Griffin v UHY Hacker Young & Partners (A Firm) [2010] EWHC 146 (Ch)

Case No HC09C01180[2010] EWHC 146 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 04/02/2010
Before
MR JUSTICE VOS
Between
ROBERT MATTHEW GRIFFINClaimantUHY HACKER YOUNG & PARTNERS (a firm)Defendant
Mr Michael Soole QC and Mr Andrew Butler (instructed by Butcher Burns) for ClaimantMr Ben Hubble QC (instructed by Mayer Brown International LLP) for DefendantsHearing Hearing dates: 26 th and 27 th January 2010
Judgment

Introduction

[1]The Defendant, UHY Hacker Young & Partners (“Hacker Young”), is a firm of Chartered Accountants which operate a turnaround and recovery unit under the name Hacker Young & Partners. Mr Andrew Andronikou (“Mr Andronikou”) is a licensed insolvency practitioner and a partner in Hacker Young.[2]The Claimant, Robert Griffin (“Mr Griffin”) graduated from Business School in 1995, and became an investment manager, in addition to pursuing other entrepreneurial activities.[3]In these proceedings, Mr Griffin claims that Hacker Young advised him negligently in relation to the winding up of Saxon Drinks Limited (“SDL”), a company, of which he was sole director. SDL was incorporated on 9th July 2001, and went into a creditors’ voluntary winding up on or about 30th March 2004. SDL had marketed an apple juice drink called “Saxon 1050”, which was a trademark that Mr Griffin had registered in February 1999. I was told that the “1050” referred to the earliest year in which apple growing in Suffolk is referred to in the Domesday Book (which was itself commissioned in 1085).[4]Mr Griffin’s central allegation is that Mr Andronikou failed to advise him that his conduct might contravene section 216 of the Insolvency Act 1986. That section prohibits the directors of companies that have gone into insolvent liquidation from becoming a director or being involved in the management of a company using a trade name of the liquidated company, without giving notice to creditors or obtaining the leave of the court. It was enacted, in colloquial terms, to strike down the “phoenix phenomenon”, which was seen as one of the main abuses of the privilege of limited liability.[5]Mr Griffin, to put the matter neutrally, was involved in the incorporation of a company called Brand Central Limited (“BCL”) on 4th March 2004, which took over the marketing of the Saxon 1050 apple drink from SDL. As a result, on 30th July 2007, Mr Griffin was convicted by District Judge Day in the Richmond Magistrates Court of contravening section 216(3) of the Insolvency Act 1986 by being a director of “a company known by the prohibited brand name Brand Central Ltd trading as Saxon 1050 without the leave of the court”. He was fined £1,000. His appeal to the Divisional Court (Dyson LJ and Jack J) against this conviction was dismissed on 25th January 2008.[6]Mr Griffin claims in these proceedings to recover damages said to flow from the negligent advice (but also flowing from the conviction) including the loss of his 27.3% shareholding in an SEC-registered investment advisory company (worth US$941,850), which he could not retain due to SEC disclosure rules, loss of earnings and earning capacity, the costs of the criminal proceedings, and his personal liability for BCL’s debts.[7]Hacker Young denies Mr Griffin’s claim. In particular, it contends that it did not owe Mr Griffin any duty of care and it was not, in any event, negligent. But more centrally, for the purposes of this application, it says that Mr Griffin’s claim, even if it were otherwise made out, is barred on the grounds of the maxim “ex turpi causa non oritur actio”, which has been translated in numerous different ways, but might be said to mean that an action cannot arise from a base or disgraceful cause. I shall refer to this defence simply as “ex turpi causa”.[8]Against this background, Hacker Young applied on 21st September 2009 to strike out Mr Griffin’s claim as disclosing no reasonable grounds for bringing a claim and as an abuse of process, or for summary judgment under CPR Part 24.2 as having no real prospect of success. The application has been put by Mr Ben Hubble Q.C., counsel for Hacker Young, purely on the basis of the ex turpi causa defence. It is said that, in the light of two well-known recent House of Lords’ authorities on ex turpi causa, this provides a complete defence to all Mr Griffin’s claims.

Factual background

[9]It is common ground that I cannot conduct any kind of mini-trial on this application, and that I should, for the purposes of this application, take the facts contained in the Particulars of Claim and in Mr Griffin’s witness statement as being true.[10]SDL ran into financial problems in 2003, because of disputes with its production and bottling contractor, Axis Bottling Limited, and a book-keeper, who removed SDL’s books and records.[11]Mr Griffin first consulted the accountant who had set up SDL, Mr Brian Leighton of Foster Squires (“Mr Leighton”), and he recommended Mr Andronikou. Mr Andronikou advised on 19th December 2003 and on 25th February 2004. Mr Griffin alleges that he informed Mr Andronikou that he was intending to set up a new company to take forward SDL’s business, and that Mr Andronikou advised about it. In particular, Mr Griffin says that Mr Andronikou advised that “it would not be prudent for [Mr Griffin] to be named as a director of the new company for a period of 6 months or so”.[12]In due course, BCL was, as I have said, incorporated on 4th March 2004 by Mr Leighton. Mr Griffin accepts that he became company secretary of BCL, and that a friend of his, Ms Nadine Arsenyev (“Ms Arsenyev”), became a director. On 21st March 2004, Mr Griffin emailed Mr Leighton to say that he would prefer not to be company secretary “given the circumstances”.[13]There followed a complex series of changes in the office-holders of BCL that cannot sensibly be untangled on a strike out application. Suffice it to say that Mr Griffin accepts that a series of Forms 288a and 288b recording the appointment and resignation of directors and secretaries of BCL were, at various times, altered and back-dated by various people, including himself. The various changes went on between March and November 2004, but I do not propose to attempt to set out the details in this judgment. The objective appears to have been initially to prevent Mr Griffin being seen to be an officer of BCL (allegedly in accordance with Mr Andronikou’s advice), and later to prevent Ms Arsenyev being seen to have been a director for longer than absolutely necessary. Mr Hubble has argued that the back-dating of these forms was part of a plan that Mr Griffin was engaged upon to deceive the creditors of SDL about his involvement in BCL, or at least to continue trading with the Saxon 1050 name.[14]On 30th March 2004, the creditors’ meeting of SDL took place. It was attended by Mr Griffin as chairman, and he signed the Minutes. It was also attended by Mr Andronikou and Mr Terry Campbell of Hacker Young, and three creditors, Mr Malcolm Slatcher of Axis Bottling Limited, Ms Jannine Baalham of H. Elben Limited, and Mr David Upson of Stoke Farm Orchards. Immediately prior to the meeting, Mr Griffin alleges that Mr Andronikou orally advised him that he should, if asked, deny any involvement in an ongoing drinks business.[15]According to the minutes of the creditors’ meeting, there was some hostile questioning from creditors, and particularly Mr Slatcher. Mr Andronikou said first:
“there is no business to take forward”, and “[t]he director has invested a lot of time and money into this Company and no longer wishes to continue with the business as it seems unviable”
. When Mr Griffin was later asked directly by Mr Slatcher whether he intended to carry on with Saxon Drinks, he replied “No, I do not intend to carry on in the drinks business”.[16]Mr Griffin now accepts that this last response was a direct lie, but seeks to excuse himself by saying that he was put in an extremely difficult position by Mr Andronikou having volunteered the misinformation to the creditors first. He says, therefore, that he chose on the spur of the moment to perpetuate a position he knew to be untrue, and that, having done so, he had no choice but to sign the minutes because they were accurate.[17]On 22nd November 2004, Mr Griffin was sent (but did not receive) a warning letter from the Insolvency Service adverting to the fact that he appeared to be concerned in the carrying on of a business in the name of Saxon Drinks UK without the permission of the court.[18]On 9th March 2005, the Insolvency Service wrote again to Mr Griffin, who actually received its letter. In April 2005, Mr Griffin spoke to Mr Andronikou who said he hoped the matter would go away, but Mr Griffin might have to liquidate BCL.[19]In March 2006, after it had become apparent that he was subject to an investigation, Mr Griffin gave up his 27.3% shareholding in Open Field Capital LLC (“OFC”), the investment adviser to which I have already referred, to avoid disclosure requirements, on the basis that he could re-acquire it if he was acquitted of any charges that might follow.[20]In November 2006, Mr Griffin was charged with three offences under sections 206, 208, and 216 of the Insolvency Act 1986.[21]In August 2007, he was convicted under section 208 (for not providing SDL’s books and accounts) and under section 216, as I have said. He was acquitted of the charge under section 206 of the Insolvency Act 1986. The Divisional Court, again as I have said, upheld the section 216 conviction, but it quashed the conviction under section 208.[22]These proceedings were issued on 17th April 2009, and pleadings have been completed. On 10th September 2009, Mayer Brown, solicitors for Hacker Young, wrote to Butcher Burns, solicitors for Mr Griffin, indicating their intention to apply to strike out, or for summary judgment, on the ex turpi causa ground.[23]Mr Griffin’s statement says the following:
“I appreciate that this is all extremely messy and, in the context of an allegation that I was guilty of a deception on creditors about my involvement in the new business unfortunate. But whether or not I acted correctly in wishing to backdate the termination of [Ms Arsenyev’s] appointment, I would wish to emphasise that I had no interest or desire to deceive anyone at any stage. Nor was I convicted or even accused of having done so. At all times … I simply followed Mr Andronikou’s advice …”
.

The CPR

[24]Part 3.4(2) provides as follows:- “The court may strike out a statement of case if it appears to the court-(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings…”.[25]Part 24.2 provides as follows:- “The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –(a) it considers that – (i) that claimant has no real prospect of succeeding on the claim or issue; … and(b) there is no other compelling reason why the case or issue should be disposed of at a trial”. (i) that claimant has no real prospect of succeeding on the claim or issue; … and[26]The note at CPR 24.2.3 says:
“In order to defeat the application for summary judgment it is sufficient for the respondent to show some “prospect”, i.e. some chance of success. That prospect must be “real”, i.e. the court will disregard prospects that are false, fanciful or imaginary. The inclusion of the word “real” means that the respondent has to have a case which is better than merely arguable… the Respondent is not required to show that his case will probably succeed at trial… the hearing of an application for summary judgment is not a summary trial …”
.

The provisions of the Insolvency Act and the Insolvency Rules

[27]Section 216 of the Insolvency Act 1986 provides as follows:- Restriction on re-use of company names “(1) This section applies to a person where a company (“the liquidating company”) has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation. (2) For the purposes of this section, a name is a prohibited name in relation to such a person if—(a) it is a name by which the liquidating company was known at any time in that period of 12 months, or(b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company. (3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation— (a) be a director of any other company that is known by a prohibited name, or (b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or(c) in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name. (4) If a person acts in contravention of this section, he is liable to imprisonment or a fine, or both. … (6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time …”.[28]It is accepted that the criminal offence created by section 216 is one of strict liability, so that no mens rea needs to be established for the prosecution to succeed.[29]Rule 4.228 of the Insolvency Rules 1986 provided at the time of these events in 2004 that, if a notice containing certain prescribed contents was given to creditors within 28 days of the completion of the arrangements, section 216(3) did not prohibit the acts concerned:- “(1) Where a company ('the successor company') acquires the whole, or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator …, the successor company may for the purposes of section 216 give notice under this Rule to the insolvent company's creditors, (2) To be effective, the notice must be given within 28 days from the completion of the arrangements, to all creditors of the insolvent company of whose addresses the successor company is aware in that period; and it must specify –(a) the name and registered number of the insolvent company and the circumstances in which its business has been acquired by the successor company.(b) the name which the successor company has assumed, or proposes to assume for the purpose of carrying on the business, if that name is or will be a prohibited name under section 216, and(c) any change of name which it has made, or proposes to make, for that purpose under section 28 of the Companies Act. (3) The notice may name a person to whom section 216 may apply as having been a director or shadow director of the insolvent company, and give particulars as to the nature and duration of that directorship, with a view to his being a director of the successor company or being otherwise associated with its management. (4) If the successor company has effectively given notice under this Rule to the insolvent company's creditors, a person who is so named in the notice may act in relation to the successor company in any of the ways mentioned in section 216(3), notwithstanding that he has not the leave of the court under that section”.[30]In Churchill v. First Independent Factors and Finance Limited [2006] EWCA Civ 1623, the Court of Appeal decided that a notice under Rule 4.228 could not be given retrospectively, and had to be given before the person in question started to involve himself in the management of the successor company.[31]As a result of Churchill, Rule 4.228 was amended to allow retrospective notices to be effective, provided they were given within 28 days of the completion of the arrangements in question.

The arguments of the parties

[32]Mr Hubble founds his case squarely on the dictum of Lord Hoffmann in Gray v. Thames Trains Limited [2009] 1 A.C. 1339 at paragraph 29, where he approved a formulation of the ex turpi causa rule in both its wider and narrower forms as follows:- “In its wider form, it is that you cannot recover compensation for loss which you have suffered in consequence of your own criminal act. In its narrower and more specific form, it is that you cannot recover for damage which flows from loss of liberty, a fine or other punishment lawfully imposed upon you in consequence of your own unlawful act. In such a case it is the law which, as a matter of penal policy, causes the damage and it would be inconsistent for the law to require you to be compensated for that damage” (emphasis added).[33]Mr Hubble says that the losses claimed by Mr Griffin all fall squarely within these rules as being both damages flowing from his conviction and penalty for the violation of section 216, and losses suffered in consequence of his criminal act.[34]Mr Michael Soole Q.C., counsel for Mr Griffin, responds by saying that section 216 is an offence of strict liability, and one which only takes effect if the action that is prohibited is not legalised by either obtaining the permission of the court or serving a notice on creditors. He argued that:- i) Where there is a way of legalising the action, it is not enough to show that these measures have not been taken. You have also to show that Mr Griffin knew of those obligations and failed to comply, or at least was reckless as to whether there might be such procedures that needed to be complied with. ii) If an advisor is instructed to protect you from committing a criminal offence, and he fails to do so, he can claim ex turpi causa when you sue him for damages for the consequences of the criminal act, but only if you are guilty of moral turpitude, not if you are simply guilty of a strict liability offence, even if you knew all the facts making up that offence. iii) Moreover, particularly in a professional negligence case, the required level of culpability is connected to the question of causation. The more culpable is the Claimant, the more readily will the court conclude that the criminal act was an intervening cause that broke the chain of causation. iv) It is not alleged that Mr Griffin was culpable in that he committed the offence deliberately, or even knew about the existence of section 216. What is alleged instead is that Mr Griffin made a plan to liquidate SDL and start BCL to take over its business, and that the lie to the creditors’ meeting was connected to the offence by that plan, and that therefore, the necessary moral culpability can be shown. There should, says Mr Soole, be a trial to determine if such a plan existed.[35]In response, Mr Hubble accepted that, to rebut the fact that the offence is one of strict liability and the fact it is not alleged that Mr Griffin knew of the existence of the offence, he needs to show personal fault on the part of Mr Griffin. He also accepted that, in this case (but not generally), the species of personal fault that was relevant was moral culpability rather than gross (or any lesser species of) negligence.[36]Mr Hubble’s argument boiled down, as he put it, to saying that, because Mr Griffin has admitted certain elements of his conduct, his claim is bound, whatever the evidence at trial, to be barred by the ex turpi causa defence. The link between Mr Griffin’s personal fault and moral culpability, on the one hand, and the offence on the other, arises because the essence of the offence under section 216 is to prevent directors of insolvent companies covertly using new companies to continue the same business, like a Phoenix rising from the ashes of the liquidated company. The conduct on which he relied was summarised as follows:- i) Mr Griffin wanted to liquidate SDL and carry on in the drinks business through another company. ii) Mr Griffin knew that he had been advised to sell the assets to a third party and then on to the new company, BCL. iii) Mr Griffin knew that he was involved in the formation of BCL. iv) Mr Griffin knew that, to avoid antagonising creditors, he should not be an officer of BCL. v) Mr Griffin was told that, to avoid antagonising creditors, the line he should take at the creditors’ meeting was that he did not intend to continue in the drinks business. vi) Mr Griffin then lied and concealed his true intention from the creditors. vii) Mr Griffin also reached an arrangement with a friend to become a director of the BCL as he did not want to be a director. viii) Some 6 months later, Mr Griffin backdated documents to remove the friend as a director from April 2004.[37]These allegations are said by Mr Hubble to be directly related to the criminal conviction because “(i) the conduct all relates to the Claimant’s plan to put SDL into liquidation and then to carry on the business through BCL, and (ii) the Claimant’s conviction under Section 216 was premised on the unchallenged basis that he had been a director of BCL since March 2004”.[38]Mr Soole’s answer is to submit that this conduct may be shown at trial to be part of a well-hatched plan, and it may be shown to be morally culpable, but equally it may turn out that Mr Griffin can give a valid explanation for his actions (as he has already sought to do in his witness statement). It must, therefore, says Mr Soole, be a matter for the judge at a trial to decide whether the necessary degree of culpability is present to permit the criminal act to break the chain of causation between the allegedly negligent advice given by Mr Andronikou and the losses claimed.[39]Mr Soole puts the matter forensically by saying, in effect: Hacker Young say that Mr Griffin deliberately did not comply with the law and wanted to go ahead with his scheme regardless. Mr Griffin says, on the contrary, he wanted to comply with the law, but was badly advised and was not even told that what he was doing was an offence. A trial is necessary to decide where on the culpability scale Mr Griffin falls. Since duty, causation and ex turpi causa are all inter-connected, and a finding of illegality here would, says Mr Soole, be tantamount to deciding there was no duty of care to protect Mr Griffin from the commission of the offence, when it was an unwitting offence, which may have been committed without turpitude.

The issues

[40]The arguments that I have sought to summarise above throw up the following main issues for consideration.[41]The first issue is as to the precise scope of the narrow rule of public policy as described by Lord Hoffmann in Gray v. Thames Trains. The question is whether the narrow rule is that a claimant cannot recover for damage which flows from a sentence lawfully imposed in consequence of his own unlawful act, or whether the rule also encompasses any losses flowing from the conviction for that unlawful act. That issue is important because, as Lord Hoffmann made clear in paragraph 51 of his speech, if the narrow rule applies, then problems of causation do not arise, as they do if only the wider rule is applicable. In this case, of course, some at least of the losses claimed by Mr Griffin may be argued to have flowed from the conviction under section 216, but not from the £1,000 fine imposed. That is because Mr Griffin’s inability to recover his shareholding in OFC, and indeed his alleged loss of earnings and earnings power, arose from his conviction, and would have arisen even if no punishment had been imposed upon him.[42]A rider to the first issue is whether, if the narrow rule is applicable in this case, the second or third issues that I describe below arise at all.[43]The second issue concerns the level of the claimant’s culpability or negligence that is required to be proved where an ex turpi causa defence is raised on the basis of an offence of strict liability. There is, as I have sought to explain above, a measure of agreement between the parties on this issue, in that it is accepted by Hacker Young that personal fault in the sense of moral culpability needs to be shown in this case. But in my judgment the authorities do not speak with one voice on this issue, and the test that is to be applied in this case requires some clarity.[44]The third issue is whether, assuming the facts contained in the Particulars of Claim and Mr Griffin’s statement, Hacker Young has shown that there is no real prospect of Mr Griffin defeating the pleaded defence of ex turpi causa.[45]In my judgment, the answer to this issue is clear from the decision in Gray v. Thames Trains, and from the rationale of the rule as explained by their Lordships in that case. I do not intend to repeat Lord Hoffmann’s detailed analysis in this judgment. Both his formulation of the narrow rule, and the references to it by other members of the Committee seem to me to demonstrate clearly that the narrow rule only applies to losses flowing from the sentence imposed.[46]Lord Hoffmann describes the narrow rule in paragraph 29 as “you cannot recover for damage which flows from loss of liberty, a fine or other punishment lawfully imposed upon you in consequence of your own unlawful act” (emphasis added). Paragraphs 37, 38, 41, 44 and 50 in Lord Hoffmann’s speech all reinforce this definition in referring to the rule in terms that it applies to losses flowing from the sentence imposed by the court. Paragraph 69 of the speech of Lord Rodger is to similar effect.[47]Mr Hubble’s argument turns on what Lord Hoffmann said in the following passage at paragraph 50:
“Mr Gray’s claims for loss of earnings after his arrest and for general damages for his detention, conviction and damages to reputation are all claims for damage caused by the lawful sentence imposed upon him for manslaughter and therefore fall within the narrower version of the rule which I invite your Lordships to affirm”
. He submits that, since there is a reference to the “general damages for his conviction” falling within the rule, the rule must be wider than originally stated by Lord Hoffmann in paragraph 29. I disagree. On the facts of that case, there can have been no real distinction between general damages for the conviction and general damages for the sentence – compensation was claimed for the fact that he was detained for manslaughter. Moreover, the rationale of the narrow rule is that it is inconsistent for the civil courts to compensate a claimant for a penalty adjudged to have been imposed for the personal fault of that claimant (see paragraph 37 in the speech of Lord Hoffmann). The conviction itself, particularly of an offence of strict liability, may not carry any personal fault, so the inconsistency rationale cannot apply (anyway in all cases) to it.[48]The consequence of this holding is that it seems to me that the most significant losses claimed by Mr Griffin in this case (at least the shareholding in OFC and the loss of earnings and earning capacity) do not fall within the narrow formulation of the rule, as having flowed from the fine of £1,000 imposed upon Mr Griffin. It is necessary, therefore, to consider whether they fall within the wider rule. I do not need, in these circumstances, to consider whether if, all the losses had fallen within the narrower rule, the remaining issues would have arisen at all.[49]This is not a question that arose in directly in Gray v. Thames Trains, because it was a manslaughter case, where mens rea is an essential element of the offence. It is, however, a question that has been debated in a series of cases culminating in some comments of Lords Phillips and Walker in Stone & Rolls v. Moore Stephens [2009] 1 A.C. 1391, and in the recent decision of Flaux J in Safeway Stores Limited v. Twigg [2010] EWHC 11 (Comm).[50]In the light of the decision that I have reached and the fact that this is an interlocutory application, I will deal with the main cases cited to me briefly in chronological order.[51]In Askey v. Golden Wine Co Ltd [1948] 2 All ER 35, the plaintiff, a vendor of alcoholic liquor used for cocktails, was prosecuted for the strict liability offence of selling alcohol contaminated with methylated spirit that was not fit for human consumption. He was fined £316. As a consequence of the conviction, he also had to refund retailers some £1,735. He sued his suppliers (who had also been prosecuted earlier and fined and imprisoned for similar offences) for these sums by way of damages for fraud and conspiracy. After a trial, the claim was dismissed, on the grounds that the conviction had been brought about by the plaintiff’s gross negligence, and therefore neither the fine nor the reparation could be recovered, because they were consequences of his own crime. Denning J did not analyse, by reference to authority, why the finding of gross negligence was necessary to allow the defence of ex turpi causa to succeed, nor did he consider in detail how an offence of strict liability differed from one for which mens rea was required. In relation to the reparation claim, however, he said at page 38H that much of the claim was “due to his own criminality, not in the sense of a positively wicked mind, but in the sense of a grossly negligent one – negligence which the legislature considered so serious that it should be regarded as a crime”.[52]In Strongman v. Sincock [1955] 3 All ER 90, builders sued an architect for the value of work they had done for him, for which he had not obtained a building licence, despite having promised the builders that he would either obtain a licence or stop the work. The Court of Appeal rejected the defence of ex turpi causa on the ground that the builders were unaware of the architect’s failure to obtain the licence, and were not guilty of culpable negligence. Denning LJ, giving the leading ex tempore judgment, did not consider why ‘culpable negligence’ as opposed to some other measure of responsibility would have disabled the builders from suing. He seems to have used the terms “morally culpable” and “culpable negligence” interchangeably.[53]In Osman v. J. Ralph Moss Ltd [1970] 1 Lloyd’s Rep. 313, a driver who was fined £25 for driving without insurance sued his brokers for the fine and the costs of the prosecution on the grounds that they had told him he was insured. The Court of Appeal held that he could recover these amounts. Sachs LJ said at page 316:
“having examined the authorities as to cases where the person fined was under an absolute liability, it appears that such fine can be recovered in circumstances such as the present as damages unless it is shown that there was on the part of the person fined a degree of mens rea or of culpable negligence in the matter which resulted in the fine”
. Again, there is no detailed analysis of the level of culpability required.[54]In Clunis v. Camden and Islington Health Authority [1998] Q.B. 978, a mental patient, who was convicted of manslaughter after his release from hospital, sued the Health Authority for damages for his detention on the grounds of its negligence in treating and releasing him. The question arose in the Court of Appeal as to the circumstances in which the ex turpi causa defence would succeed. Beldam LJ, giving the judgment of the court, cited Kennedy J’s famous judgment in Burrows v. Rhodes [1899] 1 Q.B. 816, in which the defence had been rejected on the grounds that the plaintiff was innocent in that he had been duped into joining a military expedition, which would have exposed him to prosecution under the Foreign Enlistment Act 1870. Kennedy J makes clear that ignorance of the law is no defence if the offence is committed with knowledge of all the circumstances necessary to constitute it. At page 989E, Beldam LJ said: “In the present case the plaintiff has been convicted of a serious criminal offence. In such a case public policy would in our judgment preclude the court from entertaining the plaintiff’s claim unless it could be said that he did not know the nature and quality of his act or that what he was doing was wrong”.[55]In Vellino v. Chief Constable of the Greater Manchester Police [2002] 1 WLR 218, the claimant escaped from the grip of a constable whilst under arrest and jumped from a bedroom window, and sued the police for damages caused by their negligence in failing to prevent him harming himself. All three judgments in the Court of Appeal approved the trial judge’s approach (though Sedley LJ dissented in the outcome) which was to say that there was an overlap between the question of whether there was a duty of care at all, and the question of whether the ex turpi causa defence could succeed (paragraphs 28, 38 and 62). Sir Murray Stuart-Smith, in a passage at paragraph 70 approved by Lord Hoffmann in Gray v. Thames Trains said that:
“The operation of the principle arises where the claimant’s claim is founded upon his own criminal or immoral act. The facts which give rise to the claim must be inextricably linked with the criminal activity. It is not sufficient if the criminal activity merely gives the occasion for the tortious conduct of the defendant”
. He continued by saying that “In the case of criminal conduct this has to be sufficiently serious to merit the application of the principle. Generally speaking a crime punishable with imprisonment could be expected to qualify. If the offence is criminal but relatively trivial, it is in any event difficult to see how it could be integral to the claim”.[56]In United Project Consultants Pte Ltd v. Leong Kwok Onn [2005] 4 SLR 214, the Singapore Court of Appeal held that a claimant could sue his adviser when he had been fined for filing incorrect tax returns prepared by the adviser. The offence carried imprisonment, but was the less serious of two statutory offences. The Court of Appeal described the offence as a “far cry from saying that the appellant had connived to cheat IRAS by evading tax”. At paragraph 57, Yong Pung How CJ said:
“The conduct of the appellant, in committing a statutory offence, was not criminal in nature. Nor was it an act that could be classified as reprehensible or grossly immoral. In short, we are of the view that the appellant had not engaged in an act that was so culpable as to attract the application of the illegality defence”
. In the alternative, the Court upheld the ‘very thing’ argument, holding that to dismiss the claim would be to “reward the wrongdoer and punish the innocent party”. This aspect of the case was ultimately disapproved by Lord Walker in Stone & Rolls at paragraphs 180-3.[57]In Stone & Rolls, Lord Phillips said at paragraphs 24-27 that one sub-division of the ex turpi causa principle, to the effect that the court will not assist a claimant to recover a benefit from his own wrongdoing, was qualified in that “[t]he illegality must involve turpitude”. Most importantly, however, Lord Walker said the following at paragraph 179 about an accountant’s liability where his client is exposed to a criminal penalty (before doubting the ‘very thing’ argument in the way I have already mentioned):- “But suppose for the sake of argument that a trader engages an accountant for the primary and express purpose of preparing financial statements that comply with all the requirements of company law and tax law, so that the lawfulness of the financial statements is the very thing that the accountant undertakes to do; and suppose that the accountant negligently fails to perform this task, and the trader is in consequence liable to some penalty or criminal sanction. Could the accountant meet a claim for professional negligence by pleading the ex turpi causa defence? It is obviously impossible to answer that question without knowing more about the facts. If the trader had honestly supplied information which he believed to be correct and complete, and the accountant had negligently failed to notice that the information could not be correct and complete, it seems unlikely that such a regulatory breach, not involving dishonesty, would bring the ex turpi causa principle into play”.[58]Finally, in Safeway Stores v. Twigg, Flaux J dismissed the defendants’ summary judgment application on the ground that the questions of attribution of knowledge required a trial of the facts. He did, however, also consider obiter the level of culpability required where the ex turpi causa plea was based on a prospective penalty to be imposed by the OFT under section 36 of the Competition Act 1998, and dealt with all the cases I have cited above in meticulous detail:- i) He accepted in paragraph 26 that before the ex turpi causa principle could apply “there must be an element of moral turpitude or moral reprehensibility involved in the relevant conduct”. ii) He concluded at paragraph 99 that “ … nonetheless, Osmanis clear authority for the principle that a fine or penalty will be recoverable where the claimant was not negligent or otherwise personally at fault, nor do I consider that the application of the principle is limited to strict liability offences properly so called. I should add in parenthesis that the cases refer to gross or culpable or crass negligence. I accept Mr Mitchell’s submission that these are no more than epithets and that on analysis, none of the cases is suggesting that something more than negligence would have to be shown before recovery of a fine was precluded on the grounds of public policy”. iii) At paragraph 102, he repeated the requirement for the claimant to be “personally at fault”, drawing support from paragraph 44 of Lord Hoffmann’s speech in Gray v. Thames Trains.[59]Against the background of these cases, I have considered carefully whether I should decide what level of culpability would be necessary in this case for the defence of ex turpi causa to succeed. I have formed the view that I should not. This is because, as appears below, even on the agreed formulation of “moral culpability”, I regard it as impossible for the defendants to succeed in showing at this stage that there is no real prospect of Mr Griffin defeating the defence of ex turpi causa. If I am right about that, my decision on the level of culpability required would be gratuitous and unnecessary, and might tie the hands of the trial judge, who will be able to decide the point on the far more satisfactory basis of concrete findings of fact that he will have made, having heard the evidence.[60]I will, however, without deciding the point, allow myself three short observations on the state of the law that I have sought to summarise above, as follows:- i) None of the existing cases have both raised the question that I have formulated after a trial, and analysed the legal question as a matter of law and principle. The formulations adopted do not, as I have said, always speak with one voice. Indeed, it may very well be that the level of culpability will depend on the offence relied upon. Certainly, there is a wide spectrum of offences of strict liability, and it is not clear to me that there can or should necessarily be a ‘one size fits all’ determination. ii) I agree with Flaux J that the use of the epithets ‘gross’, ‘culpable’ or ‘crass’ to describe negligence are unhelpful in this, as in many other, contexts. Negligence is a well understood concept, but negligence characterised by one of these epithets is not. Moreover, in my judgment, the use of these epithets in some of the cases, seems to me to belie the fact that the court was searching for some ill-defined element of culpability beyond negligence. Whether that be recklessness or some other higher level of blameworthiness, it seems to me that it could at least be argued that negligence would not be sufficient to deprive a claimant guilty of some, at least, strict liability offences of a remedy against a defendant guilty of professional negligence. iii) In my judgment, the question of the level of culpability required to support an ex turpi causa defence based on a strict liability defence is intimately bound up with the issue of causation described by Lord Hoffmann in Gray v. Thames Trains. It is also the mirror, at least in professional negligence cases of this kind, of the question of whether there is a duty of care at all, as was recognised in Clunis.[61]I have reached the conclusion that there must be a trial of this claim; that, although Mr Hubble may be right in saying that the answer is obvious, he may also be wrong. It will depend on the view of the facts which a trial judge takes. I think there may, however, be some merit in the submissions that Mr Soole made that I have recorded at paragraphs 34, 38 and 39 above.[62]At one extreme, it is possible that Mr Griffin will show that he committed the offence innocently, that he never made any plan of any kind, let alone one involving deception, and that the offence does not, therefore, when properly viewed, give rise to a defence of ex turpi causa under either the narrow or the broad formulation. If the broad formulation is in issue, Hacker Young may fail to establish that the offence was an intervening act breaking the chain of causation between the negligent advice that Mr Griffin was (allegedly) given by Hacker Young and some or all of the losses Mr Griffin claims.[63]Mr Hubble’s list of undisputed elements of Mr Griffin’s knowledge would be very powerful support for the ex turpi causa defence if Mr Griffin knew that section 216 existed or that it was illegal to start another business with the same name without telling creditors or the leave of the court, but would be much less likely to constitute a course of morally reprehensible conduct if he knew no such thing, was advised it was perfectly lawful to start a new business with the same name, but that certain procedures had to be followed, with all of which he thought he was complying. Whilst the lie to the creditors’ meeting will always, of itself, be morally reprehensible, there may or may not be found at trial to be a link between the lie and the offence.[64]Mr Hubble has sought to link the violation of section 216 with the Mr Griffin’s alleged personal fault in telling the lie to the creditors’ meeting and backdating appointment and retirement forms by saying that the whole purpose of all the admitted activities was to achieve precisely what the statute banned, namely continuing trading with the same name under the umbrella of a different company, and that Mr Griffin has admitted that is what he wished to do. There are the following potential answers to this that will need to be evaluated at trial:- i) First, if Mr Griffin did not know that it was wrong to continue to trade using the same name, it may be that he will show that there was no personal fault adequately connected with the offence to justify the invocation of the ex turpi causa defence. The lie and the backdating may be morally culpable and may have the same objective as that which was banned by section 216. But if he had no plan to deceive, but only a plan to achieve what he thought was a lawful objective, these culpable acts may be inadequately connected with the offence to allow it to break the chain of causation. ii) Secondly, as I have held above, the question of causation does fall to be considered, because the wider rule is relevant to the bulk of Mr Griffin’s claimed losses. It would be unsafe, in my judgment to determine a complex issue of causation on assumed facts, even if Mr Hubble is right to assert that the morally reprehensible acts alleged look as if they are connected with the offence. This is particularly so where it is alleged that Hacker Young had assumed the responsibility for advising Mr Griffin on how he should achieve the desired result of continuing to trade using the existing brand name. Mr Soole was right, in my judgment, to submit that the professional negligence context makes the causation question particularly difficult to answer on assumed facts. iii) Thirdly, Mr Hubble’s formulation ignores the fact that section 216 does not create an absolute ban on continuing to use a prohibited name. All it does is to ban such trading without serving a notice to creditors or obtaining the leave of the Court. The statute, therefore, contemplates the legitimisation of such trading. It would have been the easiest thing in the world for Mr Andronikou to advise Mr Griffin to legitimise what he was doing. It is specifically alleged that he was negligent in failing to do so. Mr Griffin says he would have acted upon such advice. If this were right, it would show that Mr Griffin was not set on a dishonest or reprehensible course at all costs, but was, rather, in failing to give notice to creditors, making an honest error about how to achieve what he thought was lawful and permissible, namely to continue to trade using the Saxon 1050 name. Mr Soole did not seek to justify the lie, but if it were shown that Mr Griffin would have been happy to correct it by serving the requisite notice to creditors, had he known of the possibility, and that he ought to have been told of it, it may be harder to see how the commission of the offence can automatically break the chain of causation between the allegedly poor advice and the loss. The backdating of the documents might then become simply another aspect of what Hacker Young was advising Mr Griffin to do to achieve what he thought was a legitimate objective. Even if it too is culpable by itself, it may again be inadequately connected to the commission of the offence.[65]Moreover, I have sought to demonstrate by my treatment of the authorities above that this is an area of developing law on which some aspects are not yet completely clear. It would, in my judgment, be far better for these aspects to be decided by a judge who had heard live evidence and been able to determine the full facts, rather than on the basis of an assumed, and necessarily incomplete, factual matrix. As I see it, this is really a classic example of a case that can only be fairly decided at trial. As Mr Soole put it: that is what trials are for – to determine the level of culpability of the parties.

Conclusions

[66]For the reasons, I have given, Hacker Young has failed to establish that there is no real prospect of Mr Griffin’s claim succeeding. Moreover, there is in this case some other reason for a trial, namely the desirability of deciding the legal questions that arise after a trial of the facts in an area of developing law. Hacker Young’s application for summary judgment, therefore, fails. In the circumstances, Hacker Young must also fail in showing that Mr Griffin has no reasonable cause of action or that his claim is an abuse of process.[67]I will, therefore, dismiss the application and hear counsel on costs and further directions for trial.