Patel v. Mirza [2016] UKSC 42

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:
  1. ‘To consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,
  2. To consider any other relevant public policy on which the denial of the claim may have an impact, and
  3. 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].

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