Translated to English, this legal maxim means: ‘from a dishonourable cause an action does not arise’. In other words, no Court will lend its aid to a man who founds his case of action upon an immoral or illegal act.
The reasoning behind the legal maxim is that it is not in the public’s interest to allow a criminal to profit from his crime. Therefore, where the maxim is established, it is a complete bar to a Claimant’s claim (‘the illegality defence’). There is however an exception to the illegality defence known as “locus poenitentiae” where a Claimant will not be barred if he can show that he voluntarily withdrew before the contract was fulfilled.
In a recent case of Patel v Mirza [2016] UKSC 42, the Supreme Court established a new approach where a Claimant may not necessarily be debarred from making a claim where illegality defence is established.
In this case, Mr Patel gave Mr Mirza £620k to bet on RBS shares. Mr Mirza would be using insider information from RBS regarding an anticipated government announcement which would affect the price of the shares. The anticipated announcement was not made and RBS’s share price was unaffected. As a result, Mr Mizra did not place the bet and subsequently failed to repay the money to Mr Patel. Mr Patel decided to issue proceedings against Mr Mizra for unjust enrichment in order to recover the £620k he gave Mr Mizra.
Mr Patel was required to explain to the Court the nature of the contract between the parties. He would therefore need to rely on his own illegality being that the agreement was a conspiracy to commit an offence of insider dealing under s.52 Criminal Justice Act 1993.
In accordance with previous case law Mr Patel would have been barred from making a claim. However, on appeal the Court found that although Mr Patel did not withdraw from the agreement, he could in fact benefit from the exception locus poenitentiae as the agreement had not been executed. The Court held that Mr Patel’s claim sought to unwind the contract and not to profit from it.
As the Court decided that previous case law had not set a universal rule, this has now created complexity and uncertainty in this area of law.
If you would like to discuss this further, please contact Richard Gordon on 020 8502 3991 for more information.
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