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)

It is wrong to treat section 10 of the Partnership Act 1890 as confined to common-law torts. Rather, vicarious liability under s.10 extends to equitable, fault-based wrongs such as dishonest assistance where the partner's conduct is wrongful and causes loss. Whether that conduct was committed in the "ordinary course of the firm's business" is a legal conclusion drawn from primary facts. For that question the proper test is closeness of connection between the wrongful act and acts the partner was authorised to do. In contribution proceedings the court may take undisgorged proceeds into account when ordering a just and equitable apportionment under the Civil Liability (Contribution) Act 1978.

The House of Lords considered contribution claims after a large fraud in which the claimant, Dubai Aluminium Co Ltd, paid about US$50m under sham agreements. A partner in a solicitors' firm (Amhurst) was alleged to have dishonestly assisted the fraud. His firm settled for $10m and sought contribution from principal wrongdoers. The Court of Appeal held the firm not vicariously liable. The House of Lords allowed the firm's appeal. The central questions were (a) the scope of s.10 Partnership Act 1890 for equitable wrongs, (b) the meaning of "acting in the ordinary course of the business", and (c) how s.2 Civil Liability (Contribution) Act 1978 allows consideration of undisgorged profits when apportioning contribution.

(1) Appeal allowed; the order of Rix J restoring the firm's entitlement to contribution was restored and the Court of Appeal's decision set aside. (Disposition: Amhurst firm succeeds; cross-appeals dismissed.)

(2) Section 10 Partnership Act 1890 is not confined to common-law torts. Its phrase "any wrongful act or omission" embraces fault-based equitable wrongs such as dishonest assistance in breach of fiduciary duty. The statute's language and context support this reading (see paras [7]–[12]; [103]–[111]).

(3) "Acting in the ordinary course of the business" is a legal conclusion based on primary facts. The decisive question is whether the wrongful act was so closely connected with acts the partner was authorised to do that it may fairly and properly be regarded as done in the ordinary course of the firm's business. This is a value judgment guided by policy considerations and precedent (the "close connection" test) (see paras [17]–[26]; [23]; [115]–[131]).

(4) Dishonest conduct may fall within the ordinary course of business if the wrongful act is closely connected to authorised acts (examples and authorities discussed). The mere fact of dishonesty or some additional unauthorised acts does not automatically exclude vicarious liability (see paras [30]–[36]; [120]–[126]; [130]).

(5) On the assumed pleaded facts (by virtue of s.1(4) Civil Liability (Contribution) Act 1978) the drafting of the sham agreements was an act of the kind the firm authorised partners to do. The firm therefore was vicariously liable and entitled to contribution (see paras [34]–[39]; [116]).

(6) In contribution proceedings under s.2(1) Civil Liability (Contribution) Act 1978 the court must order what is "just and equitable having regard to the extent of that person's responsibility for the damage". The court may take account of undisgorged proceeds held by co-defendants and the financial consequences of prior settlements when deciding a just allocation. It is proper to have regard to net receipts and to protect a settling innocent party from being left out of pocket (see paras [43]–[55]; [50]–[54]; [162]–[167]).

(7) An employer or firm vicariously liable stands in the shoes of the wrongdoer for contribution purposes. The employer's personal innocence is not a ground for reducing the contribution recoverable from other wrongdoers; apportionment should reflect responsibility for the damage, not the employer's personal blameworthiness (see paras [43]–[49]; [153]–[161]).

(8) Applying these principles to the pleaded facts, the House restored the trial judge's order that the Amhurst firm recover a full indemnity from Mr Salaam and Mr Al-Tajir in respect of the $10m settlement and dismissed the appellants' cross-appeals. Costs and ancillary directions follow the order (see paras [55]–[64]; [169]).

• House of Lords: Appeal allowed; order of Rix J restored. [2002] UKHL 48
• Court of Appeal (England and Wales): Appeal allowed; held firm not vicariously liable. [2001] 1 QB 113
• Commercial Court (trial judge): Found dishonest participation and ordered contributions. Judgment reported at [1999] 1 Lloyd's Rep 415