Dubai Aluminium Co Ltd v Salaam

This appeal concerned contribution claims under the Civil Liability (Contribution) Act 1978 by a firm of solicitors (the Amhurst firm) which had settled a claim arising from a large fraud. The House held that section 10 of the Partnership Act 1890 is not confined to common law torts and can give rise to vicarious liability for a partner's equitable wrongdoing (for example, dishonest assistance in a breach of trust). Whether a partner's wrongful act was done "in the ordinary course of the business of the firm" is a legal conclusion based on an evaluative judgment of the primary facts and the required closeness of connection between the wrongful act and authorised activities. For contribution purposes a firm vicariously liable stands in the shoes of the wrongdoer; the personal innocence of other partners is not a ground to reduce the contribution claim. In assessing contribution under section 2 of the 1978 Act the court may take into account undisgorged proceeds in the hands of other wrongdoers and make orders (including indemnities and joint-and-several liabilities) to achieve a just and equitable allocation of loss.

The appellant (the Amhurst firm) had paid US$10 million to settle Dubai Aluminium's claim arising from a fraudulent consultancy scheme. Dubai Aluminium had alleged that a partner in the Amhurst firm (Mr Amhurst) dishonestly assisted the fraud by drafting the sham agreements. The firm sought contribution from two principal beneficiaries of the fraud (Mr Salaam and Mr Al-Tajir). The Court of Appeal held the firm not vicariously liable because much of the partner's conduct was said to be outside the ordinary course of the firm's business. The Amhurst firm appealed to the House of Lords.

The issues framed by the court included:

• Whether section 10 of the Partnership Act 1890 covers equitable wrongs such as dishonest assistance;
• What is meant by "acting in the ordinary course of the business of the firm" for vicarious liability;
• How contribution under the Civil Liability (Contribution) Act 1978 (sections 1 and 2) should be quantified, including whether a defendant's undisgorged receipts are relevant;
• Whether the personal innocence of partners is relevant to contribution assessments.

The House held that section 10 is wide enough to encompass equitable wrongs and that the ordinary-course enquiry is a legal conclusion based on the closeness of connection between the wrongful act and activities the partner was authorised to do. Where a claim has been settled in good faith the statutory assumption in section 1(4) of the 1978 Act requires the court to determine the firm's entitlement to contribution by reference to the facts pleaded against the firm. For apportionment under section 2 the court must make a just and equitable allocation having regard to responsibility for the damage; this may properly take into account undisgorged proceeds and permit full indemnities where fair. The House restored the trial judge's order and dismissed the cross-appeals.

The court noted the wider policy context: vicarious liability is a loss-distribution device and its scope in cases of intentional wrongdoing depends upon policy-focused assessment of risk and connection, not on rigid categories.

Appeal allowed. The House of Lords allowed the Amhurst firm's appeal, holding that section 10 of the Partnership Act 1890 may impose vicarious liability for a partner's dishonest assistance in breach of fiduciary duty; the phrase 'acting in the ordinary course of the business of the firm' is a legal conclusion based on the closeness of connection between the wrongful act and authorised activities; a firm vicariously liable stands in the shoes of the wrongdoer for contribution purposes so the personal innocence of partners is not a basis for reducing contribution; and in apportioning contribution under section 2 of the Civil Liability (Contribution) Act 1978 the court may take undisgorged proceeds into account and order indemnities or joint-and-several liabilities as just and equitable. The House set aside the Court of Appeal and restored the order of Rix J.

Trial: Rix J (findings reported at [1999] 1 Lloyd's Rep 415). Court of Appeal: Evans and Aldous LJJ (majority) and Turner J — Court of Appeal allowed the appeal and held the firm not vicariously liable ([2001] 1 QB 113). House of Lords: allowed the Amhurst firm's appeal and restored Rix J's order ([2002] UKHL 48).