Chapter 11: Illegality

Question 1

1 Introduction

Answer 1

Prior to the decision of the Supreme Court in Patel v Mirza [2016] UKSC 42 the general rule in English law was that a contract to perform an illegal act, or a contract contrary to public policy, would be declared void and unenforceable. Following Patel, this general principle no longer exists. Instead, a court will adopt a discretionary approach, applying principles of public policy and proportionality.

Question 2

2 A discretionary approach to illegality

Key case: Patel v Mirza [2016] UKSC 42

Answer 2

Mr Patel and Mr Mirza entered into a contract where Mr Patel paid a large sum of money for Mr Mirza to bet on the changes in share prices. Mr Mirza expected to receive ‘inside information’ about the shares concerned. The parties were therefore pursuing ‘insider dealing’ and this made
the agreement between them illegal. The bet did not actually go ahead because the inside
information was not received, and Mr Patel sought the return of the money. Mr Mirza defended this claim on the basis of illegality – that Mr Patel was involved in an illegal transaction and the court should not, therefore, allow Mr Patel’s claim

Question 3

Supreme Court Judgement

Answer 3

All nine supreme court judges agreed the defence of Illegality should not apply to defeat the Mr Patel’s claim for the return of his money. The Supreme Court held that the underlying policy question which needed to be answered when determining whether illegality applied is, ‘whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system’

Question 4

Trio of Necessary Conditions

Answer 4

(a) ‘to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,
(b) to consider any other relevant public policy on which the denial of the claim may have an impact and
(c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts’.

Question 5

3 Summary

Answer 5

• When determining the remedial consequences of entering an illegal contract the underlying policy question to be considered is ‘whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system’.