Attribution Of Knowledge: Does It Depend On The Identify Of The Victim?

In Jetivia SA & Anor v Bilta (UK) Ltd & Ors, the England and Wales Court of Appeal confirmed and clarified the circumstances in which a director's knowledge of fraudulent conduct will be attributed to the company. In particular, it explained that a director's knowledge will not be attributable to the company in the context of a claim made by the company against the director and its associates who engaged in unlawful conduct with negative consequences to the company.

Background

This appeal was brought with leave by Jetivia S.A. and Urs Brunchschweiler from an Order of the Chancellor of the High Court dismissing their applications for the summary dismissal or striking out of the claims against them.

The underlying claim related to allegations of conspiracy and fraudulent trading engaged in by the only two directors of Bilta (UK) Ltd, a company incorporated in England and registered for the purposes of VAT. Bilta traded in European Emissions Trading Scheme Allowances ("EUAs"), and as a result of how the trades were conducted, Bilta earned no profit but incurred VAT liabilities of 38,000,000 pounds. As a result of its lack of profit, Bilta was unable to pay the amount owing and was wound up compulsorily.

Bilta's liquidators brought a claim on behalf of the company against the Applicants (who were involved in the trading of the EUAs) and the other defendants for conspiracy and dishonest assistance. The liquidators also brought separate claims for fraudulent trading under the Insolvency Act 1986. With respect to the claims of conspiracy and dishonest assistance, the Applicants argued that Bilta's claim should be dismissed or struck on the grounds of public policy based on the principle of ex turpi causa non oritur actio, which has been explained as follows:

No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causâ, ... there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. (Holman v Johnson (1775) 1 Cowp 341.)

Much of the factual background was not in dispute, but Bilta alleged that the object of the conspiracy was to defraud and injure the company, while the Applicants alleged that the intended victim was HM Revenue and Customs who were deprived of the VAT owing to...