Partners Liable for Dishonest Act of Solicitor
A solicitor had been alleged to have acted dishonestly, having assisted in a fraudulent breach of trust by drafting certain documents. Contributions to the damages were sought from his partners.
Held: The acts complained of were so close to the activities which a solicitor would normally undertake, that in favour of third parties, it must be assumed that he acted in the ordinary course of his business, and the partners were vicariously liable. It had been said that the acts were equitable wrongs, and did not fall within the compass of common law torts or deceit, but nothing in the 1890 Act restricted the applicability of the section to exclude these acts. Explicit authorisation by each partner of the acts of other partners could not be expected or required for vicarious liability to be established. ‘Perhaps the best general answer is that the wrongful conduct must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm or the employer to third parties, the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm’s business or the employee’s employment.’
Lord Millett said: ‘Vicarious liability is a loss distribution device based on grounds of social and economic policy. Its rationale limits the employer’s liability to conduct occurring in the course of the employee’s employment. ‘The master ought to be liable for all those torts which can fairly be regarded as reasonably incidental risks to the type of business he carries on . . .the ultimate question is whether or not it is just that the loss resulting from the servant’s acts should be considered as one of the normal risks to be borne by the business in which the servant is employed.’
He also said that it is preferable to substitute dog Latin for bastard French.
Lord Nicholls said that: ‘This ‘close connection’ test focuses attention in the right direction. But it affords no guidance on the type or degree of connection which will normally be regarded as sufficiently close to prompt the legal conclusion that the risk of the wrongful act occurring and any loss flowing from the wrongful act, should fall on the firm or employer rather than the third party who was wronged. It provides no clear assistance on when, to use Professor Fleming’s phraseology, an incident is to be regarded as sufficiently work-related, as distinct from personal’ . . This lack of precision is inevitable, given the infinite range of circumstances where the issue arises. The crucial feature or features, either producing or negativing vicarious liability, vary widely from one case or type of case to the next. Essentially the court makes an evaluative judgment in each case, having regard to all the circumstances and, importantly, having regard also to the assistance provided by previous court decisions. In this field the latter form of assistance is particularly valuable.’
and ‘The underlying legal policy is based on the recognition that carrying on a business enterprise necessarily involves risks to others. It involves the risk that others will be harmed by wrongful acts committed by the agents through whom the business is carried on. When those risks ripen into loss, it is just that the business should be responsible for compensating the person who has been wronged.’
Lord Millett explained the structure and effect of section 9 of the 1980 Act: ‘Section 9 is not concerned with the liability of the firm at all but with the liability of the individual partners. It provides that every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he was a partner. Section 12 makes every partner jointly and severally liable for loss for which the firm was liable under sections 10 and 11 while he was a partner in the firm. Where section 10 makes the firm vicariously liable for loss caused by a partner’s wrongdoing, therefore, section 12 makes the liability the joint and several liability of the individual partners. Sections 11 and 13 are not concerned with wrongdoing or with vicarious liability but with the original liability of the firm to account for receipts. . . Section 11 deals with money which is properly received by the firm in the ordinary course of its business and is afterwards misappropriated by one of the partners. The firm is not vicariously liable for the misappropriation; it is liable to account for the money it received, and cannot plead the partner’s wrongdoing as an excuse for its failure to do so. Section 13 deals with money which is misappropriated by a trustee who happens to be a partner and who in breach of trust or fiduciary duty afterwards pays it to his firm or otherwise improperly employs it in the partnership business. The innocent partners are not vicariously liable for the misappropriation, which will have occurred outside the ordinary course of the firm’s business. But they are liable to restore the money if the requirements of the general law of knowing receipt are satisfied.’
Judges:
Slynn of Hadley, Nicholls of Birkenhead, Hutton, Hobhouse of Woodborough, and Millett LL
Citations:
Times 06-Dec-2002, [2003] 1 Lloyd’s Rep 65, [2002] UKHL 48, [2002] 3 WLR 1913, [2003] 2 AC 366, [2003] 1 All ER 97, [2003] 2 All ER (Comm) 451, [2003] 1 LLR 65, [2003] 1 BCLC 32, [2003] IRLR 608, [2003] 1 CLC 1020, [2003] WTLR 163
Links:
Statutes:
Civil Liability (Contributions) Act 1978 1(1), Partnership Act 1890 10, Limitation act 1980 9 21
Jurisdiction:
England and Wales
Citing:
Appeal from – Dubai Aluminium Company Limited v Salaam and others CA 7-Apr-2000
The liability of a firm for the wrongful acts of one partner is not limited to tortious acts creating liability in common law, but includes all wrongful acts or omissions, including a knowing assistance in a fraudulent scheme. A solicitor who . .
Cited – Attorney General v Stanyforth 1721
Co-partners are liable for penalties incurred, for instance, for breach of revenue laws. . .
Cited – Barnes v Addy 12-Feb-1874
A stranger to a trust can be liable in equity for assisting in a breach of trust, even though he received no trust property.
Lord Selborne said: ‘Now in this case we have to deal with certain persons who are trustees, and with certain other . .
Cited – Morris v C W Martin and Sons Ltd CA 1965
The plaintiff took her mink stole to the defendants for cleaning. An employee received and stole the fur. The judge had held that the defendants were not liable because the theft was not committed in the course of employment.
Held: The . .
Cited – Barwick v English Joint Stock Bank 1867
When considering the vicarious liability of a master for the acts of his servant, no sensible distinction could be drawn between the case of fraud and any other wrong. The general rule was that: ‘the master is answerable for every such wrong of the . .
Cited – Hamlyn v John Houston and Co CA 1903
One side of the defendant’s business as grain merchants was to obtain, by lawful means, information about its competitors’ activities. Houston, a partner in the firm, obtained confidential information on the plaintiff Hamlyn’s business by bribing . .
Cited – Lloyd v Grace, Smith and Co HL 1912
Mrs Lloyd delivered the title deeds of her cottages at Ellesmere Port to the solicitors’ managing clerk, who defrauded her.
Held: Vicarious liability can extend to fraudulent acts or omissions if those were carried out in the course of the . .
Cited – Plumb v Cobden Flour Mills Co Ltd HL 1914
In looking at restrictions by an employer to limit his vicarious liability, the court must distinguish between prohibitions which limit the sphere of employment and those which only deal with conduct within the sphere of employment:’ ‘there are . .
Cited – Lister and Others v Hesley Hall Ltd HL 3-May-2001
A school board employed staff to manage a residential school for vulnerable children. The staff committed sexual abuse of the children. The school denied vicarious liability for the acts of the teachers.
Held: ‘Vicarious liability is legal . .
Cited – Bugge v Brown 1919
When an employee acts ‘so as to be in effect a stranger in relation to his employer with respect to the act he has committed’, his employer does not have vicarious liability for his acts. . .
Cited – Lister and others v Hesley Hall Ltd CA 7-Oct-1999
Where a residential worker at a children’s home committed sexual abuse on children within his care, the company running the home were not vicariously liable for the acts themselves, but also were not responsible where the worker did not report his . .
Cited – Kooragang Investments Pty Ltd v Richardson and Wrench Ltd PC 27-Jul-1981
(New South Wales) An employee of the defendants was authorised to carry out valuations, but he negligently carried out an unauthorised private valuation.
Held: In doing so he was not acting as an employee of the defendant company. The company . .
Cited – Generale Bank Nederland Nv (Formerly Credit Lyonnais Bank Nederland Nv) v Export Credits Guarantee Department HL 19-Feb-1999
The wrong of the servant or agent for which the master or principal is liable is one committed in the case of a servant in the course of his employment, and in the case of an agent in the course of his authority. It is fundamental to the whole . .
Cited – Mara v Browne CA 17-Dec-1895
In a marriage settlement, the first defendant, a solicitor, advised the persons who were acting as trustees, though not yet formally appointed as such. He suggested a series improper of investments for the trust funds. The money was to be lent on . .
Cited – Royal Brunei Airlines SDN BHD v Tan PC 24-May-1995
(Brunei) The defendants were a one-man company, BLT, and the one man, Mr Tan. A dishonest third party to a breach of trust was liable to make good a resulting loss even though he had received no trust property. The test of knowledge was an objective . .
Doubted – In re Bell’s Indenture 1980
A firm of solicitors was held not to be vicariously liable for an act of dishonest assistance made by a partner. . .
Cited – Fisher v CHT Ltd (No 2) 1966
Where more than one defendant is liable in damages, the court will make allowance for the insolvency of one when ordering a contribution from the others. . .
Cited – K v P ChD 1993
The court considered when orders might be made under the Act for a contribution to be made to damages payable. Ferris J said: ‘In my judgment the ex turpi causa defence is not available as an answer to a claim for contribution under the Act of 1978. . .
Cited – Brydges v Branfill 1842
A tenant for life of settled land set out on an elaborate fraud aiming for the capital. It required first a private Act of Parliament to enable the estate to be sold under the direction of the court and the proceeds paid into court and invested in . .
Cited – St Aubyn v Smart 1868
. .
Cited – Ashworth v Stanwix QBD 1860
Innocent partners are vicariously liable for the torts of their co-partner. . .
Cited – Meekins v Henson 1964
The section in the 1890 Act produced ‘a necessary equation of a partnership firm with employers for this purpose [vicarious liability]’. Vicarious liability is a ‘secondary liability as the liability of one person for the act of another who is . .
Cited – Re Fryer 1857
The acts of a solicitor as an express trustee are not within the scope of the ordinary business of a solicitor. . .
Cited – Taylor v Davies PC 19-Dec-1919
(Ontario) An assignee for the benefit of creditors conveyed mortgaged property to the mortgagee in satisfaction of part of the debt due to him. The mortgagee was also one of the inspectors required by the Canadian legislation to supervise the . .
Cited – Clarkson v Davies PC 1923
In a case involving fraud, referring to Taylor v Davies, Lord Justice Clerk said that: ‘it was there laid down that there is a distinction between a trust which arises before the occurrence of the transaction impeached and cases which arises only by . .
Cited – Navarro v Moregrand Ltd 1951
The vicarious liability of an employer does not depend upon the employee’s authority to do the particular act which constitutes the wrong. It is sufficient if the employee is authorised to do acts of the kind in question. . .
Cited – Paragon Finance Plc (Formerly Known As National Home Loans Corporation Plc v D B Thakerar and Co (a Firm); Ranga and Co (a Firm) and Sterling Financial Services Limited CA 21-Jul-1998
Where an action had been begun on basis of allegations of negligence and breach of trust, new allegations of fraud where quite separate new causes of claim, and went beyond amendments and were disallowed outside the relevant limitation period. . .
Cited – Selangor United Rubber Estates Ltd v Cradock (No 3) ChD 1968
The expressions ‘constructive trust’ and ‘constructive trustee’ are ‘nothing more than a formula for equitable relief. It is the actual control of assets belonging beneficially to a company which causes the law to treat directors as analogous to . .
Cited – Coulthard v Disco Mix Club Ltd CA 2000
The expression ‘constructive trustee’ creates a trap.This ‘type of trust is merely the creation by the court . . to meet the wrongdoing alleged: there is no real trust and usually no chance of a proprietary remedy.’ . .
At First Instance – Dubai Aluminium Company Ltd v Salaam and Others QBD 17-Jul-1998
A partner is vicariously liable for the acts of his partner in equity as well as in tort. Where a partner acted as accessory to a breach of trust he acted as a constructive trustee. A settlement of and action on this basis was enforceable in a later . .
See Also – Dubai Aluminium Co Ltd v Al Alawi and Others ComC 3-Dec-1998
The claimants had brought proceedings against their former sales manager for accepting bribes and secret commission from outsiders. In support of their claim the claimants had obtained a search and seizure order and a worldwide freezing injunction, . .
Cited by:
Cited – NIRU Battery Manufacturing Company and Another v Milestone Trading Ltd and others ComC 8-May-2003
There was a contract for the sale of lead ingots. The sale was supported by letters of credit but inaccurate certificates were issued to release payment. The parties sought now to amend the contributions in the light of the Royal Brompton Hospital . .
Cited – Mattis v Pollock (T/A Flamingo’s Nightclub) CA 1-Jul-2003
A nightclub employed an unlicensed bouncer/doorman. After an altercation in and outside the club, he went home, and returned armed and seriously assaulted the customer.
Held: The club had vicarious liability for his acts. There was a . .
Cited – J J Coughlan Ltd v Ruparelia and others CA 21-Jul-2003
The defendant firm of solicitors had acted in a matter involving a fraud. One partner was involved in the fraud. The claimants sought to recover from the partnership.
Held: ‘The issue is not how the transaction ought properly to be described, . .
Cited – Bakhitar v Keosghgerian and Others QBD 3-Dec-2003
Employer liable for employee with criminal record
An employee of a firm of solicitors took pawned jewellery to show to a third party possible purchaser. The jewels were misappropriated.
Held: The person involved, who was known to have a criminal record for fraud was for all relevant purposes . .
Cited – Cochlan v Ruberella Limited CA 21-Jul-2003
The issue arose as to the liability of a firm for the acts of a partner who had made statements to the claimant regarding the rate of return on a proposed investment amounting to some 6,000 per cent per annum.
Held: The following propositions . .
Cited – The Attorney General v Hartwell PC 23-Feb-2004
PC (The British Virgin Islands) A police officer had taken the police revolver, and used it to shoot the claimant. It was alleged that the respondent police force were vicariously liable for his acts and also . .
Cited – Bernard v The Attorney General of Jamaica PC 7-Oct-2004
PC (Jamaica) The claimant had been queuing for some time to make an overseas phone call at the Post Office. Eventually his turn came, he picked up the phone and dialled. Suddenly a man intervened, announced . .
Cited – Brown v Robinson and Sentry PC 14-Dec-2004
(Jamaica) The deceased claimant had been shot by a sentry employed by the respondent company. His estate appealed a finding that the sentry was not acting in the course of his employment.
Held: Older authorities had now been replaced by recent . .
Cited – Hawley v Luminar Leisure Ltd and others CA 24-Jan-2006
The claimant was assaulted and severely injured at a night club by a doorman supplied to the club by a third party company now in liquidation. He claimed the club was the ‘temporary deemed employer’ of the doorman. He also sought to claim under the . .
Cited – Majrowski v Guy’s and St Thomas’ NHS Trust CA 16-Mar-2005
The claimant had sought damages against his employer, saying that they had failed in their duty to him under the 1997 Act in failing to prevent harassment by a manager. He appealed a strike out of his claim.
Held: The appeal succeeded. The . .
Cited – Majrowski v Guy’s and St Thomas’ NHS Trust HL 12-Jul-2006
Employer can be liable for Managers Harassment
The claimant employee sought damages, saying that he had been bullied by his manager and that bullying amounting to harassment under the 1997 Act. The employer now appealed a finding that it was responsible for a tort committed by a manager, saying . .
Cited – St Paul Travelers Insurance Co Ltd v Okporuah and others ChD 10-Aug-2006
The first defendant had acquired several properties, and was due to make repayments greatly in excess of his income. A further defendant, his brother, was a solicitor who was known to have been involved in mortgage fraud and was suspected of having . .
Cited – Charter Plc and Another v City Index Ltd and others ChD 12-Oct-2006
An employee of the claimant had fraudulently spent several million pounds of the claimant’s money on personal bets through the defendant company. The claimant said that the defendants knew the origin of the funds and were liable to repay them. . .
Cited – Gravil v Carroll and Another CA 18-Jun-2008
The claimant was injured by an unlawful punch thrown by the first defendant when they played rugby. He sought damages also against the defendant’s club, and now appealed from a finding that they were not vicariously liable. The defendant player’s . .
Cited – Maga v The Trustees of The Birmingham Archdiocese of The Roman Catholic Church CA 16-Mar-2010
The claimant appealed against rejection of his claim for damages after alleging sexual abuse by a catholic priest. The judge had found the church not vicariously liable for the injuries, and that the archdiocese had not been under a duty further to . .
Cited – Weddall v Barchester Healthcare Ltd CA 24-Jan-2012
Parties appealed against judgments dismissing their claims of vicarious liability as against their employers after assaults by co-employees.
Held: Appeals were dismissed and allowed according to their facts.
In one case, one employee . .
Cited – Reynolds v Strutt and Parker LLP ChD 15-Jul-2011
The defendant had organised a team bonding day, including a cycling event. The claimant employee was severely injured falling from his cycle. He said that the defendant had been engligent in not providing cycling helmets. The circuit hosting company . .
Cited – The Catholic Child Welfare Society and Others v Various Claimants and The Institute of The Brothers of The Christian Schools and Others SC 21-Nov-2012
Law of vicarious liability is on the move
Former children at the children’s homes had sought damages for sexual and physical abuse. The court heard arguments as to the vicarious liability of the Society for abuse caused by a parish priest visiting the school. The Court of Appeal had found . .
Cited – Williams v Central Bank of Nigeria QBD 8-Apr-2011
The claimant had been defrauded by a customer of the defendant bank. He brought a claim against the bank, saying that they knew or ought to have known of the fraudster’s activities, and were liable. The Bank denied that the UK courts had . .
Cited – Graham v Commercial Bodyworks Ltd CA 5-Feb-2015
The claimant had been very badly burned. He was covered in flammable liquid when a co-worker lit a cigarette.
Held: The claimant’s appeal failed. ‘although the defendant employers did create a risk by requiring their employees to work with . .
Cited – Jackson v Murray and Another SC 18-Feb-2015
Child not entirely free of responsibility
The claimant child, left a school bus and stepped out from behind it into the path of the respondent’s car. She appealed against a finding of 70% contributory negligence.
Held: Her appeal succeeded (Majority, Lord Hodge and Lord Wilson . .
Cited – Cox v Ministry of Justice SC 2-Mar-2016
The claimant was working in a prison supervising working prisoners. One of them dropped a bag of rice on her causing injury. At the County Curt, the prisoner was found negligence in the prisoner, but not the appellant for vicarious liability. The . .
Cited – Mohamud v WM Morrison Supermarkets plc SC 2-Mar-2016
The claimant had been assaulted and racially abused as he left a kiosk at the respondent’s petrol station by a member of staff. A manager had tried to dissuade the assailant, and the claim for damages against the supermarket had failed at first . .
Cited – Henchley and Others v Thompson ChD 16-Feb-2017
The Claimants sought an order directing the Defendant to provide a full account of his dealings with the assets of the two trusts as a trustee or as a de facto trustee.
Held: The court has a discretion whether or not to make an order for an . .
Cited – Dixon Coles and Gill (A Former Firm) v Baines, Bishop of Leeds and Another CA 20-Jul-2021
Innocent Co-Trustee not Liable for Default
Proceedings were brought by former clients against their former solicitors. One of the partners stole money held in the firm’s client account on behalf of the claimants. The other two partners were entirely innocent of, and in no way implicated in, . .
Cited – Chell v Tarmac Cement and Lime Ltd CA 12-Jan-2022
Explosive Pellet Use Not Within Employee’s Role.
The claimant worked on a site operated by the respondent. One of the respondent’s employees exploded two pellet targets injuring the claimant’s hearing. He asserted vicarious liability in the respondent. There had been tensions between the claimant . .
Cited – WM Morrison Supermarkets Plc v Various Claimants SC 1-Apr-2020
A disgruntled senior employee had divulged on the internet personal details of several thousand employees. The claimants alleged that that had been a breach of the 1998 Act, and that the appellants were vicariously liable for that wrong.
Held: . .
Lists of cited by and citing cases may be incomplete.
Company, Vicarious Liability, Legal Professions, Limitation
Leading Case
Updated: 27 November 2022; Ref: scu.178327