Academic journal article Nottingham Law Journal

Illegal Agreements and Public Policy

Academic journal article Nottingham Law Journal

Illegal Agreements and Public Policy

Article excerpt

Mirza v. Patel [2016] UKSC 42, (S.C.), (Lords Neuberger, Mance, Kerr, Clarke, Wilson, Sumption, Toulson, Hodge and Lady Hale)


The maxim ex turpi causa non oritur actio (an action does not arise from a base cause) is premised on the notion that the courts will not assist a claimant who founds his claim on an immoral or illegal act. The principle, however, which seeks to discourage fraud, has had a notable exception when the claimant voluntarily withdraws from an illegal transaction before the illegal purpose has been wholly or partly carried into effect. In Patel v Mirza, (1) the Court of Appeal held that the exception could apply equally to cases where the withdrawal takes place because the illegal agreement can no longer be performed because of events outside the control of the parties.

The illegality doctrine has, however, since been more fully explored by the Supreme Court in Mirza v Patel (2) (on appeal from the Court of Appeal) who has effectively abandoned the so-called "reliance test" adopted by the House of Lords in Tinsley v Milligan (1) in favour of a policy-driven approach requiring the court to consider a range of relevant factors in deciding whether the claimant should be allowed to recover his money despite the illegal transaction.


The defendant, Salman Mirza, was a foreign exchange broker who had offered the claimant, Chandrakant Patel, and their mutual friend, George Georgiou, the opportunity to use his spread-betting account to bet on the movement of Royal Bank of Scotland (RBS) shares. The claimant had paid the defendant [pounds sterling]620,000 on hearing that the defendant had contacts with the bank who could supply advance information about a statement anticipated to be made by the Chancellor of the Exchequer about the Government's investment in the bank which would affect the bank's share prices.

The plan was that the defendant would use the money, along with his own, to bet on the Investor's Gold Index on movements in the quoted share price over a specified period using insider information. As it turned out, the defendant did not place any bets because the Government statement never materialised. The money was later mistakenly paid to Mr Georgiou. Unable, however, to recover from Mr Georgiou, the claimant sought to recover the money from the defendant as money paid for a consideration which had wholly failed and/or that it was held by the defendant on a resulting trust for him.

At first instance, (4) Mr Donaldson QC (sitting as a deputy judge of the High Court) held that the claim was barred by illegality because it was founded on an illegal agreement which sought to take advantage of insider information. Moreover, the relief could not be granted as the claimant had not withdrawn from the agreement voluntarily before its implementation became frustrated. In his view, the rationale for the defence of locus poenitentiae was missing where the illegal purpose is not achieved because it is frustrated other than by the action of the claimant.


On appeal, (5) the majority (Rimer and Vos LJJ) concluded that the deputy judge had been correct to find that the claimant needed to rely on the illegal arrangement, aimed at achieving a profit from the movement of the RBS shares by using insider information, (6) in order to make out his claim. According to Rimer LJ, it was apparent that the claimant was positively relying on the illegal agreement in order to support his claim for the return of the money. Vos LJ, agreeing, added that the claimant had pleaded, relied upon and succeeded (in the deputy judge's judgment) in establishing the illegal agreement and could not now be heard to say that he could have succeeded as well had he not done so. (7)

Gloster LJ, however, felt unable to agree with the majority on the primary issue of whether the claimant had to rely on the illegality in order to found his claim for recovery of the money. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.