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Civil Litigation Solicitors

Ex Turpi Causa (22 December 2015)

Date: 22/12/2015
Duncan Lewis, Civil Litigation Solicitors, Ex Turpi Causa

Ex turpi causa non oritur action, usually shortened to ex turpi causa, is Latin for a doctrine in law meaning a claimant will be unable to benefit through the courts for a legal action should it arise from their own illegal act. Its direct translation is “from a dishonourable cause an action does not arise”.

Ex turpi causa is used to defend a claim; it is a rare tortuous defence but certainly one that could effectively strike out a claimant’s claim. To succeed in the defence, one must show that the degree of the illegality constitutes what is called turpitude (a wicked behaviour that would be a shock to the public), in addition that the criminal act is personal and does not fall under vicarious liability (where an employer would be criminally responsible for that individual).

The leading case that sets ex turpi cause is Moore Stephens v Stone Rolls Limited (in liquidation) [2009] UKHL 39. It highlights the impact of fraud on company law, and the use of ex turpi causa.

Mr Stojevic was the sole director and shareholder of Stone Rolls Limited. He regularly used the company to defraud banks. His actions were discovered, and both he and the company were successfully sued for deceit by a Czech bank, Komercni Banka SA. The company subsequently went into liquidation.

Stone Rolls’ auditors were accountancy firm, Moore Stephens. They were sued by the creditors of Stone Rolls for professional negligence, on the basis that they failed to exercise reasonable care and skill in carrying out their duties as auditors, by failing to stop the ongoing fraud. Moore Stephens admitted they were in breach, but argued that ex turpi causa applied, on the basis that the company (nor its creditors suing under the company) could not argue professional negligence for an action that came about because of its own illegality.

Stone Rolls’ appeal was dismissed by a 3/2 majority, and the auditors ultimately succeeded in their defence.

Ex turpi causa does, however, have its limitations. The more recent case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23 shows exactly this.

Bilta (UK) Ltd, was an English company and was wound-up compulsorily following a petition presented by HMRC. Bilta’s liquidators sought to bring a claim against the Directors of the company Messrs Chopra and Nazir, another Swiss company and its director for a carousel fraud by unlawful means conspiracy to injure Bilta by a fraudulent scheme. The directors were sued for breach of their fiduciary duty owed to the company.

The Defendants pleaded ex turpi causa, on the basis that Bilta could not sue them for its own illegal actions, namely the fraud. They applied to strike out Bilta’s case.

It was however, held unanimously by seven Supreme Court judges that the Defendants’ appeal be dismissed. The Court found that the reason for the illegal carousel fraud that was conducted by the company, was because of the conduct of the directors themselves. In other words, where the company had been a victim of the wrongdoing of the directors, the directors could not succeed on an ex turpi causa defence on the basis that it was their own illegal actions made on behalf of the company; the company should not take fault for that.

Another example that demonstrates the difficulties of ex turpi cause is the more complicated case of Les Laboratoires Servier & Ors v Apotex Inc. & Ors [2014] UKSC 55.

Les Laboratoires Servier “Servier” was a French pharmaceutical company that compiled a drug compound. It has a UK subsidiary Servier Laboratoires Limited. Apotex Group is a group of Canadian pharmaceutical companies that manufacture and market generic pharmaceutical products.

Servier had been granted a number of patents for its drug compound. The European patent has expired in June 2003, whilst the one remaining in Canada was not due to expire until 2018. The main dispute was regarding a patent for a specific crystalline form of the compound that was granted to Servier and exclusively its licence to the UK subsidiary.

In 2006, Apotex began marketing the compound drug in question. Servier sued Apotex on the basis that it breached its patent, and an interim injunction was ordered shortly thereafter. Servier were required to provide the standard undertaking that it comply with any order should it later derive that the original order caused loss to Apotex.

Apotex subsequently sued for loss of profits, and succeeded on the grounds that whilst its breached the patent, the patent was invalid in the UK. Servier’s appeal was subsequently dismissed.

In the meanwhile, separate legal proceedings went on in Canada for infringement of the patent for the compound itself. It was held in the courts that the final injunction be granted for Servier on the basis that the patent there was breached and also valid.

The main question the Court had to answer was whether Apotex’s illegal actions in Canada entitled them to bring a claim successfully against Servier in the UK for loss. It also specifically had to ascertain if Apotex’s actions sustained illegality. Servier argued ex turpi causa on these grounds, however the Court of Appeal allowed Apotex’s appeal on the basis that its breach in Canada was not a relevant illegality, and it could claim for loss following the discharge of the original injuction.

Servier then appealed the Court of Appeal’s decision and the matter went to the Supreme Court. It was unanimously dismissed by the Court on the basis that the illegality did not apply; it held that Apotex’s actions in infringing the Canadian patent did not constitute turpitude.

Ex turpi causa is an extremely complex legal argument and can only be pleaded in specific circumstances. Its use throughout cases shows its limitations and its multi-jurisdictional proprerties, but also how it can be a powerful, but rare, tool in litigation. It does not just apply to Commercial Litigation; it can be argued in an array of areas of law, and has been pleaded in a number of Employment and Personal Injury cases. If used in the right way, it can certainly provide an effective outcome for the Defendant.

Katarina Santos-Brazell is a Solicitor in the Litigation department. She specialises in both civil and commercial litigation.


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