THE IMPACT OF Patel v. Mirza [2016] UKSC 42 ON S. 24 OF THE CONTRACTS ACT 1950

27 September 2019 - University of Malaya, Kuala Lumpur

The ICM Legal Education Series #5 event jointly organized by the Inns of Court Malaysia and Thomson Reuters (Sweet & Maxwell) was attended by many members of the judiciary and the legal fraternity on this important topic in the law of contract.

In Patel v. Mirza [2016], the UK Supreme Court by a majority decision of 6-3 ruled that the general rule was that a person who satisfied the ordinary requirements of a claim in unjust enrichment should be entitled to the return of his money or property and such a person should not prima facie be debarred from recovering money paid or property transferred by reason of the fact that the consideration which had failed in whole or in part was an unlawful consideration. The two broad policy reasons for the common law doctrine of illegality as a defence to a civil claim are that (i) a person should not be allowed to profit from his own wrongdoing and (ii) the law should be coherent and not self-defeating. The essential rationale of the 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 rule that a party to an illegal agreement cannot enforce a claim against the other party to the agreement if he has to rely on his own illegal conduct in order to establish the claim does not satisfy the requirements of coherence and integrity of the legal system and should no longer be followed. Instead the court should assess whether the public interest would be harmed by enforcement of the illegal agreement, which requires it to consider (a) the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, (b) any other relevant public policy on which the denial of the claim may have an impact and (c) 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.

It is interesting to note that Lord Toulson who delivered the majority judgment observed that: “Bribes of all kinds are odious and corrupting, but it does not follow that it is in the public interest to prevent their repayment. There are two sides to the equation. If today it transpired that a bribe had been paid to a political party, a charity or a holder of public office, it might be regarded as more repugnant to the public interest that the recipient should keep it than that it should be returned.”

During the event, the three eminent speakers i.e Professor Michael Philip Furmston, Professor Dato’ Gurdial Singh Nijar and Dato’ Nitin Nadkarni highlighted on the impact of this important decision on illegality defence by reference to the recent cases in other jurisdictions including Canada, Australia, New Zealand, Singapore and also cases in Malaysia such as Pang Mun Cheong & Anor v. Cheong Huey [2018] 8 CLJ 663 (Court of Appeal); BK Fleet Management Sdn Bhd v. Stanson Marketing Sdn Bhd [2018] 9 CLJ 449 (Court of Appeal); and Liputan Simfoni Sdn Bhd v. Pembangunan Orkid Desa Sdn Bhd [2019] 4 MLJ 141 (Federal Court) (as highlighted at p. 73 of this Bulletin).