Stoffel & Co v Grondona [2020] UKSC 42

Facts

• The case concerned a property transaction in which Ms. Grondona, a solicitor, acted for both the buyer and the lender.
• The transaction involved a fraudulent misrepresentation of the purchase price, with both the buyer and the solicitor colluding to secure a mortgage greater than the property's true value.
• Stoffel & Co, the claimant, provided legal services to Ms. Grondona and sought payment for services under a retainer agreement.
• At trial, it was found that Stoffel & Co had knowledge of the fraudulent arrangement but did not directly participate in the fraud’s execution.
• The Court of Appeal held the retainer agreement unenforceable due to Stoffel & Co’s involvement in the fraud.
• The Supreme Court applied the public interest factors approach established in Patel v Mirza to determine whether the agreement should be enforced despite the tainted circumstances.

Issues

1. Whether the existence of fraudulent conduct (mortgage fraud) should render the retainer agreement unenforceable under the doctrine of illegality.
2. Whether Stoffel & Co’s knowledge of, but peripheral involvement in, the fraud was sufficient to bar a contractual claim.
3. How the public interest factors approach in Patel v Mirza should be applied in cases involving professionals with indirect involvement in illegal activity.

Decision

• The Supreme Court found that denying enforcement of the retainer agreement would not substantially advance the policy purpose of preventing mortgage fraud, as Stoffel & Co’s involvement was peripheral.
• The Court determined that refusing the claim would be a disproportionate response to the claimant’s wrongdoing, as Stoffel & Co had not actively participated in the fraudulent scheme.
• It was held that to deny enforcement would result in a windfall for Ms. Grondona, who had benefited from the legal services.
• The Court concluded that enforcing the agreement would not create inconsistency or undermine the integrity of the legal system in this context.
• The public interest factors weighed in favour of allowing Stoffel & Co’s claim, and the contract was enforceable.

Legal Principles

• The public interest factors approach, set out in Patel v Mirza, requires assessment of the prohibition’s purpose, proportionality of denying the claim, and potential inconsistency with legal system integrity.
• Mere knowledge, without active participation in illegality, may not be enough to bar a claim based on a tainted contract.
• The principle of proportionality must be considered when balancing deterrence of illegality against fairness in contractual enforcement.
• The flexible, policy-based analysis is favoured over rigid application of illegality to contract enforcement disputes.

Conclusion

The Supreme Court reaffirmed that a flexible, policy-based public interest approach governs illegality in contract enforcement. Peripheral involvement in fraud, without active participation, does not automatically bar a claim; proportionality and the specific context are central to the analysis.