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Patel v Mirza: Illegal Cats and a Place of Repentance

John Wilson QC of 1 Hare Court analyses a Court of Appeal judgment on the illegality defence which may prove very pertinent to cohabitation and financial remedy cases.

John Wilson QC, 1 Hare Court

John Wilson QC, 1 Hare Court

"As any hapless law student attempting to grapple with the concept of illegality knows, it is almost impossible to ascertain or articulate principled rules from the authorities relating to the recovery of money or other assets paid or transferred under illegal contracts."1

I pay £50,000 to someone with many contacts so that he can invest it in an investment which is not only legitimate and genuine but could also be extremely profitable.  What happens if I discover that he has contacts in the underworld so I ask him to use the money to pay for someone to kill a business associate?  What happens if I then have second thoughts about it and ask for the return of my money?   Can I get the "hit fund" back?  What happens if, before I repent of my dastardly plan, my business associate dies unexpectedly?  Can I, in those circumstances, ask for my money back?  Has the "blood money" become more tainted?  Or, what happens if I repent of my plans but, before I can tell anyone, my business associate dies unexpectedly anyway? This "old chestnut"2  permeates many of the arguments about the scope of the dubious "principles" underlying the defence of illegality.

Even we family lawyers know that murder is a crime and therefore illegal.  But do any of the above scenarios contain the preliminary crime of conspiracy to murder?  Is the crime completed by the agreement to kill so that any subsequent repentance or frustration, by the fortuitous death of the intended victim, leaves the offence (and the perpetrator) hanging?  Has the contract, as opposed to the intended victim, been executed or does it remain executory?   In short, can the person to whom I have paid my money rely on the defence of illegality and refuse to return the cash?   Can he rely upon the illegality defence?

The case of Patel v Mirza appears to have slipped under the radar so far as family lawyers are concerned.   On the face of it, it has nothing to do with family law.  It concerns an illegal insider dealing scam which fell apart as a result of the failure to obtain any worthwhile insider information.  It is instructive to note, however, that whilst the arguments took place before a very strong Court of Appeal (Rimer, Gloster and Vos LLJ) on the 30th January 2014 it took until 29th July 2014 for judgment to be delivered and that the eventual decision was not unanimous.   Gloster LJ disagreed with her brethren on the "reliance principle" although they all agreed that the payer's appeal should be allowed on the principle of "locus poenitentiae"3.  Permission to appeal to the Supreme Court has been granted.

What has this got to do with family law?  Well, it is likely to have some impact on cohabitation claims and it will also probably have consequences for financial remedy claims where a third party (usually a mother or father) claims an interest in what would otherwise be family property.

Tinsley v Milligan

It is convenient to begin with Tinsley v Milligan4.  In this case T and M, a lesbian couple, ran a boarding house in Mid-Glamorgan.   The boarding house was purchased with the benefit of a mortgage and a deposit. The deposit was provided jointly by T and M.   They agreed between themselves that the title should be taken in the sole name of T in order to facilitate the making by M of false claims on the DSS.  In 1988 the parties fell out and T left.  T subsequently made a claim for possession of the property.  M counterclaimed for a declaration that T held the property in trust for the parties in equal shares.  The county court judge dismissed T's claim and found for M on the counterclaim.  The Court of Appeal, by a majority, found for M and dismissed T's appeal.  The principle that T had relied upon in resisting the counterclaim for a declaration was that if S put property into the name of B intending to conceal A's interest in the property for a fraudulent or illegal purpose, neither law nor equity would assist A in asserting an equitable interest in it, since a claimant in equity had to come with clean hands.  Particular reliance was placed on the cases of Gascoigne v Gascoigne5 and Tinker v Tinker6.   It was not disputed that, apart from the question of illegality, M would have been entitled in equity to a half share in the house under a resulting trust.  In reaching its decision in the Court of Appeal the majority relied upon the "underlying principle" of the "so-called public conscience test" by which the court had to weigh or balance the adverse consequences of granting relief with the ultimate decision of the court depending upon a value judgment.   They concluded that it would be an affront to refuse relief.  The House of Lords unanimously rejected the "public conscience" test but refused the appeal on a bare majority.

The majority accepted the principle that a party was not entitled to rely upon his own fraud or illegality to resist a claim or rebut a presumption7.   However, a completely executed transfer of property or an interest in property made in pursuance of an unlawful agreement was valid both in law and equity, and the court would assist the transferor in protection of his interest, provided he did not require to found his claim on the unlawful agreement8. Therefore, on the facts of that case, as soon as the unlawful agreement between T and M had been implemented by the sale to T alone, she became trustee for M, who could rely upon the equitable proprietary interest thereby created in her favour and had no need to rely upon the illegal transaction.   There was a presumption of resulting trust in M's favour and since there was no presumption of advancement (as there would have been if M had been husband to T) M did not have to rely on the illegality and was entitled to the declaration that she sought. This has become known as the "reliance principle".

Criticism of the reliance principle

This has been subject to strong judicial and academic criticism9.   It is, apart from anything else, dependent for its effect upon outmoded presumptions designed for an earlier age.  If M and T had been in a heterosexual married relationship then it would have been necessary to rely upon the illegality to get around the outdated presumption of advancement.  Similarly, post Stack v Dowden 10 which recognised the existence of a presumption that where property was transferred into the sole name of one person that person was the sole owner, it is difficult to see how M could have made out her case and rebutted the Stack v Dowden  presumption without relying on her own illegality.  There is therefore an element of unreality and arbitrary chance hovering around whether or not the "doctrine" of illegality will favour a "T" or an "M".   Lord Goff in his dissenting speech called for the whole question of the illegality defence to be considered by the Law Commission. 

The "locus poenitentiae" – the withdrawal exception

In Tinsley v Milligan the House of Lords recognised an exception to the potentially harsh consequences of the illegality defence, albeit that these discussions were obiter.  They recognised the existence of an exception to the general principle that one cannot rely upon one's own illegal purpose or fraud where the illegal purpose has not been put into effect.  Where the claimant, seeking recovery or his money or property has effectively repented of his illegal purpose before it has been put into operation, he is granted a breathing space and may then ask for the recovery of his property / money notwithstanding the prior illegal purpose.  

Tribe v Tribe

Although the issue of "locus poenitentiae" was peripheral to Tinsley v Milligan it was central to the leading Court of Appeal case of Tribe v Tribe11.  In that case the claimant father transferred to his defendant son for no consideration all of his shares in the family business which was run, at the time, by the son.  The purpose of the transfer was to deceive the father's creditors, by creating the impression that the father no longer held any shares in the business.  It was agreed that the son would hold the shares on trust for the father pending the settlement of the creditors' claims.  In the event the dispute with the creditors was settled without the father's illegal purpose being carried into effect.  The son did not return the shares and relied upon the illegality as a defence to claim for their return.    The Court of Appeal upheld a finding in the father's favour.    Although the son had the benefit of the presumption of advancement – which applied to transfers from father to son – there was an exception where the illegal purpose had not been carried out.    It was immaterial that the father had not demanded the return of the shares until the danger had passed.   No deception had been practised on the creditors.   Millet LJ dealt with the withdrawal exception as follows:

"The doctrine of locus poenitentiae is an exception which operates to mitigate the harshness of the primary rule.  It enables the court to do justice between the parties even though in order to do so, it must allow a plaintiff to give evidence of his own dishonest intent.  But he must have withdrawn from the transaction while his dishonesty still lay in intention only.  The law draws the line once the intention has been wholly or partly carried into effect."12

Millett LJ identified the following propositions of law:

(1) Title to property passes both at law and in equity even if the transfer is made for an illegal purpose. The fact that title has passed to the transferee does not preclude the transferor from bringing an action for restitution.

(2) The transferor's action will fail if it would be illegal for him to retain any interest in the property.

(3) Subject to (2) the transferor can recover the property if he can do so without relying on the illegal purpose. This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour.

(4) It will almost invariably be so where the illegal purpose has not been carried out. It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor's conduct as inconsistent with his retention of a beneficial interest.

(5) The transferor can lead evidence of the illegal purpose whenever it is necessary for him to do so provided that he has withdrawn from the transaction before the illegal purpose has been wholly or partly carried into effect. It will be necessary for him to do so (i) if he brings an action at law or (ii) if he brings proceedings in equity and needs to rebut the presumption of advancement.

(6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it. Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it. To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors.

(7) The Court should not conclude that this was his intention without compelling circumstantial evidence to this effect. The identity of the transferee and the circumstances in which the transfer was made would be highly relevant. It is unlikely that the Court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors.

The father got his shares back. 

Although the general view is that in Tribe v Tribe the right result was achieved there have been criticisms:

(1) How could it be said that the illegal purpose of the claimant had not been carried out unless one adopts a particularly restrictive view of what the purpose was?  It could be argued that the judgment of the court in fact fulfilled the illegal purpose by returning the shares to the father once any perceived threat from the creditors had passed; and

(2) By allowing the claim without the need for repentance but simply once the risk had passed, it was no longer possible to justify the policy on which this ground for the unjust enrichment claim had been based, for saying that this encouraged a withdrawal from an illegal transaction.

The Law Commission

The law in relation to the illegality defence was, and is, unsatisfactory.  The result could, for example, depend upon the accident of whether or not a relationship between transferor and transferee gave rise to the presumption of advancement.  An unmeritorious son would be in a better position than a saintly cousin; a selfish and unprincipled wife would be in a better position than a loving and long-suffering mistress.  Following on from Lord Goff's pleas the Law Commission duly considered the position in its Consultation Paper No 154: "The Effect of Illegality on Contracts and Trusts".  It criticised the current law as being too complex, capable of producing unjust results, and being of uncertain application.  It recommended abandoning the reliance principle and its potential replacement of some form of statutory discretion.    However, the response to the Consultation paper was mixed and its proposals were not taken forward at that time.    There was a concern that the introduction of a discretion could introduce yet more uncertainty into the law.   The Law Commission then looked at ways in which the law could be rationalised without recourse to legislation but this proved to be too difficult and controversial.

The General principles of policy underlying the illegality defence

In the Law Commission's 2009 report it identified six rationales for the defence of illegality.  These were:

(1) Furthering the purpose of the rule which the claimant's illegal behaviour has infringed;

(2) Consistency;

(3) The need to prevent the claimant from profiting from his or her own wrong;

(4) Deterrence;

(5) Maintaining the integrity of the legal system; and

(6) Punishment.

Subsequent to consultation it was decided that punishment, being a matter of criminal law, should be left out of the mix.   However, the Law Commission provisionally recommended that the illegality defence should be allowed where its application can be firmly justified by the policies that underlie its existence, meaning all of the above rationales apart from punishment. 

In 2010 the Law Commission published its Final Report.  In summary, it recommended that, so far as the illegality defence in trust cases was concerned, there was room for targeted legislative intervention.  In all other cases it concluded that the best way forward was for there to be judicial development of the law.  In coming to that latter conclusion there was much weight placed on the non-trust cases of Gray v Thames Trains 13 and Rolls & Stone v Moore Stephens 14.   Those cases are both worthy of consideration by the diligent practitioner: in the first the claimant sued the defendant for the injuries he sustained in the Ladbroke Grove train disaster but failed to recover for his loss of earnings and incarceration arising out of his imprisonment which was as a result of the serious criminal offence caused, he said, by the injuries sustained in the tragedy.  In the second, where the liquidator of a company sued the auditors for failing to notice a substantial fraud, the claim failed because the company's puppet master was the author of the fraud and that illegality was visited on the company.

The Law Commission and trust cases

The Law Commission's position on trust cases was, however, different.   It mounted a powerful assault on the current state of the law in "trust cases".  As a result of Tinsley v Milligan the "presumptions of resulting trust and advancement" which were developed in the courts of equity to guide them through the evidence had been given a new and crucial significance.   Prior to Tinsley v Milligan they were no more than initial starting points.  After Tinsley, in a case involving an element of illegality, the presumption will, or could, influence the substantive outcome.  Furthermore, the application of the "reliance principle" remains unclear:

"Because of its arbitrary nature, there is a strong temptation for courts to limit the application of the reliance principle by means of exceptions and fine distinctions. Apart from the withdrawal exception, there are indications in the case law of at least three other ways in which this might be achieved: first, by looking at the policy of any relevant legislation that has been infringed; secondly, by looking at any subsequent inconsistent conduct of the claimant; and thirdly, by looking at the nature of the trust property. The position is also complicated in the case of a voluntary conveyance of land, as opposed to personal property, where it is arguable that section 60(3) of the Law of Property Act 1925 has abolished the presumption of resulting trust that would usually apply."

At paragraph 6.71 of the Law Commission's 2009 Consultation Paper, the criticism of the reliance principle by McHugh J in the High Court of Australia decision of Nelson v Nelson15 was noted:

"[The reliance principle] has no regard to the legal and equitable rights of the parties, the merits of the case, the effect of the transaction in undermining the policy of the relevant legislation or the question whether the sanctions imposed by the legislation sufficiently protect the purpose of the legislation. Regard is had only to the procedural issue; and it is that issue and not the policy of the legislation or the merits of the parties which determines the outcome. Basing the grant of legal remedies on an essentially procedural criterion which has nothing to do with the equitable positions of the parties or the policy of the legislation is unsatisfactory, particularly when implementing a doctrine that is founded on public policy."

In those circumstances the Law Commission recommended that the reliance principle should be abolished in relation to trust claims and that the legislation should be targeted at those cases where the trust arrangement is created in order to conceal the beneficiary's interest (or the trustee's interest) in the trust property in connection with a criminal purpose. The statutory discretion should apply in such circumstances. It should also apply where the intention to use the trust arrangement to conceal the beneficial interest for a criminal purpose is formed after the trust was created albeit, in such circumstances, the exercise of the discretion should be limited to cases where (1) the beneficiary has taken steps to ensure that the trust arrangement continues in place so that the concealment can be made; and (2) the criminal purpose has been carried out either by the beneficiary or by somebody with the beneficiary's consent. In operating the discretion the first step would be to declare that the intended beneficiary is entitled to the equitable interest. In this way inconsistency between the criminal and civil law can be avoided. The discretion was only to be exercised in exceptional circumstances. The factors that were intended to govern the discretion were to include (the following were not intended to be exhaustive): 

Unfortunately, the present Government refused to enact these limited reforms. 

The facts of Patel v Mirza

It is unlikely that Mr Patel ("P") had any of the above considerations in mind when he handed over his money to Mr Mirza ("M").  The facts of the case can be simply stated.   P paid M £620,000 between September and December 2009.  On P's own case – he pleaded the intended illegal transaction in full – he had paid the money to M for the purposes of an illegal agreement for insider dealing in the shares of Royal Bank of Scotland plc ("RBS").  In the event the agreement could not be and was not carried out because the expected inside information was not forthcoming.  P's claim to have his money back was rejected by the trial judge.  M's illegality defence succeeded.   The position would have been different if P had withdrawn from its implementation before its implementation had been frustrated but he had not done so.     He had relied explicitly, in his pleadings, on his own illegality and he could not avail himself of the withdrawal exception because he had not repented.  Events had overtaken him and that was different.   The matter went to the Court of Appeal where the two questions for consideration were:

(1) Was P stymied by the reliance principle, particularly in the light of the way in which he pleaded his case? And

(2) If so, could he pray in aid the withdrawal exception?    Could he say that he was still in a place of repentance when he was not penitent but had been thwarted by circumstance?

Rimer and Vos LLJ found that, on the first question, he could not get around his own illegality.  He had pleaded it, after all, and he could not be allowed to rewrite history by saying he could have set out his case more sparsely by avoiding the mention of the illegal elements of his transaction.  Although it was contended on P's behalf that he could simply have pleaded that the money had been transferred to M for a specific purpose and when that purpose failed M held the money on a bare trust he had not in fact done so and, in any event, the trial judge had found as a fact that there was no trust relationship.  Per Rimer LJ at paragraph [21] P's counsel's submissions that:

"…we should approach Mr Patel's case on the basis that he could have pleaded his case in various alternative ways that carefully kept the illegal cat securely in the bag cut no ice with me."

Gloster LJ, in a powerful dissenting judgment, disagreed.   She began by citing the well-known dicta of Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341 at 343:

"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant.  It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say.  The principle of public policy is this: ex dolo malo non oritur actio.  No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.  If, from the plaintiff's own stating or otherwise the cause of action appears to rise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted.  It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff.  So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it, for where are both equally in fault, potior est condition defenditis."

From there she mounted an assault upon the law of illegality in unjust enrichment cases; she said it had been:

"…widely criticised as complex, uncertain, formalistic and capable of producing injustice..."

She noted the government's failure to implement the Law Commission's proposals.  She also considered the cases of Gray and Stone and Rolls and noted Lord Hoffman's observation in the former that:

"The maxim ex turpi causa expresses not so much a principle as a policy.    Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations."

Lord Hoffman also made it clear that, in considering whether the ex turpi causa  principle applied, the degree of connection between the wrongful conduct and the claim made was an important consideration. He said at paragraphs [53] to [54]:

"The distinction, between causing something and merely providing the occasion for someone else to cause something, is one with which we are very familiar in the law of tort.   It is the same principle by which the law normally holds that even though damage would not have occurred but for a tortious act, the defendant is not liable if the immediate cause was the deliberate act of another individual … it was Judge LJ … who formulated the test of "inextricably linked" which was afterwards adopted by Sir Murray Stewart-Smith…Other expressions which he approved … were "an integral part or a necessary direct consequence" of the unlawful act … and "arises directly ex turpi causa" …It might be better to avoid metaphors like "inextricably linked" or "integral part" and to treat the question simply as one of causation. Can one say that, although the damage would not have happened but for the tortious conduct of the defendant, it was caused by the criminal act of the claimant? …Or is the position that although the damage would not happened without the criminal of the claimant, it was caused by the tortious act of the defendant?"

Gloster LJ then turned to Stone & Rolls and the words of Lord Phillips at paragraph [25] where he said:

"Although Tinsley v Milligan does not establish a general rule that if a claimant founds his claim on his own illegal conduct, the defence of ex turpi causa will apply, earlier cases support this principle …. I do not believe, however, that it is right to proceed on the basis that the reliance test can automatically be applied as a rule of thumb.  It is necessary to give consideration to the policy underlying ex turpi causa in order to decide whether the defence is bound to defeat S & R's claim."16

Again, per Lord Philips in Stone & Rolls at paragraph [21]:

"The House in Tinsley v Milligan did not lay down a universal test of ex turpi causa.   It was dealing with the effect of illegality on title to property.  It established the general principle that, once title has passed, it cannot be attacked on the basis that it passed pursuant to an illegal transaction.   If the title can be asserted without reliance on the illegality, the defendant cannot rely on the illegality to defeat the title … The House held that it also applied in the case of both legal and equitable title to realty.   The House did not hold that illegality will never bar a claim if the claim can be advanced without reliance on it.  On the contrary, the House made it plain that where the claim is to enforce a contract17 the claim will be defeated if the defendant shows that the contract was for an illegal purpose, even though the claimant does not assert illegal purpose in making the claim."

Gloster LJ concluded that in order to decide whether the ex turpi causa principle applied, the degree of connection between the wrongful conduct and the claim made was an important consideration, as was the question of how disproportionate the claimant's loss is to the unlawfulness of his conduct.   Ultimately, she found in favour of P on the first question.  She did so for a number of reasons:

(1) The criminal offence in question was one that was contrary to section 52 of the Criminal Justice Act 1993 but public policy did not seem to her to require him to lose his rights to the return of the money in circumstances where no crime was actually committed;

(2) In any event such an analysis failed to take account of section 63(2) of the same Act which stated that no contract should be void or unenforceable by reason only of section 52;

(3) The transaction which P was seeking to enforce was not the legally objectionable agreement to speculate on the index on the basis of insider information  but a claim to recover an amount equal to the sums he had originally deposited with M as his agent in circumstances where no bets have been placed and the consideration for such a contract has failed;

(4) There was no express finding by the trial judge that P actually knew that taking advantage of insider information was unlawful;

(5) This was not a case where the criminal conduct could be said to be "proximate" or where there could be said in any real sense to be a causal connection between the claim for the return of the sums deposited with M and the illegal conduct;

(6) Finally, in light of section 63(2) of the 1993 Act it could not be said that there was some wider public policy consideration that nevertheless required P's claim to be struck down.  She cited with approval the words of Bingham LJ in Saunders v Edwards [1987] 2 AER 651 at 665 to 666 where he said:

"Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions.   On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits.    On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct."

Whilst her brethren placed great store on the fact that the illegal purpose had been pleaded by P Gloster LJ said at paragraph [82]:

"In my view the correct question to ask is whether of necessity the pleading of the illegal purpose was an essential element of Mr Patel's cause of action.  If it was not, then the fact that the illegal cat was let out of the bag by Mr Patel does not in my view matter."

Patel v Mirza and locus poenitentiae

The Court of Appeal all agreed that P could avail himself of the withdrawal exception notwithstanding his absence of penitence.  Rimer LJ put the question this way (at paragraph [25]):

"… whether it is open to the claimant to recover the money paid under an illegal agreement in circumstances in which the claimant neither repudiates nor withdraws from the agreement before its performance, but in which its performance then becomes frustrated."

He relied, in particular, upon the observations of Millett LJ in Tribe v Tribe who said:

"But I would hold that genuine repentance is not required.  Justice is not a reward for merit, restitution should not be confined to the penitent.  I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient."

Rimer LJ said at paragraph [44]:

"The question for us, however, is whether it makes any difference if the claimant's withdrawal from the illegal agreement is not because of a change of mind that he no longer wishes to participate in it, but because the agreement is no longer capable of being performed at all.   I have not found the answer to that easy, and my mind has wavered on it since we reserved judgment; and that we have taken rather longer to deliver our judgments than might ordinarily have been expected is at least in part explained by the fact that we considered it necessary to go back to counsel on certain questions."

And at paragraph [45]:

"I would regard as unattractive a distinction between cases (a) where the withdrawal is from an illegal agreement that is no longer needed for the purpose for which it was designed and (b) where the withdrawal is from an illegal agreement that cannot be or is anyway not going to be performed.  The drawing of any such distinction would, I consider, depend on holding that "genuine repentance" on the part of the withdrawer is required.  But I would take my lead from Millett LJ in Tribe and hold, in respectful agreement with him that such repentance is not required.  I consider that if, as in Tribe, voluntary withdrawal from an illegal agreement when it has ceased to be needed is sufficient to entitle the claimant to recover, it would be an odd distinction if a claimant were nevertheless not entitled to recover by relying on an illegal agreement that neither was performed nor could be performed.  To recognise such a distinction would, I consider, require proof of a true sense of penitence, something that was not required or expected of the successful claimant in Tribe."

Gloster LJ agreed.  She said at paragraph [95]:

"In the present case it was common ground that the illegal purpose was not carried out.  On the contrary this was a case where, as the judge found, there was no performance at all because the bet on the RBS shares was never placed; see paragraph 47 of the judgment.  All that happened was that the money was received by Mr Mirza in his private bank account.  Other than the illegal agreement itself, nothing illegal actually occurred.  The authorities cited by Millett LJ in Tribe v Tribe and his view that genuine repentance or penitence is not required, and that voluntary withdrawal from an illegal transaction when it ceases to be needed is sufficient, clearly demonstrate that in a situation such as the present case, recovery is permitted despite the fact that:

(i) Title to the monies paid has passed to the transferee; and

(ii) There may have been no genuine "repentance" before the parties to the illegal transaction, for whatever reason, decide not to go ahead with it."

She also dealt with the "conspiracy" point referred to at the commencement of this article by reference to the dicta of Lord Atkinson in Petherpermal Chetty v Muniandy Serval (1908) LR 35 Ind App 96 (PC):

"In conspiracy the concert or agreement of the two minds is the offence, the overt act is about the outward and visible evidence of it.  Very often the overt act is but one of the many steps necessary to the accomplishment of the illegal purpose, and may, in itself, be comparatively insignificant and harmless; but to enable a fraudulent confederate to retain property transferred to him in order to reject a fraud, a contemplated fraud must, according to the authorities, be effected.  Then, and then alone, does the fraudulent grantor, or giver, lose the right to claim the aid of the law to recover the property he has parted with."

Vos LJ also agreed.   A person could take advantage of the withdrawal exception if he voluntarily withdraws from an illegal transaction under which property has been transferred, without the need for genuine repentance, before the fraud or the illegal purpose has been wholly or partly carried into effect.  He was not persuaded that the reason for the claimant's withdrawal would be, on the authorities, material to his entitlement to take advantage of the exception.  He could not see why the reason for the change of mind should matter provided that change of mind was in time.

Permission has now been granted for the matter to be considered again in the Supreme Court.  It is therefore likely that both the reliance principle and the withdrawal exception – the locus poenitentiae – will be subject to very close forensic analysis.   Although this is not a trust case it is likely that some light will be shed on the nature and purpose of the reliance principle.  This may have shed a side-light on the reliance principle as articulated by the House of Lords in Tinsley v Milligan and criticised by the Law Commission in its report.   It is of interest to note that losing counsel in Tinsley was James Munby QC who was Chairman of the Law Commission when it criticised the reliance principle as it related to trust cases.      We should also expect a detailed consideration of the doctrine of locus poenitentiae.    Unfortunately, I do not have any insider information as to the likely outcome of this appeal.  However, I believe that it will fail in substance.   I also think that the Supreme Court will side with Gloster LJ on the proper approach to the reliance principle.  It does not feel right that the success or failure of a case should depend upon the accidents of pleading.  This is particularly the case when so many cases going forward will be advanced by litigants in person who, unlike Mr Patel – who at least had the advantage of legal advice and representation – will find the contents of this article incomprehensible.

Oh.  And before I finish this article and forget.    Murder is a far more heinous crime than insider dealing.   The public policy considerations are entirely different.    On a moral level as well as a matter of legal principle and advice, I would counsel against paying someone money to have a business associate, or anyone else for that matter, killed.

1 Per Gloster LJ in Patel v Mirza [2014] EWCA Civ 1047; [2015] 1 AER 326; [2015] 2 WLR 405.
2 Per Gloster LJ in  Patel v Mirza [2014] EWCA Civ 1047; [2015] 1 AER 326; [ 2015] 2 WLR 405.
3 "A place of [or for] repentance" according to John Gray's 2002 work on Lawyer's Latin.
4 [1994] 1 AC 340.
5 [1918] 1 KB 223.
6 [1970] P 136.
7 Usually the presumption of advancement, which is to be abolished when, eventually, section 199 of the Equality Act 2010 is made law, or the presumption of resulting trust.
8 Emphasis added.
9 See the Law Commission's Consultation Paper No 154 of 1999.
10 [2007] 1 FLR 1858.
11 [1995] 2 FLR 966.
12 Emphasis added.  
13 [2009] UKHL 33; [2009] 1 AC 1339.
14 [2009] UKHL 39; [2009] 1 AC 1391.
15 (1995) 184 CLR 538.
16 Emphasis added by Gloster LJ.
17 Emphasis added by Gloster LJ.