The UK Supreme Court expressly depart from the ‘reliance test’ for ex turpi causa as established in Tinsley v. Milligan
FACTS
- Between September and December 2009, Mr. Patel transferred £620,000 to Mr. Mirza
- The two men had planned to bet on the movement of RBS shares using Mr. Mirza’s spread betting account
- Mirza was expecting to obtain insider information regarding a government announcement that would affect the RBS share value
- The agreement between Mr. Patel and Mr. Mirza was an offence contrary to s52 Criminal Justice Act 1993: They were planning to commit an offence of insider dealing.
- No government announcement was made and none of Mr. Patel’s money was bet
- Mirza refused to return the £620,000 to Mr. Patel. Mr. Patel’s money was paid to a third party by accident.
- Patel claimed he was entitled to return of the money under unjust enrichment. Mr. Mirza raised the illegality defence in response.
HELD
- A 6:3 UKSC majority expressly departed from using the ‘reliance test’ to establish whether the illegality defence had been made out. The reliance test had been introduced by Tinsley v. Milligan [1993] UKHL 3 [para 114]
- Lord Toulson gave the lead judgment for the majority. He held that the test under the illegality defence should now be more flexible. [para 107]
- The ‘reliance test’ was replaced with a new ‘public policy test’. Under the new public policy test it is necessary for the court:
- ‘To consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,
- To consider any other relevant public policy on which the denial of the claim may have an impact, and
- To consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts’ [paras 101, 120].
- The majority make clear that the courts are not confined within a strict set of rules under the new test. Instead, they have discretion to undertake a balancing exercise when deciding whether the illegality defence has been met or not.
‘The public interest is best served by a principled and transparent assessment of the considerations identified, rather than by the application of a formal approach capable of producing results which may appear arbitrary…’ [para 120].