Patel v Mirza

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Neuberger,Lord Toulson,Lord Sumption,Lord Mance,Lord Clarke,Lord Hodge,Lady Hale,Lord Kerr,Lord Wilson
Judgment Date20 Jul 2016
Neutral Citation[2016] UKSC 42

[2016] UKSC 42

THE SUPREME COURT

Trinity Term

On appeal from: [2014] EWCA Civ 1047

Before

Lord Neuberger, President

Lady Hale, Deputy President

Lord Mance

Lord Kerr

Lord Clarke

Lord Wilson

Lord Sumption

Lord Toulson

Lord Hodge

Patel
(Respondent)
and
Mirza
(Appellant)

Appellant

Matthew Collings QC

(Instructed by Mischon de Reya)

Respondent

Philip Shepherd QC Professor Graham Virgo

(Instructed by K A Arnold & Co)

Heard on 16 and 17 February 2016

Lord Toulson

( with whom Lady Hale, Lord Kerr, Lord Wilson and Lord Hodge agree)

Introduction
1

"No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act." So spoke Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341, 343, ushering in two centuries and more of case law about the extent and effect of this maxim. He stated that the reason was one of public policy:

"If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis."

2

Illegality has the potential to provide a defence to civil claims of all sorts, whether relating to contract, property, tort or unjust enrichment, and in a wide variety of circumstances.

3

Take the law of contract. A contract may be prohibited by a statute; or it may be entered into for an illegal or immoral purpose, which may be that of one or both parties; or performance according to its terms may involve the commission of an offence; or it may be intended by one or both parties to be performed in a way which will involve the commission of an offence; or an unlawful act may be committed in the course of its performance. The application of the doctrine of illegality to each of these different situations has caused a good deal of uncertainty, complexity and sometimes inconsistency.

4

Holman v Johnson involved a claim for the price of goods which the plaintiff sold to the defendant in Dunkirk, knowing that the defendant's purpose was to smuggle the goods into England. The plaintiff was met with a defence of illegality. The defence failed. Lord Mansfield held that knowledge on the part of the plaintiff that the defendant intended to smuggle the goods did not affect the plaintiff's entitlement to recover the price of the goods, since he was not himself involved in the smuggling. By contrast, in Pearce v Brooks (1866) LR 1 Ex 213 a claim by a coachbuilder against a prostitute for the hire of what was described in the law report as an "ornamental brougham" was held to be unenforceable for illegality after the jury found that the defendant hired it for the purpose of prostitution and that the plaintiff knew that this was her purpose. It would seem that the difference between Holman v Johnson and Pearce v Brooks had to do with the type of goods supplied, because in both cases the plaintiff knew that the defendant was entering into the contract for an illegal or immoral purpose. In JM Allan (Merchandising) Ltd v Cloke [1963] 2 QB 340, 348, Lord Denning MR endeavoured to rationalise the authorities by saying that "active participation debars, but knowledge by itself does not". However, the Law Commission commented in its discussion of the subject in its Consultation Paper on Illegal Transactions: the Effect of Illegality on Contracts and Trusts, LCCP 154 (1999) that the case law lacks clear guidance on what amounts to "participation" in this context.

5

It is unclear to what extent the doctrine of illegality applies to a contract whose object includes something which is in some respect unlawful, or the performance of which will involve some form of illegality, but not in a way which is central to the contract. In St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, 288, Devlin J said:

"If a contract has as its whole object the doing of the very act which the statute prohibits, it can be argued that you can hardly make sense of a statute which forbids an act and yet permits to be made a contract to do it; that is a clear implication. But unless you get a clear implication of that sort, I think that a court ought to be very slow to hold that a statute intends to interfere with the rights and remedies given by the ordinary law of contract. Caution in this respect is, I think, especially necessary in these times when so much of commercial life is governed by regulations of one sort or another, which may easily be broken without wicked intent."

6

As to illegality in the manner of performance of a contract, Mance LJ observed in Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225, 246, that the conceptual basis on which a contract not illegal nor prohibited at the time of its formation may become unenforceable due to the manner of its performance is open to debate. In Anderson Ltd v Daniel [1924] 1 KB 138 a claim for the price of goods was held to be unenforceable because the seller had failed to give the buyer an invoice containing details which the seller was required to give him by statute. In the St John Shipping case Devlin J rejected the interpretation that the claim in Anderson Ltd v Daniel failed because in the course of performing a legal contract the plaintiff had done something illegal. The correct interpretation, he said, was that "the way in which the contract was performed turned it into the sort of contract that was prohibited by the statute": [1957] 1 QB 267, 284. In the St John Shipping case the claim was for freight under a charter party. In the course of taking on bunkers the vessel was overloaded and the master thereby committed an offence, for which he was prosecuted and fined £1,200. The extra freight earned by the overloading was £2,295 and to that extent the ship owners stood to profit from their wrong. The cargo owners refused to pay that part of the freight. Devlin J rejected their defence. He held that since the goods had been delivered safely, the ship owners had proved all that they needed. He was not prepared to construe the statute as having the effect of making the contract prohibited. If it had been otherwise, the ship owners would not have been entitled to any freight and would therefore have suffered an additional penalty, much greater than that provided for by Parliament, for conduct which might have been unintentional.

7

In Ashmore, Benson, Pease and Co Ltd v Dawson [1973] 1 WLR 828 the Court of Appeal adopted a different approach. Manufacturers of heavy engineering equipment entered into a contract of carriage with road hauliers. There was nothing illegal in the formation of the contract, but the hauliers overloaded the vehicles which were to transport the load, in breach of road traffic regulations, and one of the lorries toppled over during the journey as a result of the driver's negligence. The manufacturers' transport manager was present when the goods were loaded and was aware of the overloading. A claim by the manufacturers for the cost of repair of the damaged load was rejected on grounds of illegality. The Court of Appeal did not perform the same analysis as had Devlin J in the St John Shipping case. They held simply that the manufacturers participated in the illegal performance of the contract and were therefore barred from suing on it.

8

These and other cases led the Law Commission to describe the effect that unlawful performance has on the parties' contractual rights as very unclear. (Consultative Report on the Illegality Defence, LCCP 189 (2009), para 3.27.)

9

In this case the issue is whether Lord Mansfield's maxim precludes a party to a contract tainted by illegality from recovering money paid under the contract from the other party under the law of unjust enrichment (to use the term now generally favoured by scholars for what used previously to be labelled restitution and, before that, quasi-contract). On one side it is argued that the maxim applies as much to such a claim as to a claim in contract, and that the court must give no assistance to a party which has engaged in any form of illegality. On the other side it is argued that such an approach would not advance the public policy which underlies Lord Mansfield's maxim, once the underlying policy is properly understood.

Structure of this judgment
10

With that introduction I turn to the facts of Mr Patel's claim and how it was decided in the courts below: see paras 11–16. A central part of their judgments, and of Mr Mirza's argument, concerns the doctrine of reliance applied by the House of Lords in Tinsley v Milligan [1994] 1 AC 340: see paras 17–20. That decision led to the Law Commission conducting a comprehensive review of the law of illegality and making proposals for addressing what the Commission perceived to be its unsatisfactory features: see paras 21–49. Paras 33–39 concern European law and its potential impact on our domestic law. The approach adopted in Australia, Canada and the USA is considered at paras 50–66. Paras 67–81 address developments since the Law Commission's report, including three recent decisions of this court which laid bare a division of opinion about the framework for deciding issues of illegality. Paragraphs 82–94 contain a section entitled "The law at a crossroads". This leads to the critical part of the judgment, which considers the way forward and ends in a summary and proposal for the disposal of this appeal: paras 95–121. The reader who is more interested in what the judgment has to say about the future than the past will no doubt wish to...

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20 firm's commentaries
  • Complex Commercial Litigation Law Review – England and Wales
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    • 27 January 2021
    ...v. Johnson [1775] 1 Cowper 341 at page 343.50 ‘The Illegality Defence’ [2010] The Law Commission (LAW COM No. 320).51 Patel v. Mirza [2016] UKSC 42.© 2020 Law Business Research LtdEngland and Wales119Ltd (in liquidation) v. Daiwa Capital Markets Europe Ltd52 that the defence of illegality w......
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    ...v. Johnson [1775] 1 Cowper 341 at page 343. 32 ‘The Illegality Defence’ [2010] The Law Commission (LAW COM No 320). 33 Patel v. Mirza [2016] UKSC 42. 34 Singularis Holdings Ltd (in liquidation) v. Daiwa Capital Markets Europe Ltd [2018] EWCA Civ © 2019 Law Business Research Ltd England &......
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    ...relation to the payments and his breach of fiduciary duty towards Singularis. Relying on the leading case on illegality of Patel v Mirza [2016] UKSC 42, [2017] AC 467, the Supreme Court upheld Mrs Justice Rose's ruling that fiduciary duties are intended to protect a company from becoming th......
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7 books & journal articles
  • Consumer Redress Legislation: Simplifying or Subverting the Law of Contract
    • United Kingdom
    • The Modern Law Review Nbr. 80-5, September 2017
    • 1 September 2017
    ...n 3 above.169 The most recent in the convoluted series of UK cases endorsing the centrality of coherence tothe defence is Patel vMirza [2016] UKSC 42, see for example at [101], [115], [120] per LordC2017 The Author. The Modern Law Review C2017 The Modern Law Review Limited.(2017) 80(5) ML......
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    • The Modern Law Review Nbr. 80-3, May 2017
    • 1 May 2017
    ...the facts beyond all reasonable doubt because of the ease withwhich such penalties may be rolled out into other areas.78 Patel vMirza [2016] UKSC 42 at [184]79 ibid at [230].80 Rawlings and Lowry, n 5 above, 115–117.C2017 The Author. The Modern Law Review C2017 The Modern Law Review Limit......
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    • Irish Judicial Studies Journal Nbr. 2-19, July 2019
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    ...3 WLR 923. 3 Taiwo v Olaigbe and another [2016] UKSC 31, [2016] 1 WLR 2653 at paragraph 34. 4 Hounga (n 2), confirmed in Patel v Mirza [2016] UKSC 42, [2017] AC 467. 5 Reyes (n 2). 6 Vienna Convention on Diplomatic Relations (adopted 18 April 1961, entered into force 24 Apri 1964) 500 UNTS ......
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    ...Faculty of Law, National University of Singapore. I would like to thank theanonymous referee for comments. The usual disclaimers apply.1 [2016] 3 WLR 399.2Holman vJohnson (1775) 1 Cowp 341, 343 per Lord Mansfield.C2017 The Author.The Moder n Law Review C2017 The Modern Law Review Limited. ......
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