MOORE STEPHENS V STONE ROLLS LTD

[2009] UKHL 29, House of Lords, Lord Phillips, Lord Scott, Lord Walker, Lord Brown and Lord Mance, 30 July 2009

Negligence - Auditors acting negligently in failing to notice that company was defrauding creditors - Action by company's liquidators - Whether ex turpi causa rule precluded action - Whether actions of sole shareholder were attributed to company - Scope of rule in Re Hampshire Land [1896] 2 Ch 743

S&R was controlled by S. S&R obtained large sums of money under letters of credit by presenting false documents to banks in respect of fictitious commodity trading. Damages were awarded to the banks against S&R and S in the sum of US$94 million, but both were insolvent. The liquidator of S&R commenced proceedings against its auditors, MS, for breach of duty. MS accepted that they owed a duty of care to S&R, that they were in breach of that duty and that, but for their breach, the fraud would have been caught at an early stage. However, they argued that S&R was precluded from recovering damages because it was relying on its own fraud. The House of Lords held by a 3:2 majority that the claim should be struck out.