Stone & Rolls Ltd v Moore Stephens: An Unnecessary Tangle

AuthorDavid Halpern
Published date01 May 2010
Date01 May 2010
Stone &Rolls Ltd vMoore Stephens: An Unnecessary
Ta n g l e
David Halpern
The opinions of the minority ri sk creatinga dangerous inroad i nto Salamonand Caparo. The opi-
nions of the majority avoid that risk but reach the rightresult by tortuous reasoning.The answer
to the case lies in a proper application of Caparo.
The decision of the House of Lords in Stone & Rolls Ltd vMoore Stephens
Stephens) is unsatisfactory forseveral reasons. In the ¢rst place, there are ¢ve com-
plex speeches, a 3:2 division, and di¡ering reasons given by the majority, all of
which make it di⁄cult to discern the ra tio. Secondly, it is tantalising that their
Lordships reasoning did not address or encompass a more interesting (and in
future equallylikely) factual scenario, which they all acknowledged was di⁄cult.
Finally,the complexityof the speeches tends to obscure the underlying principles.
It will be suggested that there is a simpler solution to the case, which also solves
this more di⁄cult scenario.
The facts were complicated, but may be boiled down to something very sim-
ple. Stone & Rolls Ltd was a company whose sole directingmind was a fraudster
named Stojevic. The company obtained payments under lett ers of credit by pre-
senting to banks false documents in relation to ¢ctitious commodity trading; it
then paid the money out to other participants in the fraud.
In other words, a
fraudster running a one-man company created ¢ctitious trading and had the
alleged business audited by a bona ¢de but negligent auditor, who failed to
uncover the fraud. The company was sued to judgment by the principal victim,
as a result of which it went into insolvent liquidation. Acting by its liquidator, it
then sued the auditor.That is all that needs to be said in order to raise the assumed
facts considered by their Lordships. (Lord Scott
did not accept that all the shares
were bene¢cially owned by the fraudster, but none of the other judges appeared
to share this doubt. It does seem surprising that an issue of this kind should be
raised for the ¢rst time in the House of Lords. I proceed on the facts as assumed
by all the other judges).
David Halpern QC,4 New Square, Lincolns Inn, LondonWC2A 3RJ.My thanks to Michael Soole
QC for his comments.
1 [2009] 1 AC 1391.
2 Lord Phill ips at[3]. (Unless otherwise indicated, all references in square brackets are toparagraphs
in the speeches in Moore Stephens.)
r2010The Author. Journal Compilationr2010 The Modern Law ReviewLimited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2010)73(3) 487^493

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