The claimant, Mr Patel, and the defendant, Mr Mirza, entered into a conspiracy to commit the offence of insider dealing. Mr Patel transferred sums totalling £620,000 to Mr Mirza for the purpose of betting on the price of RBS shares using advance insider information, which Mr Mirza expected to obtain from RBS contacts regarding an anticipated government announcement. Mr Mirza’s expectation of an announcement proved to be mistaken and so the intended betting did not take place. However, despite promises to do so, Mr Mirza failed to repay the money given to him by Mr Patel. Mr Patel then brought a claim for the recovery of the sums on various bases, including contract and unjust enrichment. In order to establish his claim to the return of his money, it was necessary for Mr Patel to explain the nature of the agreement and Mr Mirza sought to rely on the defence of illegality, by invoking the so-called “reliance principle” (Tinsley v Milligan (1994)) i.e. that the claim could not be brought because it involved reliance on the claimant’s own illegality.

The Supreme Court, by a majority of 6-3, has now firmly overruled the rule based approach often used when considering the illegality defence (also known as “ex turpi causa, non oritur actio”) and has adopted a more flexible, policy-based approach instead with reference to an important trio of principles, namely:

  • a purposive approach;
  • a general public policy criterion; and
  • a proportionate response.

Lord Toulson, giving the leading judgment, held that “a person who satisfies the ordinary requirements of a claim in unjust enrichment will not prima facie be debarred from recovering money paid or property transferred by reason of the fact that the consideration which has failed was an unlawful consideration”. That said, Lord Toulson accepted that there may be reasons why courts might refuse assistance to a claimant, but stated that “such cases are likely to be rare.” Since Mr Patel satisfied the ordinary requirements of a claim for unjust enrichment, Lord Toulson held that he should not be barred from enforcing his claim by reason only of the fact that the money which he sought to recover was paid for an unlawful purpose.

The decision is welcome to the extent that it has clarified the test to be used, hopefully removing some of the confusion in this area. However, the new test is broadly framed and it remains to be seen how it will be applied to different fact patterns and whether new areas of contention might in fact arise.