Date: Wed, 18 Jun 2008 11:24

From: Andrew Tettenborn

Subject: Common sense, illegality and duties of care

Some welcome horse sense from the English CA today in Moore Stephens (a firm) v Stone & Rolls Ltd [2008] EWCA Civ 644.

S & R Ltd, creature and catspaw of a fraudster rejoicing in the name of Zvonko Stojevic, defrauded a Czech bank of gazillions of dollars in letter of credit frauds. Sued by the bank, it in turn sued its accountants for negligence in allowing it to commit the frauds in the first place. In what some regarded as an Alice-in-Wonderland judgment Langley J refused to kill the claim, on the basis that (a) it wouldn't shock the conscience of the man on the Northern Line for the company to be permitted to sue for the consequences of its own crime, and (b) fraud like this was the "very thing" the accountants were paid to spot.

The CA has now reversed. After extended scholarly argument on corporate attribution, they decided that the fraudster's fraud as directing mind and will was that of the company; that since Tinsley v Milligan you simply couldn't rely on your own illegality to found a claim (i.e. the conscience of the man on the Northern Line was beside the point); and that however it might apply in other cases (e.g. Reeves v MPC [2000] AC 360) the "very thing" argument could not be used to get round a plea of illegality.

Seems to me very sensible all round. In particular, 2 points.

(1) It avoids the problem of trying to distinguish the case from others such as Clunis [1998] QB 978;

(2) Although the claim in Moore Stephens was nominally by S & R, in practice it was by the defrauded bank, which had put S & R into liquidation and then suborned the liquidator to sue for its benefit. Now, there's something interesting here. If the victim of a fraud sues the fraudster's accountant directly for not preventing the fraudster from fleecing him, he'll be shown the door pretty smartly on the basis of "no duty". Stone & Rolls rightly prevents him, having been thrown out at the front door, from sneaking in via the kitchen window.

Happy reading
Andrew

--  
Andrew Tettenborn MA LLB
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University of Exeter, England

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LAWYER, n. One skilled in circumvention of the law (Ambrose Bierce, 1906).

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