Professional indemnity: no more shots in the dark?

Who can forget the case of Revill v Newbery? This was the case that arose
after Ted Newbery had mistakenly shot Mark Revill during an attempted break-in
to Newbery’s shed. It was Revill’s final act in a night of crime involving
burglary, car theft and arson.

In this case the court refused to apply the doctrine of illegality to bar
Revill’s compensation claim against Newbery. This was despite the general
principle that the courts will refuse a claim where it relies on a claimant’s
illegal conduct.

Cases like this often cause an uproar in the popular press and may be cited
as examples of absurdities in the law. However, they can and do have an effect
on the body of case law relevant to professional negligence claims involving
illegal conduct.

The Law Commission is currently consulting on these issues and two important
cases are before the House of Lords (Moore Stephens v Stone & Rolls and Gray
v Thames Trains Limited). This is likely to have an effect on the future of the
illegality defence. In anticipation of these decisions, it is worth conducting a
quick review of some of the approaches the courts have adopted in this sometimes
confusing area of the law.

The illegality defence was the basis on which the Court of Appeal found for
Moore Stephens in the well publicised Stone & Rolls case. Rimer LJ noted
that a claim would be barred if it was necessary for the claimant to rely on the

However, the case of Gray v Thames Trains provides an example of a different
and more flexible approach: the ‘proximity’ test. Here, the defendant’s
negligence in the Paddington train crash had caused the claimant to suffer
severe depression, which led him to kill a man in a fit of violent rage. The
Court of Appeal held that the claimant’s unlawful act would not bar his claim
because the two were not ‘inextricably’ linked. In a case probably more relevant
to accountants, Hall v Woolston Hall Leisure Limited, the court applied a sim
ilar test. Here, the court allowed an employee to sue for sexual discrimination
where she had acquiesced in her employer’s underpayment of income tax.

The courts have also considered the seriousness of alleged illegal conduct.
In Woolston, the court further noted that mere acquiescence in the PAYE fraud
should not bar a claim on illegality grounds. There have also been instances
where the courts have not allowed technical breaches of minor statutes to bar
claims and there have been instances where the courts have weighed up the
claimant’s conduct against the seriousness of harm that may be suffered if
relief is denied. However, the latter approach has largely been discredited.

A further approach is determining whether the statutory context prohibits the
recovery of damages in tort (this approach was used in Revill v Newbery). There
are also cases in which the courts have found against a claimant on the grounds
that to do otherwise would appear to condone the illegal conduct and would
offend the ‘public conscience’. However, such an approach was rejected by the
Court of Appeal in the Stone & Rolls decision.

So what is the future of the illegality defence? There is a strong chance
that the House of Lords will make pronouncements on the defence when delivering
judgment in the Stone & Rolls and Gray cases, probably taking account of the
Law Commission’s review. It seems likely that the House of Lords will adopt an
approach broadly consistent with the law as it stands. In other words, it is
likely to adopt a pragmatic and flexible approach, taking account of the
underlying merits of each claim, without seeking to stifle or overly encourage
the future use of the defence. Therefore, the courts will be likely to continue
to adopt a case-by-case approach and the use of the defence will require careful
consideration rather than an unfocused shot in the dark.

The Law Commission Consultation

The consultation considers the question of how far a claimant’s illegal
conduct should go before it prevents recovery from a wrongdoer. In approaching
this question, the Law Commission has considered five overlapping bases for the

These are:

  • Disallowing a claim may further the purpose of the rule that has been
  • The law should be internally consistent
  • The law should prevent a claimant from profiting from his own wrongdoing
  • The law should deter illegal conduct
  • The law may be needed to maintain public confidence

The Commission notes that there are a number of factors to be taken into
account and that the varying significance placed on the conceptual
justifications for the defence mean that there have been inconsistent approaches
in reasoning in illegality cases; the effect is that the conceptual basis on
which judges often make decisions is unclear.

It does not criticise the outcomes of the matters they examined, which they
suggest demonstrate that the courts will adopt a fairly pragmatic and flexible
approach. However, the Law Commission is in favour of reform.

Significantly, though, it has shied away from legislative reform, principally
because it recognises that a one-size fits all approach would not work in the
range of situations which come before courts. It has therefore recommended
incremental reform by case law, so that the courts should continue to consider
in each case whether an illegality defence can be justified on the policy rounds

The courts should balance the strength of these policies against the
objective of achieving a just result, it suggests, taking into account the
relative merits of the parties’ case and the proportionality of denying the
claim. The consultation closed on 20 April.

Ross Goodrich is a solicitor at
Reynolds Porter Chamberlain

Related reading