In the third of a series of seminal judgments given on 20 July, the Supreme Court has revisited the effect of illegality in civil claims.In Patel v Mirza  UKSC 42 Mr Patel paid £620,00 to Mr Mirza for the purpose of betting on the price of RBS shares, using advance insider information which Mr Mirza expected to obtain from his RBS contacts regarding an anticipated government announcement which would affect the price of the shares. The government announcement did not materialise and the intended betting never took place. Mr Patel asked for his money back but Mr Mirza failed to repay it. Mr Patel then sued for recovery of the money in restitution on the grounds of a total failure of consideration. However, there was a problem with his claim. To show grounds to recover the money he would have to rely on his illegal agreement, which amounted to a conspiracy to commit an offence of insider dealing under section 52 of the Criminal Justice Act 1993.
The first instance judge held that, in accordance with the decision of the House of Lords in Tinsley v Milligan  1 AC 340, Mr Patel would not be able to recover the money because of his need to rely on the illegal agreement. The Court of Appeal reversed the decision on the ground that the agreement had not been executed. However, Gloster LJ rejected the view that Tinsley v Milligan was to be taken as laying down a rule of universal application that the defence of ex turpi causa must apply in all circumstances where a claim involves reliance on the claimant’s own illegality. What had to be considered was whether the policy underlying the rule which made the contract illegal would be stultified by allowing the claim. In the present case the mischief at which the offence of insider trading was aimed as market abuse by the exploitation of unpublished price-sensitive information obtained from a privileged source. If no such activity occurred, was hard to see on what basis public policy should bar the return of money which had been advanced for that abortive purpose.
The Supreme Court unanimously dismissed the appeal and took the opportunity to indulge in a recategorisation of the effect of illegality on civil claims. Lord Toulson, with whose approach three other Lords, and Lady Hale, agreed, endorsed Gloster LJ’s approach. He concluded, at paragraph 120:
“The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system (or, possibly, certain aspects of public morality, the boundaries of which have never been made entirely clear and which do not arise for consideration in this case). In assessing whether the public interest would be harmed in that way, it is necessary 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. Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather by than the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate.”
However, Lords Mance, Sumption, and Clarke disagreed with Lord Toulson’s reformulation of the approach to illegality, Lord Sumption stating :
” In my opinion, this is far too vague and potentially far too wide to serve as the basis on which a person may be denied his legal rights. It converts a legal principle into an exercise of judicial discretion, in the process exhibiting all the vices of “complexity, uncertainty, arbitrariness and lack of transparency” which Lord Toulson attributes to the present law.”