Under a July 30 opinion by the UK's highest court, an ancient legal maxim (“ex turpi causa non oritur actio”) may provide auditors in the UK with crucial protection against certain types of fraud cases.

Auditing firms are big targets in investment fraud lawsuits. In a recent decision, however, the UK's highest court dismissed a negligence lawsuit brought against accounting firm Moore Stephens for allegedly failing to detect a massive fraud at Stone & Rolls, a trading company. The court ruled that Stone & Rolls’ liquidators, who were pursuing the case on behalf of the creditors, could not bring a claim for damages because the company itself was responsible for the fraud. According to the FT, the court "refused to depart from an ancient legal maxim – known in Latin as “ex turpi causa non oritur actio” – that nobody can bring a cause of action based on his own criminal conduct."

Simon Konsta, a partner in Barlow Lyde & Gilbert, which represented Moore Stephens, stated that "this case was one of the most significant concerning auditors to come before the courts in recent years, examining the critical issue of when a company can sue its auditors for undiscovered fraud. It seems inevitable that auditors will increasingly find themselves in the firing line as companies collapse in this recession."

The case is also reportedly one of the largest and most high-profile claims funded by a third party in the UK, and represents a setback for litigation funders.