Solicitors' Liability Briefing Note

Author:Mr Richard Harrison
Profession:Barlow Lyde & Gilbert

Vicarious Liability for the Dishonest Acts of Partners and Employees

In Dubai Aluminium Company Limited v Salaam, in which judgment was handed down on 5 December 2002, the House of Lords considered the issue of whether innocent partners are vicariously liable for the dishonest acts or omissions of their fellow partners, and in what circumstances and to what extent they may claim contribution from other wrongdoers. In this briefing note we report on the decision and examine whether the House of Lords has brought any certainty to this area of professional indemnity law.

The Background

The proceedings arose out of a complex fraud by which Dubai Aluminium Company Limited ("Dubal") paid out $50m under bogus consultancy agreements. Dubal brought claims against recipients of monies from the scheme, a solicitor who was alleged to have assisted in the scheme ("the Solicitor") and two firms in which the Solicitor had been a partner (which we refer to in this Briefing as "the Firm"). It was common ground that the Firm was innocent of any wrongdoing, so the only basis on which the Firm could be liable to Dubal was if it was vicariously liable for the alleged acts of the Solicitor.

During the course of the trial, Dubal's claims against all the defendants were settled, and withdrawn in respect of the Solicitor, leaving outstanding a number of contribution claims. The contribution claims included the Firm's claim against two of those found to be part of the dishonest scheme, Mr Salaam and Mr Al-Tajir (the "Defendants"), for recovery of the sum paid by it in settlement of the claim. For the purposes of the proceedings, it was assumed, pursuant to section 1(4) of the Civil Liability (Contribution) Act 1978 ("the Contribution Act"), that the Solicitor had been dishonest as was pleaded against him by Dubal. There was no finding of dishonesty against the Solicitor and in his judgment Lord Nicholls stated that "the case has proceeded on the assumption that [the Solicitor] 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 that he acted dishonestly in any respect".

Mr Justice Rix found in favour of the Firm at first instance, and ordered that the Defendants give a full indemnity for the $10m paid in settlement of the claim by the Firm. Mr Salaam was ordered to pay $7.5m and Mr Al Tajir $2.5m. They were held jointly and severally liable for $5m to protect the Firm against insolvency. However, the Court of Appeal accepted the Defendants' argument that the Firm was not vicariously liable for the Solicitor's allegedly wrongful acts as they were outside the ordinary course of the Firm's business. This was on the basis that it was alleged by Dubal that the Solicitor's activities were dishonest. Therefore the Firm could not bring a claim for contribution against the Defendants. When the case reached the House of Lords, it had to consider:

whether the Firm was vicariously liable for the alleged dishonest participation of the...

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