July 26, 2016

The claimant, Mr Patel, gave the defendant, Mr Mirza, £620,000 to place bets on a bank’s share prices with the benefit of insider information.  Mr Mirza expected his contacts to inform him of a government announcement about the bank.  Mr Mirza’s expectation was not fulfilled and the intended betting did not take place.  Mr Mirza did not return the money to Mr Patel, who issued proceedings against Mr Mirza for the money.  Mr Mirza contended that the claim should fail because of the illegality of the arrangement with Mr Patel.  The issue was when does involvement in illegality bar a claim?  Mr Patel succeeded in the Court of Appeal and Mr Mirza was required to repay the money.  Mr Mirza appealed to the Supreme Court.

The Supreme Court unanimously dismissed Mr Mirza’s appeal.  Mr Patel was entitled to restitution of the £620,000 that he had paid to Mr Mirza.  Lord Toulson (with whom Lady Hale, Lord Kerr, Lord Wilson and Lord Hodge agree) gave the lead judgment.  Lord Neuberger, Lord Mance, Lord Clarke and Lord Sumption concurred in the result, but by different processes of reasoning.

Lord Toulson noted that Lord Mansfield said in Holman v Johnson (1775) 1 Cowp 341 that “no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”.  Behind this maxim, there are two broad policy reasons for the common law doctrine of illegality as a defence to a civil claim, Lord Toulson said.  First, a person should not be allowed to profit from his own wrongdoing.  Second, the law should be coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand.

The essential rationale of the illegality doctrine was, Lord Toulson said, that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system.  In assessing whether the public interest would be harmed in that way, it was necessary to consider: (i) the underlying purpose of the prohibition that had been transgressed and whether that purpose would be enhanced by denial of the claim; (ii) any other relevant public policy on which the denial of the claim might have an impact; and (iii) whether denial of the claim would be a proportionate response to the illegality.  Various factors may be relevant, but the court was not free to decide a case in an undisciplined way.  The public interest was best served by a principled and transparent assessment of the considerations identified, rather than by the application of a formal approach capable of producing results that may appear arbitrary, unjust or disproportionate.

Lord Toulson said that in considering whether it would be disproportionate to refuse relief to which the claimant would otherwise be entitled, as a matter of public policy, various factors might be relevant, including the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability.

Mr Patel, who satisfied the ordinary requirements of a claim for unjust enrichment, should not be debarred from enforcing his claim by reason only of the fact that the money that he sought to recover had been paid to Mr Mirza for an unlawful purpose, Lord Toulson said.  There may be rare cases where for some particular reason the enforcement of such a claim might be regarded as undermining the integrity of the justice system, but there were no such circumstances in this case. Patel v Mirza [2016] UKSC 42 (20 July 2016) — to read the judgment in full, click here.