Patel v Mirza [2016] UKSC 42

Court: UK Supreme Court

Facts: Mr Patel agreed with Mr Mirza that Mr Mirza would use insider information to bet on the price of shares in the Royal Bank of Scotland, relating to a pending government announcement. Insider trading is illegal under Section 52 of the Criminal Justice Act 1993. The scheme did not proceed, and Mr Mirza retained the £620,000 Mr Patel had paid. Mr Patel sought to recover his money through contract and unjust enrichment claims. Mr Mirza argued that the contract was illegal and thus Mr Patel’s claim should be barred by the principle of ex turpi causa non oritur actio.

Issue: Whether Mr Patel could recover the money paid to Mr Mirza, given that the contract was based on insider trading, which is illegal.

Held: The UK Supreme Court allowed Mr Patel to recover the money. The court rejected the formal test from Tinsley v Milligan and adopted a more nuanced approach, focusing on whether enforcing the illegal agreement would harm the public interest. The court considered the purpose of the prohibition, public policy implications, and whether denying the claim was a proportionate response to the illegality.

Key Judicial Statement: Lord Toulson emphasized that the illegality doctrine serves to prevent individuals from profiting from wrongdoing and to maintain the integrity of the legal system. He critiqued the rigid test from Tinsley v Milligan, advocating for a balance between enforcing illegal agreements and upholding public interest. The decision promotes a flexible framework for assessing claims involving illegal contracts.

💡Leveluplaw: Courts should balance public interest against the enforcement of illegal agreements. A claim may be allowed if enforcing the contract does not significantly harm public policy or if the denial of the claim would be disproportionate to the illegality involved.