Illegality: A professional negligence perspective of Stoffel & Co v Grondona

As well as the very strong public interest in deterring mortgage frauds, another very important public interest was in issue in this case: that conveyancing solicitors (and by analogy other professionals) who are legitimately and lawfully retained should perform their duties diligently and without negligence and, where a professional has been negligent, the client should be entitled to bring a claim to recover their loss. Here, proper performance by the conveyancing solicitor was not only in Ms Grondona’s interest, but also in the interest of the lender who had advanced monies to Ms Grondona. And proper performance by conveyancing solicitors would make mortgage frauds less likely.

Stoffel had admitted negligence/breach of retainer. This had caused loss. It was common ground that (absent the illegality defence) Ms Grondona had a complete cause of action against Stoffel. The question was whether, contrary to this public interest, the defence of illegality should act as a “get out of jail free card” and bar Ms Grondona from recovering this loss.

The Supreme Court was keen to emphasise the importance of the public interest in solicitors properly performing their duties, and while it accepted that a denial of a remedy “may sometimes be justified”, this would only be justified where “to afford a remedy would be legally incoherent”.

Having concluded that denying the rationale for prohibiting mortgage fraud would not be enhanced by denying the claim, and that there were other important public policy considerations which would be adversely affected should the claim be refused, and that denying the claim would be legally incoherent, the Supreme Court did not need to consider the issue of proportionality.

Nonetheless, the Supreme Court did so, and explained that the centrality of the illegality to the negligence remains a very important consideration. In this case, the underlying loan had already been advanced before the negligence took place – the lender had already been defrauded. And equitable title had already passed to Ms Grondona. This meant that the illegality was some distance from the negligence: the Supreme Court considered it was part of the background to the negligence and not central to it. Whilst the question is no longer whether a claimant has to rely on her illegality to found a cause of action, the fact Ms Grondona did not need to do so in this case was relevant to the question of the centrality of the illegality to the negligence.

Drawing these strands together, when might the illegality defence succeed to defeat a claim against a professional? Examples could be where the illegality is central to the negligence, rather than some way removed. Also cases where the claimant really is seeking to profit from her wrongdoing – if, say, this claim had been for lost profits of the underlying transaction. Or cases where the professional has not been legitimately and/or lawfully retained.