Dubai Aluminium Company Limited v. Salaam (Original Respondent and 2nd Cross-appellant) and others (Original Appellants and Cross-respondents) and Others and another (Original Respondent and 1st Cross-appellant)

A firm may be vicariously liable under section 10 of the Partnership Act 1890 for a partner’s fault-based equitable wrongdoing. Liability arises where the wrongdoing is so closely connected with authorised acts that it may fairly and properly be regarded as occurring in the ordinary course of the firm’s business. Dishonesty, an improper purpose and absence of specific authority do not by themselves prevent liability.

For contribution, a vicariously liable firm stands in the wrongdoer’s shoes. Its partners’ personal innocence does not reduce its attributed responsibility. When making a just and equitable apportionment, the court may consider settlements, retained proceeds of wrongdoing and actual or possible insolvency. It may award a complete indemnity and structure liability to distribute insolvency risk fairly.

Dubai Aluminium Company Ltd v Salaam arose from a fraudulent scheme under which the company paid US$50 million pursuant to a bogus consultancy agreement. It alleged that Mr Amhurst, a solicitor and partner in the Amhurst firm, dishonestly assisted the fraud by drafting the principal and subsidiary agreements. His alleged dishonesty was never tried because the claims against him and the firm were settled for US$10 million.

Rix J, whose findings were reported at [1999] 1 Lloyd’s Rep 415, held that the firm could claim a complete indemnity from Mr Salaam and Mr Al-Tajir under the Civil Liability (Contribution) Act 1978. The Court of Appeal reversed that decision at [2001] 1 QB 113, holding that the firm was not vicariously liable.

The House considered whether section 10 of the Partnership Act 1890 covered equitable wrongdoing, whether the assumed conduct occurred in the ordinary course of the firm’s business, and how liability should be apportioned among the settling parties.

1. Disposition. The House unanimously allowed the Amhurst firm’s appeal, set aside the Court of Appeal’s order and restored Rix J’s order. The cross-appeals of Mr Salaam and Mr Al-Tajir were dismissed. Lord Nicholls delivered the leading speech; Lord Slynn adopted his reasons, and Lord Hutton agreed with Lord Nicholls and Lord Millett.

2. Scope of partnership liability. Per Lord Nicholls and Lord Millett, section 10 of the Partnership Act 1890 is not confined to common-law torts. Its reference to “any wrongful act or omission” includes fault-based equitable wrongdoing, such as dishonest assistance in a breach of fiduciary duty. The section does not create vicarious liability for liability founded merely upon receipt.

3. Ordinary course of business. Per Lord Nicholls, the governing inquiry is whether the wrongdoing was so closely connected with acts which the partner was authorised to perform that it may fairly and properly be regarded as occurring in the ordinary course of the firm’s business. The inquiry requires an evaluative judgment based upon all the circumstances. The House applied the approach in Lister v Hesley Hall Ltd [2002] 1 AC 215. Specific authority for the wrongful act is unnecessary, and dishonesty or an improper purpose does not of itself take the act outside the business. The position differs where the partner acts solely on a frolic of his own.

   On the statutory assumption that Mr Amhurst acted in his capacity as partner, drafting the agreements was closely connected with work he was authorised to perform. The firm was therefore liable for his assumed dishonest assistance.

4. Settlements and necessary acts. Under section 1(4) of the Civil Liability (Contribution) Act 1978, a person making a bona fide settlement may claim contribution on the assumption that the factual basis of the settled claim can be established. In this case that basis was found in the allegations pleaded against the firm, rather than the wider allegations made against Mr Amhurst personally. The Court of Appeal had also read Credit Lyonnais Bank Nederland NV v Export Credits Guarantee Department [2000] 1 AC 486 too broadly. All elements necessary to constitute the employee’s wrong must occur within the employment, but additional acts outside it do not defeat vicarious liability where the acts within it are independently sufficient.

5. Contribution. Per Lord Nicholls, Lord Hobhouse and Lord Millett, a vicariously liable employer or firm stands in the wrongdoer’s shoes as against other persons liable for the same damage. Personal innocence is therefore irrelevant to the attributed share of responsibility. Section 2 permits the court to consider the parties’ responsibility, settlements, retained proceeds and insolvency when reaching a just and equitable distribution. The full indemnity and the provision distributing the risk of insolvency between Mr Salaam and Mr Al-Tajir were proper.

1. House of Lords: The appeal was allowed unanimously. The order of the Court of Appeal was set aside, Rix J’s order was restored, and the cross-appeals were dismissed: [2002] UKHL 48.
2. Court of Appeal: The court allowed the appeals of Mr Salaam and Mr Al-Tajir, holding that the Amhurst firm was not vicariously liable and therefore could not recover contribution: [2001] 1 QB 113.
3. Commercial Court: Rix J held that the Amhurst firm was entitled to contribution amounting to a complete indemnity from Mr Salaam and Mr Al-Tajir: [1999] 1 Lloyd’s Rep 415.