Patel v. Mirza: The doctrine of illegality clarified – Authorized Reader
An applicant can usually only submit a claim for unjust enrichment if the money to be recovered was paid for an unlawful purpose.
Patel in Mirza  UKSC 42 dealt with contract law and above all with the long-established doctrine of illegality. The doctrine of illegality (also known as defense of illegality or according to the Latin maxim ex turpi causa non oritur actio – “no action is brought about from a dishonorable cause”) prevents an applicant from bringing a lawsuit if they result from an illegal act against part of the Applicant. In Patel, the UKSC adopted a new approach to deciding whether a defendant can invoke the illegality defense.
The facts were that Patel gave Mirza £ 620,000 to place bets on a bank’s stock prices with the benefit of inside information. Mirza expected his contacts to notify him of a government announcement about the bank, but they didn’t. Thus, the intended betting did not take place, but Mirza did not return the money to Patel. Patel sued to regain the £ 620,000.
Two men shake hands over stacks of money; Image by Capri23Auto, via Pixabay.com.
In the High Court, the reliability test (established by the House of Lords at Tinsley versus Milligan  1 AC 340), among which A claim would be excluded if the applicant had to rely on the illegality in order to assert the claim. This approach has been criticized as being arbitrary, insecure and possibly unjust, and there have been requests from lower courts for the Supervisory Committee to reconsider the appropriate approach to defending illegality. The High Court ruled that Mr. Patel’s allegation in the reliability test was unenforceable because he had to rely on his own wrongful act to determine it. The appeals court overturned this, finding that the illegal agreement was not and could not be carried out, making it an exception to the reliability test. Mirza then appealed to the Supreme Court.
The Supreme Court has established a new approach to ruling on the applicability of the doctrine of illegality. This approach became known as a trio of considerations. It was stated that the courts should examine whether the public interest is being harmed by the enforcement of the illegal agreement, taking into account:
- Whether the purpose for which a prohibition was violated would be reinforced by the denial of the claim;
- Any other relevant public policy that the denial of the claim may affect;
- Whether denying the claim would be an appropriate response to the illegality, considering that punishment is a matter for the criminal courts.
Lord Toulson wrote for the Tribunal: “The public interest is best served by a principled and transparent assessment of the considerations identified, rather than by using a formal approach which can lead to results that may appear arbitrary, unfair or disproportionate.” The Supreme Court then found that under this new approach, a claimant would normally be allowed to enforce a claim for unjust enrichment only if the money to be recovered was paid for an unlawful purpose. In the present case, the applicant succeeded in submitting its request for recovery of funds paid under an illegal contract that ultimately was not executed.
Since the Patel case, the Supreme Court has worked out when ex turpi causa applies and when the trio of considerations does so. In Stoffel & Co against Grondona  UKSC 42 found that involvement in mortgage fraud did not prevent an applicant from filing a lawsuit against her attorneys for negligently failing to register ownership transfer forms and clearing a prior mortgage. However, this new approach is not all-inclusive, as seen in Henderson v Dorset Healthcare  UKSC 43; In this case, a person who was persuaded of manslaughter because of reduced responsibility was prohibited from bringing a lawsuit against a health care facility whose negligence resulted in the killing.