Patel v Mirza [2016] UKSC 42

Facts

• Mr. Patel paid £620,000 to Mr. Mirza with the intent that Mr. Mirza would use insider information to bet on shares, constituting a conspiracy to commit insider dealing under the Criminal Justice Act 1993.
• The insider information did not materialize, and the planned unlawful act was not carried out.
• Mr. Patel sought restitution of his money through claims of breach of contract and unjust enrichment.
• Mr. Mirza contended that recovery was barred, arguing Mr. Patel's claim relied on an illegal agreement, in line with the traditional reliance test from Tinsley v Milligan.
• The Supreme Court was asked to determine whether the illegality doctrine barred Mr. Patel's claim.

Issues

1. Whether the illegality defence barred Mr. Patel’s claim for the return of funds given pursuant to an agreement to commit insider dealing.
2. Whether the reliance test from Tinsley v Milligan should remain the controlling approach to illegality in civil claims.
3. What test should replace the reliance test, if it is found inadequate.
4. How the new approach should apply to both contract and tort claims involving illegality.

Decision

• The Supreme Court rejected the rigid reliance test set out in Tinsley v Milligan as the appropriate legal standard in illegality cases.
• Instead, the Court introduced a new, flexible public interest test, requiring consideration of: (i) the purpose of the prohibition violated, (ii) relevant public policy factors, and (iii) proportionality in denying the claim.
• The Court ruled that barring Mr. Patel’s claim for unjust enrichment would not be a proportionate response and would not serve the public interest.
• The claim for restitution was allowed; Mr. Patel was entitled to recover the money.
• The public interest approach was confirmed as applicable across all areas of civil law, affecting later cases including tort claims.

Legal Principles

• The illegality doctrine seeks to maintain the integrity and coherence of the legal system by preventing courts from enforcing claims arising from or connected with unlawful conduct.
• The reliance test, which automatically barred claims where a claimant must rely on their own illegality, is no longer determinative.
• Courts must apply a multifactor public interest test assessing the purpose of the prohibition transgressed, broader public policy considerations, and whether denying relief is proportionate.
• The approach is applicable to all civil claims, including contract, unjust enrichment, and tort.

Conclusion

Patel v Mirza marked a fundamental shift in the law on illegality, moving from the automatic bar of the reliance test to a flexible, policy-driven analysis that weighs a range of public interest factors to determine whether a claim connected to illegality should succeed.