Jetivia SA & Anor v Bilta (UK) Ltd & Ors

A company’s claim against its directors and their accessories for fraud or breach of fiduciary duty is not defeated by attributing the directors’ wrongdoing to the company. This remains so where the wrongdoers were its only directors and shareholders, and where the company’s loss followed from a fraud on a third party.

The sole-actor reasoning in Stone & Rolls is confined to its context and is not a general rule governing claims against fraudulent directors or their accessories. The expression “any persons” in section 213 of the Insolvency Act 1986 extends to persons outside the jurisdiction who knowingly participated in fraudulent trading.

Bilta (UK) Ltd, acting with its liquidators, alleged that its directors and several other defendants had conspired to deprive it of the proceeds of carbon-credit sales, leaving it unable to meet substantial VAT liabilities. It claimed damages and equitable compensation for conspiracy and dishonest assistance. The liquidators also claimed contributions for fraudulent trading under section 213 of the Insolvency Act 1986.

Jetivia SA, a Swiss company, and its sole director, who resided in France, sought summary dismissal or striking out. They argued that the directors’ fraud must be attributed to Bilta, so that the company’s claims were barred by the ex turpi causa principle. They also argued that section 213 had no application to persons outside the jurisdiction.

The Chancellor of the High Court dismissed both applications. The defendants appealed with his permission. The principal issues were whether attribution and illegality barred Bilta’s claims, and whether “any persons” in section 213(2) included overseas participants.

1. Appeals dismissed. The ex turpi causa principle did not require the summary dismissal or striking out of Bilta’s claims. The applicable illegality test asks whether the claimant must plead or rely on its own illegality to establish the cause of action. It does not permit a discretionary balancing of the parties’ respective merits.

2. Attribution is contextual. Directors’ conduct and knowledge will commonly be attributed to a company when a third party seeks to impose liability upon it. Different considerations govern a company’s claim against directors and their accessories for loss caused by breaches of duties owed to the company. In that context the company is the victim of the legal wrong, and the wrongdoers cannot attribute their own conduct to it in order to defeat the duties imposed for its protection.

3. This principle applies even where the fraudulent directors were the company’s only directors and shareholders. The decisions in Belmont Finance and Attorney-General’s Reference (No 2 of 1982) were binding and established that a one-person company can enforce duties against its controlling wrongdoers. The proposed sole-actor exception would conflict with the company’s separate legal personality and with the protection afforded to creditors by sections 172 and 239 of the Companies Act 2006.

4. Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391 was distinguishable. It concerned a negligence claim against auditors who were not parties to the fraud, rather than claims against directors and accessories for wrongdoing against the company. Only two members of the Appellate Committee relied on the sole-actor reasoning. The decision did not establish that doctrine as a general feature of English law and did not overrule the binding authorities governing claims against directors.

5. For the summary application, the pleaded conspiracy had to be taken as alleging that Bilta was its intended victim. The same result would follow even if the fraud had principally targeted HMRC: in an action against directors and accessories for their breaches of duty, the company is the victim of those wrongs although its loss may follow from liability to a third party.

6. Section 213(2) of the Insolvency Act 1986 applies to overseas participants. Its unqualified expression “any persons” bears its natural meaning. The reasoning concerning the equivalent expression in section 238 in Re Paramount Airways Ltd [1993] Ch 223 applied with equal force. The claims against Jetivia and its director therefore fell within the court’s statutory jurisdiction.

1. Court of Appeal (Civil Division): The appeals were dismissed unanimously. The court affirmed the Chancellor’s refusal to dismiss or strike out the company’s claims and the liquidators’ section 213 claims.
2. High Court, Chancery Division: The Chancellor dismissed the appellants’ applications for summary dismissal or striking out and granted permission to appeal. No neutral citation for that decision is stated in the judgment.