Summary

A claimant who satisfied the ordinary requirements of a claim for unjust enrichment should not be debarred from enforcing his claim simply because he was seeking to recover money paid pursuant to a contract to carry out an illegal activity. The rule in Tinsley v Milligan [1994] 1 A.C. 340 was no longer to be followed.

Facts

The appellant (M) appealed against an order that he repay £620,000 paid to him by the respondent (P) pursuant to an agreement between them.

P had given M the money to bet on a bank's share price using insider information, and the agreement amounted to a conspiracy to commit the offence of insider dealing. However, the insider information did not materialise, M did not place the bet, and he kept the money for himself. P sought to recover it, claiming breach of contract and unjust enrichment. Applying the "reliance principle" in Tinsley v Milligan [1994] 1 A.C. 340, the judge held that P's claim was unenforceable because he had to rely on his own illegality to establish it. The majority in the Court of Appeal agreed, but held that because the scheme had not been executed, P's claim succeeded.

The issue was whether the maxim in Holman v Johnson 98 E.R. 1120, that the court would not assist a claimant who based his cause of action on an immoral or illegal act, precluded a party to a contract tainted by illegality from recovering, on the basis of unjust enrichment, money he had paid under the contract to the other party.

Held

(1) (Per Lords Toulson, Kerr, Hale, Wilson and Hodge JJ.S.C) There were two policy reasons for the common law doctrine of illegality as a defence to a civil claim: a person should not be allowed to profit from his own wrongdoing, and the law should be coherent, not self-defeating, and should not condone illegality. Whether allowing a claim would be harmful to the integrity of the legal system depended on whether the purpose of the prohibition that had been transgressed would be enhanced by denying the claim; whether denying the claim might have an impact on another relevant public policy; and whether denying the claim would be a proportionate response to the illegality. Within that framework, a range of factors might be relevant and it was not helpful to prescribe a definitive list. That said, the courts could not decide cases in an undisciplined way and a principled and transparent assessment had to be made. Potentially relevant factors included the seriousness of the conduct, its centrality to the contract, whether it was intentional, and whether there was disparity in the parties' respective culpability. Punishment for wrongdoing was the responsibility of the criminal courts. The civil courts were generally concerned with determining private rights and obligations, and they should neither undermine the effectiveness of the criminal law nor impose additional penalties disproportionate to the nature and seriousness of any wrongdoing. A good example of a case where denying the claim would have been disproportionate was ParkingEye Ltd v Somerfield Stores Ltd [2012] EWCA Civ 1338, [2013] Q.B. 840, in which the claimant had not set out to break the law, the illegality did not affect the main performance of the contract, and denying the claim would have given the defendant a substantial unjust reward, ParkingEye considered. The courts had to abide by the terms of any relevant statute, but they were to have regard to the policy factors and the nature and circumstances of the illegal conduct. The reliance rule as laid down in Tinsley should no longer be followed, Tinsley overruled. Unless a statute provided otherwise, property could pass under a transaction that was illegal as a contract, Singh v Ali [1960] A.C. 167, and Sharma v Simposh Ltd [2011] EWCA Civ 1383, [2013] Ch. 23 applied. Gloster J had taken the correct approach in her dissenting judgment in the court below. She asked whether the policy underlying the rule which made the contract between P and M illegal would be stultified if P's claim was allowed, and she concluded that there was no reason why public policy should require P to forfeit the money he had paid to M. P was seeking to unwind the arrangement, not profit from it. A claimant who satisfied the ordinary requirements of a claim for unjust enrichment should not be debarred from enforcing his claim simply because the money he sought to recover had been paid for an unlawful purpose. While there might be rare cases where the enforcement of such a claim might undermine the integrity of the justice system, there were no such circumstances in the instant case (see paras 99-101, 107-115, 120-122, 133, 144, 186 of judgment).

(2) (Per Lords Neuberger, Mance Clarke and Sumption JJ.S.C.) As a general rule, a claimant should be entitled to recoup money paid pursuant to a contract to carry out an illegal activity. That was so even if the contract had been wholly or partly performed, as long as restitution could be achieved and was consistent with policy and proportionality (paras 145-146, 157-175, 186, 197-198, 202-203, 210, 246-255 ).

(3) (Per Lords Sumption, Mance and Clarke JJ.S.C. dissenting in part) Lord Toulson's "range of factors" approach converted 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. Such a change was unjustified and was not necessary to achieve substantial justice in most cases. Moreover, it would lead to complexity, uncertainty, arbitrariness and a lack of transparency (paras 204-209, 214, 218-222, 261-265).

Appeal dismissed