England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
APPLICATION FOR PERMISSION TO APPEAL AND AN EXTENSION OF TIME

		Royal Courts of Justice Strand London WC2 Tuesday, 25th September 2001

1. LORD JUSTICE ALDOUS: Mr Loach, the claimant, seeks permission to appeal the order of His Honour Judge Grenfell of 8th May 2001 which dismissed his appeal against an order of District Judge Greenwood of 3rd April 2001; that order summarily dismissed the claim.
2. For the purposes of this application the basic facts can be taken from the particulars of claim. The defendant is a bank. On or about 1st August 1996 Mr Loach attended at the defendant's premises in the company of Mr Peter Hirst. At that meeting and subsequent meetings and in subsequent letters it is alleged that representations took place to the effect that substantial sums were available to Mr Hirst. The claimant was informed that the sum of £1,370,000 would be transferred from the accounts of Mr Hirst to the claimant by the end of March 1997. Upon those representations Mr Loach lent Mr Hirst £200,000. The sum was never repaid. It is alleged that the representations made by the bank were false, were negligent and by reason of those representations and the reliance of Mr Loach he suffered damage in the sum of £200,000.
3. Mr Hirst was a fraudster as after three and half months of trial, in autumn 1993, he was convicted of fraud; Mr Loach knew that at the time of these representations. He also knew that Mr Hirst was subject to a criminal bankruptcy order. Even so, Mr Loach lent Mr Hirst the £200,000. That happened even though he must have known that all Mr Hirst's property had by that time vested in his trustee in bankruptcy.
4. At the hearing before the judge there was considerable examination of the documents. The judge, rightly, in my view, concluded that it was not appropriate to conduct a mini trial on paper. He proceeded on the basis that Mr Loach had shown a reasonable prospect of proving that the misrepresentations had been made. Thus, it was not appropriate to dismiss the case summarily on the basis that Mr Loach had no real prospect of establishing that he paid Mr Hirst upon the basis of the misrepresentations. The judge said at paragraph 12:

"In my view, the District Judge's approach to the first, evidential, limb of the defendant's argument was correct. In the result, his decision not to decide the application on a trial of the quality of the evidence submitted on behalf of the claimant cannot be faulted. I should only add that the criticism of Mr Green's evidence that it could not be dated to fit in with the last payment being made within the relevant period goes only so far. True there is no reference to when this was and it could have [been] any time, but taken in conjunction with the claimant's evidence a court could infer that he was referring to the same final payment. This is an example of weak supporting evidence, but it cannot be said to be entirely hopeless in effect. In summary, the District Judge correctly identified the overall weakness of the claimant's case evidentially, but was right not to attempt to try the issues of fact himself."

5. That amounted to a decision in favour of Mr Loach upon that element of the case. That conclusion is not sought to be challenged on an appeal to this court.
6. It was on the second limb of the defendant's case that the judge held that the claim should be struck out. He concluded that the district judge had been right to decide that the contemplated transaction was tainted with illegality. As Mr Hirst was an undischarged bankrupt all his property had vested in his trustee in bankruptcy. Thus, any payment by Mr Hirst would have been illegal. It followed that Mr Loach could only found his claim on what would have been an illegal transaction between Mr Loach and Mr Hirst, that is to say, payment by the undischarged bankrupt.
7. The judge referred to the law of illegality, quoting from Tinsley v Milligan [1994] 1 AC 354, and referred to Saunders v Edwards [1987] 2 All ER 651.
8. This is a second-tier appeal and therefore permission to appeal will only be given if there is an important point of principle or practice or some other compelling reason for the Court of Appeal to hear the case. In my view this application does not fall within that category.
9. We have had the advantage of full written argument by Mr Holmes and his concise and full oral submissions. The first point taken by Mr Holmes is that there is a point of principle here. He says that if the judgment of the judge is to stand then paragraph 17-168 of Chitty is wrong and needs to be amended. Thus, this matter should be considered by this court. In effect, what he submits is that although the doctrine of ex turpi causa precludes a plaintiff from being able directly to enforce an illegal contract it does not prevent him enforcing causes of action which are collateral to the contract.
10. For that purpose he relies also on Saunders v Edwards. He submits that this is just such a case. He submits in his written submissions that Mr Loach is in the same position as Miss Milligan in Tinsley v Milligan. Mr Loach did not need to allege or to prove any illegal act and did not plead one. He only pleaded that he advanced monies because of a negligent misstatement by the defendant. The cause of action relied on here depended on a misrepresentation of the means of Mr Hirst. It was not asserted that such representations were accurate when they were made. Thus, Mr Holmes submits the tort was committed when the defendant failed to exercise the appropriate degree of care to ensure the accuracy of the representations that were made. It followed that in order to establish the commission of the tort by the defendant Mr Loach did not need to seek to enforce the terms of any contract tainted by illegality. Thus, in this case the illegality was collateral and not central to the case.
11. Attractively as that submission was made, I cannot agree with it. The representation relied on in the particulars of claim, which was crucial to the loan made by Mr Loach, was that the sum of £1,370,000 would or could be transferred from Mr Peter Hirst's account into Mr Loach's account by 15th February and at least by the end of March 1997. That transaction was an illegal transaction if carried out, as Mr Loach knew. Mr Hirst was an undischarged bankrupt. Therefore, any transfer of money from any account in Mr Hirst's name was illegal, and, in any case, that money had already vested in the trustee in bankruptcy. Thus, it would be an illegal transaction to make the transfer. It follows, in my view, that the misrepresentation that an illegal transaction would be done is central to the case of Mr Loach.
12. That is in stark contrast to the factual position in Saunders. One only has to read the judgment of Lord Justice Kerr at page 660 at H to realise that is so. He said:

"However, I have no doubt on which side of the line the present case falls. The plaintiffs have an unanswerable claim for damages for fraudulent misrepresentation. The possible illegality involved in the apportionment of the price in the contract is wholly unconnected with their cause of action. The plaintiffs' loss caused by the defendant's fraudulent misrepresentation would have been the same even if the contract had not contained this illegal element. Their claim for damages in no way seeking to enforce the contract or any relief in connection with it. The moral culpability of the defendant greatly outweighs any on the part of the plaintiffs. He cannot be allowed to keep the fruits of his fraud. I therefore hold that the ex turpi causa defence fails."

13. That is in complete contrast with the position in this case. The loan was made upon the misrepresentation that monies would be illegally transferred. In my view that representation was central to this case.
14. The second submission made by Mr Holmes is that it did not follow that the transfer of funds would necessarily be illegal and that was not clear to Mr Loach. He submitted that it was possible that the funds were sufficient to discharge Mr Hirst's debts and, in consequence, Mr Hirst could have his bankruptcy annulled. Anything is possible, but what is quite clear is that the case as pleaded was one which relied upon the illegality. Mr Hirst is not a person who has had his bankruptcy annulled. The representations related to an illegal transaction.
15. In my view, that submission cannot stand. I therefore come back to the central question whether there is an important issue of principle. There is not in this case. I am also of the view that even if this had been a first-tier application there was no real possibility of an appeal succeeding. I therefore would refuse the application.
16. LORD JUSTICE RIX: I agree.
Order: Application refused