Court of Appeal finds third party fraud broke chain of causation

Logix Aero Ireland Ltd -v- Siam Aero Repair Company [2026] EWCA Civ 510

In a dispute over who should bear the liability for funds lost to fraudsters who intervened in a transaction involving the sale and purchase of aircraft engines, the Commercial Court held that the seller bore no responsibility to the buyer who had paid the purchase monies to the fraudster’s account. Our article on the first instance decision is here: Court: Fraudster Lacked Authority | Hill Dickinson

The Court of Appeal has now dismissed the buyer’s appeal and, in doing so, has usefully set out the principles relating to breaking the chain of causation and effective cause of loss.

The background facts

In July 2024, unknown fraudsters managed to insert themselves in the middle of email correspondence between Logix Aero Ireland Ltd (Logix) and Siam Aero Repair Company (Siam) as they were finalising Logix's purchase of two aircraft engines from Siam.

The fraudsters changed the contents of genuine emails between the parties, inserted a fake email address and a newly registered domain and changed the account details provided in the documents for payment. As a result, Logix paid the purchase price of US$824,900 to a bank account under the fraudsters’ control in Vietnam rather than to Siam’s account in Thailand. Before the fraud was discovered, the funds had already left the fraudsters' account. Logix did not take any step independent of the email correspondence to verify the bank details before making payment.

Siam did not release the engines to Logix because it had not been paid. Logix sought delivery up of the engines because it alleged that it had paid for them and commenced proceedings seeking to recover its loss from Siam.

Among other arguments, Logix contended that Siam had breached the confidentiality clause contained in the parties’ Letter of Understanding (LOI). The confidentiality clause stated that the parties agreed not to disclose any commercially sensitive information or documentation to any third parties apart from expressly listed ones and Logix argued that Siam was in breach by sending (and thereby disclosing) documents and information to the fraudsters, albeit unknowingly.

The Commercial Court judge thought this argument had no realistic prospect of success. On the accepted facts, this was a situation where both parties unwittingly enabled the fraud to take place by the communications they provided to the fraudsters. The fraud only worked because both parties were sending material to the fraudsters, who were then able to manipulate this material and feed it to the other party. The judge concluded that Logix’s loss was not caused by any information provided by Siam in the relevant emails. The loss was caused by the fraudsters.

Logix appealed, arguing that the judge was wrong to find that the chain of causation between the provision of information by Siam and Logix's loss had been broken by the intervention of fraudsters.

The Court of Appeal decision

The Court of Appeal dismissed the appeal. It questioned whether Siam disclosing its own information, including bank details, amounted to a breach of the confidentiality clause. However, it proceeded on the assumption that it was.

The Court of Appeal accepted that Logix’s loss would not have been sustained had Siam not sent documents and information to the fraudsters. Therefore, the ‘but for’ test of factual causation was satisfied. However, in this case, the Court of Appeal concluded that the fraudsters’ actions broke the chain of causation.

The relevant legal principles were as follows:

1. the voluntary act of a third party intervening between the breach of contract by the defendant and the loss suffered by the claimant will normally break the chain of causation

2. the intervention of a third party may mean that the breach of contract is not the effective or dominant cause of the loss, but merely the opportunity or occasion for the loss and so not sounding in damages

3. loss caused by the intervention of a third party may not be regarded as the type or kind of loss in respect of which the contract breaker had assumed responsibility

4. loss caused by the intervention of a third party might not be regarded as arising ‘in the usual course of things’ as a result of the breach of contract, ie it might be too remote.

As to the effective cause of loss:

1. it is necessary to distinguish between a breach of contract which causes a loss to the claimant and one which merely gives the opportunity for him to sustain the loss

2. there may be more than one effective cause of loss, so that a breach of contract may remain an effective cause even if a subsequent intervention is also an effective cause

3. if a breach of contract is one of two causes of loss, both cooperating and both of equal efficacy, it may result in damages. The breach of contract need not be the cause with the greater effect to remain operative, so long as it remains an effective cause

4. it is only if the intervening cause ‘destroys the causative potency of the anterior breach’ or ‘obliterates the wrongdoing of the defendant’ that the chain of causation is broken.

At first instance, the judge had found that Logix's loss had not been caused by the assumed breach of contract by Siam; it had been caused by the fraudsters. That was a straightforward application of the principle that the voluntary intervention of a third party breaks the chain of causation, with the judge determining that, as a result of the third-party intervention, the assumed breach of contract by Siam was not an effective cause of the loss.

The Court of Appeal agreed with the judge. It stated as follows:

1. the fraudsters’ intervention occurred before any assumed breach of contract by Siam (following an initial assumed breach by Logix in responding to the very first doctored email), so that the fraud had in fact been the cause of Siam’s assumed breach as well as an intervening and independent cause after the breach

2. Siam's assumed breach had been one of a number of necessary stages in the fraud, brought about by the fraudsters as part of their overall fraudulent scheme which depended for its success on Logix having been deceived and having made payment to the wrong account

3. that final stage of deception by the fraudsters and mistaken payment by Logix had occurred without any involvement of Siam. It was a clear case of the breach being part (and only part) of the opportunity for the fraud rather than the cause of the fraud, or otherwise of the fraud destroying the causative potency of the earlier breach.

The Court of Appeal distinguished the House of Lords decision in London Joint Stock Bank Limited -v- Macmillan and Arthur [1918] AC 777 on the basis that that case involved a bank/customer relationship and a specific contractual duty to prevent the very fraud which had been perpetrated and the very loss that ensued.

Here, the confidentiality clause was primarily concerned with protecting the parties from commercial damage by reason of their confidential documents and information falling into the hands of competitors and subsequently used to give their competitors a commercial advantage. It did not impose a special duty to protect the other party from being deceived by fraudsters gaining sight of otherwise publicly available information and manipulating it.

The Court of Appeal added that, in any event, the loss suffered by Logix was outside the scope of the duty assumed by Siam in entering the LOI and Logix’s loss was too remote.

Comment

The increasing incidence of such frauds is something that commercial parties need to be aware of and take action to protect against insofar as reasonably possible. Otherwise, they may find that their loss is irrecoverable.

If you are dealing with, or concerned about, fraud or potential fraud affecting your contracts, our team can advise on risk, responsibility and next steps. Contact us to find out more about how we can help.