Patel v Mirza [2016] UKSC 42

Patel transferred £620,000 to Mirza for proposed betting on share prices using anticipated inside information. The expected information and opportunity did not materialise, so the contemplated betting was not carried out. Mirza did not return the funds. Patel sought repayment, including on an unjust-enrichment basis, but had to explain the unlawful purpose of the arrangement to establish why the money had been transferred and why that basis failed. The proceedings therefore raised the effect of illegality on restitution, rather than a claim for the hoped-for profits of successful insider dealing.

Did the unlawful purpose of the unperformed arrangement bar Patel's claim to recover his money, or would restitution be consistent with the policies underlying the illegality defence?

The Supreme Court allowed Patel to recover the money. All members agreed on the outcome, although their explanations differed. The majority approach associated with Lord Toulson required a structured assessment of the purpose of the prohibition, other relevant public policies and proportionality. Recovery would unwind an unperformed arrangement rather than award its anticipated illegal profit. Denying restitution was not required to protect the integrity of the legal system on these facts. The court moved away from treating the claimant's need to rely on illegality in pleading as automatically decisive. It did not make every illegal arrangement enforceable or remove statutory provisions governing particular transactions.

The illegality defence requires attention to the purpose of the prohibition, other relevant policies and proportionality, with the integrity of the legal system central. A claim restoring money paid for an unperformed unlawful purpose is not automatically barred merely because that purpose must be explained.

Patel reshaped the common-law illegality defence and its relationship with unjust enrichment. It distinguishes enforcing an unlawful bargain from restoring benefits when the contemplated activity did not occur. The framework is principled rather than a free choice based on sympathy. Subsequent authorities, including Stoffel & Co v Grondona and Henderson v Dorset Healthcare, develop its application in other settings. An undergraduate answer should identify the cause of action and precise illegality before assessing the policies and whether refusing that particular claim is proportionate.