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Session 2002 - 03
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Judgments - Dubai Aluminium Company Limited v. Salaam (Original Respondent and 2nd Cross-Appellant) and Other


Lord Nicholls of Birkenhead Lord Slynn of Hadley Lord Hutton Lord Hobhouse of Woodborough Lord Millett






(Original Respondent and 2nd Cross-appellant) and others

(Original Appellants and Cross-respondents)

and others and another

(Original Respondent and 1st Cross-Appellant)


[2002] UKHL 48


My Lords,

    1. These proceedings arise out of an elaborate fraud by which the plaintiff, Dubai Aluminium Co Ltd, was induced to pay out US$50 million between September 1987 and March 1993 under a bogus consultancy agreement with Marc Rich & Co AG. The proceeds were shared out among the principal participants in the fraud under several equally bogus sub-agreements. Mr Hany Mohamed Salaam and His Excellency Mahdi Mohamed Al Tajir were found by the trial judge, Rix J, to have been dishonest participants in the scheme, together with Dubai Aluminium's chief executive, Mr Ian Livingstone. They benefited either directly or through companies controlled by them: to the extent of about $20.3 million in the case of Mr Salaam, $16.5 million in the case of Mr Al Tajir and $6.3 million in the case of Mr Livingstone.

    2. Mr Salaam was a client of two successive firms of solicitors, Amhurst Brown Martin & Nicholson and Amhurst Brown Colombotti. Nothing turns on the distinction between these two firms, and it will be convenient to refer to them simply as 'the Amhurst firm'. Mr Salaam's affairs were dealt with mainly by Mr Amhurst, the senior partner in the Amhurst firm. Dubai Aluminium claimed that Mr Amhurst dishonestly assisted in the fraud. He did not benefit from the fraud, apart from comparatively modest amounts paid to his firm by way of fees. In addition to suing Mr Amhurst Dubai Aluminium sued the Amhurst firm, on the basis that the firm was vicariously liable in respect of some of Mr Amhurst's activities.

    3. It has always been common ground that Mr Amhurst's partners were personally innocent of any dishonesty. It is also right to note at the outset that, for a reason which will appear, the case has proceeded on the assumption that Mr Amhurst was guilty of dishonesty as alleged. He has always denied this allegation. This issue has never been tried, and there has never been any finding by a court that he acted dishonestly in any respect.

    4. At various stages in the course of the trial all the defendants settled with Dubai Aluminium on agreeing to make substantial payments. The claims against Mr Amhurst and the Amhurst firm were settled on payment by the Amhurst firm of $10 million. These settlements left outstanding and unresolved contribution claims brought by some of the defendants against each other and against third parties. So the contribution claims had to be decided by the judge, Rix J. The effect of the judge's decision was that the Amhurst firm, in respect of its payment of $10 million, received contribution amounting to a full indemnity from Mr Salaam and Mr Al Tajir. More precisely, Rix J gave judgment in favour of the Amhurst firm for $7,781,093 jointly and severally against Mr Salaam and Mr Al Tajir, and in the further amount of $2,651,253 against Mr Salaam.

    5. Mr Salaam and Mr Al Tajir appealed to the Court of Appeal. The Court of Appeal, comprising Evans and Aldous LJJ and Turner J, allowed the appeal. The court held that the Amhurst firm was not vicariously liable for Mr Amhurst's allegedly wrongful acts. So there was no basis on which it could obtain contribution from Mr Salaam or Mr Al Tajir in respect of its payment to Dubai Aluminium. The Amhurst firm then brought this further appeal to your Lordships' House, seeking restoration of the order of Rix J.

    6. These bare essentials will suffice as an introduction to the points of law of general importance raised by the contribution claims. The factual history of this matter, which is not without a degree of complexity, is more fully summarised by my noble and learned friend Lord Millett. The judge's findings are reported at [1999] 1 Lloyd's Rep 415 and the conclusions of the Court of Appeal at [2001] 1 QB 113.

Section 10 of the Partnership Act: 'any wrongful act'

    7. The contribution claim made by the Amhurst firm in respect of its payment of $10 million to Dubai Aluminium is based on the Civil Liability (Contribution) Act 1978. Section 1(1) of this Act ('the Contribution Act') provides that any person 'liable' in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage. On the judge's findings Mr Salaam and Mr Al Tajir were liable in respect of Dubai Aluminium's loss. That is clear. In order to found a contribution claim the Amhurst firm had to show it, too, was 'liable' in respect of the loss suffered by Dubai Aluminium. The Amhurst firm claimed it satisfied this prerequisite because, pursuant to section 10 of the Partnership Act 1890, it was liable for Mr Amhurst's alleged wrongdoing. Thus, so it claimed, the case falls squarely within the scope of section 1(1) of the Contribution Act.

    8. This was denied by Mr Al Tajir and Mr Salaam. They contended that the Amhurst firm is not entitled to make any contribution claim against them. Their case is that the Amhurst firm was not vicariously responsible for Mr Amhurst's alleged misconduct, on two grounds. The first ground is that the cause of action asserted by Dubai Aluminium does not fall within the scope of section 10 of the Partnership Act. This raises a question of interpretation of the statute. Section 10 provides:

    'Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.'

    9. The case advanced by Mr Al Tajir and Mr Salaam runs as follows. The claim made by Dubai Aluminium against Mr Amhurst is not that he committed a common law tort such as deceit or negligence. The claim is that he committed the equitable wrong of dishonest participation in a breach of trust or fiduciary duty. Mr Amhurst dishonestly procured or assisted Mr Livingstone in the breach of the fiduciary duties he owed to Dubai Aluminium. Although fault-based, this species of equitable wrong is not a 'wrongful act or omission' within the meaning of section 10. Section 10 being inapplicable, the Amhurst firm was not liable for the acts of Mr Amhurst of which Dubai Aluminium complained.

    10. This argument was rejected by Rix J and the majority of the Court of Appeal. I agree with them. There is nothing in the language of section 10 to suggest that the phrase 'any wrongful act or omission' is intended to be confined to common law torts. On the contrary, the reference to incurring a penalty points away from such a narrow interpretation of the phrase. The liability of co-partners for penalties incurred, for instance, for breach of revenue laws was well established when the 1890 Act was passed: see Lindley, Law of Partnership, 6th ed (1893), p 160, and Attorney General v Stanyforth (1721) Bunb 97.

    11. In addition to the language the statutory context points in the same direction. Section 10 applies only to the conduct of a partner acting in the ordinary course of the firm's business or with the authority of his co-partners. It would be remarkable if a firm were liable for fraudulent misrepresentations made by a partner so acting, but not liable for dishonest participation by a partner in conduct directed at the misappropriation of another's property. In both cases the liability of the wrongdoing partner arises from dishonesty. In terms of the firm's liability there can be no rational basis for distinguishing one case from the other. Both fall naturally within the description of a 'wrongful act'.

    12. In 1874 Lord Selborne LC's famous statement in Barnes v Addy (1874) LR 9 Ch App 244, 251-252, made plain that a stranger to a trust could be liable in equity for assisting in a breach of trust, even though he received no trust property. On the interpretation of section 10 advanced for Mr Al Tajir and Mr Salaam, a firm could never be vicariously liable for such conduct by one of their partners. I can see nothing to commend this interpretation of the statute.

Section 10 of the Partnership Act: 'acting in the ordinary course of the business of the firm'

    13. The second ground on which Mr Al Tajir and Mr Salaam contended that the Amhurst firm was not liable for Mr Amhurst's alleged acts is that these acts were not done by him while acting in the ordinary course of the business of the firm. I say 'alleged acts', because Dubai Aluminium's claims against Mr Amhurst and the firm were settled before the trial judge made his findings of fact. Whether Dubai Aluminium's allegations against Mr Amhurst were well founded was never decided.

    14. The Contribution Act makes provision for what should happen in such a case. Where a defendant compromises a plaintiff's claim in good faith, the defendant is entitled to claim contribution under the Act without regard to whether he was liable for the damage in question but on the assumption that the factual basis of the claim alleged against him could be established: section 1(4). Thus the Amhurst firm's ability to seek contribution from others in respect of the payments it made to settle Dubai Aluminium's claims depends upon whether the firm would have been liable to Dubai Aluminium on the assumption that the factual basis of Dubai Aluminium's claim against the firm could have been established.

    15. The relevant facts alleged by Dubai Aluminium against the Amhurst firm as the basis of its vicarious liability are that the consultancy agreement between Dubai Aluminium and Marc Rich & Co and the sub-agreements were drafted by Mr Amhurst. This is said to have been done by way of dishonest assistance to Mr Livingstone to act in breach of the fiduciary duties he owed to Dubai Aluminium.

    16. Mr Sumption QC submitted that whether an act is done in the ordinary course of a firm's business is a question of fact. Here the allegation in the amended points of claim is that the agreements were drafted by Mr Amhurst 'in his capacity as a partner' in the Amhurst firm. This, counsel submitted, is an allegation of fact. For the purposes of the Amhurst firm's contribution claim this allegation is assumed to be well founded, pursuant to section 1(4) of the Contribution Act. That is the end of the matter.

    17. I do not think the issue of vicarious liability is quite so straightforward when, as here, the act in question was not authorised. In order to identify the crucial issue it is necessary first to be clear on what is meant in this context by 'acting in the ordinary course of business'.

    18. Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit: section 1 of the Partnership Act. Partnership is rooted in agreement, express or tacit, between the partners. So is the conduct of the partnership business. Clearly, the nature and scope of a business carried on by partners are questions of fact. Similarly, what the ordinary course of the business comprises, in the sense of what is the normal manner in which the business is carried on, is also a question of fact. So also is the scope of a partner's authority.

    19. Vicarious liability is concerned with the responsibility of the firm to other persons for wrongful acts done by a partner while acting in the ordinary course of the partnership business or with the authority of his co-partners. At first sight this might seem something of a contradiction in terms. Partners do not usually agree with each other to commit wrongful acts. Partners are not normally authorised to engage in wrongful conduct. Indeed, if vicarious liability of a firm for acts done by a partner acting in the ordinary course of the business of the firm were confined to acts authorised in every particular, the reach of vicarious liability would be short indeed. Especially would this be so with dishonesty and other intentional wrongdoing, as distinct from negligence. Similarly restricted would be the vicarious responsibility of employers for wrongful acts done by employees in the course of their employment. Like considerations apply to vicarious liability for employees.

    20. Take the present case. The essence of the claim advanced by Dubai Aluminium against Mr Amhurst is that he and Mr Salaam engaged in a criminal conspiracy to defraud Dubai Aluminium. Mr Amhurst drafted the consultancy agreement and other agreements in furtherance of this conspiracy. Needless to say, Mr Amhurst had no authority from his partners to conduct himself in this manner. Nor is there any question of conduct of this nature being part of the ordinary course of the business of the Amhurst firm. Mr Amhurst had authority to draft commercial agreements. He had no authority to draft a commercial agreement for the dishonest purpose of furthering a criminal conspiracy.

    21. However, this latter fact does not of itself mean that the firm is exempt from liability for his wrongful conduct. Whether an act or omission was done in the ordinary course of a firm's business cannot be decided simply by considering whether the partner was authorised by his co-partners to do the very act he did. The reason for this lies in the legal policy underlying vicarious liability. 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.

    22. This policy reason dictates that liability for agents should not be strictly confined to acts done with the employer's authority. Negligence can be expected to occur from time to time. Everyone makes mistakes at times Additionally, it is a fact of life, and therefore to be expected by those who carry on businesses, that sometimes their agents may exceed the bounds of their authority or even defy express instructions. It is fair to allocate risk of losses thus arising to the businesses rather than leave those wronged with the sole remedy, of doubtful value, against the individual employee who committed the wrong. To this end, the law has given the concept of 'ordinary course of employment' an extended scope.

    23. If, then, authority is not the touchstone, what is? Lord Denning MR once said that on this question the cases are baffling: see Morris v C W Martin & Sons Ltd [1966] 1 QB 716, 724. 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 as much in Lister v Hesley Hall Ltd [2002] 1 AC 215, 245. So did Lord Steyn, at pp 223-224 and 230. McLachlin J said, in Bazley v Curry (1999) 174 DLR (4th) 45, 62:

    'the policy purposes underlying the imposition of vicarious liability on employers are served only where the wrong is so connected with the employment that it can be said that the employer has introduced the risk of the wrong (and is thereby fairly and usefully charged with its management and minimization).' (Emphasis added)

To the same effect is Professor Atiyah's monograph Vicarious Liability in the Law of Torts, (1967) p 171:

    '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 carried on'. (Emphasis added)

    24. In these formulations the phrases 'may fairly and properly be regarded', 'can be said', and 'can fairly be regarded' betoken a value judgment by the court. The conclusion is a conclusion of law, based on primary facts, rather than a simple question of fact.

    25. 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: see Fleming, The Law of Torts, 9th ed (1998), p 427. Again, the well-known dictum of Lord Dunedin in Plumb v Cobden Flour Mills Co Ltd [1914] AC 62, 67, draws a distinction between prohibitions which limit the sphere of employment and those which only deal with conduct within the sphere of employment. This leaves open how to recognise the one from the other.

    26. 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.

    27. So I turn to authority, noting that the present appeal concerns dishonest conduct. Historically the courts have been less ready to find vicarious liability in cases of employee dishonesty than in cases of negligence. In turning to decisions concerned with dishonest conduct I leave aside cases where a firm or employer undertakes a responsibility to a third party and then entrusts the discharge of that responsibility to the dishonest partner or agent. A leading example of this type of case is Morris v C W Martin & Sons Ltd [1966] 1 QB 716, 736-737, per Lord Diplock, where the defendants' employee stole a fur delivered to the defendants for cleaning.

    28. I also leave aside cases where the wronged party is defrauded by an employee acting within the scope of his apparent authority. The classic instance of this is Lloyd v Grace, Smith & Co [1912] AC 716, where Mrs Lloyd delivered the title deeds of her cottages at Ellesmere Port to the solicitors' fraudulent managing clerk. The critical feature in this type of case is that the wronged person acted in reliance on the ostensible authority of the employee.

    29. I can put aside both those types of case because there is no question in the present appeal of the Amhurst firm having undertaken any responsibility to Dubai Aluminium. Nor is there any question of Dubai Aluminium having dealt with Mr Amhurst in reliance on any apparent authority he may have had. There is no question of the firm having 'held out' Mr Amhurst to Dubai Aluminium as having authority to do what he is alleged to have done. Nor need I enter upon the debate whether either of these two types of case is strictly to be regarded as vicarious liability at all.

    30. I turn, then, to cases such as the present where there is no question of reliance or 'holding out', or of the employer having assumed a direct responsibility to the wronged person. Take a case where an employee does an act of a type for which he is employed but, perhaps through a misplaced excess of zeal, he does so dishonestly. He seeks to promote his employer's interests, in the sphere in which he is employed, but using dishonest means. Not surprisingly, the courts have held that in such a case the employer may be liable to the injured third party just as much as in a case where the employee acted negligently. Whether done negligently or dishonestly the wrongful act comprised a wrongful and unauthorised mode of doing an act authorised by the employer, in the oft repeated language of the 'Salmond' formulation: see Salmond on Torts, 1st ed, (1907), p 83. As Willes J said, in Barwick v English Joint Stock Bank (1867) LR 2 Ex 259, 266:

    'It is true, [the master] has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which the agent has conducted himself in doing the business which it was the act of his master to place him in.'

    31. In Hamlyn v John Houston & Co [1903] 1 KB 81, 85, one aspect of the business of the defendant firm of 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 one of Hamlyn's employees. The Court of Appeal held the firm was liable for the loss suffered by Hamlyn. Collins MR said that if it was within the scope of Houston's authority to obtain the information by legitimate means, then for the purpose of vicarious liability it was within the scope of his authority to obtain it by illegitimate means and the firm was liable accordingly. Collins MR rested his decision on the broad 'risk' principle: the principal having selected the agent, and being the person who will have the benefit of his efforts if successful, it is not unjust he should bear the risk of the agent 'exceeding his authority in matters incidental to the doing of the acts the performance of which has been delegated to him'.

    32. The limits of this broad principle should be noted. A distinction is to be drawn between cases such as Hamlyn v John Houston & Co [1903] 1 KB 81, where the employee was engaged, however misguidedly, in furthering his employer's business, and cases where the employee is engaged solely in pursuing his own interests: on a 'frolic of his own', in the language of the time-honoured catch phrase. In the former type of case the employee, while seeking to promote his employer's interests, does an act of a kind he is authorised to do. Then it may well be appropriate to attribute responsibility for his act to the employer, even though the manner of performance was not authorised or, indeed, was prohibited. The matter stands differently when the employee is engaged only in furthering his own interests, as distinct from those of his employer. Then he acts 'so as to be in effect a stranger in relation to his employer with respect to the act he has committed': see Isaacs J in Bugge v Brown (1919) 26 CLR 110, 118. Then the mere fact that the act was of a kind the employee was authorised to do will not, of itself, fasten liability on the employer. In the absence of 'holding out' and reliance, there is no reason in principle why it should. Nor would this accord with authority.To attribute vicarious liability to the employer in such a case of dishonesty would be contrary to the familiar line of 'driver' cases, where an employer has been held not liable for the negligent driving of an employee who was employed as a driver but at the time of the accident was engaged in driving his employer's vehicle on a frolic of his own.

    33. In Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462, 473-475, Lord Wilberforce drew this distinction with his accustomed lucidity and authority. He rejected the broad proposition that so long as the employee is doing acts of the same kind as those it is within his authority to do, the employer is liable and he is not entitled to show the employee had no authority to do them. Lord Wilberforce said:

    ' … the underlying principle remains that a servant, even while performing acts of the class which he was authorised, or employed, to do, may so clearly depart from the scope of his employment that his master will not be liable for his wrongful acts.'

In the Kooragang case the employee, authorised to carry out valuations, negligently carried out a valuation without authority from his employers and not on their behalf. In doing so he was not acting as an employee of the defendant company. The company was not liable for his wrongful acts. That was a case of negligence, but a similar approach is no less applicable in cases of dishonesty.

    34. With this illustrative guidance I turn to consider on which side of the line is the present case. In drafting the consultancy agreements was Mr Amhurst acting solely on his own behalf? Or was he acting, although misguidedly, on behalf of the Amhurst firm? Had the claims against Mr Amhurst and the firm been tried to a conclusion the judge would have made findings of fact on what Mr Amhurst did, how he conducted his relevant business dealings with Mr Salaam and others, whether his conduct was dishonest, and whether he was acting for the firm or solely in his own interests. The court would have looked overall at all the circumstances. The court, and this House, would then have been properly equipped with the appropriate factual material with which to answer these questions. As it is, the only relevant plea in the particulars of claim is the compendious allegation that in doing what he did Mr Amhurst was acting in his capacity as a partner. In so far as this allegation is an allegation of fact, it is assumed to be correct.

    35. This is a factually meagre basis on which to decide a question of vicarious responsibility for assumed dishonest conduct. But there is no other factual material available. Perforce the House must do its best with this material. Proceeding on this footing, in this context 'acting in his capacity as a partner' can only mean that Mr Amhurst was acting for and on behalf of the firm, as distinct from acting solely in his own interests or the interests of others. He was seeking to promote the business of the firm.

    36. On this assumed factual basis, I consider the firm is liable for Mr Amhurst's dishonest assistance in the fraudulent scheme, the assistance taking the form of drafting the necessary agreements. Drafting agreements of this nature for a proper purpose would be within the ordinary course of the firm's business. Drafting these particular agreements is to be regarded as an act done within the ordinary course of the firm's business even though they were drafted for a dishonest purpose. These acts were so closely connected with the acts Mr Amhurst was authorised to do that for the purpose of the liability of the Amhurst firm they may fairly and properly be regarded as done by him while acting in the ordinary course of the firm's business.