Frederick & Ors v Positive Financial Solutions (Financial Services) Ltd

Vicarious liability may arise in an agency relationship where the wrongful conduct is sufficiently closely connected with the class of acts which the agent was authorised to perform. Dishonesty, action for the agent’s own benefit, lack of direct contact with the claimant, and absence of actual authority do not necessarily prevent liability. The court must make an evaluative judgment focused on the connection between the agency and the wrongdoing, including the status and facilities which the principal provided.

A separate direct duty of care will not ordinarily be imposed where the alleged duty covers the same ground as the developed law of vicarious liability and there is no sufficient proximity. Ostensible authority requires a holding out by the principal and reliance upon it.

The claimants sought compensation for losses allegedly caused by dishonest mortgage applications made by Mr Warren, an agent of the defendant, Positive Financial Solutions. The applications enabled funds to be raised and diverted to a property development associated with Mr Warren and Mr Qureshi.

The defendant applied to strike out the claim or obtain summary judgment. The issues included vicarious liability for Mr Warren’s conduct, ostensible authority, a direct duty of care, and statutory damages under section 150 of the Financial Services and Markets Act 2000.

1. Vicarious liability. The claim was not suitable for strike-out or summary judgment. An agency relationship does not exclude vicarious liability. The governing question is whether there is a sufficiently close connection between the wrongdoing and the class of acts which the agent was authorised to perform, so that the risk of loss should fairly be borne by the business which created the relevant position and risk.
2. The fact that Mr Warren acted dishonestly, outside his actual authority and substantially for his own purposes did not determine the issue. He used the status, authority and electronic portal provided by Positive Solutions to do the very type of work he was authorised to undertake. The commission received by Positive Solutions and the indemnity provisions in the agency agreement were further indicators of the connection.
3. The absence of contact between the claimants and Positive Solutions was not decisive. Nor was it decisive that the ultimate purpose was Mr Warren’s separate property-development business. The case was materially different from one in which the wrongdoing was wholly extraneous to the defendant’s business or amounted to moonlighting.
4. Ostensible authority and direct liability. The Financial Services Register entry did not amount to a holding out that Mr Warren was authorised to make these applications, and the claimants had not relied upon it as such. The electronically generated statement in the mortgage offers came from the lender and arose after the applications. No direct liability based on agency or ostensible authority was therefore sustainable.
5. Statutory damages and direct duty. The section 150 claim was struck out. The proposed direct duty of care was also unsustainable. Applying the three-stage approach of foreseeability, proximity, and whether it was fair, just and reasonable to impose a duty, the alleged duty was too wide and unsupported by an incremental extension of an established duty. The developed law of vicarious liability already addressed the risk created by an agent’s abuse of position. The pleadings were to be amended so that the claim proceeded only on vicarious responsibility.