Euro-Diam Ltd v Bathurst [1990] 1 QB 1

Contract of indemnity insurance enforceable despite unlawful act by plaintiff


The plaintiff’s business involved the supply of precious stones at home and abroad. The plaintiff entered into a contract of indemnity insurance with the defendant in respect of the export of a consignment of diamonds. The contract provided that the exporting should comply with the laws of the relevant country. Diamonds were exported to West Germany and stolen. The plaintiff brought an action against the defendant insurer claiming to be indemnified for the lost diamonds under the contract of insurance.


The defendants denied liability and claimed that the plaintiff had misrepresented the value of the consignment so as to enable the German company to evade import tax and therefore the plaintiff’s claim was tainted with illegality. At first instance, it was held that there was no implied term that the contract would be carried out in a lawful manner. Public policy did not require the plaintiffs be deprived of their claim.


The defendant appealed. The Court of Appeal held the invoice issued by the plaintiff constituted a criminal offence under West German law. However, it was not issued for the plaintiffs’ own purposes and did not deceive the defendant because the true value of the diamonds was recorded on the plaintiffs’ register. The plaintiffs were not relying on the invoice in the instant action and its issue could not affect the rights of the defendant. Accordingly, the illegality of the invoice was not such that public policy required that the contract between the parties should not be enforced.