K/S LINCOLN V CB RICHARD ELLIS HOTELS LTD

[2009] EWHC 2344 (TCC), Technology and Construction Court, Mr Justice Coulson, 2 October 2009

Contract - Damages - Allegation that contracts were designed to allow claimants to evade tax in Denmark - Whether claim should be struck out for illegality

The claimants were formed by a Danish company to purchase hotels in England, and they engaged the defendant to value the hotels. The claimants asserted that the valuations were negligent so that too much was paid for them, and sought to recover damages. One method of calculating the loss was based on the actual price paid (£41,039,000) minus the true valuation (£34,500,000), a figure of £6,689,800. In each case the sum actually paid consisted of 92 per cent of the price paid to the seller, and 8 per cent paid to a property location agent, ESL. The defendant asserted that the 8 per cent uplift was for reasons of unlawful tax evasion in Denmark. The claimants sought to strike out the defence. Coulson J reviewed the authorities and derived three principles from them: (a) contracts which are entered into with the intention of committing an illegal act will not generally be enforced, although, in exceptional circumstances, the intended illegality may be so remote to the subject matter of the claim as to make the contract enforceable; (b) in a case where the claimant is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under that contract, and where illegality does not, of necessity, form part of the claimant's case, the claim - at least if it relates to property - may well succeed; and (c) the court will not generally assist a claimant to recover the benefit of his own wrongdoing, whether or not the claimant has pleaded or expressly relied on the illegality on making the claim. Coulson J held that this was not a case in which the claimants were seeking to rely upon or enforce a contract based on an illegal or fraudulent intention. At the very most, any claim based on the 8 per cent uplift might fail.