Moore Stephens (A Firm) v Stone Rolls Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Lord Phillips of Worth Matravers,Lord Scott of Foscote,Lord Walker of Gestingthorpe,Lord Brown of Eaton-under-Heywood,Lord Mance |
| Judgment Date | 30 July 2009 |
| Date | 30 July 2009 |
| Court | House of Lords |
House of Lords.
Lord Phillips of Worth Matravers, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood, Lord Mance.
Michael Brindle QC, Mark Simpson QC and David Murray (instructed by Norton Rose LLP) for the appellant.
Jonathan Sumption QC and Tom Adam QC (instructed by Barlow Lyde & Gilbert LLP) for the respondent.
The following cases were referred to in the speeches:
Abrath v North Eastern Railway CoELR (1886) 11 App Cas 247.
Alexander v RaysonELR [1936] 1 KB 169.
Al Saudi Banque v Clarke PixleyELR [1990] Ch 313.
Arab Bank plc v Zurich Insurance Co [1998] CLC 1351.
Archbolds (Freightage) Ltd v S Spanglett LtdELR [1961] 1 QB 374.
Attorney General's Reference (No. 2 of 1982), ReELR [1984] QB 624.
Bank of Credit and Commerce International (Overseas) Ltd v Price WaterhouseUNK [1997] BCC 584; [1998] BCC 617 (CA).
Bank of Credit and Commerce International (Overseas) Ltd v Price WaterhouseUNK [1999] BCC 351.
Bank of Credit and Commerce International SA (in liq) v Ali (No. 2)ICR [2000] ICR 1354; [1999] 4 All ER 83.
Bank of India v MorrisUNK [2005] BCC 739.
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] CLC 1179; [1997] AC 191.
Barings plc v Coopers & LybrandUNK [2003] EWHC 1319 (Ch); [2003] 1 Ll Rep IR 566.
Belmont Finance Corp v Williams Furniture LtdELR [1979] Ch 250.
Belmont Finance Corp v Williams Furniture Ltd (No. 2)UNK [1980] 1 All ER 393.
Beresford v Royal Insurance Co LtdELR [1938] AC 586.
Berg, Sons & Co Ltd v Mervyn Hampton Adams [2002] Ll Rep PN 41.
Bily v Arthur Young & Co (1992) 3 Cal 4th 370.
Bowmakers Ltd v Barnet Instruments LtdELR [1945] KB 65.
Brink's-Mat Ltd v Noye [1991] 1 Bank LR 68.
Broderip v SalomonELR [1895] 2 Ch 323.
Burrows v Rhodes and JamesonELR [1899] 1 QB 816.
Canadian Dredge & Dock Co Ltd v R (1985) 19 DLR (4th) 314.
Caparo Industries plc v DickmanELR [1989] QB 653 (CA); [1990] 2 AC 605 (HL).
Cenco Inc v Seidman & Seidman (1982) 686 F 2d 449.
Citizens' Life Assurance Co Ltd v BrownELR [1904] AC 423.
City Equitable Fire Insurance Co Ltd, ReELR [1925] Ch 407.
Cleaver v Mutual Reserve Fund Life AssociationELR [1892] 1 QB 147.
Corr v IBC Vehicles LtdELR [2008] 1 AC 884.
Cross v Kirkby (unreported, 18 February 2000, CA).
Dairy Containers Ltd v NZI Bank Ltd and Auditor-General [1995] 2 NZLR 30.
Daniels (formerly practising as Deloitte Haskins and Sells) v Anderson (1995) 16 ACSR 607.
Duke Group Ltd v Pilmer (1999) 73 SASR 180; [2001] BCLC 773.
Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (1994) 15 ACSR 502.
Euro-Diam Ltd v BathurstELR [1990] 1 QB 1.
Everet v Williams (1725).
Exchange Banking Co (Flitcroft's case), ReELR (1882) 21 Ch D 519.
Federal Deposit Insurance Corp v Ernst & Young (1992) 967 F 2d 166.
Federal Deposit Insurance Corp v O'Melveny & MyersECAS (1995) 61 F 3d 17.
Galoo Ltd v Bright Grahame MurrayWLR [1994] 1 WLR 1360.
Gray v BarrELR [1971] 2 QB 554.
Gray v Thames Trains LtdUNK [2009] UKHL 33; [2009] 3 WLR 167.
Group Josi Re v Walbrook Insurance Co Ltd [1995] CLC 1532; [1996] 1 WLR 1152.
Hall v Hebert (1993) 101 DLR (4th) 129.
Hampshire Land Co, ReELR [1896] 2 Ch 743.
Hardy v Motor Insurers' BureauELR [1964] 2 QB 745.
Hart Building Supplies Ltd v Deloitte & Touche [2004] BCSC 55.
Hewison v Meridian Shipping Services Pte LtdUNK [2002] EWCA Civ 1821; [2003] PIQR P252.
Holman v JohnsonENR (1775) 1 Cowp 341; 98 ER 1120.
Howard v Shirlstar Container Transport LtdWLR [1990] 1 WLR 1292.
Houghton (J C) & Co v Nothard, Lowe and Wills LtdELR [1928] AC 1.
Jack Greenberg Inc (Larry Waslow, Trustee v Grant Thornton LLP) (1999) 240 BR 486 (1999).
Kingston Cotton Mill Co, ReELR [1896] 1 Ch 6.
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722.
Knauer v Jonathon Roberts Financial Group Inc (2003) 348 F 3d 230.
Komercni Banka AS v Stone & Rolls LtdUNK [2002] EWHC 2263 (Comm).
KR v Royal & Sun Alliance plcUNK [2006] EWCA Civ 1454; [2007] 1 All ER (Comm) 161.
Kwei Tek Chao v British Traders & Shippers LtdELR [1954] 2 QB 459.
Lancashire County Council v Municipal Mutual Insurance LtdELR [1997] QB 897.
Law Society v KPMG Peat MarwickUNK [2000] 1 All ER 515; [2000] 1 WLR 1921
(CA).
Lennard's Carrying Co Ltd v Asiastic Petroleum Co LtdELR [1915] AC 705.
London and General Bank, ReELR [1895] 2 Ch 166.
London and General Bank, Re (No. 2)ELR [1895] 2 Ch 673 (CA).
Luscombe v Roberts (1962) 106 SJ 373.
McNicholas Construction Co Ltd v C & E CommrsUNK [2000] STC 553.
Mahmud v Bank of Credit and Commerce International SAELR [1998] AC 20.
Marles v Philip Trant & Sons LtdELR [1954] 1 QB 29.
Marlwood Commercial Inc v KozenyUNK [2006] EWHC 872 (Comm).
Mediators (The) Inc v Manney (1997) 105 F 3d 822.
Meridian Global Funds Management Asia Ltd v Securities CommissionELR [1995] 2 AC 500.
Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services LtdELR [1983] Ch 258.
NCP Litigation Trust v KPMG LLP (2006) 901 A 2d 871.
Official Committee of Unsecured Creditors v RF Lafferty & Co Inc (2001) 267 F 3d 340.
Oger v Chiefscope Inc et al (1998) 113 OAC 373; (1996) 29 OR (3d) 215.
Pacific Acceptance Corp Ltd v Forsyth (1970) 92 WN (NSW) 29.
Pendleburys Ltd v Ellis Green and Co (1936) 181 LT 410.
R v McDonnellELR [1966] 1 QB 233.
RBG Resources plc v RastogiUNK [2002] EWHC 2782 (Ch); [2004] EWHC 1089 (Ch).
Reeves v Commissioner of Police of the MetropolisELR [1999] QB 169; [2000] 1 AC 360 (HL).
Royal Brunei Airlines Sdn Bhd v TanELR [1995] 2 AC 378.
Salomon v Salomon & Co LtdELR [1897] AC 22.
Sasea Finance Ltd (in liq) v KPMGUNK [2000] 1 All ER 676.
Saunders v EdwardsWLR [1987] 1 WLR 1116.
Schacht v BrownECAS (1983) 711 F 2d 1343.
Scholes v Lehmann (1995) 56 F 3d 750.
Segenhoe v Atkins (1990) 1 ACSR 697.
Selangor United Rubber Estates Ltd v Cradock (No. 4)WLR [1969] 1 WLR 1773.
Smith v Charles Baker & SonsELR [1891] AC 325.
South Australia Asset Management Corp v York Montague Ltd [1996] CLC 1179; [1997] AC 191.
Standard Chartered Bank v Pakistan National Shipping CorpUNK [2002] UKHL 43; [2002] CLC 1330; [2003] 1 AC 959.
Stansbie v TromanELR [1948] 2 KB 48.
Sunpoint Securities Inc, Re (2007) 377 BR 513.
Sykes v BeadonELR (1879) 11 Ch D 170.
Tesco Supermarkets Ltd v NattrassELR [1972] AC 153.
Thackwell v Barclays Bank plcUNK [1986] 1 All ER 676.
Thomas Gerrard & Son Ltd, ReELR [1968] Ch 455.
Tinsley v MilliganELR [1994] 1 AC 340.
Trevor v WhitworthELR (1887) 12 App Cas 409.
Ultramares Corp v Touche (1931) 174 NE 441.
United Project Consultants Pte Ltd v Leong Kwok Onn [2005] SGCA 38; [2005] 4 SLR 214.
VGM Holdings Ltd, ReELR [1942] Ch 235.
Wallersteiner v MoirWLR [1974] 1 WLR 991.
West Mercia Safetywear Ltd (in liq) v DoddUNK [1988] BCLC 250; (1988) 4 BCC 30 (CA).
Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (The Rialto)WLR [1998] 1 WLR 294.
Fraud — Auditors — Negligence — Ex turpi causa — Attribution — Agency Fraudster used appellant company as vehicle for defrauding banks — Bank successfully sued fraudster and company for deceit — Company sued auditors to recover loss said to have occurred as a result of failure to detect fraud — Auditors relied in defence on maxim ex turpi causa non oritur actio — Significance of fact that appellant company a “one man company”— Ex turpi causa defeated company's claim for breach of auditors” duty — Those whose interests formed subject of any duty of care owed by auditors, namely company's sole will and mind and beneficial owner, party to illegal conduct forming basis of company's claim.
This was an appeal from a decision ([2008] EWCA Civ 644) that a claim against the respondent auditors should be struck out.
The appellant company (S & R) was used by a fraudster (Mr Stojevic) as a vehicle for defrauding banks. The fraud involved S & R obtaining payments under letters of credit by presenting to banks false documents in relation to fictitious commodity trading. When the fraud was discovered, the moneys fraudulently obtained by S & R had all been paid away to other participants in the fraud. The principal victim, Komercni Bank SA, sued S & R and Mr Stojevic and was awarded damages against them exceeding $94 million. Neither defendant could satisfy the judgment.
The liquidators of S & R brought proceedings against its auditors, Moore Stephens, in contract and tort seeking to recover damages for the benefit of S & R's creditors, namely the banks defrauded by S & R. Moore Stephens accepted that they owed S & R a duty to exercise reasonable skill and care in carrying out their duties as auditors. For purposes of the appeal they also accepted that they were in breach of that duty and that, but for their breach, the fraud that Mr Stojevic was perpetrating through S & R would have ended earlier. Moore Stephens, however, contended that the claim against them could not succeed because it is founded on S & R's fraud or illegality and was met by the defence “ex turpi causa non oritur actio”.
S & R submitted that its liability to the banks for Mr Stojevic's fraud was vicarious and that for the purposes of the application of the ex turpi causa maxim Mr Stojevic's fraud could not be attributed to S & R, by virtue of the principle in Re Hampshire Land CoELR[1896] 2 Ch 743, as an exception to the normal rules for the attribution of an agent's knowledge to his principal. It further submitted that ex turpi causa did not provide a defence where the claimant's illegal conduct was the very thing that the defendant was under a duty to prevent, and that the maxim only applied where that was fair, just and reasonable.
Moore Stephens argued that since Mr Stojevic was, in effect, the sole shareholder in S & R and also solely responsible for S & R's activities attribution of the fraud to the company could not be avoided by application of the Hampshire Land principle.
The judge ([2007] EWHC...
To continue reading
Request your trial