Article

Prior History: Moore Stephens v. Stone & Rolls Ltd, [2008] EWCA Civ 644 (June 18, 2008) [England] noted at 2009 Annual Review at 480, reversing the trial court, noted at [2007] EWHC 1826 (Comm), [2008] Bus LR 304, [2008] 1 BCLC 697

Note: Stone & Rolls Ltd (Company/ Beneficiary) had been the beneficiary of various LCs. In collusion with various entities, it presented false documents to various banks, had received the proceeds of the LCs, and had paid most of them to the applicants in a kiting scheme. The major victim of the fraud was Komercni Banka SA (Issuer), a Czech bank. The Beneficiary had been owned, controlled and managed by Mr. Stojevic, who had personally been found jointly liable for US$94,500,000.00 with Beneficiary for fraud in the earlier case of Komercni Banka SA v. Stone & Rolls Ltd, [2002] EWHC 2263, abstracted at 2003 Annual Survey at 214.

Since neither defendant could satisfy the judgment, Liquidators brought the present suit against its Company's former auditor, Moore Stephens (Auditor) in the name of Company to recover damages for the benefit of the defrauded banks. Company alleged that Auditor was negligent in its audits. Auditor moved to dismiss the appeal based on application of the doctrine of ex turpi causa non oritur actio ("ex turpi causa"), i.e. no unlawful act can be the foundation of a claim. The English Commercial Court, Langley, J., ruled that the cause of action should not be struck out based on this doctrine. On appeal, the Court of Appeal, Civil Division, Mummery, Keene and Rimer, LJJ., reversed, striking the cause of action based on the doctrine of ex turpi causa.

An appeal, to the House of Lords from the appellate decision by the Company, was dismissed. In an almost 300-paragraph opinion, Law Lords Phillips, Walker, and Brown concluded that ex turpi causa does provide a defense, warranting dismissal. Lords Scott and Mance would have allowed the appeal, allowing the action to proceed to trial.

[JEB/jdc]

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