Unlawful Intent Does Not Prevent Recovery of Debt

Although, as a general rule, an illegal contract is unenforceable, a City broker who offered to supply insider information to a friend for £620,000 but then reneged on the promise has been ordered to repay the money.

The broker claimed to have access to contacts at very high levels in the Royal Bank of Scotland (RBS) and the ability to obtain highly confidential information likely to affect the price of RBS shares. RBS was 'rescued' by the Government in 2008.

The payment was made and the intention was to use the information gained regarding the Government's intentions towards RBS to place bets on the movement in the price of RBS shares, using a spread-betting account. It was agreed by both parties that the proposed scheme was unlawful.

In the event, nothing came of the proposal and the broker agreed to return the other man's money. When this did not happen, court action was taken to recover it.

Could the claimant recover the money bearing in mind that the proposed agreement was unlawful? The established legal principle is that a contract that is unlawful cannot be enforced. However, in this case the contract had not been performed and, indeed, could not be performed owing to reasons beyond the control of either of the parties to it.

The Court of Appeal concluded that since no part of the illegal purpose had actually taken place, the money should be returned.

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