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Can Illegal Contracts Be Enforced? Landmark Supreme Court Ruling

It is a fundamental rule of law that the courts will not assist anyone to profit from his own illegal or immoral acts. However, in a landmark decision, the Supreme Court has ruled in the context of a debt recovery claim that that maxim should not be so slavishly applied as to achieve arbitrary, unjust or disproportionate results.

Businessman A gave £620,000 to businessman B in the expectation that he would use inside information to place bets on a bank’s share price. The scheme proved abortive and businessman A launched proceedings to recover his money. On the basis that the whole arrangement had been illegal from the outset, businessman B argued that the claim should be rejected on public policy grounds.

The Court of Appeal ruled that businessman A was entitled to recover his money. In dismissing businessman B’s challenge to that decision, the Supreme Court took a flexible approach in finding that businessman A’s claim was not debarred by illegality. Businessman B would be unjustly enriched if permitted to keep the money and such an outcome would be a disproportionate response to the unlawful purpose of the arrangement. The result of the case did not conflict with the public interest or undermine the integrity of the justice system.