The Court of Appeal's unanimous judgment in Moore
Stephens (a firm) v Stone & Rolls Ltd (in
liquidation)1 is a welcome decision for auditors and
their insurers. It confirms that an auditor is not liable for
losses that arise from liabilities incurred by a company towards
third parties caused by a company's fraud, where the fraud is
perpetrated by the "sole directing mind" of the
company.
The longstanding legal principle of ex turpi causa non
oritur actio (the ex turpi
principle), which means that "no court
will lend its aid to a man who founds his cause of action on an
immoral or illegal act"2 , was the subject of
much discussion in the Judgment of the Court of Appeal delivered on
18 June 2008, which overturned the High Court's decision. The
case has received a great deal of publicity as it is one of the
first substantial cases in England and Wales in which the Claimant,
the liquidator, was financed by a third party funder.
