Patel v Mirza [2016]
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Patel v Mirza [2016] UKSC 42 is a notable contract law and trusts law case that delves into the intricacies of the illegality principle concerning insider trading under Section 52 of the Criminal Justice Act 1993. The case has been recognised as a significant development in the law relating to illegality at common law.
Mr Patel entered into an agreement with Mr Mirza, where Mr. Mirza would use insider information to bet on the price of shares in the Royal Bank of Scotland. The insider information pertained to a pending government announcement that would impact the bank. Insider trading, as per Section 52 of the Criminal Justice Act 1993, is illegal. The planned scheme did not materialise as expected, leading Mr Mirza to not return the £620,000 Mr Patel had paid him. Subsequently, Mr Patel sought the return of his money through a contract and unjust enrichment claim. Mr Mirza contended that the entire contract was illegal, and any claim should be barred by the principle of ex turpi causa non oritur actio.
The UK Supreme Court unanimously rejected Mr Mirza's appeal, allowing Mr. Patel to recover the money paid. The court determined that the formal test established in Tinsley v Milligan was no longer reflective of the law. Instead, the court emphasised that a person who meets the ordinary requirements for a claim in unjust enrichment should generally be entitled to the return of their property, even if the consideration for the contract was unlawful. The court shifted the focus to consider whether enforcing the illegal agreement would harm the public interest. This analysis involved assessing the purpose of the prohibition, any relevant public policy implications, and whether denial of the claim would be a proportionate response to the illegality.
Lord Toulson highlighted two key policy reasons for the illegality doctrine: preventing a person from profiting from their wrongdoing and maintaining coherence and integrity in the legal system. He criticised the prior test in Tinsley v Milligan as inconsistent with these policy considerations. Instead, the court should weigh the public interest against the enforcement of the illegal agreement, taking into account the specific circumstances and policy considerations.
Patel v Mirza represents a shift in the approach to illegality in contract law. The decision emphasises a more nuanced analysis that considers the broader public interest and policy considerations rather than applying a rigid formal test. The case has implications for the application of the illegality defence in various contractual contexts, providing a more flexible framework for courts to assess claims involving illegal agreements.
Mr Patel entered into an agreement with Mr Mirza, where Mr. Mirza would use insider information to bet on the price of shares in the Royal Bank of Scotland. The insider information pertained to a pending government announcement that would impact the bank. Insider trading, as per Section 52 of the Criminal Justice Act 1993, is illegal. The planned scheme did not materialise as expected, leading Mr Mirza to not return the £620,000 Mr Patel had paid him. Subsequently, Mr Patel sought the return of his money through a contract and unjust enrichment claim. Mr Mirza contended that the entire contract was illegal, and any claim should be barred by the principle of ex turpi causa non oritur actio.
The UK Supreme Court unanimously rejected Mr Mirza's appeal, allowing Mr. Patel to recover the money paid. The court determined that the formal test established in Tinsley v Milligan was no longer reflective of the law. Instead, the court emphasised that a person who meets the ordinary requirements for a claim in unjust enrichment should generally be entitled to the return of their property, even if the consideration for the contract was unlawful. The court shifted the focus to consider whether enforcing the illegal agreement would harm the public interest. This analysis involved assessing the purpose of the prohibition, any relevant public policy implications, and whether denial of the claim would be a proportionate response to the illegality.
Lord Toulson highlighted two key policy reasons for the illegality doctrine: preventing a person from profiting from their wrongdoing and maintaining coherence and integrity in the legal system. He criticised the prior test in Tinsley v Milligan as inconsistent with these policy considerations. Instead, the court should weigh the public interest against the enforcement of the illegal agreement, taking into account the specific circumstances and policy considerations.
Patel v Mirza represents a shift in the approach to illegality in contract law. The decision emphasises a more nuanced analysis that considers the broader public interest and policy considerations rather than applying a rigid formal test. The case has implications for the application of the illegality defence in various contractual contexts, providing a more flexible framework for courts to assess claims involving illegal agreements.
