Loach v Pictet Asset Management UK Ltd

The illegality defence may defeat a tort claim where the alleged representation is central to an illegal transaction on which the claimant relied. It is different where the illegality is collateral and unconnected with the cause of action. A claimant cannot avoid the ex turpi causa principle merely by pleading negligent or fraudulent misrepresentation if establishing the claim requires reliance on an illegal act. On a second-tier appeal, permission should be refused unless the application raises an important point of principle or practice, or there is some other compelling reason for the appeal.

Mr Loach sought permission to appeal and an extension of time after His Honour Judge Grenfell dismissed his appeal against District Judge Greenwood’s summary dismissal of his claim.

He alleged that the respondent bank had negligently misrepresented that £1,370,000 could be transferred from the accounts of Mr Hirst, an undischarged bankrupt, and that he had lent Mr Hirst £200,000 in reliance on those representations. The evidential issue was resolved in his favour, but the lower courts held that the contemplated transfer was illegal and that the claim was therefore barred by illegality.

The central issue was whether the alleged illegality was collateral to the tort claim or central to it.

1. Application refused. The case did not raise an important point of principle or practice, nor was there another compelling reason for a second-tier appeal. Even if the application had been a first-tier appeal, there was no real possibility of success.
2. The claimant’s case depended on the representation that money would be transferred from Mr Hirst’s account. Mr Hirst was an undischarged bankrupt, so his property had vested in his trustee in bankruptcy and the proposed transfer would have been illegal. The illegality was therefore central to the claim, rather than collateral to it.
3. The court rejected the submission that the claim was merely for negligent misstatement and did not seek to enforce an illegal contract. The form of the pleaded cause of action could not conceal the fact that the alleged loss arose from reliance on an illegal transaction.
4. Saunders v Edwards [1987] 2 All ER 651 was distinguishable. In that case the illegality was wholly unconnected with the fraudulent misrepresentation, the loss would have been the same without the illegal term, and the claim did not seek to enforce the contract.
5. The possibility that the bankruptcy might have been annulled did not alter the pleaded case. The facts pleaded concerned an illegal transfer by an undischarged bankrupt.
6. The order was: application refused.

• Court of Appeal (Civil Division): refused permission to appeal and an extension of time from the order of His Honour Judge Grenfell, which had dismissed the claimant’s appeal against District Judge Greenwood’s summary dismissal of the claim.