The latin maxim ex turpi causa non oritur actio refers to the fact that no action may be founded on illegal or immoral conduct. This maxim applies not only to tort law but also to contract, restitution, property and trusts. Where the maxim of ex turpi causa is successfully applied it acts as a complete bar on recovery. It is often referred to as theillegality defence, although it extends beyond illegal conduct to immoral conduct
( Source http://e-lawresources.co.uk/Ex-turpi-causa.php )
In context the banks irhp FCA review scheme for insolvent companies this is of great importance.
The splitting of the ‘redress’ payment by the bank creates more questions than answers;
- basic redress = return of premiums and break costs
- consequential losses = ‘but for’ costs and losses
When a company is offered basic redress it becomes an obligation for the office holder to consider what action to take next.
This consideration must include the calculation of ‘but for the irhp contract would the business have avoided insolvency ?’
In most situations we have investigated this is difficult to prove but in cases where it is identified that the explicit cash flow and implicit collateral requirements of the irhp contract stifled the businesses ordinary trading and caused the insolvency. the situation of how to deal with the banks offers of redress under the Financial Conduct Authorities statute FSMA section 166 review scheme needs very careful consideration.
Questions that need to be addressed are :
- What if the bank apply ‘Set Off’ to the basic premium, therefore do not allow cash to flow as part of any Consideration, is this Equitable ? and then will any acceptance lead to a potential taxable gain for accepting any offer with no funds to make payment.
- If monies do flow in Part 1, basic redress, allowing the IP to give Consideration by accepting the offer, should part 2 of the review be completed before payment of any dividend distribution to creditors ?
- Would the allocation of any basic redress monies stifle the ability of the business to proceed with legal action if distributed and the bank not honour the payment of credible losses ? leading to the need for third party funding at commercial cost.
but the main question that everyone in the insolvency industry needs an answer to is
“can the bank benefit from its own wrongdoings by way of Set Off or being paid as a Creditor by collecting on its own ‘redress’ ? ”