. Why should not the same principle apply to the respondent's equitable interest in the proceeds of sale in the present
case? To establish her claim she only had to prove her contribution to the purchase money; it was the appellant who had to
rely on the fraudulent scheme in order to try and defeat her claim. The appellant was obliged to argue, on the basis of the
“clean hands” doctrine, that the rules governing the acquisition and enforcement of property rights at common law differed
from those in equity. His Lordship considered that “to draw such distinctions between property rights enforceable at law and
those which require the intervention of equity would be surprising” ([1993] 3 W.L.R. at p. 147). In his view: “If the law is
that a party is entitled to enforce a property right acquired under an illegal transaction … the same rule ought to apply to any
property right so acquired, whether such right is legal or equitable” ([1993] 3 W.L.R. at p. 148). Many of the cases relied on
by the dissentients in support of the view that the “clean hands” doctrine operated in the present case to defeat the respondent's
claim were, when correctly analysed, distinguishable since they involved unsuccessful attempts by participants in unlawful
schemes to refer to *6 those schemes so as to rebut the presumption of advancement to which their contribution of purchase
money had given rise. (See, e.g. Chettiar v. Chettiar [1962] A.C. 294: “gift” of land from father to son). But no presumption
of advancement in the appellant's favour was raised by the respondent's contribution in the present case, so she did not need
to invoke the illegality to rebut it.

It is respectfully submitted that the reasoning of Lord BrowneWilkinson is to be preferred to that of Lord Goff on this issue. It is
also submitted that Tinsley v. Milligan was correctly decided. Indeed it is interesting to note that the Full Court of the Supreme
Court of Victoria reached the same conclusion, also by a majority, in a not dissimilar situation. In Blackburn v. Y.V. Properties
Ltd. [1980] V.R. 290 the legal title of land was transferred, without consideration, pursuant to a fraudulent scheme to deceive
the planning authorities by enabling the transferee to object, as an ostensibly independent party, to planning permission for
a hotel on land nearby. In fact the objection was to further the interests of the transferor who was a commercial rival of the
company seeking the permission. The court (Starke and O'Bryan JJ., Crockett J. dissenting) emphasised that no presumption of
advancement was involved and enforced a resulting trust in favour of the transferor notwithstanding the fraudulent scheme. In an
earlier case the High Court of Australia was apparently even prepared, obiter, to contemplate the enforcement of a resulting trust
in a possible tax evasion context to which the presumption of advancement did apply: see Martin v. Martin (1963) 110 C.L.R.
297 at p. 305 (husband's property put in wife's name). Although these cases considered several of the authorities subsequently
examined in Tinsley v. Milligan they were apparently not cited to the House of Lords.

Despite the perception, fortified by the Australian cases, that the correct result was reached, the reasoning of the majority in
Tinsley's cases is still open to objection on three grounds. First, it takes for granted the adequacy of the conceptually based
reasoning, rooted in notions of “reliance”, adopted by the Court of Appeal in the Bowmakers case itself. Secondly, it fails fully to
address the issues implicit in its own technical approach. The precise relationship between the doctrine of illegality, developed

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largely by the common law, and the equitable “clean hands” maxim remains unclarified. It is tempting to assume that illegality
is concerned primarily with the public interest whereas equity focuses upon the merits of the parties inter se. But it appears that
this would be too simple an approach (see Meager, Gummow, and Lehane, Equity, Doctrines and Remedies (3rd ed., 1992) at
pp. 82 et seq. especially para. 324). There is therefore much interesting material to be explored and full analysis of this problem
is still awaited. Nevertheless it would be undesirable, even where the *7 claim to a share in the proceeds of sale is itself derived
from equity, to allow any historical differences of perception with the common law to distort the judicial delineation of clear
principles and objectives in this field. The approach adopted by the majority in the Court of Appeal, especially in the judgment
of Nicholls L.J., came closer than did that of the House of Lords to acknowledging the need for such objectives. Indeed the
third objection to the speech of Lord Browne-Wilkinson is that he associated himself expressly with Lord Goff's repudiation
of the reasoning which had proved decisive in the court below.

In cases of illegality the court has, in the words of Nicholls L.J., to “weigh or balance the adverse consequences of granting
relief against the adverse consequences of refusing relief. The ultimate decision calls for a value judgment” ([1992] Ch. 310 at
p. 319). Inflexibly to hold that in every case involving a completed transfer of property for an unlawful purpose the transferor
could never seek the assistance of the court to obtain a retransfer would “accord ill with the underlying considerations of public
policy the court is seeking to discern and apply in this field” ([1992] Ch. at p. 323). His Lordship emphasised that the “nature
and seriousness of unlawful conduct vary widely” ([1992] Ch. at p. 324) and concluded that, in the circumstances of the instant
case, the “court ought not, by refusing relief to one party, whether plaintiff or defendant, to impose on that party a one-sided
and disproportionate confiscatory sanction” ([1992] Ch. at p. 326). Lloyd L.J. favoured a similar approach.

Lord Goff and Lord Browne-Wilkinson were uneasy with what they considered to be the uncertainty and vagueness inherent
in the approach favoured by the Court of Appeal and, in particular, with the suggestion made also in other recent cases
that illegality issues should be resolved according to the extent to which a decision one way or the other would shock the
“public conscience” (see, e.g. Saunders v. Edwards [1987] 1 W.L.R. 1116). Ideally illegality cases should be decided within
a framework of principle rather than by the exercise of some kind of largely unfettered discretion, and general references to
the conscience of the public are perhaps undesirable if they are taken to imply that the search for structure in this area is to
be abandoned. But such language does get nearer to the heart of the problem than either using a sledgehammer to crack a nut,
which would have been the outcome if Tinsley v. Milligan had been decided the other way, or focusing upon technicalities
which are not geared to the underlying policy issues involved.

At its most general the problem in illegality is, of course, to determine how far claims which would normally be enforced by
the courts should fail on grounds of wider public interest. The variety of situ *8 ations with which the courts are presented
will inevitably limit the extent to which certainty can be achieved, but explicit discussion of the relevant variables would help
to place any necessary residual discretion within a firmer structure than exists at present. These variables include the potential
deterrent effect of denying relief in the context in question, and the possibly counter-productive effect of so doing (e.g. by
encouraging the unscrupulous to seek fortuitous evasion of their responsibilities). The desirability of achieving a degree of
proportionality, if possible, between conduct and result should also be a factor, as should the precise mischief aimed at by
any statutory provisions involved. The motives of the parties may legitimately be taken into account in some cases, as may
the question whether unlawful activity was their primary purpose or merely a subordinate one. Developing general principles
along these lines will hardly be easy, and no perfect set of tests is ever likely to emerge. If absurd results are to be avoided
there will therefore always be some cases in this field in which, contrary to the view of Lord Goff, the law will be obliged to
admit that there are “degrees of iniquity.” But the aim should be to keep such cases, where structure simply has to give way
to intuition, to a minimum.

R. A. BUCKLEY. 1

Footnotes
1 University of Reading.

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Social security fraud as illegality, L.Q.R. 1994, 110(Jan), 3-8

© 2016 Sweet & Maxwell and its Contributors

L.Q.R. 1994, 110(Jan), 3-8

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