Facts

Mr Patel transferred Mr Mirza £620,000 to bet on shares in RBS using insider information which Mr Mirza hoped to obtain from RBS contacts. The inside information did not come through and Mr Mirza refused to return the sums to Mr Patel. Mr Patel subsequently sued Mr Mirza for recovery of the £620,000 on the
basis of unjust enrichment. 

Relying on the ‘reliance principle’ in Tinsley v Milligan [1994] 1 AC 340, the first instance judge dismissed Mr Patel’s claim as unenforceable on the basis that he had to rely on his own illegality to establish the claim. The Court of Appeal upheld the judge’s conclusions on the reliance principle but held that Mr Patel’s appeal could succeed on the grounds that the intended scheme had not been executed.

Held

The Supreme Court unanimously dismissed the appeal, upholding the Court of Appeal’s decision that Mr Mirza must repay the £620,000 to Mr Patel. 

Overruling Tinsley v Milligan, Lord Toulson held that a claimant who satisfies the requirements of a claim in unjust enrichment should not be debarred from recovering sums owed by reason only of the fact that those sums were paid for an unlawful purpose.

However, Lord Toulson recognised that there may be occasions where it would undermine the integrity of the justice system to enforce such a claim, but there were no circumstances of Mr Patel’s case rendering it unenforceable. Although the contract was illegal, it had not been implemented and restitution would not give effect to an illegal act.

At para 101, Lord Toulson set out a structure ‘trio of considerations’ to be applied by courts in the future when deciding whether allowing a claim tainted by illegality would be contrary to public interest:

  • the underlying purpose of the prohibition;
  • any other relevant public policies which may be rendered
  • ineffective or less effective by denial of the claim;
  • and– the possibility of overkill unless the law is applied with a due sense of proportionality.