Recent Case Series #1 – Patel v Mirza – Case Analysis

By Chris Mallon LLB, LLM, Ph.D. (Cand)

Each week, I will be giving my thoughts on a recent key case in one of the core modules of a qualifying law degree. The idea is to present the case and key points in an easy-to-follow way to help law students understand the case. I will also touch on common themes that are raised by essay questions in this area.

We begin with Patel v Mirza in the Supreme Court. This case involves an assessment of the doctrine of illegality and how the doctrine should be applied. Specifically, it advocates a move away from a reliance-based approach to a multi-factorial approach.

Facts and ratio of Patel v Mirza [2016] UKSC 42; [2017] AC 467 (SC)

  1. A gave B money to bet on bank share price using insider information.
  2. Agreement amounted to criminal offence: insider dealing.
  3. The information did not materialise. B did not place any bets and kept the money.
  4. A sought to recover money: dual claims of breach of contract and unjust enrichment.
  5. Applying the ‘reliance’ principle in Tinsley the trial judge held A’s claim unenforceable as he was relying on his own illegality to establish it. Majority of CoA agreed. However, A was successful in the CoA as the betting scheme has not been executed.
  6. Supreme Court:
    1. Toulson (lead), Kerr, Hale, Wilson and Hodge (JJSC)
      1. Rationale behind illegality
        1. A person should not be able to benefit from wrongdoing.
        2. Law should be coherent, not self-defeating and should not condone illegality.
        3. Whether the legal system would be harmed depended on:
          1. Whether the purpose of the prohibition that had been transgressed would be enhanced by denying the claim.
          2. Whether denying the claim might have an impact on another public policy.
          3. Whether denying the claim would be a proportionate response to the illegality
          4. Within this framework a range of factors are relevant and a definitive list was not possible. However, courts cannot decide cases in an undisciplined way. Supreme Court outlined several potentially relevant factors:
            1. The seriousness of the conduct
            2. Centrality to the contract
            3. Was the conduct intentional?
            4. Was there disparity between the parties’ culpability.

Top Tip: when making notes for each subject in law, use indentation like the structure above. This is a form of mind-map. The human brain likes to ‘branch off’ topics. Indenting like I have above means you can retain more of what you learn when it comes to revision time.

Critical Evaluation

Theme 1: The effect of Patel on Tinsley v Milligan ([1994] 1 AC 340 (HL) as a matter of precedent?

Before, Patel v Mirza, we had the case of Tinsley v Milligan.

  1. A and B purchase house together.
  2. Legal title vested in A’s name only so both could make fraudulent claims to Department of Social Security.
  3. ‘Understanding’ between A and B both would hold equitable title jointly.
  4. A and B separate.
  5. A denies property held on trust for A and B.
  6. Held: a resulting trust in favour of B. Established by her contribution to purchase price of property. No need to rely on illegality behind declaration of the trust which was not relevant to the claim.

In short, Tinsley created a reliance principle. A trust would be denied if a party had to rely on their own illegality to create the trust.

No reliance = trust properly created.

So what effect does Patel v Mirza have on Tinsley v Milligan?

  1. Tinsley has been overruled. Lord Toulson stated that Tinsley ‘should no longer be followed” (at [110]).
  2. Strong authority?
    1. Bare majority in Supreme Court.
    2. 2-1 split in Court of Appeal. Dissenting opinion endorsed by SC in Patel (see below).
    3. Can we say this is a strong authority?
  3. A more nuanced point:[1]
    1. Patel is controversial precisely because it did not involve a typical incremental development requiring the overruling or distinguishing of a particular past case. This may depend on how one views the impact of Patel v Mirza on past cases. The decision did not as such overrule past cases. Rather what has been set up is a method of analysis so that what courts must now do is to justify, as far as possible, the results in past cases through the prism of the ‘trio of considerations’ approach. So, for example, Lord Toulson indicated that the result in Tinsley v Milligan was correct, applying the new approach, even though its ‘reliance rule’ reasoning was rejected.

[1] Andrew Burrows, ‘A New Dawn for the Law of Illegality’ (2017) Oxford Legal Studies Research Paper No. 42/2017. Available at SSRN: https://ssrn.com/abstract=2979425 accessed 2 September 2017.

Theme 2: the effect the case had on the doctrine of illegality.

  1. Possible points of discussion
    1. Doctrine of illegality now shifts towards discretionary approach.
    2. Some may argue that the Tinsley approach – based on reliance – was wrong?
    3. Criticism of Tinsley
      1. Reliance principle subject to criticism (Law Commission 2010). Outcome of case determined by matters unconnected with nature of illegality. If A and B had been husband and wife and bought in wife’s name to perpetrate fraud, initial presumption would be based on advancement and husband would have to plead illegality. In Tinsley the presumption was resulting trust based on the relationship between the parties.
      2. Similar criticisms by High Court of Australia (Nelson v Nelson(1995) 184 CLR 538) and Court of Appeal of England and Wales (Tribe v Tribe [1996] Ch 107 at 118 per Nourse LJ; Silverwood v Silverwood (1997) 74 P & CR 453 at 458–459 per Nourse LJ; Lowson v Coombes [1999] Ch 373 at 385 per Robert Walker LJ; Collier v Collier (2002) 6 ITELR 270 at [105]–[106] per Mance LJ).
      3. Simply to assert that a claimant cannot rely on the illegality is merely to restate the reliance test; it does not justify it (James Goudkamp, ‘The End of an Era? Illegality in Private Law in the Supreme Court’ (2017) 133 Law Quarterly Review 14, 18).
      4. Law Commission (2010) recommends replacing reliance with new statutory scheme. A beneficiary would retain interest and enforce a trust despite illegality unless the court exercised discretion to deprive the beneficiary of his or her interest. Patel essentially changes the law to what the Commission envisaged.
        1. Commission noted that the courts had begun to develop a new appetite for a structured discretion approach to illegality (Stone & Rolls Ltd (in liq) v Moore Stephens (a firm) [2009] UKHL 39, [2009] 1 AC 1391; Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339). Statutory tort of unlawful discrimination (Hounga v Allen [2014] UKSC 47; [2014] 1 WLR 2889). Illegality to resist a claim under cross-taking in damages ( Les Laboratoires Servier v Apotex Inc [2014] UKSC 55; [2015] A.C. 430). Patel was heard against the backdrop of this shifting approach.
        2. Thinking point: was it right to leave common law to finish off the job. Why not legislative intervention? (brief). A controversial aspect of the Patel case is that the judges have done what some would argue, is best left to Parliament. Parliament chose not to implement the Law Commission’s recommendations.
          1. Counter-argument: Inaction by Parliament is not definitive that Parliament did not agree with proposals.

Theme 3: the debate that runs through equity and trusts – certainty v predictability.

  1. The certainty and predictability (rules-based) v fairness (discretion-based) debate that permeates may aspects of equity.
    1. Lords Sumption, Mance and Clarke JJSC dissenting in Patel v Mirza:
      1. Lord Toulson’s list of factors converted what should be a legal principle into an exercise of discretion and required the courts to make value judgments about the respective claims of the public interest and each of the parties. This was unjustified and unnecessary to achieve justice in most cases. It would also lead to complexity, uncertainty, arbitrariness and lack of transparency.
      2. Criticism of the discretionary approach:
        1. Lord Toulson lists the factors to consider but does not discuss the relative weight of factors which might shift from cases to case. Weak argument?
        2. The uncertainty point. His Lordship argued that other approaches have not yielded certainty. This is true, but no answer to the complaint in question. Simply because other approaches suffer from uncertainty does not mean that the policy-based test should be accepted.
        3. Lord Toulson’s next retort was that he “was not aware of evidence that uncertainty has been a source of serious problems in those jurisdictions which have taken a relatively flexible approach”. This remark is puzzling as no other jurisdiction adopts an approach to the illegality doctrine that is nearly as flexible as the policy-based test (cf. s.7 of the Illegal Contracts Act 1970 (NZ)).
        4. Is certainty even important when it comes to illegality? Lord Kerr at [37] states ‘Certainty or predictability of outcome may be a laudable aim for those who seek the law’s resolution of genuine, honest disputes. It is not a premium to which those engaged in disreputable conduct can claim automatic entitlement’. Robinson has argued that ‘vagueness and ambiguity in these defences may serve the useful purpose of deterring undesirable conduct by persons who in fact qualify for them … A chilling effect may have beneficial consequences’ (Paul Robinson, ‘Criminal Law Defenses: a Systematic Analysis’ (1982) 82(2) Columbia Law Review 199, 272-273). Counter-argument: practical impacts in civil system – uncertainty will still lead to more litigation and costs.
        5. Test requires judges to weigh up incommensurable factors (Stevens, “Contributory Fault—Analogue or Digital? in Andrew Dyson, James Goudkamp and Frederick Wilmot-Smith (eds), Defences in Tort (Hart Publishing 2015) 255). No common metric to weigh up factors.
        6. Grabiner notes, in a comment on Patel that ‘Lawyers often laud the notion of certainty but it has a holy-grail quality and grail hunts invariably fail (Anthony Grabiner, ‘Illegality and Restitution Explained in the Supreme Court’ (2017) 76(1) Cambridge Law Journal 18, 22).

Some interesting observations…

  1. Patel was a case of illegality in the context of contract law. The claim itself was in restitution for unjust enrichment. There is uncertainty as to whether it applies in relation to resulting trusts and other areas of law such as tort (Editorial, ‘Commercial: Supreme Court Rewrites Test for Illegality’ (2016) 110 Litigation Letter 1)
  2. Does this new approach muddy the waters between the civil and criminal law? E.g. third-party claim by the prosecution under Proceeds of Crime Act 2002 (Christina Jowett, ‘The Illegality Defence, Trusts of Land and the Family Lawyer’ (2016) 111 Family Lawyer 1208, 1212)

About the Author

Chris Mallon is a Ph.D. candidate at Queen’s University, Belfast. He has an LLM from Queen’s University, Belfast. He has a first class law degree from Salford University. Chris has teaching experience at Queen’s University, Ulster, Buckingham, the Open University and the University of Zurich. Chris is a private tutor and now tutors law to law students throughout the world who are studying UK law.