Jetivia SA v Bilta (UK) Ltd

The Court of Appeal dismissed the appellants' appeal against the Chancellor's refusal to strike out or summarily dismiss the claims brought by Bilta (in liquidation) and its liquidators. The principal legal issues were (i) whether the company's claim against its directors and third parties for conspiracy, dishonest assistance and breaches of fiduciary duty was barred by the public policy doctrine ex turpi causa non oritur actio, and (ii) whether s.213 of the Insolvency Act 1986 (fraudulent trading) extended to non‑resident persons who were alleged to be "persons knowingly parties" to fraudulent trading.

The court applied the established attribution principles (including Meridian, Belmont, Hampshire Land and subsequent authorities) and reaffirmed that where a company sues its directors and their associates for breaches of fiduciary duty the company is to be treated as the victim and the directors' wrongdoing will not be attributed to the company so as to bar the claim by ex turpi causa. The court declined to extend or apply the so‑called "sole actor" exception from Stone & Rolls as a general rule capable of defeating a company's claims against its directing mind in circumstances such as these. On jurisdictional construction the court followed the reasoning in Re Paramount Airways and held that the unqualified phrase "any persons" in s.213 carries its natural meaning and can include non‑resident persons.

Background and parties. Bilta (UK) Ltd, a UK company registered for VAT, traded in European Emissions Trading Scheme Allowances (EUAs) in 2009 and incurred substantial VAT liabilities. Bilta went into liquidation; the liquidators pursued claims against Bilta's directors and a number of third parties (including the appellants Jetivia SA and Mr Urs Brunschweiler) for conspiracy to defraud, dishonest assistance, breaches of fiduciary duty and, in the liquidators' separate claims, fraudulent trading under s.213 Insolvency Act 1986.

Procedural posture. The appellants applied for summary dismissal or striking out of the claims against them. The Chancellor refused those applications. The appellants obtained leave to appeal to the Court of Appeal.

Relief sought and issues for determination.

• Whether Bilta's claim against its directors and their alleged accomplices is barred by the ex turpi causa principle because, it was said, Bilta had been a participant in a carousel VAT fraud and therefore could not rely on its own illegality to found a claim.
• Whether s.213 IA 1986 applies to non‑resident persons (i.e. whether the court has jurisdiction to make orders under s.213 against persons domiciled abroad who were alleged to be "knowingly parties" to fraudulent trading).

Court's reasoning on ex turpi causa and attribution. The court reviewed the leading authorities on attribution, the Hampshire Land/Belmont line and Meridian, and considered the House of Lords' decision in Stone & Rolls. It explained the established distinction: where a company is the victim of the wrongful conduct of its directors, the law will not impute the directors' dishonest intention to the company so as to prevent the company suing the directors for breach of fiduciary duty. The court held that the Bellmont/Hampshire Land principle applies to a company's own claims against its directors and their accomplices and that such a company is to be treated as the victim even if its loss consists of sums payable to third parties (for example VAT paid to HMRC). The Court declined to import the "sole actor" exception from Stone & Rolls as a general rule defeating such claims, preferring the narrower, contextual approach and confining Stone & Rolls to its facts and to claims against auditors in that case.

Court's reasoning on s.213 jurisdiction. The court applied statutory construction principles and authorities (notably Re Paramount Airways) to conclude that the unqualified term "any persons" in s.213 should be given its literal meaning and may extend to persons outside the United Kingdom where they are alleged to have been knowingly parties to the carrying on of business with intent to defraud.

Outcome and implications. The Court dismissed the appeal. The Court's analysis preserves the company’s ability to sue its directing mind and third‑party accomplices for breaches of fiduciary duty and dishonest assistance, and confirms that s.213 can reach foreign participants in fraudulent trading where pleaded and proved. The question whether the pleaded conspiracy in fact targeted HMRC rather than Bilta was treated as a matter for trial on the pleaded facts.

The Court of Appeal dismissed the appellants' appeal. The court held that (1) Bilta's pleaded claim against its directors and third parties for conspiracy, dishonest assistance and breaches of fiduciary duty was not barred by the ex turpi causa principle because, in the context of a company's claim against its directing mind and accomplices, the company is to be treated as the victim and the director’s wrongdoing will not be attributed to the company so as to defeat its claim; (2) the "sole actor" exception in Stone & Rolls does not operate as a general rule to prevent a company suing its directing mind and associates for breaches of fiduciary duty and should not be extended beyond the context and facts of that case; and (3) s.213 Insolvency Act 1986, by reference to its unqualified language "any persons", can apply to non‑resident persons allegedly knowingly party to fraudulent trading.

Appeal to the Court of Appeal (Civil Division) from the High Court of Justice, Chancery Division (Chancellor Sir Andrew Morritt), HC09CO3502; leave to appeal granted by the Chancellor; High Court order refusing to strike out or summarily dismiss the claims against the sixth and seventh defendants upheld by this Court of Appeal ([2013] EWCA Civ 968).