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Patel v. Mirza - (20 Jul 2016)

Doctrine of illegality bows down to public interest


A party to a contract “tainted by illegality” is not barred from recovering money paid under the contract from the other party under the law of unjust enrichment so far as restitution is feasible, the British Supreme Court held.

British common law has been shaped by Lord Mansfield’s mythic saying: “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”. The court noted that while on the one hand the maxim denied legal assistance to a party indulging in in any form of illegality, on the other such an interpretation would not advance public policy.

In the instant, Mr Patel placed £620,000 with Mr Mirza towards a bet on Royal Bank of Scotland’s share prices, having gained insider information. Mirza expected his contacts to inform him of the bank entering into certain contracts, which did not transpire. Mirza did not return the money to Patel, who brought the claim before the courts.

Though the agreement between the two constituted an offence under the Criminal Justice Act, the justices looked at the doctrine of illegality as a defence to a civil claim thusly: “a person should not be allowed to profit from his own wrongdoing…the law should be coherent and not self-defeating, condoning illegality”.

The court accepted the Court of Appeal’s assessment that permitting Mirza to hold on to the money, after it was not used for the purpose intended, albeit illegal, would not be a just and proportionate response to the illegality. Moreover, Patel’s claim sought to undo the agreement, not profit from it.

Lord Toulson, with whose reasoning four other peers concurred, opined a threefold test if it would be contrary to the public interest to enforce an ‘illegal’ claim: purpose of the prohibition and if such purpose would be enhanced by denial of claim; relevant public policy considerations; whether denial of claim would be a proportionate respond to illegality. Lord Sumption added the proviso that restitution be offered “for so long as mutual restitution of benefits remains possible.”

Patel was concluded to not be debarred from enforcing his claim on the sole reason that the money sought to be recovered was paid for an unlawful purpose.


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