A man who gave another man £620,000 to buy shares on the basis of insider knowledge was entitled to claim his money back when the shares were not bought.
In Patel v Mirza [2016] UKSC 42, Patel gave Mirza £620,000 to buy shares in a bank because Mirza expected his contacts to inform him of a government announcement about the bank. However, the insider dealing plan fell through when Mirza’s contacts did not deliver. Mirza kept the money. Patel sued. The issue was at what point involvement in illegality bars a claim.
Nine justices of the Supreme Court upheld the Court of Appeal’s decision that Mirza must pay the money back.
Lord Mansfield said in the 1775 case of Holman v Johnson 1 Cowp 341 that “no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”. In this week’s judgment, however, the Supreme Court said various factors are relevant when assessing whether it would be disproportionate to refuse relief. These include: the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability.
Delivering the lead judgment, Lord Toulson said: “A claimant, such as Mr Patel, who satisfies the ordinary requirements of a claim for unjust enrichment, should not be debarred from enforcing his claim by reason only of the fact that the money which he seeks to recover was paid for an unlawful purpose. There may be rare cases where for some particular reason the enforcement of such a claim might be regarded as undermining the integrity of the justice system, but there are no such circumstances in this case.”
Lord Sumption said: “The courts will not give effect to an illegal transaction or to a right derived from it. But restitution does not do that.”
