Patel v Mirza [2014] EWCA Civ 1047

Relying on illegal contracts

On 29 July 2014 the CA handed down judgment in the case of Patel v Mirza [2014] EWCA Civ 1047. The claim had been brought for the recovery of £620,000 paid over by the claimant to the defendant to be used for insider trading, which trading had not in fact taken place.

The Particulars of Claim expressly relied upon an agreement that the monies would be so used and asserted rights in trust, contract and restitution to the return of the money. The trial judge accepted that there had been such an agreement but that it did not give rise to any trust remedy. As to the claims in contract and restitution he dismissed those on the basis that the claimant had relied upon an illegal agreement and that although that agreement had not been carried through, this had not been the result of a withdrawal by the claimant but was due to other circumstances beyond his control and that accordingly the claimant could not recover.

The claimant appealed on two grounds.

The first ground was that the trial judge had been wrong to rule that the claimant had relied upon the illegal agreement. Rimer and Vos LJJ roundly dismissed this argument because of the way in which the case had been pleaded. Gloster LJ dissented on this issue, preferring to approach the issue not in terms of actual reliance (or even the need to rely) but rather in terms of an overall policy that relief should only be denied if it would stultify the purpose of the law breached. On that basis she would have allowed the appeal.

The second ground concerned the trial judge’s ruling that in order to benefit from the locus poenitentiae (and thus to be exempt from the prohibition on relying upon an illegality) it was necessary for the claimant to show that he had withdrawn from the agreement as opposed to showing no more than that it had not in fact been put into operation. This was an issue that had not before come up for decision and Rimer LJ admitted that his mind had wavered since the hearing in January. However, the Court unanimously decided that it was sufficient if no part of the illegal purpose had been performed and that accordingly the claimant was entitled to rely upon the illegal agreement and to recover the monies paid over on a restitutionary basis.

The defendant is seeking permission from the Supreme Court to appeal, based in part upon the observations of the Court of Appeal as to the “irreconcilable” authorities from which it is “almost impossible to ascertain or articulate principled rules” and the Law Commission’s 2010 Report (Cmd 320) recommending statutory reform of the reliance principle.

William McCormick QC and Faisel Sadiq, instructed by Dale Langley Solicitors represented the defendant.

30th July 2014