Illegal activity no longer a bar to an unjust enrichment claim

Posted on: August 15th, 2016

Following the recent judgement of the Supreme Court in Patel v Mirza [2016] UKSC 42, the rule that a claim should be unenforceable if a claimant has to rely on its own illegality to establish it (Tinsley v Milligan [1994] 1 AC 340) is no longer to be followed. In Patel v Mirza, P had given M a significant sum of money to invest based on insider information. The act would have amounted to insider dealing. The investment never materialised and P sought to recover the money from M. P failed at first instance on the basis that the court would not assist a claimant who based his cause of action on an immoral or illegal act. The Supreme Court, however, took the approach that in order to determine whether it was in the public interest to deny a claim based on illegality it was first necessary to consider whether denying the claim: i) would act as a deterrent against the illegal conduct in question; ii) may impact on any other public policy considerations; and iii) would be a proportionate response to the illegal activity. Factors cited by the Supreme Court as relevant to an assessment of the above are the seriousness of the conduct, its centrality to the subject of the claim, whether the illegal conduct was intentional and whether there was disparity in the parties’ respective culpability. In this instance P was not debarred from enforcing his claim for unjust enrichment simply because the money he sought to recover had been paid for an unlawful purpose.