Khan v Hussain
| Jurisdiction | Scotland |
| Judge | Lord Ericht |
| Judgment Date | 08 February 2019 |
| Neutral Citation | [2019] CSOH 11 |
| Docket Number | No 21 |
| Court | Court of Session (Outer House) |
| Date | 08 February 2019 |
[2019] CSOH 11
Outer Divison
Lord Ericht
AXA Insurance Ltd (formerly Winterthur Swiss Insurance Co) v Akther and Darby Solicitors [2009] EWHC 635; [2009] PNLR 25
Bell v Peter Browne & Co [1990] 2 QB 495; [1990] 3 WLR 510; [1990] 3 All ER 124
Bilta (UK) Ltd (in liquidation) v Nazir (No 2) sub nom Jetivia SA and anr v Bilta (UK) Ltd and ors [2015] UKSC 23; [2016] AC 1; [2015] 2 WLR 1168; [2015] 2 All ER 1083; [2015] 2 All ER (Comm) 281; [2015] 2 Lloyd's Rep 61; [2015] BCC 343; [2015] 1 BCLC 443; [2015] BVC 20
Boswell v North British Rly (1902) 4 F 500; (1901) 9 SLT 263
Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621; [1957] 3 WLR 403; [1957] 2 All ER 844; [1957] 2 Lloyd's Rep 1
Dunlop v McGowans 1980 SC (HL) 73; 1980 SLT 129
Geddes (D) (Contractors) Ltd v Neil Johnson Health and Safety Services Ltd [2017] CSOH 42; [2018] Lloyd's Rep IR 264; [2017] PNLR 21; 2017 GWD 10-134
Gordon's Trs v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75; 2017 SLT 1287; 2018 SCLR 129
Gray v Thames Trains Ltd [2009] UKHL 33; [2009] 1 AC 1339; [2009] 3 WLR 167; [2009] 4 All ER 81; [2009] PIQR P22; [2009] LS Law Medical 409; 108 BMLR 205; [2009] MHLR 73
Hounga v Allen [2014] UKSC 47; [2014] 1 WLR 2889; [2014] 4 All ER 595; [2014] ICR 847; [2014] IRLR 811; [2014] HRLR 23; 39 BHRC 412; [2014] Eq LR 559
Jackson v Clydesdale Bank plc 2003 SLT 273
Knapp v Ecclesiastical Insurance Group plc [1998] Lloyd's Rep IR 390; [1998] PNLR 172
Kusz v Buchanan Burton [2009] CSIH 63; 2010 SCLR 27
Les Laboratoires Servier SAS v Apotex Inc [2014] UKSC 55; [2015] AC 430; [2014] 3 WLR 1257; [2015] 1 All ER 671; [2014] Bus LR 1217
Morrison (David T) & Co Ltd t/a Gael Home Interiors v ICL Plastics Ltd [2014] UKSC 48; 2014 SC (UKSC) 222; 2014 SLT 791; 2014 SCLR 711; [2014] CILL 3561
Pelagic Freezing (Scotland) Ltd v Lovie Construction Ltd and anr [2010] CSOH 145; 2010 GWD 37-763
Ramblers' Association v Secretary of State for the Environment, Food and Rural Affairs [2017] EWHC 716
Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472; [2011] 2 All ER 841; [2011] Bus LR 1629; [2011] 1 Lloyd's Rep 462; [2011] 1 CLC 80; [2011] UKCLR 339
Stone and Rolls Ltd (in liquidation) v Moore Stephens (a firm) [2009] UKHL 39; [2009] 1 AC 1391; [2009] 3 WLR 455; [2009] 4 All ER 431; [2010] 1 All ER (Comm) 125; [2009] Bus LR 1356; [2009] 2 Lloyd's Rep 537; [2009] 2 BCLC 563; [2009] 2 CLC 121; [2009] BPIR 1191; [2009] PNLR 36
Winnik v Dick 1984 SC 48; 1984 SLT 185
Bell, GJ, Principles of the Law of Scotland (10th Guthrie ed, T & T Clark, Edinburgh, 1899), sec 35
Colinvaux, RP, Law of Insurance (11th Merkin ed, Sweet and Maxwell, London, 2016), para 21.154
Johnston, D, Prescription and Limitation of Action (2nd ed, W Green, Edinburgh, 2012), para 4.32
Law Commission, The Illegality Defence (Law Com no 320, 2010) (Online: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data /file/229171/0412.pdf) (8 April 2019))
Damages — Breach of contract — Ex turpi causa non oritur actio — Regulator imposing sanction for misrepresentations — Representations made on advice of professional adviser — Action against adviser to recover damages arising from sanction — Whether recovery of damages prohibited
Amir Khan raised an action in the commercial court against Muhammad Zubair Hussain in respect of alleged breach of contract and professional negligence. The cause called before the commercial judge (Lord Ericht) for debate at the instance of the defender, on 28 September 2018.
From March 2005 until March 2013, the pursuer was approved by the Financial Services Agency (‘FSA’) to perform certain controlled functions under the Financial Services and Markets Act 2000 (cap 8).
The pursuer made personal mortgage applications in December 2007, October 2009 and May 2010. On 11 September 2009, the defender prepared a letter as the pursuer's accountant stating that the pursuer had an earned income of £60,000 per annum and additional investment income of £15,000 per annum. From September 2011, the FSA was investigating the pursuer regarding, inter alia, the pursuer's mortgage transactions. On 4 March 2013, the FSA imposed disciplinary sanctions on the pursuer, including withdrawal of approval to perform controlled functions, and a prohibition against performing any function in relation to any regulated activities. The FSA determined, inter alia, that the pursuer had knowingly submitted a personal mortgage application containing false and misleading information about his income in the form of false payslips, aggravated by the pursuer's purported explanations during the course of the investigation as to why he provided a false income figure, which were deemed to have been deliberate attempts to give a false and misleading explanation to the FSA. The pursuer's evidence had been that the payslips had been created by the defender on the defender's advice representing sums the defender had advised that he was entitled to draw down from the company he owned and directed.
The pursuer raised an action against the defender for breach of contract and professional negligence, and sought to recover his loss of earnings resulting from the FSA sanctions. The summons in the present action was served personally upon the defender on 2 March 2018.
At debate, the defender argued that it would be inconsistent with the regulatory sanction and contrary to public policy to allow the pursuer to attempt to pass on the consequences of his own wrongdoing to the defender. The pursue was precluded from recovering damages from the defender on the basis of ex turpi causa non oritur actio. In any event, any obligation upon the defender to make payment had prescribed in terms of sec 6 of the Prescription and Limitation Act 1973 (cap 52). Further, in any event, there was no relevant averment of causation.
The pursuer contended that the doctrine ex turpi causa non oritur actio applied be the doctrine applied only in clear cases. The pursuer's claim was not linked to, nor reliant upon, any illegality or immorality on by the pursuer. There were strong policy considerations that persons who relied upon the professional services of others should be able to hold their advisers accountable. The pursuer did not accept that he relied on statements he knew to be false. The pursuer would not have been placed in the situation complained of, but for the defender's breaches. The pursuer's loss could not be established until the FSA's decision in March 2013.
Held that: (1) the rule that damages cannot be recovered as a consequence of a sentence imposed for a criminal act extended to sanctions applied by a regulator, the pursuer sought to recover for damage which was a consequence of the sentence imposed on him under the financial services regulatory regime, and he was prohibited from doing so (paras 30–33); (2) there may be circumstances in which the rule would have to defer to some other public policy but the consideration that persons who relied on others for professional services should be able to hold their adviser accountable did not arise in the present case as the pursuer was disciplined for his own dishonest conduct (para 35); and action dismissed.
Observed that: (1) the prescriptive period began to run at the time when the pursuer expended funds, time and effort in relation to the FSA investigation (para. 49); and (2) where the pursuer averred that his representations to the FSA were made on the defender's advice, there was a direct causal link between the advice said to have been given and the regulatory sanctions imposed (para 56).
Dunlop v McGowans 1980 SC (HL) 73 and Safeway Stores Ltd v Twigger[2011] Bus LR 1629applied and Boswell v North British Rly(1902) 4 F 500distinguished and Stone and Rolls Ltd (in liquidation) v Moore Stephens (a firm)[2009] 1 AC 1391, Gray v Thames Trains Ltd[2009] 1 AC 1339 and Les Laboratoires Servier SAS v Apotex Inc[2015] AC 430considered.
At advising, on 8 February 2019—
Lord Ericht—
[1] The pursuer's regulatory authority, the Financial Services Agency (‘FSA’), brought disciplinary proceedings against him. He was found to be in breach and as a sanction his authority to perform certain functions was withdrawn. The pursuer raised an action against the defender for breach of contract and professional negligence, and sought to recover from the defender his loss of earnings resulting from that sanction.
[2] The defender pled:
‘2. Any obligation incumbent upon the defender to make payment having prescribed in terms of Section 6 of the Prescription and Limitation (Scotland) Act 1973 [(cap 52)], the defender should be assoilzied from the Conclusions of the Summons.
3. The pursuer being precluded from recovering damages from the defender by reason of public policy — ex turpi causa non oritur actio — the defender should be assoilzied.
4. The pursuer having suffered no loss as a result of any breach of duty on the part of the defender, the defender should be assoilzied.’
[3] The pursuer's pleas in law sought the repelling of these pleas.
[4] The action called before me for debate on these pleas in law.
[5] The pursuer was the sole director and shareholder of Sovereign Worldwide Ltd (‘Sovereign’).
[6] The pursuer averred (condescendence, art 2):
‘In around March 2007 Sovereign was granted permission by the Financial Services Agency (“FSA”) to carry on regulated mortgage and general insurance activities. The defender thereafter also contracted with the pursuer on a personal basis to provide advice about the pursuer's tax affairs as an individual and the submission of the pursuer's personal tax return.’
[7] The pursuer further averred:
‘In or around late 2009 the defender contracted with the pursuer that he would provide a financial reference for the pursuer to a lender, Intelligent Finance. The defender knew that...
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