Vicarious liability
Frederick v Positive Solutions (CA) [2018]
This case involved the law concerning when a business will be vicariously (strictly) liable for the acts of an agent. Most cases involving vicarious liability concern employees so in this respect the case was unusual. The decision in this case is particularly interesting given the previous judgement in the Morrison’s data protection case which we featured back in January [link]. Here the Court of Appeal took a more traditional approach to the scope of vicarious liability.
Facts:
The claimants (‘C’) had invested in a property development scheme, by way of remortgaging their homes. The development scheme was being organised by W. The remortages were also arranged by W. W was an appointed agent of Positive, a financial services company regulated by the Financial Conduct Authority. Because of his position, W had access to an online portal operated by a bank. W used the portal to arrange the remortgages, based on false information. By so doing, W was able to gain access to funds that the bank would not otherwise have advanced. Some of the monies were used to pay off C's existing mortgages; the balance was advanced to W, misappropriated, and lost in the development scheme.
C sued Positive, claiming that Positive was vicariously liable for W's acts. The matter reached the Court of Appeal on the issue of whether Positive was vicariously liable for W's acts.
The legal policy underlying vicarious liability is based on a recognition that carrying on a business enterprise necessarily involves risks to others. Historically, however, the courts have been less ready to find vicarious liability in cases of employee dishonesty than in cases of simple negligence.
Decision:
- At first instance the Judge found that Positive was not vicariously liable. That decision was upheld on appeal.
- To determine whether there is vicarious liability where the individual involved is not an employee a two stage test must be applied namely:-
- [outside of an employment relationship] is the relationship sufficiently akin to employment to make it just and fair to impose liability?
- were the actions complained of so closely connected with [the] “employment” that it would be fair and just to hold the “employer” vicariously liable (“sufficient connection” test)?
- It was held that W had been involved in a recognisably independent business (of property development). W's use of the portal had simply been the means by which he was able to obtain funds from C to invest in the scheme. To describe that activity as an integral part of Positive's business would be "a distortion of the true position".
- Not all of the acts and omissions complained of had taken place within the alleged course of his agency;
- It was the handing over of the monies to W which had caused the loss; C had not suffered loss through the actual remortgaging or their receipt of monies from the bank.
- At most, Positive had provided the opportunity for W to commit the wrongdoing by giving W access to the portal. That, by itself, was not in this case sufficient to give rise to vicarious liability.
Points to Note:
- This case stands in contrast to the Morrison’s judgment particularly the comment that simply providing the opportunity for the individual to commit the wrongdoing was not sufficient to give rise to liability. The Morrison’s decision was not referenced at all in this case and it will be interesting to see whether, if Morrison’s appeal, they will look to rely on this case.
- The decision here is based on a more traditional approach to vicarious liability. However, it also has to be recognised that here there was a completely discrete and independent business activity involved which was apparent to C. The same did not exist in the Morrison’s case.
- It is apparently no defence for an employer to show that an employee acted in a way that was expressly prohibited by the employer. A distinction is to be drawn between:
- A prohibition that limits the sphere of employment. This could mean that the employee’s acts are not sufficiently connected with the employment.
- Merely forbidding conduct within the sphere of employment. This does not affect vicarious liability.
- The cases on this topic do tend to point in different directions. For example in the Dubai Aluminium v Salaam case in 2003 one judge indicated that it is relevant to distinguish between cases where the employee or agent was engaged, however misguidedly, in furthering the employer’s business (where vicarious liability would apply), and cases where the employee was engaged solely in pursuing their own interests, or on a “frolic of his own” (where, presumably, it would not). On the other hand, in a separate Morrison’s case (Mohamud v Morrison [2016]) another judge said “the risk of an employee misusing his position is “one of life’s unavoidable facts”. That was a case where the supermarket was held to be vicariously liable when a security guard assaulted a customer.
- If followed, this case is perhaps more reassuring for data controllers and data processors alike who are concerned about the potential acts of rogue employees. We await any appeal of the Morrison’s judgement with interest.