Moore Stephens has won its landmark case against former client Stone & Rolls, in a decision which could limit the risks to firms from litigation funding.

In an emphatic judgment, the Court of Appeal agreed to strike out Stone & Rolls fraud claim against former auditor Moore Stephens.

The frauds at Stone & Rolls were committed by the company's boss, meaning its claim that it should be compensated for a failure to detect its own frauds was always likely to be controversial.

'It is contrary to all common sense to uphold a claim that would confer direct or indirect benefits on the corporate vehicle, which was used to commit the fraud and was not the victim of it, and the fraudulent driver of the fraudulent vehicle,' said Lord Justice Mummery, who also referred to it as an 'astounding claim.'

The Court held unanimously that the claim, funded by IM Litigation Funding, should be struck out. Stone & Rolls are now thought to be intending to apply to the House of Lords to leave to appeal the verdict.

The case has been closely watched because of the litigation funding. Fears have been raised that if the claim, for $174m (£89m), was successful, other firms could face similarly speculative claims.

Moore Stephens’ senior partner Richard Moore said: 'When Stone & Rolls launched its claim at the end of 2006, we said that we considered the claim against us to be wholly illegitimate. We are naturally pleased that the judgement of the Court of Appeal striking out the claim on public policy grounds has vindicated that stance.'

He added that the firm will not be making any further public comment while the appeal process continues.

Further Reading:

Litigation Funding: foul play?

Read the court's judgment