Bilta case highlights the limits of ex turpi causa

Bilta case highlights the limits of ex turpi causa

The case of Bilta (UK) Ltd (in liquidation) and others v Nazir and others [2013] EWCA Civ 968, [2013] All ER (D) 390 (Jul), a Court of Appeal decision, marks a line in the sand on the application of the so-called ‘illegality defence’.

What happened?

The liquidators of the claimant company issued proceedings against its directors and third party companies alleging that the defendants had perpetrated a fraudulent conspiracy which had amounted to a breach of fiduciary duty on the part of the directors dishonestly assisted by the other defendants. Two defendant companies applied to strike out the claim against them on the grounds that the company was barred by the principle of ex turpi causa non oritur actio. The High Court dismissed the applications. The Court of Appeal, Civil Division, upheld that decision on the grounds that the fact that the fraudulent director was the directing mind and will of the company had never been regarded as an answer to a claim by the company against the directors for a breach of duty committed against the company.

What is the significance of this decision?

This is a welcome decision from the Court of Appeal—a victory for common sense and a firm limitation of the effects of the oft quoted case of Stone & Rolls Ltd (in liquidation) v Moore Stephens (a firm) [2009] UKHL 39,[2010] 1 All ER (Comm) 125.

What were the key facts of the case?

The directors of Bilta were pursued by their former company and its liquidators for breach of fiduciary duty and for fraudulent trading.The appellants in this appeal (who were suppliers to Bilta) were pursued for fraudulent trading under the Insolvency Act 1986, s 213 (IA 1986) and for dishonest assistance of the directors’ breach of duty. The liquidators sought compensation of some £38m in relation to a VAT fraud in the trading of carbon credits. The case had many of the common hallmarks of this type of fraud—Bilta never had the money it would have needed to pay the VAT consequent on the trade, it had an offshore bank account etc.

The appellant

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About the author:

Frances gained her LLB (Hons) at Kings’ College, London University in 1983. She then attended Chester College of Law to take what were then the Solicitors’ Final Examinations. She has been at Moon Beever since 1984 where she trained, qualifying in 1986, and a partner since 1988 becoming Managing Partner in 2000. She is also a founder partner of ShawnCoulson, an international association, of which Moon Beever is the London office. She is Head of Insolvency and Business Recovery at Moon Beever running a substantial team of insolvency specialists. She undertakes most areas of personal and corporate insolvency, specialising in contentious insolvency especially cases involving fraud, as well as provisional liquidations and injunctive work generally.

She is Chairman of the Appeal Committee at ACCA and a member of the Insolvency Law Evaluation Panel at the Insolvency Service, and CBI Insolvency Panel as well as a member of Insol, and the IBA and, veering towards the personal, of the NFU, and the Carlton Club.

Frances is a regular speaker in the UK and abroad on insolvency and practice management.

Frances was formerly Chairman of the SPG Committee of R3, the Insolvency trade body representing 97% of licensed insolvency practitioners. She is President of R3 for 2011-2012, and remains a member of its R3 Policy Group.

She is interested in all things equestrian as are her three daughters and her husband, and spends her free time (such as it is) with her family and other animals, riding and trying to improve her strokes at Real Tennis.