Patel v Mirza [2016] UKSC 42 (20 July 2016)
Citation:Patel v Mirza [2016] UKSC 42 (20 July 2016)
Rule of thumb:Where one party instructs one party to do a legal act, but then perpetrate a criminal act afterwards is this void based on illegality? No, once the inherently legal agreement is started, this entire contract is not inherently void based upon illegality because an instruction to carry out a criminal act is given.
Background facts:
The facts of this case were that Patel had inside information about RBS, and he knew that once RBS had packaged up all this information properly and released it to the stock exchange, it was going to make their share price move massively. Patel gave Mirza £620,000 to bet on RBS’s share price moving on the stock market. Mirza took this money but subsequently did not bet this on RBS’ share price moving, fearful that this was illegal insider trading that would land him in jail. When Patel discovered Mirza had not placed the bet on RBS' share price moving he sought the return of the £620k, but Mirza refused and stated he was keeping the money.
Parties argued:
Patel sued Mirza to get the £620,000 back. Mirza argued that the contract was void due to illegality and the £620,000 was his to keep. Mirza provided a lot of authority which clearly stated that where a party has an illegal motive for using a legal contract, then this contract is void based upon illegality. Patel argued that giving Mirza the 620k to look after - appointing him as a trustee for the money - was a perfectly legal contract. Patel argued that he instructed the contract to degenerate into an illegal act, but he argued that illegality did not apply when contracts subsequently degenerate into illegality, with it only applying to contracts that were inherently illegal. Patel argued that after receiving the money Mirza could still have just transferred this money into a regular savings account, and nothing would have been illegal, meaning that it was not an inherently illegal agreement. Patel argued that if Mirza had placed the bet, and decided to keep the illegally generated profits made from the fund, then Patel could not claim these from Mirza, but the fund itself had to be returned.
Judgment:
The Court upheld the arguments of Patel - Mirza had to return the 620k fund to Patel. The Court acknowledged that this raised a difficult scenario, and one the Court had not had to deal with in-point before. The Court affirmed that where someone enters a legal contract, but has an illegal motive for doing so, and indeed intends to abuse this legal contract by instructing the other party to it to degenerate it into crime, then the person who instructed the legal contract to degenerate into illegality can still get their money back under this contract. This type of contract is not necessarily illegal from the offset meaning that the principle of illegality does not apply to it.
Ratio-decidendi:
‘Looking behind the maxims, there are two broad discernible policy reasons for the common law doctrine of illegality as a defence to a civil claim. One is that a person should not be allowed to profit from his own wrongdoing. The other, linked, consideration is that the law should be coherent and not self-defeating, condoning illegality by giving with the left-hand what it takes with the right hand’, Lord Toulson
'the common law doctrine of illegality ... should be coherent and not self-defeating ... not… giving with the left-hand what it takes with the right hand', Lord Toulson
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.