Ex Turpi Causa Lives
Author: Chris Millar
Ex Turpi Causa (Non Oritur Actio) essentially means that no action should arise based upon an illegal act. This equitable principle has been developed by the Courts over many years, latterly by the House of Lords in Tinsley v Milligan (1994) and Stone & Rolls Limited v Moore Stephens (2009), when the Court struck out a claim against auditors for failing to discover the fraudulent activities of a director, upon the basis that the claimant company was attributed with the illegal activities of that director.
The principle has had a chequered history of interpretation, and this has been recently illustrated by the Supreme Court in Jetivia SA v Bilta (UK) Ltd (2015). In that case, the liquidator issued proceedings against two directors of Bilta alleging fraudulent breach of duty and against another company Jetivia, alleging dishonest assistance to those directors. In the leading Judgment, Lord Neuberger concluded “Where a company has been the victim of wrongdoing by its directors, or of which its directors had notice, then the wrongdoing, or knowledge, of the directors cannot be attributed to the company as a defence to a claim brought against the directors by the company’s liquidator, in the name of the company and/or on behalf of its creditors, for the loss suffered by the company as a result of the wrongdoing, even where the directors were the only directors and shareholders of the company, and even though the wrongdoing or knowledge of the directors may be attributed to the company in many other types of proceedings”. Whilst not fundamentally disagreeing with the conclusion of this lengthy sentence, there were two other judgments given which took the view that the principle should be interpreted and applied differently.
Accordingly, Ex Turpi Causa lives, but there remains uncertainty as to its interpretation and application. Certainly, however, all their Lordships concluded that Stone & Rolls should be “put on one side and marked “not to be looked at again””. In effect the principle was turned on its head in Bilta; in Stone & Rolls the principle was deployed successfully by a third party; in Jetivia the principle was deployed unsuccessfully by the very parties purportedly guilty of the alleged illegal acts. Lord Sumption has called for a Law Commission review of this area of the law.