COUNSEL: Simon Tuckey Q.C., Gavin Kealey and Simon Kverndal for the defendants.

Steven Gee and Mark V. Smith for the plaintiffs and Gerald Herbert Ltd.

Anthony Diamond Q.C. and Stephen Ruttle for F. E. Wright (U.K.) Ltd.

Adrian Hamilton Q.C. and Victor Lyon for A. W. Knott Becker Scott Ltd.

Richard Siberry for Channel Underwriting Agencies Ltd.

 

SOLICITORS: Elborne Mitchell & Co.; Clyde & Co.; Sinclair Roche & Temperley; Constant & Constant; Bentleys Stokes & Lowless.

 

JUDGE: Parker J.

 

DATES: 1983 Oct. 12, 13, 17, 18, 19, 20, 24, 25, 26, 27, 31; Nov. 10, 14

 

 

[*997] Cur. adv. vult.

 

 

10 November 1983. PARKER J. read the following judgment. The plaintiffs in this consolidated action are a Hong Kong insurance company carrying on business there mainly in the motor insurance field. They allege that they are bound by a large number of insurance contracts and are entitled to recover against the defendants pursuant to an open cover reinsurance under which the original risks were declared to the defendants. The original contracts, if contracts they be, the reinsurance cover and the declarations under it were made without the plaintiffs’ authority or knowledge by London brokers, Gerald Herbert Ltd. through their managing director, Mr. Gerald Herbert, or another director, Mr. Anthony Cracknell. Gerald Herbert was also at all material times a director of the plaintiffs and had been so from 1977. Also without the authority or knowledge of the plaintiffs, Gerald Herbert Ltd. collected premiums and settled and paid some claims under the original contracts. In addition, again without the plaintiffs’ knowledge or authority, Gerald Herbert Ltd. launched in the plaintiffs’ name and obtained an order for consolidation of, the two actions which constitute the present action.

 

The defendants deny liability and plead a counterclaim against the plaintiffs and the brokers interposed between Gerald Herbert Ltd. and themselves. There are in addition third and fourth party proceedings and claims between various existing parties. In their defence the defendants set up two matters which go to the whole of the claim and which, if successful, would result in the claim being dismissed. These defences do not directly involve other parties. Other partial defences do so.

 

At what appeared to be the conclusion of Mr. Gee’s opening on behalf of the plaintiffs, he invited me to hear the evidence and argument on the two complete defences and give judgment thereon before further considering all the other issues in the case. He was joined in this invitation by Mr. Tuckey for the defendants. All other parties either supported this joint invitation or assumed a position of neutrality. No-one seriously opposed it. Inherent in the proposal were (a) an [*998] undertaking by the defendants that in the event that the complete defences were rejected no appeal would be pursued until after hearing of and judgment on the remaining issues, the trial of which would proceed immediately, and (b) that, in the event that the complete defences or one of them succeeded, trial of the remaining issues be stood over and only be proceeded with in the event that there was an appeal and that appeal had been finally determined in the plaintiffs’ favour.

 

The proposed course would have the immediate cost-saving advantage that other parties could, if they so wished, absent themselves during the course of the hearing on the two complete defences. It would have the further advantage that, in the event that the defences or one of them succeeded and the judgment was either not appealed or unsuccessfully appealed, a very great saving in costs would result, for the remaining issues which were detailed and complex would never have to be heard. Against this was the clear disadvantage that, if the defences succeeded but were successfully appealed, the remaining issues would then have to be tried after a considerable lapse of time and very possibly before another judge. Since, however, all parties appeared to be prepared to face this possible disadvantage with equanimity, I acceded, albeit with some misgivings, to the invitation to try the two complete defences and give judgment thereon before proceeding further with the other issues. This judgment is therefore concerned only with the validity of the two complete defences.

 

These two defences to some extent overlap. The first is that all of the original contracts were made without the actual authority of the plaintiffs - which is admitted, that the plaintiffs have failed to establish ostensible authority and that there was no valid ratification because the ratification relied on was too late or the original contracts were not purported to be made on the plaintiffs’ behalf. Hence there was no insurable interest in the plaintiffs and the plaintiffs cannot recover under the reinsurance.

 

The second defence is based on illegality, the illegality alleged being that, if the plaintiffs had authorised the original contracts, they would in making each have been contravening either the Insurance Companies Act 1974 or the Insurance Companies Act 1981 and accordingly (i) they cannot rely on ostensible authority, (ii) they could not validly ratify, (iii) the reinsurance was such an integral part of the original contracts that it too was illegal, and (iv) that since proof of the original contracts is an essential part of the plaintiffs’ cause of action and the same were illegal, the plaintiffs cannot recover under the reinsurance.

 

The foregoing sets out only the main features of the two defences, which contained a number of sub-divisions and alternative contentions within them, but it is sufficient for present purposes.

 

The original contracts and the reinsurance relied on were all effected in 1981 and 1982, but before considering them it is necessary to refer briefly to the previous history of the association between Gerald Herbert Ltd. and the plaintiffs. This began in 1976 to 1977 when Gerald Herbert Ltd. operated under the name of Ukitabel Insurance Agencies Ltd. By April 1977 Mr. Gerald Herbert had become a director of the plaintiffs [*979] and, between then and the end of 1980, with the authority of the plaintiffs, Gerald Herbert Ltd. (i) wrote in London on their behalf a large number of risks, (ii) collected premiums and settled claims thereon in London, (iii) reinsured such risks as to part, and (iv) paid premiums and collected claims under such reinsurances.

 

This is accepted and indeed relied upon by the plaintiffs in support of their contention that they were bound by ostensible authority in respect of later contracts made without actual authority. It is plain that, despite the foregoing, Gerald Herbert Ltd. falsely represented to the United Kingdom authorities that they did not write risks on behalf of the plaintiffs but merely referred possible business to them so that they might accept or reject it as they saw fit. It is also plain that Gerald Herbert Ltd. combined with the plaintiffs to mislead the Hong Kong authorities as to the position between themselves and the plaintiffs. This appears clearly from the documents and is not denied by the plaintiffs.

 

The extent of the business done on the plaintiffs’ behalf with their actual authority is summarised in a document put in by the plaintiffs. In the years 1977 to 1980 both inclusive, over 1,900 risks were written yielding a net premium income of about U.S. $4,000,000. The plaintiffs also in their pleadings allege that, during his tenure of office as a director of the plaintiffs, Mr. Gerald Herbert was in charge of underwriting carried out for the plaintiffs in London and was allowed and/or encouraged by the plaintiffs to conduct himself as such towards third parties. With the possible addition or substitution of Gerald Herbert Ltd. for Mr. Gerald Herbert, this allegation is fully borne out by the documents. Of the total risks written in the period 1977 to 1980 mentioned above, the same summary reveals that there were some 575 marine risks, yielding a net premium income of about U.S. $825,000. In the years 1981 and 1982, the summary also discloses that the position was as follows: (i) there were a total of 615 risks written with actual authority, of which 215 were marine risks, and (ii) there were a total of 340 risks (being the alleged original contracts) written without actual authority, all of which were marine risks.

 

At this point it is convenient to consider the position of the plaintiffs, of Gerald Herbert Ltd., and of Mr. Gerald Herbert under the Insurance Companies Acts of 1974 and 1981 with regard to the business done in London over the whole period from 1977 to 1982 with the actual authority of the plaintiffs. In so doing I shall for the sake of brevity consider only the position with regard to marine risks.

 

By section 2 of the Act of 1974 it was provided that, with certain specified exceptions, no person should carry on in Great Britain insurance business of a class relevant for the purposes of Part I of that Act. By section 1(1) the relevant classes are listed. They include marine insurance business. The listed classes are defined by section 83, and the definition of marine insurance business is to be found in subsection (4) of that section. As in the case of each of the other classes, the definition begins “ the business of effecting and carrying out contracts of insurance.” It is common ground that all the alleged underlying contracts were contracts of marine insurance within the definition. [*980] Neither the plaintiffs nor Gerald Herbert Ltd. fell within any of the exceptions. In order to do so each would have required an authorisation from the Secretary of State. Neither of them had or had applied for any such authorisation. By section 11 of the Act of 1974 any person who carries on business in contravention of Part I of the Act is guilty of an offence punishable, on conviction on indictment, with imprisonment for a term not exceeding two years or to an unlimited fine or both, and, on summary conviction, to a fine not exceeding £400. Section 79 provides:

 

“(1) Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, chief executive, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in any such capacity, he, as well as the body corporate, shall be guilty of that offence and liable to be proceeded against and punished accordingly. (2) For the purposes of this section a person shall be deemed to be a director of a body corporate if he is a person in accordance with whose directions or instructions the directors of the body corporate or any of them act.”

 

The Act of 1981, which came into force on January 1982, repealed inter alia sections 1 to 11 and section 83 of the Act of 1974 but replaced them with provisions which so far as immediately material have the same effect as the provisions already mentioned.

 

It is clear that, through Gerald Herbert Ltd. and/or Mr. Gerald Herbert, and with the consent and connivance of Mr. Gerald Herbert their director, the plaintiffs were throughout the years 1977 to 1982 carrying on insurance business in London in contravention first of the Act of 1974 and later of the Act of 1981. The plaintiffs and, by virtue of section 79 of the Act of 1974, Mr. Gerald Herbert were thus throughout the period from 1973 guilty of offences under first one and then the other Act. Gerald Herbert Ltd. aided and abetted those offences for it is clear from the documents that they knew full well that what they were doing was illegal and deliberately set out to create a false impression.

 

What then of the business done without the actual authority of the plaintiffs, assuming for the moment that, apart from any effect of the two Acts, it was done purportedly on behalf of the plaintiffs so as to be capable of binding them by the application of ostensible authority or, if not binding for this reason, capable of being validly ratified? This business, all of which was done in London, although done without actual authority was business of a kind which Gerald Herbert Ltd. and/or Mr. Gerald Herbert were authorised to do. The lack of authority lay therefore not in a complete absence of authority but in exceeding the actual authority conferred by the plaintiffs. The true position was that the plaintiffs’ agents, Gerald Herbert Ltd., and/or their director, in the course of carrying on the plaintiffs’ insurance business, by the plaintiffs’ authority in contravention of the Acts, exceeded the limitations put upon their authority.

 

For the plaintiffs Mr. Gee, who also represents Gerald Herbert Ltd., contends that there is in the case of the original contracts no offence by [*981] the plaintiffs for the original contracts would be binding by estoppel only and although, as against the insured they might be estopped from denying civil liability, estoppel has no place in the criminal law. The plaintiffs had, he contended, done no more in London than hold out Gerald Herbert Ltd. as having authority, and that is not the offence. So far as ratification is concerned, he contends that the act of ratification took place outside the United Kingdom and that thus there is again no offence.

 

Both of these contentions are, in my judgment, unsustainable. It is clear on the terms of the Acts that the offence created by the Acts is an absolute one, that if the prohibited act is done the offence is committed and that it can be no defence to say that the act was committed by an agent in excess of his authority. I accept entirely that, if an agent had no authority at all, different considerations might or would apply; but where, as here, the plaintiffs through an authorised agent carry on business in contravention of the Acts it can be no answer that the agent exceeded a particular limitation, e.g., a monetary limit on his authority, in the course of carrying on that business.

 

As to ratification, it is submitted that if there was neither ostensible nor actual authority (which is the only case where ratification can arise) the plaintiffs had done nothing in the United Kingdom at all. They had merely ratified outside the United Kingdom and thus no offence was committed. It is of course incorrect to say that the plaintiffs had, on this assumption, done nothing in the United Kingdom at all. They were at all times carrying on insurance business, including marine insurance business, in contravention of the Acts. They had not, however, in relation to the making of the particular contracts, on the assumption made, done anything in the United Kingdom at all. In my judgment, however, this does not matter. A ratification relates back and is a subsequent recognition of authority at the time, so much so that if, after the making of a purported contract without authority, the other party seeks to withdraw, his withdrawal is ineffective as against a subsequent ratification: see Bolton Partners v. Lambert (1889) 41 Ch.D. 295 and In re Tiedemann and Ledermann Freres [1899] 2 Q.B. 66. What was ratified therefore was, in each case, a contract made in London, and once ratified it was effective as of the date when it purported to have been made. Apart from the question of illegality, I venture to doubt whether anyone would suggest otherwise. Whether the fact that the contracts sought to be ratified were made in contravention of the Acts prevents them being ratified at all I shall consider hereafter.

 

I turn now to consider what would have been the consequences had all the underlying contracts been authorised by the plaintiffs. In such circumstances, could the plaintiffs recover under the reinsurance, or would they be prevented from doing so?

 

Consideration of this question involves first the construction of the two Acts to determine their effect. I take first the Act of 1974. The express prohibition is upon the carrying on of insurance business of a relevant class, but, as I have already mentioned, the definition in the case of each class begins, “ the effecting and carrying out of contracts of insurance.” What therefore is prohibited is the carrying on of the [*982] business of effecting and performing contracts of insurance of various descriptions in the absence of an authorisation. It is thus both the contracts themselves and the performance of them at which the statute is directed. Moreover, section 11, which creates the offence of carrying on business in contravention of the Act, contains in subsection (4) a saving provision of some importance. It provides:

 

“A body corporate or unincorporated body of persons shall not be taken to carry on insurance business in contravention of this Part of this Act by reason only of carrying on business for the purpose of discharging liabilities lawfully assumed by it before 27 July 1967.”

 

There is here a clear indication that the mere paying of claims, unless saved under the proviso, was intended to be prohibited whether or not the contracts of insurance under which the claims were made were themselves made in contravention of the Act so long, of course, as the payments are made by a person carrying on insurance business in the United Kingdom.

 

Section 84 of the Act of 1974 contains a series of provisions designed to protect insurers from being held to have carried on business in a particular relevant class. Subsection (2) is in the following terms:

 

“For the purposes of this Act, a person shall not be taken to carry on marine, aviation and transport insurance business by reason only of the incidental inclusion, in a contract of insurance whose principal object is to insure a person against risks of a kind such that the business of effecting and carrying out contracts of insurance against them constitutes insurance business of some other class, of [a] provision whereby he assumes a liability of a kind whose assumption by itself in a contract of insurance would make that contract such a one as is mentioned in section 83(4) above.”

 

This, and the similar provisions with regard to insurance business of other classes, indicates that if, for example, a person were lawfully carrying on business of some class other than marine business pursuant to an authorisation for that class, it would be sufficient to constitute a contravention of the Act if he were then to enter into a single contract of marine insurance. Although the prohibition is upon carrying on business in contravention of Part I of the Act, it appears to me clear that what is aimed at and what is prohibited is both the making and performance of any contract of insurance of a relevant class by way of business. Thus a company opening business premises for the purpose of carrying on insurance business would commit an offence when in the course of that business and without authorisation from the Secretary of State it entered into the very first contract of insurance of a relevant class. The parties to a contract within the prohibition are not, however, treated alike. It is the insurer carrying on business who commits a criminal offence, not the insured. Since, however, the performance of the contract is within the prohibition, it would appear that the insured, however innocent, was intended to acquire no enforceable right under a prohibited contract for it would be an offence for the insurer to pay him, and if, by the time of payment, the insured were aware of the illegality, he would aid and abet the commission of that offence. [*983] So far as the Act of 1981 is concerned, I need in this context refer only to section 11. That section enables the Secretary of State to direct that a company authorised to carry on insurance business shall cease to be authorised to effect contracts of insurance, and section 11(4) provides:

 

“A direction under this section shall not prevent a company from effecting a contract of insurance in pursuance of a term of a subsisting contract of insurance.”

 

Here also is a clear indication that it is the contract itself which is prohibited.

 

Reverting again to the Act of 1974, there is no provision in Part I as to the effect of entering into a transaction prohibited thereby. This is to be contrasted with Part II. There, (i) in section 26(8) there is an express provision that that section shall not be construed as making any transaction prohibited by that section unenforceable as between the parties notwithstanding that non-compliance with the section is a criminal offence; (ii) section 27 renders certain contracts void; and (iii) section 32(5) renders certain transactions void against the liquidator or any creditor of the company concerned. I gain little or no assistance from such provisions.

 

The Acts of both 1974 and 1981 are plainly for the purpose of protecting the public in the form of actual or potential insured from the operations of an unauthorised person. Any suggestion that the innocent insured was intended to acquire rights under a contract with an unauthorised person appears to me to be plainly negatived by the fact that, albeit he is not guilty of the principal offence, the principal offence covers the performance of contracts and the discharge of liabilities as well as the effecting of the contracts, and by the further fact that the offence created is plainly an absolute one.

 

What then is the result of the foregoing? A considerable number of authorities were cited by both sides. The textbooks appear mostly to agree that the law relating to illegality is in a somewhat confused and unsatisfactory state. In my view, however, much, if not all, of the confusion arises from attempts to apply dicta from cases where the contract itself was perfectly lawful but actual performance was not, from seeking to equate cases concerning the question whether breach of some statutory duty gives a civil remedy with cases concerned with the question whether the statute bars a civil remedy, and from occasional failures to specify, when referring to a contract as being illegal, whether it was intended to say whether it was also void ab initio or merely unenforceable ab initio or whether it was illegal in itself or merely illegal because it was intended by one or both parties to be performed in an illegal manner. Be that as it may, certain things are clear. In Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [1961] 1 Q.B. 374 Devlin L.J. summarised the possible effects of illegality. In respect to two of them he said, at p. 388:

 

“Another effect of illegality is to prevent a plaintiff from recovering under a contract if … he has to rely upon his own illegal act; … The third effect of illegality is to avoid the contract ab initio and [*984] that arises if the making of the contract is expressly or impliedly prohibited by statute or is otherwise contrary to public policy.”

 

As to the first of the above effects, in Marles v. Philip Trant & Sons Ltd. [1954] 1 Q.B. 29, 38 Denning L.J. said:

 

“the principle is well settled that, if the plaintiff requires any aid from an illegal transaction to establish his cause of action, then he shall not have any aid from the court.”

 

The second of the above effects has been repeatedly stated albeit that there has been some difference of opinion as to the effect of certain aids to construction. Those differences do not however, in my judgment, cause difficulties in the present case. Here, as a matter of plain language, both the contract and performance are prohibited, the offence created is a continuing one, and the statute is for the protection of the public.

 

Mr. Gee relied strongly on a passage from the judgment of Devlin L.J. in Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [1961] 1 Q.B. 374, 390:

 

“The general considerations which arise on this question were examined at length in St. John Shipping Corporation v. Joseph Rank Ltd. [1957] 1 Q.B. 267, 285, and Pearce L.J. has set them out so clearly in his judgment in this case that I need add little to them. Fundamentally they are the same as those that arise on the construction of every statute; one must have regard to the language used and to the scope and purpose of the statute. I think that the purpose of this statute is sufficiently served by the penalties prescribed for the offender; the avoidance of the contract would cause grave inconvenience and injury to innocent members of the public without furthering the object of the statute. Moreover, the value of the relief given to the wrongdoer if he could escape what would otherwise have been his legal obligation might, as it would in this case, greatly outweigh the punishment that could be imposed upon him, and thus undo the penal effect of the statute. I conclude therefore, that this contract was not illegal for the reason that the statute does not prohibit the making of a contract for the carriage of goods in unlicensed vehicles and this contract belongs to this class.”

 

He also relied on the judgment of Pearce L.J. referred to in the passage above quoted, and on Shaw v. Groom [1970] 2 Q.B. 504. These passages, however, apply to cases where there is no express prohibition and where, as here, albeit by way of the definition, there is a clear express prohibition of both contract and performance, they cannot be used to escape the well settled principle that if the contract is expressly prohibited it is avoided ab initio.

 

Bloxsome v. Williams (1824) 3 B. & C. 232, to which Devlin L.J. referred, appears to conflict with this. In that case there was a statutory prohibition on Sunday trading, breach of which constituted an offence. The plaintiff’s son verbally agreed on a Sunday to buy a horse from a horse dealer, albeit the fact that the seller was a horse dealer was unknown to the plaintiff or his son. The horse was orally warranted [*985] sound. It was not delivered until the following Tuesday and the price was then paid. The plaintiff on behalf of his son sued for breach of warranty and recovery of the price. He succeeded. The judgment of the court was given by Bayley J. Judgment was given on two grounds. The first was that the contract was not complete until the Tuesday and thus that there was no breach of the statute. The second was that even if there was a breach it was not competent to the defendant, who alone was guilty of a breach of the law, to set up his own illegality against the innocent plaintiff. The second ground is apparently inconsistent with the principle that where there is an express prohibition the contract is avoided ab initio. In so far as it is so inconsistent, it cannot in my view stand in the light of later authorities.

 

The original contracts had they in fact been authorised would thus, in my judgment, have been prohibited and therefore not only illegal but avoided ab initio. This being so, apart from one argument raised by Mr. Gee, the plaintiffs would have been unable to recover under the reinsurance both because the original contracts were avoided ab initio and because even if not avoided ab initio it is essential to the plaintiffs’ cause of action on the reinsurance contract to set them up. Mr. Gee submits that the statements of Devlin and Denning L.JJ., which I have quoted above, are too wide and that all he needs for his cause of action is to set up the contracts. He need not, he says, show either that they were made in London in the course of carrying on insurance business or that the plaintiffs were unauthorised under the Insurance Companies Acts or that such Acts prohibited them. This submission is, in my judgment, wholly unsustainable. He has to set up the contracts. Once it is shown, whether by the plaintiffs or by the defendants, that they were made in London, without authorisation from the Secretary of State and thus in contravention of an express prohibition constituting an offence, that is enough. Were this not so, it would follow that countless cases were wrongly decided and it would make nonsense of the principle on which Mr. Gee himself relies, that it is for the party setting up the illegality to allege and prove the facts said to give rise to the illegality.

 

If this is right, the next question is whether the fact that there was no actual authority from the plaintiffs makes any difference. If the contracts were binding by ostensible authority, they would nevertheless be contracts made in London in the course of carrying on insurance business in London. True they would be made in excess of authority, but this does not prevent them being contracts made by the plaintiffs or result in the plaintiffs committing no criminal offence. As to ratification, it is well settled that an unauthorised act by an agent, whether lawful or unlawful, can be ratified, but no case was cited to me where a purported principal has been enabled to ratify an act which would have been illegal had he done it and thereby escape the consequences of the illegality. In my judgment, assuming it is possible to ratify the contracts, it makes no difference to the application of the principle.

 

Mr. Gee sought to argue that what the plaintiffs were seeking to do was in effect to carry out the policy of the Act, for, by ratification long after action brought, they were protecting the insured; that by the reinsurance they were ensuring that the insured would be paid, and that [*986] reinsurance is expressly encouraged by the Acts. Hence, he said, public policy does not require that the plaintiffs should be prevented from recovering. I reject this argument both in principle and on the facts. I reject it in principle because, once it is concluded that on its true construction the Acts prohibited both contract and performance, that is the public policy. I reject it on the facts, because it is clear that the plaintiffs’ ratification was for the purpose of protecting their own credibility and the purpose of the reinsurance is to protect them from the full consequences of their own wrong. I have no evidence to show that the insured will not be paid if the plaintiffs do not succeed and even if I did have such evidence it would make no difference to my conclusion.

 

I hold therefore that the second defence succeeds and on that ground alone the plaintiffs must fail. It is therefore unnecessary to consider further the first of the two defences. Despite this, I would, had there been oral evidence, at the least have made findings on the facts lest a higher court reversed my decision as to the validity of the second defence. There was, however, in effect no oral evidence for, although one witness was called, he merely confirmed his proof of evidence and was not cross-examined. The matter turns therefore wholly on the documents. Nevertheless I express my views shortly. Although in the case of some few individual risks there is doubt as to whether Gerald Herbert Ltd. purported to contract on behalf of the plaintiffs, Mr. Tuckey expressly stated that unless those doubts were sufficient to enable me to say that the plaintiffs should be regarded as not having proved their case at all he would not seek findings that in individual cases Gerald Herbert Ltd. did not purport so to act. The doubts raised are not sufficient to enable me so to hold. I am satisfied that Mr. Gerald Herbert and/or Gerald Herbert Ltd. did in general purport to act on behalf of the plaintiffs, albeit he or they never intended the plaintiffs to benefit under the contracts. Hence, illegality apart, the plaintiffs were, in my judgment, capable of being bound by the application of the principle of ostensible authority and of ratifying.

 

As to ostensible authority, it is abundantly plain that the plaintiffs held out Gerald Herbert Ltd. as having authority to enter into marine insurance contracts on their behalf and to reinsure the risks. A person relying on ostensible authority has however to show that he relied on the representation of the principal, and none of the insured or their brokers was called to testify to this effect. Mr. Gee asks me to infer that they did so rely. The documents certainly suggest that they could very well have done so, but I am not prepared to hold that they did so. The brokers concerned were few in number and, with one exception, were not called. The one who was called merely confirmed his proof and this contained no relevant evidence. In the circumstances of this case, where a number of documents were clearly shown to have created, and deliberately to have created, a false impression, oral evidence was, in my judgment, required.

 

This means that unless valid ratification is established the first defence succeeds. In my judgment, life cannot be given by ratification to prohibited transactions, but, apart from the illegality, the defendants [*987] contend that the ratification was too late. I reject this contention. There can be no ratification until the purported principal is aware of the transaction concerned. The plaintiffs were not so aware until shortly after 4 February 1983. They cannot therefore have ratified until after that date. Thereafter they rely on the assertion of the claims in this action and a board resolution dated 18 July 1983. Since the date upon which the plaintiffs instructed Gerald Herbert’s solicitors to proceed with the action was not revealed, I am left with 18 July as being the date of ratification. This was not, in my judgment, too late. The matter was complex and, in view of this and of the fact that ratification, if operative at all, could not prejudice but merely benefit the insured, it was not, in my judgment, too late.

 

In so holding I am conscious that I differ from the judgment of Fry L.J. in Metropolitan Asylums Board Managers v. Kingham and Sons (1890) 6 T.L.R. 217, where he said:

 

“if ratification is to bind, it must be made within a reasonable time after acceptance by an unauthorised person. That reasonable time can never extend after the time at which the contract is to commence.”

 

However, no authority was cited in support of this very wide statement and I know of no principle to sustain it. A further point was faintly raised by Mr. Tuckey, namely, that the ratification was subject to an unfulfilled condition. As to this, I say only that I reject the submission as being unproven. Hence, illegality apart, I would hold that the first defence failed.

 

In the end the case falls squarely within Denning L.J.’s words in Marles v. Philip Trant & Sons Ltd. [1954] 1 Q.B. 29, 38. The plaintiffs require aid from illegal transactions to establish their cause of action. They cannot therefore have any aid from the court. The claim must therefore be dismissed.

 

As to the counterclaim, Mr. Tuckey expressly stated that in the event that judgment were given in the above sense he would not wish to proceed with his counterclaim. In the circumstances it appears to me that one of two courses can be taken with regard to it. It can either be dismissed or it can be stayed until further order with liberty to apply. If there were no appeal or any appeal were unsuccessful, there could then be a consent order for its dismissal. If on the other hand a successful appeal were brought, there could be a consent order for the stay to be lifted. Subject to argument, the latter appears to me marginally to be the more convenient course. As to the balance of the defence which has not yet been tried, this will of course be tried only in the event of a successful appeal.

 

Judgment for defendants on plaintiffs’ claim, with costs.

 

Defendants’ counterclaim and all proceedings arising therefrom dismissed.

 

14 November. PARKER J. ordered that the costs of the counterclaim and all the further proceedings arising from it be paid in each case by the initiators of the proceedings.