|Judgments - Dubai Aluminium Company Limited v. Salaam (Original Respondent and 2nd Cross-Appellant) and Other
(6) In the ordinary course of the business of the firm.
A question of law or fact?
112. If the actions of the party primarily liable are legally capable of being performed within the course of his employment or the ordinary course of his firm's business, the question whether they were so performed is a question of fact, not of law. Such a question was formerly left to the jury. It is not, of course, a question of primary fact, but a factual conclusion based on an assessment of the primary facts. This may involve questions of fact and degree, and in borderline cases the decision may properly go either way. Unless, however, the conclusion of the tribunal of fact is not legally capable of being derived from the primary facts or is contradicted by them, then its determination must be respected.
113. The question in the present case, therefore, is whether those activities of Mr Amhurst which I have previously described and which form the factual basis of Dubal's claim against Amhursts, are legally capable of being performed by a solicitor acting in the ordinary course of his firm's business.The Court of Appeal's approach.
114. The main reason why Evans and Aldous LJJ reversed the finding of the trial judge was that they considered that it was a condition of vicarious liability that all the wrongful acts for which the partner was responsible must have been committed by him in the course of his firm's business. This proposition cannot be derived from the Credit Lyonnais Bank case  1 AC 486, and is not the law. The claim in that case was in respect of the tort of deceit. The difficulty was that the acts of the employee which were performed within the course of his employment were not in themselves tortious, while the representation which was tortious was not made by the employee in the course of his employment. Indeed, it was not made by an employee of the defendants at all. The question was whether it is sufficient to make the employer vicariously liable for the acts of his employee if his acts do not amount to a tort but do so only when taken with other acts which were not performed in the course of his employment. The House concluded that, before there can be vicarious liability, all the features of the wrong which are necessary to make the employee liable must have occurred in the course of the employment: see per Lord Woolf at p 459. The claim failed because the employee's conduct, taken by itself, was not sufficient to constitute a tort. An essential element in the cause of action, viz. the representation, was not made by the employee in the course of his employment.
115. The present case is quite different. It was sufficient to make Mr Amhurst personally liable for his dishonest participation in the scheme that he drafted the agreements by which it was carried out in the knowledge of the purpose to which they were to be put and that he caused his firm to manage the corporate vehicles through which the proceeds of the fraud were distributed. The factual basis of Dubal's claim against Amhursts was that these acts were performed by Mr Amhurst in the ordinary course of Amhursts' business. It does not follow from the fact that Mr Amhurst did other things as well, some of which may not have been performed in the ordinary course of Amhursts' business, that Amhursts are not vicariously liable for those acts which were.
116. In agreement with my noble and learned friend, Lord Nicholls, I would hold that, where the claim against the firm has been settled, its claim to contribution must be determined solely by reference to the facts pleaded against the firm itself. This is not a technical rule of pleading. It is because the factual basis of the claim against the firm has not been established by evidence but by force of the statutory assumption that the factual basis of the claim could be established; and this can be found only in the case pleaded against the firm. It cannot be found in the case pleaded against the partner personally.
117. Mr Salaam and Mr Al-Tajir complain that this is unfair. Had the case proceeded to judgment, the character of Mr Amhurst's conduct would have been evaluated by reference to all the evidence as it emerged at the trial; and when his conduct was considered as a whole it might have become apparent that he was not acting in the ordinary course of his firm's business but was, in the time-honoured phrase, "engaged in a frolic of his own". Why, they ask, should they be prejudiced by the fact that Amhursts chose to settle the claim against them instead of defending it, perhaps successfully?
118. Of course, there is another side to this particular coin. If the case had not been settled, Dubal could have relied on whatever evidence was given at the trial to show that Mr Amhurst was acting in the ordinary course of his firm's business. This, Amhursts said, would have shown that Mr Salaam was a client of the firm, that Mr Amhurst drafted the agreements on his instructions, that the administrative acts which he carried out in relation to the distribution of the money consisted of handling invoices addressed to the firm and writing instructions on the firm's headed notepaper, and that the firm charged fees for all these services. None of this would have had to be pleaded.
119. But the short answer to the complaint that Mr Salaam and Mr Al-Tajir have been prejudiced by the settlement of the claim against Amhursts, which they were powerless to prevent, is that there is nothing unfair to them in assuming that Mr Amhurst was acting in the course of the firm's business. As I shall explain later, defendants who, if found liable, may become involved in proceedings for contribution are not concerned with the question whether a third party is or is not also vicariously liable to the plaintiff. It is nothing to do with them and does not affect their position.Dishonest conduct
120. There remains for consideration the observation of Aldous LJ  QB 113, 142 that "it is not and never has been part of the business of a firm of solicitors to draft sham agreements giving effect to a scheme known to be dishonest which he has helped to plan". But it is equally not and never has been part of the business of a firm of solicitors to assist in obtaining an Act of Parliament and orders of the court in order to defraud the beneficiaries of a settled estate, yet Sir Lancelot Shadwell V-C in Brydges v Branfill 12 Sim 369, regarded these acts as the acts of the firm itself. It is not and never has been part of the business of a firm of solicitors to defraud its client by obtaining her instructions to sell her property and inducing her to execute conveyances in favour of one of its employees so that he could pocket the proceeds. Yet the firm was held vicariously liable for the fraud of its employee in these circumstances in Lloyd v Grace, Smith & Co  AC 716. It is not and never has been part of the business of a residential school to commit sexual assaults upon boys in its care. Yet in Lister v Hesley Hall Ltd  1 AC 215 the owners of the school were held to be vicariously liable for assaults carried out by its warden.
121. In that case I observed that it was no answer to a claim against the employer to say that the employee was guilty of intentional wrongdoing, or that his act was not merely tortious but criminal, or that he was acting exclusively for his own benefit, or that he was acting contrary to express instructions, or that his conduct was the very negation of his employer's duty. Vicarious liability for tortious and even criminal acts had been established well before the end of the 19th century. Lloyd v Grace, Smith & Co  AC 716, which Lord Steyn described as a breakthrough, finally established that vicarious liability is not necessarily defeated if the employee acted for his own benefit. The consequence, he said, at p 224, was that "an intense focus on the connection between the nature of the employment and the tort of the wrongdoer became necessary."
122. 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: see Navarro v Moregrand Ltd  2 TLR 674, 680 per Denning LJ. This is equally true of partners, though it is perhaps less obvious in their case, since the relation between partners is essentially one of agency. An employer may authorise his employee to drive, but he does not authorise him to drive negligently. A firm of solicitors may authorise a partner to draft agreements for a client, but it does not authorise him to draft sham agreements. Lord Lindley wrote
cited in Lindley & Banks on Partnership 17th ed (1995) pp 332-333.
123. In Lister v Hesley Hall Ltd  1 AC 215 several of your Lordships observed that the traditional Salmond test for determining whether an employee's act was in the course of his employment is not happily expressed when applied to the case of intentional or fraudulent wrongdoing. Sexually assaulting a boy is not an improper mode of looking after him. It is an independent act in itself, not an improper mode of doing something else. To say that a solicitor drafted an agreement negligently is to describe the way in which he drafted it; it is to accuse him of having done an authorised act in a wrongful and unauthorised way. But to say that he drafted an agreement dishonestly, or that he drafted a sham agreement, does not describe either the way in which he drafted it or the nature of the document. Rather it describes the purpose for which he intended it to be used.
124. But these differences are immaterial. If regard is paid to the closeness of the connection between the employee's wrongdoing and the class of acts which he was employed to perform, or to the underlying rationale of vicarious liability, there is no relevant distinction to be made between performing an act in an improper manner and performing it for an improper purpose or by an improper means. In Hamlyn v John Houston & Co  1 KB 81 a partner obtained confidential information of a competitor's business by means of a bribe. Collins MR said that if it was within the scope of his 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. In the Court of Appeal Evans LJ distinguished this case on the ground that the corrupt employee who received the bribe could have believed that the party who offered it to him had his firm's authority to do so. But it does not matter what he thought. The action was not brought in respect of a reliance-based tort, nor was it brought by the employee. It was brought by his employer who did not rely on the partner's authority and had no relevant dealings with the defendant firm at all.
125. In that case the partner who was personally liable acted for the benefit of the firm. It would not necessarily have made a difference he had acted for his own benefit; but taken with other circumstances it might conceivably have done so. The question whether the employee was acting in the course of his employment or was "engaged on a frolic of his own" is not necessarily determined by the fact that he was merely doing work of a kind he was employed to do. Even in such a case the employee may step outside the limits of his employment. The road accident deviation cases are examples of this.126.
Kooragang Investments Pty Ltd v Richardson & Wrench Ltd  AC 462 is another example. A valuer in the defendants' employ gave negligent valuations to former clients of theirs. He was doing work of a kind which he was employed to do. But the defendants were not liable. The valuer was moonlighting. He was acting, not as an employee of the defendants, but as an employee or associate of the former clients to whom he gave the valuations and on their instructions. He carried out the valuations at the premises of the former clients and using their staff. The defendants received no payment for the valuations and the director responsible knew nothing of them. The only connection between the valuations and the defendants was that the valuations were made on the defendants' stationery. As Lord Wilberforce said at p 475
127. Unless the use by the valuer of the defendants' stationery in that case was enough to tip the scale, which it clearly was not, it merely amounted to a false representation that he was giving the valuations on their behalf. Since the representation was made by the valuer himself and not by the defendants or with their authority, it did not render them liable for holding him out as having their authority to act on their behalf.
128. Such a case serves as a reminder that even the Salmond test is only that - a test. It is not a conclusive definition of the circumstances in which vicarious liability arises. Even if it is satisfied, the facts, taken as a whole, may nevertheless show that the employee was not acting in the course of his employment. But the mere fact that he was acting dishonestly or for his own benefit is seldom likely to be sufficient.
129. An employer has been held to be vicariously liable for the intentional wrongdoing of his employee in a wide variety of different circumstances. In some of the cases the employer has undertaken a duty towards the plaintiff and then delegated the performance of that duty to his employee: see Morris v C W Martin & Sons Ltd  1 QB 716; Photo Production Ltd v Securicor Transport Ltd  AC 827; Lister v Hesley Hall Ltd  1 AC 215. The decisive factor in Lloyd v Grace, Smith & Co  AC 716 was that the employee who committed the fraud for his own benefit was the person to whom his employer invited the client to entrust her affairs. In all those cases the plaintiff was a client or customer of the employer. But that is not essential. It was not the case in Hamlyn v John Houston & Co  KB 81. The decisive feature in that case was that, in paying the bribe, the partner was merely using an improper means of obtaining information for his firm which it was his job to obtain. But the circumstances in which an employer may be vicariously liable for his employee's intentional misconduct are not closed. All depends on the closeness of the connection between the duties which, in broad terms, the employee was engaged to perform and his wrongdoing.
130. In the present case the principal participants in the fraud needed a solicitor to draw the agreements which were to be the instrument of carrying out their scheme. They instructed Mr Amhurst, a partner in the Amhursts; and he is to be assumed to have carried out his instructions "in his role as a solicitor in the firm", that is to say he was not moonlighting but acting in the course of the firm's business. Drawing such agreements honestly and for a proper purpose would plainly be in the ordinary course of the firm's business. By drawing them dishonestly for an improper purpose and for his own benefit or the benefit of his confederates, the court might, on an overall assessment of the evidence at trial, have concluded that Mr Amhurst had sufficiently departed from the ordinary course of the firm's business to defeat Dubal's claim against Amhursts. He would have been engaged "on a frolic of his own" and not "acting in his role as a partner in the firm". But such a conclusion would not have been inevitable; deliberate and dishonest conduct committed by a partner for his own sole benefit is legally capable of being in the ordinary course of the business of his firm.
131. Accordingly, and subject only to the Court of Appeal's decision in Mara v Browne  1 Ch 199, with which I shall deal in the next section, the conclusion that Mr Amhurst was acting in the ordinary course of the firm's business would have been legally open to the trial judge had the case proceeded to trial. The case having settled, and this being the factual basis of the claim against Amhursts, the judge was entitled and bound to proceed on the assumption that it would have been established.
Liability as a constructive trustee: Mara v Browne 1 Ch 199
132. Mr Salaam and Mr Al-Tajir submitted that, as a matter of law, it is no part of the business of a solicitor to constitute himself a constructive trustee. For this proposition they cited Mara v Browne  1 Ch 199, 208, where Lord Herschell said that:
Rigby LJ spoke in similar terms at p 214; and A L Smith LJ at p 212, though he used the more specific expression "trustee de son tort" and not "constructive trustee".
133. These observations were obiter, since the Court of Appeal dismissed the claim against the partner personally responsible, so that there could be no question of vicarious liability. But they certainly represented the general understanding at that time. Although implicit, the reasoning would have been well understood in 1896. The courts distinguished between the acts of a solicitor when acting as solicitor to the trustees and acts done by him as an express trustee. The former were within the scope of the ordinary business of a solicitor; the latter were not: see Re Fryer (1857) 3 K & J 317. If so, it was equally no part of such a business for him to constitute himself "a constructive trustee" in the sense in which the Court of Appeal were using that term.
134. For my part, I do not think that these cases can be disposed of by saying that the scope of a solicitor's practice has changed since 1896. No doubt it has, but not in the requisite direction. The 19th century was the hey-day of the family solicitor. Conveyancing and private client business formed the bulk of his work. He could expect to be appointed an executor and trustee of his clients' wills and settlements. This is much less common today. Solicitors' work has become more commercial. Private client business forms a far smaller part of their work than it did; many large firms undertake none at all. Trusteeship too has become more professional. Clients no longer look to their trustees to be philosophers, guides and friends. They expect them to be professional fund-managers and even, sometimes, businessmen. It is part of a solicitor's business to advise whether trust money may lawfully be invested in an overseas hedge fund or used to pay a discretionary beneficiary's school fees. It is still not part of his business to make the decision whether to do so or not. If it was not part of the ordinary business of a solicitor to act as an express trustee in 1857, I do not see how it can be part of it today.
135. But every statement in a judgment must be understood in the context in which it is made, and this is particularly the case if it employs expressions such as "constructive trust" or "constructive trustee", for they have more than one meaning, and meanings have changed over time. Mara v Browne  1 Ch 199 cannot be understood unless the sense in which Lord Herschell and Rigby LJ were using the expression "constructive trustee" is appreciated.
136. The case concerned a marriage settlement. The first defendant, whom I shall call HB, was a solicitor. He advised the persons who were acting as trustees, though not yet formally appointed as such. He suggested a series of investments for the trust funds. They were not proper investments for trustees to make. The money was to be lent on building property of a speculative character and the margin was unsatisfactory. The investments were made and the money was lost. Lord Herschell considered that, if the claimants had charged HB with negligence as a solicitor and brought the action in time, they might well have succeeded, in which case both HB and his partner would have been liable. But any such action was barred by the Statute of Limitations. Accordingly the claimants alleged that HB had intermeddled with the trust and was liable as a trustee de son tort. They alleged that he had laid out the trust moneys at a time when there were no trustees, and therefore must be taken to have acted as a principal in the matter and not as a mere agent for the trustees. Such a claim was not statute-barred. The judge agreed with this analysis and held that both HB and his partner were liable.
137. The Court of Appeal took a different view of the facts. They held that it was not correct to say that at the relevant dates there were no trustees. But even if there had been none HB would not have been liable. He did not intend or purport to act as a trustee, and no one supposed that he was so acting. He purported to act throughout only as solicitor to the trustees and was understood by all concerned to be acting as such.
138. This summary is sufficient to show what Lord Herschell and Rigby LJ meant by "constructive trustee". They meant "trustee de son tort"; that is to say, a person who, though not appointed to be a trustee, nevertheless takes it upon himself to act as such and to discharge the duties of a trustee on behalf of others. In Taylor v Davies  AC 636, 651, Viscount Cave described such persons as follows:
Substituting dog Latin for bastard French, we would do better today to describe such persons as de facto trustees. In their relations with the beneficiaries they are treated in every respect as if they had been duly appointed. They are true trustees and are fully subject to fiduciary obligations. Their liability is strict; it does not depend on dishonesty. Like express trustees they could not plead the Limitation Acts as a defence to a claim for breach of trust. Indeed, for the purposes of the relevant provision (section 25(3) of the Supreme Court of Judicature Act 1873), which distinguished between property held on express trusts and other trusts, they were treated by the courts as express trustees. That is why the action in Mara v Browne was not statute-barred.
139. In the same case, however, Viscount Cave identified a very different kind of "constructive trustee", at p 651:
Taylor v Davies was not a case of fraud but it was followed and applied in Clarkson v Davies  AC 100, which was. In the latter case the Lord Justice Clerk explained (at p 110) that the distinction was between a trust which arose before the occurrence of the transaction impeached and a claim which arose only by reason of that transaction. In the former case the defendant is treated as a trustee even though not expressly appointed as such; in the latter case he is a stranger to the trust at the time of the transaction.
140. Referring to these cases in Paragon Finance plc v DB Thakerar & Co  1 All ER 400, 408-409 in the Court of Appeal, I drew attention to the fact, which was becoming increasingly overlooked, that the expressions "constructive trust" and "constructive trustee" were used by equity lawyers to describe two entirely different situations. One was the situation which the claimants unsuccessfully contended had arisen in Mara v Browne. The other is the situation which arose in present case.
141. Unlike HB in Mara v Browne  1 Ch 199, Mr Amhurst did not assume the position of a trustee on behalf of others. He never had title to the trust funds or claimed the right to deal with them on behalf of those properly entitled to them. He acted throughout on his own or his confederates' behalf. The claim against him is simply that he participated in a fraud. Equity gives relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally (and I have suggested unfortunately) described as a "constructive trustee" and is said to be "liable to account as a constructive trustee". But he is not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property. If he receives the trust property at all he receives it adversely to the claimant and by an unlawful transaction which is impugned by the claimant. He is not a fiduciary or subject to fiduciary obligations; and he could plead the Limitation Acts as a defence to the claim.
142. In this second class of case the expressions "constructive trust" and "constructive trustee" create a trap. As the Court of Appeal recently observed in Coulthard v Disco Mix Club Ltd  1 WLR 707, 731 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." The expressions are "nothing more than a formula for equitable relief": Selangor United Rubber Estates Ltd v Cradock (No. 3)  1 WLR 1555, 1582 per Ungoed-Thomas J. I think that we should now discard the words "accountable as constructive trustee" in this context and substitute the words "accountable in equity".
143. The distinction between the two kinds of constructive trustee is of critical importance in the present context. If, as I think, it is still not within the ordinary scope of a solicitor's practice to act as a trustee of an express trust, it is obviously not within the scope of such a practice voluntarily to assume the obligations of a trustee and so incur liability as a de facto trustee or a constructive trustee of the first kind. But given that a solicitor may be guilty of deliberate and dishonest conduct while acting within the ordinary scope of his practice, there is no conceivable reason why his firm should not thereby incur vicarious liability for loss caused by the conduct which constituted him a constructive trustee of the second kind. Unfortunately Vinelott J applied Mara v Browne in In re Bell's Indenture  1 WLR 1271, a case of dishonest assistance like the present, and held that the firm was not vicariously liable. The decision is inconsistent with Brydges v Branfill 12 Sim 369. In my opinion it was wrongly decided and we should overrule it.