Why crooks cannot sue for ‘fruits of their fraud’

If two crooks sue each other in court for their share of the loot, it is likely that neither will receive help from the courts as the law recognises the popular saying that “two wrongs don’t make a right”.

This doctrine of illegality was recently highlighted in a High Court case in Singapore, which involved a company suing its marketing manager for using a series of fake business transactions to channel money to herself and her accomplices.

The court then referred to a landmark decision of the Court of Appeal in 2020 that involved a man who colluded with his then employee to siphon money from his own company.

In that case, the employee had pocketed over $1.6 million while she was working for a marine company and used the money to buy insurance policies and properties for herself.

When she was sued by the company, she claimed that her action was done with the express permission of the company’s owner and managing director, who instructed her on how to do this and even signed the cheques to withdraw the funds.

She said some of the money was paid as a sort of commission to her and she was entitled to spend the money as she thought fit.

The two had this arrangement because, she claimed, her boss wanted to evade paying more taxes, as well as to hide the business profits from his then wife as the couple were on the verge of divorce.

As part of the deal, the boss could ask her to withdraw money from her personal account to lend to his friends or for his own use. She also had to buy expensive and luxurious items for him.

The boss’ wife later found out about the alleged embezzlement and the case was reported to the police. The employee was eventually charged with seven counts of criminal breach of trust.

But the case never made it to the court because the employee died of cancer four months after her charges were suspended.

Company failed to reclaim money

After her death, the company filed a claim against her estate to recover the money taken by her.

But the Court of Appeal upheld the finding that her boss was aware of the fraud perpetrated against his company, as the amount withdrawn was many times the profits it had earned.

Although the company “had no mind or body of its own” as a corporate entity, the court found that the action of its owner could be attributed to it.

As a result, the court ruled that the company was precluded from claiming against the employee’s estate by virtue of the doctrine of illegality.

So the court dismissed the suit against the estate because it could not allow the boss, who was the main shareholder, to “recover the fruits of the fraud” that had been perpetrated with his complicity.

What this means is that the doctrine of illegality can be used as a defence against a claim by someone who has committed an illegal act because as a matter of public policy, the courts will not assist in any dispute involving parties who are equally tainted by the same wrong.

Innocent party can still sue

The landmark ruling was, however, not applicable in a recent case involving fake transactions because the High Court found that the company’s management was not aware of the fake scheme run by its manager.

In this case, the court found that the manager had faked the deals herself with her accomplices, who comprised people working for the company’s supplier and customers.

So the court ruled that the manager had breached her employment duties by committing fraud that harmed the interests of her employer.

But like the other rogue employee, this employee also died before the case was concluded.

These cases should serve as cautionary tales that crime really does not pay, and those tainted by illegal acts will not be able to use the law to recover any ill-gotten gains.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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