| Patel v Mirza | |
|---|---|
 | |
| Court | Supreme Court |
| Citation(s) | [2016] UKSC 42 |
| Case history | |
| Prior action(s) | [2014] EWCA Civ 1047 |
| Keywords | |
| Illegality, insider trading | |
Patel v Mirza [2016] UKSC 42 is an English contract law case concerning the scope of the illegality principle relating to insider trading under section 52 of the Criminal Justice Act 1993. [1] In 2020, the Supreme Court described this case as having set out a "a significant development in the law relating to illegality at common law". [2]
Mr. Patel paid £620,000 to Mr. Mirza pursuant to an agreement under which Mr. Mirza would bet on the price of some shares in Royal Bank of Scotland, on the basis of insider information Mr. Mirza had from his contacts at the bank about a pending government announcement that would affect it. Using advance insider information to profit from trading in securities is an offence under section 52 of the Criminal Justice Act 1993. The scheme did not come to fruition as the expected insider information was mistaken, and Mr. Mirza did not return the funds to Mr. Patel as promised. Thereafter, Mr. Patel brought a claim based on contract and unjust enrichment for the return of £620,000. Mr. Mirza argued that no such obligation could be enforced because the whole contract was illegal, and any claim would be precluded by the principle of ex turpi causa non oritur actio.
The UK Supreme Court unanimously dismissed Mr Mirza's appeal, [3] holding that Mr Patel could recover the money he had paid to Mr Mirza and that the formal test in Tinsley v Milligan [4] was no longer representative of the law. [5]
A person who satisfies the ordinary requirements for a claim in unjust enrichment should be entitled to the return of his property; he should not prima facie be debarred from recovering his property just because the consideration which had failed was an unlawful consideration. Mr Patel's claim should be allowed since it would have the effect of returning the parties to their positions prior to the conclusion of the illegal contract, as well as prevent Mr Mirza from being unjustly enriched.
Lord Toulson considered the state of the law concerning illegality: [6]
Looking behind the maxims, there are two broad discernible policy reasons for the common law doctrine of illegality as a defence to a civil claim. One is that a person should not be allowed to profit from his own wrongdoing. The other, linked, consideration is that the law should be coherent and not self-defeating, condoning illegality by giving with the left-hand what it takes with the right hand.
Thus, the prior test in Tinsley v Milligan is inconsistent with the coherence and integrity of the legal system.
Instead, the Court should consider whether the public interest would be harmed by the enforcement of the illegal agreement, taking into account:
Restitution and unjust enrichment is the field of law relating to gains-based recovery. In contrast with damages, restitution is a claim or remedy requiring a defendant to give up benefits wrongfully obtained. Liability for restitution is primarily governed by the "principle of unjust enrichment": A person who has been unjustly enriched at the expense of another is required to make restitution.
A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to hold the property for the benefit of another person.
English tort law concerns the compensation for harm to people's rights to health and safety, a clean environment, property, their economic interests, or their reputations. A "tort" is a wrong in civil law, rather than criminal law, that usually requires a payment of money to make up for damage that is caused. Alongside contracts and unjust enrichment, tort law is usually seen as forming one of the three main pillars of the law of obligations.
Ex turpi causa non oritur actio is a legal doctrine which states that a plaintiff will be unable to pursue legal relief and damages if it arises in connection with their own tortious act. Particularly relevant in the law of contract, tort and trusts, ex turpi causa is also known as the illegality defence, since a defendant may plead that even though, for instance, he broke a contract, conducted himself negligently or broke an equitable duty, nevertheless a claimant by reason of his own illegality cannot sue. The UK Supreme Court provided a thorough reconsideration of the doctrine in 2016 in Patel v Mirza.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth, from membership in the European Union, continuing membership in Unidroit, and to a lesser extent the United States. Any agreement that is enforceable in court is a contract. A contract is a voluntary obligation, contrasting to the duty to not violate others rights in tort or unjust enrichment. English law places a high value on ensuring people have truly consented to the deals that bind them in court, so long as they comply with statutory and human rights.
United Kingdom administrative law is part of UK constitutional law that is designed through judicial review to hold executive power and public bodies accountable under the law. A person can apply to the High Court to challenge a public body's decision if they have a "sufficient interest", within three months of the grounds of the cause of action becoming known. By contrast, claims against public bodies in tort or contract are usually limited by the Limitation Act 1980 to a period of 6 years.
The English law of unjust enrichment is part of the English law of obligations, along with the law of contract, tort, and trusts. The law of unjust enrichment deals with circumstances in which one person is required to make restitution of a benefit acquired at the expense of another in circumstances which are unjust.
Hewison v Meridian Shipping Services Pte[2002] EWCA 1821 is an English tort law case, concerning an employer's liability for an employee's illegal acts.
Stone & Rolls Ltd v Moore Stephens[2009] UKHL 39 is a leading case relevant for UK company law and the law on fraud and ex turpi causa non oritur actio. The House of Lords decided by a majority of three to two that where the director and sole shareholder of a closely held private company deceived the auditors with fraud carried out on all creditors, subsequently the creditors of the insolvent company would be barred from suing the auditors for negligence from the shoes of the company. The Lords reasoned that where the company was only identifiable with one person, the fraud of that person would be attributable to the company, and the "company" could not rely on its own illegal fraud when bringing a claim for negligence against any auditors. It was the last case to be argued before the House of Lords.
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Illegality in English law is a potential ground in English contract law, tort, trusts or UK company law for a court to refuse to enforce an obligation. The illegality of a transaction, either because of public policy under the common law, or because of legislation, potentially means no action directly concerning the deal will be heard by the courts. The doctrine is reminiscent of the Latin phrase "Ex turpi causa non oritur actio", meaning "no cause of action arises from a wrong". The primary problem arising when courts refuse to enforce an agreement is the extent to which an innocent party may recover any property already conveyed through the transaction. Hence, illegality raises important questions for English unjust enrichment law.
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